UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q

_______________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.

PROTECTUS MEDICAL DEVICES, INC.

(Exact name of registrant as specified in Charter)

Delaware		000-53100		98-0541881
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(IRS Employee Identification No.)

110 First Avenue NE, Suite #1006

Minneapolis, MN 55413

(Address of Principal Executive Offices)

_______________

612-379-3975

(Issuer Telephone number)

_______________

(Former Name or Former Address if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.

Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of May 21, 2010: 46,022,420 shares of Common Stock.

PROTECTUS MEDICAL DEVICES, INC.

FORM 10-Q

March 31, 2010

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition	25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4T.	Control and Procedures	29

PART II-- OTHER INFORMATION

Item 1	Legal Proceedings	29
Item 1A	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Removed and Reserved	34
Item 5.	Other Information	34
Item 6.	Exhibits	34

SIGNATURE

Item 1. Financial Information

PROTECTUS MEDICAL DEVICES, INC.

(A DEVELOPMENT STAGE COMPANY) AND SUBSIDIARY

FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

AND FROM SEPTEMBER 21, 1999 (INCEPTION)

TO MARCH 31, 2010

(UNAUDITED)

	Page(s)
Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and
December 31, 2009 (Audited)	1

Consolidated Statements of Operations
For the Three Months Ended March 31, 2010 and 2009, and from
September 21, 1999 (inception) to March 31, 2010 (Unaudited)	2

Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2010 and 2009, and from
September 21, 1999 (inception) to March 31, 2010 (Unaudited)	3

Notes to the Financial Statements	4-24

Protectus Medical Devices, Inc. and Subsidiary
(A development stage company)
Consolidated Balance Sheets


	March 31, 2010			December 31, 2009
	(Unaudited)			(Audited)

Assets

Current Assets:
Cash	$	1,457		$	2,163
Total Current Assets		1,457			2,163

Debt issue costs - net		-			-

Total Assets	$	1,457		$	2,163

Liabilities and Stockholders' Deficit

Current Liabilities:
Accounts payable and accrued expenses	$	1,252,002		$	1,154,458
Notes payable - net of debt discount		1,038,796			1,038,796
Notes payable - related party		270,000			270,000
Accrued interest payable		342,527			301,651
Derivative liabilities - debt and warrants		276,995			440,874
Total Current Liabilities		3,180,320			3,205,779

Long Term Liabilities:
Convertible notes payable - net of debt discount		183,161			132,168
Total Long Term Liabilities:		183,161			132,168

Total Liabilities		3,363,481			3,337,947

Common stock, $0.0001 par value, 150,000,000 shares authorized,
46,022,420 and 45,887,936 shares issued and outstanding		4,602			4,589
Additional paid in capital		3,662,894			3,582,914
Deficit accumulated during the development stage		(7,029,520	)		(6,923,287	)
Total Stockholders' Deficit		(3,362,024	)		(3,335,784	)

Total Liabilities and Stockholders' Deficit	$	1,457		$	2,163

See accompanying notes to financial statements.

Protectus Medical Devices, Inc. and Subsidiary
(A development stage company)
Consolidated Statements of Operations
(Unaudited)

	For the Three Months Ended			For the Three Months Ended			September 21, 1999 (inception) to
	March 31, 2010			March 31, 2009			March 31, 2010

Operating expenses
Research and development	$	-		$	-		$	135,069
General and administrative expenses		98,250			46,914			5,210,669
Total operating expenses		98,250			46,914			5,345,738

Loss from operations		(98,250	)		(46,914	)		(5,345,738	)

Other income (expense)
Interest income		-			-			6,033
Other income		-			-			40,000
Interest expense		(141,869	)		(32,481	)		(1,708,352	)
Derivative expense		-			-			(1,181,017	)
Change in fair value of derivative financial instrument		133,886			-			1,159,553
Other income (expense) - net		(7,983	)		(32,481	)		(1,683,783	)

Net loss	$	(106,233	)	$	(79,395	)	$	(7,029,521	)

Net Loss per Common Share - Basic and Diluted	$	(0.00	)	$	(0.00	)	$	(0.17	)

Weighted Average Number of Common Shares Outstanding		45,958,167			45,000,000			41,305,737

See accompanying notes to financial statements.

Protectus Medical Devices, Inc. and Subsidiary
(A development stage company)
Consolidated Statements of Cash Flows
(Unaudited)

	For the Three Months Ended			For the Three Months Ended			September 21, 1999 (inception) to
	March 31, 2010			March 31, 2009			March 31, 2010


CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(106,233	)	$	(79,395	)	$	(7,029,521	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt issue costs		-			1,250			26,750
Amortization of debt discount		100,993			19,023			1,007,731
Beneficial conversion feature		-			-			0
Derivative expense		-			-			1,181,017
Change in fair value of derivative liability		(133,886	)		-			(1,159,553	)
Stock based compensation - founders		-			-			7,250
Stock based compensation		-			-			390,750
Stock issued to acquire intellectual property		-			-			47,250
Warrants issued for services - related party		-			-			924,784
Warrants issued for loan extension fee		-			-			527,280
Warrants issued for services		-			-			234,158
Changes in operating assets and liabilities:
Increase (Decrease) in:
Accounts payable and accrued expenses		97,544			34,842			1,252,002
Accrued interest payable		40,876			24,209			342,527
Net Cash Used in Operating Activities		(706	)		(71	)		(2,247,575	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		-			-			1,043,297
Proceeds from notes payable - related party		-			-			270,000
Proceeds from issuance of convertible debt		-			-			672,485
Payment of debt issuance costs in cash		-			-			(26,750	)
Proceeds from issuance of stock		-			-			320,500
Cash paid as direct offering costs		-			-			(30,000	)
Proceeds from exercise of warrant - related party		-			-			4,000
Repayment of note		-			-			(4,500	)
Net Cash Provided By Financing Activities		-			-			2,249,032

Net Increase (Decrease) in Cash		(706	)		(71	)		1,457

Cash and Cash Equivalents - Beginning of Year/Period		2,163			692			-

Cash and Cash Equivalents - End of Year/Period	$	1,457		$	621		$	1,457

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Year/Period for:
Income taxes	$	-		$	-		$	-
Interest	$	-		$	-		$	-

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Debt discount on derivative liability	$	-		$	-		$	672,485
Beneficial conversion feature on convertible notes and related debt discount	$	-		$	-		$	731,302
Conversion of debt to equity	$	50,000		$	-		$	150,000
Reclassification of derivative liability to additional paid in capital	$	29,993		$	-		$	466,954

See accompanying notes to financial statements.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Note 1 Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.

The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended December 31, 2009 and 2008. The interim results for the period ended March 31, 2010 are not necessarily indicative of results for the full fiscal year.

Note 2 Nature of Operations

Nature of operations

Protectus Medical Devices, Inc. (the “Company) (“Protectus”) was incorporated in the State of Delaware on June 28, 2007 as E-18 Corp. and is a development stage company. On June 25, 2009 the Company entered into a share exchange agreement with SquareOne Medical, Inc. a Nevada corporation resulting in a change of control. On June 26, 2009 the shareholders also agreed to change the Company’s name to Protectus Medical Devices, Inc.

Reverse Acquisition and Recapitalization and Share Purchase Agreement

On June 25, 2009, E-18, a then public shell corporation, merged with Protectus and Protectus became the surviving corporation, in a transaction treated as a reverse acquisition corp., E-18 did not have any operations and majority-voting control was transferred to Protectus. The transaction required a recapitalization of Protectus. Since Protectus acquired a controlling voting interest, it was deemed the accounting acquirer, while E-18 was deemed the legal acquirer. The historical financial statements of the Company are those of Protectus, and of the consolidated entities from the date of merger and subsequent. Since the transaction is considered a reverse acquisition and recapitalization, accounting guidance does not apply for purposes of presenting pro-forma financial information.

With the acquisition of SquareOne Medical, Inc. the Company has changed its intended business operation from a distributor of biodiesel home processing kits to a medical device firm that designs, engineers and manufactures safety needle devices to protect healthcare workers from accidental needle stick injuries. The Company has developed and patented a safety hypodermic syringe as its lead product with other proprietary OSHA compliant medical safety devices to follow.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Note 3 Summary of Significant Accounting Policies

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 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Such estimates and assumptions impact, among others, the following: the fair value of warrants granted in connection with various financing transactions, share-based payments, fair value of derivative liabilities, and accrued payroll taxes and related penalties and interest.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Development Stage

The Company's financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include debt funding; equity based financing, and further implementation of the business plan. The Company will look to obtain additional debt and/or equity related funding opportunities.

Risks and uncertainties

The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company's operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure. See Note 4 regarding going concern uncertainty.

Cash and cash equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at March 31, 2010 and December 31, 2009, respectively.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.

Debt Issue Costs and Debt Discount

The Company has paid debt issue costs, and recorded a debt discount in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts are immediately expensed.

Original Issue Discount

For certain debt issued in 2008, the Company provided the debt holder with an original issue discount. The original issue discount was recorded to debt discount reducing the face amount of the note and was amortized to interest expense immediately, since the underlying term of these debt instruments were due on demand.

Fair value of financial instruments

The carrying amounts of the Company’s short-term financial instruments, including the Company’s current liabilities (exclusive of derivative liabilities), approximate fair value due to the relatively short period to maturity for these instruments.

Warrants and Derivative Liabilities

The Company reviews any common stock purchase warrants and other freestanding derivative financial instruments at each balance sheet date and will classify on the balance sheet as:

Equity if they (i) require physical settlement or net-share settlement, or (ii) gives us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement), or as

Assets or liabilities if they (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

The Company assesses classification of our common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Share Based Payments

Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights, are measured at their fair value on the awards’ grant date, and based on the estimated number of awards that are ultimately expected to vest. Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. For historic fiscal years when there was not an observable active, liquid market for the Company’s common stock, the valuation of the shares issued in a non-cash share payment transaction relies on observation of arms-length transactions where cash was received for its shares, before and after the non-cash share payment date. The expense resulting from share-based payments are recorded as a component of general and administrative expense.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.

The computation of basic and diluted loss per share for the three months ended March 31, 2010 and 2009 excludes the following potentially dilutive securities because their inclusion would be anti-dilutive due to the Company’s net loss during the period:

	March 31, 2010		March 31, 2009
Convertible notes		1,476,672		-

Stock options		2,027,614		2,027,614

Stock warrants		10,538,606		9,591,776

Total common stock equivalents		14,042,892		11,619,390

In connection with the 4 for 1 forward split in 2008, and the reverse merger/recapitalization in June 2009, all share and per share amounts have been retroactively restated.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Recent accounting pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC 820, “Fair Value Measurements” ("ASC 820") to require a number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance was effective for financial periods beginning after December 15, 2009, except the requirement to disclose Level 3 transactions on a gross basis, which becomes effective for financial periods beginning after December 15, 2010. ASU 2010-06 did not have a significant effect on the Company’s consolidated financial position or results of operations.

Note 4 Going Concern and Liquidity

As reflected in the accompanying financial statements, the Company has a net loss of $106,233 and net cash used in operations of $706 for the three months ended March 31, 2010; a working capital deficit of $3,178,863, and has and a stockholders’ deficit of $3,362,024 at March 31, 2010.

The ability of the Company to continue its operations is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes and convertible notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company is in default on many of its term debt obligations, and has other notes that are due on demand, yet remain outstanding. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. Since inception the Company has been in the development stage and has generated no sales to date.

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. The Company believes that the utilization of its products may provide future positive cash flows.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

In response to these problems, management has taken the following actions:

●	Raising additional capital through various debt offerings;

●	Cutting costs where possible; and

●	Focusing efforts on further development of the core product, which is dependent upon continued financing

Note 5 Debt, Debt Discount and Debt Issue Costs

(A)	Convertible Debt

During 2001, the Company issued convertible debt totaling $50,000, due two years from the issuance date. These notes can convert at 50% of the market price for any offering occurring after March 2001. The market price on the commitment date was $0.01, based upon the fair value of shares issued to acquire intellectual property from a third party. In the event that the debt is converted, the Company would issue five year warrants having an exercise price equal to 75% of the shares issued upon conversion of the underlying debt. The exercise price would be equal to 90% of the sales price in a future offering, however, the maximum exercise price is $1.80. Principal is automatically convertible if a future equity offering of $1,000,000 occurs in a single offering transaction. The Company has determined these notes were derivative financial instruments.

The Company computed the fair value of the conversion feature only at the commitment date, since the warrants are contingent upon a debt conversion, based on the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term: conversion feature	2 years
Risk free interest rate	4.25% - 4.28%

The fair value of the embedded conversion option was $97,116. The Company recorded a related debt discount of $50,000, and a derivative expense of $47,116.

In 2003, upon the expiration of these notes, the discount was fully amortized. The Company determined that the derivative liability should be marked to market and then, the resulting amount would be reclassified to equity since the derivative ceased to exist upon the issuance of new debt instruments.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The Company computed the fair value of the conversion feature on the maturity date totaling $97,116, based on the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term: conversion feature	None
Risk free interest rate	1.57% - 4.25%

The $97,116 was reclassified to additional paid in capital to reflect the characteristics of the instrument ceasing to be a derivative financial instrument.

The Company then issued new debt instruments under the same terms as the original notes; however, the original notes had a carrying amount of $55,000 in 2003. The Company then recorded these new debt instruments as derivative financial instruments, however, since no proceeds were received, no new debt discount was recorded.

The Company computed the fair value of the conversion feature only at the commitment date, since the warrants are contingent upon a debt conversion, based on the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term: conversion feature	2 years
Risk free interest rate	1.38% - 1.57%

The market price on the commitment date was $0.01 for $27,500, based upon the fair value of shares issued to acquire intellectual property from a third party. The Company used a market price of $1 for the other $27,500 based upon a recent cash offering price with a third party.

The fair value of the embedded conversion option was $106,733. The Company recorded a related derivative expense of $106,733. The $106,733 was reclassified to additional paid in capital since the underlying term of the debt had expired. As a result, the debt became due on demand.

(B)	Demand notes

In 2001, the Company issued notes totaling $120,000. These notes were due in 2002, and are currently in default. These notes bear interest at 10% and are unsecured.

In April 2003, the Company executed a note for $9,000. The note was non-interest bearing, unsecured and due on demand.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

In June 2005, the Company executed a note for $49,796. The note bore interest at 8%, is unsecured and due on demand.

In October 2005, the Company executed a note for $50,000. The note was non-interest bearing, unsecured and due on demand. In connection with raising these funds, the Company paid $7,500 in debt issue costs.

In June 2006, the Company executed a note for $50,000 with a member of management. The note bore interest at 8%, is unsecured and due on demand.

In December 2008, the Company executed a note for $4,500. The note was non-interest bearing, unsecured and due on demand. The note was repaid in April 2009.

(C)	Exchangeable Debt

In September 2004, the Company executed notes totaling $500,000, of which $100,000 was to a member of management. These notes bear interest at 7%, are unsecured and due December 31, 2009. The debt holders also received an aggregate 1,013,808 warrants. The warrants are exercisable at $0.30 share. The warrants expire on December 31, 2009. The Company determined that these warrants should be valued at fair value and a related debt discount should be computed. The Company computed a fair value of $149,801 for the warrants. Fair value was based upon the following:

Expected dividends	0%
Expected volatility	286%
Expected term: conversion feature	5 years
Risk free interest rate	3.33%

The note holders may convert the unpaid principal and accrued interest into the purchase of the warrants. The Company has not repaid these notes on the maturity date, and expects to receive a default notice from these note holders.

The note holders are also entitled to a production bonus from product sales up to $1.25 per each dollar invested. There has been no sales since inception and no accrual for the production bonus.

In connection with the sale of these debt instruments the Company was required to pay $40,000 in placement agent fees. These fees are in dispute, however, they have been accrued as a component of accounts payable and accrued expenses.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

(D)	Debt with warrants

During 2007, the Company executed notes totaling $180,000. All notes were due one year from issuance, and are in default. These notes bear interest at 10% and are unsecured. The debt holders also received an aggregate 405,523 warrants. The warrants are exercisable at $0.44/share. The warrants expire in 2012. The Company determined that these warrants should be valued at fair value and a related debt discount should be computed. In connection with raising these funds, the Company paid $18,000 in debt issue costs.

The Company determined that these warrants should be valued at fair value and a related debt discount should be computed. The Company computed a fair value of $179,769 for the warrants.

Fair value was based upon the following:

Expected dividends	0%
Expected volatility	286%
Expected term: conversion feature	5 years
Risk free interest rate	3.10%

(E)	Debt with original issue discounts

During 2008, the Company executed notes totaling $295,000, of which $100,000 was to a related party. These notes had a face amount of $147,500, however, the note holder was entitled to principal repayment equal to twice the investment made. The additional $147,500 was recorded as interest expense on the date of execution since there was no term for the underlying debt. All notes were due on demand. These notes were non-interest bearing, and are unsecured. In connection with raising these funds, the Company paid $1,250 in debt issue costs.

In March 2009, these debt holders also received an aggregate 996,911 warrants. The warrants are exercisable at $0.30/share. The warrants expire in 2014.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The Company determined that these warrants should be valued at fair value and a related debt discount should be computed. The Company computed a fair value of $295,000 for the warrants. The discount was amortized in 2008 since these notes were due on demand.

Fair value was based upon the following:

Expected dividends	0%
Expected volatility	286%
Expected term: conversion feature	5 years
Risk free interest rate	3.41%

(F)	Convertible Debt and Derivative Liability

During the period from April – June 2009, the Company issued convertible debt totaling $437,973, due three years from the issuance date. The notes bear interest at 10% and are unsecured. These notes can convert at $0.30 (equivalent shares of 1,480,139). These note holders also received 1,480,139 warrants. The warrants are convertible at $0.30, and expire April – June 2011. On October 14, 2009, two debt holders converted aggregate principal of $100,000 into 337,936 shares of common stock. On February 12, 2010, one debt holder converted $25,000 into 84,484 shares of common stock. Equivalent shares of common stock available upon conversion of debt and warrants are 1,057,699 shares and 1,480,139, respectively.

During the period from July – December 2009, the Company issued convertible debt totaling $234,512, due three years from the issuance date. The notes bear interest at 10% and are unsecured. These notes can convert at $0.50 (equivalent shares of 469,024). These note holders also received 469,024 warrants convertible at $0.50/share, expiring April – December 2011. On February 12, 2010, one debt holder converted aggregate principal of $25,000 into 50,000 shares of common stock. Equivalent shares of common stock available upon conversion of debt and warrants are 419,024 shares and 469,024, respectively.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The Company determined under ASC 815, that the embedded conversion feature and the warrant grants (ratchet down of exercise price based upon lower exercise price in any future offerings) are not indexed to the Company’s own stock and, therefore, is an embedded derivative financial liability (the “Embedded Derivative”), which requires bifurcation and to be separately accounted for. At each reporting period, the Company marks these derivative financial instruments to fair value. The fair value of the conversion features and warrants are summarized as follow:

Fair value at the commitment date for convertible notes and warrants issued during 2009	$	1,699,654
Reclassification of derivative liability to additional paid in capital in connection with debt conversion		(233,113	)
Fair value mark to market adjustment at December 31, 2009		(1,025,667	)
Derivative liability balance at December 31, 2009		440,874
Fair value mark to market adjustment at March 31, 2010		(133,886	)
Reclassification of derivative liability to additional paid in capital in connection with debt conversion		(29,993	)
Derivative liability balance at March 31, 2010	$	276,995

The Company recorded the derivative liability to debt discount to the extent of the face amount of the notes and expensed immediately the remaining value of the derivative as it exceeded the face amount of the note. The Company recorded a debt discount of $672,485. The Company recorded a derivative expense for the year ended December 31, 2009.

The Company measured the fair value of the conversion features and warrants using a Black-Scholes valuation model based upon the following management assumptions on the commitment date:

Expected dividends	0	%
Expected volatility	150	%
Expected term: conversion feature	2.0
Expected term: warrants	2.0
Risk free interest rate	2.00	%

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Mark to Market

At March 31, 2010, the Company remeasured the conversion features and recorded a fair value adjustment of $158,056. The following management assumptions were considered:


Expected dividends	0%
Expected volatility	150%
Risk fee interest rate	1.02%
Expected life of conversion features in years	1.13 – 1.69
Expected life of warrants in years	1.01 – 1.69

(G)

Summary

The following is a summary of all debt raised and debt discount for the period from September 21, 1999 (inception) to March 31, 2010.

	Proceeds
1999	$	-
2000		-
2001		170,000
2002		-
2003		9,000
2004		500,000
2005		99,796
2006		50,000
2007		180,000
2008		299,500
2009		672,485
March 31, 2010		-
Total	$	1,980,781

The above table includes a total of $270,000 in related party notes.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The following is a summary of all debt issue costs paid for the period from September 21, 1999 (inception) to March 31, 2010.

Year ended December 31,	Payments
1999	$	-
2000		-
2001		-
2002		-
2003		-
2004		-
2005		7,500
2006		-
2007		18,000
2008		1,250
Total	$	26,750

All debt issue costs have been fully amortized

Note 6 Fair Value

The Company has categorized our assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP.

The levels of fair value hierarchy are as follows:

●

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

●

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

●

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.

The following are the major categories of liabilities measured at fair value on a nonrecurring basis during the period ended March 31, 2010 and the year ended December 31, 2009, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

	Level 1: Quoted Prices in Active Markets for Identical Liabilities		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at March 31, 2010
Derivative Liabilities	$	-	$	276,995	$	-	$	276,995
Total	$	-	$	276,995	$	-	$	276,995
	Level 1: Quoted Prices in Active Markets for Identical Liabilities		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at December 31, 2009
Derivative Liabilities	$	-	$	440,874	$	-	$	440,874
Total	$	-	$	440,874	$	-	$	440,874

Note 7 Accrued Payroll Tax Liabilities

For several years prior to becoming a public Company, the Company inappropriately paid its employees and officers as subcontractors without proper tax withholdings. The Company has prepared payroll tax filings to correct the matter with the IRS and state taxing authorities. The Company has accrued an estimate for the payroll tax liabilities and related penalties and interest. The Company plans to file the appropriate tax filings and resolve the liabilities with the taxing authorities in the near term. The accrued payroll taxes and related penalties and interest were estimated at $591,039 and $585,391 at March 31, 2010 and December 31, 2009, respectively. This amount is included in accounts payable and accrued expenses on the accompanying balance sheet. To the extent this estimate is insufficient, additional accruals may be required in future periods.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Note 8 Stockholders’ Deficit

(A)	Common Stock

In September 1999, the Company issued 6,300,093 shares of common stock to its founders for services rendered. The shares had a fair value of $7,250 ($0.0012/share). Fair value was based upon the services rendered. In March 2000, these shares were cancelled for no additional consideration.

In May 2000, the Company issued 41,059,224 shares of common stock to acquire intellectual property. The shares had a fair value of $47,250 ($0.0012/share). Fair value was based upon the services rendered to the Company’s founders.

In May 2003, the Company issued 1,911,752 shares of common stock for $220,000 ($0.1151/share). In connection with the sale of these shares, the Company paid direct offering costs of $30,000.

In October 2004, the Company issued 1,737,957 shares of common stock for $4,000, in connection with the conversion of warrants held by a member of management.

In March 2006, the Company issued 291,067 shares of common stock for $100,500 ($0.3453/share).

In 2009, the Company issued 550,000 shares of common stock for services rendered, having a fair value of $379,250, based upon the quoted closing trading price having an average of $0.69/share.

In 2009, the Company issued 337,936 shares of common stock, in connection with the conversion of debt, having a fair value of $100,000 ($0.30/share). There was no gain or loss on conversion.

In 2010, the Company issued 134,484 shares of common stock, in connection with the conversion of debt, having a fair value of $50,000 ($0.30 – $0.50 /share). There was no gain or loss on conversion.

(B)	Warrants Issued for Services and Loan Extension Fee

In 1999, the Company issued 1,351,744 warrants to a member of management having a fair value of $99,832. The warrants had an exercise price of $0.003/share, and were exercised in October 2004 (see above).

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	5 years
Risk free interest rate	6.13%

In 2001, the Company issued 337,936 warrants to a member of management, and 506,904 warrants to third parties having a fair value of $778. The warrants had an exercise price of $0.24/share, and expired in 2007.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	6 years
Risk free interest rate	6.32%

In 2005, the Company issued 337,936 warrants to a member of management having a fair value of $24,956. The warrants have an exercise price of $0.30/share, and expire in 2010.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	5 years
Risk free interest rate	4.56%

In 2006, the Company issued 5,069,040 warrants to members of management having a fair value of $749,996. The warrants have an exercise price of $0.44/share, and expire in 2016.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	10 years
Risk free interest rate	5.01%

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

In 2006, the Company issued 199,378 warrants as a loan extension fee, having a fair value of $29,136. The terms of the loan were not changed in connection with granting these warrants. These warrants have an exercise price of $0.44/share, and expire in 2009.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	3 years
Risk free interest rate	4.74%

In 2007, the Company issued 199,378 warrants as a loan extension fee, having a fair value of $29,126. The terms of the loan were not changed in connection with granting these warrants. These warrants have an exercise price of $0.44/share, and expire in 2010.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	3 years
Risk free interest rate	3.07%

In 2008, the Company issued 199,378 warrants as a loan extension fee, having a fair value of $469,018. The terms of the loan were not changed in connection with granting these warrants. These warrants have an exercise price of $0.44/share, and expire in 2010.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	3 years
Risk free interest rate	1.00%

In 2008, the Company issued 337,936 warrants to a member of management having a fair value of $50,000. The warrants have an exercise price of $0.44/share, and expire in 2018.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	10 years
Risk free interest rate	3.64%

In 2009, the Company issued 1,000,000 warrants to a consultant, having a fair value of $233,380. The warrants have an exercise price of $0.35/share, and expire in 2014.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	150%
Expected term	5 years
Risk free interest rate	2.30%

(C)

Warrants

The following is a summary of the Company’s warrant activity:

	Warrants			Weighted Average Exercise Price
Balance - December 31, 2008		8,594,865		$	0.41
Granted		3,946,004		$	0.33
Exercised		-		$	-
Forfeited/Cancelled		(1,889,054	)	$	-
Outstanding – December 31, 2009		10,651,815		$	0.40
Exercisable – December 31, 2009		10,651,815		$	0.40
Granted		-		$	-
Exercised		-		$	-
Forfeited/Cancelled		(113,209	)	$	0.44
Outstanding – March 31, 2010		10,538,606		$	0.40
Exercisable – March 31, 2010		10,538,606		$	0.40

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Warrants Outstanding

Warrants Exercisable

Range of

exercise price

Number Outstanding

Weighted Average Remaining Contractual Life (in years)

Weighted Average Exercise Price

Number Exercisable

$0.30 - $0.50

10,538,606

4.90 years

$0.30 - $0.50

10,538,606

At December 31, 2009, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.

At March 31, 2010, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.

(D)

Options

During the period from 1999 – 2001, the Company granted 2,250,000 options for services rendered by members of management. The grant date fair value of these option grants was $11,500. These options vested equally over four years beginning on the one year anniversary of the grant. The entire $11,500 was expensed as of June 2004.

In 2005, the Company granted 2,027,614 options for services to be rendered. The options expire 5 years from issuance and have an exercise price of $0.33/share. The grant date fair value of these options was $2,970. These options vested equally over three years beginning on the one year anniversary of the grant.

The Company determined the fair value of these options (from 1999-2001 and 2005), based upon the following management assumptions:

Exercise price	$0.003 - $0.24
Expected dividends	0%
Expected volatility	286%
Expected term	3- 5 years
Risk free interest rate	4.25 – 5.74%

In 2009, the Company granted 150,000 options for services to be rendered by a board director. The options expire 5 years from issuance and have an exercise price of $0.22/share. The grant date fair value of these options was $134,160. The options vest 50,000 shares each on September 22, 2010, 2011 and 2012.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

The Company determined the fair value of these options, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	286%
Expected term	3 years
Risk free interest rate	1.54%

The following is a summary of the Company’s options activity:

	Options		Weighted Average Exercise Price		Weighted Average Life
Balance - December 31, 2008		2,027,614	$	0.33	1.84 years
Granted		150,000	$	0.22
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding – December 31, 2009		2,177,614	$	0.32	0.97 years
Exercisable – December 31, 2009		2,027,614	$	0.33	0.84 years
Granted		-	$	0.22
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding – March 31, 2010		2,177,614	$	0.32	0.72 years
Exercisable – March 31, 2010		2,027,614	$	0.33	0.59 years

At December 31, 2009, the total intrinsic value of options outstanding and exercisable was $0 and $0, respectively.

At March 31, 2010, the total intrinsic value of options outstanding and exercisable was $0 and $0, respectively.

Note 9 Commitments and Contingencies

Litigations, Claims and Assessments

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

Contingencies

See Note 5 (c) regarding a contingency related to a production bonus that may be due to certain notcholders.

See Note 7 regarding a contingency related to accrued payroll tax liabilities.

In 2006, the Company accrued a liability of $200,000 in relation to a settlement. The Company is in default under the terms of the settlement, however, the Company believes that the likelihood of a lawsuit is remote.

In 2008, the Company engaged a firm's services to assist in its fundraising endeavors by execution of a non-exclusive agreement. Although this agreement was not formally terminated, the firm ceased to provide services, or evidence of such services, but has asserted that additional Consulting Fees of $15,000,000 are still due and payable. The Company disagrees and will contest this vigorously. Although the Company believes it unlikely, it could become liable for the additional fees.

Protectus Medical Devices, Inc.

(A Development Stage Company) and Subsidiary

Notes to Consolidated Financial Statements

March 31, 2010

(Unaudited)

Note 10 Subsequent Events

On April 15, 2010, the Company executed a note for $150,000, of which $100,000 in proceeds has already been received. The note bears interest at 12%, is unsecured and is due on August 6, 2010. The debt holder also received 750,000 warrants, in connection with the issuance of this conventional debt, having a fair value of $94,339. The fair value of these warrants has been recorded as a debt discount, and will be amortized over the life of the debt.

The Company determined the fair value of these warrants, based upon the following management assumptions:

Expected dividends	0%
Expected volatility	150%
Expected term	2 years
Risk free interest rate	1.04%

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “Business and Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements, including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the U.S. Securities and Exchange Commission (the “SEC”). We therefore caution you not to rely unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

COMPANY OVERVIEW

We were incorporated in the State of Delaware on June 28, 2007 under the name “E-18 Corp.” At our inception, our business plan was to distribute and sell biodiesel home processors. Our primary business was to sell biodiesel home processors to farm communities and to non-commercial diesel machine operators in Israel, in particular, to automotive based consumers. We were unable to raise the necessary capital to continue with this venture.

We entered into a share exchange agreement (the “Share Exchange Agreement”) with SquareOne Medical, Inc. (“SquareOne”), a Nevada company, and the shareholders of SquareOne (the “SquareOne Shareholders”) on June 25, 2009 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Share Exchange Agreement, we acquired all of the issued and outstanding common stock of SquareOne from the SquareOne Shareholders. In exchange, we issued to the SquareOne Shareholders, their designees or assigns, 35,000,000 shares of our common stock. In addition, at the Closing Date, Hadas Yaron and Yosef Itamar Krytman, our former officers and directors, and Avraham Yoel Zeitlin, our principal shareholder, cancelled a total number of 15,000,000 shares of our Common Stock. As a result of the cancellation, the 35,000,000 shares represent approximately 77.78% of our common stock issued and outstanding after the closing of the share exchange transaction contemplated under the Share Exchange Agreement (the “Share Transaction”). As a result of the closing of the Share Exchange, SquareQne became our wholly-owned subsidiary. Operating through SquareOne, we are engaged in developing and marketing of SquareOne Safety Syringe that can potentially reduce accidental needlestick injuries.

According to Occupational Safety and Health Administration report, needlestick injuries expose healthcare workers to bloodborne pathogens and millions workers in the healthcare industry and related occupations are at risk of occupational exposure to bloodborne pathogens which includes Human Immunodeficiency Virus (HIV), Hepatitis B Virus (HBV), Hepatitis C Virus (HCV), and others. After an injection, the blood remaining on and in the needle may contain dangerous and life-threatening viruses, such as HIV, HAV, HBV, HCV, etc. Federal law and institutional policy require healthcare workers to properly and safely dispose of these contaminated devices according to specified procedures. Nonetheless, during the disposal process, these syringes can and do cause needlestick injuries, resulting in millions of injuries per year, which, in turn, lead to tens of thousands of cases of HIV, HBV and other infections.

To reduce these accidental needlestick injuries, the applicable federal law and OSHA regulations now mandate healthcare providers to use safer syringes in all applications, such as automatic, self-sheathing hypodermic syringes. SquareOne Safety Syringe uses an innovative and patented safety design that meets all criteria established by Occupational Safety and Health Administration (“OSHA”) regulations for such safety syringes, especially the automatic, self-sheathing criteria. The SquareOne Safety Syringes are intended for general use. We believe that the SquareOne Safety Syringe will replace the existing hypodermic syringes in use today to significantly reduce and possibly eliminate accidental needlestick exposure.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2010 AS COMPARED TO THE QUARTER ENDED MARCH 31, 2009

Our general administrative expenses during the first quarter of 2010 increased as compared to the first quarter of 2009 by approximately 110% to $98,250 from $46,914. The major contributing factors were increased officer compensation and increased legal fees.

Our interest expense during the first quarter of 2010 was $141,869 as compared to the first quarter of 2009 interest expense of $32,481. This increase was a result of issuing additional debt obligations as well as an increase in amortized debt discount, which is reported as interest expense.

The change in fair value of derivative financial instruments during the first quarter of 2010 was $133,886 as compared to the first quarter of 2009 of $0. This was a result of the quarterly mark to market adjustment on derivative instruments that were issued during 2009.

PLAN OF OPERATIONS

Below are the milestones (on a quarterly basis, post-merger) that we anticipate making by the end of 2010 in furtherance of our business plan.

Second Quarter 2010

●	Launch fundraising campaign to raise $3.5 million to support working capital needs and to support the Phase 1 Market Introduction Program.
●	Begin accelerated tooling fabrication program to hasten completion of Phase 1 manufacturing.

●	File additional patent applications covering other applications for percutaneous devices and their improvements to round out the Company’s full line of safety needle devices.
●	Continue demonstration of the Company’s Safety Syringe to doctors’ offices and selected hospital systems using national distributor network.

●	Identify qualified public relations and investor relations firms and other service providers suitable for the Company’s product launch and advertising campaigns.
●	Launch aggressive public relations and investor relations programs

●	Identify qualified investment banking firms for capital raise of $11.5 million to support its Phase 2 Market Expansion campaign.

Third Quarter 2010

●	Complete fabrication of tooling and equipment to manufacture 150,000 to 250,000 commercial-grade units for limited distribution to doctors’ offices and hospitals.
●	Begin manufacture of first units for rigorous product testing.

●	Complete design of sales and marketing materials, including instructional materials.
●	Initiate $11.5 million capital raise to execute the Phase 2 portion of the Protectus Business Plan – Market Expansion.

Fourth Quarter 2010

●	Manufacture first 150,000 to 250,000 commercial-grade units ready for clinical use.
●	Launch in-service training program at selected healthcare institutions.

●	Expand distribution plan.
●	Initiate fabrication of tooling and automatic assembly equipment to support manufacturing at the rate of 110 million units per year of the Company’s Safety Syringe.

●	Aggressively expand the Protectus distribution and in-service training programs nationally to be able to support annual production and sales volumes of 110 million units.
●	Launch lobbying effort aimed at enforcement of the federal mandate to utilize efficacious safety needle products nationwide.

Expansion of distribution will be bolstered by a vigorous marketing campaign, as well as by education of the medical professionals and those having the interest and power to enforce the new laws covering use of hypodermic syringes and their improvements, particularly, the SquareOne device and its differential benefits.

Liquidity and Capital Resources

We are a development stage company. As of March 31, 2010, we have incurred an accumulated net loss of $7,029,520. At March 31, 2010, we had cash and cash equivalents of $1,457. Our independent auditor has raised concern about our ability to continue as a going concern. Management is trying to raise additional capital through sales of common stock, as well as seeking financing from third parties.

					21-Sep-1999 (Inception) to March 31,

	Three Months Ended
	March 31,		March 31,
	2010		2009		2010
Net Cash Used In Operating Activities	$	(706)	$	(71)	$	(2,247,575)

Net Cash Provided by Financing Activities						2,249,032
		(706)		(71)		1,457
Net Increase / (Decrease) in Cash

Cash, Beginning of Period		2,163		692		--

Cash, End of Period	$	1,457	$	621	$	1,457

Critical Accounting Policies

Development Stage

Risks and uncertainties

Cash and cash equivalents

Debt Issue Costs and Debt Discount

Original Issue Discount

Warrants and Derivative Liabilities

The Company reviews any common stock purchase warrants and other freestanding derivative financial instruments at each balance sheet date and will classify on the balance sheet as:

a)	Equity if they (i) require physical settlement or net-share settlement, or (ii) gives us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement), or as

Earnings per Share

Recent Accounting Pronouncements

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for Smaller Reporting Companies.

Item 4T. Controls and Procedures

(a) Disclosure controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, as of March 31, 2010. Based on this evaluation, as a result of the material weaknesses in internal controls over financial reporting as previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 17, 2010, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective to ensure that all information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls Over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ending March 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this offering that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Business

OUR AUDITOR RAISED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. IF WE CANNOT RECEIVE ADDITIONAL FINANCING, WE MAY NOT BE ABLE TO SUSTAIN OUR EXISTENCE.

We had a net loss of $106,233 and net cash used in operations of $706 for the three months ended March 31, 2010; a working capital deficit of $3,178.863, and had a stockholders’ deficit of $3,362,024 at March 31, 2010. As a result, our auditor raised substantial doubt about our ability to continue as a going concern.

We believe that our current available cash along with anticipated revenues may be insufficient to meet our cash needs for the near future. We are in default on many of our term debt obligations, and have other notes that are due on demand, yet remain outstanding. We need additional financings to sustain our existence. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all,

OUR LIMITED OPERATING HISTORY MAY NOT SERVE AS AN ADEQUATE BASIS TO JUDGE OUR FUTURE PROSPECTS AND RESULTS OF OPERATIONS.

We have a relatively limited operating history. Such limited operating history and the unpredictability of new product acceptance within our industry make it difficult for investors to evaluate our businesses and future operating results. An investor in our securities must consider the risks, uncertainties, and difficulties frequently encountered by companies in new and rapidly evolving markets. The risks and difficulties we face include challenges in accurate financial planning as a result of limited historical data and the uncertainties resulting from having had a relatively limited time period in which to implement and evaluate our business strategies as compared to older companies with longer operating histories.

WE NEED ADDITIONAL FINANCING TO IMPLEMENT OUR BUSINESS PLAN.

To undertake the full commercialization program for the SquareOne Safety Syringe in a manner that not only introduces this device to healthcare workers across the U.S., but also allows us to move aggressively and decisively into the marketplace to establish brand name in the safety syringe market will need additional financing. We will need substantial additional funds to:

·	effectuate our business plan and develop our product line;
·	file, prosecute, defend and enforce our intellectual property rights; and
·	produce and market our products.

There are no assurances that future funding will be available on favorable terms or at all. If additional funding is not obtained, we will need to reduce, defer or cancel development programs, planned initiatives, or overhead expenditures to the extent necessary. The failure to fund our capital requirements could have a material adverse effect on our business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing could result in additional dilution to our stockholders and the incurrence of indebtedness would result in increased debt service obligations that could result in operating and financing covenants that would restrict our operations.

OUR PRODUCTS ARE SUBJECT TO THE CHANGING APPLICABLE LAWS AND REGULATIONS.

Our business is particularly subject to changing federal and state laws and regulations on safety syringes. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. If we fail to adjust our products in response to the changing requirements, our products may be prohibited from sales and marketing in the U.S. market, which could have a material adverse effect on our sales and earnings.

WE MAY ENCOUNTER SUBSTANTIAL COMPETITION IN OUR BUSINESS AND FAILURE TO COMPETE EFFECTIVELY MAY ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUE.

We believe that existing and new competitors will continue to improve their products and to introduce new products with competitive price and performance characteristics. We expect that we will be required to continue to invest in product development and productivity improvements to compete effectively in our markets. Our competitors could develop a more efficient product or undertake more aggressive and costly marketing campaigns than ours, which may adversely affect our marketing strategies and could have a material adverse effect on our business, results of operations and financial condition.

Important factors affecting our ability to compete successfully include:

·	sale and marketing promotions;
·	rapid and effective development of new, unique technique

·	branded name advertising; and
·	pricing

In periods of reduced demand for our products, we can either choose to maintain market share by reducing our selling prices to meet competition or maintain selling prices, which would likely sacrifice market share. Sales and overall profitability would be reduced in either case. In addition, we cannot assure that additional competitors will not enter our existing markets, or that we will be able to compete successfully against existing or new competition.

WE RELY ON THE SERVICES OF CERTAIN KEY PERSONNEL.

Our business relies on the efforts and talents of our President and Chief Executive Officer John S. Salstrom, Ph.D. and our Chief Operating Officer, Jack Dillard. The loss of their services could adversely affect the operations of our business. We have not entered into employment agreements with them. The loss of their services for any reason could have a very negative impact on our ability to fulfill on our business plan.

WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED PERSONNEL TO SUPPORT OUR GROWTH AND IF WE ARE UNABLE TO RETAIN OR HIRE SUCH PERSONNEL IN THE FUTURE, OUR ABILITY TO IMPROVE OUR PRODUCTS AND IMPLEMENT OUR BUSINESS OBJECTIVES COULD BE ADVERSELY AFFECTED.

If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and senior technology personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or senior technology personnel, or attract and retain high-quality senior executives or senior technology personnel in the future. Such failure could materially and adversely affect our future growth and financial condition.

PRODUCT LIABILITY CLAIMS AGAINST US COULD RESULT IN ADVERSE PUBLICITY AND POTENTIALLY SIGNIFICANT MONETARY DAMAGES.

As with other companies in this line of business, we are also exposed to risks associated with product liability claims if the use of our products results in injury or illness. We cannot predict what impact such product liability claims or resulting negative publicity would have on our business or on our brand image. The successful assertion of product liability claims against us could result in potentially significant monetary damages, diversion of management resources and require us to make significant payments and incur substantial legal expenses, although we do carry product liability insurance for potential product liability claims. Even if a product liability claim is not successfully pursued to judgment by a claimant, we may still incur substantial legal expenses defending against such a claim. Finally, serious product quality concerns could result in governmental action against us, which, among other things, could result in the suspension of production or distribution of our products, loss of certain licenses, or other governmental penalties.

WE RELY PRIMARILY ON THIRD-PARTY MANUFACTURERS AND DISTRIBUTORS, AND THIS COULD AFFECT OUR ABILITY TO EFFICIENTLY AND PROFITABLY MANUFACTURE, DISTRIBUTE AND MARKET OUR PRODUCTS, MAINTAIN OUR EXISTING MARKETS AND EXPAND OUR BUSINESS INTO OTHER GEOGRAPHIC MARKETS.

We do not plan to sell our products directly to our end customers. Instead, we plan to primarily rely on third-party distributors for the sale and distribution of our products. To the extent that our distributors are distracted from selling our products or do not expend sufficient efforts in managing and selling our products, our sales will be adversely affected. Our ability to maintain our distribution network and attract additional distributors will depend on a number of factors, many of which are outside our control. Some of these factors include: (i) the level of demand for our brand and products in a particular distribution area; (ii) our ability to price our products at levels competitive with those offered by competing products and (iii) our ability to deliver products in the quantity and at the time ordered by distributors.

There can be no assurance that we will be able to meet all or any of these factors in any of our current or prospective geographic areas of distribution. Furthermore, shortage of adequate working capital may make it impossible for us to do so. Our inability to achieve any of these factors in a geographic distribution area will have a material adverse effect on our relationships with our distributors in that particular geographic area, thus limiting our ability to maintain and expand our market, which will likely adversely affect our revenues and financial results.

OUR FUTURE SUCCESS RELIES UPON OUR PATENTED PRODUCT. THERE IS NO ASSURANCE THAT WE WILL HAVE THE RESOURCES TO ENFORCE THE PATENTS THROUGH LITIGATION OR OTHERWISE. THE LOSS OF EXCLUSIVE RIGHT TO OUR DEVICE COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We believe that our business does not infringe upon the valid proprietary rights of others, but there can be no assurance that third parties will not assert infringement claims against us. If infringement claims are brought against us, there can be no assurance that we will have the financial resources to defend against such claims or prevent an adverse judgment against us. In the event of an unfavorable ruling on any such claim, there can be no assurance that a license or similar agreement to utilize the intellectual property rights in question relied upon by us in the conduct of our business will be available to us on reasonable terms, if at all. In the event of an unfavorable ruling on any such claim, there can be no assurance that a license or similar agreement to utilize the intellectual property rights in question relied upon by us in the conduct of our business will be available to us on reasonable terms, if at all.

WE MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS.

We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

Risks Related to Our Common Stock

OUR COMMON STOCK IS QUOTED ON THE OTC BULLETIN BOARD WHICH MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.

Our common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a significantly more limited market than the New York Stock Exchange or Nasdaq system. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

THERE IS LIMITED LIQUIDITY ON THE OTCBB.

When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in shares of our common stock, there may be a lower likelihood of one's orders for shares of our Common Stock being executed, and current prices may differ significantly from the price one was quoted at the time of one's order entry.

OUR COMMON STOCK IS THINLY TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASKING PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO RAISE MONEY OR OTHERWISE DESIRE TO LIQUIDATE YOUR SHARES.

Currently our Common Stock is quoted in the OTC Bulletin Board market and the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in Bulletin Board stocks and certain major brokerage firms restrict their brokers from recommending Bulletin Board stocks because they are considered speculative, volatile and thinly traded. The OTC Bulletin Board market is an inter-dealer market much less regulated than the major exchanges and our Common Stock is subject to abuses, volatility and shorting. Thus there is currently no broadly followed and established trading market for our Common Stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded there.

The trading volume of our Common Stock has been and may continue to be limited and sporadic. As a result of such trading activity, the quoted price for our Common Stock on the OTC Bulletin Board may not necessarily be a reliable indicator of its fair market value. Further, if we cease to be quoted, holders would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our Common Stock and as a result, the market value of our Common Stock likely would decline.

OUR COMMON STOCK IS SUBJECT TO PRICE VOLATILITY UNRELATED TO OUR OPERATIONS.

The market price of our Common Stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our Common Stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our Common Stock.

OUR COMMON STOCK ARE CLASSIFIED AS A “PENNY STOCK” AS THAT TERM IS GENERALLY DEFINED IN THE SECURITIES EXCHANGE ACT OF 1934 TO MEAN EQUITY SECURITIES WITH A PRICE OF LESS THAN $5.00. OUR COMMON STOCK WILL BE SUBJECT TO RULES THAT IMPOSE SALES PRACTICE AND DISCLOSURE REQUIREMENTS ON BROKER-DEALERS WHO ENGAGE IN CERTAIN TRANSACTIONS INVOLVING A PENNY STOCK.

We will be subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our Common Stock, which in all likelihood would make it difficult for our stockholders to sell their securities.

Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable future. This classification severely and adversely affects any market liquidity for our Common Stock.

For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:

the§ basis on which the broker or dealer made the suitability determination, and

that§ the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Because of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or may encounter difficulties in their attempt to sell shares of our Common Stock, which may affect the ability of selling shareholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our common stock, if and when our common stock becomes publicly traded. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock. Our Common Stock, in all probability, will be subject to such penny stock rules for the foreseeable future and our shareholders will, in all likelihood, find it difficult to sell their common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2010, we issued a total of 134,484 shares of our common stock upon the conversion of two convertible debentures by their respective holders.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Removed and Reserved

Item 5. Other Information.

None

Item 6. Exhibits

(a) Exhibits

31.1 Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1 Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PROTECTUS MEDICAL DEVICES, INC.

Date: May 21, 2010	By:	/s/ John S. Salstrom
		John S. Salstrom Chief Executive Officer, Chief Financial and Accounting Officer

PROTECTUS MEDICAL DEVICES, INC. 10-Q