United States Securities & Exchange Commission Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 333-103781 ProUroCare Medical Inc. (Exact name of small business issuer as specified in its charter) Nevada 20-1212923 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) One Carlson Parkway, Suite 124 Plymouth, Minnesota 55447 (Address of principal executive offices) 952-476-9093 (Issuer's telephone number) (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 13,803,613 shares of common stock outstanding as of July 14, 2004, par value $.00001 per share. Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] ProUroCare Medical Inc. Form 10-QSB Quarter Ended June 30, 2004 Table of Contents Page No. PART I. Financial Information.......................................[1] Item 1. Financial Statements Consolidated balance sheets.................................[1] Consolidated statements of operations.......................[2] Consolidated statements of cash flows.......................[3] Notes to consolidated financial statements..................[4] Item 2. Management's Discussion and Analysis or Plan of Operation .[10] Item 3. Controls and Procedures....................................[17] PART II. Other Information..........................................[18] Item 1. Legal Proceedings..........................................[18] Item 2. Changes in Securities and USE OF PROCEEDS..................[18] Item 6. Exhibits and Reports on Form 8-K...........................[19] SIGNATURES .................................................................[20] CERTIFICATIONS .............................................................[21] Item 1. Financial Statements ProUroCare Medical Inc. (formerly Global Internet Communications, Inc.) Consolidated Balance Sheets June 30, December 31, 2004 2003 Assets (Unaudited) (Audited) ----------- ----------- Current assets: Cash $ 2,073,047 $ 8,968 Deposit 30,000 30,000 Other current assets 47,531 14,469 ----------- ----------- Total current assets 2,150,578 53,437 Equipment and furniture, net 4,779 6,195 Debt issuance costs, net -- 72,594 ----------- ----------- $ 2,155,357 $ 132,226 =========== =========== Liabilities and Shareholders' Equity (Deficit) Current liabilities: Line of credit, bank $ -- $ 860,000 Notes payable 650,000 -- Accounts payable 539,210 774,436 Accrued expenses 227,795 404,779 License obligation -- 25,000 Due to CS Medical Technologies, LLC -- 26,000 Due to Clinical Network, Inc. 8,943 33,244 ----------- ----------- Total current liabilities 1,425,948 2,123,459 Shareholders' equity (deficit:) Common stock, $0.00001 par value. Authorized 100,000,000 shares; issued and outstanding 13,803,613 and 10,503,003 shares on June 30, 2004 and December 31, 2003, respectively 138 105 Additional paid-in capital 7,521,153 3,866,655 Deficit accumulated during the development stage (6,791,882) (5,857,993) ----------- ----------- Total shareholders' equity (deficit) 729,409 (1,991,233) ----------- ----------- $ 2,155,357 $ 132,226 =========== =========== See accompanying notes to financial statements. 1 ProUroCare Medical Inc. (formerly Global Internet Communications, Inc.) Consolidated Statements of Operations (Unaudited) Period from August 17,1999 Three months ended June 30, Six months ended June 30, (inception) ---------------------------- ---------------------------- to June 30, 2004 2003 2004 2003 2004 ------------ ------------ ------------ ------------ ------------ Operating expenses: Research and development $ 22,230 $ 187,060 $ 22,230 $ 276,197 $ 3,441,392 General and administrative 565,542 342,638 856,253 715,351 3,169,333 ------------ ------------ ------------ ------------ ------------ Total operating expenses 587,772 529,698 878,483 991,548 6,610,725 ------------ ------------ ------------ ------------ ------------ Operating loss (587,772) (529,698) (878,483) (991,548) (6,610,725) Interest income (7,419) -- (7,419) -- (7,419) Interest expense 27,452 26,777 62,825 50,666 188,576 ------------ ------------ ------------ ------------ ------------ Net loss $ (607,805) $ (556,475) $ (933,889) $ (1,042,214) $ (6,791,882) ============ ============ ============ ============ ============ Net loss per common share: Basic and diluted $ (0.04) $ (0.05) $ (0.08) $ (0.10) $ (1.13) Weighted average number of shares outstanding: Basic and diluted 13,593,075 10,503,003 12,039,503 10,503,003 6,017,258 See accompanying notes to financial statements. 2 ProUroCare Medical Inc. (formerly Global Internet Communications, Inc.) Consolidated Statements of Cash Flows (Unaudited) Period from August 17,1999 Six months ended June 30, (inception) -------------------------- to June 30, 2004 2003 2004 ----------- ----------- ----------- Cash flows from operating activities: Net loss $ (933,889) $(1,042,214) $(6,791,882) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,416 2,138 6,164 Stock-based compensation 75,945 79,374 370,153 Issuance of common stock for services rendered -- -- 103,166 Warrants issued for services 309,794 187,060 497,344 Amortization of debt issuance costs 72,594 51,858 216,112 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 -- (41) (30,000) Other current assets (33,062) (17,142) (47,531) Accounts payable (235,226) 90,278 551,915 Accrued expenses (99,759) 208,723 305,020 License obligation (25,000) -- -- ----------- ----------- ----------- Net cash used in operating activities (867,187) (439,966) (2,630,939) ----------- ----------- ----------- Cash flows from investing activities: Purchases of equipment and furniture -- -- (10,943) ----------- ----------- ----------- Net cash used in investing activities -- -- (10,943) ----------- ----------- ----------- Cash flows from financing activities: Net advances from (payments to) line of credit, bank (860,000) 500,000 -- Payment for recession of common stock (100,000) -- (100,000) Net advances from (payments to) Clinical Network, Inc. (24,301) (75,000) 8,943 Net advances from (payments to) CS Medical Technologies, LLC (26,000) -- -- Cost of reverse merger (143,933) -- (143,933) Net proceeds from issuance of common stock 4,085,500 -- 4,949,919 ----------- ----------- ----------- Net cash provided by financing activities 2,931,266 425,000 4,714,929 ----------- ----------- ----------- Net increase (decrease) in cash 2,064,079 (14,966) 2,073,047 Cash, beginning of the period 8,968 14,996 -- ----------- ----------- ----------- Cash, end of the period $ 2,073,047 $ 30 $ 2,073,047 =========== =========== =========== Supplemental cash flow information: Cash paid for interest $ 52,248 $ 19,630 $ 91,290 Non-cash investing and financing activities: Assumption of liabilities in the Profile, LLC transaction $ -- $ -- $ 25,000 Warrants issued for debt issuance costs $ -- $ 64,287 $ 216,112 Issuance of note payable for redemption of common stock $ 650,000 $ -- $ 650,000 Common stock issued in lieu of cash for accounts payable $ 77,225 $ 12,705 $ 180,391 See accompanying notes to financial statements. 3 ProUroCare Medical Inc. (formerly Global Internet Communications, Inc.) Notes to Consolidated Financial Statements June 30, 2004 and 2003 and the period from August 17, 1999 (inception) to June 30, 2004 (Unaudited) Note 1. Summary of Significant Accounting Policies Description of Business, Development Stage Activities, and Basis of Presentation. ProUroCare Medical Inc. (formerly Global Internet Communications, Inc.) (the "Company") is a development stage company that is developing diagnostic equipment and treatments for enlarged prostates and other male urological conditions. The Company's developmental activities have included the acquisition of several technology licenses, the development of a strategic business plan and a senior management team, product development, and fund raising activities. On April 20, 2004 Global Internet Communications Inc ("GICI") filed a Current Report on Form 8-K with the Securities and Exchange Commission reporting the merger of GIC Acquisition Corp. ("Acquisition Co.") (then a wholly owned subsidiary of GICI), with and into ProUroCare Inc. ("ProUroCare") (Note 2). As described in the Current Report, for accounting purposes, the merger was accounted for as a reverse acquisition, with ProUroCare remaining as the surviving company and a wholly owned operating subsidiary of GICI. The historical financial statements of ProUroCare become the historical financial statements of GICI, and the assets and liabilities of GICI are accounted for as required under the purchase method of accounting. Results of operations of GICI are included in the financial statements from April 5, 2004, the effective date of the merger. All share data has been restated to give effect of the merger under which each ProUroCare share was converted into 3 shares of GICI (Note 3). Change of Name; Trading Symbol. Effective April 26, 2004, the Company changed its name from Global Internet Communications, Inc. to ProUroCare Medical Inc., pursuant to a short-form merger with a wholly owned subsidiary formed for the sole purpose of effecting the name change, as allowed under Nevada corporate law. On May 5, 2004 the Company's trading symbol changed to "PRRC". Interim Financial Information. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") for interim financial information. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The accompanying financial statements and related notes should be read in conjunction with the audited financial statements of ProUroCare Medical Inc. (formerly Global Internet Communications, Inc.), and notes thereto, for the fiscal year ended December 31, 2003, contained in its Annual Report on Form 10-KSB for the year ended December 31, 2003 and with ProUroCare's audited financial statements, and notes thereto, for the fiscal year ended December 31, 2003, included as an exhibit to our Current Report on Form 8-K, filed on April 20, 2004. 4 The financial information furnished reflects, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of the interim periods presented. Revenue Recognition. ProUroCare will recognize revenue from the sale of proposed systems when delivered to the customer, and will recognize revenue from disposable product sales at the time of shipment. The Company anticipates placing systems with customers under a variety of programs for both evaluation and long-term use, retaining ownership of these systems. Revenue will be recognized when title is transferred to the customer. These programs are designed to expand access to the technology, and thus expand the market for related disposable products. This generally allows the charging of a higher price for each disposable product. Research and Development Costs. Research and development costs are expensed as incurred. Net Loss Per Common Share. Basic and diluted loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding for the reporting period. Stock options and warrants are included in the calculation of diluted net income per share, using the treasury stock method, when the result is anti-dilutive. For both the three and six months ended June 30, 2004, 1,285,000 options and 3,545,631 warrants were excluded since their effect is anti-dilutive. For both the three and six months ended June 30, 2003, 320,000 options and 1,481,887 warrants were excluded since their effect is anti-dilutive. Stock-Based Compensation. Effective August 17, 1999, the Company adopted the fair value recognition provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," 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 date of grant, and to record the expense at fair value as required by SFAS No. 123, using the Black Scholes pricing model. At June 30, 2004, the Company has one stock-based employee compensation plan. ProUroCare adopted a stock option plan in April, 2002 covering the granting of options to employees and independent contractors. It permits the Company to grant both incentive and nonqualified options, stock appreciation rights, stock awards, restricted stock awards, performance shares and cash awards. The estimated fair value of each option grant is estimated on the date of grant using the Black Scholes pricing model using certain assumptions for expected dividend yield, volatility; risk-free interest rates and expected option lives. Note 2. Merger Merger. Pursuant to an Agreement and Plan of Merger and Reorganization dated as of April 2, 2004 (the "Merger Agreement"), by and among the Company, GIC Acquisition Corp., a Minnesota corporation and wholly owned subsidiary of the Company ("Acquisition Co.") and ProUroCare Inc., a privately held Minnesota corporation ("ProUroCare"), Acquisition Co. merged with and into ProUroCare, with ProUroCare remaining as the surviving company and a wholly owned operating subsidiary of the Company (such transaction is hereinafter referred to as the "Merger"). The Merger was effective as of April 5, 2004, when articles of merger were filed with the Minnesota Secretary of State. On April 5, 2004, the Company announced the effectiveness of the Merger through a press release and subsequent Current Report on Form 8-K, filed on April 20, 2004. 5 Prior to the Merger, one ProUroCare shareholder, Profile, L.L.C. ("Profile") had dissented from the Merger proposal as the registered holder of securities beneficially owned by certain shareholders holding, in the aggregate, 308,465 shares of ProUroCare's common stock. As described below, Profile and ProUroCare entered into an agreement relative to these dissenting shareholders. Concurrent with the consummation of the Merger, ProUroCare delivered definitive documents related, among other things, to the purchase of 300,000 shares of ProUroCare common stock from the dissenting shareholders for $750,000; and shareholders beneficially holding the remaining 8,465 shares of ProUroCare common stock withdrew their dissents from the Merger. These redemption transactions had the result of decreasing the aggregate number of shares of ProUroCare common stock outstanding immediately prior to the Merger, and thereby reduced the anticipated total number of shares of common stock of the Company issued and outstanding immediately after the Merger. At the effective time of the Merger, the legal existence of Acquisition Co. ceased, and all 3,501,001 shares of common stock of ProUroCare that were outstanding immediately prior to the Merger and held by ProUroCare shareholders were cancelled, with one share of ProUroCare common stock issued to the Company. Simultaneously, the former shareholders of ProUroCare common stock received an aggregate of 9,603,003 shares of common stock of the Company, representing approximately 82.1% of the Company's common stock outstanding immediately after the Merger. Settlement of Dispute with Profile L.L.C. Prior to the Merger, ProUroCare was involved in a dispute with a significant shareholder, Profile, which also licenses to ProUroCare certain intellectual property essential to the development of the ProUroCare's main product, the Sensor Guided DRE(TM), pursuant to a License Agreement (the "License Agreement"). Profile had alleged that ProUroCare was in default of the License Agreement; and ProUroCare had denied such default. Furthermore, the closing of the Offering was contingent upon ProUroCare's resolving such dispute with Profile. On March 23, 2004, ProUroCare and Profile entered into a Letter of Understanding pursuant to which they agreed (effective upon April 5, 2004) to the following, among other things: o Profile withdrew its default letters and waived all existing defaults under the License Agreement. o ProUroCare committed to spend at least $1,200,000 in connection with the development of the Sensor Guided DRE(TM). o ProUroCare purchased 300,000 of the 308,465 (preconversion) shares with respect to which dissenters' rights were exercised, for an aggregate purchase price of $750,000, of which $100,000 was paid on April 5, 2004. The remaining $650,000 is payable in two equal quarterly installments of $325,000 commencing ninety days after April 5, 2004, pursuant to promissory a note. This note is secured by all of the assets of ProUroCare. Dissents for the remaining 8,465 shares were withdrawn, and participated in the Merger. o Maurice Taylor, Chairman of ProUroCare (and the Company's Chairman), agreed to certain restrictions on the sale of the shares of ProUroCare (and shares of common stock of the Company) owned by him until the above-described promissory note in favor of Profile is paid in full. o ProUroCare committed to provide Profile (the owner of 3,084,999 shares of the Company's common stock following the Merger) certain registration rights. 6 Private Placement of the Company's Common Stock. In connection with the Merger Agreement, the Company commenced a private placement offering of a minimum of 1,500,000 and a maximum of 3,000,000 shares (including an available overallotment) of common stock pursuant to Rule 506 promulgated under the Securities Act of 1933, as amended. Shares of common stock issued and issuable in the private placement are not registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or the availability of an applicable exemption therefrom. The initial closing occurred on April 5, 2004, at which time the Company issued 1,980,000 shares at $2.00 per share, aggregating to gross proceeds of $3.96 million. As of June 30, 2004, the Company issued an additional 85,000 shares at $2.00 per share, aggregating to gross proceeds of $170,000. As part of the private placement, a consultant was engaged by the Company to provide financial-advisory services to the Company. Under terms of the consulting arrangement, the consultant was paid $27,000, and issued a warrant for 300,000 shares of common stock upon the first closing of the private placement. The warrant has a three-year term and is exercisable at $2.00 per share. Costs associated with the private placement were $44,500 during the six months ended June 30, 2004, including amounts paid to the consultant. Note 3. Shareholders' Equity On February 16, 2004 Raymond John Demman was appointed as Chief Executive Officer, Chief Financial Officer, and Director of the Company. Also on that date, the Board of Directors authorized the issuance of 500,000 shares of the Company's common stock to Mr. Demman in exchange for $5,000. On March 5, 2004 the Company canceled 1,053,000 shares of common stock held by the Company's previous officers and directors. On March 26, 2004 the Company issued 650,000 shares of common stock to two consultants pursuant to consulting agreements. The value of these services (approximately $102,000) was expensed in the first quarter of 2004. At the effective time of the Merger ProUroCare purchased 300,000 shares with respect to which dissenters rights were exercised. The remaining 3,201,001 shares of common stock of ProUroCare outstanding immediately prior to the Merger and held by ProUroCare shareholders were cancelled, with one share of ProUroCare common stock issued to the Company. Simultaneously, the former shareholders of ProUroCare common stock received an aggregate of 9,603,003 shares of common stock of the Company, representing approximately 82.1% of the Company's common stock outstanding immediately after the Merger. On April 5, 2004, the Company had the first closing on its private placement offering, at which time the Company issued 1,980,000 shares at $2.00 per share, aggregating to gross proceeds of $3.96 million. As of June 30, 2004 the Company issued an additional 85,000 shares at $2.00 per share, aggregating to gross proceeds of $170,000. Upon the closing of the Company's private placement and Merger on April 5, 2004, certain exercise-price protections and anti-dilution provisions of warrants issued to guarantors of the Company's bank line of credit became effective. Under the terms of these provisions, holders of warrants to purchase 642,870 shares of the Company's common stock at $2.33 per share became eligible to purchase a total of 1,017,882 shares at $1.67 per share. These warrants were valued using the Black Scholes pricing model. The Company recorded an additional expense of $309,794 for the three and six months ended June 30, 2004. Also on April 5, 2004, in connection with the Company's private placement, the Company issued a warrant to purchase 300,000 shares of its common stock at $2.00 per share to a consultant. 7 A vendor was issued 38,613 shares of the Company's common stock in May, 2004 as payment for product development work valued at $77,225. Note 4. Note Payable Concurrent with the merger and as part of the settlement of the Profile dispute, ProUroCare purchased 300,000 shares with respect to which dissenters' rights were exercised, for an aggregate purchase price of $750,000, of which $100,000 was paid on April 5, 2004. The remaining $650,000 is payable in two equal quarterly installments of $325,000 commencing ninety days after April 5, 2004, pursuant to terms of a promissory note issued by the Company. This note is collateralized by all of the assets of ProUroCare and bears interest at a rate of 6.5% per annum. Note 5. Legal Proceeding On April 2, 2004, Todd Leonard, the former President and Chief Operating Officer of ProUroCare Inc., the Company's wholly owned subsidiary as of the date of this report, commenced a lawsuit in Minnesota district court asserting certain claims against ProUroCare Inc. and the Company that relate to Mr. Leonard's separation of employment with ProUroCare Inc prior to the Merger. Mr. Leonard's complaint seeks approximately $228,000 in monetary damages, injunctive relief, punitive damages and fines under Minnesota law and payment of litigation costs and attorneys' fees. The Company disputes Mr. Leonard's claims. The Company does not believe that this litigation, even if finally determined against it, would have a materially adverse effect on the Company or its business. Note 6. Subsequent Events Research and Development Agreement. In July of 2004, the Company entered into a Research and Development Agreement with Artann Laboratories ("Artann") for ongoing research and development related to the Sensor Guided DRE(TM), and other mutually agreed upon technologies. The scope of the Agreement includes finalizing the design and development of a prototype system with certain specified capabilities. Under terms of the Research and Development Agreement, Artann is to be paid a total of $250,000 over three years, based on the achievement of predefined development milestones. In addition, the Company is obligated to issue five-year warrants having an exercise price of $2.00 per share for up to 500,000 shares of its common stock. The warrants vest over the three-year term of the Research and Development Agreement upon certain milestone events described therein. Upon the execution and delivery of the Research and Development Agreement, the Company issued three-year warrants for 100,000 shares and having an exercise price of $2.00 per share. The warrants will be valued using the Black Scholes pricing model and will be expensed at the time of issuance as research and development expense. All new technology developed under this Agreement will be assigned to the Company. Development Agreement. In July of 2004, the Company entered into a Development Agreement with Artann Laboratories and Armen Sarvazyan for ongoing development pertaining specifically to the Sensor Guided DRE(TM). The scope of the Agreement includes finalizing the design and development of a prototype system with certain specified capabilities. The Agreement became effective July 15, 2004, has a term of five months, and requires payments totaling $180,000 to be paid based on the achievement of predefined milestones. 8 Private Placement of the Company's Common Stock. As noted above, the Company commenced a private placement of common stock in the first quarter of 2004. The initial closing occurred on April 5, 2004, at which time the Company issued 1,980,000 shares at $2.00 per share, aggregating to gross proceeds of $3.96 million. As of June 30, 2004 the Company issued an additional 85,000 shares with additional gross proceeds of $170,000. Subsequent to June 30, the Company issued 140,000 shares, receiving gross proceeds of $280,000, and has now closed the private placement. Expenses related to these additional shares issued are estimated to be $25,000, including payments to a consultant under terms of a consulting agreement dated April 5, 2004. 9 Item 2. Management's Discussion and Analysis or Plan of Operation The accompanying Plan of Operation should be read in conjunction with ProUroCare's audited financial statements, and notes thereto, for the fiscal year ended December 31, 2003 included as an exhibit to our Current Report on Form 8-K filed on April 20, 2004. Company History ProUroCare was initially founded by shareholders of Clinical Network Inc. in August of 1999. Pursuant to the above-described Merger Agreement by and among the Company, Acquisition Co. and ProUroCare Inc., Acquisition Co. merged with and into ProUroCare, with ProUroCare remaining as the surviving company and a wholly owned operating subsidiary of the Company. The Merger was effective as of April 5, 2004, when articles of merger were filed with the Minnesota Secretary of State. On April 5, 2004, the Company announced the effectiveness of the Merger through a press release and subsequent Current Report on Form 8-K, filed on April 20, 2004. At the effective time of the Merger, the legal existence of Acquisition Co. ceased, and all 3,501,001 shares of ProUroCare common stock outstanding immediately prior to the Merger and held by ProUroCare shareholders were cancelled, with one share of ProUroCare common stock issued to the Company. Immediately prior to the Merger and as part of the settlement of the dispute with Profile, ProUroCare redeemed 300,000 shares of ProUroCare common stock with respect to which dissenters' rights were exercised. The non-dissenting former shareholders of 3,201,001 shares of ProUroCare common stock received an aggregate of 9,603,003 shares of common stock of the Company, representing approximately 82.1% of the Company's common stock outstanding immediately after the Merger. Effective April 26, 2004, the Company changed its name from Global Internet Communications, Inc. to ProUroCare Medical Inc., pursuant to a short-form merger with a wholly owned subsidiary formed for the sole purpose of effecting the name change, as allowed under Nevada corporate law. On May 5, 2004 the Company's trading symbol changed to "PRRC". Plan of Operation Assets ProUroCare's primary assets are cash and intellectual-property rights, which are the foundation for the Company's proposed product offerings. At this time, the Company does not anticipate purchasing or selling any significant equipment or other assets in the near term. Business Description The Company's acquisition of ProUroCare has resulted in the Company changing its primary business. The new business of the Company, which is the business of the Company's subsidiary ProUroCare Inc., is summarized below. History. ProUroCare is a medical-device company formed to develop and market innovative products for the detection and treatment of male urologic prostate disease, and was initially founded as a Minnesota corporation by shareholders of Clinical Network Inc. ("CN") in August 1999. CN was originally established in 1990 for the purpose of pursuing treatments for stress urinary incontinence in women. In July 2001, CN began to collaborate with CS Medical Technologies, L.L.C. ("CS"), a developer of microwave treatment technology for prostate and cardiology treatments, in developing products for the male urology market. At that time, ProUroCare acquired certain assets from CN and CS and 10 licensed the rights associated with minimally invasive microwave therapy developed to treat prostate disease. In January 2002, ProUroCare purchased certain assets from Profile L.L.C. ("Profile") and obtained a license from Profile providing for worldwide exclusive rights to its prostate imaging system and related patented technology (the "License Agreement"). ProUroCare has also obtained an exclusive worldwide license relating to an imaging system developed by Rensselaer Polytechnic Institute that allows one to monitor microwave therapy changes to tissue in real time. Since January of 2002, ProUroCare has continued to pursue the development of the technologies licensed from CS, CN, Profile and Rensselaer Polytechnic Institute and has internally developed technology for which a patent application has been filed. The Disease. Prostate disease is a persistent disease with a dramatically increasing prevalence. It is currently estimated that over 100 million digital rectal examinations are given each year to monitor prostate disease and that over 23 million men in the United States, Europe, and Japan suffer from moderate to severe symptoms of prostate disease. Benign prostatic hyperplasia ("BPH"), commonly known as "enlarged prostate," is the most common male urological disease. BPH dramatically affects the quality of life of millions of men by causing adverse changes in urinary voiding patterns. Initial Product Offerings. ProUroCare's first product will be the Sensor Guided DRE(TM), which is designed as a unique diagnostic imaging system that will allow a physician to accurately display and chart a digital rectal examination (or "DRE") for disease screening, diagnosis and nodule detection. A DRE is a qualitative and subjective test in which physicians must rely on their experience and the sensitivity of their finger to determine prostate size and recognize the presence of hardness within the prostate that might indicate the presence of potentially life-threatening disease. ProUroCare believes the Sensor Guided DRE(TM)'s proprietary imaging system will produce a digital image of the prostate that shows not only the size of the prostate, but also the location and hardness of soft-tissue nodules within the prostate. The Sensor Guided DRE(TM) is designed to allow a physician to detect hardness in the prostate more accurately than with their finger, assess areas of the prostate that cannot be reached with their finger, and produce quantifiable and chartable results. ProUroCare intends to position this product as an improvement over the current non-specific diagnostic DRE, and a complement to a Prostate Specific Antigen (PSA) enzymatic test. ProUroCare currently intends that its second proposed product, the Procuro(R) system, will be a prostate therapy system designed to treat BPH. BPH is commonly known as "enlarged prostate" and dramatically affects the quality of life of millions of men by causing adverse changes in urinary voiding patterns. The Procuro(R) system will be intended to be a non-surgical, catheter-based therapy using a proprietary microwave technology to precisely and preferentially heat diseased areas of the prostate to a temperature sufficient to cause cell death. ProUroCare believes that the Procuro(R)'s unique and proprietary Electrical Impedance Tomography - E.I.T. Vision System - will allow the urologist to observe heat migration through the prostate during treatment while protecting the urethral tissue and adjacent organs. Procuro(R) will also use a focused-beam microwave array intended to direct treatment where it is needed while avoiding healthy tissue. Real-time visioning of the prostate and the ability to direct treatment will allow a physician to treat specific areas of the prostate that may have localized cancer or BPH, without damaging healthy prostate tissue or medial nerves, thus avoiding impotence and erectile-dysfunction complications. ProUroCare believes that a Procuro(R) procedure can be performed without general or regional anesthesia or intravenous sedation, in a low-cost setting such as a physician's office or an outpatient clinic. As a result, ProUroCare believes that the Procuro(R) system will be positioned as an efficacious, safe and cost-effective procedure for the treatment of BPH, minimizing the types of complications and side effects inherent in most current treatments, and as such, will be well positioned to address the needs of physicians, patients and payors. ProUroCare intends to partner with a major thermotherapy system company to complete development of the Procuro(R) system. 11 Feasibility of Sensor Guided DRE(TM) - Preliminary Lab Studies. Initial lab studies with Sensor Guided DRE(TM) prototypes have demonstrated quantifiable positive results. During the testing, a number of researchers and doctors were asked to palpate different prostate models through an intermediate layer of soft silicone and record their observations. Specific parameters including width and length of the model, presence and location of nodules, depth of median groove, and asymmetry of the model were noted. The Sensor Guided DRE(TM) was then used to examine the models, and was found to evaluate all geometrical parameters more accurately than the human finger, suggesting the opportunity for earlier prostate disease detection and thereby improved therapy outcomes. Clinical Trial Results. Initial human clinical testing of Sensor Guided DRE(TM) demonstrated a direct comparison to Transrectal Ultrasound (TRUS) results. During February 2000, the device was put through a series of alpha-clinical trials. Results of the trials compared Sensor Guided DRE(TM) to traditional DRE and to TRUS. The tests were conducted at the Veterans Administration Medical Center in Minnesota, and the Grand Strand Urology Clinic in Myrtle Beach, South Carolina. The initial DRE results indicated that the Sensor Guided DRE(TM) directly correlated to the physician conducted DRE results and also demonstrated a significant correlation to each patient's historical and current status of prostate disease. ProUroCare anticipates that additional comprehensive clinical trials for prostate imaging applications will be initiated within the next several months. The analysis of the results of the initial clinical trials demonstrated that the Sensor Guided DRE(TM) was fully functional, exhibiting no hardware malfunctioning during the model and patient examinations. The Sensor Guided DRE(TM) was able to detect and process patient data from locations within the prostate not detected during a normal DRE examination. The accuracy of such findings was determined during follow-up examinations. The physicians conducting the trial using the Sensor Guided DRE(TM) determined the system to be both accurate and useful in detecting potential prostate disease based upon the size of the prostate and nodularity in areas of the prostate that were missed or not available to a physician during a normal DRE examination. Whereas other imaging technologies such as x-ray and ultrasound exhibit difficulties in identifying soft-tissue hardness (nodules), the Sensor Guided DRE(TM) imaging system detects certain abnormalities that are missed by other diagnostic techniques at a far lower cost. ProUroCare also expects that the Sensor Guided DRE(TM) will be a safer diagnostic test when compared to other methods using radiation or other high-energy diagnostic tools. This is expected to lead to better healthcare for those applications where palpation of the prostate is indicated. Furthermore, the Sensor Guided DRE(TM) offers the advantage of being able to create an electronic record that can be stored and compared with new images created at a later date, which is not possible with finger exams. Research and Development The Company anticipates that it will spend between $1.2 and $1.8 million on research and product development over the next 12 months. The Company's efforts in this regard will primarily be focused on bringing to market the Company's first two product offerings, the Sensor Guided DRE(TM) and the Procuro(R). Regulatory and Clinical Status - Sensor Guided DRE(TM). The regulatory strategy for the Sensor-Guided DRE(TM) has been developed in consultations with various outside consulting groups that specialize in working with the FDA, including William Jackson and Associates of St. Paul, MN. Mr. Jackson has successfully filed over 200 510(k)s with the FDA including many urology-based filings. In addition, ProUroCare is currently working with Alquest, Inc., a consulting firm specializing in both US and European regulatory filings. ProUroCare expects to receive CE clearance in Europe within the first six months of Sensor Guided DRE(TM) sales in the US. European CE will occur through the interaction with a TUV-notified body. 12 Liquidity and Capital Resources The Company had working capital (deficit) of $724,630 and $(2,070,022) at June 30, 2004 and December 31, 2003, respectively. Cash used in operations was $867,187 and $439,966 for the six months ended June 30, 2004 and 2003, respectively, and $2,630,939 for the period from August 17, 1999 (date of inception) to June 30, 2004. The primary use of cash in each period was to fund the Company's net loss. Common stock was issued to pay for approximately $77,000 and $193,000 of consulting services for the six months ended June 30, 2004 and the period from August 17, 1999 (date of inception) to June 30, 2004, respectively, which also funded a portion of the Company's operating loss in those periods. Pursuant to the terms of ProUroCare's settlement with Profile, the Company is committed to (i) spend $1.2 million on the development of its products, and (ii) pay a total of $750,000 to acquire shares of common stock pursuant to the exercise of dissenter's rights under Minnesota corporate law, of which $100,000 was paid on April 5, 2004. A second payment of $325,000 was made on July 6, 2004, plus interest of $10,649, under terms of the settlement. A final $325,000 payment, plus interest, is scheduled for October, 2004. Pursuant to terms of the Research and Development Agreement between Artann Laboratories, Inc and Armen Sarvazyan, and ProUroCare Medical Inc. executed in July, 2004 the Company is required to pay $250,000 for development services to be rendered over the next three years, based on achievement of certain performance milestones. An additional 10% bonus will also be required for completion of certain technology ahead of pre-established milestone dates. Pursuant to terms of the Development Agreement for Sensor Guided DRE(TM) between Artann Laboratories, Inc. and Armen Sarvazyan, and ProUroCare Medical, Inc. executed in July, 2004 the Company is required to pay $180,000 for development services performed over the five month term of the agreement. Our management believes that we will require additional capital to continue operations. We will maintain limited operations until we receive additional capital. We cannot be certain that any required additional financing will be available on terms favorable to us. If additional funds are raised by the issuance of our equity securities, such as through the issuance and exercise of warrants, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other equity instruments, we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing holders of common stock. If adequate funds are not available or not available on acceptable terms, we may be unable to fund expansion, develop or enhance products or respond to competitive pressures. The Company believes that its current cash will be sufficient to finance operations through December 2004. 13 Employees The Company currently has no employees other than its executive management team. The Company anticipates that it will hire a limited number of additional employees in the next 12 months to manage the development of its products, prepare FDA and regulatory filings, develop marketing plans, and perform administrative duties. Some or all of these functions may be performed by contracted individuals as management deems most effective. Risk Factors Associated With New Business In general. The purchase of shares of the Company's common stock is very speculative and involves a very high degree of risk. An investment in the Company is suitable only for the persons who can afford the loss of their entire investment. Accordingly, investors should carefully consider the following risk factors, as well as other information set forth herein, in making an investment decision with respect to securities of the Company. AS A DEVELOPMENT-STAGE COMPANY, WE HAVE HAD NO SALES AND ANTICIPATE FUTURE LOSSES. The Company, conducting business through ProUroCare (sometimes referred to hereinafter as "we"), is a development-stage company. We have yet to commence active operations or manufacture or sell any products associated with the proprietary urology-based imaging and therapeutic technologies that we intend to market. We have no prior operating history from which to evaluate our success, or our likelihood of success in operating our business, generating any revenues or achieving profitability. To date, we have generated no revenue and are proposing to enter the highly competitive urology imaging and therapeutic industries. There can be no assurance that our plans for developing and marketing our urology-based products will be successful, or that we will ever attain significant sales or profitability. We anticipate that we will incur losses in the near future. THERE IS UNCERTAINTY REGARDING NEW PRODUCT DEVELOPMENT, AND ADDITIONAL EFFORTS WILL BE NECESSARY TO MANUFACTURE PRODUCTS ON A COMMERCIAL SCALE. We have developed and manufactured three working prototypes of the Sensor Guided DRE(TM) for testing and demonstration purposes. However, we have not generated any revenues from the sale of the Sensor Guided DRE(TM) nor have we manufactured any Sensor Guided DRE(TM) in commercial quantities. No assurance can be given that the prototypes will satisfy our performance objectives or FDA requirements or that additional Sensor Guided DRE(TM) may be manufactured in commercial quantities at prices that will be commercially viable. The completion of the development of proposed products remains subject to all the risks associated with the development and manufacture of new products based on innovative technologies, including unanticipated technical or other problems and the possible insufficiency of the funds allocated for the completion of such development, which could result in a change in the design, delay in the development, or abandonment of such applications and products. Consequently, there can be no assurance that such products will be successfully developed or manufactured, or that if developed and manufactured, will meet current price or performance objectives, be developed on a timely basis, or prove to be as effective as products based on other technology. The inability to successfully complete development of a product or application or a determination by us, for financial, technical or other reasons not to complete development of any product or application, particularly in instances in which we have made sufficient capital expenditures could have a material adverse affect our business. WE WILL NEED TO DEPEND UPON OTHERS FOR THE MANUFACTURING AND TESTING OF OUR PRODUCTS. We do not intend to manufacture any of our proposed products. Our ability to develop, manufacture, commercialize and obtain regulatory approval of our proposed products and any future product candidates depends upon our ability to enter into and maintain contractual and collaborative arrangements with others. In this regard, we intend to retain contract manufacturers and clinical trial investigators. In addition, the identification of new product candidates for development may require us to enter into licensing or other collaborative agreements with others, including medical device, pharmaceutical companies and research institutions. We currently intend to market and commercialize products manufactured by others, and we may be required to enter into sales, marketing, licensing, and distribution arrangements with third parties. These arrangements will likely reduce our product revenues. EVEN IF SUCCESSFULLY DEVELOPED, OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKETPLACE. Our products, even if succussfully developed, will be competing against existing treatments and competing products in the healthcare marketplace. There can be no assurance that the market will accept these products. 14 Because our proposed products will be manufactured by outside manufacturers, there can be no assurance that third parties will be able to supply our products in the required quantities, at appropriate quality levels or at acceptable costs. We may be adversely affected by any difficulties encountered by third-party manufacturers that result in product defects, production delays or the inability to fulfill orders on a timely basis. In the event that a manufacturer cannot meet our quality standards and delivery requirements in a cost-efficient manner, we would likely suffer interruptions of delivery while we arrange for alternative manufacturing sources. Any extended disruption in the delivery of products could result in our inability to satisfy customer demand for our products. Consequently, our inability to obtain alternative sources on a timely basis may have a material adverse effect on our business and results of operations. Our third-party contractual or collaborative arrangements may require us to grant rights, including marketing rights, to one or more parties. These arrangements may also contain covenants restricting our product development or business efforts in the future, or other terms which are burdensome to us, and may involve the issuance of our equity securities. Collaborative agreements for the acquisition of new product candidates may require us to pay license fees, make milestone payments and/or pay royalties. We cannot be sure that we will be able to enter into arrangements with third parties on terms acceptable to us, if at all. If we fail to establish new arrangements when and as necessary, we could be required to undertake these activities at our own expense, which would significantly increase our capital requirements and may delay the development, manufacture and commercialization of our future products. WE WILL NEED MORE FINANCING IN THE FUTURE. WE WILL LIKELY REQUIRE ADDITIONAL SOURCES OF FINANCING BEFORE WE CAN GENERATE REVENUES NEEDED TO SUSTAIN OPERATIONS. Unless significant additional funds are obtained, our development, testing and marketing efforts will be hindered and our development and introduction of our proposed products will be delayed. Such additional financing could be sought from a number of sources, including possible further sales of equity or debt securities or loans from banks or other financial institutions. No assurance can be given that we will be able to sell any such securities, or obtain additional financing, on terms and conditions acceptable, or favorable, to us, or at all, if and when needed. Any additional equity financing may be dilutive to shareholders, and additional debt financing, if available, may involve restrictive covenants. OUR PRODUCTS ARE SUBJECT TO FDA REGULATION AND REGULATION BY OTHER GOVERNMENTAL BODIES. The proposed products we intend to develop, assemble and market are subject to regulations by the United States Food and Drug Administration (the "FDA"), and by comparable agencies in certain states and various foreign countries. The process of complying with the requirements of the FDA, related agencies, and other state and foreign agencies can be costly and time consuming. Although we have secured the assistance of regulatory consultants to help direct our regulatory compliance and filings, no assurances can be given that such filings will be acceptable to the FDA or other regulatory governing bodies. Further, even if acceptable, we may encounter significant delays which will materially and adversely affect our business plan. WE ARE HIGHLY DEPENDENT ON THE SERVICES PROVIDED BY CERTAIN KEY PERSONNEL. We are highly and materially dependent upon the services of our executive officers and other key personnel, including Maurice R. Taylor II, Michael P. Grossman, and Richard Thon. We have not obtained "key-man" life insurance insuring the lives of any of these persons. If the services of any of these persons become unavailable to us, for any reason, our business could be adversely affected. 15 WE LICENSE VALUABLE INTELLECTUAL PROPERTY FROM THIRD PARTIES. We have exclusively licensed from third parties both patents and patent applications from other sources. Although we have been advised by patent counsel that such licensed technology has received proprietary protection in proposed major market areas, no assurance can be given that such claims would not be successfully challenged by others or will be properly maintained. No assurance can be given that those final patents will ever be issued. Further, there can be no assurance that our proposed products and methods do not infringe upon the legal rights of others. In the event that the licensors of the intellectual properties underlying our proposed products are unable to maintain or secure patent protection for their technology, ProUroCare will be vulnerable to competitors who might attempt to copy our products. We could be materially and adversely affected by either of such actions, including costly litigation necessary to defend our patent rights. WE EXPECT TO FACE SIGNIFICANT COMPETITION. The urology imaging and therapeutic businesses, and the healthcare business in general, are extremely competitive. The urology products markets are subject to rapid technological advances and the continuing introduction of new products that could render our proposed products obsolete or non-competitive. Therefore, we have experienced, and will continue to experience, significant competition in the marketplace from companies with significantly greater resources than we have. Several large companies will compete with us in the prostate imaging and prostate therapeutic business. Although we believe we may have a proprietary niche in the prostate imaging and prostate therapeutic marketplaces, many factors, including existing and proposed government regulation, will likely encourage new competitors. We expect future competition to come from large medical product and device companies, pharmaceutical companies and others. Many of the companies that will be in direct competition with us have significantly greater resources, more personnel and longer operating histories than we do. Therefore, no assurance can be given that we will be able to successfully compete with these, or any other companies in the marketplace, if at all. WE MAY NOT RECEIVE ADDITIONAL THIRD-PARTY REIMBURSEMENT. ProUroCare currently believes it can utilize existing CPT codes and obtain reimbursement for the Procuro(R) therapeutic procedure, and limited reimbursement for the use of the Sensor Guided DRE(TM) system. ProUroCare intends to apply for more extensive reimbursement for the Sensor Guided DRE(TM) system. The success of our future medical-device products will materially depend on our ability to obtain third-party reimbursement from private insurance sources, Medicaid, Medicare and various foreign governments. It may be difficult to predict the timing and outcome of reimbursement decisions. There are no assurances that such additional reimbursement will ever be obtained. OUR COMMON STOCK IS ILLIQUID AND MAY BE DIFFICULT TO SELL. Trading of our common stock is conducted on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board." This has an adverse effect on the liquidity of our common stock, not only in terms of the number of securities that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts' and the media's coverage of us. This may result in lower prices for our common stock than might otherwise be obtained, and could also result in a larger spread between the bid and asked prices for our common stock. In addition, our common stock is a "penny stock." Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the purchaser's written agreement to the purchase. The penny-stock rules may make it difficult for you to sell your shares of our stock. Because of the rules, there is less trading in penny stocks. Also, many brokers choose not to participate in penny-stock transactions. Accordingly, if you become a holder of our common stock, you may not always be able to resell shares of our common stock publicly at times and prices that you feel are appropriate. OUR BUSINESS AND PRODUCTS SUBJECT US TO THE RISK OF PRODUCT-LIABILITY CLAIMS. The manufacture and sale of medical products and the conduct of clinical trials using new technology involve the risk of product-liability claims. There can be not assurance that our insurance coverage limits will be adequate to protect us from any liabilities which we might incur in connection with the clinical trials or the commercialization of any of our products. Product-liability insurance is expensive and in the future may not be available on acceptable terms, if at all. A successful product-liability claim or series of claims brought against us in excess of our insurance coverage would have a materially adverse effect on our business, financial condition and results of operations. In addition, any claims, even if not ultimately successful, could adversely affect the marketplace's acceptance of our products. WE HAVE NEVER PAID DIVIDENDS, AND TO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. We have never paid dividends on our capital stock and do not anticipate paying any dividends for the foreseeable future. 16 Going Concern The Company has incurred operating losses, accumulated deficit, and negative cash flow from operations since its inception. As of June 30, 2004 we had an accumulated deficit of $6,791,882. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. Critical Accounting Estimates The Company's critical accounting policies are those (i) having the most impact on the reporting of its financial condition and results, and (ii) requiring significant judgments and estimates. Due to the nature of the Company's current operations, the Company does not believe it has any critical policies or procedures. Forward-Looking Statements This Form 10-QSB contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included herein regarding activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and other such matters are forward-looking statements. Actual events may differ materially from those anticipated in the forward-looking statements. Important factors that may cause such a difference include those risk factors included in this report. Item 3. Controls and Procedures We carried out an evaluation, with the participation of our chief executive and chief financial officers, of the effectiveness, as of June 30, 2004, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission; and there has been no significant change in such internal controls or other factors which could significantly affect such controls, including any corrective actions with regard to significant deficiencies or material weaknesses, since our most recent evaluation. Nevertheless, due to the limited number of Company employees engaged in the authorization, recording, processing and reporting of transactions, there is inherently a lack of segregation of duties. The Company periodically assesses the cost versus benefit of adding the resources that would remedy or mitigate this situation, and currently does not consider the benefits to outweigh the costs of adding additional staff in light of the limited number of transactions due to the start-up nature of the Company's current operations. 17 PART II Other Information Item 1. Legal Proceedings On April 2, 2004, Todd Leonard, the former President and Chief Operating Officer of ProUroCare Inc., the Company's wholly owned subsidiary as of the date of this report, commenced a lawsuit in Minnesota district court asserting certain claims against ProUroCare Inc. and the Company that relate to Mr. Leonard's separation of employment with ProUroCare Inc. prior to the Merger. Mr. Leonard's complaint seeks approximately $228,000 in monetary damages, injunctive relief, punitive damages and fines under Minnesota law and payment of litigation costs and attorneys' fees. The Company disputes Mr. Leonard's claims. The Company does not believe that this litigation, even if finally determined against it, would have a materially adverse effect on the Company or its business. Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities In connection with the Company's acquisition of ProUroCare pursuant to the Merger, the Company commenced a private placement offering of a minimum of 1,500,000 and a maximum of 3,000,000 shares (including an available overallotment) of common stock pursuant to Rule 506 promulgated under the Securities Act of 1933, as amended. Shares of common stock issued and issuable in the private placement are not registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or the availability of an applicable exemption therefrom. The initial closing occurred on April 5, 2004, at which time the Company had received and accepted subscriptions for 1,980,000 shares at $2.00 per share, aggregating to gross proceeds of $3.96 million. As of June 30, 2004 the Company had received and accepted additional subscriptions for 85,000 shares at $2.00 per share, aggregating to gross proceeds of $170,000. Subsequent to June 30, the Company has received additional subscriptions for 140,000 shares and gross proceeds of $280,000. As of the date of this report, the Company has closed the private placement. As part of the private placement, a consultant was engaged to provide financial-advisory services to the Company. Under terms of the consulting arrangement, the consultant was paid $27,000, and issued a warrant for 300,000 shares of our common stock. The warrant has a three-year term and is exercisable at $2.00 per share. Costs associated with the private placement were $44,500 during the six months ended June 30, 2004, including amounts paid to the consultant. Upon the closing of the Company's private placement and Merger on April 4, 2004, certain exercise-price protections and anti-dilution provisions of warrants issued to guarantors of the Company's bank line of credit became effective. Under the terms of these provisions, holders of warrants to purchase 642,870 shares of the Company's common stock at $2.33 per share, became eligible to purchase a total of 1,017,882 shares at $1.67 per share. 18 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Research and Development Agreement between Artann Laboratories Inc. and Armen Sarvazyan, and ProUroCare Medical, Inc. effective July 15, 2004 10.2 Development Agreement for Sensor Guided DRE(TM)between Artann Laboratories, Inc. and Armen Sarvazyan, and ProUroCare Medical, Inc. effective July 15, 2004 31.1 Rule 13a-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a) Certification of Chief Financial Officer 32 Section 1350 Certification (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K on April 20, 2004, as amended on April 26, 2004, reporting the Company's acquisition of ProUroCare pursuant to the Merger and Merger Agreement, change in control, and the Company's change in certified independent accountants. 19 SIGNATURES Pursuant to the registration requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ProUroCare Medical Inc. Date: August 2, 2004 By: /s/ Michael P. Grossman -------------------------- Name: Michael P. Grossman Title: President and Chief Executive Officer Date: August 2, 2004 By: /s/ Richard Thon ------------------- Name: Richard Thon Title: Chief Financial Officer 20