**United StatesSecurities and Exchange Commission**

**Washington, D.C. 20549**

**FORM 10-QSB**

**(Mark One)**
| **x**      | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**                                                   |
|------------|------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                               |
| ** ** | **For the quarterly period ended June 30, 2007**                                                                                         |
| ** ** | ** **                                                                                                                               |
| **o**      | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**                                                  |
| ** ** | ** **                                                                                                                               |
| ** ** | **For the transition period from           to         ** |

 

**Commission File Number 333-103781**

**ProUroCare Medical Inc.**

(Exact name of smallbusiness issuer as specified in its charter)

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

 

**5500 Wayzata Blvd., Suite 310Golden Valley, Minnesota 55416**

(Address of principalexecutive offices)

**(952) 476-9093**

(Issuer’s telephonenumber)

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.  YES x  NO o

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

State the numberof shares outstanding of each of the issuer’s classes of common equity, as ofthe latest practicable date:  15,832,947shares of common stock outstanding as of August 2, 2007 (par value $0.00001 pershare).

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

 

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**ProUroCare Medical Inc.**

**Form 10-QSB for the**

**QuarterEnded June 30, 2007**

**Table of Contents**
| 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 5.    | OTHER INFORMATION                                               |   |   |
|       |                                                            |   |   |
| ITEM 6.    | EXHIBITS                                                        |   |   |
|       |                                                            |   |   |
| SIGNATURES |                                                            |   |

 

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**PARTI. FINANCIAL INFORMATION**

***Item 1. Financial Statements***

**ProUroCare Medical Inc.A Development Stage CompanyConsolidated Balance Sheets**
| ** **                                                                                                                                                               | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                               | ** ** | **(Unaudited)**             | ** ** | **(Audited)**                   | ** ** |
| **Assets**                                                                                                                                                               | ** ** | ** **                  |       | ** **                      | ** ** |
| Current assets:                                                                                                                                                          |       |                        |       |                            |       |
| Cash                                                                                                                                                                     |       | $                           | 343        |                            | $          | 2,407 |   |
| Other  receivables                                                                                                                                                       |       | 1,400                       |       | —                          |       |
| Prepaid expenses                                                                                                                                                         |       | 48,733                      |       | 15,459                          |       |
|                                                                                                                                                                     |       |                        |       |                            |       |
| Total current  assets                                                                                                                                                    |       | 50,476                      |       | 17,866                          |       |
|                                                                                                                                                                     |       |                        |       |                            |       |
| Equipment and  furniture, net                                                                                                                                            |       | 1,791                       |       | 3,739                           |       |
| Debt issuance costs,  net                                                                                                                                                |       | 311,512                     |       | 573,013                         |       |
|                                                                                                                                                                     |       |                        |       |                            |       |
|                                                                                                                                                                     |       | $                           | 363,779    |                            | $          | 594,618 |   |
| ** **                                                                                                                                                               |       |                        |       |                            |       |
| **Liabilities  and Shareholders’ Deficit**                                                                                                                          |       |                        |       |                            |       |
| Current liabilities:                                                                                                                                                     |       |                        |       |                            |       |
| Notes payable,  bank                                                                                                                                                     |       | $                           | 2,200,000  |                            | $          | — |   |
| Notes payable,  net of original issue discount                                                                                                                           |       | 192,585                     |       | 174,338                         |       |
| Accounts payable                                                                                                                                                         |       | 381,459                     |       | 385,793                         |       |
| Accrued expenses                                                                                                                                                         |       | 744,659                     |       | 662,226                         |       |
| Loans from  officers and directors                                                                                                                                       |       | 46,350                      |       | 15,450                          |       |
| Total current  liabilities                                                                                                                                               |       | 3,565,053                   |       | 1,237,807                       |       |
|                                                                                                                                                                     |       |                        |       |                            |       |
| Commitments and  contingencies                                                                                                                                           |       |                        |       |                            |       |
| Long-term bank debt                                                                                                                                                      |       | —                      |       | 2,200,000                       |       |
| Long-term convertible  debentures, net of original issue discount                                                                                                        |       | 331,199                     |       | 209,983                         |       |
| Total  liabilities                                                                                                                                                       |       | 3,896,252                   |       | 3,647,790                       |       |
|                                                                                                                                                                     |       |                        |       |                            |       |
| Shareholders’ deficit:                                                                                                                                              |       |                        |       |                            |       |
| Common stock,  $0.00001 par. Authorized 50,000,000 shares; issued and outstanding 15,832,947  and 14,399,686 shares on June 30, 2007 and December 31, 2006, respectively |       | 158                         |       | 144                             |       |
| Additional  paid-in capital                                                                                                                                              |       | 11,347,497                  |       | 10,111,482                      |       |
| Deficit  accumulated during development stage                                                                                                                            |       | (14,880,128                 | )          | (13,164,798                     | )          |
|                                                                                                                                                                     |       |                        |       |                            |       |
| Total  shareholders’ deficit                                                                                                                                        |       | (3,532,473                  | )          | (3,053,172                      | )          |
|                                                                                                                                                                     |       |                        |       |                            |       |
|                                                                                                                                                                     |       | $                           | 363,779    |                            | $          | 594,618 |   |

 

*See accompanying notes to financial statements.*

1

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**ProUroCare Medical Inc.A Development Stage CompanyConsolidated Statements of Operations**(Unaudited)
| ** **                                      | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** | **Period from  August 17,1999  (inception) to** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007**                                                       | ** ** | **2006** | ** ** | **June 30, 2007** | ** ** |
| Operating expenses:                        |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
|                                            |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Research and development              |       | $                                                   | 82,414     |                                              | $          | 145,582                                                        |       | $ | 107,234 |   | $ | 233,509 |   | $ | 4,821,158 |   |
| General and administrative                      |       | 430,992                                             |       | 397,578                                           |       | 875,433                                                        |       | 803,121 |   | 7,374,655 |   |
|                                            |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Total operating expenses                        |       | 513,406                                             |       | 543,160                                           |       | 982,667                                                        |       | 1,036,630 |   | 12,195,813 |   |
|                                            |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Operating loss                                  |       | (513,406                                            | )          | (543,160                                          | )          | (982,667                                                       | )          | (1,036,630 | ) | (12,195,813 | ) |
|                                            |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Interest income                                 |       | —                                              |       | —                                            |       | —                                                         |       | — |   | 16,480 |   |
| Interest expense                                |       | (279,266                                            | )          | (256,714                                          | )          | (574,461                                                       | )          | (495,138 | ) | (2,542,593 | ) |
| Debt  extinguishment cost                       |       | (74,502                                             | )          | —                                            |       | (158,202                                                       | )          | — |   | (158,202 | ) |
|                                            |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Net loss                                        |       | $                                                   | (867,174   | )                                                 | $          | (799,874                                                       | )          | $ | (1,715,330 | ) | $ | (1,531,768 | ) | $ | (14,880,128 | ) |
|                                            |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Net loss per  common share:                     |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Basic and diluted                               |       | $                                                   | (0.06      | )                                                 | $          | (0.06                                                          | )          | $ | (0.11 | ) | $ | (0.11 | ) | $ | (1.62 | ) |
|                                            |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Weighted average  number of shares outstanding: |       |                                                |       |                                              |       |                                                           |       |   |   |   |   |
| Basic and  diluted                              |       | 15,725,581                                          |       | 14,253,106                                        |       | 15,369,753                                                     |       | 14,219,011 |   | 9,185,989 |   |

 

***See accompanying notes tofinancial statements.***

2

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**ProUroCare Medical Inc.A Development Stage CompanyConsolidated Statements of Cash Flows**

**(Unaudited)**
| ** **                                                                                                             | ** ** | **Six months ended June 30,** | ** ** | **Period from  August 17,1999  (inception) to** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2007**                                          | ** ** | **2006**                                                       | ** ** | **June 30, 2007** | ** ** |
| Cash flows from  operating activities:                                                                                 |       |                                              |       |                                                           |       |   |   |
| Net loss                                                                                                               |       | $                                                 | (1,715,330 | )                                                              | $          | (1,531,768 | ) | $ | (14,880,128 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities:                                           |       |                                              |       |                                                           |       |   |   |
| Depreciation and amortization                                                                                          |       | 1,948                                             |       | 1,949                                                          |       | 19,006 |   |
| Gain on sale of furniture and equipment                                                                                |       | —                                            |       | —                                                         |       | (2,200 | ) |
| Stock-based compensation                                                                                               |       | 458,101                                           |       | 184,894                                                        |       | 1,613,819 |   |
| Issuance of common stock for services rendered                                                                         |       | —                                            |       | 44,800                                                         |       | 156,904 |   |
| Warrants issued for services                                                                                           |       | 72,000                                            |       | —                                                         |       | 540,636 |   |
| Warrants issued for debt guarantees                                                                                    |       | —                                            |       | —                                                         |       | 320,974 |   |
| Warrants issued for debt extinguishment                                                                                |       | 158,202                                           |       | —                                                         |       | 158,202 |   |
| Amortization of note payable original issue discount                                                                   |       | 23,162                                            |       | 43,684                                                         |       | 152,247 |   |
| Amortization of convertible debt original issue  discount                                                              |       | 121,216                                           |       | 86,757                                                         |       | 331,199 |   |
| Amortization of debt issuance and deferred offering  costs                                                             |       | 261,501                                           |       | 239,891                                                        |       | 1,039,031 |   |
| 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                                                        | )          | (189,554 | ) |
| Other receivables                                                                                                      |       | (1,400                                            | )          | (23,736                                                        | )          | (1,400 | ) |
| Prepaid expenses                                                                                                       |       | 9,311                                             |       | 7,358                                                          |       | 62,289 |   |
| Accounts payable                                                                                                       |       | 16,370                                            |       | (33,597                                                        | )          | 793,345 |   |
| Accrued expenses                                                                                                       |       | 132,344                                           |       | (497,177                                                       | )          | 913,290 |   |
| Net cash used in operating activities                                                                                  |       | (462,575                                          | )          | (1,526,945                                                     | )          | (6,724,044 | ) |
|                                                                                                                   |       |                                              |       |                                                           |       |   |   |
| 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                                                                                         |       | —                                            |       | —                                                         |       | 500,000 |   |
| Payment of note payable, bank                                                                                          |       | —                                            |       | (400,000                                                       | )          | (500,000 | ) |
| Proceeds of notes payable                                                                                              |       | —                                            |       | 123,000                                                        |       | 340,500 |   |
| Payment of notes payable                                                                                               |       | (25,000                                           | )          | (156,969                                                       | )          | (1,007,854 | ) |
| Proceeds from long-term debt                                                                                           |       | —                                            |       | 2,200,000                                                      |       | 2,200,000 |   |
| Payments for debt issuance costs                                                                                       |       | —                                            |       | (229,985                                                       | )          | (231,966 | ) |
| Payment for rescission of common stock                                                                                 |       | —                                            |       | —                                                         |       | (100,000 | ) |
| Net advances (payments) to Clinical Network, Inc.                                                                      |       | —                                            |       | (8,943                                                         | )          | — |   |
| Proceeds from loans from officers and directors                                                                        |       | 117,000                                           |       | —                                                         |       | 132,450 |   |
| Payments on loans from officers and directors                                                                          |       | (79,100                                           | )          | —                                                         |       | (79,100 | ) |
| Payments for deferred offering costs                                                                                   |       | —                                            |       | —                                                         |       | (28,827 | ) |
| Cost of reverse merger                                                                                                 |       | —                                            |       | —                                                         |       | (162,556 | ) |
| Net proceeds from issuance of common stock                                                                             |       | 447,611                                           |       | —                                                         |       | 5,682,537 |   |
| Net cash provided by financing activities                                                                              |       | 460,511                                           |       | 1,527,103                                                      |       | 6,745,184 |   |
| Net increase (decrease) in cash                                                                                        |       | (2,064                                            | )          | 158                                                            |       | 343 |   |
| Cash, beginning  of the period                                                                                         |       | 2,407                                             |       | 37                                                             |       | — |   |
| Cash, end of the period                                                                                                |       | $                                                 | 343        |                                                           | $          | 195 |   | $ | 343 |   |

  

3

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** **
| Supplemental  cash flow information:                                                                                                                        |   |   |    |    |   |    |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|---------|--------|---------|--------|
| Cash paid for income taxes                                                                                                                                  |   |   |    |    |   |    |   |
| Cash paid for interest                                                                                                                                      |   | $      | 135,190 |    | $      | 113,953 |   | $ | 493,171 |   |
| Non-cash investing and financing activities:                                                                                                                |   |   |    |    |   |    |   |
| Warrants issued pursuant to note payable                                                                                                                    |   | $      | 22,500  |    | $      | 48,500  |   | $ | 234,247 |   |
| Common stock issued in lieu of cash for accrued  expenses                                                                                                   |   | 49,911 |    | —  |   | 167,554 |   |
| Common stock issued in lieu of cash for loans from  officers and directors                                                                                  |   | 7,000  |    | —  |   | 7,000   |   |
| Prepaid expenses financed by note payable                                                                                                                   |   | 42,585 |    | 37,312  |   | 111,022 |   |
| Common stock issued in lieu of cash for accounts  payable                                                                                                   |   | 20,704 |    | —  |   | 122,291 |   |
| Convertible debt issued as debt issuance costs  related to guarantee of long-term debt (recorded as a beneficial conversion  in Additional paid-in capital) |   | — |    | 733,334 |   | 733,334 |   |
| Common stock issued for deferred offering expenses                                                                                                          |   | — |    | 22,750  |   | 91,501  |   |
| Issuance of note payable for redemption of common  stock                                                                                                    |   | — |    | —  |   | 650,000 |   |
| Warrants issued for debt issuance costs                                                                                                                     |   | — |    | —  |   | 242,612 |   |
| Conversion of accounts payable to note payable                                                                                                              |   | — |    | —  |   | 241,613 |   |
| Deposits applied to note payable and accrued  interest                                                                                                      |   | — |    | —  |   | 142,696 |   |
| Deposits applied to accounts payable                                                                                                                        |   | — |    | —  |   | 45,782  |   |
| Assumption of liabilities in the Profile, LLC  transaction                                                                                                  |   | — |    | —  |   | 25,000  |   |
| Proceeds from sale of furinture and equipment  applied to accounts payable                                                                                  |   | — |    | —  |   | 2,200   |   |
| Deposits applied  to accrued expenses                                                                                                                       |   | — |    | —  |   | 1,076   |   |

 

*See accompanying notes tofinancial statements.*

4

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**ProUroCareMedical Inc.A Development Stage CompanyNotes to Consolidated Financial Statements**

**June 30, 2007 and 2006 and the period fromAugust 17, 1999 (inception) to June 30, 2007**

(Unaudited)

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

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

ProUroCare Medical Inc. (“ProUroCare,” the “Company, “we” or “us”) is adevelopment stage company that is developing diagnostic and imaging technologyfor use in the characterization and monitoring of prostate cancer.  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 stock toClinical Network, Inc. (“Clinical Network”) and Clinical Network LLC (“CNLLC”), a related party to Clinical Network. Moreover, in July 2001, the Company acquired a license to certainmicrowave technology by issuing 3,000,000 shares of common stock to CS MedicalTechnologies, LLC (“CS Medical”).  InJanuary 2002, the Company acquired a license to certain imaging technologythrough the issuance of 3,999,999 shares to Profile LLC (“Profile”).

Pursuant to a merger agreement effective April 5, 2004 among ProUroCareInc. (“PUC”), Global Internet Communications, Inc. (“Global”), and GICAcquisition Corp., a wholly owned subsidiary of Global (“GIC”), GIC merged withand into PUC, which remained as the surviving company and a wholly ownedoperating subsidiary of Global (the “Merger”). On April 26, 2004, Global changed its name to ProUroCare Medical Inc. Inconnection with the Merger, Global completed a private placement of 2,205,000shares of common stock (the “Private Placement”) pursuant to Rule 506promulgated under the Securities Act of 1933, as amended (the “SecuritiesAct”).

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

***(b)***                                 InterimFinancial Information

The accompanying unauditedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America and pursuant tothe rules and regulations of the Securities and Exchange Commission (the “SEC”)for interim financial information.  Accordingly,certain information and footnote disclosures normally included in financialstatements prepared in accordance with accounting principles generally 

5

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accepted in the UnitedStates have been omitted pursuant to such rules and regulations.  Operating results for the three and six monthperiods ended June 30, 2007 are not necessarily indicative of the results thatmay be expected for the year ending December 31, 2007 or any other period.  The accompanying financial statements andrelated notes should be read in conjunction with the audited financialstatements of the Company, and notes thereto, contained in our Annual Report onForm 10-KSB for the year ended December 31, 2006.

The financial information furnished reflects,in the opinion of management, all adjustments, consisting of normal recurringaccruals, necessary for a fair presentation of the results of the interimperiods presented.

***(c)***                                  AccountingEstimates

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of expenses during thereporting 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 PerCommon 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.  Dilutivecommon-equivalent shares have not been included in the computation of dilutednet loss per share because their inclusion would be antidilutive.  Antidilutive common equivalent sharesissuable based on future exercise of stock options or warrants couldpotentially dilute basic loss per common share in subsequent years.  All options and warrants outstanding wereantidilutive for the three and six month periods ended June 30, 2007 and 2006and the period from August 17, 1999 (inception) to June 30, 2007 since the Companyreported a net loss for these periods.

***(e)***                                  Stock-BasedCompensation

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

Effective January 1, 2006,the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS123R”), that focuses primarily on accounting for transactions in which anentity obtains employee services in share-based payment transactions.  This statement replaced SFAS 123, andsupersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting forStock Issued to Employees.”  SFAS 123Rrequires all companies to expense the fair value of employee stock options andsimilar awards, which has been the Company’s policy to date.  Stock-based employee and non-employeecompensation cost related to stock options was $273,877, $362,101 and$1,505,230 for the three and six 

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month periods ended June 30,2007, and the period from August 17, 1999 (inception) to June 30, 2007,respectively.  The Company estimates theamount of future stock-based compensation expense related to currentlyoutstanding options to be approximately $445,000, $37,000, and $2,000 for theyears ending December 31, 2007, December 31, 2008, and December 31, 2009,respectively.

The Black-Scholes option-pricing model was developed for use inestimating the fair value of traded options that have no vesting restrictionsand are fully transferable. In addition, option pricing models require theinput of highly subjective assumptions. Because the Company’s employee andconsultant stock options have characteristics significantly different fromthose of traded options, and because changes in the subjective inputassumptions can materially affect the fair value estimate, the existing modelsmay not necessarily provide a reliable single measure of the fair value of theCompany’s employee stock options.

In determining thecompensation cost of the options granted during the three and six month periodsended June 30, 2007 and 2006, as specified by SFAS 123R and SFAS 123, the fairvalue of each option grant has been estimated on the date of grant using theBlack-Scholes pricing model and the weighted average assumptions used in thesecalculations are summarized as follows:
|                                      | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Risk-free  Interest Rate             |       | 5.16                                                | %          | 4.99                                              | %          | 4.90 | % | 4.74 | % |
| Expected Life of  Options Granted(1) |       | 4.0 years                                           |       | 4.0 years                                         |       | 4.0 years |   | 2.8 years |   |
| Expected  Volatility                 |       | 133.6                                               | %          | 134.1                                             | %          | 133.4 | % | 132.7 | % |
| Expected Dividend Yield              |       | 0                                                   |       | 0                                                 |       | 0 |   | 0 |   |

 

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(1)Calculatedas the average of the vesting periods and the contractual term of the options.

The expected life of theoptions is determined using a simplified method, computed as the average of theoption vesting 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 of history tocalculate a forfeiture rate, the Company has not adjusted the calculated valueof the options.  The risk-free rates forthe expected terms of the stock options and awards are based on the U.S.Treasury yield curve in effect at the time of grants.

***(f)***                                    Warrants

In accordance with Emerging Issues Task Force (“EITF”) No. 96-18,“Accounting for Equity Instruments that are Issued to Other than Employees forAcquiring, or in Conjunction with Selling, Goods and Services” and EITF No.98-5, “Accounting for Convertible Securities with Beneficial ConversionFeatures or Contingently Adjustable Conversion Ratios”, the Company has electedto utilize the fair-value method of accounting for warrants issued tonon-employees as consideration for goods or services received, includingwarrants issued to lenders and guarantors of Company debt (see Note 6(c)).  The weighted-average fair value of the warrantsgranted during the three and six month periods ended June 30, 2007 was $0.39 

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and $0.40, respectively, and such warrants were immediately vested andexercisable on the date of grant.  Duringthe six months ended June 30, 2006, an immediately vested and exercisablewarrant was issued to a lender to acquire 50,000 shares of common stock at$0.50 per share pursuant to a $23,000 loan. The fair value of stock warrants estimated at grant date usingthe Black-Scholes pricing modelexceeded the amount of the loan. Accordingly, the value of this warrant was recorded as $23,000, or $0.46per share, and was expensed during the six months ended June 30, 2006 when thenote was paid in full.  In June, 2006, animmediately vested and exercisable warrant was issued to a lender to acquire37,500 shares of common stock at $0.50 per share pursuant to a $75,000 loan(see Note 3).  The fair value ofstock warrants was estimated to be $0.68per share at the grant date using the Black-Scholes pricing model.  Thetotal value of this warrant, $25,500, was expensed as interest expenseover the 90-day term of the loan.  No other warrants were issued during thethree and six month periods ended June 30, 2006.

The fair value of stockwarrants is the estimated present value at grant date using the Black-Scholespricing model with the following weighted average assumptions:
|                                      | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Risk-free  Interest Rate             |       | 4.75                                                | %          | 4.99                                              | %          | 4.71 | % | 4.66 | % |
| Expected Life of  Warrants Issued(1) |       | 5.0 years                                           |       | 5.0 years                                         |       | 4.8 years |   | 5.0 years |   |
| Expected  Volatility                 |       | 133.7                                               | %          | 134.0                                             | %          | 133.7 | % | 132.8 | % |
| Expected Dividend Yield              |       | 0                                                   |       | 0                                                 |       | 0 |   | 0 |   |

 

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(1)Thecontractual term of the warrants.

Because of the limited trading history of theCompany’s stock, the expected volatility is based on a simple average of dailyprice data since the date of the Merger on April 5, 2004.  Based on the lack of history to calculate aforfeiture rate, the Company has not adjusted the calculated value of theoptions.  Therisk-free rates for the expected terms of the stock warrants are based on theU.S. Treasury yield curve in effect at the time of grants.

***(g)******                                ******Other Receivables***

Other receivables represent amounts due within 30 days from a jointdevelopment partner for their portion of the cost of the joint developmentproject.  At June 30, 2007 and December31, 2006, no reserves were recorded.

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

Wehave incurred operating losses, accumulated deficit and negative cash flowsfrom operations since inception.  As ofJune 30, 2007, we had an accumulated deficit of approximately $14,880,000.  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.

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***(i)****                                   **Recent Accounting Pronouncements*

**FASB 159**

In February 2007, the FASB issued SFASNo. 159, “The Fair Value Option for Financial Assets and Financial** **Liabilities- Including an amendment of FASB Statement No. 115” (“SFAS No. 159”).SFAS No. 159 permits entities to elect to measure many financialinstruments and certain other items at fair value. Upon adoption of SFASNo. 159, an entity may elect the fair value option for eligible items thatexist at the adoption date. Subsequent to the initial adoption, the election ofthe fair value option may only be made at initial recognition of the asset orliability or upon a re-measurement event that gives rise to new-basisaccounting. The decision about whether to elect the fair value option isapplied on an instrument-by-instrument basis, is irrevocable and is appliedonly to an entire instrument and not only to specified risks, cash flows orportions of that instrument. SFAS No. 159 does not affect any existingaccounting literature that requires certain assets and liabilities to becarried at fair value nor does it eliminate disclosure requirements included inother accounting standards. SFAS No. 159 is effective for fiscal yearsbeginning after November 15, 2007. The Company is currently evaluating theimpact of adopting SFAS No. 159 on their respective financial position andresults of operations.

**FIN 48**

In July 2006, the FASBissued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN48”). FIN 48 prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in its tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. FIN 48 is effective in fiscal yearsbeginning after December 15, 2006. The provisions of FIN 48 are to be appliedto all tax positions upon initial adoption, with the cumulative effectadjustment reported as an adjustment to the opening balance of retainedearnings. The Company adopted FIN 48 as of January 1, 2007, and the adoptionhad no significant impact of the consolidated financial statements.

The following aredisclosures made pursuant to the initial adoption of FIN 48:

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

TheCompany had no significant unrecognized tax benefits as of January 1, 2007 and,likewise, no significant unrecognized tax benefits that, if recognized, wouldaffect the effective tax rate.  The Company has generated net operating losscarryforwards of approximately $3.0 million which, if not used, will begin toexpire in 2021.  Federal and state taxlaws impose significant restrictions on the utilization of net operating losscarryforwards in the event of a change in ownership of the Company that constitutesan “ownership change,” as defined by the Internal Revenue Code, Section 382.

TheCompany had no positions for which it deemed that it is reasonably possiblethat the total amounts of the unrecognized tax benefit will significantlyincrease or decrease within the 12 months of the date of adoption.

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Thetax years that remain subject to examination by major tax jurisdictionscurrently are:

Federal2004 - 2006 State of Minnesota 2004 - 2006

**Note 2.  NotesPayable – Bank.**

In February 2006, the Company completed twoclosings of a senior debt financing. Pursuant to the two closings, on February 16, 2006, the Company issued apromissory note to Crown Bank in the amount of $1,200,000 at an interest rateof the prime rate plus one percent (9.25 percent at June 30, 2007 and December31, 2006).  This promissory note matureson January 11, 2008.  On February 28,2006, the Company issued a second promissory note to Crown Bank in the amountof $1,000,000, also at an interest rate of the prime rate plus one percent.  This promissory note matures on February 29,2008.  The average interest rate of thenotes was 9.25 percent for the three and six month periods ended June 30, 2007.

The promissory notes are secured by a pledgeof all Company assets, including two technology licenses that were assigned toCrown Bank, and guaranteed by four accredited individual investors.  In consideration for their guarantees, theCompany issued 10 percent unsecured convertible subordinated debenturestotaling $733,334 to the four guarantors (see Note 4).

**Note 3.  NotesPayable.**

OnJune 1, 2006, PUC borrowed $75,000 from an investor, and in connectiontherewith issued to such investor a promissory note to mature on August 30,2006.  On August 24, 2006, the promissorynote was amended to mature on the first of the Company’s closing of anaggregate of $1 million of net proceeds under its financing efforts or October29, 2006.  On January 22, 2007, theCompany repaid $25,000 of the promissory note. On March 20, 2007, the promissory note was amended for a second time toextend the due date of the remaining balance until the Company closes on anaggregate of $750,000 or more of new financing. The promissory note and amendments thereto bear interest at the primerate.  Interest expense recorded duringthe three and six month periods ended June 30, 2007 related to this note was$1,043 and $2,252, respectively.  Inconnection with the promissory note, the Company issued a five-year warrant(immediately exercisable) to the investor to acquire a total of 37,500 sharesof the Company’s common stock at $0.50 per share.  In connection with the amendments, followingrepayment of the promissory note, the Company will issue a five-year warrant(immediately exercisable) to the investor to acquire 417 shares of the Company’scommon stock at $0.50 per share for each day the promissory note is outstandingafter August 30, 2006.  During the threeand six month periods ended June 30, 2007, the Company expensed as debtextinguishment cost $20,491 and $40,758 related to the accrual of 37,947 and75,477 warrants to be issued pursuant to the terms of the promissory note,respectively.  As of June 30, 2007, theCompany had accrued for issuance warrants to acquire 127,185 shares of theCompany’s common stock pursuant to this arrangement.

On November 30, 2006, the Company borrowed$100,000 from Adron Holdings, LLC (“Adron”). In connection therewith, the Company issued to Adron an unsecuredpromissory note that bore interest of $5,000 per month and was set to mature onJanuary 2, 2007.  Under the terms of thepromissory note, the Company issued a five-year warrant (immediatelyexercisable) to Adron’s partners to acquire 50,000 shares of Company commonstock at $0.50 per share, and additional five-year warrants (immediatelyexercisable) to acquire 50,000 shares at $0.50 per share when the loan was notrepaid on January 2, 2007 (see Note 6(c)). On March 20, 2007, the Company amended the promissory note to reduce theinterest rate to $2,500 per month and extend its due date until the first tooccur of (1) the Company closing on an aggregate of $750,000 or more ofadditional financing 

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following the date of the amendment, or (2)April 30, 2007.  In connection with theamendment, the Company issued to Adron’s partners five-year warrants(immediately exercisable) dated February 1, 2007 to acquire a total 50,000shares of Company common stock at $0.50 per share, and following repayment ofthe promissory note, the Company will issue additional five-year warrants(immediately exercisable) to Adron’s partners to acquire 1,667 shares of theCompany’s common stock for each day the promissory note is outstanding on andafter March 1, 2007, at $0.50 per share. On August 8, 2007, the Company further amended the promissory note toincrease the interest rate to $3,500 per month beginning May 1, 2007 andfurther extend its due date to the first of (1) the Company’s closing on$750,000 of new financing or (2) September 15, 2007 (see Note 9).  As of June 30, 2007, the Company had accruedfor issuance warrants to acquire 203,374 shares of the Company’s common stockpursuant to this arrangement.  During thethree month period ended June 30, 2007, the Company expensed as debtextinguishment cost $54,011 related to the accrual of 150,030 warrants to beissued pursuant to the terms of the promissory note.  During the six month period ended June 30,2007, the Company expensed as debt extinguishment cost $90,615 related to theissuance of the 50,000 warrants on February 1, 2007 and the accrued 201,7074 warrantsto be issued pursuant to the terms of the promissory note.

On May 25, 2007, the Company borrowed $42,585from a commercial lender pursuant to an insurance policy financing agreement.The financing agreement called for ten monthly installment payments of $4,453beginning July 1, 2007, with an imputed annual interest rate of 9.85percent.  The proceeds were paid directlyto an insurance company as a prepayment on an insurance policy.  Interest expense during the three and sixmonth period ended June 30, 2007 was $349.

On July 31, 2007, the Company borrowed $100,000 for short-term workingcapital needs from an investor.  Inconsideration, PUC executed and delivered to the investor a $100,000 unsecureddemand promissory note (seeNote 9).

**Note 4. Long-Term Debt - Convertible Debentures.**

As consideration to the four guarantors toprovide their guarantees for $2,200,000 of bank promissory notes (see Note 2),the Company issued $733,334 of unsecured convertible 10 percentdebentures.  All of the debentures maturein February, 2009, three years from the date of issue (coincident with theclosing dates of the promissory notes as noted above) and are convertible intoCompany common stock at a price of $0.50 per share.  If the guarantees of the underlying bank indebtednessare not released by August 31, 2007 (or subsequently October 31, 2007), theconversion price becomes $0.40 per share (and subsequently $0.30 per share),respectively.  The cost of the debentureswas recorded as debt issuance cost and is being amortized as interest expenseover the term of the underlying bank note payable.  The value of the beneficial conversionfeature was computed as the difference between the fair market value of theshares at the transaction dates and the lowest possible conversion price duringthe debenture term ($0.30 per share), multiplied by the number of conversionshares that would be issued at that conversion price (2,444,444 shares).  The value so computed was in excess of theface value of the convertible debentures issued, and was therefore limited tothe face value of the debentures issued ($733,334).  The beneficial conversion feature wasrecorded as an original issue discount as defined in EITF No. 98-5 against theconvertible debt liability and is being amortized as interest expense over theterm of the convertible debentures.

OnMarch 21, 2007, the Company and the four guarantors agreed to amend thedebenture agreements.  Under theterms of the revised debentures, each debenture holder agreed to accept aspayment for interest due on the debenture the following:

·                  cashpaid for interest from inception through May 31, 2006 (previously paid in2006);

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·                  InvestmentUnits, consisting of one share of stock and a three year warrant to acquire 0.5shares of Company common stock at $0.50 per share, for interest accrued fromJune 1, 2006 through January 31, 2007, such accrued interest to be convertedinto Investment Units at a price of $0.40 per unit; and

·                  cashor Company common stock (converted on the basis of $0.50 per share), at theoption of the Company, for interest accrued from February 1, 2007 throughsettlement of the debenture.

Accordingly, on March 21,2007, the Company issued a total of 124,780 shares of its common stock andthree-year warrants (immediatelyexercisable) to acquire up to 62,392 shares of its common stock at $0.50per share to the four guarantors.  Thewarrants, valued at $26,829 using the Black-Scholes pricing model, wereexpensed as debt extinguishment costs.  Otherterms of the debentures were not changed.

As of June 30, 2007,there was $30,558 of accrued interest that will convert to Investment Units ata price of $0.40 per unit pursuant to the terms of the amended debenture.

**Note 5.  Loansfrom Officers and Directors.**

***On April 17, 2007, PUC borrowed,for short-term working capital needs, $75,000 from Alexander Nazarenko, adirector of the Company.  Inconsideration, PUC executed and delivered to Mr. Nazarenko a $75,000 unsecureddemand promissory note.  The note boreinterest at an annual rate of prime plus one percent, and was repaid on May 8,2007.***

***On June 12, 2007, PUC borrowed$5,000 for working capital needs from David Koenig, a director of theCompany.  The loan bears no interest andis to be repaid as soon as the Company is able to do so.***

***Also on June 12, 2007, PUCborrowed $10,000 for working capital needs from Mr. Nazarenko.  The loan bore no interest and was to berepaid as soon as the Company was able to do so.  On June 25, 2007, PUC borrowed an additional$27,000 from Mr. Nazarenko for working capital needs.  In consideration of these two loans, PUCexecuted and delivered to Mr. Nazarenko a $37,000 unsecured demand promissorynote.  The note bears interest at anannual rate of prime plus one percent.***

***In July 2007, PUC borrowed anadditional $12,750 from its officers and directors (see Note 9).***

**Note 6. Shareholders’ Equity.**

***(a)******                                 ******Common Stock***

Duringthe six month period ended June 30, 2007, the Company sold a total of 1,250,000of the Company’s Investment Units at a price of $0.40 each, with total proceedsof $500,000.  The Investment Units weresold in traunches of 312,500 Units each to four investors on January 18,January 23, February 28, and May 1.  EachInvestment Unit consists of one share of the Company’s common stock and a3-year warrant (immediately exercisable) to acquire 0.5 shares of the Company’scommon stock for $0.25 ($0.50 per whole share).

On February 12, 2007, the Company issued 17,073 shares of its commonstock to Mr. Scott Smith, a director of the Company, as repayment of a $7,000loan to the Company from Mr. Smith.  Theper share value of the stock of $0.41 was based on the last selling price priorto this issuance as reported on the Over-the-Counter Bulletin Board.

OnMarch 21, 2007, the Company and the four guarantors of the Company’s bank notespayable (see Note 2) agreed to amend the related debenture agreements.  Pursuant to the 

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revised debentureagreements, among other things, the Company issued a total of 124,780 shares ofits common stock to the four guarantors in lieu of accrued interest.

OnApril 2, 2007, the Company issued 41,408 shares of its common stock to avendor, as payment for product development work valued at $20,704.

***(b)***                                  Stock Options

On February 1, 2007, theCompany granted to Mr. Richard Carlson, our Chief Executive Officer, aseven-year option to acquire up to 200,000 shares of the Company’s common stock at a price of$0.50 per share.  The options were valuedat $0.34 per share using the Black-Scholes pricing model and will be expensedover the vesting period as general and administrative expense. ** **The options will vestaccording to the following schedule if the enumerated conditions are satisfied:

(a)                      50,000 shares vest immediately;

(b)                     50,000 shares vest upon the Company’s closingon new equity financing arrangements aggregating to $3,000,000 or more afterFebruary 1, 2007 and prior to December 31, 2007.  Such new equity financing shall include, inthe event of a corporate partnership, the value of services supplied to theCompany by the partner entity to develop the Company’s products or obtainregulatory approval of them;

(c)                      50,000 shares vest if the Company recordsgross product revenues of $1,000,000 or more in the Company’s 2008 fiscal year;and

(d)                     50,000 shares vest on December 31, 2008.

On June 14, 2007, theCompany issued 30,000 nonqualified stock options to Robert Rudelius, adirector, upon his appointment to the Board of Directors.  The options were valued at $0.59 per share,and vest ratably over a 24-month period through June 14, 2009.  These options are exercisable at $0.29 pershare through May 2013.

***(c)***                                   Warrants

***The warrants below issued or to beissued were valued using the Black-Scholes pricing model.  However, the recorded value of warrantsissued to lenders and guarantors of Company debt is limited to thecorresponding amount loaned or guaranteed (see Note 1(f)).***

·                  In connection with amendments to a $75,000promissory note originally issued to an investor on June 1, 2006 (see Note 3),following repayment of the promissory note, the Company will issue a five-yearwarrant (immediately exercisable) to the investor to acquire 417 shares of theCompany’s common stock at $0.50 per share for each day the promissory note isoutstanding after August 30, 2006.

·                  In connection with the Adron Note, on January2, 2007 the Company issued to Adron’s partners five-year warrants (immediatelyexercisable) to acquire 50,000 shares of the Company’s common stock at $0.50per share (see Note 3).

·                  In connection with the March 20, 2007amendment of the Adron Note, the Company issued to Adron’s partners five-yearwarrants (immediately exercisable) dated February 1, 2007 to acquire 50,000shares of Company common stock at $0.50 per share, and following repayment ofthe Adron Note, the Company will issue additional five-year warrants(immediately exercisable) to Adron’s partners to acquire a total of 1,667shares 

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of the Company’s common stock for each day the Adron Note isoutstanding on and after March 1, 2007, at $0.50 per share (see Note 3).

·                  On March 14, 2007, upon thetermination of employment of an employee, and in consideration for an agreementto defer payment of accrued salaries until the Company is able to make suchpayments (on the same basis as the payment of deferred salaries of continuingemployees), the Company agreed to extend by three years the expiration date of300,000 warrants beneficially held by the employee.  The modification of the warrant resulted inthe recording of incremental compensation cost totaling $96,000, computed asthe increase in the fair value of the warrant as determined under theprovisions of SFAS 123R over the fair value so determined immediately beforethe modification.

·                  On March 21, 2007, the Company and fourguarantors of the Company’s bank notes payable (see Note 2) agreed to amend therelated debenture agreements. Pursuant to the revised debenture agreements, among other things, theCompany issued three-year warrants (immediatelyexercisable) to acquire a total of 62,392 shares of its common stock at$0.50 per share to the four guarantors (see Note 4).

·                  On April 16,2007, the Company issued to Artann LaboratoriesInc. (“Artann”) five-year warrants (immediatelyexercisable) to acquire 200,000 shares of its common stock at $0.41 pershare pursuant to an agreement withArtann (see Note 7).  The warrantswere valued at $72,000 by the Black-Sholes pricing model and recorded asresearch and development expense.

***Note7.  Development Agreements.***

On March 21, 2007, the Company executed anamendment to the Memorandum of Understanding between ProUroCare Inc. and Urologix,Inc. dated July 27, 2005 (the “MOU”). Under the terms of the MOU, the parties were to co-develop new productsutilizing ProUroCare’s Electrical Impedance Tomography (“EIT”) technology. TheEIT technology was expected to be assembled into modules that would becompatible with and incorporated into Urologix’ existing thermal therapysystems.  The project was designed intomultiple phases of research, testing and development.  The first three phases were projected to costapproximately $550,000 over a period of 18 to 24 months.  ProUroCare and Urologix had agreed to equallyshare in the development costs of these phases. After completing Phase I in September 2006, it was determined that anassessment of two key project factors will be required before proceeding withthe second development phase.  As both ofthese issues were outside of the MOU’s original Phase I development definition,the Company plans to conduct research on both issues at its own expense beforea decision is made to move to Phase II of the program.  Under the terms of the MOU amendment,Urologix agreed to postpone any decision regarding the continuance of theremaining phases contemplated under the MOU, while the Company agreed that theassessments described above will be done and funded solely by the Company. Inaddition, Urologix has the right to abandon the project for any reason with 5days’ notice to the Company, and the Company has the right to abandon theproject for any reason by providing 5 days’ notice to Urologix.

On April 16, 2007, ProUroCare entered into an agreement (the“Cooperation Agreement”) with Artann inwhich the parties agreed to terminate their existing Research and DevelopmentAgreement and to use their best efforts to finalize a new development agreementwithin a reasonable period of time.  TheCooperation Agreement establishes a platform for joint cooperation inestablishing the new development agreement, which will define a process for thejoint development of a next generation prostate mechanical imaging system withenhanced functionalities.  TheCooperation 

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Agreement terminates the Research and Development Agreement, andreleases each party from all undischarged obligations and liabilities underthat agreement.

Under the terms of the Cooperation Agreement, the Company paid $60,000in fees originally due to Artann under the Research and Development Agreement,related to submission of two patents and associated patent attorney fees.  Further, the Company issued to Artann five-yearwarrants (immediatelyexercisable) to acquire 200,000 shares of its common stock at $0.41 pershare, thus fulfilling another obligation under the Research and DevelopmentAgreement.  The warrants were valued at$72,000 by the Black-Sholes pricing model and will be recorded as research anddevelopment expense.  The Company alsoagreed to pay Artann $35,000 on May 4, 2007, as a first payment for workalready completed under the proposed Development Agreement.  Actual payment of this amount was postponedby mutual agreement until ProUroCare completes its current fund raisingefforts.

***Note8.  Employment Matters.***

***On May 11, 2007, the Companyentered into an agreement with Mr. Maurice Taylor, its former Chief ExecutiveOfficer, to defer the payment of his accrued salary.  Under the terms of the agreement, Mr. Taylorwill be paid his accrued salary from 2006 and 2007 totaling $141,017 ininstallments of $5,000 per month from June 1, 2007 through December 1, 2007,with the $106,017 balance being paid prior to December 28, 2007.  Mr. Taylor shall have the option, with tendays’ notice, to take up to 100,000 shares of the Company’s common stock inpayment for any or all of the payments based on the current market price on thedue date of the payment.  Asconsideration for his agreement to defer payment of his accrued salary, theCompany extended the original one-year period that Mr. Taylor may exercise hisstock options following his termination of employment until April 1, 2012.  The resulting $103,500 change in the fairvalue of the options as determined by the Black-Scholes pricing model wasrecorded as compensation expense.***

***On May 11, 2007, the Companyentered into an agreement with Mr. Michael Grossman, its former President andChief Operating Officer, to defer the payment of his accrued salary.  Under the terms of the agreement, Mr.Grossman will be paid his accrued salary from 2006 and 2007 totaling $103,990in installments of $4,000 on May 15, 2007, $6,000 on June 1, 2007, and $8,000per month from June 1, 2007 through December 1, 2007, with the $45,990 balancebeing paid prior to December 28, 2007. Mr. Grossman shall have the option, with ten days’ notice, to take up to100,000 shares of the Company’s common stock in payment for any or all of thepayments based on the current market price on the due date of the payment.  As consideration for his agreement to deferpayment of his accrued salary, the Company extended the original one-yearperiod that Mr. Grossman may exercise his stock options following his terminationof employment until February 1, 2012. The resulting $117,000 change in the fair value of the options asdetermined by the Black-Scholes pricing model was recorded as compensationexpense.  Except in the event of a breachof the agreement, the parties also agreed to release and waive each other fromall damages, actions, lawsuits, or claims the other party may have arising outof the employment of Mr. Grossman and the conclusion of that employment.***

On July 21, 2007, PUC entered into an employment agreement with itsChief Financial Officer, Richard Thon (see Note 9).

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***Note 9. Subsequent Events.***

***On July 3, 2007, PUC borrowed$10,000 for working capital needs from Alexander Nazarenko, a director of theCompany.  The unsecured loan bears nointerest and is to be repaid as soon as the Company is able to do so.***

***Only July 12, 2007, PUC borrowedfor working capital purposes a total of $2,650 from three of its directors andan officer.  The unsecured loans bear nointerest and are to be repaid as soon as the Company is able to do so.***

On July 21, 2007, PUC entered into an employment agreement with itsChief Financial Officer, Richard Thon. The agreement extends through June 30, 2009. The agreement provides fora minimum annual salary of $140,000, a cash incentive bonus potential of up to30 percent of Mr. Thon’s base pay and eligibility to participate in an annualgrant of options to purchase shares of common stock, as determined by theCompany’s Board of Directors.  Theagreement provides for severance payments if the Company terminates Mr. Thonwithout cause or if Mr. Thon terminates the agreement for good reason,including four months of base salary plus one month of base salary for eachyear of service (up to a maximum of nine months of base salary), payment ofearned bonuses, continued payment of existing health and life insurancebenefits for a period of four months and immediate vesting of all unvestedstock options then held by Mr. Thon.  Inaddition, within a one-year period following a “change in control” of theCompany, upon termination without cause, unacceptable demotion or reduction inresponsibilities, or a relocation of more than 100 miles, Mr. Thon will receiveas severance, six months of base salary plus one month of base salary for eachyear of service (up to a maximum of 12 months of base salary), and immediatevesting of all unvested stock options then held by Mr. Thon.  The agreement prohibits Mr. Thon fromdirectly or indirectly participating in the ownership, management, operation orcontrol of a competitive business for a period of one year after his employmentwith the Company terminates.

On July 31, 2007, the Company borrowed $100,000 for short-term workingcapital needs from an investor.  Inconsideration, PUC executed and delivered to the investor a $100,000 unsecureddemand promissory note.  The note bearsinterest at the prime rate, and is payable on the first to occur of (1) the Company’s closingon $500,000 of new financing or (2) September 15, 2007 (see Note 9).  Under the terms of the promissory note, theCompany will issue to the investor five-year warrants (immediately exercisable)to acquire 1,000 shares of the Company’s common stock for each day thepromissory note is outstanding (to be prorated if a portion of the loan isrepaid), at $0.50 per share.

On August 8, 2007, the Company amended its$100,000 promissory note issued in favor of Adron on November 29, 2006 (aspreviously amended on March 20, 2007) to increase the interest rate to $3,500per month beginning May 1, 2007 and further extend the due date to the first of(1) the Company’s closing on $750,000 of new financing or (2) September 15,2007.  No other terms of the promissorynote were amended. The Company is still evaluating the accounting effect of theamendment, if any.

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***Item 2. Management’s Discussion and Analysis or Plan of Operation.***

*The accompanying Plan of Operation should be readin conjunction with our audited financial statements, and notes thereto, forthe year ended December 31, 2006 filed with our Annual Report on Form 10-KSB onMarch 31, 2007.*

*Certainstatements contained in this Quarterly Report on Form 10-Q may be deemed to beforward-looking statements as defined by the Private Securities LitigationReform Act of 1995, and the Company intends that such forward-lookingstatements be subject to the safe-harbor created thereby. Such forward-looking statements relate to,among other things: our continued access to critical working capital to fundour needs until we generate sufficient ongoing revenue; estimates regarding thesize of our target markets; successful product completion and development andclinical and commercial trials for our products; the timing and success of suchproduct development and U.S. clinical trials and securing approval from theFood and Drug Administration (“FDA”); 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 containedherein.*

**Overview;Product Offerings.**

ProUroCare Medical Inc. (“ProUroCare,” the “Company,” “we,” “us” or “our,”which terms include reference to ProUroCare Inc. (“PUC”), our wholly ownedsubsidiary) is a development stage company that is focused on developingadvanced mechanical imaging technology for assessing the size, shape and volumeof the prostate by creating a visual image of the prostate gland for use inidentifying and characterizing abnormal lesions or tissue and monitoring theeffects of prostate treatments.

The Company’s primary activities to date have focused on acquiringtechnology licenses, establishing intellectual property and working with ourpartner, Artann Laboratories Inc. (“Artann”) to complete development of theProUroScanTM prostateimaging system.  We have assembled anexperienced management team and identified the necessary clinical, regulatoryand reimbursement resources to assist us in moving the product to market.  Finally, we have aggressively worked toobtain the funding to complete the ProUroScanTM’sdevelopment and bring it to market.

*ProUroScan**TM** Prostate Mechanical Imaging System*

Our initial product is theProUroScanTM System, an advanced mechanical imaging systemthat enables physicians to identify and characterize the existence of abnormalprostate tissue, and monitor changes in prostate tissue over time.  The ProUroScanTM system consists of arrays of sensors mountedon 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 system’s operation is based onmeasurement of the stress pattern on the rectal wall when the probe is pressedagainst the prostate.  Temporal andspatial changes in the stress pattern provide information on the elasticstructure of the gland and allow two-dimensional and three-dimensionalreconstruction of prostate anatomy and assessment of prostate mechanicalproperties.  The data acquired allow thecalculation of prostate features such as size, shape, nodularity,consistency/hardness and mobility.  Theprostate image is displayed on a screen that allows physicians to identify thespecific location of soft-tissue abnormalities and determine the relative sizeof the prostate upon completion of the imaging procedure.  In addition to the visual display, resultsare stored electronically.

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*The Role of the ProUroScan**TM** System*

We believe the ProUroScanTM System’s primary uses will be threefold.  For patients with preliminary positivescreening results for prostate cancer who are referred to urologists fordiagnosis, it will be used to assist in characterizing the suspicious tissueand thereby help reduce the number of unnecessary biopsies.  For prostate cancer patients being followedunder active surveillance, it will create a map to objectively measure theprogression of the disease, providing a means to help determine when aggressiveintervention is warranted.  Finally, forpatients who have symptoms of benign prostate hyperplasia (“BPH”), it willmonitor changes in prostate size before and during the course of medicaltreatments, allowing physicians to better assess the effectiveness ofalternative therapeutic approaches.

We intend to position the ProUroScanTM System as an “adjunctive” tool to digitalrectal examinations (“DRE”) and prostate specific blood antigen (“PSA”)testing.  We believe that the ProUroScanTM will enable a physician todetect abnormalities in the prostate more accurately than with their finger,and assess areas of the prostate that the physician cannot reach with theirfinger.  Unlike PSA, which usesmeasurements of the level of a certain antigen in the blood to infer theexistence of cancer, the ProUroScanTM system directlymeasures the physical presence of abnormal tissue.  Using the combined results of DRE, PSA andProUroScan tests, the urologist will be able to make a better determination ofthe need for a prostate biopsy. Furthermore, the color images and three-dimensional visualization of theprostate provided by the ProUroScan will identify specific areas that should bethe focus of a biopsy, helping ensure that a present lesion is found andthereby reducing repeat biopsies.

The ProUroScanTM system is designed to produce adigital image of the prostate showing the size and symmetry of the prostate andthe location of soft-tissue abnormalities within the prostate.  Its ability to digitally store not only thetest results but all of the individual pressure readings taken during thecourse of the procedure will facilitate a quantitative analysis of theprogression of the disease over time.  Bycomparing the data taken in a baseline examination to subsequent examinationsduring the course of active surveillance, the urologist will gain valuableinformation about changes in the patient’s condition that can influence theirdecision to pursue additional treatment or continue surveillance.

Use of theProUroScanTM system in patients diagnosed with BPH will bebeneficial in allowing physicians to monitor changes in the size and volume ofthe prostate following treatment with drugs or other tissue reducingtechnologies.  Timely, accurateassessment of prostate volume changes and the effectiveness of treatment willenable physicians to recommend alternative treatments sooner than currentassessment methods, and thus provide more immediate relief to patients.  Importantly, the ProUroScanTM isalso capable of identifying previously undefined lesions or abnormal tissuethat may require further analysis to determine if prostate cancer may bepresent.

*Prostate Cancer Screening,Diagnosis, and Treatment*

The two mostcommon screening tools for identifying prostate cancer, the DRE and the PSA,have been used for several years but are often criticized for their lack ofspecificity and selectivity.

The PSA test is asimple blood test that measures the level of prostate specific antigens in thepatient’s blood stream.  It has beenshown there is a high correlation between the level of such antigen and thepresence of cancer in the prostate.  Evenso, PSA tests are not highly sensitive nor specific: of prostate cancerscurrently detected, about 25% have normal PSA values, while 30 to 40 percent ofabnormal readings are false positives.

A DRE is a qualitativeand subjective test in which a physician wearing a latex glove inserts alubricated finger into the rectum to palpate the prostate gland to detectabnormalities.  The clinician must 

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rely on his or herexperience and sensitivity of touch to estimate the size of the prostate anddetect hardness or abnormalities within the prostate that may indicate thepresence of a potentially life-threatening disease.  The DRE is even less effective than the PSA;studies evaluating screening have shown that the DRE when used alone detectsless than 60 percent of prevalent prostate cancers.  There is substantial subjectivity inherent inthe DRE, which is also negatively affected by poor examiner training,experience level and ability to interpret the results.  Other patient related limitations, includingexcessive obesity, patient discomfort and unusual anatomical positioning of theprostate can further limit the effectiveness of the test.

Recognizing theshortcomings of these screening tests, physicians today generally use the twotests in tandem.  This approach has beenshown to increase the yield from screening by as much as 26 percent over PSAalone.

A patient with a positiveDRE or PSA is typically referred to a urologist for further diagnosis, who willusually perform a prostate biopsy to obtain tissue samples for microscopicanalysis.  The prostate is biopsied by aneedle that is guided by ultrasound into the prostate through the rectal wall.  Since the existence and exact location ofpossible cancerous tissue is not known, the urologist will usually take 10 to14 samples in a scattered pattern throughout the prostate in an attempt to findthe suspect tissue.  The tissue samplesare then sent to a laboratory for analysis and interpretation, and the resultsare reported several days later.  If theresults are negative or indeterminate, the urologist may suggest a secondbiopsy procedure, or that the patient increase the frequency of futurescreening examinations.  Approximately 1million patients are biopsied each year in the United States, but only 25percent of biopsy procedures performed detect the presence of cancer.

The treatment path forpatients who test positive for prostate cancer depends on many variables,including age, location and pathology of the cancerous tissue and generalhealth of the patient.  Generally, ayounger, otherwise healthy patient will elect to have the prostate removed toeliminate the possibility that it might spread beyond the prostate.  Older, less healthy patients may elect not toundergo surgery, and instead monitor the disease closely by semi-annual PSA andDRE exams, and annual biopsies.  Thismonitoring regimen is commonly referred to as “watchful waiting” or “activesurveillance.”  Some patients may electradiation or drug treatments, and also require ongoing activesurveillance.  Approximately 230,000 menare diagnosed with prostate cancer each year in the United States, of whomapproximately 100,000 elect to have a prostatectomy.  The remaining 130,000 men are treatednon-surgically or undertake active surveillance.  We estimate that with the total number ofpatients aggregated over the last ten years that have not had radical surgery,there may be over 1.3  million menundergoing active surveillance.

*Detailed System Description andOperation*

The ProUroScanTM system consists of arrays ofpressure sensors mounted on a probe, a central processing unit containingproprietary image construction algorithms, a computer with color monitor andkeyboard, a color printer and single-use disposable sheaths to cover the tip ofthe probe.  The ProUroScanTM system’s probe is speciallydesigned for the rectal anatomy to minimize patient discomfort.  It is ergonomic for the clinician and similarto a traditional DRE for the patient. The probe utilizes highly sensitive pressure sensors located on the faceof the probe head to palpate the prostate. The probe’s positioning system ensures that the person administering thetest examines the entire surface of the prostate, and assists prostate image construction.

To perform a test, theclinician must first place a single-use disposable sheath over the probe headand shaft and cover it with a lubricant. The clinician then inserts the tip of the probe into the patient’srectum and palpates the prostate.  As theprostate is palpated, a color image of the prostate is 

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producedand displayed on the computer monitor, along with indicators of the amount ofpressure being applied to help guide the clinician.  Differences in tissue stiffness andelasticity will be depicted on the in real time monitor in differentcolors.  Total testing time for a healthyprostate is under one minute.

Standardizing the procedureusing the ProUroScanTM mechanical imaging device should minimize thedifferences in abilities and skill levels between physicians in this otherwisesubjective procedure.  We expect thesystem will also be more sensitive and have the ability to detect abnormalitiesthat the normal human finger cannot detect, thereby improving the quality ofthe diagnostic process.  It will alsoenable physicians to literally see the differences in tissue elasticity orstiffness on the color monitor instead of a traditional DRE that is “blind” andrelies exclusively on the clinician’s sense of touch.  The system will create a hard copy of theprostate diagnostic procedure which can be placed into the patient’s file, anda digital record of the exam that can be stored and used for comparison tosubsequent exams. This is advantageous for physicians and patients in that itgives physicians the ability to compare and contrast the patient’s results fromexam to exam, and to get second opinions on the patient’s status in regards tothe diagnosis.  Comparisons of multipletests over time can also be done providing longitudinal assessments of thepatient’s disease.

We believe the ProUroScanTM system will be truly unique inthe market.  The closest comparison interms of imaging capability is to an examination using a transrectal ultrasound(“TRUS”) device.  TRUS is a test thatuses a rectal probe and sound wave echoes to create an image of the prostategland, thus allowing visual inspection for abnormal conditions.  Although well established as a highlyaccurate test, TRUS is used primarily as a guide for prostate biopsies, and isseldom used as a screening test.  It is avery expensive test and is difficult for some physicians to interpret.  The ProUroScanTM system uses mechanical imaging rather thansound wave echoes, has a smaller rectal probe and can be performed in less thanone minute.   We believe the overall costof the ProUroScan System will be much lower than ultrasound providing expandedaccess to testing and follow-up monitoring.  The results of the ProUroScanTM test are displayed in color, making theresults of the diagnostic test easy to interpret.

*Current ProUroScan System Statusand Future Development*

The ProUroScanTM system is currently in the latestages of product development.  Thedesign specifications are nearly finalized and performance characteristics aregenerally known.  Further developmentwork in the areas of positioning system refinement, software, validation, userinterface and sensor production, among others, must be completed before thesystem can be commercialized.  It isanticipated that, once sufficient financing is obtained to undertake such work,an additional seven to eight months will be needed to complete the remainingdevelopment tasks leading to the production of clinical study units.  As discussed below, the clinical study unitswill be used to conduct the clinical trials necessary to obtain FDA marketclearance.

We believe that the existingtechnology platform is robust and provides a platform on which to developmultiple future generation systems.  Thefirst generation system will provide an overall assessment of the prostateresulting in a map or record of the pressures that are generated from anassessment of the posterior surface of the prostate using the current sensorprobe.  We believe that the next or “secondgeneration system” will be capable of identifying the specific location (X, Y,and Z coordinates) of lesions found in the prostate.  We believe that this system will also be ableto create a three-dimensional image of the position of the lesions and allowthe physician to rotate the image to assist in identifying the actual positionof the lesion in the prostate gland.  Webelieve that this next generation system will provide a more thorough diagnosisof the patient.  Future generations ofthe ProUroScanTM systemmay include the capability of guiding biopsies to suspected cancer sites, at alower cost than current ultrasound systems.

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The ProUroScanTM systemprototype has been validated in laboratory experiments on prostate phantoms andin a pre-clinical study**.**  The system has been used for more than twoyears and on more than 180 patients at the Robert Wood Johnson Medical Centerin New Brunswick, New Jersey.

*System Development History andDevelopment Partners*

The ProUroScanTM system is based on workoriginally performed in the late 1990’s at Artann of West Trenton, NewJersey.  In 2001, we licensed the rightsto this technology, and have worked with Artann and our other technology basedpartners to complete its development. Artann is an innovative technology portfolio holding company with themission of early stage development and validation of original technologies anddevices. The value of Artann’s research has been recognized by the support ofthe Small Business Innovation Research grants from various federal agencies.Artann is the recipient of over 30 grant and contract awards the NationalAeronautics and Space Administration, the Department of Defense and from thevarious institutes of National Institutes of Health (including a recent $3million grant to commercialize the ProUroScan System described below).

Much of the ProUroScanTM system’s development to date hasbeen accomplished under two development agreements between the Company andArtann. Under the first agreement, the “Development Agreement,” Artanndeveloped two working, pre-clinical ProUroScanTM systems. These development-level systems were delivered to us in late November2004.  We paid Artann $180,000 for this2004 development work.

Under the second agreement, called the “Research and DevelopmentAgreement,” Artann was named a research and development partner to the Company,supporting the further development of the ProUroScanTM system and other to-be-determined technologiesin the urologic field.  Any intellectualproperty and know-how resulting from the advancement of the ProUroScanTM system under this agreement willbe assigned to the Company.

On April 16, 2007, we entered into an agreement (the “CooperationAgreement”) with Artann in which the parties agreed to terminate their existingResearch and Development Agreement and to use their best efforts to finalize anew development agreement within a reasonable period of time.  The Cooperation Agreement establishes aplatform for joint cooperation in establishing the new development agreement,which will define a process for the joint development of a next generationprostate mechanical imaging system with enhanced functionalities.  The Cooperation Agreement terminates theResearch and Development Agreement, and releases each party from allundischarged obligations and liabilities under that agreement.

Under the terms of the Cooperation Agreement, the Company paid $60,000in fees originally due to Artann under the Research and Development Agreement,related to submission of two patents and associated patent attorney fees.  Further, the Company issued to Artannfive-year warrants that are immediately exercisable to acquire 200,000 sharesof its common stock at $0.41 per share, thus fulfilling another obligationunder the Research and Development Agreement. The Company also agreed to pay Artann $35,000 in May 2007, as a firstpayment for work already completed under the proposed development agreement.  Actual payment of this amount was postponedby mutual agreement until ProUroCare completes its current fund raisingefforts.

In September 2006, Artannwas awarded a Small Business Innovation Research Phase II Competitive Renewalgrant from the National Cancer Institute. The aim of the grant is to helpcommercialize our ProUroScanTM system.  The three-year grant will provide up to $3 millionfor ProUroScanTM systemdevelopment, effective September 29, 2006. It is our intent to work with Artann 

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underthis grant, and to expand our working relationship with Artann to include theirparticipation in the development and commercialization of future generations ofthe ProUroScanTM system.

In March 2006, we engagedDevicix, LLC of Chaska, Minnesota, a firm that provides electrical, mechanical,biomedical and software engineering services to early-stage medical devicecompanies.  We expect this firm willassist us and Artann in transferring technology from research and developmentto clinical study status, place design documentation under an FDA compliantquality control system, complete the design documentation required to submit anFDA request for product clearance, perform verification and validation testingincluding certification of safety related testing standards, and qualitycontrol processes for transfer to manufacturing.

*Regulatory Issues*

We are currently in the process of establishing a series of labelingclaims reflecting the current needs of the market and the capabilities of thesystem.  Given that the system will becapable of providing physicians with a number of different outputs, we are attemptingto create a regulatory strategy that will enable us to begin marketing a basicsystem and then expand the labeling claims to incorporate more sophisticatedfeatures and functionalities as they are developed and validated in clinicalstudies.  The advantage of this approachis that it allows us to minimize the time it will take to obtain initial 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 theclaim will likely be limited to the system’s ability to**producea surface map or a record of tissue elasticity measurements taken from theprostate to aid in documenting the size, shape and volume of the prostate whilealso identifying palpable lesions.  Basedon the scope of the claim and the input received from consultants and clinicalstudy sites, we believe the initial system can be submitted to the FDA formarket clearance under a 510K application, or be evaluated under the FDA’s*de novo* process. When system development has been completed, we will begin placingsystems in a select number of major medical centers to screen patients andcollect data for the FDA submission.  Itis anticipated that the FDA clinical studies will require approximately threemonths to complete, and that an additional month will be needed to analyze thedata and prepare a formal submission to the agency.  Centers participating in the study will mostlikely be required to obtain approval from each center’s Institutional ReviewBoard (“IRB”) to protect the rights and welfare of all participants.  IRB approval has been granted for the firstProUroScanTM studies at the Veteran’s Administration MedicalCenter in Minneapolis, Minnesota and at the Robert Wood Johnson UniversityHospital in New Brunswick, New Jersey.

The actual number of patients that will be studied and the specificclinical protocol that will be followed will be significantly determined at apre-Investigational Device Exemption (“IDE”) meeting that we anticipate havingwith the FDA during 2007, prior to conducting clinical trials.  At that meeting we will present informationabout the product and all relevant and laboratory testing data.  We will also propose a strategy forvalidating our labeling claim and a clinical protocol that all investigativecenters will be expected to follow, with the goal being to obtain enoughclinical data to have sufficient confidence that the system will perform asdefined in the product labeling.

Assuming the path outlined above is acceptable to the FDA, of which noassurance can be given, we expect to make a formal submission to the agencyshortly after completion of the clinical study. Published FDA statistics from 2004 (the most recent available) indicatethat the average total time from receipt of a 510K application to final actionis 100 days, with 65 percent completed in less than 90 days.  Based on this data, assuming that the resultsof the clinical trials pose no unanticipated problems, we

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expectto receive FDA concurrence within 90 to 180 days after the 510K application isfiled.  Such concurrence will allow us tobegin active marketing of the ProUroScanTM system within the United States.

As new and more enhanced product features are developed, we plan tofile additional submissions with the FDA and to obtain expanded labelingclaims.  Depending on the exact nature ofthese claims, the approval process may require more extensive clinical studiesand possibly a full pre-market approval (“PMA”) application.  Such an application will likely takesignificantly more time and be more comprehensive than the 510K approvalprocess.

Simultaneous with the FDAsubmission, we expect to apply for a Conformité Européene (“CE”) mark, a markdisplayed prominently on products indicating compliance with the regulatorydirectives of the European Union.  The CEmark is required to market medical products within the European Union.  We will utilize the services of a notifiedbody such as Technischen Überwachungsvereine or Technical InspectionsOrganizations (“TÜV”), a German company specialized in meeting the regulatorydirectives of the European Union, to obtain CE mark approval.  It is believed the CE mark approval processwill be similar in duration to the FDA 510K process, or approximately sixmonths.

*Continuing Revenue Stream;Third-Party Reimbursement.*

We anticipate that themajority of our revenue generated by the ProUroScanTM systemwill be tied to procedure fees for performing the test and the consumption ofproprietary disposable sheaths and probe tips. The systems themselves likely will be placed in clinics under a varietyof programs, including outright sales, operating leases, financing leases orplacements paid for by premiums paid on the usage of the system.

We expect that the use of our ProUroScanTM system will not beimmediately eligible for reimbursement utilizing existing Current ProceduralTerminology (“CPT”) codes.  When a newproduct or procedure is introduced, it must be submitted to the AmericanMedical Association’s (“AMA”) CPT Editorial Panel, who determines if anexisting code should be used, or if a new code should be issued.  However, before reaching the Editorial Panel,it must first be screened by the CPT Advisory Committee and the appropriatenational medical specialty society seated in the AMA House of Delegates (forprostate-related procedures, this is the American Urology Association (“AUA”)).  The process of obtaining a new CPT code cantake from one to three years.  When aprocedure is performed, the physician must use the CPT code when billingthird-party payers such as insurance companies or the government.  The amount of reimbursement the physicianreceives depends on the relative value assigned to the procedure by thethird-party payer via the CPT coding.

In the absence of formal reimbursement coverage, providers must givebeneficiaries a Medicare Advance Beneficiary Notice (“ABN”) before furnishingcertain services when there is a reasonable doubt that Medicare will cover theprocedure.  An ABN can be used for allsituations, including laboratory tests, by all physicians and suppliers.  An alternative to using a patient pay modelin the United States is to submit claims using a “Miscellaneous Code” which canoften result in a favorable coverage position. This approach will require the submission of more product and clinicaldata and all cases will be reviewed on an individual basis.

Initially, we anticipate using a “patient pay model” for physicians toreceive payment for performing the ProUroScanTM system test. Under a patient pay model, in the absence of reimbursement from theirhealth insurance, patients who perceive sufficient value in a procedure agreeto pay for the test out of their own funds. This approach was recommended by Hogan & Hartson, our reimbursement 

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consultants,based on the perceived value of the test for patients that have an abnormal DREor PSA value.  Only one in four biopsiesperformed based on an abnormal PSA reading reveal prostate cancer, and only 50percent of suspicious lesions found by DRE presented cancer on prostatebiopsy.  Given these statistics, in caseswhere patients have abnormal DRE or PSA test results or when a test result maynot be clear, there is a high incentive to seek additional diagnostic inputs sothat patients can make an informed and reasonable decision for themselves andtheir family.  We believe that asufficient number of patients will be willing to pay for the ProUroScanTM system test out of theirpersonal funds to support the launch of our product in advance of receiving aformal coverage position from third-party insurers.  The concept of a patient pay model has beenused successfully for other procedures (e.g., mammography enhancement) and weexpect this to be our approach for generating revenues during at least theearly phases of product rollout. Physicians will also have the option of billing under a “miscellaneous”code until a formal CPT code has been established.

*Electrical Impedance Tomography (“EIT”)Technology*

In addition to ourProUroScanTM technology, we have secured licensed rights totechnology that offers potentially significant enhancements to existingtreatments of BPH and other urologic applications.  These technologies are covered by patentsheld by the licensors.  We are not awareof any patents held by others that would present any uncertainties regardingthe protection of our intellectual property rights.

We believe that our uniqueand proprietary EIT technology has the potential to be a significantadvancement to thermal therapy.  EIT isan imaging technology in which an image of the conductivity or resistivity ofpart of the body is inferred from surface electrical measurements.  Current microwave thermal therapy treatmentutilizes a catheter that is inserted into the patient’s urethra.  The catheter contains an antenna thatradiates microwave energy in an omni-directional, 360° pattern.  The tissue of the prostate absorbs thisenergy and heat is inductively generated to increase the temperature above 45°C, which is necessary to cause necrosis of the tissue.  After this tissue dies and is eliminated bythe body, the enlargement of the prostate is reduced, restoring urine flow. Theheating that occurs during a thermal therapy procedure produces a change in thelocal conductivity or resistivity throughout the treatment volume.  With our EIT technology, these local changesin the electrical properties of the tissue can be measured by a system ofminiature electrodes placed on the patient’s body and a rectal probe, all ofwhich connect to an electronically controlled low-frequency power supply.  Each individual electrode will receive aspecific current and electronically measure all the possible induced voltagesamong the electrode array.  An inversionalgorithm is then employed to create a real-time image of the thermal pattern,allowing the clinician to monitor the migration of heat within the prostate andthe therapeutic effects of the treatment.

In 2005, we entered into a Memorandum of Understanding (the “MOU”) withUrologix, Inc., pursuant to which the parties were to co-develop new productsutilizing our EIT technology.  Aftercompleting Phase I of the development on this technology in September 2006, itwas determined that additional research on two key aspects of the technologywould be required before proceeding with the next development phase.  Due to funding limitations, we have decidedto put further development of the EIT technology on hold temporarily.  We do not anticipate that our near termfinancing efforts will be sufficient to fund additional development of our EITtechnology, but we intend to start development again when funding permits.

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**Assets; Property Acquisitions andDispositions.**

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 with Crown Bank.  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.

**CurrentOperations – Employees and Expenses.**

We currently employ only two employees.  We conduct our research and development,market research, regulatory and other business operations through the use of avariety of consultants 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 us flexibility in directing our resourcestoward specific and changing goals during our development stage.  As we prepare for submission to the FDA andmarket launch of our ProUroScanTM product, we expect to add four to sixemployees in the areas of engineering and regulatory compliance within the next12 months.  During the next 12 months, weexpect to complete the development of clinical ProUroScanTM systems, conduct clinical trials inpreparation for filing a 510(k) submission with the FDA and fund developmentwork on our therapeutic products.

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.  We currently occupy temporary offices withinthe office of a Company director, for which we accrue rent on a month-to-monthbasis of approximately $2,200 per month. The director has informally agreed to defer payment of this rent untilthe Company receives significant funding. We expect to find and relocate to permanent offices of approximately2,000 square feet in the third or fourth quarter of 2007. Other expensesincurred include executive officer compensation, expensing of stock options,travel, insurance, telephone, supplies and other miscellaneous expenses.  In the next twelve months, the Companyanticipates that it will spend approximately $1.3 million in marketing andadministrative expenses.  Of these, theCompany expects that approximately $370,000 will be for compensation, benefitsand payroll taxes.

The Company anticipates that it will spend between$1.9 and $2.0 million on research and product development of the ProUroScanTM system over the next 12months.  Of this amount, approximately$1.3 million will be spent on manufacturing, engineering, validation anddocumentation efforts on a contracted basis with our development partners,including Artann.  As noted in the “Overview; Product Offerings”section above, much of the ProUroScanTM’sdevelopment to date has been accomplished under two development agreementsbetween ProUroCare and Artann.  Weanticipate entering into a joint development agreement with Artann in the thirdquarter of 2007.  Although the terms ofthat agreement have not been finalized, we expect fees paid to Artann over thenext twelve months under that agreement will range between $750,000 and$900,000.  Clinical trials and the510(k) filing with the FDA are expected to cost in the range of $250,000 to$300,000.  ProUroScanTM systems created for development and clinicaluse are expected to cost the Company between $75,000 and $100,000.  Internal salaries, benefits and miscellaneousdepartmental expenses for software and hardware development, regulatory workand project management are estimated to cost between $300,000 and$350,000.  Contracted project managementand engineering is expected to range from $100,000 to $125,000.

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**Liquidity and Capital Resources.**

*Financing Plan.*

We had a working capitaldeficit of approximately $3.5 million at June 30, 2007.  Cash used in operations was approximately$463,000 and $1.5 million for the six month periods ended June 30, 2007 and2006, respectively, and $6.7 million for the period from August 17, 1999 (dateof inception) to June 30, 2007.  Inaddition, as of the date of this filing, the Company has current liabilitiesexceeding $3.5 million.  Consequently,management has taken several measures to conserve cash, including reducing executive headcount, minimizingdevelopment work on the ProUroScanTM system, reducing expenses and deferring vendorpayments and staff salaries.

Management’s plan is to actively raise an additional $10 million withinthe next 18 months to support ongoing operations and retire certain existingdebt and other obligations.  Of thetotal, approximately $6 million will be used to bring the existing firstgeneration system through clinical trials, final FDA concurrence andpreparation for market launch.  Thesefunds will be in addition to funds available to develop the ProUroScanTM system under Artann’s SmallBusiness Innovation Research Phase II Competitive Renewal grant from theNational Cancer Institute.  The remaining $4 million will be used toretire existing liabilities and provide working capital.

The plan for raising this level of funding consists of three separateinitiatives:

·                  weare in discussions with an investment banker to initiate a public equityoffering in the range of $4.0 to $6.0 million during the third and fourthquarters of 2007;

·                  wecontinue to pursue investments from certain prospective investors who areinterested in the Company and able to invest significant amounts ofcapital.  All of our funding to date hasbeen provided or guaranteed by highly qualified, accredited individualinvestors; and

·                  weare in contact with potential medical device companies that are interested inmarketing products in the prostate cancer detection market.  Conversations are in the early stages with atleast two such companies.  In addition tofinancial support, a successful collaboration with this type of company wouldallow us to gain access to down stream marketing, manufacturing and salessupport.

If additional funds are raised by the issuance of debtor equity securities, such as through the issuance of stock, the issuance andexercise of warrants or the issuance and conversion of convertible debentures,then existing shareholders will experience dilution of their ownershipinterest.  If additional funds are raisedby the issuance of debt or other equity instruments, we may become subject tocertain operational limitations, and such securities may have rights senior tothose of existing holders of common stock.

If adequate funds are not available through theseinitiatives on a timely basis in 2007, or are not available on acceptableterms, the Company may be unable to fund expansion, to develop or enhance ourproducts.  If the Company is forced toslow its development programs, or to put them on hold, it would delayregulatory approvals needed, and thus delay market entry for our products.Ultimately, if no additional financing is obtained beyond what has been securedto date, we could potentially be forced to cease operations.  See “RISK FACTORS ASSOCIATED WITH OUR BUSINESS, OPERATIONS ANDSECURITIES,” on page 28 of this Quarterly Report on Form 10-QSB.

**Going Concern**

We have incurred operatinglosses, accumulated deficit and negative cash flows from operations since inception.  As of June 30, 2007, we had an accumulateddeficit of approximately $14,880,000  

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Thesefactors, among others, raise substantial doubt about our ability to continue asa going concern.  The accompanyingconsolidated unaudited financial statements do not include any adjustmentsrelated to recoverability and classification of asset carrying amounts or theamount and classification of liabilities that might result should we be unableto continue as a going concern.

**Critical Accounting Estimates**

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

**IMPORTANTNOTICES TO INVESTORS; SAFE HARBOR STATEMENT**

Statements in this Quarterly Report on Form 10-QSB that are not purelyhistorical 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 capital needsover the next 12 to 24 months and until we generate sufficient ongoing revenuefrom our products; (iii) our ability to successfully introduce, market and sellour products into the medical device markets; and (iv) all statements precededby, followed by or that include the words “may,” “would,” “could,” “should,” “expect,”“project,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “target” orsimilar expressions.

Forward-looking statements involve inherent risks and uncertainties,and important factors (many of which are beyond our control) that could causeactual results to differ materially from those set forth in the forward-lookingstatements, including the following, in addition to those contained in ourCompany’s reports on file with the Securities and Exchange Commission (the “SEC”):general economic or industry conditions, nationally and in the physician,urology and medical device communities in which we intend to do business; ourability to fund our working capital needs over the next 12 to 24 months; ourability to complete the development of our existing and proposed products on atimely basis or at all; legislation or regulatory requirements, including oursecuring all FDA and other regulatory approvals on a timely basis, or at all,prior to being able to market and sell our products in the United States;competition from larger and more well established medical device companies andother 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 2007 working capital needs and launch our products into themarketplace in subsequent years; changes in accounting principles, policies orguidelines; financial or political instability; acts of war or terrorism; andother economic, competitive, governmental, regulatory and technical factorsaffecting our operations, proposed products and prices.

Accordingly, investors and shareholders are cautioned to appreciatethat results actually achieved may differ materially from expected results inthese statements.  Forward-lookingstatements 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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**RISKFACTORS ASSOCIATED WITH OUR BUSINESS**, OPERATIONS AND SECURITIES

**As adevelopment stage company, we have no operating history and our business planhas not yet been fully tested.  Weanticipate incurring future losses until our products are completed, regulatoryapproval is secured and our products are introduced into the United States andworldwide markets.**

The Company, conducting business through ourwholly-owned subsidiary, ProUroCare Inc., is a development-stage company.  We have yet to commence active operations ormanufacture or sell any products associated with the proprietary urology-basedimaging and therapeutic technologies that we intend to market.  We have no prior operating history from whichto evaluate our success, or our likelihood of success in operating ourbusiness, generating any revenues or achieving profitability.  To date, we have generated no revenue and areproposing to enter the highly competitive urology-imaging and therapeuticindustries.  There can be no assurancethat our plans for developing and marketing our urology-based products will besuccessful, or that we will ever attain significant sales orprofitability.  We anticipate that wewill incur losses in the near future.

**Weare currently in need of additional financing and will need further additionalfinancing during 2007 and 2008, and any such financing will likely be dilutiveto our existing shareholders.**

As of August 2, 2007, we had cash on hand ofapproximately $39,000.  These funds arenot sufficient for us to complete development of our products and gain approvalof them from the Food and Drug Administration (“FDA”).  In addition, the Company has currentliabilities exceeding $3.6 million. Consequently, management has taken several measures to conserve cash, including reducing executiveheadcount, substantially reducing development work on the ProUroScanTM system, reducing expenses anddeferring vendor payments and staff salaries.

Management’s plan is to actively raise an additional $10 millionwithin the next 18 months to support ongoing operations and retire certainexisting debt and other obligations.  Ofthe total, approximately $6 million will be used to bring the existing firstgeneration ProUroScanTM systemthrough clinicals trials, final FDA concurrence and preparation for marketlaunch.  These funds will be in additionto funds available on a reimbursement basis to develop the ProUroScanTM system under Artann’s SmallBusiness Innovation Research Phase II Competitive Renewal grant from theNational Cancer Institute.  The remaining $4 million will be used toretire existing liabilities and provide working capital.

The plan for raising this level of funding consists of three separateinitiatives:

·                  weare in discussions with an investment banker to initiate a public equityoffering in the range of $4.0 to $6.0 million during the third and fourthquarters of 2007;

·                  wecontinue to pursue investments from certain prospective investors who areinterested in the Company and able to invest significant amounts of capital.  All of our funding to date has been providedor guaranteed by highly qualified, accredited individual investors; and

·                  weare in contact with potential medical device companies that are interested inmarketing products in the prostate cancer detection market.  Conversations are in the early stages with atleast two such companies.  In addition tofinancial support, a successful collaboration with this type of company would allowus to gain access to down stream marketing, manufacturing and sales support.

If additional funds are raised by the issuance of debtor equity securities, such as through the issuance of stock, the issuance andexercise of warrants, or the issuance and conversion of convertible 

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debentures, then existingshareholders will experience dilution of their ownership interest.  If additional funds are raised by theissuance of debt or other equity instruments, we may become subject to certainoperational limitations, and such securities may have rights senior to those ofexisting holders of common stock.

If adequate funds are not available through theseinitiatives on a timely basis in 2007, or are not available on acceptableterms, the Company may be unable to fund expansion, or to develop or enhanceour products.  If the Company is forcedto slow its development programs, or put them on hold, it would delayregulatory approvals needed, and thus market entry for our products.Ultimately, if no additional financing is obtained beyond what has been securedto date, we could potentially be forced to cease operations.

###### **Our assets are pledged to secure a senior bank note and are notavailable to secure other senior debt financing, and upon the occurrence of anevent of default will be assigned to guarantors of the senior bank note.**

Our senior debt financing through Crown Bank, Minneapolis, Minnesota,has required us to pledge all of our assets and certain licenses, as well as toprovide certain accredited investors’ personal guarantees. As such, the Companywill not be in a position in the future to pledge its assets to secure any debtor lending facility, in the event we desire or need to borrow such funds on asecured lending basis. Moreover, under the terms and conditions of theforegoing facility, and our agreement with such guarantors, in the event of anydefault by the Company with its senior lender that causes the personalguarantees to be called and honored, the Company and its lender have agreedthat all the Company’s assets shall be assigned to such guarantors, pro rata,in consideration of such breach and obligation to pay under the respectiveguarantees. Thus, common shareholders of the Company, and any existing andfuture investors in the Company’s common stock, would, if the foregoing breachand circumstances occurred, not have access or recourse to the Company’s assetsand collateral, and thus, would likely face a complete loss of their investmentin the Company.

**Ourproducts have not been, and may never be, fully commercially completed anddeveloped.**

Only three complete ProUroScanTM systems have been built fortesting, clinical validations and demonstration purposes.  Previously, we had developed and manufacturedtwo working prototype ProUroScanTMsystems to prove the feasibility of the device and to provide ameans to test and develop future systems. Nevertheless, we have not generated any revenues from the sale of theProUroScanTM system, norhave we manufactured any ProUroScanTMsystems 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.

**Evenif successfully developed, our products may not be commercially viable.**

Even if we are able to successfully develop ourproducts, we may not be able to manufacture such products in commercialquantities or 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 

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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, could have a materially adverse affect on ourbusiness.

**Evenif successfully developed, our products may not be 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 noassurance that physicians, urologists or the medical device market, in general,will accept our products.

**Rapidtechnological change in our competitive marketplace may render our proposedproducts obsolete or may diminish our ability to compete in the marketplace.**

The prostate cancer detection, urologic imaging andmedical device markets are extremely competitive, dominated by large and wellfinanced competition and subject to rapid technological advances andchanges.  The discovery of newtechnologies and advances in the application of such technologies to themedical marketplace in general, and the market for urologic products in particular,may render our products obsolete or non-competitive.  Any such changes and advances could force usto abandon our currently proposed products, which would have a material andadverse effect on the Company and our business.

**Wewill depend upon others for the manufacturing of our products, which willsubject our business to the risk that we will be unable to fully control thesupply 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 others. We do notintend to establish any of our own manufacturing facilities for any of ourproposed products.  Instead, we intend toretain FDA approved contract manufacturers. There can be no assurance that such manufacturers will be able to supplyour products in the required quantities, at appropriate quality levels or atacceptable costs.  We may be adverselyaffected by any difficulties encountered by such third-party manufacturers thatresult in product defects, production delays or the inability to fulfill orderson a timely basis.  If a manufacturercannot meet 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.

**Ourreliance on third-party manufacturers and other third parties in other aspectsof our business may reduce any profits we may earn from our products, and maynegatively affect future product development.**

We currently intend to partner with one or morewell-established companies in the urology market to commercialize productsmanufactured by FDA approved contract manufacturers, and in connectiontherewith we will likely be required to enter into manufacturing, licensing anddistribution arrangements with third parties. These arrangements 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, or pay royalties or grant rights,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.

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**Wemay not be able to enter into manufacturing agreements or other collaborativeagreements on terms acceptable to us, if at all, which could materially andadversely 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.

**Wematerially rely on consultants and contractors, some of whom have beenpartially or wholly paid through issuances of common stock dilutive to ourshareholders.**

In each of the past two years, the Company (incombination with our wholly owned subsidiary ProUroCare Inc.) has incurredconsulting and contracted research and development fees that represent amaterial expenditure in relation to our total operating costs.  During the year ended December 31, 2006, weincurred consulting and contracted research and development fees totalingapproximately $178,000.  Of this amount,approximately $141,000 was incurred for research and development activities,$39,000 was incurred for business brokerage services rendered in connectionwith financing activities and $7,000 was incurred for services rendered inconnection with regulatory and reimbursement matters. Approximately $23,000 ofthis amount was paid through the issuance of 25,000 shares of common stock.

We expect to continue to materially rely on consultantsand contractors to perform a significant amount of research and development,pre-manufacturing, clinical, regulatory and marketing activities.  Expenses for these activities are anticipatedto be approximately $1.7 to $1.8 million during the next 12 months.  We may issue securities in partialsatisfaction of certain development and consulting expenses.  Any such issuance could be dilutive toshareholders.

**Theresale of our common stock under Rule 144 and under our prior RegistrationStatement on Form SB-2, has depressed and adversely affected the market priceof our common stock in the public market, and thus, could cause additionaldilution if and when 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 ordinary course,has adversely affected the prevailing market price of our common stock, andwill likely continue to do so in the future. Furthermore, as approximately10,000,000 shares of restricted common stock have been held over one year byshareholders who are not officers or directors, and thus, are eligible forresale under Rule 144, selling shareholders may continue to depress the priceof our common stock. Accordingly, the adverse market and pricing pressuresresulting from the resale of our common stock may continue for an extendedperiod of time and continue to depress the price of our common stock in theopen market.  If these adverse marketconditions persist, and the Company needs to secure additional working capitalduring 2007 and 2008, such pricing pressure and market conditions could hinderour ability to raise capital on terms and conditions acceptable to the Company.In addition, shareholders may experience dilution if and when the Companyraises additional capital by the sale of its equity securities under suchadverse market conditions.

We may issue additional shares in connection with ourbusiness and may grant additional stock options to our employees, officers, directorsand consultants or warrants to third parties. Sales of a substantial number of shares of our common stock in thepublic market under Rule 144, or otherwise, would adversely affect the marketprice for our common stock and make it more difficult to sell our shares.

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**Thecommercialization of our products may be significantly delayed by governmentalregulation and any and all such delays, if they occur, may materially adverselyaffect the Company and our operations.**

The proposed products we intend to develop, assembleand market are subject to regulations by the FDA, and by comparable agencies incertain states and various foreign countries. The process of complying with the requirements of the FDA, related agenciesand other state 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 could materially andadversely affect our business plan.

**Weare highly dependent on the services provided by certain key personnel.**

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

**Ourofficers and directors possess substantial voting power with respect to ourcommon stock, which could adversely affect the market price of our common stock.**

Our officers and directors collectively possessbeneficial ownership of 4,928,111 shares of our common stock, which representsapproximately 28.1 percent of the total voting power.  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 may otherwisebe beneficial to our shareholders.  As aresult, the return on an investment in our common stock through the marketprice of our common stock or ultimate sale of our business could be adverselyaffected.

**Welicense from third parties, and do not own or control, key intellectualproperty critical to our products.**

We have exclusively licensed from third partiesintellectual property 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 property, 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, and we are unable to defend the intellectualproperty in case of such failure, we may not be able to maintain thetechnological, and thereby competitive, edge we believe we possess.  Any such loss of intellectual propertyprotections would likely have a materially adverse effect on the Company andour business.

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**Ifwe lose our right to license from third parties certain critical intellectualproperty, our entire business would be in jeopardy.**

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.

**Theprotections for the intellectual property we own and license from other partiesmay be successfully challenged by third parties.**

We own and, as noted above, license from third partiesvarious key intellectual property.  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 businesscould 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.

**Wemay not be able to successfully compete against companies in our industry withgreater resources, or with any competition.**

The urology imaging and therapeutic businesses,specifically, and the medical device and life sciences business in general, areextremely competitive.  We haveexperienced, and expect to continue experiencing significant competition in themedical device market.  Although webelieve that we may have a proprietary niche in the prostate-imaging andprostate-therapeutic marketplaces, many factors beyond our control, includinggovernment regulation, will likely encourage new competitors.  In particular, several large companies willcompete with us in the prostate-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.

**Ourfailure to receive third-party reimbursement for our products, when in themarketplace, would result in diminished marketability of our products.**

We do not currently receive reimbursement from anyparty for the use of our products because there are no products fully developedand currently available for sale in the marketplace.  As a result, we have not taken any steps toobtain approval for reimbursement for the use of any of our proposedproducts.  Nevertheless, we are workingto formulate the appropriate approach to obtaining and optimizing governmentand third-party reimbursement for the use of our products.  The success of our future medical deviceproducts will materially depend on the ability of medical service providers toobtain third-party reimbursement from private and public insurance sources,such as Medicare, 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 thatsuch reimbursement will ever be obtained.

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**Ourcommon stock is illiquid and may be difficult to sell.**

Trading of our common stock is conducted on theOver-the-Counter Bulletin Board. Management believes that this has an adverse effect on the liquidity ofour common stock, not only in terms of the number of securities that can bebought and sold at a given price, but also through delays in the timing oftransactions and reduction in analyst coverage of our Company.  This may result in lower prices for ourcommon stock than might otherwise be obtained if our stock were traded on alarger or more established exchange, such as NASDAQ Small Market Cap Market, orotherwise, and could also result in a larger spread between the bid and askedprices for our common stock.

**Thereis currently little trading volume in our common stock, which may make itdifficult to sell shares of our common stock.**

Since the merger, there has been very little tradingactivity in our common stock.  Therelatively small trading volume will likely make it difficult for ourshareholders to sell their shares as and when they choose.  Furthermore, small trading volumes generallydepress market prices.  As a result,investors may not always be able to resell shares of our common stock publiclyat the time and prices that they feel is fair or appropriate.

**Becauseour stock is deemed a “penny stock,” you may have difficulty selling shares ofour common stock.**

Our common stock is a “penny stock” and is thereforesubject to the requirements of Rule 15g-9 under the Securities Exchange Act of1934.  Under this Rule, broker-dealerswho sell penny stocks must provide purchasers of these stocks with astandardized risk-disclosure document prepared by the Securities and ExchangeCommission (“SEC”).  The penny-stockrules severely limit the liquidity of securities in the secondary market, andmany brokers choose not to participate in penny-stock transactions.  As a result, there is generally less tradingin penny stocks.  If you become a holderof our common stock, you may not always be able to resell shares of our commonstock publicly at the time and prices that you feel are fair or appropriate.  Under applicable regulations, our commonstock will generally remain a “penny stock” until and for such time as itsper-share price is $5.00 or more (as determined in accordance with SECregulations), or until we meet certain net asset or revenue thresholds.  These thresholds include the possession ofnet tangible assets (i.e., total assets less intangible assets and liabilities)in excess of $2,000,000 in the event we have been operating for at least three yearsor $5,000,000 in the event we have been operating for fewer than three years,and the recognition of average revenues equal to at least $6,000,000 for eachof the last three years.  We do notanticipate meeting any of the thresholds in the foreseeable future.

**Ourability to use operating loss carryforwards to offset income in future yearsmay be limited by future changes in equity ownership.**

As of December 31, 2006, theCompany had generated net operating loss carryforwards of approximately $3.0million 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 Section 382 of the Internal Revenue Code.  The Company has analyzed the merger andprivate placement transactions that occurred in April 2004, and we believe 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, additional shares and warrants likely to be issuedpursuant to the Company’s current financing efforts may trigger such a changein ownership.  

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Based on the Company’s estimates, thelimitation would apply to approximately $1.2 million of the $3.0 million netoperating loss carryforwards.

**Ourbusiness and products subject us to the risk of product 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.

**Wehave never paid dividends, and do not expect to pay dividends in theforeseeable future.**

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

***Item 3.  Controls and Procedures.***

We carried out anevaluation, with the participation of our chief executive and chief financialofficers, of the effectiveness, as of June 30, 2007, of our disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, as amended).  Basedupon that evaluation, our chief executive officer and chief financial officerconcluded that as of June 30, 2007 our disclosure controls and procedures wereeffective.  There has been no change inthe internal controls over financial reporting during the last fiscal quarterthat has materially affected or is likely to materially affect our internalcontrol over financial reporting.

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.**

***Item 1. Legal Proceedings.***

***The Company, like most otherpublic companies, is involved in legal proceedings in the conduct of theordinary course of its business.***

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

*Stock Transactions:*

On April 2, 2007, the Company issued 41,408shares of its common stock to a vendor, as payment for productdevelopment work valued at $20,704.  The issuance was made in relianceon exemption from registration provided by under Section 4(2) of the SecuritiesAct of 1933, as amended (the “Securities Act”), for issuance by an issuer notinvolving a public offering.

On May 1, 2007, the Company sold 312,500 ofits Investment Units to Bruce Culver at a price of $0.40 each.  Each Investment Unit consists of one share ofthe Company’s common stock and a 3-year warrant to acquire 0.5 shares of theCompany’s common stock for $0.25 ($0.50 per whole share), exercisable at thediscretion of the investor during the term of the warrant.  The issuance was made in reliance onexemption from registration provided under Section 4(2) of the Securities Act,for issuance by an issuer not involving a public offering.

*Warrant Issuances:*

On April 16, 2007,the Company issued five-year warrants to acquire 200,000 shares of its commonstock at $0.41 per share to Artann Laboratories, Inc., pursuant to a researchand development agreement.  The issuancewas made in reliance on exemption from registration provided under Section 4(2)of the Securities Act, for issuance by an issuer not involving a publicoffering.

***Item 5.  Other Information.***

OnAugust 8, 2007, the Company amended its $100,000 promissory note issued infavor of Adron on November 29, 2006 (as previously amended on March 20, 2007)to increase the interest rate to $3,500 per month beginning May 1, 2007 andfurther extends the due date to the first of (1) the Company’s closing on$750,000 of new financing or (2) September 15, 2007.  No other terms of the promissory note wereamended.

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***Item6.  Exhibits***
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                  |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                             |
| 10.1        |       | Promissory Note issued in favor of Adron Holdings,  LLC, dated November 29, 2006, as amended March 21, 2007 (incorporated by  reference to Exhibit 10.37 to Annual Report on Form 10-KSB filed March 30,  2007). |
|        |       |                                                                                                                                                                                                             |
| 10.2 *      |       | Promissory Note issued in favor of Alexander  Nazarenko, dated June 25, 2007.                                                                                                                                    |
|        |       |                                                                                                                                                                                                             |
| 10.3 *      |       | Employment Agreement by and between ProUroCare Inc.  and Richard B. Thon, dated July 21, 2007.                                                                                                                   |
|        |       |                                                                                                                                                                                                             |
| 10.4 *      |       | Promissory Note issued in favor of Phillips W.  Smith, dated July 31, 2007.                                                                                                                                      |
|        |       |                                                                                                                                                                                                             |
| 10.5 *      |       | Amendment # 2 to Promissory Note issued in favor of  Adron Holdings, LLC on November 29, 2006, dated August 8, 2007.                                                                                             |
|        |       |                                                                                                                                                                                                             |
| 31.1 *      |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                             |
|        |       |                                                                                                                                                                                                             |
| 31.2 *      |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                             |
|        |       |                                                                                                                                                                                                             |
| 32.1 *      |       | Certification of Chief Executive Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                             |
|        |       |                                                                                                                                                                                                             |
| 32.2 *      |       | Certification of Chief Financial Officer pursuant to  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                 |

 

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*Filed herewith.

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**SIGNATURES**

Pursuantto the Securities Exchange Act of 1934, as amended, the Company has duly causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                        | ** ** | **ProUroCare Medical Inc.**    |
|------------------------|------------|--------------------------------|
|                   | ** ** | ** **                     |
|                   | ** ** | ** **                     |
| Date: August 14,  2007 | ** ** | By:                            | /s/ Richard C. Carlson |
|                   |       | Name: Richard C. Carlson       |
|                   |       | Title: Chief Executive Officer |
|                   |       |                           |
|                   |       |                           |
| Date: August 14,  2007 |       | By:                            | /s/ Richard Thon |
|                   |       | Name: Richard Thon             |
|                   |       | Title: Chief Financial Officer |

 

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