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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM to.
 COMMISSION FILE NUMBER 0-25852
 THE MED-DESIGN CORPORATION
  DELAWARE
    
    23-2771475(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)2810 BUNSEN AVENUE, VENTURA, CA
    
    93003(Address of principal executive offices)
    
    (Zip Code)
      
 o þ
 o þ
 þ o
 o
 o o þ
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE:




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A  RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTS:ITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESConsent of BDO Seidman, LLPConsent of PricewaterhouseCoopers LLPCertificate of the Chief Executive OfficerCertificate of the Chief Financial OfficerCertificate of the Chief Executive Officer required by Rule 15d-14(b)Certificate of the Chief Financial Officer required by Rule 15d-14(b)    Table of Contents  
 PART I
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
 ITEM 1. BUSINESS
   
    
    hypodermic syringes used to inject drugs and other fluids into the body;
    
    injectors used to inject drugs and other fluids into the body from a pre-filled
cartridge, vial or carpule;
    
    fluid collection devices used to draw blood or other fluids from the body;
    
    venous and arterial access devices used to provide access to patients veins and arteries; and
    
    specialty safety devices for needle-based and other applications.
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MED-DESIGN PRODUCTS
  LICENSED PRODUCTS
 PRODUCTS LICENSED TO BECTON DICKINSON
   
    
    Safety Syringe (fixed needle). After the medication in the syringe has been
delivered, the user applies a light amount of additional pressure in order to move
the plunger slightly beyond the normal stop point, which causes the needle to
automatically and fully retract into the body of the syringe. The fixed needle
Safety Syringe can be manufactured with needles of various gauges and sizes, and
barrels with various sizes. BD currently markets the BD Integra 3ml Syringe,
which incorporates our Safety Syringe technology and was introduced in 2002.
    
    Safety Syringe (luer needle). The luer needle Safety Syringe is a hypodermic
needle with a mating needle/hub assembly.
    
    Safety Tuberculin/Insulin Syringe. The Safety Tuberculin/Insulin Syringe is a
smaller version (1ml) of the fixed needle Safety Syringe. BD launched the BD
Integra 1ml Syringe, which incorporates our Safety Tuberculin/Insulin Syringe
technology on a limited scope in the United States in February 2004 with full
launch in January 2005.
    
    Safety Blood Collection Needle. The Safety Blood Collection Needle is compatible
with substantially all standard blood collection needle accessories. After
sufficient fluids have been extracted from the body, by depressing a conveniently
located button on the barrel of the device, the needle automatically and fully
retracts into the body of the device. The needle seals in place rendering it
harmless and inoperable. BD currently markets the BD Vacutainer Push Button
Collection Set, which incorporates our Safety Blood Collection Needle technology
and was introduced in December 2003.
    
    Safety Winged Blood Collection Set. The Safety Winged Blood Collection Set uses
a smaller diameter needle than the Safety Blood Collection Needle and is an
alternative to that device. It is compatible with substantially all standard blood
collection needle accessories.
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
    
    Safety IV Catheter. Catheters are inserted into veins or other areas of the body
using a catheter insertion needle located within the flexible catheter tube. After
the insertion needle is partially removed from the Safety IV Catheter, the needle
automatically and fully retracts into the body of the catheter insertion device.
The needle seals in place rendering it harmless and inoperable. BD currently
markets the Autoguard Pro Shielded IV Catheter, which incorporates our Safety
IV Catheter technology and was introduced in 2002.
    
    Safety PICC Introducer. The Safety PICC Introducer is a catheter insertion
device used to insert a peripherally inserted control catheter (PICC) for long term
venous access to deliver fluids into a patient.
    
    Safety Wing Needle Set/Catheter. The Safety Wing Needle Set/Catheter is used to
continuously deliver fluids into a patients vein. The sharp end of the needle is
completely shielded within the device, allowing intravenous fluid from a gravity
bag or infusion pump to flow through the retracted steel needle. Upon completion of
the infusion therapy, the Safety Wing Needle Set/Catheter may be removed from the
patient with no possibility of an accidental needle stick.
  ENPATH MEDICAL INC. (FORMERLY MEDAMICUS, INC.)
  MANUFACTURED PRODUCTS UNDER AGREEMENT
    4




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PORTFOLIO PRODUCTS
       SALES AND MARKETING
    5




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RESEARCH AND DEVELOPMENT
  
    
    The modification and improvement of our current product technology in response
to market research and input from health care professionals; and
    
    The development of new safety medical devices in response to the specific
requests and needs of our licensees and potential strategic collaborators.
  FACILITIES AND MANUFACTURING
     
    
    A research and development laboratory equipped with assembly and
    
    Test equipment for concept modeling and product development.
 GOVERNMENT REGULATION
   6




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7




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COMPETITION
  
    
    Tyco International, Inc. (Kendall Healthcare Products Company),
    
    B. Braun,
    
    Terumo Medical Corporation of Japan, and
    
    Johnson & Johnson.
  
    
    New Medical Technologies,
    
    Retractable Technologies, Inc.,
    
    Univec, Inc.,
    
    Specialized Health Products International, and
    
    Safety Syringes, Inc.
  LEGISLATION
   
    
    Evaluation and implementation of safer needle devices as part of the
re-evaluation of appropriate engineering controls during an employers annual
review of its exposure control plan;
    
    Documentation of the involvement of non-managerial, frontline employees in
choosing safer needle devices; and
    
    Establishment and maintenance of a sharps injury log for recording injuries from
contaminated sharps.
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PATENTS AND PROPRIETARY RIGHTS
   CODE OF ETHICS
 www.med-design.com  Investor
Relations: Corporate Governance.
 EMPLOYEES
  AVAILABLE INFORMATION
  
 ITEM 1A  RISK FACTORS
 WE HAVE A HISTORY OF NET LOSSES AND ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE
FUTURE.
  
    
    The successful marketing of products incorporating our technology by licensees;
    
    The successful marketing of products acquired through purchases;
    
    Our ability to license additional product technologies that are not currently
subject to licenses or have products incorporating our technology distributed
through joint venture or similar arrangements; and
    
    Our ability to develop additional products incorporating our core technology.
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WE ARE DEPENDENT UPON OUR LICENSING AGREEMENTS WITH BD, AND IF BD IS NOT SUCCESSFUL IN SELLING, OR
DETERMINES NOT TO PURSUE THE SALE OF, PRODUCTS INCORPORATING TECHNOLOGY LICENSED FROM US, OUR
BUSINESS WILL BE HARMED.
  IF WE ENGAGE IN ANY ACQUISITION OR BUSINESS COMBINATION, WE WILL INCUR A VARIETY OF RISKS THAT
COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS.
  
    
    Issue equity securities that would dilute our stockholders percentage
ownership;
    
    Utilize substantial cash resources and incur substantial debt, which may place
constraints on our operations;
    
    Spend substantial operational, financial and management resources in integrating
new businesses, technologies and products;
    
    Assume substantial actual or contingent liabilities; or
    
    Merge, or otherwise enter into a business combination with, another company, in
which our stockholders would receive cash or shares of the other company, or a
combination of both, on terms that our stockholders might not deem desirable.
  10




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IF WE ARE UNABLE TO RAISE ADDITIONAL FUNDS AS REQUIRED, WE MAY HAVE TO REDUCE THE SCOPE OF, OR
CEASE, OUR OPERATIONS.
    PRODUCTS INCORPORATING OUR TECHNOLOGY MUST RECEIVE REGULATORY APPROVAL IN THE UNITED STATES AND
FOREIGN JURISDICTIONS; WE RELY ON OUR LICENSEES TO OBTAIN SUCH APPROVALS WHEN WE LICENSE OUR
PRODUCT TECHNOLOGY, AND IF THEY ARE NOT SUCCESSFUL IN OBTAINING OR MAINTAINING APPROVALS, THE SALE
OF PRODUCTS INCORPORATING OUR TECHNOLOGY AND OUR ABILITY TO REALIZE ROYALTY REVENUES WOULD BE
IMPAIRED.
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PRODUCTS MANUFACTURED UNDER OUR CONTROL THROUGH A CONTRACT MANUFACTURER MUST RECEIVE REGULATORY
APPROVAL OR CLEARANCE AND IF WE ARE NOT SUCCESSFUL IN OBTAINING OR MAINTAINING SUCH APPROVALS OR
CLEARANCES, WE WOULD NOT BE PERMITTED TO SELL THESE PRODUCTS.
   WE ARE DEPENDENT ON OUR LICENSEES AND CONTRACT MANUFACTURERS FOR THE MANUFACTURE OF PRODUCTS
INCORPORATING OUR TECHNOLOGY.
  12




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
    
    Delays in the manufacture of the products could have a material adverse effect
on the marketing of the products;
    
    The manufacturers may not comply with requirements imposed by the FDA or other
governmental agencies, which are described in the preceding risk factor;
    
    We may have to share intellectual property rights to improvements in the
manufacturing processes or new manufacturing processes for the products;
    
    In those instances where we seek third party manufacturers, we may not be able
to locate acceptable manufacturers or enter into favorable long-term agreements
with them; and
    
    We may not be able to find substitute manufacturers, if necessary.
  IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, OR TO AVOID INFRINGING THE RIGHTS OF
OTHERS, OUR ABILITY TO COMPETE EFFECTIVELY WILL BE IMPAIRED.
  
    
    Obtain and maintain patents and other intellectual property;
    
    Establish and maintain trademarks;
    
    Operate without infringing the proprietary rights of others; and
    
    Otherwise maintain adequate protection of our technology and products in the
United States and other countries.
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BECAUSE WE ARE DEPENDENT ON A SINGLE CORE TECHNOLOGY, WE ARE PARTICULARLY VULNERABLE TO THE
DEVELOPMENT OF PRODUCTS INCORPORATING COMPETING TECHNOLOGY AND TECHNOLOGICAL CHANGE.
  WE ARE DEPENDENT ON KEY PERSONNEL, AND IF WE ARE UNABLE TO RETAIN THESE PERSONNEL, OUR BUSINESS
COULD BE HARMED.
  PRODUCTS INCORPORATING OUR TECHNOLOGY MAY NOT ACHIEVE MARKET ACCEPTANCE.
  WE ARE DEPENDENT ON THE SALES AND MARKETING EFFORTS OF OUR LICENSEES AND STRATEGIC COLLABORATORS TO
SELL PRODUCTS INCORPORATING OUR TECHNOLOGY, AND OUR BUSINESS WILL SUFFER IF OUR LICENSEES OR
STRATEGIC COLLABORATORS DO NOT SUCCESSFULLY MARKET THESE PRODUCTS.
  14




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WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS.
  OUR MARKETS ARE HIGHLY COMPETITIVE.
  
    
    Tyco International, Inc. (Kendall Healthcare Products Company),
    
    B. Braun,
    
    Terumo Medical Corporation of Japan, and
    
    Johnson & Johnson.
  
    
    New Medical Technologies,
    
    Retractable Technologies, Inc.,
    
    Univec, Inc.,
    
    Specialized Health Products International, Inc., and
    
    Safety Syringes, Inc.
  OUR STOCK PRICE IS VOLATILE.
  
    
    announcements regarding technological innovations by us or our
competitors;
    
    the licensing of products or the formation of joint ventures or similar
arrangements by us or our competitors;
    
    government regulatory action regarding products incorporating our technology;
    
    the development of new products by us or our competitors;
    
    general conditions in the medical device industry;
    
    quarter-to-quarter variations in operating results; and
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
    
    our failure to meet analysts expectations.
  OUR COMMON STOCK IS SUBJECT TO DILUTION.
  WE ARE UNLIKELY TO PAY DIVIDENDS ON OUR COMMON STOCK.
  PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND THE DELAWARE GENERAL CORPORATION LAW PROVIDE
BARRIERS TO TAKEOVER OFFERS EVEN THOUGH SUCH OFFERS COULD BE BENEFICIAL TO OUR STOCKHOLDERS.
    
 UNRESOLVED STAFF COMMENTS:
 None
 
 ITEM 2. PROPERTIES
  
    
    A research and development laboratory equipped with assembly
    
    Test equipment for concept modeling and product development;
  16




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ITEM 3. LEGAL PROCEEDINGS
  
  None
 
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  MARKET INFORMATION
 FISCAL YEAR ENDED DECEMBER 31, 2004
    
    HIGH
    
    LOWFirst Quarter
    
    $
    4.80
    
    
    $
    3.50Second Quarter
    
    
    3.88
    
    
    
    1.66Third Quarter
    
    
    2.09
    
    
    
    0.86Fourth Quarter
    
    
    1.48
    
    
    
    0.89
 FISCAL YEAR ENDED DECEMBER 31, 2005
    
    HIGH
    
    LOWFirst Quarter
    
    $
    1.39
    
    
    $
    0.79Second Quarter
    
    
    0.85
    
    
    
    0.52Third Quarter
    
    
    0.71
    
    
    
    0.45Fourth Quarter
    
    
    0.69
    
    
    
    0.45
  STOCKHOLDERS
  DIVIDENDS
  17




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ITEM 6. SELECTED FINANCIAL DATA
  2005
    
    2004
    
    2003
    
    2002
    
    2001Year ended December 31,:Revenue
    
    $
    3,366,108
    
    
    $
    1,773,507
    
    
    $
    826,725
    
    
    $
    474,325
    
    
    $
    2,330,000Net loss
    
    
    (4,858,702
    )
    
    
    (6,161,348
    )
    
    
    (6,046,489
    )
    
    
    (8,081,061
    )
    
    
    (4,026,991
    )Net loss per common
share
    
    $
    (0.29
    )
    
    $
    (0.37
    )
    
    $
    (0.42
    )
    
    $
    (0.67
    )
    
    $
    (0.38
    )At December 31,:Total Assets
    
    $
    18,890,101
    
    
    $
    24,176,933
    
    
    $
    28,546,429
    
    
    $
    16,989,224
    
    
    $
    8,259,960Long-term payable
    
    $
    232,284
    
    
    $
    456,342
    
    
    $
    
    
    
    $
    1,506
    
    
    $
    4,086Total stockholders
equity
    
    $
    17,893,380
    
    
    $
    22,506,815
    
    
    $
    27,764,657
    
    
    $
    16,037,836
    
    
    $
    7,883,559
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
    18




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 
     RESULTS OF OPERATIONS
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
    19




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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
       Liquidity and Capital Resources
  20




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Contractual Obligations
  Payments due by periodTotal
    
    
    Less than 1 year
    
    
    1-3 yearsOperating lease obligations
    
    $
    554,590
    
    
    $
    197,233
    
    
    $
    357,357Employment agreement obligations
    
    
    251,724
    
    
    
    221,939
    
    
    
    29,785Obligations under Luther agreement
    
    
    500,000
    
    
    
    250,000
    
    
    
    250,000Consulting agreement  Luther
    
    
    225,000
    
    
    
    100,000
    
    
    
    125,000Consulting agreement  Donegan
    
    
    131,809
    
    
    
    131,809
    
    
    
    Total
    
    $
    1,663,123
    
    
    $
    900,981
    
    
    $
    762,142
   21




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New Accounting Pronouncements
  23




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  24




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ITEM 9A. CONTROLS AND PROCEDURES
     
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  25




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
   PageReports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    F-4Consolidated Statements of Operations for the years ended December
31, 2005, 2004 and 2003
    
    
    F-5Consolidated Statements of Stockholders Equity and Comprehensive
Loss for the years ended December 31, 2005, 2004 and 2003
    
    
    F-6Consolidated Statements of Cash Flows for the years ended December
31, 2005, 2004 and 2003
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
   EXHIBITNUMBER
    
    DESCRIPTION3.1(1)
    
    Restated Certificate of Incorporation of Med-Design.3.3(2)
    
    Bylaws of Med-Design.4.1(2)
    
    Specimen of Common Stock Certificate of Med-Design.10.1(3)
    
    Amended and Restated Non-Qualified Stock Option Plan.10.2(4)
    
    Lease Agreement dated June 15, 1995 between Moen Development and
MDC Research Ltd. and guaranteed by Med-Design.10.(5)
    
    First Amendment dated
October 6, 2003 to Lease Agreement dated June 15, 1995 between Moen
Development and MDC Research Ltd.10.4(6)
    
    Asset Purchase Agreement dated April 1, 2004 between Med-Design
and Luther Needlesafe Products, Inc.10.5(7)
    
    License Agreement dated December 11, 1998 with
Becton, Dickinson and Company.10.6(8)
    
    Addendum to License Agreement dated December 11, 1999 with




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EXHIBITNUMBER
    
    DESCRIPTIONBecton, Dickinson and Company.10.7(8)
    
    Second Addendum to License Agreement dated January 25, 2000 with
Becton, Dickinson and Company.10.8(9)
    
    Warrant Agreement dated April 25, 2000 between Med-Design and
Lawrence Ellis.*10.9(9)
    
    License Agreement dated May 11, 2000 with Becton, Dickinson and
Company.10.10(10)
    
    Amended and Restated 2001 Equity Compensation Plan.10.11(5)
    
    Separation of Employment Agreement dated October 10, 2004 between
Med-Design and James Donegan.10.12(11)
    
    Employment Agreement dated October 10, 2002 between Med-Design
and Joseph Bongiovanni.10.13(11)
    
    Employment Agreement dated October 10, 2002 between Med-Design
and Lawrence D. Ellis.10.14(12)
    
    Employment Agreement dated May 15, 2002 between Med-Design and
David Dowsett.10.15(12)
    
    Employment Agreement extension dated October 17, 2003 between
Med-Design and David Dowsett10.17(5)
    
    Plastics Engineering & Development Incorporated Manufacturing
Agreement dated as of May 22, 2003.10.18(5)
    
    New Alliance of Independent Medical Distributors, Inc.
Exclusive Master Sales & Distribution Agreement dated as of
November 1, 2003.10.19(13)
    
    Agreement and Plan of Merger and Reorganization dated as of November 21, 2005 with
Specialized Health Products International, Inc. and certain of its subsidiaries.10.20(14)
    
    First Amendment dated as of March 6, 2006 to Agreement and Plan of Merger and
Reorganization with Specialized Health Products International, Inc. and certain of its
subsidiaries.21.1
    
    List of Subsidiaries of Med-Design.**23.1
    
    Consent of BDO Seidman, LLP**23.2
    
    Consent of PricewaterhouseCoopers LLP**31.1
    
    Certificate of the Chief Executive Officer required by Rule 15d -
14(a).**31.2
    
    Certificate of the Chief Financial Officer required by Rule 15d -
14(a).**32.1
    
    Certificate of the Chief Executive Officer required by Rule 15d -
14(b).**32.2
    
    Certificate of the Chief Financial Officer required by Rule 15d -
14(b).**
 
 *
    
    Constitutes management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Form 10-K




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**
    
    Filed herewith(1)
    
    Incorporated by reference to Form 8-K filed on June 2, 2005.(2)
    
    Incorporated by reference to Form SB-2 filed April 7, 1995 and Amendment Nos. 1, 2 and 3
thereto (File No. 33-901014).(3)
    
    Incorporated by reference to Form S-8 filed on November 12, 1999.(4)
    
    Incorporated by reference to Form 10-KSB filed on March 29, 1996.(5)
    
    Incorporated by reference to Form K filed on March 31, 2005.(6)
    
    Incorporated by reference to Form 8-K filed on April 15, 2004.(7)
    
    Incorporated by reference to Form10-KSB filed on March 31, 1999.(8)
    
    Incorporated by reference to Form 10-KSB filed on March 7, 2000.(9)
    
    Incorporated by reference to Form 10-K filed on March 23, 2001.(10)
    
    Incorporated by reference to Form S-8 filed September 4, 2002.(11)
    
    Incorporated by reference to Form 10-K filed on March 28, 2003.(12)
    
    Incorporated by reference to Form 10-K filed on March 12, 2004.(13)
    
    Incorporated by reference to Form 8-K filed November 22, 2005.(14)
    
    Incorporated by reference to Form 8-K filed on March 7, 2006.




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SIGNATURES
  THE MED-DESIGN CORPORATION
 Date: March 29, 2006
    By:
    DAVID R. DOWSETTDavid R. Dowsett
Acting Chief Executive Officer  THE MED-DESIGN CORPORATIONDate: March 29, 2006
    By:
    DAVID R. DOWSETTDavid R. DowsettActing Chief Executive Officer  Signature
    
    Title
    
    DateDAVID R. DOWSETT

David R. Dowsett
    
    Acting Chief Executive Officer
    
    March 29, 2006LAWRENCE D. ELLIS

Lawrence D. Ellis
    
    Vice President, Finance and
Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
    
    March 29, 2006RALPH BALZANO

Ralph Balzano
    
    Director
    
    March 29, 2006PAUL CASTIGNANI

Paul Castignani
    
    Director
    
    March 29, 2006D. WALTER COHEN

D. Walter Cohen
    
    Director
    
    March 29, 2006JACK OLSHANSKY

Jack Olshansky
    
    Director
    
    March 29, 2006VINCENT J. PAPA

Vincent J. Papa
    
    Director
    
    March 29, 2006RALPH SANDO

Ralph Sando
    
    Director
    
    March 29, 2006PASQUALE L. VALLONE

Pasquale L. Vallone
    
    Director
    
    March 29, 2006GILBERT M. WHITE

Gilbert M. White
    
    Director
    
    March 29, 2006




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PageReports of Independent Registered Public Accounting Firms
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    F-4Consolidated Statements of Operations for years ended
December 31, 2005, 2004 and 2003
    
    F-5Consolidated Statements of Stockholders Equity and Comprehensive Loss for the years
ended December 31, 2005, 2004 and 2003
    
    F-6Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003
    
    F-7Notes to Consolidated Financial Statements
    
    F-8 to F-31




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,084,834
    
    
    $
    3,964,388Available-for-sale securities
    
    
    8,855,993
    
    
    
    10,635,882Trade receivables
    
    
    812,101
    
    
    
    386,979Inventory
    
    
    295,207
    
    
    
    39,250Prepaid expenses and other current assets
    
    
    172,907
    
    
    
    236,265Total current assets
    
    
    11,221,042
    
    
    
    15,262,764Property, plant, and equipment, net
    
    
    179,971
    
    
    
    714,477Patents, net of accumulated amortization of $1,260,391 and $1,046,700 at
December 31, 2005 and December 31, 2004, respectively
    
    
    1,735,040
    
    
    
    1,816,760Investment in acquired license rights
    
    
    5,754,048
    
    
    
    6,150,879Goodwill
    
    
    
    
    
    
    232,053Total Assets
    
    $
    18,890,101
    
    
    $
    24,176,933LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term payable
    
    $
    250,000
    
    
    $
    250,000Accounts payable
    
    
    194,914
    
    
    
    458,122Accrued compensation and benefits
    
    
    157,894
    
    
    
    111,912Accrued professional fees
    
    
    125,000
    
    
    
    325,000Other accrued expenses
    
    
    36,830
    
    
    
    68,742Total current liabilities
    
    
    764,638
    
    
    
    1,213,776Long-term payable, less current maturities
    
    
    232,284
    
    
    
    456,342Total liabilities
    
    
    996,922
    
    
    
    1,670,118Commitments and contingencies (Note 8)Stockholders equity:Preferred stock, $.01 par value, 4,700,000 shares authorized; no shares outstanding
    
    
    
    
    
    
    Common stock, $.01 par value, 30,000,000 shares authorized; 16,874,486 shares and
16,749,486 shares issued and outstanding as of December 31, 2005 and December
31, 2004, respectively
    
    
    168,745
    
    
    
    167,495Additional paid-in capital
    
    
    72,058,469
    
    
    
    71,917,610Accumulated deficit
    
    
    (54,299,781
    )
    
    
    (49,441,079
    )Accumulated other comprehensive (loss) income
    
    
    (34,254
    )
    
    
    (137,211
    )Total stockholders equity
    
    
    17,893,179
    
    
    
    22,506,815Total Liabilities and Stockholders Equity
    
    $
    18,890,101
    
    
    $
    24,176,933




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2005
    
    
    2004
    
    
    2003RevenueProduct sales
    
    $
    2,263,852
    
    
    $
    1,030,585
    
    
    $
    168,471Licensing royalties
    
    
    1,052,256
    
    
    
    742,922
    
    
    
    658,254Product development
    
    
    50,000
    
    
    
    
    
    
    
    Total revenue
    
    
    3,366,108
    
    
    
    1,773,507
    
    
    
    826,725Operating expense:Product costs
    
    
    2,132,866
    
    
    
    1,469,581
    
    
    
    153,953Impairment of goodwill
    
    
    232,053
    
    
    
    
    
    
    
    General and administrative
    
    
    4,624,441
    
    
    
    5,441,572
    
    
    
    5,927,713Research and development
    
    
    879,491
    
    
    
    1,187,835
    
    
    
    1,484,891Write-off of fixed assets
    
    
    464,397
    
    
    
    
    
    
    
    Total operating expenses
    
    
    8,333,248
    
    
    
    8,098,988
    
    
    
    7,566,557Loss from operations
    
    
    (4,967,140
    )
    
    
    (6,325,461
    )
    
    
    (6,739,832
    )Interest expense
    
    
    (35,940
    )
    
    
    (26,136
    )
    
    
    (422
    )Investment income
    
    
    478,545
    
    
    
    591,588
    
    
    
    526,935Realized gain (loss) on investments
    
    
    (334,167
    )
    
    
    (401,319
    )
    
    
    166,830Net loss
    
    $
    (4,858,702
    )
    
    $
    (6,161,348
    )
    
    $
    (6,046,489
    )Basic and diluted loss per common share
    
    $
    (0.29
    )
    
    $
    (0.37
    )
    
    $
    (0.42
    )Weighted average common shares outstanding
    
    
    16,750,856
    
    
    
    16,712,934
    
    
    
    14,282,613




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE LOSS
 UnrealizedGains &Loss OnAdditional
    
    
    
    
    
    
    Available-Common
    
    
    
    
    
    
    Paid-In
    
    
    Accumulated
    
    
    For-Sale
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Securities
    
    
    Equity
    
    
    Income (Loss)Balance
December 31, 2002
    
    
    12,519,798
    
    
    $
    125,198
    
    
    $
    53,083,149
    
    
    $
    (37,233,242
    )
    
    $
    62,731
    
    
    $
    16,037836
    
    
    $
    (8,075,110
    )Issuance of common stock in
connection with exercise of stock
options and warrants
    
    
    320,900
    
    
    
    3,209
    
    
    
    594,590
    
    
    
    
    
    
    
    
    
    
    
    597,799Issuance of common stock in
connection with private
placement,
net
    
    
    3,598,844
    
    
    
    35,989
    
    
    
    15,874,080
    
    
    
    
    
    
    
    
    
    
    
    15,910,069Issuance of stock in connection with
employment agreements
    
    
    126,368
    
    
    
    1,263
    
    
    
    (1,263
    )Issuance of stock in connection with
private investor loan
    
    
    6,480
    
    
    
    65
    
    
    
    (65
    )Stock based compensation
    
    
    
    
    
    
    
    
    
    
    1,483,286
    
    
    
    
    
    
    
    
    
    
    
    1,483,286Change in unrealized gains (loss) on
Available-for-sale-securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217,844
    )
    
    
    (217,844
    )
    
    
    (217,844
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,046,489
    )
    
    
    
    
    
    
    (6,046,489
    )
    
    
    (6,046,489
    )Balance
December 31, 2003
    
    
    16,572,390
    
    
    
    165,724
    
    
    
    71,033,777
    
    
    
    (43,279,731
    )
    
    
    (155,113
    )
    
    
    27,764,657
    
    
    $
    (46,254,333
    )Issuance of common stock in
connection with exercise of stock
options and warrants
    
    
    50,300
    
    
    
    503
    
    
    
    163,203
    
    
    
    
    
    
    
    
    
    
    
    163,706Issuance of stock in connection with
employment agreements
    
    
    59,702
    
    
    
    597
    
    
    
    (597
    )
    
    
    
    
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    471,898
    
    
    
    
    
    
    
    
    
    
    
    471,898Issuance of stock in connection with
Huber purchase
    
    
    67,094
    
    
    
    671
    
    
    
    249,329
    
    
    
    
    
    
    
    
    
    
    
    250,000Change in unrealized gains (loss) on
Available-for-sale-securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,902
    
    
    
    17,902
    
    
    
    17,902Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,161,348
    )
    
    
    
    
    
    
    (6,161,348
    )
    
    
    (6,161,348
    )Balance
December 31, 2004
    
    
    16,749,486
    
    
    
    167,495
    
    
    
    71,917,610
    
    
    
    (49,441,079
    )
    
    
    (137,211
    )
    
    
    22,506,815
    
    
    $
    (6,143,446
    )Issuance of stock of stock grants
    
    
    125,000
    
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250Stock based compensation
    
    
    
    
    
    
    
    
    
    
    140,859
    
    
    
    
    
    
    
    
    
    
    
    140,859Change in unrealized gains (loss) on
Available-for-sale-securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,957
    
    
    
    102,957
    
    
    
    102,957Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,858,702
    )
    
    
    
    
    
    
    (4,858,702
    )
    
    
    (4,858,702
    )Balance December 31, 2005
    
    
    16,874,486
    
    
    $
    168,745
    
    
    $
    72,058,469
    
    
    $
    (54,299,781
    )
    
    $
    (34,254
    )
    
    $
    17,893,179
    
    
    $
    (4,755,745
    )




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net loss
    
    $
    (4,858,702
    )
    
    $
    (6,161,348
    )
    
    $
    (6,046,489
    )Adjustments to reconcile net loss to cash used in
operating activities:Depreciation and amortization
    
    
    733,523
    
    
    
    735,776
    
    
    
    420,333Amortization of discount on long-term payable
    
    
    25,942
    
    
    
    25,530
    
    
    
    Impairment of goodwill
    
    
    232,053
    
    
    
    
    
    
    
    Loss (gain) from sale of available-for-sale
securities
    
    
    334,167
    
    
    
    401,319
    
    
    
    (166,830
    )Loss on disposal of fixed assets
    
    
    464,397
    
    
    
    5,382
    
    
    
    Reserve for excess inventory
    
    
    61,500Default of related party note
    
    
    
    
    
    
    
    
    
    
    250,000Stock-based compensation
    
    
    142,109
    
    
    
    471,898
    
    
    
    1,483,286Changes in operating assets and liabilities:Trade receivable
    
    
    (425,122
    )
    
    
    268,077
    
    
    
    (511,468
    )Prepaid expenses and other current assets
    
    
    63,358
    
    
    
    7,496
    
    
    
    (119,059
    )Inventory
    
    
    (317,457
    )
    
    
    89,993
    
    
    
    Accounts payable
    
    
    (263,208
    )
    
    
    7,012
    
    
    
    160,335Accrued compensation, benefits, professional fees
and other accrued expenses
    
    
    (185,930
    )
    
    
    176,498
    
    
    
    (327,377
    )Net cash used in operating activities
    
    
    (3,993,370
    )
    
    
    (3,972,367
    )
    
    
    (4,857,269
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (52,891
    )
    
    
    (88,077
    )
    
    
    (439,371
    )Additions to patents
    
    
    (131,972
    )
    
    
    (246,578
    )
    
    
    (293,191
    )Investments in available-for-sale securities
    
    
    (9,569,817
    )
    
    
    (8,735,936
    )
    
    
    (16,579,932
    )Sale of available-for-sale securities
    
    
    11,118,496
    
    
    
    17,547,549
    
    
    
    8,946,176Purchase of acquired license rights
    
    
    
    
    
    
    (5,901,240
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    1,363,816
    
    
    
    2,575,718
    
    
    
    (8,366,318
    )Cash flows from financing activities:Capital lease payments
    
    
    
    
    
    
    (1,506
    )
    
    
    (2,574
    )Warrants and stock options exercised
    
    
    
    
    
    
    163,706
    
    
    
    597,799Payment of long-term payable
    
    
    (250,000
    )
    
    
    
    
    
    
    Proceeds from private placement, net
    
    
    
    
    
    
    
    
    
    
    15,910,069Net cash (used in) provided by financing activities
    
    
    (250,000
    )
    
    
    162,200
    
    
    
    16,505,294Increase (decrease) in cash and cash equivalents
    
    
    (2,879,554
    )
    
    
    (1,234,449
    )
    
    
    3,281,707Cash and cash equivalents, beginning of period
    
    
    3,964,388
    
    
    
    5,198,837
    
    
    
    1,917,130Cash and cash equivalents, end of period
    
    $
    1,084,834
    
    
    $
    3,964,388
    
    
    $
    5,198,837Cash paid during the period:Interest paid
    
    $
    35,940
    
    
    $
    26,135
    
    
    $
    422Taxes paid
    
    
    115,775
    
    
    
    46,681
    
    
    
    59,099Non-cash investing and financing activities:Change in unrealized (loss) gain on
available-for-sale securities
    
    
    102,957
    
    
    
    17,902
    
    
    
    (217,844
    )Advances for purchase of fixed assets transferred
from Prepaid Assets to Property and Equipment
    
    
    
    
    
    
    22,000
    
    
    
    234,645Acquired business (note 5):Non-cash consideration:Fair value of common stock issued
    
    
    
    
    
    
    250,000
    
    
    
    Liability  additional purchase consideration
    
    
    
    
    
    
    680,812
    
    
    
    




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    PRINCIPLES OF CONSOLIDATION:
  CASH AND CASH EQUIVALENTS:
  CONCENTRATIONS OF CREDIT RISK:
    As of and for the year ended December 31,2005
    
    2004
    
    2003% of
    
    % of A/R,
    
    % of
    
    % of A/R,
    
    % of
    
    % ofRevenue
    
    Net
    
    Revenue
    
    Net
    
    Revenue
    
    A/R, NetCompany A
    
    
    59.3
    
    
    
    51.4
    
    
    
    45.1
    
    
    
    37.4
    
    
    
    
    
    
    
    Company B
    
    
    29.9
    
    
    
    41.6
    
    
    
    37.4
    
    
    
    48.7
    
    
    
    66.3
    
    
    
    Company C
    
    
    1.8
    
    
    
    1.8
    
    
    
    4.4
    
    
    
    1.1
    
    
    
    33.7
    
    
    
    100




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 AVAILABLE-FOR-SALE-SECURITIES:
    PROPERTY, PLANT AND EQUIPMENT:
   SEGMENT REPORTING




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 IMPAIRMENT OF LONG-LIVED ASSETS:
  Ô Ô
  PATENTS:
  INVESTMENT IN ACQUIRED LICENSE RIGHTS:
  GOODWILL RESULTING FROM BUSINESS ACQUISITION:




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 REVENUE RECOGNITION:
      ACCOUNTS RECEIVABLE:
  INCOME TAXES:
  INVENTORY:
 Ò
 F-11




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##### Table of Contents



PRODUCT COST:
  RESEARCH AND DEVELOPMENT:
  F-12




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 STOCK BASED COMPENSATION:
  FOR THE YEAR ENDED DECMEBER 31,2005
    
    
    2004
    
    
    2003Net loss  as
reported
    
    $
    (4,858,702
    )
    
    $
    (6,161,348
    )
    
    $
    (6,046,489
    )Total stock based
employee compensation
expense included in
reported net
loss
    
    
    142,109
    
    
    
    471,898
    
    
    
    1,483,286Total stock-based
employee compensation
expense determined
under fair-value based
method for all
awards
    
    $
    (980,029
    )
    
    
    (1,715,048
    )
    
    
    (4,317,862
    )Pro forma net
loss
    
    
    (5,696,622
    )
    
    $
    (7,404,498
    )
    
    $
    (8,881,065
    )Net loss per share:Basic and diluted loss
per share  as
reported
    
    $
    (0.29
    )
    
    $
    (0.37
    )
    
    $
    (0.42
    )Basic and diluted loss
per share  pro
forma
    
    $
    (0.34
    )
    
    $
    (0.44
    )
    
    $
    (0.62
    )
  ESTIMATES UTILIZED IN THE PREPARATION OF FINANCIAL STATEMENTS:
  F-13




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 COMPREHENSIVE INCOME (LOSS):
  PREFERRED STOCK
  NEW ACCOUNTING PRONOUNCEMENTS:
    F-14




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  F-15




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   GrossAmortized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Losses
    
    
    Value2005US government and agency securities
    
    $
    421,591
    
    
    $
    (20,213
    )
    
    $
    401,378Corporate debt securities
    
    
    8,468,656
    
    
    
    (14,041
    )
    
    
    8,454,615Total
    
    $
    8,890,246
    
    
    $
    (34,254
    )
    
    $
    8,855,9932004US government and agency securities
    
    $
    8,384,342
    
    
    $
    (66,297
    )
    
    $
    8,318,045Corporate debt securities
    
    
    2,388,751
    
    
    
    (70,914
    )
    
    
    2,317,837Total
    
    $
    10,773,093
    
    
    $
    (137,211
    )
    
    $
    10,635,882
   For the Years Ended December 31,2005
    
    
    2004
    
    
    2003Unrealized holding gains (losses) during the period
    
    $
    (231,210
    )
    
    $
    (383,417
    )
    
    $
    (384,674
    )Less: reclassification adjustment for (gains) losses
included in net loss
    
    
    334,167
    
    
    
    401,319
    
    
    
    166,830Net gains (losses) on available-for-sale securities
    
    $
    102,957
    
    
    $
    17,902
    
    
    $
    (217,844
    )
  F-16




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
      EstimatedUseful Livesin Years
    
    
    2005
    
    
    2004Leasehold improvements
    
    Life of lease
    
    $
    199,921
    
    
    $
    199,921Machinery and equipment
    
    
    5-7
    
    
    
    756,737
    
    
    
    1,601,308Office furniture & fixtures
    
    
    7
    
    
    
    314,271
    
    
    
    312,201Computer equipment & software
    
    
    2-5
    
    
    
    177,753
    
    
    
    174,9221,488,682
    
    
    
    2,288,352Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    (1,268,711
    )
    
    
    (1,573,875
    )$
    179,971
    
    
    $
    714,477
  F-17




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 5. INVESTMENT IN ACQUIRED LICENSE RIGHTS
   SAFETY HUBER NEEDLE BUSINESS TRANSACTION SUMMARY
 Purchase price:Cash
    
    $
    5,901,240Stock
    
    
    250,000Liabilityadditional purchase consideration
    
    
    680,812$
    6,832,052
 Allocated as follows:Inventory
    
    $
    90,000Property and equipment
    
    
    61,498Acquired license rights
    
    
    6,448,501Goodwill
    
    
    232,053$
    6,832,052
  F-18




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 2004
 HistoricalSafetyThe Med-Design
    
    
    Huber Needle
    
    
    Pro Forma
    
    
    ProCorporation
    
    
    Business
    
    
    Adjustments
    
    
    FormaRevenue
    
    $
    1,773,507
    
    
    $
    257,404
    
    
    
    
    
    
    $
    2,030,911Net loss
    
    $
    (6,161,348
    )
    
    $
    (2,432,461
    )
    
    $
    1,890,668
    (a)
    
    $
    (6,703,141
    )Basic and diluted loss per common share
    
    $
    (0.37
    )
    
    
    
    
    
    
    
    
    
    $
    (0.40
    )Basic and diluted weighted average
common shares outstanding
    
    
    16,712,934
    
    
    
    
    
    
    
    16,865
    
    
    
    16,729,799
 
  Executive Bonuses
    
    $
    1,992,000
    (1)Depreciation/Amortization
    
    
    (93,156
    )Interest Expense
    
    
    334
    (2)Amortization of discount on long-term payable
    
    
    (8,510
    )$
    1,890,668
   F-19




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 PRO FORMA STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 2003
 HistoricalSafetyThe Med-Design
    
    
    Huber Needle
    
    
    Pro Forma
    
    
    ProCorporation
    
    
    Business
    
    
    Adjustments
    
    
    FormaRevenue
    
    $
    826,725
    
    
    $
    718,909
    
    
    $
    
    
    
    $
    1,545,634Net loss
    
    $
    (6,046,489
    )
    
    $
    (254,790
    )
    
    $
    (537,587
    )(a)
    
    $
    (6,838,866
    )Basic and diluted loss per common share
    
    $
    (0.42
    )
    
    
    
    
    
    
    
    
    
    $
    (0.48
    )Basic and diluted weighted average
common shares outstanding
    
    
    14,282,613
    
    
    
    
    
    
    
    67,094
    
    
    
    14,349,707
 
  Depreciation/Amortization
    
    
    ($551,025
    )Interest Expense
    
    
    47,478
    (1)Amortization of discount on long-term payable
    
    
    (34,040
    )($537,587
    )
  F-20




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
         2006
    
    $
    197,2332007
    
    
    202,2682008
    
    
    155,089$
    554,590
 F-21




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
           F-22




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
        Weighted averageLoss
    
    
    shares outstanding
    
    
    EPS2005Basic and diluted EPSNet loss applicable to common stockholders
    
    
    ($4,858,702
    )
    
    
    16,750,856
    
    
    
    ($0.29
    )2004Basic and diluted EPSNet loss applicable to common stockholders
    
    
    ($6,161,348
    )
    
    
    16,712,934
    
    
    
    ($0.37
    )2003Basic and diluted EPSNet loss applicable to common stockholders
    
    
    ($6,046,489
    )
    
    
    14,282,613
    
    
    
    ($0.42
    )
 F-23




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  F-24




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 11. STOCK OPTION PLANS
        F-25




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
   2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceGranted
    
    
    152,000
    
    
    $
    0.49
    
    
    
    190,000
    
    
    $
    1.08
    
    
    
    327,794
    
    
    $
    4.69Exercised
    
    
    
    
    
    
    
    
    
    
    (300
    )
    
    
    3.25
    
    
    
    (20,900
    )
    
    
    1.53Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146,850
    )
    
    
    13.64Expired
    
    
    (381,975
    )
    
    
    10.11
    
    
    
    (70,749
    )
    
    
    9.93
    
    
    
    
    
    
    
    Outstanding at end of
year
    
    
    1,874,569
    
    
    $
    7.23
    
    
    
    2,104,544
    
    
    $
    8.24
    
    
    
    1,985,593
    
    
    $
    8.99Options exercisable at
year-end
    
    
    1,583,569
    
    
    $
    7.50
    
    
    
    1,716,146
    
    
    $
    8.62
    
    
    
    1,219,114
    
    
    $
    10.00Option price range at end
of year
    
    $0.49 to $20.50
    
    
    
    
    
    
    $
    0.92 to $17.97
    
    
    
    
    
    
    $
    1.56 to $17.97Weighted-average fair
value of options granted
during year
    
    $
    0.49
    
    
    
    
    
    
    $
    0.53
    
    
    
    
    
    
    $
    4.12
  OPTIONSOPTIONS OUTSTANDING
    
    
    EXERCISABLENumber
    
    
    Weighted-
    
    
    Weighted-
    
    
    Number
    
    
    Weighted-Outstanding at
    
    
    Average
    
    
    Average
    
    
    Outstanding at
    
    
    AverageRange of Exercise
    
    December 31,
    
    
    Remaining
    
    
    Exercise
    
    
    December 31,
    
    
    ExercisePrices
    
    2005
    
    
    Contractual Life
    
    
    Price
    
    
    2005
    
    
    Price$0.49-$3.90
    
    
    809,567
    
    
    
    5.8
    
    
    $
    2.20
    
    
    
    697,567
    
    
    $
    2.03$4.14-$8.48
    
    
    354,338
    
    
    
    7.0
    
    
    $
    5.53
    
    
    
    212,838
    
    
    $
    5.13$11.01-$20.50
    
    
    710,664
    
    
    
    2.3
    
    
    $
    13.81
    
    
    
    673,164
    
    
    $
    13.931,874,569
    
    
    
    4.7
    
    
    $
    7.23
    
    
    
    1,583,569
    
    
    $
    7.50
 F-26




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
         F-27




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
      F-28




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
        F-29




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
   2005
    
    
    2004
    
    
    2003Current ProvisionFederal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred tax provision (benefit)Federal
    
    
    (1,126,107
    )
    
    
    (2,122,625
    )
    
    
    (2,501,691
    )State
    
    
    (303,044
    )
    
    
    (708,818
    )
    
    
    (277,372
    )Total benefit for income taxes
    
    
    (1,429,151
    )
    
    
    (2,831,443
    )
    
    
    (2,779,063
    )Less: Valuation allowance
    
    
    1,429,151
    
    
    
    2,831,443
    
    
    
    2,779,063$
    
    
    
    $
    
    
    
    $
    
  2005
    
    
    2004
    
    
    2003AssetsOperating loss carry forwards
    
    $
    20,807,316
    
    
    $
    18,496,195
    
    
    $
    15,778,858Research and development tax credits
    
    
    568,954
    
    
    
    544,658
    
    
    
    492,317Amortization
    
    
    717,580
    
    
    
    1,423,305
    
    
    
    1,119,965Deferred compensation expense
    
    
    699,750
    
    
    
    873,215
    
    
    
    667,939Other
    
    
    (309,598
    )
    
    
    (878,792
    )
    
    
    (431,941
    )Total deferred tax assets
    
    
    22,484,002
    
    
    
    20,458,581
    
    
    
    17,627,138Valuation allowance
    
    
    (22,484,002
    )
    
    
    (20,458,581
    )
    
    
    (17,627,138
    )Net deferred tax assets (liabilities)
    
    $
    
    
    
    $
    
    
    
    $
    
 F-30




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
       2005
    
    
    2004
    
    
    2003Tax at U.S. statutory income tax rate
    
    $
    (1,651,959
    )
    
    $
    (2,082,328
    )
    
    $
    (2,046,884
    )Other
    
    
    525,851
    
    
    
    (40,297
    )
    
    
    (454,808
    )Increase in Valuation Allowance
    
    
    1,126,108
    
    
    
    2,122,625
    
    
    
    2,501,692$
    
    
    
    $
    
    
    
    $
    
 F-31




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
 16. RELATED PARTY TRANSACTIONS
       F-32




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##### Table of Contents



THE MED-DESIGN CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
         Quarter Ended2005
    
    March 31
    
    June 30
    
    September 30
    
    December 31(b)Revenue
    
    $
    676,564
    
    
    $
    799,598
    
    
    $
    873,139
    
    
    $
    1,016,807Operating loss (a)
    
    $
    (1,872,770
    )
    
    $
    (1,014,376
    )
    
    $
    (801,218
    )
    
    $
    (1,278,772
    )Net loss
    
    $
    (1,771,973
    )
    
    $
    (952,058
    )
    
    $
    (756,239
    )
    
    $
    (1,378,432
    )Basic and diluted loss per share
    
    $
    (0.11
    )
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    (0.08
    )
 Quarter Ended2004
    
    March 31
    
    June 30
    
    September 30
    
    December 31Revenue
    
    $
    89,511
    
    
    $
    369,330
    
    
    $
    489,474
    
    
    $
    825,192Operating loss
    
    $
    (1,623,576
    )
    
    $
    (1,553,418
    )
    
    $
    (1,525,619
    )
    
    $
    (1,622,868
    )Net loss
    
    $
    (1,435,935
    )
    
    $
    (1,444,164
    )
    
    $
    (1,740,334
    )
    
    $
    (1,540,915
    )Basic and diluted loss per share
    
    $
    (0.09
    )
    
    $
    (0.09
    )
    
    $
    (0.10
    )
    
    $
    (0.09
    )
  F-33




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##### Table of Contents



(a)
    
    In the first quarter of 2005, the Company assessed the position of the 1Shot Safety
Dental Syringe in the marketplace and the Companys relationship with the exclusive
distributor of the product, Sultan Chemist. As a result of the Companys assessment the
Company determined to discontinue production of the product and exit the business. This
decision resulted in the write-off of equipment of $464,397, which the Company recorded
during the quarter ended March 31, 2005 and has been adjusted to reclassify the write-off of
the 1Shot Safety Syringe fixed assets from other income (expense) to operating expense.
 Quarter EndedMarch 31, 2005As Previously Reported
    
    Adjustments
    
    As Adjusted($1,408,373)
    
    
    ($464,397
    )
    
    
    ($1,872,770
    )
 (b)
    
    In the fourth quarter of 2005, the Company wrote-off Goodwill of $232,053.
    F-34