As filed with the Securities and Exchange Commission August 3, 2004
Registration No. 333-________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PROUROCARE MEDICAL INC.
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(Name of small business issuer in its charter)
Nevada 3841 20-1212923
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
One Carlson Parkway, Suite 124
Plymouth, Minnesota 55447
(952) 476-9093
(Address and telephone number of principal executive
offices and principal place of business)
Mr. Michael P. Grossman, Chief Executive Officer With copies to:
ProUroCare Medical Inc. William M. Mower, Esq.
One Carlson Parkway, Suite 124 Paul D. Chestovich, Esq.
Plymouth, Minnesota 55447 Maslon Edelman Borman & Brand, LLP
Telephone: (952) 476-9093 90 South 7th Street, Suite 3300
Facsimile: (952) 476-9340 Minneapolis, Minnesota 55402
(Name, address and telephone number of agent for service) Telephone: (612) 672-8200
Facsimile: (612) 672-8397
Approximate date of proposed sale to the public: From time to time after the
effective date of this registration statement, as shall be determined by the
selling stockholders identified herein.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for such offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=========================================== =================== ===================== ==================== ================
PROPOSED MAXIMUM
PROPOSED PRICE PER PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF NUMBER OF SHARES OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED SHARE OFFERING PRICE FEE
------------------------------------------- ------------------- --------------------- -------------------- ----------------
Common stock, par value $.00001 per share 12,346,616 $3.00 (1) $37,039,848 (1) $4,693
------------------------------------------- ------------------- --------------------- -------------------- ----------------
Common stock, par value $.00001 per share 1,581,877 $1.69 (2) $2,673,372 (2) $329
=========================================== =================== ===================== ==================== ================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(e) of the Securities Act based upon the average of the
high and low prices of the registrant's common stock on July 28, 2004.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(g) of the Securities Act based upon the
weighted-average price at which warrants to purchase 1,581,877 shares of the
registrant's common stock are exercisable.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is preliminary and not complete and
may be changed. Securities included in the registration statement of which this
prospectus is a part may not be sold until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 3, 2004
PROSPECTUS
PROUROCARE MEDICAL INC.
13,928,493 shares of common stock
The selling stockholders identified on pages 28-36 of this prospectus
are offering on a resale basis a total of 13,928,493 shares of our common stock,
including 1,581,877 shares issuable upon exercise of outstanding warrants. We
will not receive any proceeds from the sale of shares sold by the selling
stockholders.
Our common stock is quoted on the Over-the-Counter Bulletin Board under
the symbol "PRRC." On July 30, 2004, the last sales price for our common stock
as reported on the OTC Bulletin Board was $3.25.
________________________________
The securities offered by this prospectus involve a high degree of
risk. For more information, see "Risk Factors" beginning on page 4.
________________________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________, 2004
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................4
NOTE REGARDING FORWARD-LOOKING STATEMENTS......................................8
MANAGEMENT'S PLAN OF OPERATION.................................................9
DESCRIPTION OF BUSINESS.......................................................11
MANAGEMENT....................................................................18
EXECUTIVE COMPENSATION........................................................21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................24
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......................26
USE OF PROCEEDS...............................................................28
SELLING STOCKHOLDERS..........................................................28
PLAN OF DISTRIBUTION..........................................................35
DESCRIPTION OF CAPITAL STOCK..................................................38
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES..................................................38
WHERE YOU CAN FIND MORE INFORMATION...........................................38
VALIDITY OF COMMON STOCK......................................................39
EXPERTS.......................................................................39
CHANGES IN CERTIFYING ACCOUNTANT..............................................39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................F-1
This prospectus is not an offer or solicitation in respect to these
securities in any jurisdiction in which such offer or solicitation would be
unlawful. This prospectus is part of a registration statement that we filed with
the United States Securities and Exchange Commission (the "SEC"). The
registration statement that contains this prospectus (including the exhibits to
the registration statement) contains additional information about our company
and the securities offered under this prospectus. That registration statement
can be read at the SEC's website or offices indicated under the section of this
prospectus entitled "Where You Can Find More Information." We have not
authorized anyone else to provide you with different information or additional
information. You should not assume that the information in this prospectus, or
any supplement or amendment to this prospectus, is accurate at any date other
than the date indicated on the cover page of such documents.
i
PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail
elsewhere in this prospectus. This summary may not contain all of the
information that may be important to you. We urge you to read this entire
prospectus carefully, including the risks of investing in our common stock
discussed under "Risk Factors" and the financial statements and other
information that is incorporated by reference into this prospectus, before
making an investment decision. In addition, this prospectus summarizes other
documents which we urge you to read. All references in this prospectus to
"ProUroCare," "we," "us," "our" or "our company" refer to ProUroCare Medical
Inc. and our consolidated subsidiaries. References to "ProUroCare Inc." or "PUC"
refer to ProUroCare Inc., our wholly owned subsidiary.
OUR COMPANY
The Company (formerly known as Global Internet Communications, Inc.)
was formed on February 26, 2003 as a Nevada corporation. Pursuant to an
Agreement and Plan of Merger and Reorganization dated as of April 5, 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 ("PUC"),
Acquisition Co. merged with and into PUC, with PUC 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. The Company entered into the Merger to acquire the business of PUC.
Effective upon the Merger, the legal existence of Acquisition Co.
ceased, and all 3,501,001 shares of common stock of PUC that were outstanding
immediately prior to the Merger and held by PUC shareholders were cancelled,
with one share of PUC common stock issued to the Company. Simultaneously, the
former shareholders of PUC 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. As a result of
the Merger, PUC is now a wholly owned operating subsidiary of the Company, and
PUC's business is the Company's sole business enterprise. On April 26, 2004, the
Company changed its name 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 on the Over-The-Counter Bulletin Board changed to
"PRRC."
We are engaged in the business of developing and marketing innovative
products for the detection and treatment of male urologic prostate disease. PUC
was initially founded as a Minnesota corporation by shareholders of Clinical
Network Inc. ("Clinical Network") in August 1999. Clinical Network was
originally established in 1990 for the purpose of pursuing treatments for stress
urinary incontinence in women. In July 2001, Clinical Network began
collaborating with CS Medical Technologies, L.L.C. ("CS Medical"), a developer
of microwave treatment technology for prostate and cardiology treatments, for
the development of products for the male urology market. At that time, PUC
acquired certain assets from Clinical Network and CS Medical and licensed the
rights associated with minimally invasive microwave therapy developed to treat
prostate disease. In January 2002, PUC 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.
Prior to the Profile transaction, PUC obtained an exclusive worldwide license
relating to an imaging system developed by Rensselaer Polytechnic Institute
("RPI") allowing the user to monitor microwave therapy changes to tissue in real
time. PUC has continued to pursue the development of the technologies licensed
from Clinical Network, CS Medical, Profile and RPI, and has internally developed
technology for which a patent application has been filed.
1
Our executive offices are located at One Carlson Parkway, Suite 124,
Plymouth, Minnesota 55447 and our telephone number is (952) 476-9093. Our
Internet site is www.prourocare.com.
Risk Factors
An investment in shares of our common stock involves a high degree of
risk. For a discussion of some of the risks you should consider before
purchasing shares of our common stock, you are urged to carefully review and
consider the section entitled "Risk Factors" beginning on page 4 of this
prospectus.
THE OFFERING
Common stock offered (1) ............................... 13,928,493 shares
Common stock outstanding before the offering (2) ....... 13,803,616 shares
Common stock outstanding after the offering (3) ........ 15,525,493 shares
Common stock OTCBB trading symbol ...................... PRRC
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(1) Includes: (a) 12,346,616 shares of our outstanding common stock, of which
2,205,000 shares were issued in connection with a private placement, as
more fully discussed below, 9,603,003 shares were issued in connection with
the Merger, as more fully discussed below, and 38,613 shares were issued in
satisfaction of Company liabilities; and (b) 1,581,877 shares of our common
stock issuable upon exercise of outstanding warrants.
(2) Based on the number of shares outstanding as of July 30, 2004, but not
including 1,285,000 shares of common stock issuable upon exercise of
outstanding options to purchase our common stock or the shares issuable
upon exercise of outstanding warrants to purchase our common stock (as
disclosed under clause (b) of footnote (1) above).
(3) Assumes the issuance of all shares of common stock offered hereby that are
issuable upon exercise of warrants.
Private Placement. In connection with and as a condition to the closing
of the Merger, the Company engaged in a private-placement offering of common
stock pursuant to an exemption from the registration requirements of the
Securities Act (the "Private Placement"). In the Private Placement, the Company
offered a minimum of 1,500,000 and a maximum of 3,000,000 shares (including an
available overallotment) of common stock pursuant to Section 4(2) and Rule 506
promulgated under the Securities Act. Shares of common stock issued and issuable
in the Private Placement were not registered under the Securities Act, and may
not be offered or sold in the United States absent registration or the
availability of an applicable exemption therefrom. The initial closing of the
Private Placement occurred on April 5, 2004 (the same day as the closing of the
Merger), 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. Since the date of the initial closing, the Company has received and
accepted subscriptions for an additional 220,000 shares of common stock at $2.00
per share. As of the date of the filing of the registration statement of which
this prospectus is a part, the Private Placement has ended. In total, the
Company has issued and sold 2,205,000 shares of common stock, raising an
aggregate of $4.41 million in gross proceeds.
2
As part of the Private Placement, the Company agreed to prepare and
file a registration statement covering the resale of all of the shares of common
stock purchased and sold in the Private Placement with the United States
Securities and Exchange Commission (the "SEC") within 120 days of the initial
closing of the Private Placement and the closing of the Merger. The Company
further agreed to use its commercially reasonable efforts to cause the
registration statement to be declared effective after its filing. This
prospectus is a part of the registration statement which the Company was
obligated, under the terms of the Private Placement, to prepare and file with
the SEC.
Merger. Upon the Merger, all 3,501,001 shares of PUC common stock that
were outstanding immediately prior to the Merger and held by PUC shareholders
were cancelled, with one share of PUC common stock issued to the Company. This
cancellation and issuance caused PUC to become a wholly owned subsidiary of the
Company. In exchange for the cancellation of their PUC common shares, the former
PUC shareholders 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, in a private placement pursuant to
Section 4(2) of the Securities Act. Simultaneously, the legal existence of
Acquisition Co. ceased.
As part of the Merger Agreement, the Company agreed to prepare and file
a registration statement covering the resale of all of the shares of Company
common stock issued in the Merger with the SEC within 120 days of the closing of
the Merger. This prospectus is a part of the registration statement which the
Company was obligated to prepare and file with the SEC under the terms of the
Merger Agreement.
3
RISK FACTORS
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 Inc. (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 approximately three working
prototypes of the Sensor Guided DRE(TM) for testing and demonstration purposes.
Nevertheless, 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 our products will be
successfully developed or manufactured or that, even if developed and
manufactured, they will meet current price or performance objectives, be
developed on a timely basis, or prove to be as effective as products based on
current and future 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 on our business.
EVEN IF SUCCESSFULLY DEVELOPED, OUR PRODUCTS MAY NOT BE ACCEPTED BY THE
MARKETPLACE.
Our products, even if successfully 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.
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
4
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 and
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.
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. Any such required fees, payments
or royalties will reduce our net revenues.
Finally, 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 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 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, when needed. Any additional
equity or equity-linked financing would likely 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 Association (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 bodies.
5
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.
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 will not be
successfully challenged by others or that they will be properly maintained. With
respect to patent applications, no assurance can be given that 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, we 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
intellectual-property 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. In addition, some of this competition is from
companies with significantly greater resources than we have. In particular,
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 medical-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 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. We intend 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. Importantly, there are no assurances that
such additional reimbursement will ever be obtained.
6
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 analyst and the media coverage of our
Company. 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 generally 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 fair or 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 no 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 DO 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.
7
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus that are
forward-looking in nature are based on the current beliefs of our management as
well as assumptions made by and information currently available to management,
including statements related to the markets for our products, general trends in
our operations or financial results, plans, expectations, estimates and beliefs.
In addition, when used in this prospectus, the words "may," "could," "should,"
"anticipate," "believe," "estimate," "expect," "intend," "plan," "predict" and
similar expressions and their variants, as they relate to us or our management,
may identify forward-looking statements. These statements reflect our judgment
as of the date of this prospectus with respect to future events, the outcome of
which is subject to risks, which may have a significant impact on our business,
operating results or financial condition. You are cautioned that these
forward-looking statements are inherently uncertain. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. We undertake no obligation to update forward-looking statements. The
risks identified in the "Risk Factors" section of this prospectus, among others,
may impact forward-looking statements contained in this prospectus.
8
MANAGEMENT'S PLAN OF OPERATION
The accompanying Plan of Operation should be read in conjunction with
the audited financial statements, and notes thereto, included in this
prospectus.
PLAN OF OPERATION
Assets; Property Acquisitions and Dispositions. 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. Neither does the Company anticipate any significant changes in
its number of employees.
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 for disease screening, diagnosis and nodule detection. ProUroCare
currently intends that its second proposed product, the Procuro(R) system, will
be a prostate-therapy system designed to treat benign prostate hyperplasia
("BPH"). The Procuro(R) system will 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.
It is anticipated that clinical level systems will be available for clinical
trials in eight months, with FDA approval to follow in six months. Market
introduction is planned 60 days subsequent to FDA approval. A more complete
discussion of the Company's initial product offerings can be found under the
caption "Initial Product Offerings" in the "Description of Business" section of
this prospectus.
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). A more complete discussion of the Company's research
and development efforts can be found under the caption "Research and
Development" in the "Description of Business" section of this prospectus.
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 PUC'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 among Artann
Laboratories, Inc., Armen Sarvazyan and the Company executed in July 2004, the
Company is required to pay $250,000 for development services related to
technologies and products for the urology market to be rendered over the next
three years, based on achievement of certain performance milestones including
services related to the development of the Sensor Guided DRE. In addition, the
Company is obligated to pay a 10% bonus if certain technology is completed ahead
of pre-established milestone dates.
9
Pursuant to terms of a separate Development Agreement for the Sensor
Guided DRE(TM) among Artann Laboratories, Inc., Armen Sarvazyan and the Company
executed in July 2004 and contemplated by the above described Research and
Development Agreement, 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.
CRITICAL ACCOUNTING POLICIES
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 development-stage
nature of the Company's current operations, the Company does not believe it has
any critical policies or procedures.
10
DESCRIPTION OF BUSINESS
The Company's acquisition of ProUroCare Inc., as described below, has
resulted in the Company changing its primary business. The new business of the
Company, which is the business of the Company's wholly owned subsidiary
ProUroCare Inc., is summarized below.
HISTORY
The Company (formerly known as Global Internet Communications, Inc.)
was formed on February 26, 2003 as a Nevada corporation. Pursuant to an
Agreement and Plan of Merger and Reorganization dated as of April 5, 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 ("PUC"),
Acquisition Co. merged with and into PUC, with PUC 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. The Company entered into the Merger to acquire the business of PUC.
Effective upon the Merger, the legal existence of Acquisition Co.
ceased, and all 3,501,001 shares of common stock of PUC that were outstanding
immediately prior to the Merger and held by PUC shareholders were cancelled,
with one share of PUC common stock issued to the Company. Simultaneously, the
former shareholders of PUC 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. As a result of
the Merger, PUC is now a wholly owned operating subsidiary of the Company, and
PUC's business is the Company's sole business enterprise. On April 26, 2004, the
Company changed its name 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 on the Over-The-Counter Bulletin Board changed to
"PRRC."
We are engaged in the business of developing and marketing innovative
products for the detection and treatment of male urologic prostate disease. PUC
was initially founded as a Minnesota corporation by shareholders of Clinical
Network Inc. ("Clinical Network") in August 1999. Clinical Network was
originally established in 1990 for the purpose of pursuing treatments for stress
urinary incontinence in women. In July 2001, Clinical Network began
collaborating with CS Medical Technologies, L.L.C. ("CS Medical"), a developer
of microwave treatment technology for prostate and cardiology treatments, for
the development of products for the male urology market. At that time, PUC
acquired certain assets from Clinical Network and CS Medical and licensed the
rights associated with minimally invasive microwave therapy developed to treat
prostate disease. In January 2002, PUC 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.
Prior to purchasing the Profile assets, PUC obtained an exclusive worldwide
license relating to an imaging system developed by Rensselaer Polytechnic
Institute ("RPI") allowing one to monitor microwave therapy changes to tissue in
real time. PUC has continued to pursue the development of the technologies
licensed from Clinical Network, CS Medical, Profile and RPI, 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
11
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 cancer 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 showing
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. The
Procuro(R) system will 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's(R) unique and proprietary Electrical
Impedance Tomography - E.I.T. Vision System - will allow a urologist to observe
the migration of heat through the prostate during treatment and to protect the
urethral tissue and adjacent organs. For this purpose, Procuro(R) will also use
a focused-beam microwave array 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 potential impotence and erectile-dysfunction
complications. ProUroCare believes that a Procuro(R) procedure will be able to
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.
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
detection of prostate disease and 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 Minneapolis, 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-
12
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 presence of nodules 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 Company believes
the Sensor Guided DRE(TM) imaging system detects certain abnormalities that are
missed by other diagnostic techniques at a far lower cost. ProUroCare expects
that the Sensor Guided DRE(TM) will also 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). Over the past two years, the Company estimates that it and PUC have
spent approximately $1.4 million on research and development activities.
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 specializing in working with the FDA,
including William Jackson and Associates of St. Paul, Minnesota. 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 United States 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 United States. European CE will
occur through the interaction with a TUV-notified body.
PUC met with the FDA on October 4, 2002. From that meeting a clinical
protocol was discussed that would allow ProUroCare to file a 510(k) application
with the FDA. ProUroCare will conduct a small clinical study using prostate
biopsies and excised prostates as an endpoint prior to filing the 510(k). In
addition a more extensive statistical box study will be conducted which
correlates the findings of using a regular DRE with the Sensor Guided DRE(TM) on
various phantom prostates. ProUroCare expects that the study will take
approximately eight weeks to conduct and IRB (independent review board) approval
has already been granted for the study.
COMPETITION
Prostate Imaging. The Company is not aware of any competitive product
currently being sold based on the same technological features as the Sensor
Guided DRE(TM). Nonetheless, we expect competition to intensify in the market
for prostate diagnosis and screening. Currently available diagnostic
13
methods that are expected to compete with the Sensor Guided DRE(TM) include PSA
exams, ultrasound, magnetic resonance imaging (MRI), computed tomography (CT)
and nuclear medicine (NM). The Company believes that it can be competitive in
the prostate-imaging market due to its strong patent position and anticipated
ability to deliver a cost-effective and high-quality imaging/screening device
and results.
o PSA Tests: The Company believes pharmaceutical companies are
working to develop PSA tests with improved efficacy, specificity
and cost-effectiveness.
o Ultrasound: The Company believes that, compared to the Sensor
Guided DRE(TM), standard ultrasound cannot easily determine
specific hardness in the prostate nor prostate size, and thus
lacks specific ability to detect certain prostate disease that
the Sensor Guided DRE(TM) can detect based on the tissue density
of prostate disease. Recently developed smaller ultrasound
systems with more competitive price points have been introduced
into the marketplace, but their marketing is focused primarily on
medical specialists other than urologists.
o Magnetic Resonance Imaging (MRI): MRI is effective in providing
high contrast, high-resolution images of anatomy deep inside the
human body. Nevertheless, full-sized, high-field strength MRI
systems may cost $1 million to $1.5 million, with smaller,
lower-field strength magnets ranging from $700,000 to $1 million.
Dedicated limited-purpose units for such applications as
orthopedics or breast imaging have been developed but have not
yet been shown to be commercially viable. Thus, MRI is currently
too expensive to use for prostate-disease screening.
o Computed Tomography (CT): CT involves placing the patient inside
of a rotating array of X-ray detectors subjected to multiple
X-rays, which are analyzed and processed into a series of
cross-sectional images of the body and then reconstructed to form
a computerized three-dimensional image (like loaf of bread
comprised of multiple "slices"). CT can be effective in prostate
imaging, but other options are generally preferable in terms of
absolute image quality and cost-effectiveness.
o Nuclear Medicine (NM): NM involves the injection into the body of
radio labeled isotopes which emit radiation that is detected and
analyzed by a dedicated computer. NM is highly effective in
staging of soft-tissue tumors. NM is not suited as a
mass-screening device, although NM can be used for later-stage
prostate cancer staging.
BPH Treatment. Competition in the market for Procuro(R) BPH treatments
is intense and expected to increase. ProUroCare believes that its principal
competition will come from both surgical and non-surgical therapies. Surgical
therapies include transurethral resection of the prostate ("TURP"),
transurethral incision of the prostate ("TUIP") or alternative surgical
procedures for vaporizing prostate tissue using laser or RF energy. Non-surgical
alternatives include drug therapy and emerging less invasive and more specific
technologies. Drug therapy and non-invasive alternatives for treatment of
prostate disease have only been minimally effective in treating prostate
disease.
o Drug Therapy: Drug therapy for BPH has been available in the
United States since the FDA approved the marketing of four orally
administered pharmaceutical products, beginning in 1992. Drug
therapy was used by approximately 1.5 million men in the United
States in 1996 for the treatment of BPH symptoms. We believe the
dramatic acceptance of drug therapy in the short period since FDA
approval is due to extensive drug company marketing, resulting in
increased patient awareness, and the desire of these patients for
effective treatments which have less severe complications and
side effects than currently available surgical procedures. The
annual cost of drug therapy is approximately $1,300 to $1,400 in
the first year, and the typical total cost ranges from $12,000 to
$17,000, depending on the age of the patient when
14
drug therapy is initiated. An estimated 30% to 40% of those
patients who initially pursue drug therapy discontinue treatment
within 12 months due to various reasons, including
ineffectiveness, side effects, inconvenience and cost. As such,
the Company believes Procuro(R)`s same-day therapy, with its
anticipated greater effectiveness and less inconvenience, will
prove to be a superior alternative.
o Surgical Treatments for BPH: Surgical treatments for BPH
typically use various means to completely remove the prostatic
urethra along with a substantial portion of the diseased tissue
within the prostate. Approximately 1.0 million prostatic
surgeries were performed worldwide in 1995, of which 216,000 were
performed in the United States. The most common surgical
procedure for the treatment of BPH is TURP, whereby a rigid
instrument is inserted into the patient's urethra through which
the surgeon passes an electrosurgical loop that is used to remove
the urethra and the diseased tissue within the prostate. While
TURP results in a dramatic improvement in urine flow in 90% of
the patients and a reduction in the AUA Symptom Score in 85% of
the patients, a significant number of patients experience serious
complications. Virtually all patients experience a burning
sensation upon urination that lasts for up to three weeks
following the procedure. Other complications, as reported by
AHCPR, include retrograde ejaculation--the reverse flow of
semen--(73.4% of patients), infection (15.5%), impotence (13.6%),
excessive hemorrhaging requiring transfusion (12.5%), immediate
surgery to stop the bleeding (2.0%), long-term incontinence
(3.1%) and urethral stricture (3.1%). In addition, approximately
1.5% of TURP patients die as a result of the procedure and
related complications. There has been a steady decline in the
numbers of TURP procedures being performed in the U.S. Three
other prevalent procedures are: (i) TUIP; (ii) transurethral
vaporization of the prostate; and (iii) laser-assisted
prostatectomy. While these alternative surgical treatments have
been effective in reducing some side effects associated with a
TURP, such as reduced risk of blood loss, they still remove or
damage the urethra, require general or regional anesthesia and
are performed in an operating room.
o Less-Invasive BPH Treatments: In an effort to eliminate
hospitalization and the complications arising from surgical
treatments, other technologies have been developed, or are under
development for the treatment of BPH. Two of these technologies
are interstitial radio frequency therapy ("RF"), which is being
marketed in the United States, and interstitial laser therapy,
which has been recently approved for commercialization in the
United States. In an interstitial therapy procedure, a rigid
scope is inserted into the patient's urethra and either needle
electrodes or laser fibers pierce the urethra and are advanced
into the lobes of the prostate. RF or laser energy is then
delivered, causing necrosis of the surrounding tissues. Due to
the limited amount of tissue necrosis caused by each electrode or
laser fiber, multiple punctures of the urethra are required in
order to coagulate a sufficient amount of tissue. While these
procedures are designed to be performed in approximately 30-45
minutes with local anesthesia, the Company believes that
intravenous sedation or regional anesthesia will be required in
most patients due to the need to repeatedly puncture the urethra
and manipulate the large, rigid instrument in the urethra. As a
result, ProUroCare believes that it will be difficult to
consistently perform interstitial therapies in an office setting,
and that the Procuro(R)system will therefore be a cost-effective
alternative.
In addition to the competitive treatments discussed above, we are aware
of other companies that have developed or are developing technologies for BPH
treatment. These technologies include stents, dilation balloons, transurethral
and transrectal hyperthermia, and high-intensity focused ultrasound. We expect
that competition in the BPH field will be based, among other things, on the
ability of the therapy to provide safe, effective and lasting treatment, cost
effectiveness, continued Medicare reimbursement, acceptance of the procedure by
physicians, healthcare payors and patients, marketing and sales capabilities,
and third-party reimbursement policies. Another factor in competition may be the
timing of market introduction of competitive products.
15
INTELLECTUAL PROPERTY
Our goal is to obtain, maintain and enforce patent protection for our
products, formulations, processes, methods and other proprietary technologies,
preserve our trade secrets, and operate without infringing the proprietary
rights of other parties, both in the United States and in other countries. Our
policy is to actively seek to obtain, where appropriate, the broadest
intellectual-property protection possible for our products, proprietary
information and proprietary technology through a combination of contractual
arrangements and patents, both in the United States and throughout the rest of
the world. We have 24 patents and five patent applications covering more than
200 features.
We also depend upon the skills, knowledge and experience of our
scientific and technical personnel, as well as that of our advisors, consultants
and other contractors, none of which is patentable. To help protect our
proprietary know-how which is not patentable, and for inventions for which
patents may be difficult to enforce, we rely on trade-secret protection and
confidentiality agreements. To this end, we require all employees, consultants,
advisors and other contractors to enter into confidentiality agreements which
prohibit the disclosure of confidential information and, where applicable,
require disclosure and assignment to us of the ideas, developments, discoveries
and inventions important to our business.
ProUroCare licenses from third parties various intellectual property
essential to its business, including:
o certain rights associated with minimally invasive microwave
therapy for the treatment prostate disease from CS Medical; and
o certain rights associated with prostate-imaging systems and
related patented technology, from Profile, L.L.C. and Rensselaer
Polytechnic Institute.
MANUFACTURING
We do not intend to manufacture any of our initial proposed products.
Instead, 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 companies and pharmaceutical
companies, and research institutions. Finally, we may be required to enter into
sales, marketing, licensing and/or distribution arrangements with third parties
for our products.
GOVERNMENT REGULATION
The proposed products we intend to develop, assemble and market are
subject to regulations by 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. The Company has developed regulatory strategies for its
proposed initial product offerings, as more fully described above under the
caption "Research and Development." 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. Moreover, even if our filings are acceptable to the
regulatory bodies with whom we file applications, we may encounter significant
delays which will materially and adversely affect our business.
16
EMPLOYEES
We currently have no employees other than our executive management
team, consisting of two full-time personnel. We anticipate hiring a limited
number of additional employees in the next 12 months to manage the development
of our 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 or consultants as management deems most
effective. We currently have engaged six consultants who perform these
functions.
PROPERTIES
Our executive offices are located at One Carlson Parkway, Suite 124,
Plymouth, Minnesota 55447, the space for which we lease on a month-to-month
basis. The Company's rent expense for the same location the year ended December
31, 2003 was $38,053. We believe that our offices are adequate to meet our
current requirements. We do not own any real property. The Company has no
official policy on investments in real estate, interests in real estate,
real-estate mortgages, or securities of or persons primarily engaged in real
estate activities.
LEGAL MATTERS
On April 2, 2004, Mr. Todd Leonard, the former President and Chief
Operating Officer of ProUroCare Inc., the Company's wholly owned subsidiary,
commenced a lawsuit in Minnesota district court asserting certain claims against
ProUroCare Inc. and the Company relating 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, plus payment of litigations costs and
attorneys' fees. The Company disputes Mr. Leonard's claims.
REPORTS TO SECURITY HOLDERS
The Company files reports with the SEC using the SEC's small-business
disclosure rules. In particular, the Company files current reports on Form 8-K,
quarterly reports on Form 10-QSB, and annual reports on Form 10-KSB. The public
may read and copy any materials we file with the SEC at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information
regarding the Public Reference Room may be obtained by contacting the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site containing
reports, proxy and information statements, and other information regarding
companies, like ProUroCare, that file electronically with the SEC at:
http://www.sec.gov.
17
MANAGEMENT
Directors and Executive Officers
NAME AGE POSITION
--------------------- --- -----------------------------------------------
Michael P. Grossman 50 President, Chief Executive Officer and Director
Richard Thon 48 Chief Financial Officer
Maurice R. Taylor, II 58 Chairman of the Board
David Koenig 63 Secretary and Director
Alex Nazarenko 59 Director
MICHAEL P. GROSSMAN, became President, Chief Executive Officer and a
director of our Company upon the Merger. Mr. Grossman has also served as
President and Chief Executive of ProUroCare, Inc., the Company's wholly owned
subsidiary ("PUC"), from February, 2004 until present. Mr. Grossman has
extensive experience in the financial services and advisory industry, including
more than 14 years in the area of new business start-ups and economic
development. From 1995 to 2003 he served as Vice President of the Minnesota
Cooperation Office, a privately funded business-development company created to
identify and assist in the formation of high-growth, innovative companies and
provide support for their future growth. There, he identified those industry
groups, technologies and new business opportunities with the greatest potential
for becoming highly successful business endeavors, and personally helped start
ten client companies. Prior to 1995 he held senior positions at Tricon Capital
Corporation, Ehlers and Associates, Inc., and corporate and public finance
positions at Piper Jaffray & Hopwood, and Dain Bosworth. Mr. Grossman has a B.A.
in Economics from Carleton College and an M.B.A. from the University of
Minnesota.
RICHARD THON was hired as our Chief Financial Officer in July 2004
after serving in this role in an interim capacity on a consulting basis since
2001. From 2002 to 2004, Mr. Thon was the Chief Financial Officer of
CHdiagnostics, LLC. He served as the Chief Financial Officer and Vice President
of Finance for MEDgenesis from 2000 to 2001, as Corporate Controller of Instant
Web Companies from 1998 to 2000, and as Controller and director of Business
Systems of Sanofi Diagnostics Pasteur from 1990 to 1998. Mr. Thon began his
career as an auditor with KPMG LLP, and since that time has held financial
management positions with both public and privately held firms. Mr. Thon has a
B.B.A. in Accounting from the University of Michigan and an M.B.A. in Finance
from the University of Wisconsin.
MAURICE R. TAYLOR, II, is a Minneapolis entrepreneur, and has served as
the Chairman of the Board of PUC since its inception in 1999. Upon the Merger,
Mr. Taylor was appointed to serve as the Company's Chairman of the Board. He was
the founder of Chronimed Inc. ("Chronimed"), and has been involved in several
healthcare and medical-technology companies. He served as Chairman and Chief
Executive Officer of Chronimed from April 1985 until March 1999, at which point
he joined its diagnostic division in a spinoff venture which became known as
MEDgenesis. Mr. Taylor held such positions with Chronimed and MEDgenesis until
the sale of MEDgenesis to the British company Medisys PLC. Mr. Taylor is also
Chairman of Clinical Network and CHdiagnostics, LLC, a diabetes market
product-development company. He serves as a director and is the former Chairman
of the Scripps Whittier Institute for Diabetes which, through collaborations, is
believed to be the largest diabetes research group in the world. Mr. Taylor was
the recipient of Inc. Magazine's "Entrepreneur of the Year Award for Health
Care" in 1995.
DAVID F. KOENIG has served as a director of PUC since 1999, and became
a director of the Company upon the Merger. Mr. Koenig is the Executive Vice
President and Chief Operating Officer of Solar Plastics, Inc., a manufacturer of
custom rotationally molded plastic parts ("Solar Plastics"). Solar
18
Plastics has four manufacturing facilities and services customers in both
domestic and international markets. Mr. Koenig has served as Chief Financial
Officer and director of Quadion Corporation, a manufacturer of precision-made
rubber and plastic components and assemblies for industrial uses. In this role,
he had full responsibility for strategic planning, acquisitions, information
services, real estate and legal services, and helped create the plans and
implement the programs that took this company from sales of $22 million from
three domestic plants to sales exceeding $100 million from six domestic and
three foreign plants. Prior to this time, Mr. Koenig spent 11 years growing and
developing his own consulting business focusing on providing services to small
to medium-sized companies in the areas of strategic planning and implementation,
acquisitions, financing and organizational restructuring. Earlier, Mr. Koenig
was employed by Dain Rauscher as an investment banker, and by General Mills,
Inc. and the Kroger Co. (both Fortune 100 companies) with responsibilities in
strategic planning, acquisitions and finance. Mr. Koenig received his
undergraduate degree in business administration from Indiana University and his
M.B.A. from Harvard Graduate School of Business.
ALEX NAZARENKO served has as a director of PUC since 2001, and became a
director of the Company upon the Merger. Mr. Nazarenko is a co-owner, officer
and director of American Phoenix, Inc. of Eau Claire, Wisconsin, a company
engaged in the business of rubber processing for the major tire companies. He is
also co-owner, officer and director of 2N Company, L.L.C., of Minneapolis,
Minnesota, a private investment and management company with investments in a
broad range of industries. Form 1973 until 1991, Mr. Nazarenko served as Vice
President for Equity Securities Trading Company of Minneapolis. Mr. Nazarenko
began his career in the securities industry in 1966.
There are no family relationships among our executive officers or
directors.
KEY PERSONNEL
In addition to the directors and officers, the Company employs or has
consulting relationships with certain key personnel identified below.
NEAL D. SHORE, MD, serves as the Company's Medical Advisor. He
completed his Bachelor of Arts degree and graduated magna cum laude from Duke
University in 1980. He received his medical degree from Duke University in 1984,
and from January to June, 1984 performed graduate research at the University of
Pretoria School of Medicine, Pretoria, R.S.A. He completed his residency in
general surgery and urology at New York Hospital-Cornell Medical center in 1990,
which included a six-month rotation at the Memorial-Sloan Kettering Cancer
Center. He is Board Certified by the American Board of Urology and has been a
Fellow with American College Surgeons since 1994. He has several publications in
the Journal of Urology. Since 1994, Mr. Shore has maintained a clinical urology
practice with Grand Strand Urology in Myrtle Beach, South Carolina, where he is
currently Chief of Staff.
BOARD OF DIRECTORS
The Company's board of directors is currently comprised of four
members, each of whom is identified in the table under the caption "Directors
and Executive Officers" above. Each of Messrs. Koenig and Nazarenko qualify as
an "independent director," as such term is defined in Section 4200(a)(15) of
National Association of Securities Dealers' listing standards. Because Maurice
R. Taylor, II served as the President and Chief Executive Officer of PUC from
inception until January 31, 2004 (at which time Michael P. Grossman was
appointed as the President and Chief Executive Officer of PUC), Mr. Taylor does
not currently qualify as an "independent director." Under the Company's
corporate bylaws, up to nine additional directors may be added to the board of
directors. At this time, the Company plans to add more directors to serve on the
board of directors.
19
AUDIT COMMITTEE
The Company has established a two-member audit committee within the
board of directors that currently consists of Messrs. Koenig and Nazarenko. The
board of directors has adopted a written charter for the audit committee. The
audit committee was formed after the effectiveness of the Merger; and prior to
the Merger the Company had no such audit committee. Accordingly, no audit
committee meetings were held during fiscal year 2003.
The board of directors has determined that at least one member of the
audit committee, David Koenig, is an "audit committee financial expert" as that
term is defined in Item 401(e)(2) of Regulation S-B promulgated under the
Securities Exchange Act of 1934, as amended. Mr. Koenig's relevant experience
includes his service as the Chief Financial Officer and director of Quadion
Corporation, and his past consulting experience which involved his oversight and
supervision of the performance of business enterprises respecting the
preparation, audit and evaluation of financial statements. Both members of the
audit committee (i.e., Messrs. Koenig and Nazarenko) currently qualify as
"independent directors," as such term is defined in Section 4200(a)(15) of
National Association of Securities Dealers' listing standards. Moreover, the
board of directors has determined that each of the audit committee members is
able to read and understand fundamental financial statements and that at least
one member of the audit committee has past employment experience in finance or
accounting.
20
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the last three fiscal years, the
compensation earned for services rendered in all capacities by our Chief
Executive Officer and the other highest-paid executive officers serving as such
at the end of fiscal year 2003 whose compensation for that fiscal year was in
excess of $100,000. The individuals named in the table will be hereinafter
referred to as the "Named Officers." No other executive officer of the Company
or the Company's wholly owned subsidiary, ProUroCare Inc., received compensation
in excess of $100,000 during fiscal year 2003.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------- ------------------------
SECURITIES
NAME AND POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
--------------------------------------- ------------- --------------- ------------ ------------------------
Maurice R. Taylor, II (1) (2) 2003 $ 190,000 0 --
Chief Executive Officer and Chairman
of the Board
2002 $ 190,000 $42,750 450,000
2001 0 0 --
--------------------------------------- ------------- --------------- ------------ ------------------------
Todd Leonard (3) 2003 $ 138,542 0 --
President and
Chief Operating Officer
2002 $ 179,923 (4) $ 31,500 210,000
2001 -- -- --
--------------------------------------- ------------- --------------- ------------ ------------------------
-----------------
(1) Mr. Taylor served as Chairman and Chief Executive Officer of ProUroCare
Inc. until January 31, 2004. On February 1, Michael P. Grossman became the
Chief Executive Officer of ProUroCare Inc., and subsequently became the
Chief Executive Officer of the Company upon the Merger. Mr. Taylor
continues to serve as the Chairman of ProUroCare Inc. and the Company.
(2) For compensation information about the Company's current Chief Executive
Officer, Michael P. Grossman, please refer to the caption "Employment
Agreements" below.
(3) Mr. Leonard terminated employment with ProUroCare Inc. effective October
16, 2003.
(4) Mr. Leonard's 2002 compensation includes consulting compensation earned
between January 1 and May 31, 2002. He was awarded an option for 360,000
shares of the Company's common stock, 150,000 shares of which were
forfeited.
21
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
No stock options or stock-appreciation rights were exercised during
fiscal year 2003, and no stock-appreciation rights were outstanding at the end
of such fiscal year. The table below sets forth outstanding but unexercised
options as of the end of fiscal year 2003.
SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS (1)
------------------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------------------------------- ------------------ ------------------ ----------------- ------------------
-------------------------------------------- ------------------ ------------------ ----------------- ------------------
Maurice R. Taylor, II (2) 287,499 162,510 $138,000 $ 78,005
-------------------------------------------- ------------------ ------------------ ----------------- ------------------
Todd Leonard (3) 210,000 0 $100,800 $ 0
-------------------------------------------- ------------------ ------------------ ----------------- ------------------
--------------
(1) ProUroCare Inc. was not a wholly owned subsidiary of the Company as of
December 31, 2003, and all of the options in the referenced column were
exercisable for shares of common stock of ProUroCare Inc. Nevertheless, for
purposes of this table, we have assumed that the Merger occurred as of
December 31, 2003, and have used the per-share price of our common stock as
of such date ($0.48).
(2) Mr. Taylor served as Chairman and Chief Executive Officer of ProUroCare
Inc. until January 31, 2004. On February 1, Michael P. Grossman became the
Chief Executive Officer of ProUroCare Inc., and subsequently became the
Chief Executive Officer of the Company upon the Merger. Mr. Taylor
continues to serve as the Chairman of ProUroCare Inc. and the Company. For
information about the Company's current Chief Executive Officer, Michael P.
Grossman, please refer to the caption "Employment Agreements" below.
(3) Mr. Leonard terminated employment with ProUroCare Inc. effective October
16, 2003.
DIRECTOR COMPENSATION
The Company's policy is that each of our non-employee directors receive
an annual cash payment of $5,000, and the chairpersons of our compensation and
audit committees receive an additional annual payment of $2,500. It is also our
policy to grant all non-employee directors a one-time option upon initial
election or appointment to the board of directors to purchase 30,000 shares of
our common stock at the then-current market price, which option shall vest
ratably over two years of service and have a ten-year term. All directors shall
be reimbursed for travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of the board of directors and its committees.
EMPLOYMENT AGREEMENTS
ProUroCare Inc. ("PUC"), the Company's wholly owned subsidiary, is a
party to employment agreements with Maurice R. Taylor, II, Michael P. Grossman
and Richard B. Thon. Each of these agreements provides for a minimum annual
salary, cash incentive payments, and options to purchase shares of common stock
that vest over time. PUC's agreement with Mr. Taylor provides for an annual
salary of $190,000. Mr.
22
Grossman's agreement with PUC provides for an annual salary of $175,000. Mr.
Thon's agreement with PUC provides for an annual salary of $140,000. These
agreements also provide that, upon termination without cause (or a change of
employment that the employee elects to treat as a termination of employment),
the employee will receive as severance six months of base salary plus four
months of base salary for each year of service (up to a maximum of 24 months of
base salary), plus the prorated average of any bonus or incentive compensation
paid over the previous two years. Additionally, all unvested stock options then
held by the employee will immediately vest with a one-year period for exercise.
Mr. Taylor's, Mr. Grossman's and Mr. Thon's agreements have terms that continue
until December 2005, January 2007 and July 2007, respectively. In connection
with PUC's execution and delivery of the employment agreement with Mr. Grossman,
PUC granted Mr. Grossman options to purchase up to 150,000 shares of PUC common
stock at a per-share exercise price of $6.00. Pursuant to the Merger, this right
was converted into the right to receive up to 450,000 shares of Company common
stock at a per-share exercise price of $2.00. In connection with PUC's execution
and delivery of the employment agreement with Mr. Thon, the Company granted Mr.
Thon options to purchase up to 200,000 shares of company common stock at a
per-share exercise price of $2.50.
Under each of the above referenced employment agreements, in the event of
a change in control resulting in a termination of employment, change of
location, or decrease in the level of responsibility of the executive(any of
which occur within two years of a change in control), the Company shall
compensate the executive as if he were terminated without cause, as described
above.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the our common stock as of July 30, 2004, by (i) each person known
by us to be the beneficial owner of more than five percent of the outstanding
common stock, (ii) each director, (iii) each executive officer, and (iv) all
executive officers and directors as a group. The number of shares beneficially
owned is determined under rules promulgated by the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
those rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days of the date hereof,
through the exercise or conversion of any stock option, convertible security,
warrant or other right. Including those shares in the tables does not, however,
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares. Unless otherwise indicated, each person or
entity named in the table has sole voting power and investment power (or shares
that power with that person's spouse) with respect to all shares of capital
stock listed as owned by that person or entity. Unless otherwise indicated, the
address of each of the following persons is One Carlson Parkway, Suite 124,
Plymouth, Minnesota 55447.
SHARES
NAME BENEFICIALLY OWNED PERCENT OF CLASS
------------------------------------------- ---------------------------- --------------------------
Michael P. Grossman (1) 37,500 *
------------------------------------------- ---------------------------- --------------------------
Richard Thon (2) 41,112 *
------------------------------------------- ---------------------------- --------------------------
Maurice R. Taylor II (3) 1,645,623 11.7
------------------------------------------- ---------------------------- --------------------------
Alex Nazarenko (4) 2,542,500 18.2
------------------------------------------- ---------------------------- --------------------------
David Koenig (5) 545,901 3.9
------------------------------------------- ---------------------------- --------------------------
All directors and officers as a group (6) 4,530,636 31.7
------------------------------------------- ---------------------------- --------------------------
Profile, L.L.C.
2700 Corporate Drive, Suite 120
Birmingham, Alabama 35242 3,084,999 22.1
------------------------------------------- ---------------------------- --------------------------
CS Medical Technologies, LLC
2277 West Highway 36, Suite 254
Roseville, MN 55113 2,445,000 17.5
------------------------------------------- ---------------------------- --------------------------
-------------------
* Less than one percent (1%).
23
(1) Includes options to purchase up to 37,500 shares of common stock which are
currently exercisable or exercisable within 60 days.
(2) Includes options to purchase up to 41,112 shares of common stock which are
currently exercisable or exercisable within 60 days.
(3) Includes 27,000 shares of common stock held by Clinical Network, LLC, and
255,000 shares held by Clinical Network, Inc., with respect to each of
which Mr. Taylor is a managing officer and majority owner. Also includes
1,227,623 shares of common stock held directly and options to purchase
136,000 shares of common stock which are currently exercisable or
exercisable within 60 days.
(4) Includes 2,445,000 shares held by CS Medical Technologies, LLC, of which
Mr. Nazarenko is a managing officer and member. Also includes 67,500 shares
of common stock held directly, and options to purchase up to 30,000 shares
of common stock which are currently exercisable or exercisable within 60
days.
(5) Includes 27,000 shares held by Clinical Network, LLC, and 255,000 shares
held by Clinical Network, Inc., with respect to each of which Mr. Koenig is
an officer and minority owner. Also includes 166,041 shares of common stock
held directly and options and warrants to purchase up to 97,860 shares of
common stock which are currently exercisable or exercisable within 60 days.
(6) Includes Messrs. Taylor, Nazarenko, Koenig, Grossman and Thon.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPANY HISTORY
ProUroCare Inc., the Company's wholly owned subsidiary ("PUC"), was
initially founded by shareholders of Clinical Network Inc. ("Clinical Network")
in August 1999. Clinical Network was originally established in 1990 for the
purpose of pursuing treatments for stress urinary incontinence in women.
Clinical Network began to collaborate with CS Medical Technologies, LLC ("CS"),
a developer of microwave treatment technology for prostate and cardiology
treatments, in developing products for the male urology market. In July 2001,
Clinical Network began collaborating with CS Medical Technologies, L.L.C. ("CS
Medical"), a developer of microwave treatment technology for prostate and
cardiology treatments, for the development of products for the male urology
market. At that time, PUC acquired from Clinical Network and CS Medical all
assets and rights associated with the minimally invasive microwave therapy in
exchange for an aggregate of 3,000,000 shares of PUC common stock. Alex
Nazarenko, a Company director (and director of PUC), is a principal shareholders
and controlling person of CS Medical. Currently, CS Medical owns 2,445,000
shares of our common stock. In addition, Maurice R. Taylor, the Company's
Chairman (and Chairman of PUC), and David Koenig, a Company director (and
director of PUC), are principal shareholders and controlling persons of Clinical
Network and Clinical Network, L.L.C. (a limited liability company affiliated
with Clinical Network) which together own 2,798,946 shares of our common stock.
LICENSES AND ROYALTIES
In January 2002, PUC 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
in exchange for the issuance of 3,230,769 shares of PUC common stock, and future
royalties ranging from 1.05% to 3.05% of net sales of the Sensor Guided DRE(TM)
system under the terms of its licensing agreement. Subsequent to that
transaction, PUC issued Profile an additional 769,230 shares of PUC common stock
pursuant to the agreement governing the transfer of assets. After the Merger,
Profile owns 3,084,999 shares of the Company's common stock.
24
In July 2001, PUC obtained an exclusive worldwide license relating to
an imaging system developed by Rensselaer Polytechnic Institute ("RPI") allowing
the monitoring of microwave therapy changes to tissue in real time. The Company
intends to implement this licensed technology in its Procuro(R) product. The
license agreement with RPI required a $50,000 payment as a licensing fee, which
was paid in 2004, and royalty payments of 3.0% of net sales if the primary
function of the device is tomography or 1.0% of net sales if the primary
function of the final system is not tomography. Beginning in 2006, RPI is
entitled to receive a minimum annual royalty payment of $20,000 to maintain the
license.
LINE OF CREDIT
On January 24, 2003, PUC obtained a $500,000 line of credit from a
financial institution. The line of credit was collateralized by PUC's business
assets and severally guaranteed by five individuals, including David Koenig, a
director of PUC who is now a Company director. In exchange for the personal
guarantees, PUC issued to the guarantors warrants to purchase 214,290 shares of
the Company's common stock at $2.33 per share (after the Merger), including
21,429 shares of common stock issuable upon exercise of the warrant issued to
the Company director. As described below, the shares of common stock issuable
upon exercise of these warrants were adjusted by operation of certain price and
anti-dilution protections.
On August 5, 2003 PUC replaced the $500,000 credit line with a
$1,000,000 line of credit from the same financial institution. The line of
credit was secured by PUC's business assets and severally guaranteed by nine
individuals, including the same five individuals who guaranteed the first line
of credit. In exchange for the personal guarantees, PUC issued to the guarantors
a warrant to purchase a total of 428,580 shares of the Company's common stock
(after the Merger) at $2.33 per share, including 21,429 shares of Common Stock
issuable upon exercise of the warrant issued to a Company director. As described
below, the number shares of common stock issuable upon exercise of these
warrants was adjusted by operation of certain price and anti-dilution
protections. Shortly after the Merger, the line of credit was paid off.
In total, warrants to purchase up to 642,870 shares of the Company's
common stock after the Merger were issued by PUC in connection with the
foregoing line-of-credit guarantees. Each such warrant granted the holder
certain price and anti-dilution protections. As a result of these protections
and the price per share offered in the Private Placement (and the consideration
exchanged in the Merger), the foregoing warrants, after adjustment for such
protections, entitle such holders to obtain 1,017,882 shares of the Company's
common stock at an exercise price of $1.67 per share. Of these adjusted
warrants, Mr. David Koenig has the right to acquire 67,860 shares of our common
stock at $1.67 per share. All of the foregoing warrants are registered for
resale pursuant to the registration statement of which this prospectus is a
part.
25
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
GENERAL
Our common stock has been quoted on the Over-the-Counter Bulletin
Board, or "OTC Bulletin Board," since December 2003. Our common stock currently
trades on the OTC Bulletin Board under the trading symbol "PRRC." Prior to May
5, 2004, the Company's securities traded on the OTC Bulletin Board under the
trading symbol "GICI." The following table lists the high and low bid
information for the Company's common stock as quoted on the OTC Bulletin Board
since the stock began trading in December 2003:
PRICE RANGE
QUARTER ENDED HIGH LOW
------------------------- ---------------- ---------------
December 31, 2003 $0.48 $0.05
March 31, 2004 $5.00 $0.48
June 30, 2004 $3.45 $1.90
The above quotations from the OTC Bulletin Board reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions. The number of holders of record of our common stock as of
July 21, 2004 was 114. We have not paid or declared any dividends on our common
stock and we do not anticipate paying dividends on our common stock in the
foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
AS OF LAST FISCAL YEAR
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE ISSUANCE UNDER EQUITY
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING (EXCLUDING SECURITIES
WARRANTS AND RIGHTS OPTIONS, WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by stockholders (1) 834,999 $1.13 665,001
------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by stockholders (2) - - -
------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 834,999 665,001
------------------------------- ---------------------------- ---------------------------- ----------------------------
--------------------
(1) Includes 810,000 shares of our common stock issuable under options issued
under our 2002 Plan (as defined below), and 24,999 shares of our common
stock issuable under existing warrants.
(2) As discussed below, on July 14, 2004 the board of directors approved the
ProUroCare Medical Inc. 2004 Stock Option Plan (the "2004 Plan"), under
which 1,500,000 shares have been reserved. As of the date hereof, we have
issued 200,000 shares under the 2004 Plan.
26
2002 PLAN
In April 2002, PUC adopted the ProUroCare Inc. 2002 Stock Plan (the
"2002 Plan"), pursuant to which PUC granted options to officers, directors,
employees and independent contractors. Under the 2002 Plan, PUC was able to
grant incentive and nonqualified options, stock appreciation rights, stock
awards, restricted stock awards, performance shares, and cash awards. The
Company adopted the 2002 Plan as part of the Merger. There are currently options
to purchase up to 1,285,000 shares of the Company's common stock outstanding
under the 2002 Plan. All of these options are held by Company officers and
directors. Because the Company has adopted the 2004 Plan as described below, the
Company will not issue any further options to purchase shares of Company common
stock under the 2002 Plan.
Under the 2002 Plan, the Company has to date granted options for
1,285,000 shares to officers and directors that are exercisable at prices
ranging from $1.13 to $2.00, adjusted for the post merger distribution. The
officers' options vest ratably over a 36-month period ending December 2004,
while the directors' options vest ratably over a 24-month period that ended on
April 2004. In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to utilize the fair-value method of
accounting for these options. An aggregate of $140,300, $128,608, and $268,908
of stock-based compensation related to these options was recognized in the years
ended December 31, 2003, 2002 and the period from August 17, 1999 to December
31, 2003, respectively.
2004 PLAN
On July 14, 2004 the Company's board of directors passed a resolution
adopting the ProUroCare Medical Inc. 2004 Stock Option Plan (the "2004 Plan").
The Company has reserved 1,500,000 shares of common stock for issuance under the
2004 Plan. Under current IRS regulations, the Company's shareholders must
approve the 2004 Plan on or prior to July 14, 2005 in order for the Company to
grant incentive stock options under the 2004 Plan. As of the date of this
prospectus, 200,000 options have been granted under the 2004 Plan.
General. The 2004 Plan provides for the grant of both incentive and
non-statutory stock options. Incentive stock options granted under the 2004 Plan
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Non-statutory stock options granted under the 2004 Plan will not qualify as
incentive stock options under the Code. The board of directors adopted the 2004
Plan to provide a means by which Company employees, directors, officers and
consultants may be given an opportunity to purchase stock in the Company, to
assist in retaining the services of such persons, to secure and retain the
services of persons capable of filling such positions and to provide incentives
for such persons to exert maximum efforts for the success of the Company.
27
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock by
the selling stockholders pursuant to this prospectus.
SELLING STOCKHOLDERS
The following table lists the total number of shares of our common
stock as of July 30, 2004, assuming the exercise of all options and warrants
owned by the selling stockholders. Except as indicated in the table and
accompanying footnotes, the selling stockholders are offering all of the shares
of common stock owned by them or issuable to them upon the exercise of the
options and warrants described herein. We will not receive any proceeds from the
sale of the common stock by the selling stockholders.
NUMBER OF
SHARES OFFERED
NUMBER OF BY SELLING PERCENTAGE
SHARES OUTSTANDING STOCKHOLDER BENEFICIAL
BENEFICIALLY SHARES OFFERED UPON EXERCISE OWNERSHIP
OWNED BEFORE BY SELLING OF CERTAIN AFTER
SELLING STOCKHOLDER OFFERING (1) STOCKHOLDER WARRANTS OFFERING
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Profile, L.L.C. 3,084,999 3,084,999 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
CS Medical LLC 1,947,498 1,947,498 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Maurice Taylor II 1,645,623 (2) 576,482 - 2.7
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Dale E. Herdey and Mary J. Herdey, JTWROS 75,000 75,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Eagle Ridge Partners 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Blake Capital Partners 54,000 54,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Kottom Mills 1995 Irrevocable Trust - Bruce
Reichert TTEE 8,000 8,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Nicolle E. Mills Irrevocable Trust - Dick Wright
TTEE 8,000 8,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gulfstream Financial Partners 80,000 80,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Henry Fong 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Corporate Services Group, Inc. 10,000 10,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John Stapleton 10,000 10,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gary Copperud 10,000 10,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Christopher Snell 2,500 2,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Brian Niebur 2,500 2,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Richard D. Balm 2,500 2,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Joseph Caldwell 2,500 2,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Henry Cousineau III 339,282 - 339,282 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Maurice R. Taylor II (IRA)-Delaware Charter
Guarantee & Trust Co. 325,571 325,571 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Maurice R. Taylor II IRA-First Trust NA TTEE 325,571 325,571 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Bina Enterprises 400,000 100,000 300,000 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Steve Burke 274,109 87,500 186,609 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
28
NUMBER OF
SHARES OFFERED
NUMBER OF BY SELLING PERCENTAGE
SHARES OUTSTANDING STOCKHOLDER BENEFICIAL
BENEFICIALLY SHARES OFFERED UPON EXERCISE OWNERSHIP
OWNED BEFORE BY SELLING OF CERTAIN AFTER
SELLING STOCKHOLDER OFFERING (1) STOCKHOLDER WARRANTS OFFERING
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
David F. Koenig 263,901 (3) 166,041 67,860 1.9%
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Clinical Network Inc. 255,000 255,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Colour Holding, Ltd. 249,000 249,000 - *
--------------------------------------------------- ------------- -- -------------- -- ------------- --- -------------
Elizabeth S. Kasevich 248,751 248,751 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Raymond S. Kasevich 248,751 248,751 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John J. Burke 200,000 200,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Clement A. Nelson 180,000 180,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Stanford Baratz 135,720 - 135,720 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Craig Hallum Partners 125,000 125,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Richard H. Enrico 125,000 125,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
David Kunin 101,790 - 101,790 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gus Boosalis 100,000 100,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Industricorp & Co., FBO T.C. Carpenters 100,000 100,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
E*Trade FBO Peter L. Hauser IRA IRA 100,000 100,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Jack B. Peterson 100,000 100,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
TITAB, LLC Brad Peters 100,000 100,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Alex Nazarenko 97,500 (4) 67,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Minnetronix 92,148 - 92,148 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------0
Artann Laboratories 90,000 - 90,000 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John Lane 79,348 40,000 39,348 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Linda B. Ganje 75,000 75,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Michael J. Ganje 75,000 75,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Michael Wright 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
James Taylor 116,081(6) 72,081 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Lindsey Taylor 116,081(6) 72,081 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Maurice Taylor III 116,081(6) 72,081 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Sam Taylor 116,081(6) 72,081 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Tiffiney Taylor 116,081(6) 72,081 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Resistance Technology, Inc. 70,743 (5) 70,743 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Michael & Margaret Provenzano 67,860 - 67,860 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Douglas E. King 65,114 65,114 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
29
NUMBER OF
SHARES OFFERED
NUMBER OF BY SELLING PERCENTAGE
SHARES OUTSTANDING STOCKHOLDER BENEFICIAL
BENEFICIALLY SHARES OFFERED UPON EXERCISE OWNERSHIP
OWNED BEFORE BY SELLING OF CERTAIN AFTER
SELLING STOCKHOLDER OFFERING (1) STOCKHOLDER WARRANTS OFFERING
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Christopher Larson 65,114 65,114 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Generation Capital Associates 64,800 64,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Wells Fargo Bank IRA C/F Bruce W. McFadzean
(#6051-3618) 62,500 62,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Jerome Laitala 54,761 54,761 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Leon Steinberg 50,895 - 50,895 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Dale E. Herdey 50,762 50,762 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John Kraemer & Sons, Inc. 50,295 50,295 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
DB Securities Inc. tax id #522208880 as custodian
F/B/O IRA FBO Steven F. Burke, IRA 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Lawrence G. Burke 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gregg Emfield 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Douglas J. Miller 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gregory J. Orman 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Arthur J. Petrie 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Nancy A. Wright, Trustee of the Nancy A. Ekengerg
Charitable Remainder Unitrust u/a/d 10/26/92 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Yvonne L. Wright Family Trust 50,000 50,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Earl Beitzel 45,580 45,580 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Tina M. Johnson 40,000 40,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Fischer-Zernin LLC 39,000 39,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Kathleen Mary Burke 37,500 37,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Joseph Novogratz 35,210 35,210 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Piper Jaffray as Custodian FBO David H. Potter IRA 35,000 35,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Anita Kunin 33,936 - 33,936 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Tim Olson 33,930 - 33,930 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Mary Dierich 32,557 32,557 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Timothy J. Olson 32,400 32,400 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
F & M 18 Investment Partnership 30,000 30,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John R. Toedtman Pension and Trust UAD 3/01/93
John Toedtman, Trustee 30,000 30,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Thomas Laitala Trust 27,999 27,999 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Russell Trust c/o Russell Laitala 27,999 27,999 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Clinical Network Management Corp. 27,000 27,000
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Byron A. Denenberg 25,349 25,349 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
30
NUMBER OF
SHARES OFFERED
NUMBER OF BY SELLING PERCENTAGE
SHARES OUTSTANDING STOCKHOLDER BENEFICIAL
BENEFICIALLY SHARES OFFERED UPON EXERCISE OWNERSHIP
OWNED BEFORE BY SELLING OF CERTAIN AFTER
SELLING STOCKHOLDER OFFERING (1) STOCKHOLDER WARRANTS OFFERING
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John J. Gornick 25,349 25,349 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Russell Jean Gray, Jr. 25,349 25,349 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Thomas B. Kullman 25,349 25,349 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Mitsuzo Shida 25,349 25,349 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Peter Sheldrick 25,348 25,348 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Craig C. Avery Company Profit Sharing Trust 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
James R. Burke 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Donald E. and Joanne K. Davidson 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Jeffrey S. Davidson 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Stacy Davidson 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Peter L. Hauser 35,000 35,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
James S. Murphy 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Robert J. Sechan II 25,000 25,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Cordova Technology Partners 24,999 - 24,999 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Shore Holdings, LLC 22,332 15,000 1,500 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
George L.Wirkkula 22,279 22,279 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
T. Hay IRA-Dain Raucher, Custodian 22,074 22,074 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Mark & Patricia Caiazzo 21,600 21,600 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Henry G. & Rita C. Ciocca, JTWROS 21,600 21,600 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
James M. Libby, M.D. 21,600 21,600 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
David Pratson 21,600 21,600 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Public Food Partners LLP 21,600 21,600 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Bev Snyder & Roland C. Fearn, JTWROS 21,600 21,600 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Portage Equity Investments II, LP 21,429 21,429 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Jerome Laitala-Marquette Bank Minneapolis 19,860 19,860 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Debbie K. Huff 19,724 19,724 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John C. Gjerde Profit Sharing Plan-Marquette Bank
Minneapolis Trustee 19,534 19,534 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
California International Sailing Ass'n 18,000 18,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gilbert & Associates 17,529 17,529 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Minnesota Zoo 17,259 17,259 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Stanford Baratz Revocable Trust 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
31
NUMBER OF
SHARES OFFERED
NUMBER OF BY SELLING PERCENTAGE
SHARES OUTSTANDING STOCKHOLDER BENEFICIAL
BENEFICIALLY SHARES OFFERED UPON EXERCISE OWNERSHIP
OWNED BEFORE BY SELLING OF CERTAIN AFTER
SELLING STOCKHOLDER OFFERING (1) STOCKHOLDER WARRANTS OFFERING
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Thomas S. Burke 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Trustee of the Elizabeth Burke Trust u/a/d 7/7/88 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Trustee of the Kathleen M. Burke Trust u/a/d
7/7/88 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Trustee of the Michael S. Burke Trust u/a/d 7/7/88 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Trustee of the Susan E. Burke Trust u/a/d 7/7/88 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Trustee of the Thomas J. Burke Trust u/a/d 7/7/88 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Andrew Cone 15,000 15,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John R. Albinson 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Roger Buxton 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Ravindra and Padma Chintipalli 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Scott and Julie Espersen 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Piper Jaffray as Custodian FBO Daniel S. Perkins
IRA 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Piper Jaffray as Custodian FBO Patrice M. Perkins
IRA 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Anne M. Voight 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Piper Jaffray as Custodian FBO Jeffrey R. Wright 12,500 12,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
The Whittier Institute 12,000 12,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Neil M. Bardach 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Dominic Bassani 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Harry N. Bloch, II 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Janet & Thomas Buckley 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Dana Harloe 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Richard A. Knef 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gregory A. Lewis 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Steven & Gail Machov 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Marshall Manley 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Don McGuire 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Leland G. Mew 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Ralph N. Peregoy 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Stanley M. Taube, Trustee of Julie Berman
Irrevocable Trust 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
TBJMJ Family Limited Partnership 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Temple Securities 10,800 10,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
32
NUMBER OF
SHARES OFFERED
NUMBER OF BY SELLING PERCENTAGE
SHARES OUTSTANDING STOCKHOLDER BENEFICIAL
BENEFICIALLY SHARES OFFERED UPON EXERCISE OWNERSHIP
OWNED BEFORE BY SELLING OF CERTAIN AFTER
SELLING STOCKHOLDER OFFERING (1) STOCKHOLDER WARRANTS OFFERING
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Robert S. Parish 10,553 10,553 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Wayzata Community Church 10,500 10,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Greg Hardie 10,153 10,153 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Rita Rose Schlosser 10,153 10,153 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Vladimir Drits 10,000 - 10,000 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Keith H. Stolen 10,000 10,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Anthoney R. Baraga 9,572 9,572 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Marquette Bank Minneapolis, Trustee FBO Jerome E.
Laitala IRA 8,302 8,302 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John A.Hay 8,139 8,139 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Peter L. Mitchelson 8,139 8,139 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John C. Gjerde 7,563 7,563 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
John Flottmeier, Trust Manager of Richard C. Gage
Special Trust 7,500 7,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Kajsa C. Nelson 7,500 7,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Kirk D. Nelson 7,500 7,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Kole O. Nelson 7,500 7,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Pershing, LLC as custodian fbo IRA Elivira R.
Shea, IRA 7,500 7,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Pershing, LLC As Custodian IRA fbo James A. Shea,
IRA 7,500 7,500 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Beth Watchman 6,600 6,600 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Ryan Lane 6,000 - 6,000 *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Stanley McCabe & Antoinette McCabe 5,400 5,400 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
The Rochford Living Trust 5,400 5,400 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Richard Norton 5,358 5,358 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Joseph C. Stasick 5,358 5,358 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Richard Kormanik 5,307 5,307 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Gordon A. Brown, Jr. and Marjorie A. Brown 5,000 5,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Pershing, LLC As Custodian fbo Gordon A. Brown
Jr. IRA 5,000 5,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Pershing, LLC As Custodian fbo Marjorie A. Brown
IRA 5,000 5,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Theodore A. Johnson 5,000 5,000 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
William L. Kormanik 4,818 4,818 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Smith Barney, Inc. Custodian FBO Michael M. Parish 4,307 4,307 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
James Chica 3,256 3,256 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
33
NUMBER OF
SHARES OFFERED
NUMBER OF BY SELLING PERCENTAGE
SHARES OUTSTANDING STOCKHOLDER BENEFICIAL
BENEFICIALLY SHARES OFFERED UPON EXERCISE OWNERSHIP
OWNED BEFORE BY SELLING OF CERTAIN AFTER
SELLING STOCKHOLDER OFFERING (1) STOCKHOLDER WARRANTS OFFERING
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Lisa M. Kreter 3,256 3,256 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Teree Olson 2,800 2,800 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Smith Barney, Inc. Custodian FBO Robert S. Parish 2,154 2,154 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Dean Pickerell 1,628 1,628 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Pamela McKeown 1,139 1,139 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
Russell Laitala 977 977 - *
--------------------------------------------------- ---------------- ----------------- ----------------- -------------
----------------
(1) For purposes of the selling stockholder table and consistent with SEC
rules, beneficial ownership includes any shares as to which the stockholder
has sole or shared voting power or investment power, and also any shares
which the stockholder has the right to acquire within 60 days of the date
hereof, through the exercise or conversion of any stock option, convertible
security, warrant or other right. The indication herein that shares are
beneficially owned does not constitute an admission on the part of the
stockholder that he, she or it is a direct or indirect beneficial owner of
those shares.
(2) Includes 27,000 shares of common stock held by Clinical Network, LLC, and
255,000 shares held by Clinical Network, Inc., with respect to each of
which Mr. Taylor is a managing officer and majority owner. Also includes
options to purchase up to 136,000 shares of common stock which are
currently exercisable or exercisable within 60 days.
(3) Includes options to purchase up to 30,000 shares of common stock which are
currently exercisable or exercisable within 60 days.
(4) Includes options to purchase up to 30,000 shares of common stock which are
currently exercisable or exercisable within 60 days.
(5) Includes 70,743 shares of common stock issued in satisfaction of
liabilities.
(6) Includes options to purchase up to 44,000 shares of common stock which are
currently exercisable or exercisable within 60 days.
34
PLAN OF DISTRIBUTION
We are registering the shares of common stock offered by this
prospectus on behalf of the selling stockholders. As used in this prospectus,
"selling stockholders" include donees, pledges, transferees and other successors
in interest selling shares received from the selling stockholders after the date
of this prospectus, whether as a gift, pledge, partnership distribution or other
form of transfer. All costs, expenses and fees in connection with the
registration of the shares of common stock offered hereby will be borne by
ProUroCare Medical Inc. Brokerage commissions and similar selling expenses, if
any, attributable to the sale of shares of common stock will be borne by the
selling stockholders.
Sales of shares of common stock offered hereby may be effected by the
selling stockholders from time to time in one or more types of transactions
(which may include block transactions):
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o broker-dealers may agree with the selling stockholder to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may effect sales of shares of common stock
offered hereby at fixed prices, at prevailing market prices at the time of sale,
at prices related to the prevailing market price, at varying prices determined
at the time of sale, or at privately negotiated prices. Any of these
transactions may or may not involve brokers or dealers. Any such broker-dealers
may receive compensation in the form of discounts, concessions, or commissions
from the selling stockholders and/or the purchaser(s) of shares of common stock
for whom those broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customary commissions). The selling stockholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their securities,
nor is there any underwriter or coordinating broker acting in connection with
the proposed sale of shares of common stock by the selling stockholders.
The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock owned by him and,
if he defaults in the performance of his secured obligations, the pledgees or
secured parties may offer and sell the shares of common stock, from time to
35
time, under this prospectus, or under an amendment to this prospectus or other
applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities, which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. The selling stockholders reserve the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
The selling stockholders may also resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided that they meet the criteria and conform to the requirements of that
rule.
The selling stockholders and any broker-dealers that act in connection
with the sale of securities might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
such broker-dealers and any profit on the resale of the securities sold by them
while acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act.
To the extent required, the shares of our common stock to be sold, the
name of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if
applicable, the common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states the
common stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.
We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and his affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling stockholders for the purpose
of satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
36
We have agreed to indemnify the selling stockholders against
liabilities, including liabilities under the Securities Act and state securities
laws, relating to the registration of the shares offered by this prospectus.
We are unable to predict with certainty the effect which sales of the
shares of common stock offered by this prospectus might have upon our ability to
raise additional capital. Nevertheless, it is possible that the resale of shares
offered hereby could adversely affect the trading price of our common stock.
We have agreed with the selling stockholders to keep the registration
statement that includes this prospectus effective until the earlier of (1) such
time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or (2) the date
one year from the date of effectiveness of this registration statement.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and assuming the issuance of all of
the shares covered by this prospectus that are issuable upon the exercise of
outstanding warrants to purchase our common stock, there will be 15,525,493
shares of our common stock issued and outstanding. The shares purchased in this
offering will be freely tradable without registration or other restriction under
the Securities Act, except for any shares purchased by an "affiliate" of our
company (as defined under the Securities Act).
Our currently outstanding shares that were issued in reliance upon the
private-placement exemptions under the Securities Act (i.e., those shares issued
in the Private Placement and in the Merger) are deemed "restricted securities"
within the meaning of Rule 144 under the Securities Act. Restricted securities
may not be sold unless they are registered under the Securities Act or are sold
pursuant to an applicable exemption from registration, including an exemption
under Rule 144. The 9,603,003 restricted shares of our common stock that were
issued in connection with the Merger will be eligible for resale without
registration on April 5, 2005, provided that all of the other requirements of
Rule 144 are then satisfied.
In general, under Rule 144, any person (or persons whose shares are
aggregated) including persons deemed to be affiliates, whose restricted
securities have been fully paid for and held for at least one year from the
later of the date of issuance by us or acquisition from an affiliate, may sell
such securities in broker's transactions or directly to market makers, provided
that the number of shares sold in any three-month period may not exceed the
greater of one percent of the then-outstanding shares of our common stock or the
average weekly trading volume of our shares of common stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about our Company. After two years
have elapsed from the later of the issuance of restricted securities by us or
their acquisition from an affiliate, such securities may be sold without
limitation by persons who are not affiliates under the rule.
LOCK-UP AGREEMENT
In the Merger Agreement, PUC agreed that certain of its directors and
officers (Messrs. Taylor, Koenig, Nazarenko and Grossman) would be prohibited
from selling their shares of Company common stock under the registration
statement of which this prospectus is a part for a period of 90 days after the
effectiveness of such registration statement.
In addition, as part of the settlement agreement between PUC and
Profile, Mr. Taylor agreed that he will dispose of no shares of our common stock
that he or his family beneficially owns so long as any amounts are owing under
the promissory note PUC delivered to Profile as part of the settlement. This
37
agreement includes all shares of our common stock acquired in connection with
the exercise by Mr. Taylor (or members of his family) of any options or warrants
to purchase shares of our common stock. The foregoing prohibition does not
extend to shares distributed to other persons and firms by entities beneficially
owned by Mr. Taylor. Furthermore, Mr. Taylor has a limited right to sell shares
as the promissory note delivered in favor of Profile is paid off by the Company.
DESCRIPTION OF CAPITAL STOCK
Our articles of incorporation, as amended to date, authorizes us to
issue up to 50,000,000 shares of common stock having a per-share par value of
$.00001. As of July 30, 2004, we had 13,803,616 shares of common stock issued
and outstanding, with an aggregate of 2,866,877 shares of common stock issuable
upon exercise of outstanding options and warrants. The transfer agent and
registrar for our common stock is Interwest, LLC, of Salt Lake City, Utah.
Holders of our common stock are entitled to one vote for each share on
all matters to be voted on by our stockholders. Holders of our common stock do
not have any cumulative-voting rights. Common stockholders are entitled to share
ratably in any dividends that may be declared from time to time on the common
stock by our board of directors from funds legally available therefor. Holders
of common stock do not have any preemptive right to purchase shares of common
stock. There are no conversion rights or sinking-fund provisions for or
applicable to our common stock.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Pursuant to our articles of incorporation and bylaws, we may indemnify
an officer or director who is made a party to any proceeding, because of his
position as such, to the fullest extent authorized by Nevada General Corporation
Law, as the same exists or may hereafter be amended. In certain cases, we may
advance expenses incurred in defending any such proceeding.
To the extent that indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
our company pursuant to the foregoing provisions, we have been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person of our company in the successful defense of any action, suit
or proceeding) is asserted by any of our directors, officers or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of that issue.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires us to file information with the SEC
concerning our business and operations. Accordingly, we file annual, quarterly,
and special reports, proxy statements and other information with the SEC. You
can inspect and copy this information at the Public Reference Facility
maintained by the SEC at Judiciary Plaza, 450 5th Street, N.W., Room 1024,
Washington, D.C. 20549. You can receive additional information about the
operation of the SEC's Public Reference Facilities by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that, like us, file information electronically with the SEC.
38
VALIDITY OF COMMON STOCK
Legal matters in connection with the validity of the shares offered by
this prospectus will be passed upon by Maslon Edelman Borman & Brand, LLP, of
Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of ProUroCare Inc. as of December
31, 2003, and for the years ended December 31, 2002 and December 31, 2003, and
for the period from August 17, 1999 (date of inception) to December 31, 2003,
included in this prospectus, have been included herein in reliance on the
report, which includes an explanatory paragraph relating to the ability of
ProUroCare Inc. to continue as a going concern, of Virchow, Krause & Company,
LLP, independent public accountants, given on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements of Global Internet
Communications, Inc. (n/k/a ProUroCare Medical Inc.) as of December 31, 2003,
and for the year then ended, included in this prospectus, have been included
herein in reliance on the report, which includes an explanatory paragraph
relating to the Company's ability to continue as a going concern, of Manning
Elliot, independent public accountants, given on the authority of that firm as
experts in accounting and auditing.
CHANGES IN CERTIFYING ACCOUNTANT
On April 20, 2004, the Company (formerly Global Internet
Communications, Inc.) dismissed Manning Elliot as its independent auditors. The
Company thereafter engaged Virchow, Krause & Company, LLP ("Virchow"), as its
new independent auditors.
Manning Elliot's independent auditor's report furnished in connection
with the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003 (filed with the SEC on March 30, 2004), contained an opinion
raising substantial doubt about the Company's ability to continue as a going
concern. The decision to dismiss Manning Elliot was made by the Company's
reconstituted board of directors after the effectiveness of the Merger, and was
made primarily because of the desire to retain the accounting firm which was
familiar with the Company's operating business conducted through ProUroCare Inc.
There were not, within the past two years, any disagreements with Manning Elliot
that are known to the Company's management and relate to accounting principles
or practice, financial disclosures or auditing scope or procedures.
The Company requested that Manning Elliot furnish it with a letter
addressed to the Securities and Exchange Commission stating whether or not it
agrees with the above statements. A copy of such letter was filed as Exhibit
16.1 to a Current Report on Form 8-K/A filed on April 20, 2004.
On April 20, 2004, the Company engaged Virchow as its independent
public accountants for the fiscal year ending December 31, 2004. During the
subsequent interim period preceding the engagement of Virchow, the Company did
not consult Virchow on any matter requiring disclosure under Item 304(a)(2) of
Regulation S-B promulgated by the SEC. The selection of Virchow as the Company's
independent auditor was approved by the Company's board of directors.
In the Company's two most recent fiscal years prior to the change in
accountants and any subsequent interim period to the date of such change, the
Company had not consulted with Virchow regarding either: (i) the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the registrant's
financial statements, and neither a written report was provided to the
registrant nor oral advice was provided that Virchow concluded was an important
factor considered by the registrant in reaching a decision as to the
39
accounting, auditing or financial reporting issue; or (ii) any matter that was
either the subject of a "disagreement," as that term is defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a "reportable event," as that term is defined in Item
304(a)(1)(v) of Regulation S-K.
40
PROSPECTUS
_______________, 2004
PROUROCARE MEDICAL INC.
13,928,493 shares of common stock
Until ________, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments for subscriptions.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 Financial Statements - Global Internet Communications, Inc.
Independent Auditors' Report...........................................F-2
Balance Sheets - as at December 31, 2003 and 2002......................F-3
Statements of Operations - As at December 31, 2003 and 2002............F-4
Statement of Cash Flow - as at December 31, 2003 and 2002..............F-5
Statements of Stockholders' Equity from October 22, 1998
(Date of Inception) to December 31, 2003).............................F-6
Notes to Financial Statements..........................................F-7
December 31, 2003 Audited Financial Statements - ProUroCare Inc.
Independent Auditors Report...........................................F-13
Balance Sheets - December 31, 2003 and December 31, 2002..............F-14
Statements of Operations - Years Ended December 31, 2003,
December 31, 2002, and Period from August 17, 1999
(Inception) to December 31, 2003......................................F-15
Statements of Shareholder's Deficit...................................F-16
Statements of Cash Flows - Years Ended December 31, 2003,
December 31, 2002, and Period from August 17, 1999
(Inception) to December 31, 2003......................................F-18
Notes to Financial Statements.........................................F-19
June 30, 2004 Unaudited Consolidated Financial Statements -
ProUroCare Medical Inc.
Consolidated Balance Sheets...........................................F-32
Consolidated Statements of Operations.................................F-33
Consolidated Statements of Cash Flows.................................F-34
Notes to Consolidated Financial Statements............................F-35
F-1
[GRAPHIC OMITTED][GRAPHIC OMITTED]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Directors
of Global Internet Communications, Inc.
(A Development Stage Enterprise):
We have audited the accompanying balance sheets of Global Internet
Communications, Inc. (A Development Stage Enterprise) as of December 31, 2003
and 2002 and the related statements of operations, stockholders' equity and cash
flows accumulated for the period from October 22, 1998 (Date of Inception) to
December 31, 2003 and the years ended December 31, 2003 and 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
used in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Global Internet Communications,
Inc. (A Development Stage Enterprise), as of December 31, 2003 and 2002, and the
results of its operations and its cash flows accumulated for the period from
October 22, 1998 (Date of Inception) to December 31, 2003 and the years ended
December 31, 2003 and 2002 in conformity with generally accepted accounting
principles used in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has not generated any revenues and has conducted
operations at a loss since inception. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also discussed in Note 1. These financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ "Manning Elliott"
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 23, 2004
F-2
GLOBAL INTERNET COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
As at December 31, 2003 and 2002
(Expressed in US dollars)
2003 2002
-------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 105,980 $ 96,987
Prepaid Expenses -- --
-------------------------------------------------------------------------------
Total Assets $ 105,980 $ 96,987
===============================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accrued Liabilities $ 2,500 $ 3,813
Advances From Related Parties (Note 6) 11,660 7,954
-------------------------------------------------------------------------------
Total Liabilities 14,160 11,767
-------------------------------------------------------------------------------
Contingent Liability (Note 1)
Stockholders' Equity
Common stock; 50,000,000 shares authorized
with $0.00001 par value; 2,000,000 and
2,000,000 shares issued and outstanding,
respectively 20 20
Additional Paid In Capital 100,639 100,638
Donated Capital (Note 6(c)) 70,584 37,730
Deficit Accumulated During The
Development Stage (79,423) (53,168)
-------------------------------------------------------------------------------
Total Stockholders' Equity 91,820 85,220
-------------------------------------------------------------------------------
Total Liabilities And Stockholders' Equity $ 105,980 $ 96,987
===============================================================================
The accompanying notes are an integral part of these financial statements.
F-3
GLOBAL INTERNET COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(Expressed in US dollars)
ACCUMULATED
FROM
OCTOBER 22,
1998
(DATE OF
INCEPTION)
TO YEAR ENDED DECEMBER 31
DECEMBER 31 -------------------------
2003 2003 2002
-----------------------------------------------------------------------------
Revenue $ -- $ -- $ --
-----------------------------------------------------------------------------
Expenses
Consulting (Note 6(c)) 69,614 32,854 28,656
Foreign exchange loss (gain) (13,619) (15,233) 1,675
Interest and bank charges 189 102 87
Office 387 223 164
Professional fees 15,930 8,086 7,600
Rent (Note 6(d)) 8,937 2,211 3,820
Telephone 314 68 114
Web design 743 17 --
Less: Interest income (3,072) (2,073) (999)
-----------------------------------------------------------------------------
79,423 26,255 41,117
-----------------------------------------------------------------------------
Net loss (79,423) (26,255) (41,117)
=============================================================================
Basic and diluted net loss per share (0.01) (0.02)
=============================================================================
Weighted average shares outstanding 2,000,000 1,803,000
=============================================================================
The accompanying notes are an integral part of these financial statements.
F-4
GLOBAL INTERNET COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
(Expressed in US dollars)
ACCUMULATED
FROM
OCTOBER 22,
1998
(DATE OF
INCEPTION)
TO YEAR ENDED DECEMBER 31
DECEMBER 31 -------------------------
2003 2003 2002
-----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Loss $ (79,423) $ (26,255) $ (41,117)
Adjustment to reconcile net
loss to cash
Value of services donated by
related parties 70,584 32,854 28,656
Changes in operating assets and
liabilities
Decrease in prepaid expenses -- -- 19
Increase (decrease) in accounts
payable and accrued liabilities 2,500 (1,313) 3,807
-----------------------------------------------------------------------------
Net Cash Provided By (Used In)
Operating Activities (6,339) 5,286 (8,635)
-----------------------------------------------------------------------------
Financing Activities
Advances from Related Parties 11,660 3,706 4,988
Proceeds from Issuance of
Common Stock 100,659 1 100,000
-----------------------------------------------------------------------------
Net Cash Provided By
Financing Activities 112,319 3,707 104,988
-----------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 105,980 8,993 96,353
Cash and Cash Equivalents -
Beginning of Year -- 96,987 634
-----------------------------------------------------------------------------
Cash and Cash Equivalents - End of Year $ 105,980 $ 105,980 $ 96,987
=============================================================================
Non-Cash Financing Activities $ -- $ -- $ --
=============================================================================
Supplemental Disclosure
Interest paid -- -- --
Income taxes paid -- -- --
=============================================================================
The accompanying notes are an integral part of these financial statements.
F-5
GLOBAL INTERNET COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
From October 22, 1998 (Date of
Inception) to December 31, 2003
(Expressed in US dollars)
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL DURING THE STOCKHOLDERS'
PAR VALUE PAID IN DONATED DEVELOPMENT EQUITY
SHARES (.00001) CAPITAL CAPITAL STAGE (DEFICIENCY)
------------------------------------------------------------------------------
Balance on October 22, 1998
(Date of inception) - $ - $ - $ - $ - $ -
Common stock issued for cash 1,000 - 6 - - 6
-------------------------------------------------------------------------------------------------------------------
Balance on December 31, 1998 and 1999 1,000 - 6 - - 6
Common stock issued for cash 1,000,000 10 642 - - 652
Common stock cancelled (1,000) - - - - -
Consulting and professional fees - - - 3,181 - 3,181
Net loss for the year - - - - (3,165) (3,165)
-------------------------------------------------------------------------------------------------------------------
Balance on December 21, 2000 1,000,000 10 648 3,181 (3,165) 674
Consulting and web design - - - 5,893 - 5,893
Net loss for the year - - - - (8,886) (8,886)
-------------------------------------------------------------------------------------------------------------------
Balance on December 21, 2001 1,000,000 10 648 9,074 (12,051) (2,319)
Common stock issued for cash 1,000,000 10 99,990 - - 100,000
Consulting - - - 28,656 - 28,656
Net loss for the year - - - - (41,117) (41,117)
-------------------------------------------------------------------------------------------------------------------
Balance on December 21, 2002 2,000,000 20 100,638 37,730 (53,168) 85,220
Common stock issued for cash 1 - 1 - - 1
Common stock cancelled (1) - - - - -
Consulting - - - 32,854 - 32,854
Net loss for the year - - - - (26,255) (26,255)
-------------------------------------------------------------------------------------------------------------------
Balance on December 31, 2003 2,000,000 $ 20 $ 100,639 $ 70,584 $ (79,423) $ 91,820
===================================================================================================================
The accompanying notes form an integral part of these financial statements.
F-6
GLOBAL INTERNET COMMUNICATIONS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in US dollars)
1. NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS
The Company was incorporated under the laws of the State of Nevada on
February 26, 2003 and is a development stage company, currently based in
Vancouver, B.C., Canada. The Company was formed, solely for the purpose
of effecting the change of domicile of its parent company. The Company's
sole business activity involves the marketing of a licensed video
streaming technology to the pharmaceutical industry.
The Company's shares trade on the OTC Bulletin Board under the symbol
GICI. On October 2, 2003 the Company filed and received articles of
merger in the state of Nevada for the merger with its parent company,
Global Internet Communications, Inc., a Canadian domiciled company (GIC
Canada). Following the merger, the business of the Company is the
businesses previously conducted by GIC Canada. These financial statements
reflect operations since inception of GIC Canada on October 22, 1998.
The Company is in the early development stage. In a development stage
company, management devotes most of its activities in developing a market
for its products. Planned principal activities have not yet begun. The
ability of the Company to emerge from the development stage with respect
to any planned principal business activity is dependent upon its
successful efforts to raise additional equity financing and/or generate
significant revenue. There is no guarantee that the Company will be able
to raise further equity financing or sell any of its products at a
profit. There is substantial doubt regarding the Company's ability to
continue as a going concern.
The Company has working capital of $91, 820 as at December 31, 2003.
After the forgiveness of debt of $11,660 and the consulting services paid
of $102,665 the Company will not have enough working capital to continue
operations over the next twelve months.
Management intends to overcome their lack of working capital by scaling
down their operations until such time that financing can be secured. At
the present time, the Company does not have any formal commitments for
financing and can not give any assurance that they will be able to secure
any financing. Management expects to seek financing through the issuance
of equity in a private transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) YEAR END
The Company's fiscal year end is December 31.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents presented in the financial statements,
include short-term investments with maturities of three months or
less at the time of purchase.
(c) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
credit risk consist principally of cash. Cash was deposited with
high credit quality financial institutions.
F-7
(d) FOREIGN EXCHANGE
Current monetary assets and liabilities of the Company which are
denominated in foreign currencies are translated at the exchange
rate in effect at the balance sheet dates. Revenues and expenses
are translated at rates of exchange prevailing on the transaction
dates. Exchange gains or losses on the realization of current
monetary assets and the settlement of current monetary liabilities
are recognized currently to operations.
(e) REVENUE RECOGNITION
The Company will recognize revenue pursuant to the requirements of
Statement of Position No. 97-2, "Software Revenue Recognition"
(SOP 97-2), as amended by Statement of Position No. 98-9,
"Software Revenue Recognition with Respect to Certain
Arrangements."
Under SOP 97-2, revenue attributable to an element in a customer
arrangement is recognized when persuasive evidence of an
arrangement exists and delivery has occurred, provided the fee is
fixed or determinable, collectibility is probable and the
arrangement does not require significant customization of the
software. If at the outset of the customer arrangement, the
Company determines that the arrangement fee is not fixed or
determinable or that collectibility is not probable, the Company
defers the revenue and recognizes the revenue when the arrangement
fee becomes due and payable.
The Company will account for the licensing fees on a gross basis
pursuant to the requirements of Emerging Issues Task Force No.
99-19 (EITF 99-19).
When determining whether to utilize gross or net recognition of
license fees, the Company will consider the following criteria.
The Company is the primary obligor to the transaction, the Company
has full pricing latitude, the Company can modify the product
specifications as it sees fit, the Company will perform part of
the service to the end customer, the Company carries sole risk of
physical inventory loss, the Company realizes full credit risk,
and commission is not fixed.
In determining the terms of our licensing agreement we examined
the terms that were standard in the industry at the time. Our main
pricing is structured on a schedule through either a pay-per-use
or on a licensing basis. The pay-per-use pricing structure will
require pharmaceutical broadcasters to pay the Company for the
service based on the exact number of viewers and their accumulated
viewing time connected to the broadcast. Fees range from $10 per
hour for 10 or less viewers to $2,500 per hour for broadcasts with
more than 5,000 viewers.
The product will also be offered on a license basis. The license
of the product to pharmaceutical companies will be based upon the
number of viewers they anticipate will be viewing the broadcast
and the duration of the license. Although the Company has not yet
determined a set cost structure for the license, we anticipate
annual fees ranging from $6,000 to $7,000 for 300 to 400
simultaneous viewers with graduated increases depending on the
number of viewers over 400. The Company anticipates recognizing
net income in the second quarter 2004.
(f) COMPREHENSIVE INCOME
SFAS No. 130 establishes standards for reporting comprehensive
income and its components in financial statements. As at December
31, 2003 the Company has no items that represent comprehensive
loss and, therefore, has not included a schedule of comprehensive
loss in the financial statements.
F-8
(g) BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance
with SFAS No. 128, "Earnings per Share" (SFAS 128). SFAS 128
requires presentation of both basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is computed
by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during
the period including stock options, using the treasury stock
method, and convertible preferred stock, using the if-converted
method. In computing Diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be
purchased from the exercise of stock options or warrants. Diluted
EPS excludes all dilutive potential common shares if their effect
is anti-dilutive.
(h) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company does not have a stock option plan and has not
previously issued stock in exchange for goods and services
provided to the Company. The Company will account for stock issued
for services to non-employees in accordance with SFAS No. 123
"Accounting for Stock-Based Compensation". Compensation expense is
based on the fair market value of the stock award or fair market
value of the goods and services received whichever is more
reliably measurable.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the period. Actual
results may differ from those estimates.
(j) FINANCIAL INSTRUMENTS
The Company has the following financial instruments: cash, accrued
liabilities, and advances from related parties. The carrying value
of these financial instruments approximates their fair value based
on their liquidity or their short-term nature.
(k) RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the United States Securities and Exchange
Commission issued Staff Accounting Bulletin No. 104, "Revenue
Recognition" (SAB 104), which supercedes SAB 101, "Revenue
Recognition in Financial Statements." The primary purpose of SAB
104 is to rescind accounting guidance contained in SAB 101 related
to multiple element revenue arrangements, which was superceded as
a result of the issuance of EITF 00-21, "Accounting for Revenue
Arrangements with Multiple Deliverables." While the wording of SAB
104 has changed to reflect the issuance of EITF 00-21, the revenue
recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. The adoption of SAB 104 did not have a
material impact on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The
F-9
requirements of SFAS No. 150 apply to issuers' classification and
measurement of freestanding financial instruments, including those
that comprise more than one option or forward contract. SFAS No.
150 does not apply to features that are embedded in a financial
instrument that is not a derivative in its entirety. SFAS No. 150
is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003, except for
mandatory redeemable financial instruments of non-public entities.
It is to be implemented by reporting the cumulative effect of a
change in an accounting principle for financial instruments
created before the issuance date of SFAS No. 150 and still
existing at the beginning of the interim period of adoption.
Restatement is not permitted. The adoption of this standard is not
expected to have a material effect on the Company's results of
operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which
amends SFAS No. 123 to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
SFAS No. 148 expands the disclosure requirements of SFAS No. 123
to require more prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. The transition provisions of SFAS No.
148 are effective for fiscal years ended after December 15, 2002.
The disclosure provisions of SFAS No. 148 are effective for
financial statements for interim periods beginning after December
15, 2002. The Company will adopt the disclosure requirements of
SFAS No. 148 if stock-based compensation is awarded to employees.
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The provisions of
this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application
encouraged. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)". This Statement requires that a
liability for a cost associated with an exit or disposal activity
be recognized when the liability is incurred. The Company will
adopt SFAS No. 146 on January 1, 2003. The adoption of this
standard will not have a material effect on the Company's
financial position and results of operations.
FASB has also issued SFAS No. 145, 147 and 149 but they do not
have any relationship to the operations of the Company therefore a
description of each and their respective impact on the Company's
operations have not been disclosed.
3. INCOME TAXES
Potential benefits of income tax losses are not recognized in the
accounts until realization is more likely than not. The Company has
adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109")
as of its inception. Pursuant to SFAS 109 the Company is required to
compute tax asset benefits for net operating losses carried forward.
Potential benefit of net operating losses have not been recognized in
these financial statements because the Company cannot be assured it is
more likely than not it will utilize the net operating losses carried
forward in future years.
F-10
4. LICENSE
On December 31, 2000, the Company entered into a worldwide, exclusive,
non-transferable, non-assignable license agreement with KyxPyx
Technologies, Inc. ("KyxPyx"), a private affiliated company based in
British Columbia, Canada. The Company will market and sell via the
internet, KyxPyx's internet streaming video technology to the
pharmaceutical industry.
The Company will pay KyxPyx royalties as follows: (a) 5% of net income
after tax on the first $1,000,000; (b) 3% of net income after tax on the
following $3,000,000; (c) 2% of net income after tax on the following
$5,000,000; and (d) 1% of net income after tax above $9,000,0000.
4. LICENSE
The license agreement was renewed on December 31, 2003 and expires on
December 31, 2006.
GIC is affiliated with the licensor, KyxPyx Technologies. The companies'
share a common officer in Kelly Myers who acts as GIC's Secretary and
Chief Technology Officer and the President, CEO and director of KyxPyx
Technologies'. Mr. Myers owns 21.8% of KyxPyx and 0.05% of GIC. The
license agreement was entered into when Rory O'Byrne, the current
President of the Company, was a director and the interim President of
KyxPyx and the CEO of the Company. At the time Mr. O'Byrne owned 21.8% of
KyxPyx Technologies and 75.0% of GIC. As of the balance sheet date he
owned 0.0% KyxPyx Technologies and 45.0% of GIC. Subsequent to December
31, 2003 there is no affiliation due to the resignations by Myers and
O'Byrne from the Board of Directors of the Company and the disposition of
their shares.
5. COMMON STOCK WARRANTS
During the 2002 fiscal year, the Company issued 1,000,000 units at a
price of $0.10 per unit pursuant to a Regulation A Offering to raise
$100,000. Each unit consisted of one share of common stock and one share
purchase warrant to purchase an additional share at a price of $0.125
until March 11, 2003, and thereafter at a price $0.15 until expiry on
March 11, 2004.
6. RELATED PARTY TRANSACTIONS/BALANCES
(a) The balance of $1,400 (December 31, 2002 - $1,196) due to the
President of the Company is non-interest bearing, unsecured and due on
demand. This amount was forgiven on February 3, 2004 and the forgiveness
will be treated as additional paid in capital.
(b) The balance of $10,260 (December 31, 2002 - $6,758) due to a company
with common directors and officers is non-interest bearing, unsecured and
due on demand. This amount was forgiven on February 3, 2004 and the
forgiveness will be treated as additional paid in capital.
(c) Consulting services of $32,854 (2002 - $28,656) were donated by the
President of the Company during the year and treated as donated capital.
Value of services donated is calculated based on fair value.
(d) Rent of $2,211 (2002 - $3,820) was paid to a company with common
directors and officers during the year.
(e) At the time the license referenced in Note 4 was executed GIC and
KyxPyx were related by common principal shareholders. At the balance
sheet date GIC's Secretary and CTO was the CEO, Director and a principal
shareholder of KyxPyx.
F-11
7. SUBSEQUENT EVENTS
On January 1, 2004, Kelly Myers resigned as our Secretary and Chief
Technology Officer. Burton Voorhees and Colin Campbell submitted their
resignations to our Board of Directors. On February 16, 2004, Rory
O'Byrne appointed R.J. Demman as Chief Executive Officer, Chief Financial
Officer, and as a member of the Board of Directors and Mr. O'Byrne then
tendered his resignation as Chief Executive Officer, Chief Financial
Officer, and as a member of the Board of Directors.
On February 2, 2004, Hampton Financial Partners Inc., released and
forever discharged the Company of $11,660 in debt owed to Hampton
Financial Partners and to the previous President of the Company.
On January 30, 2004, the Company signed a letter of intent to acquire Pro
Uro Care Inc. Pro Uro Care Inc. is an early-stage company formed to
develop and market innovative products for the detection and treatment of
male urologic prostate disease. In conjunction with the signing of the
letter of intent the Company appointed R.J. Demman as its President and
Chief Executive Officer. On March 11, 2004, the Company issued 500,000
shares to R.J. Demman for $5,000.
In February, the Company paid consulting services of $95,000 plus $7,665
of expenses in connection with a consulting agreement dated January 5,
2004. The agreement is for a period of six months. The consultant is
engaged to provide services in connection with the merger with or
acquisition of a business or technology. The consultant has no other
relationship to the Company, Pro Uro Care Inc. or R.J. Demman.
On March 5 2004, the Company canceled 1,053,000 shares held by the
previous officers and directors of the Company leaving 1,447,000 shares
issued.
F-12
REPORT OF INDEPENDENT AUDITORS
Shareholders, Audit Committee and Board of Directors
ProUroCare, Inc.
Minnetonka, Minnesota
We have audited the accompanying balance sheets of ProUroCare, Inc. (a
development stage company) as of December 31, 2003 and 2002, and the related
statements of operations, shareholders' deficit and cash flows for the years
then ended and the period from August 17. 1999 (inception) to December 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting die amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ProUroCare, Inc. as of December
31, 2003 and 2002, and the results of its operations and its cash Rows for the
years then ended and the period from August 17, 1999 (inception) to December 31,
2003, in conformity with accounting principles generally accepted in die United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has recurring operating losses, negative cash
flows from operations, a working capital deficit, and a shareholders' deficit
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
VIRCHOW, KRAUSE & COMPANY, LLP
Minneapolis, Minnesota
January 14, 2004
F-13
PROUROCARE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2003 2002
----------- -----------
ASSETS
Current assets:
Cash $ 8,968 $ 14,996
Deposit 30,000 67,375
Other current assets 14,469 10,743
----------- -----------
Total current assets 53,437 93,114
Equipment and furniture, net 6,195 9,027
Debt issuance costs, net 72,594 --
----------- -----------
$ 132,226 $ 102,141
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Line of credit, bank $ 860,000 $ --
Accounts payable 774,436 743,749
Accrued expenses 404,779 118,582
License obligation 25,000 25,000
Due to CS Medical Technologies, LLC 26,000 26,000
Due to Clinical Network, Inc. 33,244 110,663
----------- -----------
Total current liabilities 2,123,459 1,023,994
----------- -----------
Commitments and contingencies (note 7)
Shareholders' deficit:
Common stock, $0.01 par. Authorized
100,000,000 shares; issued and outstanding
3,501,001 and 3,499,186 shares, respectively 35,010 34,992
Additional paid-in capital 3,831,750 3,268,691
Deficit accumulated during the
development stage (5,857,993) (4,225,536)
----------- -----------
Total shareholders' deficit (1,991,233) (921,853)
----------- -----------
$ 132,226 $ 102,141
=========== ===========
See accompanying notes to financial statements.
F-14
PROUROCARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
PERIOD FROM
AUGUST 17, 1999
YEAR ENDED YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003
-------------- -------------- --------------
Operating expenses:
Research and development $ 278,447 $ 2,615,715 $ 3,419,162
General and administrative 1,239,053 986,629 2,313,080
-------------- -------------- --------------
Total operating expenses 1,517,500 3,602,344 5,732,242
-------------- -------------- --------------
Operating loss (1,517,500) (3,602,344) (5,732,242)
Interest expense 114,957 10,659 125,751
-------------- -------------- --------------
Net loss $ (1,632,457) $ (3,613,003) $ (5,857,993)
============== ============== ==============
See accompanying notes to financial statements.
F-15
PROUROCARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
DEFICIT,
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------------ PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE DEFICIT
--------- ----------- ----------- ----------- -----------
BALANCE AT INCEPTION, AUGUST 17, 1999
Net loss for the period from
inception to December 31, 1999 -- $ -- $ -- $ -- $ --
--------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 -- -- -- -- --
Net loss for the year ended
December 31, 2000 -- -- -- -- --
--------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000 -- -- -- -- --
Issuance of common stock to 2 -- 20 -- 20
founders at $10 per share on March
1, 2001
Cancellation of founders' shares, (2) -- (20) -- (20)
March 6, 2001
Recapitalization and transfer of 1,000,000 10,000 (10,000) -- --
common stock to Clinical Network,
Inc. July 6, 2001
Issuance of common stock to CS 1,000,000 10,000 465,000 -- 475,000
Medical Technologies, LLC as
consideration for technology
license agreement on July 6, 2001,
valued at $0.475 per share
Net loss for the year ended -- -- -- (612,533) (612,533)
December 31, 2001
--------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2001 2,000,000 20,000 455,000 (612,533) (137,533)
Issuance of common stock valued at 1,333,333 13,333 1,700,267 -- 1,713,600
$1.29 per share to Profile LLC for
technology license, January 14, 2002
Issuance of common stock at $7.00 14,738 148 103,018 -- 103,166
per share for services rendered,
November 14, 2002
Issuance of common stock for cash 151,115 1,511 862,908 -- 864,419
at $7.00 per share on November 22,
2002 net of costs of $193,386
Options to purchase 300,000 shares -- -- 124,583 -- 124,583
issued to officers and directors,
valued at $1.38 per share, granted
March 19, 2002; portion vested in 2002
Options to purchase 20,000 shares -- -- 18,400 -- 18,400
issued to consultants for services
rendered, valued at $1.38 per
share, granted March 19, 2002;
portion vested in 2002
Warrant for 10,000 shares valued -- -- 4,025 -- 4,025
at $1.38 per share, issued to a
director on April 19, 2002;
portion vested in 2002
Warrant for 500 shares valued at -- -- 490 -- 490
$0.98 per share issued for
services rendered, November 11, 2002
Net loss for the year ended -- -- -- (3,613,003) (3,613,003)
December 31, 2002
--------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2002 3,499,186 34,992 3,268,691 (4,225,536) (921,853)
F-16
PROUROCARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT (CONTINUED)
DEFICIT,
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------------ PAID-TO DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE DEFICIT
--------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2002 3,499,186 34,992 3,268 691 (4,225,536) (921,853)
Stock issued in lieu of cash for accounts 1,815 18 12,687 -- 12,705
payable, valued at $7.00 per share,
February 25, 2003
Warrants for 64,287 shares valued at $0.90
per share, issued to bank line credit
guarantors, March 1, 2003 -- -- 57,858 -- 57,858
Warrant for 7,143 shares valued at $0.90
per share issued to director as a bank
line of credit guarantor, March 1, 2003 -- -- 6,429 -- 6,429
Warrant for 30,716 shares issued for
services rendered, valued at $6.09 per
share, June 30, 2003 -- -- 187,060 -- 187,060
Warrants for 75,002 shares valued at $1.08
issued to bank line of credit guarantors,
August 5, 2003 -- -- 81,003 -- 81,003
Warrant for 7,143 shares valued at $1.08
per share, issued to director as a bank
line of credit guarantor, August 5, 2003 -- -- 7,714 -- 7,714
Warrants for 21,429 shares valued at $1.02
per share, issued to bank line of credit
guarantors, September 11, 2003 -- -- 21,858 -- 21,858
Warrant for 39,286 shares valued at $1.05
per share, issued to bank line of credit
guarantor, December 22, 2003 -- -- 41,250 -- 41,250
Options to purchase 300,000 shares
issued to officers and directors,
valued at $1.38 per share, granted
March 19, 2002; portion vested in 2003 -- -- 133,400 -- 133,400
Options to purchase 20,000 shares
issued to consultants for services
rendered, valued at $1.38 per
share, granted March 19, 2002;
portion vested in 2003 -- -- 6,900 -- 6,900
Warrant for 10,000 shares valued
at $1.38 per share, issued to a
director on April 19, 2002;
portion vested in 2003 -- -- 6,900 -- 6,900
Net loss for the year ended
December 31, 2003 -- -- -- (1,632,457) (1,632,457)
--------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2002 3,501,001 $ 35,010 $ 3,831,750 $(5,857,993) $(1,991,233)
========= =========== =========== =========== ===========
See accompanying notes to financial statements.
F-17
PROUROCARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
CUMULATIVE
PERIOD
FROM
AUGUST 17,
1999
YEAR ENDED YEAR ENDED (INCEPTION)TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(1,632,457) $(3,613,003) $(5,857,993)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,832 1,916 4,748
Stock-based compensation 147,200 147,008 294,208
Issuance of common stock for services rendered -- 103,166 103,166
Warrants issued for services 187,060 490 187,550
Amortization of debt issuance costs 143,518 -- 143,518
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 1,713,600
Change in operating assets and liabilities:
Deposits 37,375 (67,375) (30,000)
Other current assets (3,726) (10,743) (14,469)
Accounts payable 43,392 719,487 787,141
Accrued expenses 286,197 92,349 404,779
License obligation -- (25,000) 25,000
----------- ----------- -----------
Net cash used in operating activities (788,609) (938,105) (1,763,752)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of equipment and furniture -- (10,396) (10,943)
----------- ----------- -----------
Net cash used in investing activities -- (10,396) (10,943)
----------- ----------- -----------
Cash flows from financing activities:
Net advances on line of credit, bank 860,000 -- 860,000
Net advances from (payments to) Clinical
Network, Inc. (77,419) 73,078 33,244
Net advances from CS Medical Technologies,
LLC -- 26,000 26,000
Net proceeds from issuance of common stock -- 864,419 864,419
----------- ----------- -----------
Net cash provided by financing activities 782,581 963,497 1,783,663
----------- ----------- -----------
Net increase (decrease) in cash (6,028) 14,996 8,968
Cash, beginning of the period 14,996 -- --
----------- ----------- -----------
Cash, end of the period $ 8,968 $ 14,996 $ 8,968
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest $ 39,585 $ -- $ 39,585
Non-cash investing and financing activities:
Assumption of liabilities in the Profile,
LLC transaction $ -- $ 25,000 $ 25,000
Warrants issued for debt issuance costs 216,112 -- 216,112
Common stock issued in lieu of cash for
accounts payable 12,705 -- 12,705
See accompanying notes to financial statements.
F-18
PROUROCARE INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002 AND THE PERIOD FROM
AUGUST 17, 1999 (INCEPTION) TO DECEMBER 31, 2003
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS, DEVELOPMENT STAGE ACTIVITIES, AND
BASIS OF PRESENTATION
ProUroCare 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.
From its incorporation in August 1999, the Company had no
activities. In July 2001, the Company issued 1,000,000 shares of
common stock to Clinical Network, Inc. (CNI) and Clinical Network
LLC (CN LLC), a related party to CNI. Also in July 2001 the
Company issued 1,000,000 shares of common stock to CS Medical
Technologies, LLC (CSM) in exchange for a license to certain
microwave technology. In January 2002, the Company issued
1,333,333 shares to Profile LLC (Profile) in exchange for a
license to certain imaging technology.
(b) CASH
The Company maintains its cash in high quality financial
institutions. The balances, at times, may exceed federally insured
limits.
(c) INVENTORIES
Inventories consist of purchased components for the Company's
imaging equipment, are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
(d) EQUIPMENT AND FURNITURE
Equipment and furniture are stated at cost and depreciated using
the straight-line method over the estimated useful lives ranging
from three to seven years. Maintenance, repairs, and minor
renewals are expensed as incurred.
(e) LICENSE AGREEMENTS
The costs associated with acquisition of licenses for technology
are recognized at the fair value of stock and cash used as
consideration. Fair value of stock for such transactions is
determined by an independent valuation firm using forecasts of
discounted cash flows provided by the Company. The annual discount
rates used in these calculations reflect the high commercial risk
of a development stage business and are typically within the range
of 40-60%.
Costs of acquiring technology which has no alternative future uses
are expensed immediately as research and development expense.
F-19
(f) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
During the years ended December 31, 2003 and 2002, and the period
from August 17, 1999 (inception) to December 31, 2003, the Company
did not record any impairment charge.
(g) 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 December 31, 2003, the Company has one stock-based employee
compensation plan, which is described more fully in Note 10.
Pursuant to SFAS 123, which was amended by SFAS 148, the
stock-based compensation employee compensation cost and
non-employee compensation cost related to stock options and
warrants was $147,200, $147,008, and $294,208 for the years ended
December 31, 2003 and 2002 and the period from August 17, 1999
(inception) to December 31, 2003, respectively.
The estimated fair value of each option grant is estimated on the
date of grant using the Black Scholes pricing model with the
following weighted-average assumptions used for options granted
during the year ended December 31, 2002: dividend yield and
expected volatility of 0% each; risk-free interest rates of 5.28
each, and expected lives of ten years.
(h) FINANCIAL INSTRUMENTS
The carrying amounts for all financial instruments approximates
fair value. The carrying amounts for cash, accounts payable and
accrued liabilities approximate fair value because of the short
maturity of these instruments. The fair value of line of credit
approximates the carrying amount based upon the Company's expected
borrowing rate for debt with similar remaining maturities and
comparable risk.
(i) RESEARCH AND DEVELOPMENT
Expenditures for research and product development costs are
expensed as incurred.
(j) DEBT ISSUANCE COSTS
Debt issuance costs are amortized over the life of the loan using
the straight-line method, which approximates the interest method.
F-20
(k) INCOME TAXES
The Company utilizes the liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences attributable
to temporary differences between the financial statement and
income tax reporting bases of assets and liabilities. Deferred tax
assets are reduced by a valuation allowance to the extent that
realization is not assured.
(l) ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during
the reporting periods. The Company's significant estimates include
the determination of the fair value of its common stock and the
valuation of license rights. Actual results could differ from
those estimates.
(m) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2002, Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146
"Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 requires the recognition of a liability
for a cost associated with an exit or disposal activity when the
liability is incurred versus the date the Company commits to an
exit plan. In addition, SFAS No. 146 states the liability should
be initially measured at fair value. The requirements of SFAS No.
146 are effective for exit or disposal activities that are
initiated after December 31, 2002.
The adoption of SFAS No. 146 did not have a material effect on the
Company's financial position or results of operations or cash
flow.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of
Certain Financial Institutions." SFAS No. 147 is effective October
1, 2002. The adoption of SFAS No. 147 did not have a material
effect on the Company's financial position or results of
operations or cash flow.
In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities,"
effective for contracts entered into or modified after June 30,
2003. This amendment clarifies when a contract meets the
characteristics of a derivative, clarifies when a derivate
contains a financing component and amends certain other existing
pronouncements. The adoption of SFAS No. 149 did not have a
material effect on the Company's financial position or results of
operations or cash flow.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 is effective for financial instruments
entered into or modified after December 15, 2004, and otherwise is
effective at the beginning of the first interim period beginning
after June 15, 2003. SFAS No. 150 requires the classification as a
liability of any financial instruments with a mandatory redemption
feature, an obligation to repurchase equity shares, or a
conditional obligation based on the issuance of a variable number
of its equity shares. The Company does not have any financial
instruments as defined by SFAS No. 150. The Company believes the
adoption of SFAS No. 150 will not have a material effect on the
Company's financial position or results of operations or cash
flow.
F-21
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others" (FIN 45). FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees
issued and outstanding. The initial recognition and initial
measurement provisions of FIN 45 are applicable to guarantees
issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are effective for financial statements for
periods ending after December 15, 2002. The adoption of FIN 45 did
not effect the Company's financial position or results of
operations or cash flow.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46). FIN 46
states that companies that have exposure to the economic risks and
potential rewards from another entity's assets and activities have
a controlling financial interest in a variable interest entity and
should consolidate the entity, despite the absence of clear
control through a voting equity interest. The consolidation
requirements apply to all variable interest entities created after
January 31, 2003. For variable interest entities that existed
prior to February 1, 2003, the consolidation requirements are
effective for annual or interim periods beginning after December
15, 2004. Disclosure of significant variable interest entities is
required in all financial statements issued after January 31,
2003, regardless of when the variable interest was created. The
Company does not expect the adoption of FIN 46 to have a material
effect on its financial position or results of operations or cash
flow.
(2) LIQUIDITY
The Company incurred a net loss of $1,632,457, $3,613,003, and $5,857,993
and negative cash flow from operating activities of $788,609, $938,105,
and $1,763,752 for the years ended December 31, 2003 and 2002 and for the
cumulative period from August 17, 1999 (inception) to December 31, 2003,
respectively. From July 2001 through January 2002, the Company entered
into several license arrangements to develop the licensed technologies
into diagnostic equipment and treatments for enlarged prostates and other
male urological conditions. The Company anticipates significantly
increasing its expenditures for technology development activities and
building the Company's infrastructure over the near term. Implementation
of the Company's business plan is dependent upon the successful
transition of its product development program into a viable product with
market penetration and profitability and obtaining sufficient capital to
fund these developmental activities.
The Company sold 151,115 shares of its Common Stock at $7.00 per share in
a private placement to accredited investors through November 2002. In
addition, see note 12.
(3) OTHER CURRENT ASSETS
Other current assets consisted of the following at December 31:
2003 2002
---------- ---------
Inventory $ 7,590 $ 7,590
Prepaids and other 6,879 3,153
---------- ---------
$ 14,469 $ 10,743
========== =========
F-22
(4) EQUIPMENT AND FURNITURE
Equipment and furniture consisted of the following at December 31:
2003 2002
--------- --------
Computer equipment $ 6,664 $ 6,664
Furniture 4,279 4,279
--------- --------
10,943 10,943
Less accumulated depreciation (4,748) (1,916)
--------- --------
$ 6,195 $ 9,027
========= ========
Depreciation expense was $2,832, $1,916, and $4,748 for the years ended
December 31, 2003 and 2002 and the period from August 17, 1999
(inception) to December 31, 2003, respectively.
(5) ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31:
2003 2002
--------- --------
Payroll and related taxes $ 166,436 $ -
Development costs 77,225 45,145
Directors' fees 50,000 25,000
Accrued interest 86,166 10,793
Other 24,952 37,644
--------- --------
$ 404,779 $118,582
========= ========
(6) LICENSE AGREEMENTS
CS MEDICAL
In July 2001, the Company licensed certain microwave technology from CS
Medical Technologies, LLC (CSM). The worldwide, exclusive license is
limited to the field of use of the treatment of enlarged prostates,
prostate cancer, and other urological disorders, and terminates with the
expiration of the last to expire patents that are the subject of the
license and requires defined royalty payments.
As consideration for the license, the Company exchanged 1,000,000 shares
of its common stock valued at $475,000 by an independent appraiser. This
consideration was expensed as research and development.
PROFILE LLC
In January 2002, Profile LLC (Profile) granted the Company an exclusive
license for prostate imaging systems in exchange for 1,076,923 shares of
the Company's common stock and the assumption of $25,000 of Profile net
liabilities. The license requires royalties ranging from 1.05% to 3.05%
of defined revenues. The Profile license required the Company to meet
certain financial covenants. If these covenants were not met by December
31, 2002, either party had the right to terminate the license. In the
event of termination by Profile, all the Company shares issued would
F-23
be returned to the Company. If the Company terminated the license, then
only 50% of the shares issued would have to be returned. On March 22,
2002, in exchange for eliminating these covenants the Company issued
Profile an additional 256,410 shares of its common stock. The field of
use for the exclusive license is limited to the diagnosis and treatment
of enlarged prostate, prostate cancer, or other conditions of or
disorders of the prostate which may be diagnosed, imaged, or treated
using any diagnostic or imaging process. The license will terminate upon
the later of the date of expiration of the last to expire patent included
in the licensed technology or the date that the Company permanently
ceases the sale of devises using the technology.
The 1,333,333 shares of common stock were valued at $1,713,600 by an
independent appraiser and have weighted average anti-dilution rights if
the Company sells common stock at less than $5 per share. The aggregated
stock and cash consideration for the Profile license was $1,738,600,
which was expensed as research and development.
RPI AGREEMENT
In July 2001, the Company entered into a license agreement with
Rensselaer Polytechnic Institute (RPI) to allow the Company to use
Electrical Impedance Tomography technology developed and patented by RPI,
on a worldwide, exclusive basis for the diagnosis and/or treatment of
urological conditions. The license period continues until expiring of RPI
patents, or on the fifth anniversary of the agreement if the Company has
failed to develop a marketable product or process by that point.
Consideration for the license was $50,000, payable in two $25,000
installments. The first installment was paid in August 2002 and the
second installment was due December 31, 2003. Royalties are payable to
RPI on the basis of fixed percentages of sales of products developed from
the technology.
The total consideration has been recognized as of the date of the
agreement, with outstanding payments at the balance sheet dates included
under the caption of license obligation. The license was expensed as
research and development in fiscal 2001.
(7) COMMITMENTS AND CONTINGENCIES
(a) LEASE
Through July 31, 2002 the Company leased administrative office
space from a company owned by the Company's CEO on a
month-to-month lease at a rate of $2,000 per month. Rent expense
for the year ended December 31, 2001 was $6,000.
On July 1, 2002, the Company entered into a sub-lease agreement
for office space. The Company placed a $12,315 security deposit
into escrow upon execution of the agreement. This agreement
terminated on October 31, 2003, and the security deposit in escrow
was released over the last two months of the sub-lease term to
satisfy rental payment obligations. During this rental period, the
Company sublet a portion of this office space on a month-to-month
basis to an unaffiliated company owned by the Company's CEO.
Beginning November 1, 2003 this unaffiliated company entered into
a lease for the same office space, and rents a portion of the
space to the Company on a month to month basis.
Rent expense for the years ended December 31, 2003, and 2002 and
the period from August 17, 1999 (inception) to December 31, 2003
was $38,053, $29,394 and $67,447, respectively.
F-24
(b) EMPLOYMENT AGREEMENTS
The Company's Chief Executive Officer entered into an employment
agreement effective January 1, 2002, continuing for an initial
term of three years, thereafter renewing for successive two-year
terms.
The agreement specifies his basic salary and provides for bonuses
based on the achievement of certain milestones, severance
payments, and non-compete clause applicable for the period ending
one year from termination. The agreement also includes provisions
for the issuance of stock options that vest ratably over a
36-month period ending in December 2004.
(c) MANUFACTURING AGREEMENTS
On June 14, 2002, the Company entered into agreements with two of
its suppliers to complete the design, verification and validation,
and establishment of a manufacturing capability for the Company's
prostate examination system.
Under the terms of the first such agreement, the Company will pay
pre-determined hourly rates for the design and development work,
with minimum payments for certain phases depending on successful
completion of previous phases. Also under the terms of the
agreement, on June 30, 2003 the Company issued to the supplier an
immediately exercisable warrant for the purchase of 30,716 shares
of its common stock with an exercise price of $1.00 per share
expiring June 14, 2007. The agreement may be canceled by the
Company with 30 days notice. The Company paid a total of $25,000
toward the first phase of development at signing, which was
expensed in 2003. All other costs are expensed as incurred as
research and development
Under the terms of the second agreement, the Company will pay a
fixed amount for prototype tooling and pre-determined hourly rates
for engineering costs. A portion of the engineering costs will be
paid by the issuance of shares of the Company's Common Stock based
on the then current market price. In 2002, $74,970 of such costs
were paid with 10,710 shares of Common Stock, and as of December
31, 2003 $77,225 of such costs were accrued to be paid with Common
Stock. The five-year agreement (with automatic two-year
extensions) describes various manufacturing goals and cost
objectives, and requires that the Company repay the cost of
manufacturing equipment over the first three years of production.
The Company is not obligated to repay the cost of manufacturing
until commencement of production. The Company paid a total of
$80,000 toward the development and prototype tooling cost at
signing, of which $50,000 was for engineering services and was
expensed in 2002 as research and development, and $30,000 was
recorded as a deposit for tooling and molds.
(d) LEGAL PROCEEDINGS
The Company may be involved in legal proceedings in the ordinary
course of business.
The Company has been notified by a former officer who claims the
Company owes him approximately $229,000 under the terms of his
employment agreement. The Company believes the claims are without
merit, and has not accrued a liability as of December 31, 2003
related to this claim.
On July 31, 2003, the Company received a notice from Profile,
L.L.C. ("Profile"), the licensor under a license agreement
pursuant to which Profile licenses to the Company certain
essential intellectual property needed to develop, manufacture and
sell its Sensor Guided
F-25
DRE(TM) product, that it believes the Company has breached
material provisions of the license agreement. In addition to being
the licensor under this license agreement, Profile is a major
Company shareholder. Profile asserts that the Company has failed
to advance the licensed technology as quickly as is required under
the subject license agreement, and the license agreement provides
Profile with the right to terminate the license agreement in the
event of such failure. The Company believes that it is in
compliance with the subject license agreement, and has advanced
the licensed technology in conformity with such license agreement.
To date, the licensor has not terminated said license agreement as
a result of the alleged breach.
(8) INCOME TAXES
The Company has generated net operating losses of approximately
$1,590,000 which, if not used, will begin to expire in 2021.
The Company has recorded a full valuation allowance against its deferred
tax asset due to the uncertainty of realizing the related benefits as
follows:
2003 2002
----------- -----------
Net operating loss carryforwards $ 612,000 $ 607,000
Capitalized start up costs 1,473,000 962,000
Other 55,000 --
Less: valuation allowance (2,140,000) (1,569,000)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
The change in the valuation allowance was $571,000, $1,333,000, and
$2,140,000 for the years ended December 31, 2003 and 2002 and the period
from August 17, 1999 (inception) to December 31, 2003, respectively.
Reconciliation between the federal statutory rate and the effective tax
rated for the years ended December 31, 2003 and 2002 and the period from
August 17, 1999 (inception) to December 31, 2003 is as follows:
PERIOD FROM AUGUST
17, 1999
(INCEPTION) TO
2003 2002 DECEMBER 31, 2003
--------- --------- -------------------
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit (4.5) (4.5) (4.5)
Change in valuation allowance 38.5 38.5 38.5
--------- --------- -------------------
Effective tax rate 0.0% 0.0% 0.0%
========= ========= ===================
Federal tax laws impose significant restrictions on the utilization of
net operating loss carryforwards in the event of a change in ownership of
the Company that constitutes an "ownership change," as defined by the
Internal Revenue Code, Section 382. The Company's net operating loss
carryforward may be subject to the above limitations.
F-26
(9) LINE OF CREDIT
On January 24, 2003 the Company obtained a $500,000 line of credit from a
financial institution. The line of credit was collateralized by the
Company's business assets and severally guaranteed by five individuals,
including a director of the Company. In exchange for the personal
guarantees, the Company issued to each guarantor a warrant to purchase
one share of the Company's Common Stock at $7.00 dollars per share for
every seven dollars guaranteed. A total of 71,430 shares are subject to
these warrants, including 7,143 shares subject to the warrant issued to
the Company director. The value of the warrants based on the
Black-Scholes pricing model of $64,287 was expensed in 2003.
In August 2003 the Company replaced the $500,000 credit line with a
$1,000,000 line of credit from the same financial institution. The line
of credit is collateralized by the Company's business assets and
severally guaranteed by nine individuals, including the original five
individuals noted above. In exchange for the personal guarantees, the
Company issued to each guarantor a warrant to purchase one share of the
Company's Common Stock at $7.00 dollars per share for every seven dollars
guaranteed. A total of 142,860 shares are subject to these warrants,
including 7,143 shares subject to the warrant issued to the Company
director. The value of the warrants based on the Black-Scholes pricing
model of $151,825 is being amortized over the life of the bank line of
credit; $79,231 was expensed in 2003.
The $1,000,000 line of credit matures on March 14, 2004 and bears
interest at an annual rate of 6.5%, with accrued interest to be paid
monthly.
There can be no assurances that the Company will be able to close
additional rounds of financing or obtain additional line of credit
financing to fund developmental activities.
(10) SHAREHOLDERS' EQUITY
(a) COMMON STOCK AND WARRANTS ISSUED RELATED PRIVATE PLACEMENT
The Company issued 1,000,000 shares to CNI and CNI LLC in July
2001. In connection with the Company's license agreements with CSM
and Profile, the Company issued 1,000,000 and 1,333,333 shares of
common stock in 2001 and 2002, respectively.
In connection with a private placement to accredited investors,
the Company issued 151,115 shares of common stock in 2002. In
addition, the Company issued warrants to purchase 15,116 shares of
common stock to three individuals related to services rendered in
connection with the private placement. These warrants are
exercisable through November 2006 at $7.00 per share. The Company
also issued 14,738 common shares to a consultant and a supplier
for services rendered in 2002, and 1,815 common shares to a
consultant in lieu of cash for accounts payable in 2003.
(b) STOCK OPTIONS
In April 2002, the Company adopted a stock option plan covering
the granting of options to employees and independent contractors.
Under the plan, 500,000 shares of the Company's common stock are
available for issuance. 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 exercise price for all options shall be determined by the
board of directors. The term of each stock option and period of
exercisability will also be set by the board of directors, but
F-27
will not exceed a period of ten years and one day from grant date
or on conclusion of an initial public offering or merger with a
public entity, if earlier. The agreement also includes provisions
for anti-dilution of options.
In March 2002, the Company granted an aggregate of 300,000
employee stock options to officers and directors that are
exercisable at $3.40 per share. The officer's options vest ratably
over a 36-month period ending December 2004, while the director's
options vest ratably over a 24-month period ending April 2004. In
accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to utilize the fair-value
method of accounting for these options. An aggregate of $140,300,
$128,608, and $268,908 of stock-based compensation related to
these options was recognized in the years ended December 31, 2003,
2002 and the period from August 17, 1999 to December 31, 2003,
respectively.
In April 2002, the Company issued a nonqualified stock option to a
consultant to acquire 10,000 shares of common stock at $3.40 per
share. This option vested over a 6-month period ended October
2002. At the same time, the Company also issued a nonqualified
stock option to a consultant to acquire 10,000 shares of common
stock at $3.40 per share. This option vests ratably over a
two-year period ending April 2004. An aggregate of $6,900,
$18,400, and $25,300 of stock-based compensation related to these
options was recognized in the years ended December 31, 2003 and
2002, and the period from August 17, 1999 (inception) to December
31, 2003, respectively.
Stock option activity is as follows for the years ended December
31:
OPTIONS EXERCISE PRICE
------------------- ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Outstanding, January 1 320,000 -- $ 3.40 $ --
Granted -- 320,000 -- 3.40
Exercised -- -- -- --
Forfeited (50,000) -- $ 3.40 --
-------- -------- -------- --------
Outstanding, December 31 270,000 320,000 $ 3.40 $ 3.40
======== ======== ======== ========
There were 270,000 options outstanding and 205,278 options
exercisable at December 31, 2003 at an exercise price of $3.40 per
share, with a weighted-average contractual life of 5.36 years.
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option
pricing models require the input of highly subjective assumptions.
Because the Company's employee and consultant stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, the existing models
may not necessarily provide a reliable single measure of the fair
value of the Company's employee stock options. Using the foregoing
assumptions, the fair value of each option granted during the year
ended December 31, 2002 was $1.38.
(c) WARRANTS
In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to utilize the fair-value
method of accounting for warrants issued as compensation.
F-28
In March 2002, the Company granted a warrant to purchase 10,000
shares of common stock to a director that is exercisable at $3.40
per share. This warrant vests ratably over a 24-month period
ending April 2004, and is exercisable through April 2012. An
aggregate of $6,900, $4,025 and $10,925 of stock-based
compensation related to this warrant was recognized in the years
ended December 31, 2003 and 2002, and the period from August 17,
1999 (inception) to December 31, 2003, respectively.
In November 2002, the Company granted a warrant to purchase 500
shares of common stock to a consultant for services rendered. This
warrant is exercisable through November 2007 at $7.00 per share.
An aggregate of $490 of stock-based compensation related to this
warrant was recognized in the year ended December 31, 2002.
In March 2003, the Company issued warrants to purchase 64,287
shares of common stock to four individuals in exchange for their
guaranteeing a bank line of credit. At the same time, the Company
issued a warrant to purchase 7,143 shares of common stock to a
director in exchange for guaranteeing the bank line of credit.
These warrants are exercisable through February 2008 at $7.00 per
share. An aggregate of $64,287 of debt issuance cost related to
these warrants was recorded in the year ended December 31, 2003.
In August 2003, the Company issued warrants to purchase 75,002
shares of common stock to five individuals in exchange for their
guaranteeing a new bank line of credit. At the same time, the
Company issued a warrant to purchase 7,143 shares of common stock
to a director in exchange for guaranteeing the bank line of
credit. These warrants are exercisable through August 2008 at
$7.00 per share. An aggregate of $88,717 of debt issuance cost
related to these warrants was recorded in the year ended December
31, 2003.
In September and December 2003, the Company issued additional
warrants to purchase 21,429 and 39,286 shares of common stock,
respectively, to three individuals in exchange for their
guaranteeing additional amounts under the existing bank line of
credit. These warrants are exercisable through September and
December 2008, respectively, at $7.00 per share. An aggregate of
$63,108 of debt issuance cost related to these warrants was
recorded in the year ended December 31, 2003.
In total, warrants to purchase 214,290 shares of common stock were
issued in relation to the bank line of credit guarantees, and an
aggregate of $216,112 of debt issuance cost related to these
warrants was recorded in the year ended December 31, 2003. The debt
issuance cost is amortized over the life of the bank line of credit.
The amount of debt issuance cost amortized in the year ended
December 31, 2003 was $143,518 with the balance to be amortized
during the year ending December 31, 2004. Each such warrant is price
protected, such that if the price of the Company's current private
placement financing is less than $9.50 per share, the warrant
exercise price shall be reduced in proportion to the reduction of
the final offering price ("the final price") from $9.50. However,
the warrant exercise price will not be reduced to an amount less
than $5.00 per share unless the final price is less than $5.00, in
which case the exercise price will be equal to the final price. In
addition, each such warrant is dilution protected, such that if the
final price is less than $9.50 per share, additional shares may be
purchased. The number of shares subject to these warrants will be
determined by multiplying the number of original shares by the ratio
of obtained by dividing $9.50 by the final price. Significant
compensation expense related to these warrants may be recognized in
future periods when the final price is determined.
F-29
In June 2003, under the terms of an agreement with a supplier, the
Company issued a warrant to purchase 30,716 shares of common
stock. This warrant is exercisable through June 2007 at $1.00 per
share. The value of $187,060 related to this warrant was
recognized in the year ended December 31, 2003.
Warrant activity is as follows for the years ended December 31:
WARRANTS EXERCISE PRICE
----------------- -------------------
2003 2002 2003 2002
------- ------- -------- --------
Outstanding, January 1 25,616 -- $ 5.59 $ --
Granted 245,006 25,616 6.25 5.59
Exercised -- -- -- --
Forfeited -- -- -- --
------- ------- -------- --------
Outstanding, December 31 270,622 25,616 $ 6.19 $ 5.59
======= ======= ======== ========
The weighted-average fair value of the warrants granted during the
years ended December 31, 2003 and 2002 was $1.65 and $1.11,
respectively.
The fair value of stock warrants is the estimated present value at
grant date using the Black-Scholes pricing model with the
following weighted average assumptions:
2003 2002
--------- ----------
Risk-free interest rate 3.03% 4.24%
Expected life 4-5 years 4-10 Years
Expected volatility 0.0% 0.0%
Expected dividend rate 0.0% 0.0%
(11) RELATED PARTIES
A director of the Company is also a director of CSM. In April and May
2002, CSM loaned a total of $51,000 to the Company. In June 2002, the
Company repaid $25,000 to CSM. The Company accrues interest on this debt
at an annual rate of 5%. Interest expense on the loan was $1,300, $1,057,
and $2,357 for the years ended December 31, 2003 and 2002, and the period
from August 17, 1999 (inception) to December 31, 2003, respectively. The
remaining balance of $26,000 is unsecured and due upon demand.
The Company's former President (until October, 2003) was also President
of Profile prior to the January 2002 license transaction. In February
2003, the Company advanced $10,000 to the President, of which $9,985 was
outstanding at December 31, 2003. Two of the Company's directors are
managing members of Profile.
The Company's CEO and a Company director are also directors of CNI and CN
LLC. From October 2001 through May 2002 CNI loaned a total of $123,616 to
the Company. The Company accrues interest on this debt at an annual rate
of 5%. Interest expense on the loan was $2,214, $5,193, and $7,542 for
the years ended December 31, 2003 and 2002, and the period from August
17, 1999 (inception) to December 31, 2003, respectively. In March, June
and November, 2002 the Company repaid $950, $10,000 and $2,000 to CNI,
respectively. In February and December, 2003 the Company repaid $80,328
and $2,419 to CNI, respectively.
F-30
In July, 2003 the Company borrowed $60,000 from the Company's CEO and a
director under the terms of an unsecured promissory note. The note bore
simple interest at 6.5% per annum. In August and September, the Company
repaid the note and the accrued interest thereon.
(12) SUBSEQUENT EVENT (UNAUDITED)
The Company has undertaken to raise additional capital sufficient to fund
the development and market launch of its diagnostic imaging system
through the simultaneous merger with the acquisition subsidiary of a
publicly held company and sale of stock. The proceeds will be used to pay
existing liabilities and further develop the Company's product. The
Company has secured a $1,000,000 line of credit with a financial
institution to fund operations until March 14, 2004. On January 30, 2004,
the Company entered into a non-binding letter of intent to merge into a
wholly owned subsidiary of Global Internet Communications, Inc.
("Global"), a publicly traded corporation, with the Company being the
surviving corporation to the merger. In addition, Global intends to raise
proceeds through a private placement of common stock. The private
placement is being prepared jointly by the Global and the Company. The
net proceeds of the private placement, if any, will be placed into escrow
pending the consummation of the merger and the closing of the private
placement. There can be no assurances that the Company will be able to
close the merger and sale of stock or obtain additional line of credit
financing to fund developmental activities.
F-31
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.
F-32
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.
F-33
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.
F-34
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.
F-35
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.
F-36
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.
F-37
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 redeemed 1,053,000 shares of common stock
held by the Company's previous officers and directors for no consideration.
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.
F-38
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 services related to the technologies and
products for the urology market including services related to the development of
the Sensor Guided DRE, 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) as contemplated
by the above described Research and Development Agreement. 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.
F-39
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.
F-40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada law permits a company to indemnify its directors and officers,
except for any act of dishonesty. The Company has provided in its bylaws for the
indemnification of officers and directors to the fullest extent possible under
Nevada law against expenses (including attorney's fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of ours. In addition, the Company has the power, to the maximum extent and
in the manner permitted by Nevada Revised Statutes, to indemnify each of our
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an agent of ProUroCare Medical
Inc.
The Company's articles of incorporation limit or eliminate the personal
liability of its officers and directors for damages resulting from breaches of
their fiduciary duty for acts or omissions except for damages resulting from
acts or omissions which involve intentional misconduct, fraud, a knowing
violation of law, or the inappropriate payment of dividends in violation of
Nevada Revised Statutes.
Insofar as indemnification for liabilities arising under the Securities
Act business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any such action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The registrant estimates that expenses payable by the registrant is
connection with the offering described in this registration statement will be as
follows:
SEC registration fee ............................ $ 5,000
Legal fees and expenses ......................... 25,000
Accounting fees and expenses .................... 15,000
Printing and engraving expenses.................. 5,000
Miscellaneous ................................... 5,000
----------
Total ........................................... $ 55,000
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
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, in a private
placement exempt from the registration requirements of the Securities Act under
Section 4(2) of the Securities Act.
II-1
On March 5, 2004 the Company redeemed 1,053,000 shares of common stock
held by the Company's previous officers and directors for no consideration.
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. The
securities were in a private placement exempt from the registration requirements
of the Securities Act under Section 4(2) of the Securities Act.
In connection with the Merger, the Company engaged in a
private-placement offering of common stock pursuant to an exemption from the
registration requirements of the Securities Act (the "Private Placement"). In
the Private Placement, the Company offered 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 and under Section 4(2)
of the Securities Act. Shares of common stock issued and issuable in the Private
Placement were not registered under the Securities Act, and may not be offered
or sold in the United States absent registration or the availability of an
applicable exemption therefrom. The initial closing of the Private Placement
occurred on April 5, 2004 (the same day as the closing of the Merger), 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. Since the date
of the initial closing, the Company has received and accepted subscriptions for
an additional 220,000 shares of common stock at $2.00 per share. As of the date
of the filing of the registration statement of which this prospectus is a part,
the Private Placement has ended. In total, the Company has issued and sold
2,205,000 shares of common stock, raising an aggregate of $4.41 million in gross
proceeds.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this registration
statement:
EXHIBIT NO. DESCRIPTION
2.1 Agreement of Merger and Reorganization by and among Global
Internet Communications, Inc., GIC Acquisition Co., and
ProUroCare Inc. dated April 5, 2004 (incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K filed April 20, 2004).
2.2 Articles of Merger relating to the merger of GIC Acquisition Co.,
then a wholly owned subsidiary of the registrant with and into
ProUroCare Inc., as filed with the Minnesota Secretary of State
on April 5, 2004 (incorporated by reference to Exhibit 2.2 to
Current Report on Form 8-K filed April 20, 2004).
3.1 Articles of Incorporation of ProUroCare Medical Inc. (filed
herewith).
3.2 Bylaws of ProUroCare Medical Inc. (filed herewith).
4.1 Warrant to purchase common stock of ProUroCare Inc., and assumed
by ProUroCare Medical Inc. pursuant to the Agreement of Merger
and Reorganization referenced in Exhibit 2.1, issued in favor of
Cordova Ventures, Inc. on April 19, 2002 (filed herewith).
4.2 Warrant to purchase 300,000 shares of common stock of ProUroCare
Medical Inc., issued in favor of BINA Enterprises on April 5,
2004 (filed herewith).
4.3 Warrant to purchase 90,000 shares of common stock of ProUroCare
Medical Inc., issued in favor of Artann Laboratories, Inc. on
July 19, 2004 (filed herewith).
II-2
4.4 Warrant to purchase 10,000 shares of common stock of ProUroCare
Medical Inc., issued in favor of Vladimir Drits on July 19, 2004
(filed herewith).
4.5 Form of warrants issued to ProUroCare Inc. guarantors of lines of
credit, issued between March 1 and December 22, 2003 (filed
herewith).
5.1 Opinion of Maslon Edelman Borman & Brand, LLP.
10.1 License Agreement with Profile, L.L.C, dated January 14, 2002, as
amended on March 22, 2002 (incorporated by reference to Exhibit
10.1 to Current Report on Form 8-K filed April 20, 2004).
10.2 Research and Development Agreement by and among ProUroCare
Medical Inc., Artann Laboratories, Inc. and Armen Sarvazyan,
dated July 15, 2004 (incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-QSB filed August 3, 2004).
10.3 Development Agreement by and among ProUroCare Medical Inc.,
Artann Laboratories, Inc. and Armen Sarvazyan, dated July 15,
2004 (incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-QSB filed August 3, 2004).
10.4 Letter of Understanding by and between Profile LLC and ProUroCare
Inc., dated March 23, 2004 (filed herewith).
10.5 Employment Agreement by and between ProUroCare Inc. and Maurice
R. Taylor, II, dated January 1, 2002 (filed herewith).
10.6 Employment Agreement by and between ProUroCare Inc. and Michael
P. Grossman dated February 1, 2004 (filed herewith).
10.7 ProUroCare Medical Inc. 2002 Stock Option Plan (filed herewith).
10.8 ProUroCare Medical Inc. 2004 Stock Option Plan (filed herewith).
10.9 Employment Agreement by and between ProUroCare Inc. and Richard
B. Thon, dated July 21, 2004 (filed herewith).
16.1 Letter of Manning Elliott regarding change in certifying
accountant (incorporated by reference to Exhibit 16.1 to Current
Report on Form 8-K/A filed on April 26, 2004).
21.1 List of Subsidiaries of ProUroCare Medical Inc. (filed herewith).
23.1 Consent of Virchow, Krause & Company, LLP (filed herewith).
23.2 Consent of Manning Elliott (filed herewith).
23.3 Consent of Maslon Edelman Borman & Brand, LLP (included as part
of Exhibit 5.1).
24.1 Power of Attorney (included on signature page hereof).
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
II-3
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) that, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
(4) that, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act (and, where
applicable, each filing of an employee-benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant hereby certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Minneapolis, State of Minnesota, on August 3,
2004.
PROUROCARE MEDICAL, INC.
By: /s/ Michael P. Grossman
----------------------------------------
Michael P. Grossman
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to this registration statement appears
below hereby constitutes and appoints Michael P. Grossman and Richard Thon as
his or her true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his or her behalf individually and in the capacity
stated below and to perform any acts necessary to be done in order to file all
amendments to this registration statement and any and all instruments or
documents filed as part of or in connection with this registration statement or
the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed as of the 3rd day of August, 2004, by the
following persons in the capacities indicated.
Name Title
/s/ Michael P. Grossman President and Chief Executive Officer
----------------------------------- (Principal Executive Officer)
Michael P. Grossman
/s/ Richard Thon Chief Financial Officer
----------------------------------- (Principal Financial and Accounting
Richard Thon Officer)
/s/ Maurice R. Taylor, II Director
-----------------------------------
Maurice R. Taylor, II
/s/ David Koenig Director and Secretary
-----------------------------------
David Koenig
/s/ Alex Nazarenko Director
-----------------------------------
Alex Nazarenko
II-5
EXHIBIT INDEX
For documents filed with this registration statement through
incorporation by reference, please refer to Part II, Item 27.
EXHIBIT NO. DESCRIPTION
----------- -----------------------------------------
3.1 Articles of Incorporation of ProUroCare
Medical Inc.
3.2 Bylaws of ProUroCare Medical Inc.
4.1 Form of warrant to purchase common stock
of ProUroCare Inc., and assumed by
ProUroCare Medical Inc. pursuant to the
Agreement of Merger and Reorganization
referenced in Exhibit 2.1.
4.2 Warrant to purchase 300,000 shares of
common stock of ProUroCare Medical Inc.,
issued in favor of BINA Enterprises on
April 5, 2004.
4.3 Warrant to purchase 90,000 shares of
common stock of ProUroCare Medical Inc.,
issued in favor of Artann Laboratories,
Inc. on July 19, 2004.
4.4 Warrant to purchase 10,000 shares of
common stock of ProUroCare Medical Inc.,
issued in favor of Vladimir Drits on
July 19, 2004.
4.5 Form of warrants issued to ProUroCare Inc.
guarantors of lines of credit, issued between March
1 and December 22, 2003.
5.1 Opinion of Maslon Edelman Borman & Brand, LLP.
10.4 Letter of Understanding by and between
Profile LLC and ProUroCare Inc., dated
March 23, 2004.
10.5 Employment Agreement by and between
ProUroCare Inc. and Maurice R. Taylor,
II, dated January 1, 2002.
10.6 Employment Agreement by and between
ProUroCare Inc. and Michael P. Grossman
dated February 1, 2004.
10.7 ProUroCare Medical Inc. 2002 Stock Option Plan.
10.8 ProUroCare Medical Inc. 2004 Stock Option Plan.
10.9 Employment Agreement by and between ProUroCare Inc.
and Richard B. Thon, dated July 21, 2004.
21.1 List of Subsidiaries of ProUroCare Medical Inc.
23.1 Consent of Virchow, Krause & Company, LLP.
23.2 Consent of Manning Elliott.
II-6