**Table of Contents**

** **

 

** **

**UNITEDSTATESSECURITIES 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 March 31, 2009**                                                                                                           |
|                                                                                                                                                              |                                                                                                    |
| **or**                                                                                                                                                            |
|                                                                                                                                                              |                                                                                                    |
| **o**                                                                                                                                                             | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                              |                                                                                                    |
| **For the transition period from             to            ** |

 

**Commission File Number 333-103781**

 

**ProUroCare Medical Inc.**

(Exact name of registrantas specified in its charter)

 

| **Nevada**                                                       | ** ** | **20-1212923**                     |
|------------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) |       | (IRS Employer  Identification No.) |

 

**6440 Flying Cloud Drive, Suite 101**

**Eden Prairie, MN  55344**

(Address of principalexecutive offices, and Zip Code)

 

**(952) 476-9093**

(Registrant’s telephonenumber, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  YES x   NO o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).   YES o   NO o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large  accelerated filer o |   | Accelerated  filer o         |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated filer o    |   | Smaller reporting  company x |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). YES o  NO x

 

The registrant has9,377,415 shares of common stock outstanding as of May 2, 2009.

 

 

 

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Tableof Contents

 

**ProUroCareMedical Inc.**

**Form 10-Qfor the**

**QuarterEnded March 31, 2009**

** **

**Table ofContents**

 
| ** **                           | ** **                                                                                  | **Page No.** |
|--------------------------------------|---------------------------------------------------------------------------------------------|-------------------|
|                                 |                                                                                        |              |
| PART I - FINANCIAL  INFORMATION |                                                                                        | [1]               |
|                                 |                                                                                        |              |   |
| ITEM 1.                              | FINANCIAL  STATEMENTS                                                                       |              |   |
|                                 |                                                                                        |              |   |
|                                 | Condensed Consolidated Balance Sheets                                                       |              | [1] |
|                                 |                                                                                        |              |   |
|                                 | Consolidated Statements of Operations                                                       |              | [2] |
|                                 |                                                                                        |              |   |
|                                 | Consolidated Statements of Cash Flows                                                       |              | [3] |
|                                 |                                                                                        |              |   |
|                                 | Notes to Consolidated Financial Statements                                                  |              | [6] |
|                                 |                                                                                        |              |   |
| ITEM 2.                              | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |              | [17] |
|                                 |                                                                                        |              |   |
| ITEM 4T.                             | CONTROLS AND  PROCEDURES                                                                    |              | [22] |
|                                 |                                                                                        |              |   |
| PART II - OTHER INFORMATION     |                                                                                        | [23]              |
|                                 |                                                                                        |              |   |
| ITEM 1A.                             | RISK FACTORS                                                                                |              | [23] |
|                                 |                                                                                        |              |   |
| ITEM 2.                              | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                |              | [24] |
|                                 |                                                                                        |              |   |
| ITEM 5.                              | OTHER  INFORMATION                                                                          |              | [25] |
|                                 |                                                                                        |              |   |
| ITEM  6.                             | EXHIBITS                                                                                    |              | [25] |
|                                 |                                                                                        |              |   |
| SIGNATURES                           |                                                                                        | [26]              |

 

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Tableof Contents

 

**PART I.FINANCIAL INFORMATION**

** **

***Item 1. Financial Statements***

*** ***

**ProUroCare Medical Inc.**

**(A Development Stage Company)**

**Condensed Consolidated Balance Sheets**

 
| ** **                                                                                                                                                                         | ** ** | **March 31,  2009** | ** ** | **December 31,  2008******* | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                                         | ** ** | **(Unaudited)**          | ** ** | ** **                       | ** ** |
| **Assets**                                                                                                                                                                         | ** ** | ** **               | ** ** | ** **                       | ** ** |
| Current assets:                                                                                                                                                                    |       |                     |       |                             |       |
| Cash                                                                                                                                                                               |       | $                        | 263,523    |                             | $          | 3,900 |   |
| Other current assets                                                                                                                                                               |       | 23,856                   |       | 75,848                           |       |
| Total current  assets                                                                                                                                                              |       | 287,379                  |       | 79,748                           |       |
| Equipment and  furniture, net                                                                                                                                                      |       | 545                      |       | —                           |       |
| Other assets                                                                                                                                                                       |       | 64,349                   |       | 996,806                          |       |
|                                                                                                                                                                               |       | $                        | 352,273    |                             | $          | 1,076,554 |   |
| **Liabilities and Shareholders’ Deficit**                                                                                                                                     |       |                     |       |                             |       |
| Current  liabilities:                                                                                                                                                              |       |                     |       |                             |       |
| Accounts and  notes payable                                                                                                                                                        |       | 2,811,636                |       | 5,685,371                        |       |
| Other  liabilities                                                                                                                                                                 |       | 347,466                  |       | 2,265,088                        |       |
| Total current  liabilities                                                                                                                                                         |       | 3,159,102                |       | 7,950,459                        |       |
|                                                                                                                                                                               |       |                     |       |                             |       |
| Commitments and  contingencies                                                                                                                                                     |       |                     |       |                             |       |
| Long-term  convertible debt, net of original issue discount                                                                                                                        |       | —                   |       | 221,199                          |       |
| Long-term convertible  debt - related parties net of original issue discount                                                                                                       |       | —                   |       | 162,759                          |       |
| Total  liabilities                                                                                                                                                                 |       | 3,159,102                |       | 8,334,417                        |       |
| Shareholders’  deficit:                                                                                                                                                       |       |                     |       |                             |       |
| Common stock,  $0.00001 par. Authorized 50,000,000 shares; issued and outstanding 9,350,049  and 1,811,429 shares on March 31, 2009 and December 31, 2008,  respectively |       | 94                       |       | 18                               |       |
| Additional  paid-in capital                                                                                                                                                        |       | 19,868,257               |       | 13,677,932                       |       |
| Deficit  accumulated during development stage                                                                                                                                      |       | (22,675,180              | )          | (20,935,813                      | )          |
| Total  shareholders’ deficit                                                                                                                                                  |       | (2,806,829               | )          | (7,257,863                       | )          |
|                                                                                                                                                                               |       | $                        | 352,273    |                             | $          | 1,076,554 |   |

 

----

*** The Balance Sheet as of December 31,2008 has been derived from the audited financial statements at that date.

 

*See accompanying notes to consolidated financialstatements.*

 

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**ProUroCare Medical Inc.**

**(A Development Stage Company)**

**Consolidated Statementsof Operations**

(Unaudited)

 
| ** **                                      | ** ** | **Three Months Ended  March 31** | ** ** | **Period from  August 17,1999  (Inception) to** | ** ** |
|-------------------------------------------------|------------|---------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                      | ** ** | **2009**                              | ** ** | **2008**                                             | ** ** | **March 31, 2009** | ** ** |
| Operating  expenses:                            |       |                                  |       |                                                 |       |   |   |
| Research and  development                       |       | $                                     | 100,000    |                                                 | $          | — |   | $ | 5,555,307 |   |
| General and  administrative                     |       | 425,517                               |       | 246,162                                              |       | 10,256,690 |   |
| Total operating  expenses                       |       | 525,517                               |       | 246,162                                              |       | 15,811,997 |   |
| Operating loss                                  |       | (525,517                              | )          | (246,162                                             | )          | (15,811,997 | ) |
| Interest income                                 |       | 21                                    |       | 253                                                  |       | 18,316 |   |
| Interest expense                                |       | (1,047,523                            | )          | (389,309                                             | )          | (6,209,990 | ) |
| Debt  extinguishment expense                    |       | (166,348                              | )          | (25,340                                              | )          | (671,509 | ) |
| Net loss                                        |       | $                                     | (1,739,367 | )                                                    | $          | (660,558 | ) | $ | (22,675,180 | ) |
|                                            |       |                                  |       |                                                 |       |   |   |
| Net loss per  common share:                     |       |                                  |       |                                                 |       |   |   |
| Basic and  diluted                              |       | $                                     | (0.22      | )                                                    | $          | (0.38 | ) | $ | (18.50 | ) |
|                                            |       |                                  |       |                                                 |       |   |   |
| Weighted average  number of shares outstanding: |       |                                  |       |                                                 |       |   |   |
| Basic and  diluted                              |       | 8,072,096                             |       | 1,727,331                                            |       | 1,225,483 |   |

 

***See accompanying notes toconsolidated financial statements.***

 

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**ProUroCare Medical Inc.**

**(A Development Stage Company)**

**Consolidated Statementsof Cash Flows**

**(Unaudited)**

 
| ** **                                                                                                              | ** ** | **Three Months Ended  March 31** | ** ** | **Period from August  17, 1999 (inception) to** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2009**                              | ** ** | **2008**                                        | ** ** | **March 31, 2009** | ** ** |
| Cash flows from  operating activities:                                                                                  |       |                                  |       |                                            |       |   |   |
| Net loss                                                                                                                |       | $                                     | (1,739,367 | )                                               | $          | (660,558 | ) | $ | (22,675,180 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:                                            |       |                                  |       |                                            |       |   |   |
| Depreciation and  amortization                                                                                          |       | 16                                    |       | 153                                             |       | 20,813 |   |
| Gain on sale of  furniture and equipment                                                                                |       | —                                |       | —                                          |       | (2,200 | ) |
| Stock-based  compensation                                                                                               |       | 148,706                               |       | 30,156                                          |       | 1,913,053 |   |
| Common stock  issued for services rendered                                                                              |       | —                                |       | —                                          |       | 207,371 |   |
| Common stock  issued for debt guarantees                                                                                |       | —                                |       | —                                          |       | 106,667 |   |
| Common stock  issued for debt issuance cost                                                                             |       | —                                |       | —                                          |       | 6,667 |   |
| Common stock  issued for debt extinguishment                                                                            |       | 33,333                                |       | —                                          |       | 33,333 |   |
| Notes payable  issued for intangibles expensed as research and development                                              |       | —                                |       | —                                          |       | 150,000 |   |
| Warrants issued  for services                                                                                           |       | —                                |       | —                                          |       | 540,636 |   |
| Warrants issued  for debt guarantees                                                                                    |       | —                                |       | —                                          |       | 355,197 |   |
| Warrants issued  for debt extinguishment                                                                                |       | 607                                   |       | 25,340                                          |       | 360,007 |   |
| Warrants issued  for debt extinguishment-related parties                                                                |       | —                                |       | —                                          |       | 26,828 |   |
| Warrants issued  for debt issuance cost                                                                                 |       | —                                |       | —                                          |       | 12,834 |   |
| Amortization of  note payable-related parties original issue discount                                                   |       | 2,720                                 |       | 12,904                                          |       | 142,964 |   |
| Amortization of  convertible debt-original issue discount                                                               |       | 507,902                               |       | 77,663                                          |       | 1,146,587 |   |
| Amortization of  convertible debt-related parties original issue discount                                               |       | 325,709                               |       | 112,057                                         |       | 1,075,513 |   |
| Amortization of  debt issuance costs                                                                                    |       | 269,200                               |       | 91,518                                          |       | 1,974,933 |   |
| Bargain  conversion option added to note payable-related parties for debt  extinguishment                               |       | —                                |       | —                                          |       | 48,214 |   |
| Write-off debt  issuance cost for debt extinguishment                                                                   |       | —                                |       | —                                          |       | 42,797 |   |
| Write-off of  deferred offering cost                                                                                    |       | —                                |       | —                                          |       | 59,696 |   |
| License rights  expensed as research and development, paid by issuance of common stock to CS  Medical Technologies, LLC |       | —                                |       | —                                          |       | 475,000 |   |
| License rights  expensed as research and development, paid by issuance of common stock to  Profile, LLC                 |       | —                                |       | —                                          |       | 1,713,600 |   |
| Changes in  operating assets and liabilities:                                                                           |       |                                  |       |                                            |       |   |   |
| Other current assets                                                                                                    |       | 7,778                                 |       | 4,190                                           |       | (47,884 | ) |
| Accounts payable                                                                                                        |       | (147,776                              | )          | 30,142                                          |       | 782,058 |   |
| Other  liabilities                                                                                                      |       | (1,002,792                            | )          | (155,864                                        | )          | 1,464,839 |   |
| Net cash used in  operating activities                                                                                  |       | (1,593,964                            | )          | (432,299                                        | )          | (9,913,410 | ) |
| Cash flows from  investing activities:                                                                                  |       |                                  |       |                                            |       |   |   |
| Purchases of  equipment and furniture                                                                                   |       | (561                                  | )          | —                                          |       | (21,358 | ) |
| Net cash used in  investing activities                                                                                  |       | (561                                  | )          | —                                          |       | (21,358 | ) |
|                                                                                                                         |            |                                       |            |                                                 |            |  |  |  |  |  |

 

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**ProUroCareMedical Inc.**

**(A Development Stage Company)**

**Consolidated Statements of Cash Flows (continued)**

**(Unaudited)**

 
| ** **                                                                | ** ** | **Three Months Ended  March 31** | ** ** | **Period from August   17, 1999 (Inception) to** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2009**                              | ** ** | **2008**                                              | ** ** | **March 31, 2009** | ** ** |
| Cash flows from  financing activities:                                    |       |                                  |       |                                                  |       |   |   |
| Proceeds of note  payable, bank                                           |       | —                                |       | —                                                |       | 500,000 |   |
| Payments of note  payable, bank                                           |       | (400,000                              | )          | —                                                |       | (900,000 | ) |
| Proceeds of  notes payable                                                |       | —                                |       | —                                                |       | 340,500 |   |
| Payment of notes  payable                                                 |       | (73,642                               | )          | (153,793                                              | )          | (1,444,160 | ) |
| Proceeds of  notes payable - related parties                              |       | 67,638                                |       | —                                                |       | 627,738 |   |
| Payments of  notes payable - related parties                              |       | (34,000                               | )          | (74,250                                               | )          | (237,300 | ) |
| Proceeds from  long-term notes payable and bank debt                      |       | —                                |       | 437,000                                               |       | 3,807,337 |   |
| Proceeds from  long-term notes payable, related parties                   |       | —                                |       | 9,500                                                 |       | 1,120,500 |   |
| Payments on  long-term bank debt                                          |       | —                                |       | —                                                |       | (600,000 | ) |
| Proceeds from  warrants                                                   |       | —                                |       | 23,500                                                |       | 104,500 |   |
| Payments for  debt issuance costs                                         |       | —                                |       | (76,558                                               | )          | (673,437 | ) |
| Payment for  rescission of common stock                                   |       | —                                |       | —                                                |       | (100,000 | ) |
| Payments for  deferred offering expenses                                  |       | (363,662                              | )          | —                                                |       | (480,969 | ) |
| Cost of reverse  merger                                                   |       | —                                |       | —                                                |       | (162,556 | ) |
| Net proceeds  from issuance of common stock                               |       | 2,613,600                             |       | —                                                |       | 8,296,138 |   |
| Net cash  provided by financing activities                                |       | 1,809,934                             |       | 165,399                                               |       | 10,198,291 |   |
| Net increase  (decrease) in cash                                          |       | 215,409                               |       | (266,900                                              | )          | 263,523 |   |
| Cash, beginning  of the period                                            |       | 48,114                                |       | 400,613                                               |       | — |   |
| Cash, end of the  period                                                  |       | $                                     | 263,523    |                                                  | $          | 133,713 |   | $ | 263,523 |   |
|                                                                      |       |                                  |       |                                                  |       |   |   |
| Supplemental  cash flow information:                                      |       |                                  |       |                                                  |       |   |   |
| Cash paid for  interest                                                   |       | $                                     | 53,550     |                                                  | $          | 44,236 |   | $ | 769,959 |   |
| Non-cash  investing and financing activities:                             |       |                                  |       |                                                  |       |   |   |
| Deferred  offering costs included in accounts payable                     |       | (200,508                              | )          | 70,104                                                |       | 370,936 |   |
| Deferred  offering costs included in accrued expenses                     |       | (70,000                               | )          | (12,321                                               | )          | — |   |
| Debt issuance  costs included in accounts payable                         |       | —                                |       | 25,421                                                |       | 114,156 |   |
| Warrants issued  pursuant to notes payable                                |       | 3,327                                 |       | 12,904                                                |       | 467,191 |   |
| Warrants issued  for debt issuance costs                                  |       | —                                |       | —                                                |       | 298,021 |   |
| Prepaid expenses  financed by note payable                                |       | —                                |       | —                                                |       | 165,526 |   |
| Convertible debt  issued in lieu of cash for accrued expenses             |       | —                                |       | —                                                |       | 31,413 |   |
| Common stock  issued in lieu of cash for accrued expenses                 |       | —                                |       | —                                                |       | 238,803 |   |
| Common stock  issued in lieu of cash for accrued development cost         |       | 500,000                               |       | —                                                |       | 500,000 |   |
| Common stock  issued for debt issuance cost                               |       | 66,667                                |       | —                                                |       | 231,501 |   |
| Warrants issued  in lieu of cash for accrued expenses                     |       | —                                |       | —                                                |       | 1,250 |   |
| Conversion of  notes payable, related parties into convertible debentures |       | —                                |       | —                                                |       | 200,000 |   |

 

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**ProUroCareMedical Inc.**

**(A Development Stage Company)**

**Consolidated Statements of Cash Flows (continued)**

**(Unaudited)**

 
| ** **                                                                                                                                                                               | ** ** | **Three Months Ended  March 31** | ** ** | **Period from August  17, 1999 (Inception) to** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                                               | ** ** | **2009**                              | ** ** | **2008**                                        | ** ** | **March 31, 2009** | ** ** |
| Common stock  issued in lieu of cash for accounts payable                                                                                                                                |       | —                                |       | —                                          |       | 122,291 |   |
| Common stock  issued in lieu of cash for notes payable-related parties                                                                                                                   |       | —                                |       | —                                          |       | 10,300 |   |
| Convertible debt  issued as debt issuance costs related to guarantee of long-term debt  (recorded as a beneficial conversion in additional paid-in capital) applied  to accounts payable |       | —                                |       | —                                          |       | 733,334 |   |
| Issuance of note  payable for redemption of common stock                                                                                                                                 |       | —                                |       | —                                          |       | 650,000 |   |
| Conversion of  accounts payable to note payable                                                                                                                                          |       | 12,293                                |       | —                                          |       | 253,906 |   |
| Conversion of  accrued expenses to note payable                                                                                                                                          |       | 13,569                                |       | —                                          |       | 13,569 |   |
| Deposits applied  to note payable and accrued interest                                                                                                                                   |       | —                                |       | —                                          |       | 142,696 |   |
| Deposits applied  to accounts payable                                                                                                                                                    |       | —                                |       | —                                          |       | 45,782 |   |
| Assumption of  liabilities in the Profile, LLC transaction                                                                                                                               |       | —                                |       | —                                          |       | 25,000 |   |
| Proceeds from  sale of furniture and equipment                                                                                                                                           |       | —                                |       | —                                          |       | 2,200 |   |
| Deposits applied  to accrued expenses                                                                                                                                                    |       | —                                |       | —                                          |       | 1,076 |   |
| Deferred  offering costs offset against gross proceeds of offering                                                                                                                       |       | 823,078                               |       | —                                          |       | 823,078 |   |
| Conversion of  convertible debt to units (see Note 2)                                                                                                                                    |       | 1,638,750                             |       | —                                          |       | 1,638,750 |   |
| Conversion of  convertible debt-related parties to units (see Note 2)                                                                                                                    |       | 1,323,334                             |       | —                                          |       | 1,323,334 |   |
| Conversion of  accrued expenses to units (see Note 2)                                                                                                                                    |       | 331,261                               |       | —                                          |       | 331,261 |   |

 

*See accompanying notes to consolidated financialstatements.*

 

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**ProUroCareMedical Inc.**

**(A Development StageCompany)**

**Notesto Consolidated Financial Statements**

** **

**March 31, 2009 and2008 and the period from**

**August 17, 1999 (Inception)to March 31, 2009**

 

(Unaudited)

 

**(1)  Description of Business and Summary ofSignificant Accounting Policies.**

** **

***(a)***                     Description of Business,Development Stage Activities

*** ***

ProUroCare Medical Inc. (“ProUroCare,”the “Company,” “we” or “us”) is a development stage company engaged in thebusiness of developing for market innovative products for the detection andcharacterization of male urological prostate disease.  The primary focus of the Company is currentlythe prostate mechanical imaging system, designed for use as an aid to thephysician in visualizing and documenting tissue abnormalities in the prostatethat have been previously detected by a digital rectal exam.  The Company’s developmental activities,conducted by its wholly owned operating subsidiary ProUroCare Inc. (“PUC”),have included the acquisition of several technology licenses, the purchase ofintellectual property, the development of a strategic business plan and asenior management team, product development and fund raising activities.

 

PUC had no activities fromits incorporation in August 1999 until July 2001, when it acquired alicense to certain microwave technology from CS Medical Technologies, LLC (“CSMedical”).  In January 2002, PUCacquired a license to certain prostate imaging technology from Profile, LLC (“Profile”).

 

Pursuant to a mergeragreement effective April 5, 2004 (the “Merger”), PUC became a whollyowned operating subsidiary of Global Internet Communications, Inc. (“Global”),which changed its name to ProUroCare Medical Inc. on April 26, 2004.  In connection with the Merger, the Companycompleted a private placement of 220,500 shares, as adjusted for the ReverseSplit (as defined below), of common stock (the “2004 Private Placement”)pursuant to Rule 506 under the Securities Act of 1933, as amended (the “SecuritiesAct”).

 

On December 27, 2007, the Company’s shareholdersapproved a one-for-ten reverse split of the Company’s common stock without a corresponding reduction in thenumber of authorized shares of the Company capital stock (the “Reverse Split”).  The Reverse Split became effective on February 14,2008.  The exercise price and the numberof shares of common stock issuable under the Company’s outstanding convertibledebentures, options and warrants were proportionately adjusted to reflect theReverse Split for all periods presented.

 

OnJanuary 12, 2009, the Company closed a public offering of 3,050,000 unitsat $1.00 per unit (the “2009 Public Offering”) (see Note 2).  Each unit sold (the “2009 Units”) consistedof one share of common stock and one redeemable warrant to purchase one shareof common stock at an exercise price of $1.30 per share.

 

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***(b)***                     Basis of Presentation

*** ***

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States and pursuant to the rules and regulations of theSecurities and Exchange Commission (the “SEC”) for interim financialinformation.  Accordingly, certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States have been omitted pursuant to such rules and regulations,although the Company believes that the disclosures made are adequate to makethe information not misleading. Operating results for the three months ended March 31, 2009 are notnecessarily indicative of the results that may be expected for the year ending December 31,2009 or any other period.  Theaccompanying financial statements and related notes should be read inconjunction with the audited financial statements of the Company, and notesthereto, contained in our Annual Report on Form 10-K for the year ended December 31,2008.

 

***The accompanying condensedconsolidated financial statements include the accounts of the Company and itswholly owned subsidiary, PUC.  Significantintercompany accounts and transactions have been eliminated inconsolidation.  Certain comparativefigures have been reclassified to conform to the financial statementpresentation adopted in the current year, including the reclassification of transactionswith related parties.  The financialinformation furnished reflects, in the opinion of management, all adjustments,consisting of normal recurring accruals, necessary for a fair presentation ofthe results of the interim periods presented.***

*** ***

***(c)***                      Net Loss Per Common Share

*** ***

Basicand diluted loss per common share is computed by dividing net loss by theweighted-average number of common shares outstanding for the reportingperiod.  Dilutive common-equivalentshares have not been included in the computation of diluted net loss per sharebecause their inclusion would be antidilutive. Antidilutive common equivalent shares issuable based on future exerciseof stock options or warrants could potentially dilute basic loss per commonshare in subsequent years.  All optionsand warrants outstanding were anti-dilutive for the three months ended March 31,2009 and 2008, and the period from August 17, 1999 (inception) to March 31,2009 due to the Company’s net losses. 8,747,442 and 1,160,748 shares of common stock issuable under stockoptions, warrants, convertible debentures and contingent shares and warrantsissuable under agreements with loan guarantors were excluded from thecomputation of diluted net loss per common share for the three months ended March 31,2009 and 2008, respectively.

 

Alsoexcluded for the three months ended March 31, 2008 were the undeterminednumber of shares issuable pursuant to the convertible notes and warrants issuedin connection with our private placements, whose terms of conversion were basedon the price of the equity securities offered in the Company’s publicoffering.  The number of such shares wasdetermined on the January 7, 2009 effective date of the 2009 PublicOffering to be 2,318,215 shares.

 

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***(d)***                     Stock-Based Compensation

*** ***

Effective August 17,1999, the Company adopted the fair value recognition provisions of Statement ofFinancial Accounting Standards (“SFAS”) No. 123 “Accounting forStock-Based Compensation”**(“SFAS 123”)** to record option and warrant issuances,including stock-based employee compensation. The Company’s policy is to grant stock options at fair value at the dateof grant, and to record the expense at fair value as required by SFAS 123,using the Black-Scholes pricing model.

 

Effective January 1, 2006, the Company adopted SFAS No. 123(revised 2004) “**Share-BasedPayment”**(“SFAS 123R”), that focuses primarily onaccounting for transactions in which an entity obtains employee services inshare-based payment transactions.  Thisstatement replaced SFAS 123, and supersedes Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees.”  SFAS 123R requires all companies to expensethe fair value of employee stock options and similar awards, which has been theCompany’s policy to date.  Stock-basedemployee and non-employee compensation cost related to stock options andwarrants was $148,706, $15,656 and $2,453,689 for the three months ended March 31,2009 and 2008, and the period from August 17, 1999 (inception) to March 31,2009, respectively, or $0.02, $0.01, and $2.00 on a per share basis.  The Company estimates the amount of futurestock-based compensation expense related to currently outstanding options to beapproximately $175,000, $24,000 and $12,000 for the years ending December 31,2009, 2010 and 2011, respectively.  TheCompany recognizes the expense related to the fair value of the award on astraight-line basis over the vesting period.

 

The Black-Scholesoption-pricing model was developed for use in estimating the fair value oftraded options that have no vesting restrictions and are fully transferable. Inaddition, option pricing models require the input of highly subjectiveassumptions. Because the Company’s employee and consultant stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, the existing models may not necessarily provide a reliablesingle measure of the fair value of the Company’s employee stock options.

 

No stock options were issuedin the three months ended March 31, 2008. In determining the compensation cost of the options and warrants grantedduring the three months ended March 31, 2009, as specified by SFAS 123R,the fair value of each option grant has been estimated on the date of grantusing the Black-Scholes pricing model and the weighted-average assumptions usedin these calculations are summarized as follows:

 
| ** **                        | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------|------------|---------------------------------------|------------|
| ** **                        | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| Risk-free  Interest Rate          |       | 2.98                                  | %          | n/a |   |
| Expected Life of  Options Granted |       | 3.85 years                            |       | n/a |   |
| Expected  Volatility              |       | 130.6                                 | %          | n/a |   |
| Expected  Dividend Yield          |       | 0                                     |       | n/a |   |

 

The expected life of the options is determined using asimplified method, computed as the average of the option vesting periods andthe contractual term of the option.  Forperformance based options that vest upon the occurrence of an event, theCompany uses an estimate of when the event will occur as the vesting periodused in the Black-Scholes calculation for each option grant.  Expected volatility is based on a simpleaverage of weekly 

 

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price data since the date of the Merger.  Based on the lack of history to calculate aforfeiture rate, the Company has not adjusted the calculated value of theoptions.  The risk-free rates for theexpected terms of the stock options and awards are based on the U.S. Treasuryyield curve in effect at the time of grant.

 

***(e)***                      Warrants

*** ***

In accordance with Emerging Issues Task Force (“EITF”) Issue No. 96-18,“Accounting for Equity Instruments that are Issued to Other than Employees forAcquiring, or in Conjunction with Selling, Goods and Services” (“EITF 96-18”)and EITF Issue No. 98-5, “Accounting for Convertible Securities withBeneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF98-5”), the Company has elected to utilize the fair-value method of accountingfor warrants issued to non-employees as consideration for goods or servicesreceived, including warrants issued to lenders and guarantors of Company debt. On January 4, 2008, pursuant to a finalseparation agreement with a former employee, the Company issued to the formeremployee five-year, immediately exercisable warrants to acquire up to 14,500shares of the Company’s common stock at an exercise price of $5.00 pershare.  The fair value of thewarrants was estimated at $1.00 per share using the Black-Scholes pricing modelresulting in expense of $14,500 for the three months ended March 31,2008.  No other warrants were grantedduring the three months ended March 31, 2008.  Excluding warrants issued as a component ofthe units sold in the 2009 Public Offering, no warrants were granted during thethree months ended March 31, 2009.

 

The fair value of stockwarrants is the estimated present value at grant date using the Black-Scholespricing model with the following weighted average assumptions:

 
| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|
| ** **                           | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Risk-free  Interest Rate             |       | n/a                                    |       | 3.74 | % |
| Expected Life of  Warrants Issued(1) |       | n/a                                    |       | 5 years |   |
| Expected  Volatility                 |       | n/a                                    |       | 125.8 | % |
| Expected  Dividend Yield             |       | n/a                                    |       | 0 |   |

 

----

(1) The contractual term of thewarrants.

 

The expected volatility is based on a simple average ofweekly price data since the date of the Merger. Based on the lack of history to calculate a forfeiture rate, the Companyhas not adjusted the calculated value of the warrants.  The risk-free rates for the expected terms ofthe stock warrants are based on the U.S. Treasury yield curve in effect at thetime of grants.

 

***(f)***                      Other assets

*** ***

Other assets consist ofdeferred offering costs and debt issuance costs.

 

Thelegal, accounting, printing and certain other expenses directly related to the2009 Public Offering that became effective on January 7, 2009 wererecorded as a deferred offering cost asset as of December 31, 2008.  The deferred offering costs were recorded asa cost of the offering and a reduction of additional paid-in capital upon itsclosing on January 12, 2009.

 

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Unamortized debt issuancecosts at December 31, 2008 totaling $266,882, consisting of legal and accounting fees, printing costs andcommissions paid to theplacement agents relatedto the Company’s 2007 and 2008 private placements and the 2008 unit putarrangement, were expensed as interest expense upon the conversion of therelated debt following the closing of the Company’s 2009 Public Offering (seeNote 2).

 

***On March 19, 2009, pursuant toguaranties received relating to the Company’s renewal of its $1,200,000 CrownBank promissory note, the Company issued an aggregate 133,334 shares of itscommon stock***asconsideration to the guarantors (see Note 3). The $66,667 value of the shares on the issuance date was recorded asdebt issuance cost and is being amortized on a straight-line basis through August 31,2009.

*** ***

***Other assets are summarized asfollows:***

 
| ** **                  | ** ** | **March 31, 2009** | ** ** | **December 31,  2008** | ** ** |
|-----------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Deferred  offering costs    |       | $                       | —     |                        | $          | 729,924 |   |
| Debt issuance  costs, gross |       | 66,667                  |       | 701,238                     |       |
| Less  amortization          |       | (2,318                  | )          | (434,356                    | )          |
|                        |       |                    |       |                        |       |
| Other assets                |       | $                       | 64,349     |                        | $          | 996,806 |   |

 

Amortizationexpense related to debt issuance costs was $269,200, $91,518, and $1,974,933for the three months ended March 31, 2009 and 2008, and the period from August 17,1999 (inception) to March 31, 2009, respectively.

 

***(g)***                   Restricted Cash

*** ***

Pursuant to the 2007 renewalof the Crown Bank promissory notes, the Company agreed to deposit with CrownBank four months worth of future interest payments due under the notes.    On March 19, 2009, pursuant to therenewal of a Crown Bank promissory note, this restriction was removed.

 

***(h)****                  **Going Concern*

** **

We have incurred operating losses, accumulated deficit and negativecash flows from operations since inception. As of March 31, 2009, we had an accumulated deficit ofapproximately $22,675,000.  Thesefactors, among others, raise substantial doubt about our ability to continue asa going concern.  The accompanyingunaudited consolidated financial statements do not include any adjustmentsrelated to recoverability and classification of asset carrying amounts or theamount and classification of liabilities that might result should we be unableto continue as a going concern.

 

**Note 2.  2009 Public Offering; Automatic Conversion ofConvertible Debt.**

** **

**On January 7,2009, the Company’s 2009 Public Offering was declared effective by the SEC, andon January 12, 2009 the 2009 Public Offering was closed.  In the offering, the Company sold 3,050,000of 2009 Units at $1.00 per unit resulting in net cash received of $1,790,442,after costs of $1,259,558.**

 

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**The completion of the 2009 Public Offering triggeredautomatic conversion provisions of several outstanding convertible debtinstruments:**

** **

**·**                  Uponthe January 7, 2009 effective dateof the 2009 Public Offering, $733,334of convertible debentures originally issued asconsideration to guarantors of the Crown Bank loan, alongwith $143,815 interest accrued thereon, converted into 292,384 shares of theCompany’s common stock.  Unamortizedoriginal issue discount relating to the convertible debentures totaling $33,796was expensed as interest expense upon the conversion.

** **

·                  Uponthe January 12, 2009 closing of the 2009 Public Offering, the $1,757,500aggregate amount of promissory notes issued in private debt placements between December 27,2007 and July 30, 2008, along with $162,959 of interest accrued thereon,automatically converted into 2,743,535 units identical to the 2009 Units (basedon 70 percent of the offering price, or $0.70 per share).  Also, the $142,500 promissory note issued toJames Davis, a greater than five percent shareholder of the Company, on December 27,2007, along with $14,923 of interest accrued thereon, automatically convertedinto 314,846 units identical to the 2009 Units (based on 50 percent of theoffering price, or $0.50 per share).  Theclosing of the 2009 Public Offering resolved a contingent conversion feature ofthe promissory notes.  Consequently, thevaluation of the beneficial conversion feature of the promissory notes wasrecalculated, resulting in the recording of a $47,046 increase in the original issuediscount.  Unamortized original issuediscount relating to the warrants and the beneficial conversion feature ofthese notes (including the adjustment resulting from the new valuation)totaling $434,215 and unamortized debt issuance cost of $207,575 was expensedas interest expense upon the conversion.

 

·                  On February 6, 2009 (30 days after theeffective date of the 2009 Public Offering), the $299,250 outstandingpromissory notes issued pursuant to the Company’s unit put arrangement, alongwith the $9,563 interest accrued thereon, automatically converted into 441,165shares of the Company’s common stock. The notes and accrued interest converted at 70 percent of the 2009Public Offering price, or $0.70 per share. The closing of the 2009 Public Offering resolved a contingent conversionfeature of the promissory notes. Consequently, the valuation of the beneficial conversion feature of thepromissory notes was recalculated, resulting in the recording of a $81,059increase in the original issue discount. Unamortized original issue discount relating to the warrants and thebeneficial conversion feature of the notes (including the adjustment resultingfrom the new valuation) totaling $209,879 and unamortized debt issuance cost of$44,686 was expensed as interest expense upon the conversion.

 

**Note 3.  Notes Payable — Bank.**

** **

OnMarch 19, 2009, the Company renewed its $1,200,000 Crown Bank promissorynote, and temporarily paid down its $400,000 Crown Bank promissory note pendingthe Company obtaining a satisfactory guaranty of that amount.  The renewed note matures on March 28,2010 and bears interest at the prime rate plus one percent,****but neverless than 6.00 percent.  No other noteterms were changed.  The note remainscollateralized by all Company assets and guaranteed by James Davis and WilliamReiling, a greater than five percent shareholder of the Company.  The Company issued an aggregate 133,334shares of its common stock asconsideration to the guarantors (see Note 6(a)).

 

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**Note 4.  Notes Payable.**

** **

On January 13, 2009, following theclosing of the 2009 Public Offering, the Company repaid the remaining$9,350 principal amount of the loan from Roman Pauly and issued an immediatelyexercisable five-year warrant to acquire 4,295 shares of the Company’s commonstock at $1.50 per share pursuant to the terms of the note.

 

OnJanuary 22, 2009, the Company repaid the remaining $34,000principal balance of a promissory note due and issued to the Phillips W. SmithFamily Trust (the “Smith Trust”) a five-year, immediately exercisable warrantto acquire 28,656 shares of the Company’s common stock at $5.00 per sharepursuant to the terms of the note.

 

OnMarch 19, 2009, the Company amended the $600,000 Smith Trust promissorynote. Under the terms of the amendment, the note’s maturity date was extendedto March 28, 2010, and the interest rate floor was lowered from 6.50percent to 6.00 percent.  No other termswere changed.

 

**Note 5.  Convertible Notes Payable.**

 

***On April 3, 2008, theCompany borrowed $112,500 pursuant to three promissory notes***that were convertible upon theCompany’s closing of an underwritten public offering at 70 percent of thepublic offering price.  On January 15,2009, the Company repaid $37,500 of the notes to William Reiling.  On January 22, 2009, the Company repaid$8,000 and converted $29,500 of the notes due to the Smith Trust pursuant tothe terms of the note.  On March 19,2009, the remaining $37,500 promissory note, due to James Davis, was refinancedalong with another $150,000 promissory note due to Mr. Davis.

*** ***

On September 25, 2008, theCompany borrowed $150,000 pursuant to a convertible promissory note issued infavor of Mr. Davis.  As the holder’sability to exercise the conversion feature of the note was contingent upon anevent outside the control of the holder, the bargain conversion feature valuedat $103,396 was not recorded until the January 12, 2009 closing of the2009 Public Offering when the contingency was removed. ** **On March 19, 2009, Mr. Davis agreedto refinance the $150,000 debt (and $7,291 of interest accrued thereon) alongwith the $37,500 note discussed above (and $3,646 of accrued interest thereon),another $2,632 payable to Mr. Davis and $12,293 of expenses paid by Mr. Davison behalf of the Company.  Mr. Davisalso agreed to loan to the Company an additional $67,638 to pay for theexhibition of the prostate mechanical imaging system at the annual AmericanUrology Association meeting, the retention of an investor relations firm andthe initiation of a clinical advisory board. He also agreed to have certain website maintenance services performedfor the Company. Pursuant to the refinancing and the other arrangements, theCompany issued a $281,000 unsecured convertible promissory note to Mr. Davis.  The promissory note matures on March 19,2010, bears no interest and is convertible into our common stock at $0.55 pershare at the option of Mr. Davis.  The guidance provided by EITF Issue No. 96-19,“Debtor’s accounting for a modification or exchange of Debt Instruments” (“EITF96-19) indicates that a substantial modification of debt terms should beaccounted for as an extinguishment of debt. As the present value of the cash flows under the new convertiblepromissory note was greater than 10 percent different from the present value ofthe cash flows under the original note, the issuance of the new note will betreated as a debt extinguishment. Accordingly, $113,709 of unamortized original issue discount related tothe original $150,000 note was expensed as debt extinguishment expense and thebargain conversion option of the new note, valued at $123,000 using theBlack-Sholes pricing model, was recorded as original issue discount and isbeing amortized as debt extinguishment expense over the term of the note.

 

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** **

**Note 6.  Shareholders’ Equity.**

** **

***(a)******        ******CommonStock***

 

**On January 7, 2009, upon the effective date ofthe 2009 Public Offering, the Company issued 292,384 shares of common stock tothe guarantors of the Crown Bank loan pursuant to the automatic conversion of$733,334 of convertible debentures and $143,815 interest accrued thereon.**

** **

**On January 12, 2009, the Company issued 3,050,000of 2009 Units pursuant to the closing of the 2009 Public Offering, and3,058,381 units identical to the 2009 Units pursuant to the automaticconversions of convertible debt (see Note 2).**

** **

**On January 15, 2009, the Company issued 454,546shares of common stock to Artann Laboratories Inc. (Artann”) in satisfaction ofa $500,000 liability pursuant to the Artann License Agreement.**

** **

**On January 22, 2009, pursuant to the conversionof $29,500 of the principal balance of a convertible promissory note, theCompany issued 42,143 shares of common stock to the Smith Trust (see Note 5).**

** **

**On February 6, 2009,**the $299,250 outstanding promissory notes issuedpursuant to the Company’s 2008 unit put arrangement, along with the $9,563interest accrued thereon, automatically converted into 441,165 shares of theCompany’s common stock (see Note 2)

** **

**On March 19, 2009, pursuant to the renewal of its$600,000 Smith Trust promissory note, the Company issued 66,667 shares of itscommon stock**as consideration to the Smith Trust, and will issue a further 11,111shares per month for each month the related notes remain outstanding after August 31,2009.  The guidance provided by EITFIssue 96-19 indicates that a substantial modification of debt terms should beaccounted for as an extinguishment of debt. As the present value of the cash flows under the loan renewal wasgreater than 10 percent different from the present value of the cash flowsunder the original agreement, the renewal of the note was treated as a debtextinguishment.  Accordingly, the $33,333value of the initial 66,667 shares issued was expensed as debt extinguishmentexpense.  Additional accruals of stock tobe issued if the promissory notes remain outstanding after August 31, 2009will be expensed each month as debt extinguishment expense.

** **

**On March 19, 2009, pursuant to guarantiesreceived relating to the Company’s renewal of its $1,200,000 Crown Bankpromissory note, the Company issued an aggregate 133,334 shares of its commonstock**as consideration to Mr. Davis and Mr. Reiling, and will issue afurther 22,222 shares per month for each month the related notes remainoutstanding after August 31, 2009. Pursuant to EITF 96-19, since the present value of the cash flows underthe loan renewal was greater than 10 percent different from the present valueof the cash flows under the original agreement, the renewal of the note wastreated as a debt extinguishment. Accordingly, the $66,667 value of the initial 133,334 shares issued wascapitalized as debt issuance cost and is being expensed as debt extinguishmentexpense on a straight-line basis through August 31, 2009.  Additional accruals of stock to be issued ifthe promissory notes remain outstanding after August 31, 2009 will beexpensed each month as debt extinguishment expense.  In addition, the $12,000 loan origination feewas immediately expensed as debt extinguishment expense.

 

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*** ***

***(b)***         Stock Options

*** ***

OnMarch 3, 2009, the Company granted non-qualified stock options to acquirean aggregate of 70,000 shares of its common stock to its non-employeedirectors, and incentive options to acquire 45,000 shares of its common stockto Richard Thon the Chief Financial Officer (the “CFO”).  The options are fully vested and areexercisable for a period of seven years at an exercise price of $0.85 pershare.  The 115,000 options were valuedat $0.68 per share using the Black-Scholes pricing model and were immediatelyexpensed as general and administrative expense.

 

Alsoon March 3, 2009, the Company granted an incentive stock option to acquirean aggregate of 100,000 shares of its common stock to Richard Carlson the ChiefExecutive Officer (the “CEO”).  Of theoptions, 90,000 shares vest immediately and 10,000 shares will vest on January 2,2010.  At the same time, Mr. Carlsonagreed to cancel existing, unvested stock options to acquire 5,000 shares ofcommon stock at an exercise price of $7.50 per share.  SFAS 123R requires that options that arecancelled and reissued simultaneously be accounted for as a modification of theterms of the original option. Accordingly, the incremental compensation cost of the fully vestedportion of the newly issued options valued at $0.68 per share using theBlack-Scholes pricing model over the $0.07 per share value of the cancelledoptions on the cancellation date, or $61,200, was expensed immediately asgeneral and administrative expense.

 

***(c)***          Warrants

*** ***

On January 12,2009, the Company issued 3,050,000 2009 Units pursuant to the closing of the2009 Public Offering, and 3,058,381 units identical to the 2009 Units pursuantto the automatic conversions of convertible debt (see Notes 2 and  6(a)). Each five-year warrant is exercisable at $1.30 per share.  The Company may redeem outstandingwarrants at a price of $0.01 per warrant upon a minimum 30 days priorwritten notice if the last sale price of its common stock equals or exceeds$1.82 per share for a period of ten consecutive trading days.

 

As additional compensationpursuant to the 2009 Public Offering, we sold to the Underwriter, Feltl &Company, for nominal consideration, a warrant (the “Underwriter’s Warrant”) topurchase up to 305,000 units. The Underwriter’s Warrant is not exercisableuntil January 7, 2010 and thereafter is exercisable at a price per unitequal to $1.20 for a period of four years. The warrants underlying the units that are subject to the Underwriter’sWarrant are subject to redemption as described above commencing January 7,2010.

 

***The warrants described below,issued or to be issued, are exempt from registration under Section 4(2) ofthe Securities Act as they were or will be issued in non-public offerings to alimited number of subscribers.  Each ofthe following warrants was valued using the Black-Scholes pricing model:***

*** ***

On January 13, 2009, the Company repaid the remaining $9,350principal amount of a promissory note due to Mr. Pauly, and issued animmediately exercisable five-year warrant to Mr. Pauly to acquire 4,295shares of the Company’s common stock at $1.50 per share pursuant to the termsof the note (see Note 4).

 

OnJanuary 22, 2009, the Company repaid the remaining $34,000 principalbalance of an outstanding convertible promissory note due to the Smith Trustand issued to the Smith Trust a 

 

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five-year,immediately exercisable warrant to acquire 28,656 shares of the Company’scommon stock at $5.00 per share pursuant to the terms of the note (see Note 4).

 

***Note7.  Income Taxes.***

*** ***

The Company has adopted the policy of classifying interest in interestexpense and penalties in general and administrative expense.  The Company had recorded no accrued interestor penalties as of the date of adoption.

 

The Company had no significant unrecognized tax benefits as of March 31,2009 and December 31, 2008 and, likewise, no significant unrecognized taxbenefits that, if recognized, would affect the effective tax rate.  The Company had no positions for which itdeemed that it is reasonably possible that the total amounts of theunrecognized tax benefit will significantly increase or decrease.  Any interest or penalties are expensed asgeneral and administrative expense as incurred.

 

The Company has generated net operating loss carryforwards ofapproximately $5.0 million which, if not used, will begin to expire in2021.  Federal and state tax laws imposesignificant restrictions on the utilization of net operating loss carryforwardsin the event of a change in ownership of the Company that constitutes an “ownershipchange,” as defined by Section 382 of the Internal Revenue Code of 1986,as amended (the “Code”).  The Company hasanalyzed the 2009 Public Offering along with previous changes and believes thatsuch an ownership change has not occurred, and that the Company’s use of itsnet operating loss carryforwards is not subject to such restrictions.

 

The net operating losscarryforwards are subject to examination until they expire.  The tax years that remain subject toexamination by major tax jurisdictions currently are:

 

Federal 2005 - 2007 

State of Minnesota 2005 -2007

 

**Note 8. Related Parties.**

** **

The Company considers its directors,executives and beneficial shareholders of more than five percent of its commonstock to be related parties.  During thethree months ended March 31, 2009, the following significant transactionswere made between the Company and those parties that were related parties at thetime of each transaction:

 

**On January 15, 2009, the Company repaid anoutstanding $37,500 loan along with accrued interest thereon to Mr. Reiling.**

** **

**On March 19, 2009, pursuant to the guarantiesreceived relating to the Company’s renewal of its $1,200,000 Crown Bankpromissory note, the Company issued an aggregate 66,667 shares of its commonstock**as consideration to each of Mr. Davis and Mr. Reiling, and willissue a further 11,111 shares to each per month for each month the notes remainoutstanding after August 31, 2009.

** **

**On March 19,2009, a $37,500 convertible promissory note and a $150,000 convertiblepromissory note due to Mr. Davis were refinanced and combined with otherloans and advances on behalf of the Company from Mr. Davis in a $281,000convertible promissory note.**

 

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**Note 9. Subsequent Events.**

 

***On April 13, 2009, the Companyissued an aggregate of 27,366 shares of its common stock to three independentdirectors as payment of $20,250 directors’ fees accrued through December 31,2008, in lieu of cash.***

 

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***Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operation.***

*** ***

*The accompanyingManagement’s Discussion and Analysis of Financial Condition and Results ofOperation should be read in conjunction with our unaudited consolidatedfinancial statements, and notes thereto, filed with our Quarterly Report on Form 10-Qfor the quarter ended March 31, 2009.*

 

**Disclosure Regarding Forward-Looking Statements**

 

Certainstatements contained in this Quarterly Report on Form 10-Q may be deemedto be forward-looking statements as defined by the Private SecuritiesLitigation Reform Act of 1995, and the Company intends that suchforward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements relate to,among other things: general economic or industry conditions, nationallyand in the physician, urology and medical device communities in which we intendto do business; our ability to raise capital to fund our 2009 and 2010 workingcapital needs and launch our products into the marketplace in subsequent years;our ability to complete the development of our existing and proposed productson a timely basis or at all; legislation or regulatory requirements, includingour securing of all U.S. Food and Drug Administration (“FDA”) and otherregulatory approvals on a timely basis, or at all, prior to being able tomarket and sell our products in the United States; competition from larger andmore well established medical device companies and other competitors; thedevelopment of products that may be superior to the products offered by us;securing and protecting our intellectual property and assets, and enforcingbreaches of the same; clinical results not anticipated by management of theCompany; the quality or composition of our products and the strength andreliability of our contract vendors and partners; changes in accountingprinciples, policies or guidelines; financial or political instability; acts ofwar or terrorism; and other economic, competitive, governmental, regulatory andtechnical factors affecting our operations, proposed products and prices. We caution that these statements arequalified by important factors that could cause actual results to differmaterially from those reflected by the forward-looking statements containedherein.

 

**Overview;****Product Offerings**

 

ProUroCare Medical Inc. (“ProUroCare,”the “Company,” “we,” “us” or “our,” which terms include reference to our whollyowned subsidiary, ProUroCare Inc. (“PUC”)) is a development stage company thatis focused on developing advanced mechanical medical imaging technology.

 

Our primary activities todate have focused on acquiring technology, intellectual property rights andworking with Artann Laboratories Inc. (“Artann”) to complete development of aprostate mechanical imaging system.  Wehave assembled an experienced management team and identified the necessaryclinical, regulatory and reimbursement resources to assist us in moving theproduct to market.  We have aggressivelyworked to obtain the funding to complete development of the prostate mechanicalimaging system and to obtain FDA approval.

 

Our initial product is aprostate mechanical imaging system that generates a map and an electronicrecord of the prostate.  In the future, subject to receipt ofappropriate FDA approvals or clearances, we plan to develop and introduceenhanced versions and additional indications for use of the system that weexpect will be able to monitor changes in prostate tissue over time, guideprostate biopsies and assess changes in prostate size following drug treatmentfor Benign Prostatic Hypertrophy (“BPH”).

 

Ourprostate mechanical imaging system is currently in clinical trials leadingtoward submission of a 510(k) application by Artann to the FDA that willseek to obtain clearance on a basic mappingand data maintenance labeling claim. In order to meet the requirements established by the FDA for theclinical 

 

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studyin connection with the 510(k) application, three centers were identifiedto participate in the study and to serve as future training and referral sitesfor the eventual market rollout of the prostate mechanical imaging system. Thesites include the Robert Wood Johnson Medical Center in New Brunswick, NewJersey, the VA Medical Center in Minneapolis, Minnesota and the Mayo Clinic inRochester, Minnesota. We expect to complete this study during the secondquarter of 2009, and submit the 510(k) application to the FDA shortlythereafter.  Once submitted, the FDA willhave 90 days to review and grant clearance, ask questions or reject the510(k) application. However, the 510(k) application process may besignificantly longer if the FDA has questions upon its review or requestsadditional information from Artann. Once cleared and upon ProUroCare’s firstcommercial sale of a prostate mechanical imaging system, Artann will transfer thecleared 510(k) application to ProUroCare. No assurances can be given inregard to the timing of any of these events.

 

During the next 12 months, assuming our financing effortsare successful (see “Liquidity and Capital Resources,” below), weexpect to complete the clinical trials for the prostate mechanical imagingsystem, obtain FDA clearance on a basic mappingand data maintenance labeling claim and prepare to launch our productinto the market, although there can be no assurance that we will be successfulin meeting these milestones.  We arecurrently exploring potential marketing relationships with medical productcompanies that are interested in marketing products in the prostate cancerdetection market.   We expect such a relationship would provide bothfinancial support and access to down stream marketing, engineering,manufacturing and sales capabilities.

 

Theprostate mechanical imaging system has been developed by us under developmentcontracts with Artann, a scientific technology company focused on early-stagetechnology development.  In September 2006,Artann was awarded a $3 million Small Business Innovation Research Phase IICompetitive Renewal grant from the National Cancer Institute (the “2006 NIHGrant”) to help advance the development and application for clearance of ourprostate mechanical imaging system by the FDA. After we complete the clinical study on the prostate mechanical imagingsystem and obtain FDA clearance, it is our intent to expand our workingrelationship with Artann to include their participation in the development andlicensing of future generations of the prostate mechanical imaging  system.

 

**RecentFinancing Activity**

 

OnJanuary 12, 2009, we closed on the 2009 Public Offering and realized netproceeds of approximately $1,790,000.  Inaddition, the closing of the 2009 Public Offering triggered the automaticconversion of certain debt instruments into equity, as follows:

 
| · |   | $733,334 convertible debentures together with $143,815 of interest  accrued thereon converted into 292,384 shares of our common stock;                                          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                            |
| · |   | $1,900,000 of convertible notes issued in the 2007 and 2008 private  placements together with $177,882 of interest accrued thereon converted into  3,058,381 Units; and         |
|   |   |                                                                                                                                                                            |
| · |   | $299,250 of convertible notes issued pursuant to the unit put  arrangement together with $9,563 of interest accrued thereon converted into  441,165 shares of our common stock. |

 

OnMarch 19, 2009, we reached an agreement with James Davis to refinance a$150,000 promissory note (and $7,291 of interest accrued thereon) along with a$37,500 note (and $3,646 of accrued interest thereon), another $2,632 payableto Mr. Davis and $12,293 of expenses paid by Mr. Davis on ourbehalf.  Mr. Davis also agreed tolend to us an additional $67,638 to pay for our exhibition of the prostatemechanical imaging system at the annual American Urology Association meeting,the retention of an 

 

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investorrelations firm and the initiation of a clinical advisory board.  He also agreed to have certain websitemaintenance services performed for us. Pursuant to the refinancing and the other arrangements, we issued a$281,000 unsecured convertible promissory note to Mr. Davis.  The promissory note matures on March 19,2010, bears no interest and is convertible into our common stock at $0.55 pershare at the option of Mr. Davis.

 

InMarch 2009, we renewed $1.2 million of the secured debt to mature on March 28,2010, and temporarily paid down $400,000 of the secured debt.  We intend to re-borrow the $400,000 secureddebt before the end of May 2009 upon the establishment of a satisfactoryguaranty of the debt with the lender.

 

**Resultsof Operations**

 

The following discussionof the financial condition and results of operations should be read inconjunction with the financial statements included herewith. This discussionshould not be construed to imply that the results discussed herein will necessarilycontinue into the future, or that any conclusion reached herein willnecessarily be indicative of actual operating results in the future.

 

*Threemonths ended March 31, 2009 compared to the three months ended March 31,2008:*

 

*OperatingExpenses/Operating Loss**.*  Our operatingexpenses (and our operating loss) for the three months ended March 31,2009 were $525,517, an increase of $279,355, or 113 percent, compared to$246,162 last year.  Compensation andbenefits costs in the three months ended March 31, 2009 increasedapproximately $41,000, or 52 percent, compared to last year as a result of a$40,000 bonus awarded in recognition of the efforts of the Company’s officersin the completion of the 2009 Public Offering. Stock-based compensation increased approximately $119,000, or 393percent, compared to last year, as a result of the granting of immediatelyvesting stock options to directors and officers valued at $139,400.  Product development expenses incurred underthe Artann development agreement were $100,000 during the first quarter of2009, compared to $0 in 2008.

 

*NetInterest Expense**. *Net interest expense for the three monthsended March 31, 2009 was $1,047,502, an increase of 169 percent, comparedto $389,056 last year.  Included in the2009 expense was the approximately $980,000 write-off of unamortized originalissue discount and debt issuance costs related to our 2006, 2007 and 2008private debt placements and the 2008 unit put arrangement, upon the closing ofthe 2009 Public Offering and the subsequent automatic conversion ofapproximately $3.3 million of debt and accrued interest into equity.  Interest expense excluding the amortizationof debt issuance and original issue discount declined to approximately $65,000in the three months ended March 31, 2009 compared to approximately$108,000 last year, or about 40%, reflecting the reduction in outstanding debtfollowing the conversion to equity in early January 2009.

 

*Debt Extinguishment Expense*. Our debt extinguishment expense arises primarily from the issuance ofstock or warrants issued pursuant to the provisions of short-term loans fromcertain lenders in certain refinancing transactions. Our debt extinguishmentexpense for the three months ended March 31, 2009 was $166,348, anincrease of 556 percent, compared to $25,340 last year.   The increase is due to the write-off of$113,000 of unamortized original issue discount upon the refinancing of a$150,000 note with Mr. Davis and the issuance of 66,667 shares of stock tothe Phillips W. Smith Family Trust (the “Smith Trust”) upon the extension ofthe $600,000 Smith Trust loan and a $12,000 fee associated with the extensionof the $1.2 million Crown Bank loan during the three months ended March 31,2009.

 

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**Assets; Property Acquisitions andDispositions**

 

Ourprimary assets are patents and patent applications, which are the foundationfor our proposed product offerings. These assets secure $1.2 million ofsenior bank notes and a note issued to an investor in the amount of $600,000and, as a result, are not available to secure other senior debt financing.

 

Weanticipate purchasing approximately $400,000 of tooling molds and other capitalfor production, computer equipment, software and general office furniture andequipment during the remainder of 2009. We do not anticipate selling anysignificant assets in the near term.

 

**Current Operations — Employees and Expenses**

 

Wecurrently employ two employees. We conduct our research and development, marketresearch, regulatory and other business operations through the use ofconsultants and medical device development contractors, primarily Artann. Webelieve that using consultants and contractors to perform these functions ismore cost effective than hiring full-time employees and affords us flexibilityin directing our resources during our development stage. During the secondquarter of 2009, we expect to complete the clinical and regulatory processleading to FDA 510(k) market clearance and establish strategic marketingand contract manufacturing relationships in anticipation of regulatoryclearance to enter the market.

 

Weincur ongoing expenses that are directly related to being a publicly tradedcompany, including professional audit and legal fees, financial printing, pressreleases and transfer agent fees. We currently rent approximately 500 squarefeet of office space on a month-to-month basis at a cost of approximately $550 permonth. Other expenses incurred include executive officer compensation, travel,insurance, telephone, supplies and other miscellaneous expenses.

 

**Liquidity and Capital Resources**

 

Net cash used in operating activities wasapproximately $1.6 million during the three months ended March 31, 2009compared to approximately $432,000 last year. The increase in cash used was primarily the result of payments to Artannof $600,000 and $250,000 for accrued licensing fees and accrued developmentcosts pursuant to our licensing and development agreements, respectively. Wealso paid $100,000 to Artann for development work performed under thedevelopment agreement.  Other uses ofcash included payments accounts payable and other accrued expenses, includingaccrued compensation, following the completion of the 2009 Public Offering.

 

Net cash provided by financing activities was approximately $1.8million during the three months ended March 31, 2009 compared toapproximately $165,000 last year. Proceeds from our Public Offering less underwriter’s commissions andother payments for expenses of the offering were approximately $2.3 millionduring the three months ended March 31, 2009.  Offsetting this was the temporary pay-down ofthe $400,000 Crown Bank loan pending the re-establishment of a suitableguarantee of the loan.  During the threemonths ended March 31, 2008, net proceeds of our private placements ofapproximately $393,000 were offset by payments of notes payable and loans fromdirectors of approximately $228,000.

 

As of March 31, 2009, we hadapproximately $264,000 cash on hand and current liabilities of approximately$3.2 million.  As noted above,in March 2009, we temporarily paid down a $400,000 secured promissory notewith Crown Bank.  We intend to re-borrowthe $400,000 secured debt before the end of May 2009 upon theestablishment of a satisfactory guaranty of the debt with the lender, althoughthere can be no assurance that a satisfactory guarantor or guarantors can besuccessfully identified during this period, or at all.  We believe our cash on hand combined with there-borrowing of the $400,000 will 

 

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be sufficient to finance our operating expenses up to receipt of FDA510(k) clearance. However, if our clinical trials and subsequent FDAreview experience significant unforeseen delays, we may not have sufficientfunds to complete these objectives, and will require additional financing. Wedo not expect the funds will be sufficient for us to initiate any significantmarket launch or scale-up manufacturing capabilities.

 

During the remainder of 2009, assuming that we are successful inobtaining FDA clearance on our prostate mechanical imaging system, we expect toengage contract manufacturing and engineering resources to produce the systemas we begin commercialization.  As webuild inventory, and ultimately accounts receivable as a result of ourcommercialization activity, we will require an estimated $650,000 by year-endto fund this build-up of working capital. To support this ramp-up, we expect to hire approximately eight employeesin the areas of manufacturing management, marketing, sales training,administration and quality assurance. Consequently, our operating expenses willincrease sharply during the second half of 2009.  We estimate that we will require between$600,000 and $650,000 to fund staff compensation costs over the remainder of2009.  During this same period, we expectto supplement our internal resources by the use of consultant and contractedpersonnel.  We estimate the cost of suchcontracted resources, including Artann, to be approximately $550,000.  Inaddition, we have $1.6 million of secured debt and $281,000 of convertibledebt, both of which mature at the end of March 2010, and othershort term liabilities, consisting of accounts payable and accrued expenses, ofapproximately $1.2 million.

 

Pursuantto the terms of the Artann development agreement, we are required to make cashand equity payments upon the achievement of several project milestones alongwith a monthly retainer fee.  Upon thesubmission of our 510(k) application to the FDA, we are required to make acash payment to Artann of $250,000 and an equity payment of our common sharesvalued at $1,000,000. Upon receipt of FDA 510(k) clearance, we arerequired to make a further cash payment of $750,000 and a second $1,000,000equity payment.  In addition, we expectto make cash payments to Artann totaling approximately $150,000 for developmentservices they are to provide during the remainder of 2009.

 

We expect to finance our cash needs from the proceeds of the exerciseof the unit warrants and from license fees from a potential distributionpartner, as described in the following.

 

As a result of the closing on the 2009 Public Offering and thesubsequent conversion of convertible notes into units, we have 6,108,381redeemable warrants outstanding.  Thesewarrants have an exercise price of $1.30 per share, which we may redeem oncethe last sale price of our common stock equals or exceeds $1.82 per share for aperiod of ten consecutive trading days. If this event were to occur, we intend to exercise our right to redeemthe warrants, which will allow all holders of warrants a period of 30 days toexercise their warrants.  If all suchwarrant holders exercise their warrants, we could realize up to approximately$7.9 million, depending on the number of shares actually exercised pursuant tosuch a redemption.  There can be noassurance that we will be able to redeem the warrants, or of how much would berealized if such a redemption were made.

 

During the next three to six months, we plan to identify a distributionpartner to market our products.  Weexpect such a distribution partner to provide significant financial support inthe form of licensing fees, loans, equity investment or some combination.  In addition to financial support, asuccessful collaboration with such a partner would allow us to gain access todown stream marketing, manufacturing and sales support.

 

Ifwe are unable to exercise the warrants or receive financial support from adistribution partner, we will pursue one or more additional rounds of fundingin 2009 and 2010 to provide the working capital needed 

 

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tofund a commercial launch into the urology market. If additional funds areraised by the issuance of convertible debt or equity securities, or by theexercise of outstanding warrants, then existing shareholders will experiencedilution in their ownership interest. If additional funds are raised by theissuance of debt or certain equity instruments, we may become subject tocertain operational limitations, and such securities may have rights senior tothose of our existing holders of common stock.

 

Ifadequate funds are not available through these initiatives on a timely basis oron acceptable terms, we may be unable to commercialize our products.  We do not know what impact the currentunprecedented volatility in worldwide credit and equity markets may have on ourability to obtain future financing. Since September 2008, we have seen unprecedentedturmoil in equity and credit markets that has resulted in record-setting lossesin the stock markets, dramatic decreases of liquidity in the credit markets,bank failures, hedge fund closures and massive market intervention by theUnited States and foreign governments. Because of the unprecedented nature ofthese market events, and because the markets remain highly-volatile today, wecannot predict what effect these events will have on our ability to obtainfinancing in the future.  If we are forcedto slow or stop our regulatory clearance process, it would delay market entryfor our products. Ultimately, if no additional financing is obtained beyondwhat has been secured to date, we likely would be forced to cease operations.There can be no assurance we will be successful in raising such funds.

 

**Going Concern**

 

Wehave incurred operating losses, accumulated deficit and negative cash flowsfrom operations since inception. As of March 31, 2009, we had anaccumulated  deficit of approximately$22.7 million. These factors, among others, raise substantial doubt aboutour ability to continue as a going concern. Our consolidated financialstatements included in this Annual Report on Form 10-K do not include anyadjustments related to recoverability and classification of asset carryingamounts or the amount and classification of liabilities that might resultshould we be unable to continue as a going concern.

 

**Critical Accounting Policies**

 

Ourfinancial statements are prepared in accordance with accounting principlesgenerally accepted in the United States, or GAAP. The application of GAAPrequires that we make estimates that affect our reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenue and expensesduring the reporting period. We base our estimates on historical experience andon various other assumptions that we believe to be reasonable under thecircumstances. We evaluate our estimates and assumptions on an ongoing basis.Our actual results may differ significantly from these estimates.

 

Adescription of the Company’s critical accounting policies that represent themore significant judgments and estimates used in the preparation of the Company’sfinancial statements was provided in the Management’s Discussion and Analysisof Financial Condition and Results of Operations section of the Company’sAnnual Report on Form 10-K for the year ended December 31, 2008.

 

***Item4T.  Controls and Procedures.***

*** ***

**Disclosure Controls and Procedures**

 

We maintain disclosure controls and procedures designed to ensure thatinformation required to be disclosed in our reports filed or submitted underthe Securities and Exchange Act of 1934, as amended 

 

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(the “Exchange Act”) is recorded, processed, summarized and reportedwithin the time periods specified in the rules and forms of the Securitiesand Exchange Commission (the “SEC”). As of March 31, 2009, the end of theperiod covered by this Quarterly Report on Form 10-Q, we carried out anevaluation, under the supervision and with the participation of management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-15 under the Exchange Act. Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures are effective.

 

**Changes in Internal Control Over Financial Reporting**

 

Duringthe quarter ended March 31, 2009, there has been no change in the Company’sinternal control over financial reporting (as defined in Rule 13a-15(f) underthe Exchange Act) that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

**PART II.  OTHER INFORMATION.**

** **

***Item1A. Risk Factors.***

 

Investing in our common stock involves a high degreeof risk. You should carefully consider the risks and uncertainties set forthunder Item 1A of our Annual Report on Form 10-K for the year ended December 31,2008, as well as the material changes to those risk factors set forth belowbefore purchasing our common stock. These risks and uncertainties are not the only ones facing our Company;additional risks and uncertainties may also impair our business operations. Ifany of the following risks actually occur, our business, financial condition,results of operations or cash flows would likely suffer. In that case, thetrading price of our common stock could fall, and you may lose all or part ofyour investment.  We undertake noobligation to update or revise any forward-looking statement except as requiredby the SEC.

 

Therisk factor disclosed in our Annual Report on Form 10-K regarding thepotential impact of an “ownership change” on our operating loss carryforwardshas been revised to read as follows: *:*

 

**Our ability to use operating loss carryforwards tooffset income in future years may be limited.**

 

Asof December 31, 2008, the Company had generated net operating losscarryforwards of approximately $5.0 million which, if not used, will beginto expire in 2021. Federal and state tax laws impose significant restrictionson the utilization of net operating loss carryforwards in the event of a changein ownership of the Company that constitutes an “ownership change,” as definedby Section 382 of the Code. The Company has analyzed the public offeringof approximately $3.1 million of our equity securities with net proceeds to theCompany of approximately $1.9 million (the “2009 Public Offering”) along withprevious changes and believes that such an ownership change has not occurred,and that the Company’s use of its net operating loss carryforwards is notsubject to such restrictions.  However,if the IRS should determine that an ownership change has occurred, our abilityto use the operating loss carryforward to offset future income may be limited.

 

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***For a more detailed discussion ofthe risk factors listed above that have not been materially changed, see Item 1of our Annual Report on Form 10-K for the year ended December 31,2008 under the heading “Risk Factors Associated with our Business, Operationsand Securities.” We undertake no obligation to update or revise any forwardlooking statements, except as required by the SEC.***

*** ***

***Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.***

*** ***

**Common Stock**

 

**On January 7,2009, upon the effective date of the 2009 Public Offering, the Company issued292,384 shares of common stock pursuant to the automatic conversion of $733,334of convertible debentures and $143,815 interest accrued thereon.**

** **

**On January 12,2009, the Company issued 2,743,535 units identical to the units issued in 2009Public Offering pursuant to the automatic conversions of $1,757,500 ofconvertible debt and $162,959 of accrued interest thereon.**

** **

**On January 12,2009, the Company issued 314,846 units identical to the units issued in 2009Public Offering pursuant to the automatic conversions of $142,500 of convertibledebt and $14,923 of accrued interest thereon.**

** **

**On January 15,2009, the Company issued 454,546 shares of common stock to Artann insatisfaction of a $500,000 liability pursuant to the Artann license agreement.**

** **

**On January 22,2009, pursuant to the conversion of $29,500 of the principal balance of aconvertible promissory note, the Company issued 42,143 shares of common stockto the Smith Trust.**

** **

**On February 6,2009,**the $299,250outstanding promissory notes issued pursuant to the Company’s 2008 unit putarrangement, along with the $9,563 interest accrued thereon, automaticallyconverted into 441,165 shares of the Company’s common stock.

** **

**Sales of thesecurities described above were made in compliance with the requirements of Rule 506of Regulation D under the Securities Act of 1933, as amended (the “SecuritiesAct”) and the exemption from registration provided under Section 4(2) ofthe Securities Act.  In qualifying forsuch exemption, the Company relied upon representations from the investorsregarding their status as “accredited investors” under Regulation D and thelimited manner of the offering as conducted by the placement agent and theCompany.**

** **

***Warrants***

*** ***

As additionalcompensation pursuant to the 2009 Public Offering, we sold to the underwriter,Feltl & Company, for nominal consideration, a warrant (the “Underwriter’sWarrant”) to purchase up to 305,000 units. The Underwriter’s Warrant isnot exercisable until January 7, 2010 and thereafter is exercisable at aprice per unit equal to $1.20 for a period of four years.  The warrants underlying the units that aresubject to the Underwriter’s Warrant are subject to redemption as describedabove commencing January 7, 2010.

 

On January 13, 2009, the Company issued an immediatelyexercisable five-year warrant to Mr. Pauly to acquire 4,295 shares of theCompany’s common stock at $1.50 per share pursuant to the terms of a promissorynote upon repayment of that note.

 

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OnJanuary 22, 2009, the Company issued to the Smith Trust a five-year,immediately exercisable warrant to acquire 28,656 shares of the Company’scommon stock at $5.00 per share pursuant to the terms of the note upon repayment of that note.

 

***The warrants described above were made, and the prospectiveissuances will be made, in reliance on exemption from registration providedunder Section 4(2) of the Securities Act, for issuance by an issuernot involving a public offering.***

*** ***

***Item 5.  Other Information***

 

None.

 

***Item 6.  Exhibits***

 
| **Exhibit No.**    | ** ** | **Description**                                                                                                                                                                                                                                                                                       |
|-------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **              | ** ** | ** **                                                                                                                                                                                                                                                                                            |
| 10.1                    |       | Promissory  Note dated March 19, 2009 issued in favor of Crown Bank (incorporated by  reference to Exhibit 10.51 to Annual Report on Form 10-K filed  March 26, 2009).                                                                                                            |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.2                    |       | Financing  Agreement by and between ProUroCare Medical Inc. and James Davis dated  March 19, 2009 (incorporated by reference to Exhibit 10.52 to  Annual Report on Form 10-K filed March 26, 2009).                                                                               |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.3                    |       | Form of  Loan Guarantor Compensation Letter Agreement dated March 19, 2009  (incorporated by reference to Exhibit 10.53 to Annual Report on  Form 10-K filed March 26, 2009).                                                                                                |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.4                    |       | Letter  agreement by and between ProUroCare Medical Inc. and the Phillips W. Smith  Family Trust dated March 19, 2009 (incorporated by reference to  Exhibit 10.54 to Annual Report on Form 10-K filed March 26,  2009).                                                          |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.5                    |       | Amendment  #2 to $600,000 Promissory Note dated October 15, 2007 between ProUroCare  Medical, Inc. and the Phillips W. Smith Family Trust, dated  March 19, 2009 (incorporated by reference to Exhibit 10.55 to  Annual Report on Form 10-K filed March 26, 2009). |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.6                    |       | Convertible  Promissory Note dated March 19, 2009 issued in favor of James  Davis(incorporated by reference to Exhibit 10.56 to Annual Report on  Form 10-K filed March 26, 2009).                                                                                                |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 31.1   * |       | Certification  of Principal Executive Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 31.2   * |       | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                          |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 32.1   * |       | Certification  of Chief Executive Officer and Chief Financial Officer pursuant to pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                                                |

 

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*Filed herewith.

 

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**SIGNATURES**

** **

Pursuant to the SecuritiesExchange Act of 1934, as amended, the Company has duly caused this report to besigned on its behalf by the undersigned thereunto duly authorized.

 

** **
|                          | **ProUroCare  Medical Inc.**    |
|-------------------------------|---------------------------------|
|                          |                            |
|                          |                            |
|  Date: May 14, 2009 | By:                             | /s/  Richard C. Carlson |
|                          | Name:  Richard C. Carlson       |
|                          | Title:  Chief Executive Officer |
|                          |                            |
|                          |                            |
|  Date: May 14, 2009 | By:                             | /s/  Richard Thon |
|                          | Name:  Richard Thon             |
|                          | Title:  Chief Financial Officer |

 

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**Exhibit Index**

*** ***
| **Exhibit No.**    | ** ** | **Description**                                                                                                                                                                                                                                                                                       |
|-------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **              | ** ** | ** **                                                                                                                                                                                                                                                                                            |
| 10.1                    |       | Promissory  Note dated March 19, 2009 issued in favor of Crown Bank (incorporated by  reference to Exhibit 10.51 to Annual Report on Form 10-K filed  March 26, 2009).                                                                                                            |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.2                    |       | Financing  Agreement by and between ProUroCare Medical Inc. and James Davis dated  March 19, 2009 (incorporated by reference to Exhibit 10.52 to  Annual Report on Form 10-K filed March 26, 2009).                                                                               |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.3                    |       | Form of  Loan Guarantor Compensation Letter Agreement dated March 19, 2009  (incorporated by reference to Exhibit 10.53 to Annual Report on  Form 10-K filed March 26, 2009).                                                                                                |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.4                    |       | Letter  agreement by and between ProUroCare Medical Inc. and the Phillips W. Smith  Family Trust dated March 19, 2009 (incorporated by reference to  Exhibit 10.54 to Annual Report on Form 10-K filed March 26,  2009).                                                          |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.5                    |       | Amendment  #2 to $600,000 Promissory Note dated October 15, 2007 between ProUroCare  Medical, Inc. and the Phillips W. Smith Family Trust, dated  March 19, 2009 (incorporated by reference to Exhibit 10.55 to  Annual Report on Form 10-K filed March 26, 2009). |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 10.6                    |       | Convertible  Promissory Note dated March 19, 2009 issued in favor of James  Davis(incorporated by reference to Exhibit 10.56 to Annual Report on  Form 10-K filed March 26, 2009).                                                                                                |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 31.1   * |       | Certification  of Principal Executive Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 31.2   * |       | Certification  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                          |
|                    |       |                                                                                                                                                                                                                                                                                                  |
| 32.1   * |       | Certification  of Chief Executive Officer and Chief Financial Officer pursuant to pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002                                                                                                |

 

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*Filed herewith.

 

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