** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-QSB**

** **

**ý****        ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31,2006**

 

**o****        ****TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**CommissionFile Number 333-103781**

 

**ProUroCare Medical Inc.**

(Exact name ofsmall business issuer as specified in its charter)

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

 

**OneCarlson Parkway, Suite 124**

**Plymouth,Minnesota 55447**

(Address ofprincipal executive offices)

 

**952.476.9093**

(Issuer’stelephone number)

 

 

(Former Name,Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Actduring the past 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  YES ý  NO o

 

Indicate by checkmark whether the Registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act): YES o  NO ý

 

APPLICABLE TOCORPORATE ISSUERS

 

Statethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date: 14,269,260 shares of common stock outstanding as of May 10, 2006 (parvalue $.00001 per share).

 

Transitional Small Business Disclosure Format (checkone): YES o NO ý

 

 

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**ProUroCare Medical Inc.**

**Form 10-QSB For The**

**Quarter Ended March 31, 2006**

 

**Table ofContents**

 
| PART I.  | FINANCIAL INFORMATION                                              |         |
|---------------|--------------------------------------------------------------------|--------------|
|          |                                                               |         |
| ITEM 1.       | FINANCIAL STATEMENTS                                               |         |
|          |                                                               |         |
|          | Consolidated balance sheets                                        |         |
|          |                                                               |         |
|          | Consolidated statements of  operations                             |         |
|          |                                                               |         |
|          | Consolidated statements of  cash flows                             |         |
|          |                                                               |         |
|          | Notes to consolidated financial  statements                        |         |
|          |                                                               |         |
| ITEM 2.       | MANAGEMENT’S DISCUSSION AND  ANALYSIS OR PLAN OF OPERATION    |         |
|          |                                                               |         |
| ITEM 3.       | CONTROLS AND  PROCEDURES                                           |         |
|          |                                                               |         |
| PART II. | OTHER INFORMATION                                                  |         |
|          |                                                               |         |
| ITEM 1.       | LEGAL PROCEEDINGS                                                  |         |
|          |                                                               |         |
| ***ITEM 2.*** | ***UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS*** | *** *** |
| *** ***  | *** ***                                                       | *** *** |
| ITEM 6.       | EXHIBITS                                                           |         |
|          |                                                               |         |
| SIGNATURES    |                                                               |

 

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**PART I FINANCIALIFORMATION**

** **

***Item1.  Financial Statements***

*** ***

**ProUroCare Medical Inc.**

**A Development StageCompany**

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                                           | ** ** | **March 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                           | ** ** | **(Unaudited)**         | ** ** | **(Audited)**              | ** ** |
| **Assets**                                                                                                                                                                           | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current assets:                                                                                                                                                                      |       |                    |       |                       |       |
| Cash                                                                                                                                                                                 |       | $                       | 13,101     |                       | $          | 37 |   |
| Other receivables                                                                                                                                                                    |       | 17,100                  |       | —                     |       |
| Deposit                                                                                                                                                                              |       | 50,547                  |       | 547                        |       |
| Prepaid expenses                                                                                                                                                                     |       | 9,623                   |       | 12,483                     |       |
| Total current assets                                                                                                                                                                 |       | 90,371                  |       | 13,067                     |       |
|                                                                                                                                                                                 |       |                    |       |                       |       |
| Equipment and  furniture, net                                                                                                                                                        |       | 6,662                   |       | 7,636                      |       |
| Deferred  offering expenses                                                                                                                                                          |       | —                  |       | 37,881                     |       |
| Debt issuance  costs, net                                                                                                                                                            |       | 966,212                 |       | 52,727                     |       |
|                                                                                                                                                                                 |       |                    |       |                       |       |
|                                                                                                                                                                                 |       | $                       | 1,063,245  |                       | $          | 111,311 |   |
|                                                                                                                                                                                 |       |                    |       |                       |       |
| **Liabilities and Shareholders’ Deficit**                                                                                                                                       | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current  liabilities:                                                                                                                                                                |       |                    |       |                       |       |
| Notes payable, bank                                                                                                                                                                  |       | $                       | —     |                       | $          | 400,000 |   |
| Notes payable, net of original issue discount                                                                                                                                        |       | —                  |       | 87,816                     |       |
| Accounts payable                                                                                                                                                                     |       | 248,831                 |       | 387,302                    |       |
| Accrued expenses                                                                                                                                                                     |       | 74,436                  |       | 627,872                    |       |
| Due to Clinical Network, Inc.                                                                                                                                                   |       | —                  |       | 8,943                      |       |
| Total current liabilities                                                                                                                                                            |       | 323,267                 |       | 1,511,933                  |       |
|                                                                                                                                                                                 |       |                    |       |                       |       |
| Long-term notes  payable                                                                                                                                                             |       | 1,966,517               |       | —                     |       |
| Convertible  debentures, net of original issue discount                                                                                                                              |       | 39,952                  |       | —                     |       |
| Total liabilities                                                                                                                                                                    |       | 2,329,736               |       | 1,511,933                  |       |
|                                                                                                                                                                                 |       |                    |       |                       |       |
| Commitments and  contingencies                                                                                                                                                       |       |                    |       |                       |       |
|                                                                                                                                                                                 |       |                    |       |                       |       |
| Shareholders’  deficit:                                                                                                                                                         |       |                    |       |                       |       |
| Common stock, $0.00001 par. Authorized  100,000,000 shares; issued and outstanding 14,199,260 and 14,174,260 shares  on March 31, 2006 and December 31, 2005, respectively |       | 142                     |       | 142                        |       |
| Additional paid-in capital                                                                                                                                                           |       | 9,670,206               |       | 8,804,181                  |       |
| Deficit accumulated during the development stage                                                                                                                                     |       | (10,936,839             | )          | (10,204,945                | )          |
|                                                                                                                                                                                 |       |                    |       |                       |       |
| Total shareholders’ deficit                                                                                                                                                     |       | (1,266,491              | )          | (1,400,622                 | )          |
|                                                                                                                                                                                 |       |                    |       |                       |       |
|                                                                                                                                                                                 |       | $                       | 1,063,245  |                       | $          | 111,311 |   |

 

*See accompanying notes to financial statements.*

 

1

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**ProUroCare Medical Inc.**

**A Development StageCompany**

**ConsolidatedStatements of Operations**

(Unaudited)

 
| ** **                                     | ** ** | ** **                            | ** ** | ** **         | ** ** | **Period from**         | ** ** |
|------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | ** **                            | ** ** | ** **         | ** ** | **August 17,1999** | ** ** |
| ** **                                     | ** ** | ** **                            | ** ** | ** **         | ** ** | **(inception) to**      | ** ** |
| ** **                                     | ** ** | **Three months ended March 31,** | ** ** | **March 31,** | ** ** |
| ** **                                     | ** ** | **2006**                              | ** ** | **2005**           | ** ** | **2006**                | ** ** |
| Operating expenses:                            |       |                                  |       |               |       |                    |       |
|                                           |       |                                  |       |               |       |                    |       |
| Research and development                       |       | $                                     | 87,927     |               | $          | 104,702                 |       | $ | 4,555,732 |   |
| General and administrative                     |       | 405,543                               |       | 383,141            |       | 5,308,715               |       |
|                                           |       |                                  |       |               |       |                    |       |
| Total operating expenses                       |       | 493,470                               |       | 487,843            |       | 9,864,447               |       |
|                                           |       |                                  |       |               |       |                    |       |
| Operating loss                                 |       | (493,470                              | )          | (487,843           | )          | (9,864,447              | )          |
|                                           |       |                                  |       |               |       |                    |       |
| Interest income                                |       | —                                |       | 445                |       | 16,480                  |       |
| Interest expense                               |       | (238,424                              | )          | (2,647             | )          | (1,088,872              | )          |
|                                           |       |                                  |       |               |       |                    |       |
| Net loss                                       |       | $                                     | (731,894   | )                  | $          | (490,045                | )          | $ | (10,936,839 | ) |
|                                           |       |                                  |       |               |       |                    |       |
| Net loss per common share:                     |       |                                  |       |               |       |                    |       |
| Basic and diluted                              |       | $                                     | (0.05      | )                  | $          | (0.04                   | )          | $ | (1.34 | ) |
|                                           |       |                                  |       |               |       |                    |       |
| Weighted average number of shares outstanding: |       |                                  |       |               |       |                    |       |
| Basic and diluted                              |       | 14,184,538                            |       | 13,988,057         |       | 8,139,390               |       |

 

***See accompanying notes to financial statements.***

 

2

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**ProUroCare Medical Inc.**

**A Development StageCompany**

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

 
| ** **                                                                                                             | ** ** | ** **                            | ** ** | ** **         | ** ** | **Period from**         | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **                                                                                                             | ** ** | ** **                            | ** ** | ** **         | ** ** | **August 17,1999** | ** ** |
| ** **                                                                                                             | ** ** | **Three months ended March 31,** | ** ** | **(inception) to** | ** ** |
| ** **                                                                                                             | ** ** | **2006**                              | ** ** | **2005**           | ** ** | **March 31, 2006** | ** ** |
| Cash flows from operating activities:                                                                                  |       |                                  |       |               |       |                    |       |
| Net loss                                                                                                               |       | $                                     | (731,894   | )                  | $          | (490,045                | )          | $ | (10,936,839 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:                                           |       |                                  |       |               |       |                    |       |
| Depreciation and amortization                                                                                          |       | 974                                   |       | 1,479              |       | 14,135                  |       |
| Stock-based compensation                                                                                               |       | 86,941                                |       | 76,887             |       | 898,425                 |       |
| Issuance of common stock for services rendered                                                                         |       | —                                |       | —             |       | 103,166                 |       |
| Warrants issued for services                                                                                           |       | —                                |       | —             |       | 468,636                 |       |
| Warrants issued for debt guarantees                                                                                    |       | —                                |       | —             |       | 320,974                 |       |
| Amortization of note payable original issue discount                                                                   |       | 12,184                                |       | —             |       | 26,500                  |       |
| Amortization of convertible debt original issue  discount                                                              |       | 39,952                                |       | —             |       | 39,952                  |       |
| Amortization of debt issuance and deferred offering costs                                                              |       | 132,148                               |       | —             |       | 404,033                 |       |
| 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:                                                                           |       |                                  |       |               |       |                    |       |
| Deposits                                                                                                               |       | (50,000                               | )          | 2,827              |       | (240,101                | )          |
| Other receivables                                                                                                      |       | (17,100                               | )          | —             |       | (17,100                 | )          |
| Other current assets                                                                                                   |       | 2,860                                 |       | 11,456             |       | 21,502                  |       |
| Accounts payable                                                                                                       |       | (138,471                              | )          | 97,802             |       | 637,813                 |       |
| Accrued expenses                                                                                                       |       | (553,436                              | )          | 45,956             |       | 193,156                 |       |
| Net cash used in operating activities                                                                                  |       | (1,215,842                            | )          | (253,638           | )          | (5,817,452              | )          |
|                                                                                                                   |       |                                  |       |               |       |                    |       |
| Cash flows from investing activities:                                                                                  |       |                                  |       |               |       |                    |       |
| Purchases of equipment and furniture                                                                                   |       | —                                |       | —             |       | (20,797                 | )          |
| Net cash used in investing activities                                                                                  |       | —                                |       | —             |       | (20,797                 | )          |
|                                                                                                                   |       |                                  |       |               |       |                    |       |
| Cash flows from financing activities:                                                                                  |       |                                  |       |               |       |                    |       |
| Proceeds of note payable, bank                                                                                         |       | —                                |       | 100,000            |       | 500,000                 |       |
| Payment of note payable, bank                                                                                          |       | (400,000                              | )          | —             |       | (500,000                | )          |
| Proceeds of notes payable                                                                                              |       | 48,000                                |       | —             |       | 148,000                 |       |
| Payment of notes payable                                                                                               |       | (148,000                              | )          | (59,646            | )          | (928,042                | )          |
| Payment for rescission of common stock                                                                                 |       | —                                |       | —             |       | (100,000                | )          |
| Net advances (payments) to Clinical Network, Inc.                                                                 |       | (8,943                                | )          | —             |       | —                  |       |
| Payments for debt issuance costs                                                                                       |       | (228,668                              | )          | —             |       | (257,495                | )          |
| Cost of reverse merger                                                                                                 |       | —                                |       | —             |       | (162,556                | )          |
| Proceeds from long-term debt                                                                                           |       | 1,966,517                             |       | —             |       | 1,966,517               |       |
| Net proceeds from issuance of common stock                                                                             |       | —                                |       | —             |       | 5,184,926               |       |
| Net cash provided by financing activities                                                                              |       | 1,228,906                             |       | 40,354             |       | 5,851,350               |       |
| Net increase (decrease) in cash                                                                                        |       | 13,064                                |       | (213,284           | )          | 13,101                  |       |
| Cash, beginning of the period                                                                                          |       | 37                                    |       | 301,522            |       | —                  |       |
| Cash, end of the period                                                                                                |       | $                                     | 13,101     |               | $          | 88,238                  |       | $ | 13,101 |   |
|                                                                                                                   |       |                                  |       |               |       |                    |       |
| Supplemental cash flow information:                                                                                    |       |                                  |       |               |       |                    |       |
| Cash paid for interest                                                                                                 |       | $                                     | 47,062     |               | $          | 2,738                   |       | $ | 190,534 |   |
| Non-cash investing and financing activities:                                                                           |       |                                  |       |               |       |                    |       |
| Assumption of liabilities in the Profile, LLC  transaction                                                             |       | $                                     | —     |               | $          | —                  |       | $ | 25,000 |   |
| Warrants issued for debt issuance costs                                                                                |       | —                                |       | —             |       | 242,612                 |       |
| Warrants issued pursuant to note payable                                                                               |       | 23,000                                |       | —             |       | 131,500                 |       |
| Issuance of note payable for redemption of common  stock                                                               |       | —                                |       | —             |       | 650,000                 |       |
| Other current assets financed by note payable                                                                          |       | —                                |       | —             |       | 31,125                  |       |
| Common stock issued in lieu of cash for accounts  payable                                                              |       | —                                |       | —             |       | 101,587                 |       |
| Common stock issued in lieu of cash for accrued  expenses                                                              |       | —                                |       | —             |       | 117,643                 |       |
| Conversion of accounts payable to note payable                                                                         |       | —                                |       | —             |       | 241,613                 |       |
| Common stock issued for deferred offering expenses                                                                     |       | 22,750                                |       | —             |       | 91,501                  |       |
| Convertible debt issued as. debt issuance costs  related to guarantee of long-term debt                                |       | 733,334                               |       | —             |       | 733,334                 |       |
| Deposits applied to note payable and accrued  interest                                                                 |       | —                                |       | —             |       | 142,696                 |       |
| Deposits applied to accounts payable                                                                                   |       | —                                |       | —             |       | 45,782                  |       |
| Deposits applied to accrued expenses                                                                                   |       | —                                |       | —             |       | 1,076                   |       |

 

*See accompanying notes to financial statements.*

 

3

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**ProUroCareMedical Inc.**

**A Development StageCompany**

**Notesto Consolidated Financial Statements**

** **

**March 31, 2006 and 2005 and the period from**

**August 17, 1999 (inception) to March 31, 2006**

 

(Unaudited)

 

**Note1.  Description of Business and Summaryof Significant Accounting Policies.**

** **

***(a)***                                 Description ofBusiness, Development Stage Activities, and Basis of Presentation

*** ***

ProUroCare Medical Inc. (“ProUroCare” or the “Company”) is adevelopment stage company that is developing diagnostic equipment andtreatments for enlarged prostates and other male urological conditions.  The Company’s developmental activities haveincluded the acquisition of several technology licenses, the development of astrategic business plan and a senior management team, product development, andfund raising activities. 

 

The Company had no activities from its incorporation in August 1999until July 2001, when the Company issued 3,000,000 shares of common stockto Clinical Network, Inc. (CNI) and Clinical Network LLC (CN LLC), arelated party to CNI.  Moreover, in July 2001,the Company acquired a license to certain microwave technology by issuing3,000,000 shares of common stock to CS Medical Technologies, LLC (CSM).  In January 2002, the Company acquired alicense to certain imaging technology through the issuance of 3,999,999 sharesto Profile LLC (Profile). 

 

Pursuant to a merger agreement effective April 5, 2004 amongProUroCare Inc., Global Internet Communications, Inc. (“Global”), and GICAcquisition Corp., a wholly owned subsidiary of Global, GIC Acquisition Corp.merged with and into ProUroCare Inc., which remained as the surviving companyand a wholly owned operating subsidiary of Global (the “Merger”).  On April 26, 2004, Global changed itsname to ProUroCare Medical Inc. In connection with the Merger, Global completeda private placement of 2,205,000 shares of common stock pursuant to Rule 506promulgated under the Securities Act of 1933, as amended.

 

The accompanying consolidated financial statements include the accountsof the Company and its wholly owned subsidiary, ProUroCare Inc.  Significant inter-company accounts andtransactions have been eliminated in consolidation.

 

***(b)***           Interim Financial Information.

*** ***

Theaccompanying unaudited financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of Americaand pursuant to the rules and regulations of the United States Securitiesand Exchange Commission (the “SEC”) for interim financial information.  Accordingly, certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahave been omitted pursuant to such rules and regulations.  Operating results for the three month periodended March 31, 2006 are not necessarily indicative of the results thatmay be expected for the

 

4

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year ending December 31,2006 or any other period.  Theaccompanying financial statements and related notes should be read inconjunction with the audited financial statements of ProUroCare Medical Inc.,and notes thereto, for the fiscal year ended December 31, 2005, containedin its Annual Report on Form 10-KSB for the year ended December 31, 2005.

 

Thefinancial information furnished reflects, in the opinion of management, alladjustments, consisting of normal recurring accruals, necessary for a fairpresentation of the results of the interim periods presented.

 

***(c)***           Accounting Estimates

*** ***

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of expensesduring the reporting periods. The Company’s significant estimates include thedetermination of the fair value of its common stock, contingent liabilityexpense, and the valuation of license rights. Actual results could differ fromthose estimates.

 

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

*** ***

Basic and diluted loss per common share is computed by dividing netloss by the weighted-average number of common shares outstanding for thereporting period.  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 antidilutive for the three month periods ended March 31,2006 and 2005 and the period from August 17, 1999 (inception) to March 31,2006.

 

***(e)***           Stock-Based Compensation 

*** ***

Effective August 17, 1999, the Company adopted the fair valuerecognition provisions of Financial Accounting Standards Board (FASB) Statementof Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting forStock-Based Compensation,” to record option and warrant issuances, includingstock-based employee compensation.  TheCompany’s policy is to grant stock options at fair value at the date of grant,and to record the expense at fair value as required by SFAS 123, using theBlack-Scholes pricing model through December 31, 2005.

 

Effective January 1, 2006 theCompany adopted the revision to SFAS 123 (“SFAS 123R”), “Share-Based Payment”,that focuses primarily on accounting for transactions in which an entityobtains employee services in share-based payment transactions.  This statement replaces SFAS 123, “Accountingfor Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees.”  SFAS123R requires publicly held companies to expense the fair value of employeestock options and similar awards, which has been the Company’s policy todate.  The Company estimates the amountof stock-based compensation expense related to currently outstanding options tobe approximately $378,000 and $175,000 for the years ending December 31,2006 and December 31, 2007, respectively.

 

In determining the compensation costof the options granted during the three months ended March 31, 2006 and 2005,as specified by SFAS 123R, the fair value of each option grant has been

 

5

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estimated on the date of grant using the Black Scholespricing model and the weighted average assumptions used in these calculationsare summarized as follows: 

 
| ** **                        | ** ** | **For the three months ended March 31,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Risk-free  Interest Rate          |       | 4.7                                           | %          | 3.76 | % |
| Expected Life of  Options Granted |       | 2.8 years                                     |       | 5.8 years |   |
| Expected  Volatility              |       | 182.9                                         | %          | 78.6 | % |
| Expected  Dividend Yield          |       | 0                                             |       | 0 |   |

*** ***

***The expected life of the options isdetermined using a simplified method, computed as the average of the optionvesting periods and the contractual term of the option.  For performance based options that vest uponthe occurrence of an event, the Company uses an estimate of when the event willoccur as the vesting period used in the Black Scholes calculation for eachoption grant.  Because of the limitedtrading history of the Company’s stock, the expected volatility is based on asimple average of daily price data since the date of the Merger on April 5,2004.***

*** ***

Based on the lack ofhistory to calculate a forfeiture rate, the Company has not adjusted thecalculated value of the options for the three months ended March 31, 2006.

 

***(f)***            Warrants

*** ***

In accordance with Emerging Issues Task Force (“EITF”) No. 96-18, “Accountingfor Equity Instruments that are Issued to Other than Employees for Acquiring,or in Conjunction with Selling, Goods and Services” and EITF 98-5, “Accountingfor Convertible Securities with Beneficial Conversion Features or ContingentlyAdjustable Conversion Ratios”, the Company has elected to utilize thefair-value method of accounting for warrants issued to non-employees asconsideration for goods or services received, including warrants issued tolenders and guarantors of Company debt (see Notes 3 and 4).  However, the recorded value of warrantsissued to lenders and guarantors of Company debt is limited to thecorresponding amount loaned or guaranteed. During the three months ended March 31, 2006, an immediately vestedand exercisable warrant was issued to a lender to acquire 50,000 shares ofcommon stock at $0.50 per share pursuant to a $23,000 loan.  The fair value of stock warrantsestimated at grant date using the Black-Scholes pricing model exceeded the amount of the loan.  Accordingly, the value of this warrant wasrecorded as $23,000, or $0.46 per share and was expensed during the threemonths ended March 31, 2006 due to the note being paid in full.  No other warrants were issued during thethree months ended March 31, 2006, and no warrants were granted during thethree month period ended March 31, 2005.

 

***(g)***           Otherreceivables

*** ***

Other receivablesrepresent amounts due within 30 days from a joint development partner for theirportion of the cost of the joint development project.

 

**Note 2.  Shareholders’ Equity.**

** **

***On January 25, 2006, ProUroCare Inc. borrowed $23,000 from a limitedliability company (LLC) (see Note 4). Under the terms of the loan agreement, the Company issued a five-yearwarrant to the LLC to acquire 50,000 shares of Company common stock at $0.50per share.  These warrants, valued at $23,000(see Note 1), were recorded as interest expense during***the three months ended March 31, 2006.

 

6

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EffectiveSeptember 1, 2005 the Company engaged new outside Corporate and SecuritiesLaw Counsel, Venture Law Resources, PLLC (VLR), of Bloomington, Minnesota.Pursuant to such engagement, VLR agreed to represent the Company as its GeneralCounsel and to assist with the introduction of strategic investors to theCompany from time to time, including success based compensation arising fromany services as a finder to the Company. Under this agreement, the Companyissued 25,000 shares of common stock to VLR as a retainer in connection withVLR’s engagement.  The shares issued to VLR were valued at$17,750 using the fair market value of the Company’s stock price on the date ofgrant and along with a $2,500 retainer paid, was capitalized as deferredoffering expense during 2005.  On February 22,2006 an additional 25,000 common shares, valued at $22,750 using the fairmarket value of the Company’s stock price on the date of grant were issued toVLR pursuant to their engagement.  The $42,750aggregate value of the shares and initial retainer is being amortized over theterm of the debt guaranteed by strategic investors introduced to the Company byVLR.

 

***On March 1, 2006 the Company issued to five of its employees stockoptions to acquire a total of up to 200,000 shares of common stock at $0.75 pershare.  The five-year options, which vestupon the Company securing FDA approval of its ProUroScan system, were valued at$0.66 per share using the Black Scholes pricing model (see Note 1(e)), and arebeing expensed over the vesting period (estimated by the Company as one year) asgeneral and administrative expense.***

*** ***

**Note 3.   NotesPayable – Bank.**

** **

On September 14, 2005, ProUroCare Inc. borrowed$100,000 from a financial institution and issued a secured promissory note tosuch institution.  The promissory notewas collateralized by the assets of the business under an existing CommercialSecurity Agreement with the financial institution and a commercial guarantyfrom an individual investor.  Thepromissory note bore interest at an annual rate of 8.0% and was to mature on March 14,2006.  In connection with the commercialguaranty, the Company issued two five-year warrants (immediately exercisable)to the investor to acquire a total of 50,000 shares of the Company’s commonstock at $0.50 per share.  The warrants,valued at $29,000 using the Black Scholes pricing model (see Note 1(f)), wererecorded as debt issuance costs and expensed over the term of the promissorynote as interest expense.  The Companyrecorded $12,977 of expense related to the value of the warrants during thethree months ended March 31, 2006.  Interestexpense recorded during the three month period ended March 31, 2006related to this note was $1,079.

 

On October 20,2005, ProUroCare Inc. borrowed $300,000 from a financial institution.  The loan was evidenced by a promissory noteand collateralized by two$150,000 Commercial Guaranties provided by two accredited investors and**by the assets of the businessunder an existing Commercial Security Agreement.  The promissory note bore interest at anannual rate of 8.75% and was to mature on March 14, 2006.  In connection with the Commercial Guaranties,on October 19, 2005, the Company issued five-year warrants to the twoguarantors to acquire up to 150,000 shares of the Company’s common stock at$0.50 per share. The warrants issued areimmediately exercisable.  The warrants, valued at $79,500 using theBlack Scholes pricing model, were recorded as debt issuance costs and expensedover the term of the promissory note as interest expense.  The Company recorded $39,750 of expenserelated to the value of the warrants during the three months ended March 31,2006.  Interest expense recorded duringthe three month period ended March 31, 2006 related to this note was $3,540.

 

***Both of these notes (plus accrued interest thereon) were repaid on February 16,2006 from the net proceeds of the first closing under the Company’s ongoing seniordebt financing (see Note 5).***

 

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**Note 4.  Notes Payable.**

** **

***On September 21, 2005 ProUroCare Inc., borrowed $100,000 from anunrelated individual lender, and in connection therewith issued to such lendera promissory note to mature on March 20, 2006.  The promissory note bore an annual interestrate of Prime less one-half percent.  Inconnection with the promissory note, the Company issued two five-year warrants(immediately exercisable) to the lender to acquire a total of 50,000 shares ofthe Company’s common stock at $0.50 per share. The gross proceeds of $100,000 were allocated between the promissorynote and the common stock warrants based on the relative fair values of thesecurities at the time of issuance.***The warrants, valued at $26,500 using the BlackScholes pricing model (see Note 1(f)), were recorded as original issue discountas defined in EITF 98-5 “Accounting for Convertible Securities with BeneficialConversion Features or Contingently Adjustable Conversion Ratios” and wereexpensed on a straight-line basis over the term of the promissory note, whichapproximates the interest method.  TheCompany recorded $12,184 of expense related to the value of the warrants duringthe three months ended March 31, 2006. Interest expense recorded during the three month period ended March 31,2006 related to this note was $893.  Thispromissory note was repaid on February 16, 2006 from the net proceeds ofthe Company’s ongoing senior debt financing (see Note 5).

*** ***

***On January 25, 2006, ProUroCare Inc. borrowed, solely forshort-term working capital needs, a total of $48,000 in three separatetransactions:***

*** ***

***1.***                     $12,500from Alexander Nazarenko, a Director of the Company; in consideration, theCompany executed and issued to Mr. Nazarenko a $12,500 unsecured demandpromissory note (the “Note”).  The Notebore interest at an annual rate of Prime Plus One Percent; 

*** ***

***2.***                     $12,500from David F. Koenig, a Director of the Company; in consideration, the Companyexecuted and issued to Mr. Koenig a $12,500 unsecured demand promissorynote (the “Note”).  The Note boreinterest at an annual rate of Prime Plus One Percent; and

*** ***

***3.***                     $23,000from Adron Holdings, LLC (“Adron”), a Minnesota limited liability company,pursuant to a Loan Agreement between the Company, Adron, the Company’s ChiefExecutive Officer (Maurice Taylor II) and David Koenig, a Director of theCompany.  In consideration for such$23,000 loan, the Company issued to Adron a $23,000 unsecured promissory note(the “Note”).  Mr. Taylor and Mr. Koenigeach personally guaranteed one-half of the Company’s obligations under the Noteand received no compensation for the guarantee. This Note was due on March 14, 2006, on which date the Company wasobligated to pay an administrative fee of $4,000; such fee was reduced on a prorata basis due to early repayment (see below). Under the terms of this LoanAgreement, the Company issued a five-year warrant to Adron to acquire 50,000shares of Company common stock at $0.50 per share.  This warrant, valued at $23,000 (see Note 1(f)),was recorded as interest expense in 2006.

*** ***

***All of the above notes (plus accrued interest thereon) were repaid on February 16,2006 from the net proceeds of the first two closings under the Company’s ongoingsenior debt financing (see Note 5).***

*** ***

**Note 5.  OngoingSenior Debt Financing; Convertible Debentures.**

 

***The Company has undertaken a $6.0million senior debt financing effort in the form of long-term bank loans (the “Loans”)secured by a pledge of all Company assets, including two technology licensesthat were assigned to the bank, and guaranteed by a limited number ofaccredited individual investors, who received unsecured convertible debenturesin consideration for their guarantees.  EffectiveFebruary 16, 2006 and February 28, 2006, the Company completed itsfirst two closings under this senior debt***

 

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***financing.  These first two closings aggregated $2.2million, of which $1,966,517 had been drawn down by the Company as of March 31,2006.  Additional closings on such seniordebt financing are anticipated in the near future. ***Nevertheless, managementcan give no assurance that these additional closings will occur, nor that theremaining $3.8 million will be secured on a timely basis in 2006, or at all.

*** ***

As consideration to the guarantors to provide theirguarantees for this $6 million senior debt financing, the Company intends to issue up to $2million of unsecured convertible 10% debentures that are due in 36 months.  The debentures are convertible at the holders’option into an aggregate of 4,000,000 shares of common stock (up to 6,666,667shares if the underlying senior credit facility is not retired by October 31,2007). 

 

***Pursuant to the first of the twoclosings, on February 16, 2006, the Company issued a promissory note toits lender in the amount of $1,200,000, at an interest rate of the Prime Rateplus 1.0% (8.75% at March 31, 2006). This promissory note matures on January 11, 2008.  In connection with this note, two individualseach guaranteed $600,000 of the loan, and were each issued a 10% unsecuredconvertible subordinated debenture in the amount of $200,000. Furthermore,under the second closing held on February 28, 2006, the Company issued asecond promissory note to its lender in the amount of $1,000,000, at aninterest rate of the Prime Rate plus 1.0% (8.75% at March 31, 2006).  This promissory note matures on February 29,2008.  Two accredited investorsguaranteed the $1,000,000 face amount of this promissory note, and inconsideration, were issued 10% unsecured convertible subordinated debenturestotaling $333,334.***

*** ***

***All of the 10% unsecuredconvertible subordinated debentures issued to the guarantors in connection withthe Company’s ongoing senior debt facility mature three years from the date ofissue and are convertible into Company common stock at a price of $0.50 pershare.  If the guarantees of the underlyingbank indebtedness are not released by August 31, 2007 (or subsequently October 31,2007) the conversion price becomes $.40 per share (and subsequently $0.30 pershare), respectively.  The cost of thedebentures was recorded as debt issuance cost, and is being amortized asinterest expense over the term of the underlying bank note payable.  The value of beneficial conversion featurewas computed as the difference between the fair market value of the shares atthe transaction dates and the lowest possible conversion price during thedebenture term ($0.30 per share), multiplied by the number of conversion sharesthat would be issued at that conversion price (2,444,444).  The value so computed was in excess of theface value of the convertible debentures issue, and was therefore limited tothe face value of the debentures issued ($733,334).  The beneficial conversion feature wasrecorded as an original issue discount against the convertible debt liabilityand is being amortized as interest expense over the term of the convertibledebentures.***

*** ***

**Note 6.  Legal Proceeding.**

 

The Company, like most public companies, is involved in routine legalproceedings in the conduct of the ordinary course of its business.

 

***On April 2, 2004, a formerofficer and employee of ProUroCare Inc. filed a lawsuit against ProUroCare Inc.and the Company relating to his separation of employment with ProUroCare Inc.prior to the Merger. On August 1, 2005, ProUroCare Inc. and the Companyagreed to settle the lawsuit to limit further costs of litigation, and thelawsuit was dismissed with prejudice. Under the settlement agreement, theCompany did not admit any wrong-doing, but agreed to pay $160,000 plusapplicable employment taxes in complete settlement of all claims. Subsequently,the Company failed to pay this settlement due to lack of funds, and a newaction was brought against the Company to enforce the terms of settlement,which was denied by the court. In response, and pursuant to a new action, aComplaint was filed and***

 

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***served on the Company allegingbreach of contract and seeking damages of $160,000, unspecified consequentialdamages, attorneys’ fees, costs and pre- and post-award interest on all damagesarising from the settlement noted above.***

*** ***

***On March 3, 2006 the Companyand ProUroCare Inc. settled this lawsuit. Under the settlement agreement, the Company paid $177,000 plus $1,924 ofpayroll taxes in complete settlement of all claims and a dismissal of theformer employee’s claim.  The entireamount paid in the settlement was recorded as a reserve as of December 31,2005.***

*** ***

***Note 7.  SubsequentEvent.***

*** ***

***On April 21, 2006, the Company issued 70,000 shares of its commonstock to its former Vice-President of Engineering upon his resignation,pursuant to his employment agreement. The shares were valued at $44,800, the average closing share priceduring the five days before and after the issuance date, which will be expensedin the three month period ending June 30, 2006.***

 

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***Item2.  Management’s Discussion and Analysisor Plan of Operation.***

*** ***

*The accompanying Plan of Operation should be readin conjunction with ProUroCare’s audited financial statements, and notesthereto, for the year ended December 31, 2005 filed in our annual reporton Form 10-KSB on March 31, 2006.*

 

*Certainstatements contained in this report may be deemed to be forward-lookingstatements as defined by the Private Securities Litigation Reform Act of 1995,and the Company intends that such forward-looking statements be subject to thesafe-harbor created thereby. Suchforward-looking statements relate to, among other things: our continued accessto critical working capital to fund our needs until we generate sufficientongoing revenue; estimates regarding the size of our target markets; successfulproduct completion and development and clinical and commercial trials for ourproducts; the timing and success of such product development and U.S. clinicaltrials and securing FDA approval; acceptance of our products in themarketplace; new product introductions; competitive factors; physician andurology acceptance of our products in the marketplace; reimbursement for ourproducts; enforcement of our intellectual property rights; and the success andstrategy outlined in our business model. We caution that these statements arequalified by important factors that could cause actual results to differmaterially from those reflected by the forward-looking statements herein.*

 

*Overview;**Product Offerings.*

 

ProUroCare Medical Inc. (“ProUroCare”, “the Company”, “we”, “us” or “our”,which terms include reference to ProUroCare Inc., ProUroCare Medical Inc.’swholly owned subsidiary) is a development stage company that is developingdiagnostic equipment and treatments for enlarged prostates and other maleurological conditions.  Our developmentalactivities have included the acquisition of several technology licenses, thedevelopment of a strategic business plan and a senior management team, productdevelopment and fund raising activities.

 

Our initial product is theProUroScanTM system, developed and designed as a uniquediagnostic-imaging system that enables physicians to accurately display andchart a prostate examination for disease diagnosis.  The ProUroScan imaging system is beingdesigned to show the size and symmetry of the prostate and detect certainsoft-tissue abnormalities within the prostate that may be precursors to a moreclearly defined hardened area or nodule.

 

The ProUroScan system consistsof a probe, a central processing unit containing proprietary image constructionalgorithms, a computer with color monitor and keyboard, a color printer, andsingle-use disposable sheaths to cover the tip of the probe.  The ProUroScan probe is specially designedfor the rectal anatomy to minimize discomfort. It is ergonomic for the clinician and similar to a traditional DRE forthe patient.  The probe utilizes pressuresensors located on the face of the probe head to palpate the prostate.  The probe’s positioning system ensures thatthe person administering the test examines the entire surface of the prostate,and assists prostate image construction. The probe attaches to the central processing unit which converts theinformation from the probe sensors with proprietary algorithms and thentranslates the data into a multicolor image on the monitor.  A standard diagram of the prostate willappear on the monitor along with a special cursor enabling the clinician toknow where the probe is located within the patient’s body and to guide him orher across the posterior surface of the gland.

 

Such diagnosis is currentlyaccomplished by means of a digital rectal examination (“DRE”).  A DRE is a qualitative and subjective test inwhich a physician wearing a latex glove inserts a lubricated finger into therectal channel to feel or palpate the prostate gland for abnormalities.  The clinician must rely on his or herexperience and the sensitivity of their finger to estimate the size of theprostate and detect hardness or abnormalities within the prostate that mayindicate the presence of potentially life-threatening disease.  We believe that the ProUroScan will enable aphysician to detect abnormalities in the prostate more accurately than withtheir finger, assess areas of the prostate that the physician cannot

 

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reachwith their finger, and produce quantifiable and chartable results.  Moreover, the ProUroScan offers the advantageof being able to create an electronic record that can be stored within thesystem, printed and used for comparisons with new images created at a laterdate.  No such electronic records orcolor images are possible when performing a traditional DRE.

 

We anticipate that themajority of the revenue from this system will be generated by usage fees basedon consumption of proprietary disposable sheaths and/or probe tips.  The systems themselves likely will be placedin clinics under a variety of programs, including operating leases, financing leases,outright sale, or placements paid for by premiums paid on the usage of thesystem. 

 

We intend to position thisproduct as an adjunctive test to DRE and Prostate Specific Antigen (“PSA”)blood tests, which have low sensitivity and specificity and cannot bedocumented with color images.  TheProUroScan will be marketed towards primary care physicians andurologists.  We believe the ProUroScanwill help ensure that primary care physicians screen more effectively andquickly refer appropriate patients to urologists for more definitive testing.

 

The ProUroScan is currently in product developmentstage.  The design specifications arenearly finalized and performance characteristics are generally known.  Further development work in the areas ofpositioning system refinement, software, user interface, and sensor production,among others, must be completed before the system can be commercialized.

 

The current pre-clinical version of the ProUroScanwas developed under two research and development agreements with ArtannLaboratories (“Artann”).  Twopre-clinical ProUroScan systems were delivered by Artann in late November 2004,and have undergone extensive bench and laboratory testing to confirm thefunction of the system components and the overall operating system.  We continue to have on-going discussions withArtann concerning past and future development in connection with a prospective commercializationgrant award from the National Institute of Health.  

 

In March, 2006 we engaged Devicix, LLC of Chaska, Minnesota,a firm that provides electrical, mechanical, biomedical, and softwareengineering services to established and early-stage medical devicecompanies.  We expect this firm willassist us in transferring technology from Artann’s system, place design documentationunder an FDA compliant quality control system, complete the designdocumentation required to submit an FDA request for product clearance, performverification and validation testing including certification of safety tomedical device standards, and prepare a documentation package including thedefinition of assembly instructions and quality control processes for transferto manufacturing.

 

We are currently in the process of establishing aseries of labeling claims reflecting the current needs of the market and thecapabilities of the system.  Given thatthe system will be capable of providing physicians with a number of differentoutputs, we are attempting to create a regulatory strategy that will enable usto begin marketing a basic system and then expand the labeling claims toincorporate more sophisticated features as they are developed and validated inclinical studies.  The advantage of thisapproach is that it allows us to minimize the time it will take to obtain FDAapproval and to begin commercializing an operational system sooner.  Having systems in place will also beimportant in assessing future enhancements while physicians are using it inactual clinical practice.

 

Although the initial claim has yet to be finalized,the content of the claim will likely be limited to the system’s ability to**producea surface map of the prostate as an aid to document palpable lesions identifiedduring a clinical prostate examination.  Basedon the scope of this claim and the input received from consultants and clinicalstudy sites, we believe the initial system can be submitted to the FDA for

 

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marketclearance under a 510(k) application, or be evaluated under the FDA’s*de novo* process. Following completion of the remaining engineering and developmentefforts on the current system, a small pre-clinical study will be conducted toensure that all design criteria and operating requirements of the system havebeen achieved.  Systems will then beplaced in a select number of major medical centers that will screen patientsand collect data for the FDA submission. It is anticipated that the FDA clinical studies will requireapproximately three months to complete, and that an additional month will beneeded to analyze the data and prepare a formal submission to the agency.  Centers participating in the study will berequired to obtain approval from their Institutional Review Board (“IRB”) toprotect the rights and welfare of all participants.  IRB approval has been granted for the firstProUroScan studies at the Minneapolis/St. Paul Veteran’s Administration MedicalCenter and at the Robert Wood Johnson University Hospital in New Brunswick, NewJersey.

 

The actual number of patients that will be studiedand the specific clinical protocol that will be followed will be significantlyimpacted by a meeting that we anticipate having with the FDA during 2006, priorto conducting clinical trials.  At thatmeeting we will present information about the product and all relevant andlaboratory testing data.  We will alsopropose a strategy for validating our labeling claim and a clinical protocolthat all investigative centers will be expected to follow, with the goal beingto obtain enough clinical data to have sufficient confidence that the systemwill perform as defined in the product labeling.

 

Assuming the path outlined above is acceptable tothe FDA, of which no assurance can be given, we expect to make a formalsubmission to the agency shortly after completion of the clinical study.  Recently published FDA statistics indicatethat the average time from receipt of a 510(k) application to final action is65 days, with 90% completed in less than 180 days.  Based on this data, assuming that the resultsof the clinical trials pose no unanticipated problems, we expect to receive FDAconcurrence within 90 — 180 days after the 510(k) application is filed.  Such concurrence will allow us to beginactive marketing of the ProUroScan system within the United States.

 

As new and more enhancedproduct features are developed, the Company plans to file additionalsubmissions with the FDA and to obtain expanded labeling claims.  Depending on the exact nature of theseclaims, the approval process may require more extensive clinical studies and possiblya full pre-market approval (PMA) application. Such an application will likely take significantly more time and be morecomprehensive than the 510(k) approval process.

 

We have also licensed rights to technology that offerssignificant enhancements to existing microwave thermal therapy for treatment ofbenign prostate hyperplasia (“BPH”).  Weintend to use this technology to develop a means for urologists to observe anddirect the application of heat to diseased portions of the prostate during thermaltherapy procedures. This work will be performed under a joint developmentagreement with Urologix, Inc. (NasdaqNM:ULGX).

 

*Assets; Property Acquisitions and Dispositions*.

 

Our primary assets are cash, licenses and other keyintellectual-property rights, which are the foundation for our proposed productofferings.  These assets have beenpledged as security against promissory notes at a financial institution.  We anticipate purchasing only a very limitedamount of equipment and other assets during the next 12 months.  We do not anticipate selling any significantequipment or other assets in the near term.

 

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*Current Operations – Employees and Expenses*.  

 

We currently employ three executive officers, a functionalarea Vice President and one other employee. We conduct our research and development, market research, regulatoryfunction, and other business operations through the use of a variety ofconsultants and medical-device development contractors.  We believe that using consultants andcontractors to perform these functions is more cost effective than hiringfull-time employees, and affords the Company flexibility in directing ourresources toward specific and changing goals during our development stage.  As we prepare for FDA submission and marketlaunch of our ProUroScan product, we expect to add four to six employees in theareas of engineering and regulatory compliance within the next 12 months.  During the next 12 months, we expect tocomplete the development of clinical ProUroScan systems, conduct clinicaltrials, and file a 510(k) submission with the FDA; fund development work on ourtherapeutic products; and prepare for initial market launch.  

 

We incur ongoing expenses that are directly related tobeing a publicly traded company, including professional audit and legal fees,financial printing, press releases and transfer agent fees.  Our facilities consist of a month-to-monthrental of approximately 2,200 square feet in an office that we share with anothercompany. Other expenses incurred include travel, insurance, telephone,supplies, and other miscellaneous expenses. Over the next 12 months, theCompany anticipates that it will spend approximately $1.3 million in marketingand administrative expenses.  Of these,the Company expects that approximately $840,000 will be for compensation,benefits, and payroll taxes.

 

The Company anticipates that it will spend between $1.9and $2.1 million on research and product development of the ProUroScan systemover the next 12 months.  Of this amount,approximately $850,000-$900,000 will be spent on manufacturing, engineering,validation and documentation efforts with a contracted medical-productsdevelopment company.  Clinical trials andthe 510(k) filing with the FDA are expected to cost in the range of $250,000 to$275,000.  ProUroScan systems created fordevelopment and clinical use are expected to cost between $200,000 and$250,000.  Internal salaries, benefits,and miscellaneous departmental expenses for software and hardware development,regulatory work, and project management are estimated to be approximately $550,000to $600,000.

 

For the Company’s thermal therapy products, we expectthat research and development efforts will be funded primarily through a jointdevelopment and marketing arrangement with a thermal therapy company.  Management expects that the Company willspend between $175,000 and $200,000 over the next 12 months in this jointdevelopment effort.

 

*Liquidity and Capital Resources.*

 

We had a working capitaldeficit of approximately $(233,000) and $(1,499,000) at March 31, 2006 andDecember 31, 2005, respectively. Cash used in operations was approximately $1,216,000 and $254,000 forthe three month periods ended March 31, 2006 and 2005, respectively, and $5,817,000for the period from August 17, 1999 (date of inception) to March 31,2006.

 

The primary use of cash in thethree months ended March 31, 2006 was to fund our operating losses, retire$548,000 of outstanding notes payable, pay approximately $692,000 ofoutstanding accounts payable and accrued expenses, and to deposit $50,000 witha vendor pursuant to a development engagement. The primary use of cash in the period from August 17, 1999(inception) through March 31, 2006, in addition to funding our net loss,was to pay $750,000 to Profile, LLC to redeem their common stock, including$650,000 (plus accrued interest) in relation to a note payable, arising from theirexercise of dissenter’s rights at the time of the Merger.  Cash was also used to fund the approximate$163,000 cost

 

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ofthe Merger, to repay approximately $242,000 pursuant to an unsecured promissorynote with a vendor, to deposit $50,000 with a vendor as noted above and toacquire approximately $21,000 of office furniture and computer equipment. 

 

In November 2005, we commenced a senior debtcredit financing led by Crown Bank, NA in Minneapolis, Minnesota. This $6million debt financing will be used to fund our 2006 working capital needs,fund our losses, complete the development of our products and fund us until wesecure initial FDA market clearance. This $6 million credit facility is securedby all the Company’s assets, and personally guaranteed by certain individualguarantors. As of the date of this report, the Company has already closed on$2.2 million of this credit facility and has received verbal commitments andsubscriptions from individual guarantors or other lenders for a substantialportion of the remaining $3.8 million. Nevertheless, management can give no assurance that these verbalcommitments or subscriptions will be honored, nor that the remaining $3.8million will be secured on a timely basis in 2006, or at all.

 

As consideration to the guarantors to provide their guaranteesfor this $6 million bank credit facility, the Company intends to issue up to $2million of unsecured convertible 10% debentures that are due in 36 months.  The debentures are convertible at the holders’option into an aggregate of 4,000,000 shares of common stock (up to 6,666,667shares if the underlying senior credit facility is not retired by October 31,2007).  If additional funds are raised bythe issuance of equity securities, such as through the issuance of stock or theissuance and exercise of warrants, then existing shareholders will experiencedilution of their ownership interest.  Ifadditional funds are raised by the issuance of debt or other equityinstruments, the Company may become subject to certain operational limitations,and such securities may have rights senior to those of existing holders ofcommon stock.

 

If adequate funds are not available during 2006, ornot available on acceptable terms during 2006, the Company may be unable tofund expansion or complete the development or enhancement of its products.  If the Company is forced to slow itsdevelopment programs, or put them on hold pending securing financing, it coulddelay market entry. Ultimately, if no additional financing is obtained on atimely basis, or at all, we could be forced to cease operations.  See “RISK FACTORS ASSOCIATED WITH OUR BUSINESS, OPERATIONS ANDSECURITIES”, page 17.

 

**Going Concern**

** **

We have incurred operatinglosses, accumulated deficit and negative cash flows from operations sinceinception.  As of March 31, 2006, wehad an accumulated deficit of approximately $10,937,000.  These factors, among others, raisesubstantial doubt about our ability to continue as a going concern.  The accompanying consolidated unauditedfinancial statements do not include any adjustments related to recoverabilityand classification of asset carrying amounts or the amount and classificationof liabilities that might result should we be unable to continue as a goingconcern. 

 

**Critical AccountingEstimates**

** **

Our critical accountingpolicies are those (i) having the most impact on the reporting of ourfinancial condition and results, and (ii) requiring significant judgmentsand estimates.  Due to the nature of ourcurrent operations, we do not believe we have any critical policies orprocedures.

 

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**IMPORTANTNOTICES TO INVESTORS; SAFE HARBOR STATEMENT**

 

Statements in this Form 10-QSB which are notpurely historical are, and should be deemed, forward-looking statements.  These statements with respect to the goals,plan objectives, intentions, expectations, financial condition, results ofoperations, future performance and business of our Company, include, withoutlimitation, (i) our ability to successfully complete all clinical trials andcommercial development of our products and secure all necessary federal andother regulatory approvals to introduce and market our products in the UnitedStates and around the world; (ii) our ability to fund our working capitalneeds over the next 12 to 24 months and until we generate sufficient ongoingrevenue from our products; (iii) our ability to successfully introduce,market and sell our products into the medical device markets; and (iv) allstatements preceded by, followed by or that include the words “may”, “would”, “could”,“should”, “expects”, “projects”, “anticipates”, “believes”, “estimates”, “plans”,“intends”, “targets” or similar expressions.

 

Forward-looking statements involve inherent risksand uncertainties, and important factors (many of which are beyond our control)that could cause actual results to differ materially from those set forth inthe forward-looking statements, including the following, in addition to thosecontained in our Company’s reports on file with the Securities and ExchangeCommission: general economic or industry conditions, nationally and in thephysician, urology and medical device communities in which we intend to dobusiness; our ability to fund our working capital needs over the next 12 to 24months; our ability to complete the development of our existing and proposedproducts on a timely basis or at all; legislation or regulatory requirements,including our securing all FDA and other regulatory approvals on a timelybasis, or at all, prior to being able to market and sell our products in theUnited States; competition from larger and more well established medical deviceand other competitors; the development of products that may be superior to theproducts offered by us; securing and protecting our intellectual property andassets and enforcing breaches of the same; clinical results not anticipated bymanagement of the Company; the quality or composition of our products and thestrength and reliability of our contract vendors and partners; ability to raisecapital to fund our 2006 and 2007 working capital needs and launch our productsinto the marketplace in subsequent years; changes in accounting principles,policies or guidelines; financial or political instability; acts of war orterrorism; and other economic, competitive, governmental, regulatory andtechnical factors affecting our operations, proposed products and prices.

 

Accordingly, investors and shareholders arecautioned to appreciate that results actually achieved may differ materiallyfrom expected results in these statements. Forward-looking statements speak only as of the date they are made.  We do not undertake, and specificallydisclaim, any obligation to update any forward-looking statements to reflectevents or circumstances occurring after the date of such statements.

 

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**RISK FACTORSASSOCIATED WITH OUR BUSINESS,OPERATIONS AND SECURITIES**

** **

**As a development-stage company, we have no operatinghistory and our business plan has not yet been fully tested.  We will incur material future losses untilour products are completed, we secure FDA regulatory approval, and are ourproducts are successfully introduced into the United States and worldwide medicaldevice markets.**

** **

The Company, conducting business through ourwholly-owned subsidiary, ProUroCare Inc. (sometimes referred to hereinafter as “we”),is a development-stage company.  We haveyet to commence active operations or manufacture or sell any productsassociated with the proprietary urology-based imaging and therapeutictechnologies that we intend to market. We have no prior operating history from which to evaluate our success,or our likelihood of success in operating our business, generating any revenuesor achieving profitability.  To date, wehave generated no revenue and are proposing to enter the highly competitive urology-imagingand therapeutic industries.  There can beno assurance that our plans for developing and marketing our urology-basedproducts will be successful, or that we will ever attain significant sales orprofitability.  We anticipate that wewill incur losses in the near future.

 

**Our products have not been, and may never be, fullycommercially completed and developed.**

** **

We have developed and manufactured two workingProUroScan systems for testing, clinical validations, and demonstrationpurposes.  Previously we had developedand manufactured two working prototype ProUroScan systems to prove thefeasibility of the device and to provide a means to test and develop futuresystems.  Nevertheless, we have notgenerated any revenues from the sale of the ProUroScan nor have we manufacturedany ProUroScan in commercial quantities. The completion of the development of proposed products remains subjectto all the risks associated with the development and manufacture of newproducts based on innovative technologies, including unanticipated technical orother problems, failures to meet FDA requirements or performance objectives,and the possible insufficiency of the funds allocated for the completion ofsuch development, which could result in a change in the design, delay in thedevelopment, or abandonment of such applications and products.  Consequently, there can be no assurance thatour products will be successfully developed or manufactured.  Of course, our failure to complete thedevelopment of products will have a materially adverse effect on our business.

 

**Even if developed, our products may not becommercially viable.**

** **

Even if we are able to successfully develop ourproducts, we may not be able to manufacture such products in commercialquantities and at prices that will be commercially viable.  Further, there is risk that our products maynot prove to be as effective as currently available medical or diagnosticproducts.  The inability to successfullycomplete development of a product or application or a determination by us, forfinancial, technical or other reasons not to complete development of anyproduct or application, particularly in instances in which we have madesufficient capital expenditures will likely have a material adverse effect onour business.

 

**Even if successfully developed, our products may notbe accepted by the marketplace.**

** **

Our products, even if successfully developed, will becompeting against existing treatments and competing products in the medicaldevice marketplace.  There can be no assurancethat physicians, urologists or the medical device market in general will acceptour products.

 

**We will depend upon others for the manufacturing ofour products, which will subject our business to the risk that we will beunable to fully control the supply of our products to the market.**

** **

Our ability to develop, manufacture and successfullycommercialize our proposed products depends upon our ability to enter into andmaintain contractual and collaborative arrangements with

 

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others. We do not intendto initially manufacture any of our proposed products.  In this regard, we intend to retain contractmanufacturers.  There can be no assurancethat such manufacturers will be able to supply our products in the requiredquantities, at appropriate quality levels or at acceptable costs.  We may be adversely affected by anydifficulties encountered by such third-party manufacturers that result inproduct defects, production delays or the inability to fulfill orders on atimely basis.  If a manufacturer cannotmeet our quality standards and delivery requirements in a cost-efficientmanner, we would likely suffer interruptions of delivery while we arrange foralternative manufacturing sources.  Anyextended disruption in the delivery of products could result in our inabilityto satisfy customer demand for our products. Consequently, our inability to obtain alternative sources on a timelybasis may have a material adverse effect on our business and results ofoperations.

 

**Our reliance on third-party manufacturers and otherthird parties in other aspects of our business will reduce any profits we mayearn from our products and may negatively affect future product development.**

** **

As noted above, we currently intend to market andcommercialize products manufactured by others, and in connection therewith wewill likely be required to enter into manufacturing, licensing and distributionarrangements with third parties.  Thesearrangements will likely reduce our product profit margins.  In addition, the identification of newproduct candidates for development may require us to enter into licensing orother collaborative agreements with others, including medical-device andpharmaceutical companies, and research institutions.  These collaborative agreements may require usto pay license fees, make milestone payments, pay royalties and/or grantrights, including marketing rights, to one or more parties.  Any such arrangement will reduce ourprofits.  Moreover, these arrangementsmay contain covenants restricting our product development or business effortsin the future.

 

**We may not be able to enter into manufacturingagreements or other collaborative agreements on terms acceptable to us, if atall, which failure would materially and adversely affect our business.**

** **

We cannot be sure that we will be able to enter intomanufacturing or other collaborative arrangements with third parties on termsacceptable to us, if at all.  If we failto establish such arrangements when and as necessary, we could be required toundertake these activities at our own expense, which would significantlyincrease our capital requirements and may delay the development, manufactureand commercialization of our products. If we could not find ways of addressing these capital requirements, wewould likely be forced to sell or abandon our business.

 

**We will need additional financing during 2006 and2007, and any such financing will likely be dilutive to our existingshareholders.**

** **

At April 30, 2006, wehad cash on hand and a credit facility in-place totaling approximately $89,000.  These funds are not sufficient for us tocomplete development of our products and gain FDA approval of them.  Management’s plan is to raisesufficient capital to achieve these objectives through our ongoing debtfinancing in which we are establishing a $6 million senior credit facilityguaranteed by a limited number of accredited individuals.  In addition, we may also raise additionalfinancing if the net proceeds of the credit facility prove insufficient toreach these goals, or if financing becomes available under attractive terms. Asof the date of this quarterly report, the Company has only closed on $2.2million of this facility, but has received verbal commitments and subscriptionsfrom various individual guarantors for a substantial portion of the remaining$3.8 million.  Nevertheless, the Companycannot be certain that these verbal commitments will be honored, nor that theremaining $3.8 million will be secured on a timely basis during 2006, or atall.  See MANAGEMENT’S PLAN OF OPERATION- LIQUIDITY AND CAPITAL RESOURCES.

 

As an incentive to the guarantors to provide theirguarantees of the $6 million bank credit facility, the Company intends to issueup to $2 million of unsecured convertible 10% debentures that are

 

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due in 36 months.  The debentures are convertible at the holders’option into an aggregate of 4,000,000 shares of common stock (up to 6,666,667shares if the underlying senior credit facility is not retired by October 31,2007).  If additional funds are raised bythe issuance of equity securities, such as through the issuance of stock or theissuance and exercise of warrants, then existing shareholders will experiencedilution of their ownership interest.  Ifadditional funds are raised by the issuance of debt or other equityinstruments, the Company may become subject to certain operational limitations,and such securities may have rights senior to those of existing holders ofcommon stock.

 

If adequate funds are not available under the ongoingdebt financing on a timely basis in 2006, or not available on other acceptableterms, the Company may be unable to fund expansion, develop or enhanceproducts.  If the Company is forced toslow its development programs, or put them on hold, it would delay regulatoryapprovals needed, and thus market entry for our products. Ultimately, if noadditional financing is obtained beyond what has been secured to date, we couldbe forced to cease operations.

 

**We materially rely on consultants and contractors,some of whom have been partially or wholly paid through issuances of commonstock dilutive to our shareholders.**

** **

The Company (in combination with PUC) incursconsulting fees that represents a material expenditure in relation to our totaloperating costs.  During the year ended December 31,2005, we incurred consulting fees totaling approximately $282,000.  Of this amount, approximately $92,000 wasincurred for business brokerage services rendered in connection with financingactivities; $116,000 was incurred for research and development activities;$2,000 was incurred for management and accounting services; $8,000 was incurredfor market research services; $14,000 was incurred for manufacturing andengineering services;$15,000 for medical advisory services; and $36,000 wasincurred for services rendered in connection with regulatory and reimbursementmatters. Approximately $69,000 of this amount was paid through the issuance of75,000 shares of common stock.

 

We expect to continue to materially rely onconsultants and contractors to perform a significant amount of research anddevelopment, pre-manufacturing, clinical, regulatory, and marketingactivities.  Expenses for these activitiesare anticipated to be approximately $1.2 to 1.3 million during the next twelvemonths.  We plan to issue securities inpartial satisfaction of certain development and consulting expenses, includingthe Artann warrants discussed below.  Anysuch issuance could be dilutive to shareholders.

 

Under the terms of a research and developmentagreement with Artann Laboratories, Inc., we are committed to issuewarrants for up to an additional 200,000 shares of common stock over the nexttwo years at $2.00 per share or current market price, whichever is lower. 

 

**The resale of our common stock into the market under Rule 144,under our prior SB-2 Registration Statement, and under or Ongoing senior debtfinancing, has depressed and adversely affected the market price of our commonstock in the public market, and thus, could cause additional dilution if andwhen the Company needs to raise additional working capital.**

** **

The sale, or availability for sale, of our restrictedcommon stock in the public market pursuant to Rule 144, in the ordinarycourse, and under our prior SB-2 registration statement that became effectiveon January 24, 2005 has adversely affected the prevailing market price ofour common stock, and will likely do so in the future. Furthermore, due to the 13,849,688shares of restricted common stock that have been held over one (1) year,and thus, are eligible for resale under Rule 144, selling stockholders maycontinue to depress the price of our common stock. Accordingly, the adversemarket and pricing pressures resulting from the resale of their common stockmay continue for an extended period of time and continue to depress the priceof our common stock in the open market.  

 

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Pursuant to our ongoing senior debt financingdescribed above, we plan to issue debentures convertible at the holders’ optioninto an aggregate of 4,000,000 shares of common stock (up to 6,666,667 sharesif the underlying senior credit facility is not retired by October 31,2007).  The holders of these debentureshave been granted registration rights, whereby holders of 60% or more of theamount of the debentures can demand that the shares issued upon conversion beregistered with the SEC for public resale. The sale, or availability for sale, of these additional shares of commonstock in the public market will likely increase the adverse market and pricingpressure.  We may issue additional sharesin connection with our business and may grant additional stock options to ouremployees, officers, directors and consultants or warrants to thirdparties.  

 

If these adverse market conditions persist, and theCompany needs to secure additional working capital during 2006 and 2007, suchpricing pressure and market conditions could hinder our ability to raisecapital, and/or raise capital on terms and conditions acceptable to theCompany. In addition, shareholders may experience dilution if and when theCompany raises additional capital by the sale of its equity securities undersuch adverse market conditions.

 

**The commercialization of our products could besignificantly delayed by governmental regulation and any and all such delays,if they occur, will likely materially affect the Company and our operations.**

** **

The proposed products we intend to develop, assembleand market are subject to regulations by the United States Food and DrugAssociation (the “FDA”), and by comparable agencies in certain states andvarious foreign countries.  The processof complying with the requirements of the FDA, related agencies, and otherstate and foreign agencies is costly, time consuming, and burdensome,especially for a pre-revenue, development stage company.  Although we have secured the assistance ofregulatory consultants to help direct our regulatory compliance and filings, noassurances can be given that such filings will be acceptable to the FDA orother regulatory bodies.  Further, evenif acceptable, we may encounter significant delays which will materially andadversely affect our business plan.

 

**We are highly dependent on the services provided bycertain key personnel.**

** **

We are highly and materially dependent upon theservices of our executive officers and other key personnel, including MauriceR. Taylor II, Michael P. Grossman, Richard Thon and Richard Carlson.  We have not obtained “key-man” life insuranceinsuring the lives of any of these persons. If the services of any of these persons become unavailable to us, forany reason, our business could be adversely affected.

 

**Our officers and directors possess substantial votingpower with respect to our common stock, which could adversely affect the marketprice of our common stock.**

** **

Our officers and directors collectively possessbeneficial ownership of 4,723,230 shares of our common stock, which representsapproximately 31.3% of the voting power of our common stock.  This represents a significant portion of thevoting power of the Company’s shareholders. As a result, our directors and officers will have the ability tosubstantially (but not wholly) control our management and affairs through theelection and removal of our entire board of directors, and all other mattersrequiring shareholder approval, including the future merger, consolidation orsale of all or substantially all of our assets. This concentrated control could discourage others from initiating anypotential merger, takeover or other change-of-control transaction that mayotherwise be beneficial to our shareholders. As a result, the return on an investment in our common stock through themarket price of our common stock or ultimate sale of our business could beadversely affected.

 

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###### **AssetsPledged to Secure Senior Bank Facility; Assets Not Available to Secure OtherSenior Debt Financing; Assignment Of All Assets to Guarantors in Event ofDefault.**

######  

As discussed above,**and in our financial statements, our ongoing senior debtfinancing through Crown Bank, NA, Minneapolis, Minnesota, has required us topledge all our assets and certain licenses, as well as provide certainaccredited investors’ personal guarantees. As such, the Company will not be ina position in the future to pledge its assets to secure any debt or lendingfacility, in the event it desired or needed to borrow such funds on a securedlending basis. Moreover, under the terms and conditions of the foregoingfacility, and our agreement with such guarantors, in the event of any defaultby the Company with its senior lender, and personal guarantees are called andhonored, the Company and its lender have agreed that all the Company’s assetsshall be assigned to such guarantors, pro rata, in consideration of such breachand obligation to pay under the respective guarantees. Thus, commonshareholders of the Company, and any existing and future investors in theCompany’s common stock, would, if the foregoing breach and circumstancesoccurred, not have access or recourse to the Company’s assets and collateral,and thus, would likely face a complete loss of their investment in the Company.

 

**We license from third parties, and do not own orcontrol, key intellectual property critical to our products.**

** **

We have exclusively licensed from third partiesintellectual properties covered by patents and patent applications.  Although we have been advised by patentcounsel that such licensed technologies have received protection in proposedmajor market areas, no assurance can be given that such protections will beproperly maintained by the parties controlling such intellectual properties, orthat such licenses will be honored and not breached.  The intellectual property licensed from thirdparties includes technology that is critical to our proposed products.  If the parties controlling such intellectualproperty breach our licenses, or fail to adequately maintain, assert and defendsuch intellectual property, we may not be able to maintain the technological(and thereby competitive) edge we believe we possess.  Any such loss of intellectual-propertyprotections would likely have a materially adverse effect on the Company andits business.

 

**If we lose our right to license from third partiescertain critical intellectual properties, our entire business would be injeopardy.**

** **

The agreements pursuant to which we license criticalintellectual properties are not irrevocable. If we should lose our right to license and use any technology covered byour licenses, such loss would have a materially adverse effect on the Companyand our business.  In such a case, theviability of the Company’s business would be in question. Our only alternativeswould be to find existing and non-infringing technology to replace that lost(if any exists), or develop new technology ourselves.  The pursuit of any such alternative wouldlikely cause significant delay in the development and introduction of ourproposed products.

 

**The protections for the intellectual property we ownand license from other parties may be successfully challenged by third parties.**

** **

We own and, as noted above, license from third partiesvarious key intellectual properties.  Noassurance can be given that any intellectual-property claims will not besuccessfully challenged by third parties. Any challenge to our intellectual property, regardless of merit, wouldlikely involve costly litigation which would materially and adversely affectthe Company.  Moreover, if a challengewere successful, it is possible that the viability of the Company’s businesswould be in question.  If a successfulchallenge were made to intellectual property that is critical to our proposedproducts, the pursuit of any such alternative would likely cause significantdelay in the development and introduction of such products.

 

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**Rapid technological change in our competitivemarketplace may render our proposed products obsolete or diminish our abilityto compete in the marketplace.**

** **

The urologic-products and medical device markets areextremely competitive, dominated by large and well financed competition, andsubject to rapid technological advances and changes.  The discovery of new technologies andadvances in the application of such technologies to the medical marketplace ingeneral, and the market for urologic products in particular, may render ourproducts obsolete or non-competitive. Any such changes and advances could force us to abandon our currentlyproposed products, which would have a material and adverse effect on theCompany and its business.

 

**We compete with many companies with greater resourcesthan us; we may not be able to compete against companies with greater resourcesthan us, or with any competition.**

** **

The urology-imaging and therapeutic businesses and themedical device and life sciences business in general, are extremelycompetitive.  We have experienced, andexpect to continue experiencing significant competition in the medical devicemarket.  Although we believe we may havea proprietary niche in the prostate-imaging and prostate-therapeuticmarketplaces, many factors beyond our control, including government regulation,will likely encourage new competitors. In particular, several large companies will compete with us in theprostate-imaging and prostate-therapeutic business.  Many of the companies that will be in directcompetition with us have significantly greater resources, more personnel andlonger operating histories than we do. Therefore, no assurance can be given that we will be able tosuccessfully compete with these, or any other companies in the marketplace, ifat all.

 

**Our failure to receive third-party reimbursement for ourproducts, when in the marketplace, would result in diminished marketability ofour products.**

** **

We do not currently receive reimbursement from anyparty for the use our products because there are no products fully developedand for sale in the marketplace and we have taken no steps to obtain approvalfor reimbursement for the use of any of our proposed products.  Nevertheless, we are working to formulate theappropriate approach to obtaining and optimizing government and third-partyreimbursement for the use of our products. We expect that the use of our ProUroScan product will be eligible forreimbursement utilizing existing “Current Procedural Terminology” (“CPT”)codes.  In addition, and as explainedbelow, we believe that our therapeutic products will be used in procedureseligible for reimbursement as well, without negatively affecting reimbursementfor such procedures.  The success of ourfuture medical-device products will materially depend on the ability of medical-serviceproviders to obtain third-party reimbursement from private insurance sourcesMedicare, Medicaid, and various foreign governments when using ourproducts.  It may be difficult to predictthe timing and outcome of reimbursement decisions.  Importantly, there are no assurances that suchreimbursement will ever be obtained.

 

Each procedure performed by a physician is assigned aspecific CPT code.  When a procedure isperformed, the physician must use the CPT code when billing third-party payerssuch as insurance companies or the government. The amount of reimbursement the physician receives depends on therelative value assigned to the procedure by the third-party payer via the CPTcoding.  When a new product or procedureis introduced, it must be submitted to the American Medical Association’s (AMA)CPT Editorial Panel, who determines if an existing code should be used, or if anew code should be issued.  However,before reaching the Editorial Panel, it must first be screened by the CPTAdvisory Committee and the appropriate national medical specialty societyseated in the AMA House of Delegates (for prostate-related procedures, this isthe American Urology Association, or AUA). The process of obtaining a new CPT code can take from one to three years.

 

In the case of the ProUroScan diagnostic system, itis anticipated that the product will initially be positioned as an adjunctivetest to be used in combination with the current DRE and PSA tests.  This will

 

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createan opportunity for the test to be classified and potentially reimbursed atcomparable levels to these tests or in combination with the existing levels ofreimbursement that are already provided. Our reimbursement consultants (Hogan and Hartson) have suggested that apatient pay model that would require the test and the supporting services to bepaid directly by the patient at the time the test is performed is also afeasible approach in the short term. Analogs exist that are similar to our test suggest that this approachcould be implemented with appropriate marketing and patient educationalmaterials.  In the absence of formalreimbursement coverage, providers must give beneficiaries a Medicare AdvanceBeneficiary Notice (“ABN”) before furnishing a Part B service when thereis a reasonable doubt that Medicare will cover the procedure.  An ABN can be used for all situations,including laboratory tests, by all physicians and suppliers.  As the level of clinical and paymentexperienceexpands, weanticipate filing for a formal CPT procedure code and reimbursement aspreviously described. There can be no assurance that we will be successful inobtaining a unique CPT code for use of the ProUroScan system.

 

Our therapeutic products are anticipated to be “add-on”enhancements to existing thermal therapy systems.  These existing systems are used in proceduresthat already have designated CPT codes. The use of our add-on enhancements is not expected to alter theestablished CPT codes for such procedures or otherwise affect reimbursement forsuch procedures.  We anticipate thatthese products will be sold to established thermal therapy companies and notdirectly to the medical service provider. Because the thermal therapy procedures utilizing the equipment providedby these established companies already have designated CPT codes, neither thereimbursement for such procedures nor our future revenues are directly relatedto or dependent upon the establishment of new CPT codes.  Nevertheless, if reimbursement levels underthe existing CPT codes were reduced for applicable thermal therapy procedures,such reduction may adversely affect our ability to sell therapeutic products ata reasonable price.

 

**Our common stock is illiquid and may be difficult tosell; OTC trading.**

** **

Trading of our common stock is conducted on theOver-the-Counter Bulletin Board, or “OTC Bulletin Board.”  Management believes this has an adverseeffect on the liquidity of our common stock, not only in terms of the number ofsecurities that can be bought and sold at a given price, but also throughdelays in the timing of transactions and lack of analyst research coverage ofour Company.  This may result in lowerprices for our common stock than might otherwise be obtained if our stock weretraded on a larger or more established exchange, such as NASDAQ Small MarketCap Market, or otherwise, and could also result in a larger spread between thebid and asked prices for our common stock.

 

**There is currently little trading volume in our commonstock, which may make it difficult to sell shares of our common stock.**

** **

Since the Merger, there has been very little tradingactivity in our common stock.  Over thepast three months, the average daily trading volume (as reported byBigCharts.com and Yahoo Finance) has been only approximately 5,400 shares.  The relatively small trading volume willlikely make it difficult for our shareholders to sell their shares as and whenthey choose.  Furthermore, small tradingvolumes generally depress market prices. As a result, investors may not always be able to resell shares of ourcommon stock publicly at the time and prices that they feel is fair orappropriate.

 

**Because our stock is deemed a “penny stock,” you mayhave difficulty selling shares of our common stock.**

** **

Our common stock is a “penny stock” and is thereforesubject to the requirements of Rule 15g-9 under the Securities ExchangeAct of 1934.  Under this Rule,broker-dealers who sell penny stocks must provide purchasers of these stockswith a standardized risk-disclosure document prepared by the SEC. Thepenny-stock rules severely limit the liquidity of securities in thesecondary market, and many brokers

 

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choose not to participatein penny-stock transactions.  As aresult, there is generally less trading in penny stocks.  If you become a holder of our common stock,you may not always be able to resell shares of our common stock publicly at thetime and prices that you feel are fair or appropriate.  Under applicable regulations, our common stockwill generally remain a “penny stock” until and for such time as its per-shareprice is $5.00 or more (as determined in accordance with SEC regulations), oruntil meet certain net asset or revenue thresholds.  These thresholds include the possession of nettangible assets (i.e., total assets less intangible assets and liabilities) inexcess of $2,000,000 in the event we have been operating for at least threeyears or $5,000,000 in the event we have been operating for fewer than threeyears, and the recognition of average revenues equal to at least $6,000,000 foreach of the last three years.  We do notanticipate meeting any of the thresholds in the foreseeable future.

 

**Our ability to use operating loss carryforwards may belimited by future changes in equity ownership; possible change in control andlimitation of losses in future years to offset income**

** **

We have generated netoperating loss carryforwards through December 31, 2005 of approximately$2.0 million which, if not used, will begin to expire in 2021.  Federal and state tax laws impose significantrestrictions on the utilization of net operating loss carryforwards in theevent of a change in ownership of the Company that constitutes an “ownershipchange,” as defined by the Internal Revenue Code, Section 382.  Management has analyzed the Merger andPrivate Placement transactions that occurred in April, 2004, and believes thatthey do not constitute such an ownership change.  However, those transactions, together withpossible future changes during the subsequent 36-month period may constitute achange in ownership that could subject the Company’s use of its net operatingloss carryforward to the above limitations. Specifically, under certain conditions, the convertible debentures beingissued and proposed to be issued pursuant to the Company’s current debtfinancing described above may be converted into enough common shares to triggersuch a change in ownership.  Based on theCompany’s estimates, the Section 382 limitation would apply to all of the$2.0 million net operating loss carryforward.

 

**Our business and products subject us to the risk ofproduct-liability claims.**

** **

The manufacture and sale of medical products and theconduct of clinical trials using new technology involve customary risks ofproduct-liability claims.  There can beno assurance that our insurance coverage limits will be adequate to protect usfrom any liabilities which we might incur in connection with the clinicaltrials or the commercialization of any of our products.  Product-liability insurance is expensive andin the future may not be available on acceptable terms, if at all.  A successful product-liability claim orseries of claims brought against us in excess of our insurance coverage wouldhave a materially adverse effect on our business, financial condition andresults of operations.  In addition, anyclaims, even if not ultimately successful, could adversely affect themarketplace’s acceptance of our products.

 

**We have never paid dividends, and do not expect to paydividends in the foreseeable future.**

** **

We have never paid dividends on our capital stock anddo not anticipate paying any dividends for the foreseeable future.

 

***Item3.  Controls and Procedures.***

*** ***

We carried out anevaluation, with the participation of our chief executive and chief financialofficers, of the effectiveness, as of March 31, 2006, of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofthe Securities Exchange Act of 1934, as amended).  Based upon that evaluation, our chiefexecutive officer and chief financial officer concluded that our disclosurecontrols and procedures are effective in alerting them on a timely basis tomaterial information required to be disclosed in our periodic reports filedwith the Securities and Exchange Commission; and there has been

 

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nosignificant change in such internal controls or other factors which couldsignificantly affect such controls, including any corrective actions withregard to significant deficiencies or material weaknesses, since our mostrecent evaluation.  Nevertheless, due to ourlimited number of employees engaged in the authorization, recording, processingand reporting of transactions, there is inherently a lack of segregation ofduties.  We periodically assess the costversus benefit of adding the resources that would remedy or mitigate thissituation, and currently do not consider the benefits to outweigh the costs ofadding additional staff in light of the limited number of transactions due tothe start-up nature of our current operations.

 

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**PART II.  OTHER INFORMATION.**

** **

***Item1.  Legal Proceedings.***

*** ***

***On April 2, 2004, a formerofficer and employee of ProUroCare Inc. filed a lawsuit against ProUroCare Inc.and the Company relating to his separation of employment with ProUroCare Inc.prior to the Merger. On August 1, 2005, ProUroCare Inc. and the Companyagreed to settle the lawsuit to limit further costs of litigation, and the lawsuitwas dismissed with prejudice. Under the settlement agreement, the Company didnot admit any wrong-doing, but agreed to pay $160,000 plus applicableemployment taxes in complete settlement of all claims. Subsequently, theCompany failed to pay this settlement due to lack of funds, and a new actionwas brought against the Company to enforce the terms of settlement, which wasdenied by the court. In response, and pursuant to a new action, a Complaint wasfiled and served on the Company alleging breach of contract and seeking damagesof $160,000, unspecified consequential damages, attorneys’ fees, costs and pre-and post-award interest on all damages arising from the settlement noted above.***

*** ***

***On March 3, 2006 the Companyand ProUroCare Inc. settled the lawsuit. Under the settlement agreement, the Company paid $177,000 plus $1,924 ofpayroll taxes in complete settlement of all claims and a dismissal of the formeremployee’s claim.***

*** ***

***Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds.***

*** ***

*Stock Transactions:*

 

On February 22, 2006, pursuant to ourengagement of our Venture Law Resources, PLLC (VLR), of Bloomington,Minnesota as our new outside Corporate and Securities Law Counsel, (effective September 1,2005), we issued 25,000 shares of common stock to VLR.  The issuance was made in reliance onexemption from registration provided by under Section 4(2) of theSecurities Act of 1933, as amended (the “Act”), as we reasonably believed thatthe investor was sophisticated, no general solicitation was involved and thetransaction did not involve a public offering.  

 

*Warrant Issuances:*

 

***On January 25, 2006, pursuantto a loan agreement with a lender (a partnership of two accreditedindividuals), and as consideration to provide such loan to us, issued five-yearwarrants to the lender to acquire up to 50,000 shares of our common stock at$0.50 per share. ***Thewarrants were issued in a private placement under Section 4(2) of theSecurities Actof1933, as amended, as such transaction was a non-public offering of common stockto a limited number of subscribers.

*** ***

***Issuancesof Convertible Debentures:***

*** ***

***Effective February 16, 2006and February 28, 2006, the Company completed its first two closings underits ongoing $6.0 million senior debt financing. These first two closings aggregated $2.2 million. The senior debtfinancing is in the form of long-term bank loans (the “Loans”) secured by asecurity agreement covering all Company assets, including two technologylicenses that were assigned to the bank, and guaranteed by a limited number ofaccredited individual investors, who received unsecured convertible debenturesin consideration for their guarantees. Additional closings on such senior debtfinancing are anticipated in the near future.***

*** ***

***Pursuant to the first of such twoclosings, on February 16, 2006, the Company issued a promissory note toits lender in the amount of $1,200,000, at an interest rate of the Prime Rateplus 1.0%.  This promissory note matureson January 11, 2008.  In connectionwith this note, two individuals each guaranteed $600,000 of the loan, and wereeach issued a 10% unsecured convertible subordinated debenture in the amount of$200,000. Furthermore, under the second closing held on February 28, 2006,***

 

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***the Company issued a secondpromissory note to its lender in the amount of $1,000,000, at an interest rateof the Prime Rate plus 1.0%.  Thispromissory note matures on February 29, 2008.  Two accredited investors guaranteed the$1,000,000 face amount of this promissory note, and in consideration, wereissued 10% unsecured convertible subordinated debentures totaling $333,334.***

*** ***

***Each of the 10% unsecuredconvertible subordinated debentures issued to the guarantors in connection withthe Company’s ongoing senior debt facility mature three years from the date ofissue and is convertible into Company common stock at a price of $0.50 pershare.  If the guarantees of theunderlying bank indebtedness are not released by August 31, 2007 (orsubsequently October 31, 2007) the conversion price becomes $.40 per share(and subsequently $0.30 per share), respectively.***

*** ***

***The warrants issued were exempt from registration under Section 4(2) ofthe Securities Act***of1933, as amended, as such transaction was a non-public offering of common stockto an isolated number of sophisticated and accredited investors.

 

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***Item 6.  Exhibits***

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                          |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                                                                                                                                                                               |
| 2.1                  |       | Agreement of Merger and Reorganization by and among Global Internet  Communications, Inc., GIC Acquisition Co., and ProUroCare Inc. dated April 5,  2004 (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K  filed April 20, 2004).                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 2.2                  |       | Articles of Merger relating to the merger of GIC Acquisition Co.,  then a wholly owned subsidiary of the registrant with and into ProUroCare  Inc., as filed with the Minnesota Secretary of State on April 5, 2004  (incorporated by reference to Exhibit 2.2 to Current Report on Form 8-K  filed April 20, 2004). |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 3.1                  |       | Articles of Incorporation of ProUroCare Medical Inc. (incorporated by  reference to Exhibit 3.1 to registration statement on Form SB-2  filed August 3, 2004).                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 3.2                  |       | Amended and Restated Bylaws of ProUroCare Medical Inc. (incorporated  by reference to Exhibit 3.2 to annual report on Form 10KSB filed March 31,  2005).                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 4.1                  |       | Form of warrants issued to ProUroCare Inc. guarantors of lines  of credit, issued between March 1 and December 22, 2003  (incorporated by reference to Exhibit 4.5 to registration statement on Form SB-2  filed August 3, 2004).                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 4.2                  |       | Warrant to acquire 300,000 shares of common stock of ProUroCare  Medical Inc., issued in favor of BINA Enterprises on April 5, 2004  (incorporated by reference to Exhibit 4.2 to registration statement on Form SB-2  filed August 3, 2004).                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 4.3                  |       | Warrant to acquire 90,000 shares of common stock of ProUroCare  Medical Inc., issued in favor of Artann Laboratories, Inc. effective as  of July 19, 2004, (incorporated by reference to Exhibit 4.6 to  registration statement on Form SB-2/A filed October 1, 2004).                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 4.4                  |       | Warrant to acquire 10,000 shares of common stock of ProUroCare  Medical Inc., issued in favor of Vladimir Drits effective as of July 19,  2004 (incorporated by reference to Exhibit 4.7 to registration statement  on Form SB-2/A filed October 1, 2004).                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 4.5                  |       | Warrant to acquire 180,000 shares of common stock of ProUroCare  Medical Inc., in favor of Artann Laboratories, Inc. effective as of December 2,  2004 (incorporated by reference to Exhibit 4.8 to registration statement  on Form SB-2 filed December 17, 2004).                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 4.6                  |       | Warrant to acquire 20,000 shares of common stock of ProUroCare  Medical Inc., in favor of Vladimir Drits effective as of December 2,  2004 (incorporated by reference to Exhibit 4.9 to registration statement  on Form SB-2 filed December 17, 2004).                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                     |
| 4.7                  |       | Form of warrants issued to a promissory note guarantors and a  lender between September 14 and October 19, 2005 (incorporated by  reference to Exhibit 4.9 to Annual Report on Form 10KSB filed March 31, 2006).                                                                                                          |

 

28

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| 4.8    |   | Convertible Subordinated Debenture dated February 17, 2006  issued by ProUroCare Medical Inc. in favor of guarantor (incorporated by  reference to Exhibit 4.6 to Current Report on Form 8-K filed February 23,  2006).                                                         |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                |
| 4.9    |   | Convertible Subordinated Debenture dated February 17, 2006  issued by ProUroCare Medical Inc. in favor of guarantor (incorporated by  reference to Exhibit 4.7 to Current Report on Form 8-K filed February 23,  2006).                                                         |
|   |   |                                                                                                                                                                                                                                                                                                |
| 4.10   |   | Convertible Subordinated Debenture dated February 28, 2006  issued by ProUroCare Medical Inc. in favor of guarantor (incorporated by  reference to exhibit 4.7 to Form 8-K filed March 3, 2006).                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                |
| 4.11   |   | Convertible Subordinated Debenture dated February 28, 2006  issued by ProUroCare Medical Inc. in favor of guarantor (incorporated by  reference to exhibit 4.8 to Form 8-K filed March 3, 2006).                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.1   |   | License Agreement by and between CS Medical Technologies, LLC and  ProUroCare Inc., dated July 6, 2001 (incorporated by reference to Exhibit 10.10  to registration statement on Form SB-2/A filed October 1, 2004)..                                                           |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.2   |   | License Agreement by and between Rensselaer Polytechnic Institute and  ProUroCare Inc., dated July 13, 2001 (incorporated by reference to Exhibit 10.11  to registration statement on Form SB-2/A filed October 1, 2004).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.3   |   | License Agreement by and between Profile, LLC and ProUroCare Inc.,  dated January 14, 2002 (incorporated by reference to Exhibit 10.12  to registration statement on Form SB-2/A filed October 1, 2004).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.4   |   | First Amendment to License Agreement by and between Profile, LLC and  ProUroCare Inc., dated March 22, 2002 (incorporated by reference to Exhibit 10.13  to registration statement on Form SB-2/A filed October 1, 2004).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.5   |   | Consulting Agreement by and between Dr. Neal Shore and  ProUroCare Inc., dated January 1, 2003 (with compensation amendment  effective January 1, 2004) (incorporated by reference to Exhibit 10.14  to registration statement on Form SB-2/A filed October 1, 2004). |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.6   |   | Letter of Understanding by and between Profile LLC and ProUroCare  Inc., dated March 23, 2004 (incorporated by reference to Exhibit 10.4  to registration statement on Form SB-2 filed August 3, 2004).                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.7   |   | Research and Development Agreement by and among ProUroCare Medical  Inc., Artann Laboratories, Inc. and Armen Sarvazyan, dated July 15,  2004 (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-QSB  filed August 3, 2004).                        |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.8   |   | Development Agreement by and among ProUroCare Medical Inc., Artann  Laboratories, Inc. and Armen Sarvazyan, dated July 15, 2004  (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-QSB  filed August 3, 2004).                                     |
|   |   |                                                                                                                                                                                                                                                                                                |
| 10.9   |   | Employment Agreement by and between ProUroCare Inc. and Richard B.  Thon, dated July 21, 2004 (incorporated by reference to Exhibit 10.9  to registration statement on Form SB-2 filed August 3, 2004).                                                                         |

 

29

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| 10.10  |   | ProUroCare Medical Inc. 2002 Stock Option Plan (incorporated by  reference to Exhibit 10.7 to registration statement on Form SB-2  filed August 3, 2004).                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                      |
| 10.11  |   | Employment Agreement by and between ProUroCare Medical Inc. and  Maurice R. Taylor, II dated January 1, 2005 (incorporated by  reference to Exhibit 10.1 to Current Report on Form 8-K filed March 9,  2005).                                    |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.12  |   | Employment Agreement by and between ProUroCare Medical Inc. and  Michael P. Grossman dated March 4, 2005 (incorporated by reference to Exhibit 10.2  to Current Report on Form 8-K filed March 9, 2005)                                               |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.13  |   | Amendment to ProUroCare Medical Inc. 2002 Stock Option Plan  (incorporated by reference to Exhibit 10.8 to annual report on Form 10KSB  filed March 31, 2005).                                                                                             |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.14  |   | ProUroCare Medical Inc. 2004 Stock Option Plan, as amended  (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10KSB  filed March 31, 2005).                                                                                              |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.15  |   | Memorandum of Understanding between ProUroCare Inc. and Urologix, Inc.  dated July 27, 2005 (incorporated by reference to Exhibit 10.1 to  Current Report on Form 8-K filed August 2, 2005).                                                     |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.16  |   | Sublicense agreement between ProUroCare Inc. and Urologix, Inc.  dated July 27, 2005 (incorporated by reference to Exhibit 10.2 to  Current Report on Form 8-K filed August 2, 2005).                                                            |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.17  |   | Amendment #1 dated July 27, 2005 to License Agreement by and  between ProUroCare Inc. and Rensselaer Polytechnic Institute dated July 13,  2001 (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K  filed August 2, 2005). |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.18  |   | Final Settlement Agreement and Unconditional Release between Todd E.  Leonard (“Leonard”), and ProUroCare, Inc. dated August 1, 2005  (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K  filed August 2, 2005). |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.19  |   | Demand Promissory Note dated January 25, 2006 for $12,500 issued  to Alexander Nazarenko (incorporated by reference to Exhibit 10.1 to  Current Report on Form 8-K filed January 31, 2006).                                                           |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.20  |   | Demand Promissory Note dated January 25, 2006 for $12,500 issued  to David Koenig (incorporated by reference to Exhibit 10.2 to Current  Report on Form 8-K filed January 31, 2006).                                                                  |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.21  |   | Loan Agreement dated January 25 by and among Adron Holdings,  LLC, ProUroCare Inc., Maurice Taylor II and David Koenig (incorporated by  reference to Exhibit 10.3 to Current Report on Form 8-K filed January 31,  2006).                            |
|   |   |                                                                                                                                                                                                                                                                      |
| 10.22  |   | Promissory Note dated January 25, 2005 for $23,000 issued to  Adron Holdings, LLC (incorporated by reference to Exhibit 10.4 to  Current Report on Form 8-K filed January 31, 2006).                                                                  |

 

30

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| 10.23  |   | Guarantee of Maurice Taylor II dated January 25, 2006  (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K  filed January 31, 2006).                                                                                                      |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                               |
| 10.24  |   | Guarantee of David Koenig dated January 25, 2006 (incorporated  by reference to Exhibit 10.6 to Current Report on Form 8-K filed January 31,  2006).                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.25  |   | Warrant for Shares of Common Stock of ProUroCare Medical, Inc.  dated January 25, 2006 issued to Adron Holdings, LLC (incorporated by  reference to Exhibit 10.7 to Current Report on Form 8-K filed January 31,  2006).                                  |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.26  |   | Promissory Note dated January 11, 2006 issued by ProUroCare  Medical Inc. in favor of Crown Bank, executed February 16, 2006  (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K  filed February 23, 2006).                          |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.27  |   | Assignment of Profile LLC License Agreement dated January 11,  2006 between ProUroCare Inc. and Crown Bank, executed February 16, 2006  (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K  filed February 23, 2006).                |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.28  |   | Assignment of CS Medical Technologies LLC License Agreement dated January 11,  2006 between ProUroCare Inc. and Crown Bank, executed February 16, 2006  (incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K  filed February 23, 2006) |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.29  |   | Guaranty provided to Crown Bank on behalf of ProUroCare Medical Inc.  dated January 10, 2006 (incorporated by reference to Exhibit 4.4 to  Current Report on Form 8-K filed February 23, 2006).                                                                |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.30  |   | Guaranty provided to Crown Bank on behalf of ProUroCare Medical Inc.  dated January 10, 2006 (incorporated by reference to Exhibit 4.5 to  Current Report on Form 8-K filed February 23, 2006).                                                                |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.31  |   | Security Agreement dated January 11, 2006 between Crown Bank and  ProUroCare, Inc., executed February 16, 2006 (incorporated by  reference to Exhibit 4.8 to Current Report on Form 8-K filed February 23,  2006).                                   |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.32  |   | Promissory Note dated February 28, 2006 issued by ProUroCare  Medical Inc. in favor of Crown Bank (incorporated by reference to exhibit 4.1  to Current Report on Form 8-K filed March 3, 2006).                                                                    |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.33  |   | Guaranty provided to Crown Bank on behalf of ProUroCare Medical Inc.  dated February 28, 2006 (incorporated by reference to exhibit 4.4 to  Current Report on Form 8-K filed March 3, 2006).                                                                        |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.34  |   | Guaranty provided to Crown Bank on behalf of ProUroCare Medical Inc.  dated February 28, 2006 (incorporated by reference to exhibit 4.5 to  Current Report on Form 8-K filed March 3, 2006).                                                                        |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.35  |   | Guaranty provided to Crown Bank on behalf of ProUroCare Medical Inc.  dated February 28, 2006 (incorporated by reference to exhibit 4.6 to  Current Report on Form 8-K filed March 3, 2006).                                                                        |
|   |   |                                                                                                                                                                                                                                                                               |
| 10.36  |   | Security Agreement dated February 28, 2006 between Crown Bank  and ProUroCare, Inc. (incorporated by reference to exhibit 4.9 to  Current Report on                                                                                                                      |

 

31

----

 
|   |   | Form 8-K filed March 3, 2006).                                                                                                                                                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                             |
| 10.37  |   | Security Agreement dated February 28, 2006 between Crown Bank  and ProUroCare Medical, Inc. (incorporated by reference to exhibit 4.10  to Current Report on Form 8-K filed March 3, 2006).                                  |
|   |   |                                                                                                                                                                                                                                             |
| 10.38  |   | Final Settlement Agreement and Unconditional Release between Todd E.  Leonard (“Leonard”), and ProUroCare, Inc. dated March 3, 2006  (incorporated by reference to exhibit 10.1 to Form 8-K filed March 3,  2006). |
|   |   |                                                                                                                                                                                                                                             |
| 31.1   |   | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                 |
|   |   |                                                                                                                                                                                                                                             |
| 31.2   |   | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                     |
|   |   |                                                                                                                                                                                                                                             |
| 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 (filed herewith).                          |

 

32

----

 

**SIGNATURES**

** **

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

 

 
|                    | **ProUroCare Medical Inc.**                        |
|-------------------------|----------------------------------------------------|
|                    |                                               |
|                    |                                               |
| Date: May 10, 2006 | By:                                                | /s/ Maurice R. Taylor II |   |
|                    | Name:  Maurice R. Taylor II                   |
|                    | Title:  Chairman and Chief  Executive Officer |
|                    |                                               |
|                    |                                               |
| Date: May 10, 2006 | By:                                                | /s/ Richard Thon |   |
|                    | Name:  Richard Thon                           |
|                    | Title:  Chief Financial Officer               |

 

33

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