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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]      ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER
         31, 2004.

                                       OR

[ ]      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
             (Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S>                                                                                 <C>
                         DELAWARE                                                   23-2771475
     (State or other jurisdiction of incorporation or                  (I.R.S. Employer Identification No.)
                       organization)

              2810 BUNSEN AVENUE, VENTURA, CA                                         93003
         (Address of principal executive offices)                                   (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (805) 339-0375

           Securities registered pursuant to Section 12(b) of the Act:

                               Title of each class

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, Par Value $0.01 Per Share
                                (Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No
                                             ---   ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).  Yes X  No
                                         ---   ---

The aggregate market value of voting stock held by non-affiliates of the
registrant (computed by reference to the last reported sale price of such stock
on June 30, 2004) was $30,658,259. The number of shares of the registrant's
common stock outstanding as of March 29, 2005 was 16,749,486.

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DOCUMENTS INCORPORATED BY REFERENCE:

None

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995 that address, among other
things, acceptance of safety products by health care professionals; our
expectations regarding contract manufacturing of certain specialty devices; our
pursuit of additional collaborative arrangements; the ability to manufacture
certain specialty devices using our assembly system; plans to rely on our
strategic collaborators to pursue regulatory approvals; expectations regarding
the ability of our products to compete with the products of our competitors;
acceptance of our products by the marketplace as cost effective; the generation
of royalty revenues from our licensees; factors affecting the ability of Becton
Dickinson to sell products licensed from us; sufficiency of available resources
to fund operations; factors affecting the availability of capital; plans
regarding the raising of capital; the size of the market for our products; our
plans regarding sales and marketing; our strategic business initiatives; our
intentions regarding dividends. These statements may be found under "Item
1-Business," "Item 1-Risk Factors" and "Item 7-Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as in this
Report generally. We generally identify forward-looking statements in this
Report using words like "believe," "anticipate," "will," "expect," "may,"
"could," "intend" or similar statements. There are important factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements including lack of demand or low demand for our
products or for safety products generally; a determination of Becton Dickinson
to focus its marketing efforts on products other than those licensed from us;
delays in introduction of products licensed by us due to manufacturing
difficulties or other factors; our inability to license or enter into joint
venture or similar collaborative arrangements regarding our other products;
unanticipated expenses relating to our manufacturing effort and other factors
discussed in "Item 1 - Risk Factors" and matters set forth in this Report
generally. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.

                                     PART I

ITEM 1. BUSINESS

                                    BUSINESS

         We are principally engaged in the design, development, licensing and
subcontract manufacturing of safety medical devices intended to reduce the
incidence of accidental needle sticks. The majority of the safety medical
devices we design and develop incorporate our proprietary needle retraction
technology. Our technology enables health care professionals to retract a needle
into the body of the medical device for safe disposal without any substantial
change in operating technique. Our product technology generally can be
categorized into the following five groups:

         o  hypodermic syringes used to inject drugs and other fluids into the
            body;

         o  injectors used to inject drugs and other fluids into the body from a
            pre-filled cartridge, vial or carpule;

         o  fluid collection devices used to draw blood or other fluids from the
            body;

         o  venous and arterial access devices used to provide access to
            patients' veins and arteries; and

         o  specialty safety devices for needle-based and other applications.

         We design our product technology to be similar to standard non-safety
medical devices in appearance, size, performance and operation. We believe that
this similarity is important, because health care professionals are more likely
to accept safety products that do not require a change in operating technique
from products they have traditionally used.

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         We have licensed a number of applications of our product technology to
medical device manufacturers, principally Becton Dickinson and Company ("BD").
In two instances, products incorporating our product technology are subject to
collaborative arrangements between us and device manufacturers. These products
are the 1Shot Safety Dental Syringe launched in June 2003 and the Safety Huber
Needle acquired in April 2004. We will continue to explore additional
opportunities to have selected products manufactured in this manner.

MED-DESIGN PRODUCTS

         We have designed and developed a number of products incorporating our
needle retraction technology. Our products are similar in appearance, size and
performance to standard non-safety products and are operated in essentially the
same manner. A brief description of each of our products follows:

     LICENSED PRODUCTS

         PRODUCTS LICENSED TO BECTON DICKINSON

         BD, a major medical technology company, is the principal licensee of
our patented product technology. Pursuant to two licensing agreements, we have
granted BD the exclusive worldwide rights to manufacture and market our patented
product technology in three fields of use, injection syringe, IV catheters and
blood collection. The agreements with BD provide for continuing royalty payments
based upon BD's net sales of the licensed product technology, subject to annual
minimums.

         The following product technologies are currently under license to BD:

            o  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(TM) 3ml Syringe, which incorporates our Safety
               Syringe technology and was introduced in 2002.

            o  Safety Syringe (luer needle). The luer needle Safety Syringe is a
               hypodermic needle with a mating needle/hub assembly.

            o  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(TM) 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.

            o  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(TM) Push Button Collection Set, which
               incorporates our Safety Blood Collection Needle technology and
               was introduced in December 2003.

            o  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.

            o  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(TM)
               Shielded IV Catheter, which incorporates our Safety IV Catheter
               technology and was introduced in 2002.

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            o  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.

            o  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.

         The licensing agreement with BD for the Integra(TM) Syringe initially
provided for a two-tier royalty payment. A dispute arose in July 2002 between us
and BD as to the appropriate amount of royalty payment for the BD Integra
Syringe. We submitted the dispute to mediation and reached an agreement in
January 2003 that resolved the dispute and provided that BD will pay us a
royalty rate of 2.5% on all sales of the product in the U.S. and in all
international markets where our retracting needle syringe patents are in force.
The royalty rate is retroactive to the initial introduction date of May 2002 for
the BD Integra(TM) 3ml Syringe and is also applicable to the BD Integra(TM) 1ml
Syringe.

         ENPATH MEDICAL INC. (FORMERLY MEDAMICUS, INC.)

         We licensed to Enpath Medical Inc. the Safety Seldinger Device
initially for venous access and subsequently for arterial access. We receive
royalties from the sale of the device by Enpath Medical Inc. The Safety
Seldinger Device agreement involves a lower volume, higher margin product
directed to a specialized niche market segment. On December 29, 2004, we entered
into Addendum Number Two to the Development and Licensing Agreement with Enpath
Medical for the Safety Seldinger Device to eliminate the minimum purchase amount
required in 2004 for Enpath to maintain exclusivity under the Development and
Licensing Agreement. In consideration for Med-Design executing the Addendum,
Enpath agreed to negotiate exclusively with Med-Design until April 30, 2005 for
the potential sale of Enpath's safety needle business. Revenue for this product
was $78,581 for the year ended December 31, 2004 and $120,308 for the year ended
December 31, 2003. We expect that future royalties from this product will
decrease significantly.

         MANUFACTURED PRODUCTS UNDER AGREEMENT

         In connection with our efforts to enter into collaborative arrangements
for the marketing and distribution of certain of our product technologies, we
determined that we could enhance our efforts with potential strategic
collaborators that do not possess manufacturing capabilities if we could arrange
to have the products manufactured. We entered into two OEM Manufacturing
Agreements with Owens-Illinois Closure, Inc. for the manufacture of our Safety
Pre-filled Cartridge Injector and Safety Dental Cartridge Injector. Pursuant to
the terms of the agreements, we have purchased the automated equipment and molds
necessary for Owens-Illinois to manufacture the products. Owens-Illinois is
currently manufacturing the Safety Dental Cartridge Injector and Sultan Chemists
is marketing the product under the name 1Shot Safety Dental Syringe. We continue
to search for a sales and marketing collaborator for the Safety Pre-filled
Cartridge Injector. In addition, Plastics Engineering and Development, Inc.
(PEDI) currently manufactures our Safety Huber Needles and New Alliance of
Independent Medical Distributors, Inc. (Alliance Medical) is marketing the
product. We assumed ongoing agreements with PEDI and Alliance Medical when we
acquired the Safety Huber Needle business of Luther Needlesafe Products, Inc. in
2004.

         In April 2004, we acquired the assets of the Safety Huber Needle
business of Luther Needlesafe, Inc. The Safety Huber Needle is contract
manufactured by Plastics Engineering and Development Incorporated. We acquired
the production molds and necessary assembly equipment in the purchase price of
the assets.


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         Safety Dental Cartridge Injector

         The Safety Dental Cartridge Injector is used to administer anesthetics
in dental procedures and uses standard dental needles and anesthetic cartridges
capable of fluid removal. The Safety Dental Cartridge Injector allows for
multiple anesthetic injections, while rendering the needle safe between
injections.

         We received FDA clearance for this device in February 2003 and launched
the 1Shot Safety Dental Syringe, a one-handed, single use, disposable safety
syringe, for sale in June 2003. The product is manufactured by Owens-Illinois in
accordance with the OEM Agreement and exclusively distributed worldwide by
Sultan Chemists. We began to recognize revenue on the sale of the product to
Sultan in 2003, however, the revenue has not been meaningful to date.

         Dual Chamber Pharmaceutical Mixing Device

         The Dual Chamber Pharmaceutical Mixing Device is used to package, store
and mix pre-filled pharmaceutical compounds.

         In February, 2004, we entered into a development agreement with Atrix
Laboratories to develop a dual chamber pharmaceutical mixing device for the
packaging of certain pre-filled liquid pharmaceutical products. Atrix was
acquired by QLT Inc. in 2004, and organizational changes resulted in delays in
development. Currently the product is in the evaluation phase, and Med-Design is
awaiting results. Under the agreement, if the development phase is successful,
we and Atrix will use best efforts to pursue a long-term contract under which we
would license the technology to Atrix and manufacture and supply the dual
chamber device to Atrix.

         Safety Huber Needle

         The Safety Huber Needle is used for percutaneous connection to
implanted vascular access ports for the infusion of chemotherapeutic agents.

         We acquired this product as part of our acquisition of the Safety Huber
Needle business of Luther Needlesafe Products, Inc. (Luther) in April 2004. The
Safety Huber Needle was launched in the U.S. in October 2003.

     PORTFOLIO PRODUCTS

         We are seeking to license technology or enter into collaborative
arrangements for a number of additional applications of our technologies
described below. All of the products derived from these applications would
incorporate our needle retraction technology.

         Safety Pre-filled Dual Chamber Injector. The Safety Pre-filled Dual
Chamber Injector allows medication to be injected directly into a patient from
freeze-dried powders produced by many pharmaceutical manufacturers. In the first
step, sterile water, in one chamber, is introduced into the freeze-dried powder
chamber. This introduction quickly mixes the water and powder, allowing for the
injection. The Safety Pre-filled Dual Chamber Injector can be manufactured with
needles of various gauges and sizes.

         Safety Pre-filled Vial Injector. The Safety Pre-filled Vial Injector
allows medication to be injected directly into a patient from pre-filled vials
produced by many pharmaceutical manufacturers. The pre-filled vial is threaded
onto the rear end of the stationary plunger and becomes integrated as a
functional part of the plunger. The Safety Pre-filled Vial Injector can be
manufactured with needles of various gauges and sizes.

         Safety Arterial Blood Gas Needle. Arterial blood gas needles are used
to collect small samples of arterial blood and deliver the blood to a blood gas
analyzer, after which the filled needle barrel is ready for delivery to a
laboratory for analysis. The Safety Arterial Blood Gas Needle is designed for
conventional laboratory processing and attaches to any standard blood gas needle
with a luer fitting, as would a non-safety needle.

         Safety Blood Donor Needle Set. The Safety Blood Donor Needle Set is
used to collect large volumes of blood for blood bank storage. The Safety Blood
Donor Needle Set is compatible with all standard blood bag tubing sets and can
be manufactured to include a safety blood sampling adapter.

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         Safety Winged A-V Fistula Needle. Safety Winged A-V Fistula Needles are
used to access veins and arteries to perform a hemodialysis procedure.
Hemodialysis removes toxic wastes from the blood of patients in renal failure.

SALES AND MARKETING

         Our marketing efforts, with respect to our portfolio products, focus
upon identifying, principally through the use of publicly available information,
market leaders in the pharmaceutical and medical device industries who we
believe have either a desire to incorporate safety applications in their
existing products or who have the ability to distribute our products. We seek
collaborative arrangements with these companies under which we would manufacture
or arrange to have manufactured our products or through which our needle
retraction technology is applied to their existing products.

         Our marketing efforts, with respect to our contract manufactured
products, focus on identifying buying groups and distributors through trade
shows and business contacts and working with sales representatives to improve
name recognition and knowledge of our products.

         In addition to direct marketing efforts, safety needle legislation and
our relationship with BD have increased industry awareness of our products.

RESEARCH AND DEVELOPMENT

         Our research and development efforts in the past have focused primarily
upon the design and development of our needle retraction technology and the
design and development of specific applications of our technology for
incorporation into the products described above as well as, in certain
instances, the equipment necessary to assemble the products. Research and
development expenses were $1,187,835, $1,484,891 and $1,969,709 in 2004, 2003
and 2002, respectively. Our research and development efforts going forward will
focus primarily upon:

         o  the modification and improvement of our current product technology
            in response to market research and input from health care
            professionals; and

         o  the development of new safety medical devices in response to the
            specific requests and needs of our licensees and potential strategic
            collaborators.

         Our research and development staff consisted of seven employees as of
December 31, 2004.

FACILITIES AND MANUFACTURING

         Our primary focus has been on the design, development and licensing of
safety medical devices. To date, in most cases, our licensees have arranged for
manufacturing of products incorporating the technology licensed from us. In
2001, to enhance our efforts with potential partners that do not possess
manufacturing capabilities, we entered into two OEM Manufacturing Agreements
with Owens-Illinois for the manufacture of our Safety Pre-filled Cartridge
Injector and Safety Dental Cartridge Injector. Under the terms of the
agreements, we purchased the equipment and molds necessary for Owens-Illinois to
manufacture the Safety Dental Cartridge Injector. In addition, PEDI currently
manufactures our Safety Huber Needles.

         We will continue to explore additional opportunities to manufacture
selected products pursuant to collaborative arrangements in which our strategic
collaborators will be responsible for marketing and distribution. We expect that
these products would involve production levels that are substantially lower than
the products of the type licensed to BD.

         In July 2003, we were recommended for certification to ISO 13485:1996
by KEMA Registered Quality, Inc., our notified body. This is a recognized
quality standard for medical device manufacturers that will enable us to apply
for international registrations for products we intend to sell internationally.

         We lease an approximately 26,000 square foot facility in Ventura,
California. In addition to our corporate offices, the facility includes space
for the following:

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         o  a research and development laboratory equipped with assembly and
            test equipment for concept modeling and product development;

         o  a machine shop equipped with tools for the fabrication of new
            product parts for concept modeling and assembly; and

         o  a 3,120 square foot class 100,000 clean room used for the assembly
            of prototypes.

         Nevertheless, as noted above, our strategy is to utilize a contract
manufacturer to manufacture products for commercial distribution.

GOVERNMENT REGULATION

         Our products are subject to regulation by the United States Food and
Drug Administration (FDA) under a number of statutes, including the Federal
Food, Drug and Cosmetic Act (FDCA). The FDA regulates, among other things, the
research, development, testing, manufacture, packaging, labeling, storage,
handling, distribution, advertising and promotion of medical devices in the
United States. Our medical devices must be cleared or approved by the FDA before
they can be sold in the United States.

         Historically, our focus has been on the development, design and
licensing of medical safety devices rather than marketing and manufacturing of
the devices. Therefore, we had not typically made the regulatory filings
necessary to sell our products. Rather, we have relied on our licensees and
other strategic collaborators to pursue regulatory approvals. We anticipate that
we will continue to rely on our strategic collaborators to seek regulatory
compliance if we license our products to them.

         We have decided to commercially market, through our strategic
collaborators, and have manufactured, through contract manufacturers, some of
the products we develop separate from our current or any future license
agreements. We will be required to file for marketing authorization for these
products. The FDCA provides two basic review procedures by which medical devices
can receive FDA marketing authorization. Certain products qualify for a
submission authorized by Section 510(k) of the FDCA. To receive Section 510(k)
clearance, a pre-market notification must be filed with the FDA that a company
plans to begin marketing a medical device. The filing must establish that the
medical device is substantially equivalent to another medical device that has
been granted prior FDA pre-market notification clearance or was marketed prior
to May 28, 1976, the date of enactment of the Medical Device Amendments.
Marketing may commence when the FDA issues a letter finding substantial
equivalence. If a product does not qualify for Section 510(k) clearance, a
pre-market approval application must be filed. Pre-market approval applications
(PMAs) must demonstrate that the medical device is safe and effective. The
pre-market approval process is typically more complex and time consuming than
the Section 510(k) clearance process, and generally requires the submission of
laboratory, pre-clinical and clinical data. Before initiating clinical trials,
companies sponsoring such trials often must seek and obtain an Investigational
Device Exemption.

         Since we will commercially market and have manufactured some of the
products we develop, separate from our current or any future license agreements,
we may be required to file for Section 510(k) clearance, or possibly pre-market
approval, for such products. In that case, we would be subject to device user
fees. The Medical Device User Fee and Modernization Act, enacted in 2002,
authorizes the FDA to assess and collect user fees for Section 510(k) premarket
notifications and premarket approval applications filed on or after October 1,
2002. Fees for fiscal year 2005 range from $3,502 for Section 510(k) premarket
notifications to $239,237 for PMAs, although fee reductions are available for
companies qualifying as small businesses. If we commercially manufacture and
market devices, we also would be required to comply with FDA post-market
reporting requirements, including the submission of reports on certain adverse
events and malfunctions, and requirements governing the promotion of medical
devices. In addition, modifications to our devices may require the filing of new
510(k) submissions or pre-market approval supplements, and we will need to
comply with FDA regulations governing medical device manufacturing practices.
The FDA and the California Department of Health Services (DHS) require medical
device manufacturers to register as such and subject them to periodic FDA and
DHS inspections of their manufacturing facilities. The FDA requires that medical
device manufacturers produce devices in accordance with the FDA's current
Quality System Regulation (QSR), which governs the methods, facilities and
controls used for the design, manufacture, testing, packaging, labeling and
storage of medical devices. We are not currently required to register our pilot
manufacturing facility or comply with QSR requirements because we do not
commercially manufacture and distribute the devices we produce in our facility,
but we will be required to register and comply if we commence commercial
manufacturing. To ensure compliance with QSR requirements, we would need to
expend time, money and effort in the area of production and quality control.

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         There is a different set of regulatory requirements in place for the
European Union (EU). In the EU the company putting a medical device onto the
market must comply with the requirements of the Medical Devices Directive (MDD)
and affix the CE mark to the product to attest to such compliance. To achieve
this, the medical devices in question must meet the "essential requirements"
defined under the MDD relating to safety and performance, and the relevant
company must successfully undergo a verification of its regulatory compliance by
a third party standards certification provider, referred to in the legislation
as a "Notified Body." The nature of the assessment will depend on the regulatory
class of products concerned, which in turn determines the precise form of
testing to be undertaken by the Notified Body.

         The requirements of the MDD must be complied with by the "manufacturer
of the device," which is defined as the party responsible for the design,
manufacture, packaging and labeling of the device before it is placed on the EU
market, regardless of whether these operations are carried out by this party or
on its behalf.

         Accordingly, where medical devices are marketed by our licensees or
strategic collaborators under their names, compliance with the MDD will be their
responsibility. In the event that we decide to manufacture devices to be
distributed in the EU market under our name, all compliance responsibilities
will be borne by us.

         In the case of devices such as certain versions of the safety
pre-filled vial injector, which incorporates a medicinal product as one
integrated product, the regulatory requirements are those relating to medicines
as opposed to devices and an application for a marketing authorization must be
made under Directive 65/65 EEC. However, the safety and performance of the
device features of the integral product are assessed in accordance with the
essential requirements of Annex I of the MDD. Again, if the device is marketed
by our licensees or strategic collaborators under their names, all regulatory
compliance obligations will be borne by such licensees or strategic
collaborators. The party responsible for regulatory compliance will be subject
to continued surveillance by the Notified Body and will be required to comply
with additional national requirements that are beyond the scope of the MDD. We
currently have no foreign sales.

COMPETITION

         The safety medical device market is highly competitive. Licensees of
our products and our other strategic collaborators compete in the United States
and abroad with the safety products and standard products manufactured and
distributed by companies such as:

         o  Tyco International, Inc. (Kendall Healthcare Products Company),
         o  B. Braun,
         o  Terumo Medical Corporation of Japan, and
         o  Johnson & Johnson.

         Developers of safety medical devices which we compete against for
license and collaborative arrangements with medical device and pharmaceutical
companies include:

         o  New Medical Technologies,
         o  Retractable Technologies, Inc.,
         o  Univec, Inc.,
         o  Specialized Health Products International, and
         o  Safety Syringes, Inc.

         Traditionally, competition regarding non-safety medical devices was
primarily based upon price with little differentiation between products. We
expect that products incorporating our technology will compete against both
safety products and non-safety products based upon safety and ease of use and
disposal. While safety medical devices are priced somewhat higher than
equivalent standard medical devices, we believe that based upon estimated costs
associated with accidental needlesticks, products incorporating our technology
should be considered cost effective by the marketplace. There can be no
assurance, however, that purchasers will be willing to pay the increased price
for safety medical devices unless they are mandated to use such devices by laws
such as those passed by the federal government and those passed at the state
level in California, Tennessee, Texas, New Jersey and Maryland.

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LEGISLATION

         Regulatory actions at the federal and state level promote the use of
safety needles to reduce the risk of accidental needlesticks. On July 1, 1999,
California, through its state Occupational Safety and Health Administration
(OSHA) program, began requiring the use of safety needles. Other states
including Texas, Tennessee, Maryland and New Jersey have passed similar
legislation.

         On November 6, 2000, President Clinton signed the Needlestick Safety
and Prevention Act amending OSHA's Bloodborne Pathogens Standard to require that
employers implement the use of safer medical devices in their facilities. To
implement the statutory mandates in the Needlestick Safety and Prevention Act,
OSHA issued a number of further revisions to its Bloodborne Pathogens Standard.
The revised standard became effective on April 18, 2001, and imposes several
needle device safety requirements on employers, including:

         o  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;

         o  documentation of the involvement of non-managerial, frontline
            employees in choosing safer needle devices; and

         o  establishment and maintenance of a sharps injury log for recording
            injuries from contaminated sharps.

         On November 27, 2001, OSHA issued a compliance directive (CPL 2-2.69)
that advises OSHA's regional offices on the proper interpretation and
enforcement of the revised Bloodborne Pathogens Standard provisions. The
compliance directive confirms that the consideration of safer needle devices in
annually reviewing and updating the exposure control plan is a critical element
of the Bloodborne Pathogens Standard. The compliance directive also stresses
that the standard requires employers to use engineering controls (e.g., safer
needle devices) if such controls will remove or eliminate the hazards to
employees. As a result of these regulatory actions, the demand for safety
medical devices has increased, and we believe that this demand will continue to
increase.

PATENTS AND PROPRIETARY RIGHTS

         Our success will depend in part on our ability to obtain and maintain
patent protection for our products, to preserve our trade secrets and to operate
without infringing the proprietary rights of third parties. It is our policy to
protect our intellectual property and maintain the proprietary nature of our
technology by filing patent applications for technology we consider important to
the development of our business and by requiring employees and key consultants
to execute non-disclosure and non-compete agreements.

         We have 26 United States patents with expiration dates ranging from
April 29, 2007 to July 26, 2021 covering our retractable needle technology and
specific product applications based upon our technology. In addition, we have 27
foreign national patents and 11 European patents covering at least 10 countries,
with expiration dates ranging from November 7, 2010 to August 28, 2019. We also
have 23 United States, 89 foreign national, 15 European and 2 international
patent applications pending. We also have a United States design patent based on
one of our products, in addition to 6 foreign national design registrations.

EMPLOYEES

         As of December 31, 2004, we had 14 full-time employees and 2 part-time
employees, most of whom were located at our corporate offices.

                                       8
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AVAILABLE INFORMATION

         We maintain a website at www.med-design.com and make available free of
charge through this website our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. The material on our website is not part of this report,
and the reference to our website address is intended to be an inactive textual
reference only.

                                  RISK FACTORS

WE HAVE A HISTORY OF NET LOSSES AND ANTICIPATE WE WILL INCUR CONTINUED LOSSES
FOR THE FORESEEABLE FUTURE.

         We have incurred significant losses since inception. As of December 31,
2004, our accumulated deficit was $49,441,079. Among other things, our ability
to achieve profitability is dependent upon:

         o  the successful marketing of products incorporating our technology by
            licensees;

         o  the successful marketing of products acquired through purchases;

         o  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

         o  our ability to develop additional products incorporating our core
            technology.

         We have licensed to BD several of our product technologies. Four
products subject to the license have been launched to date, the latest of which
is the 1ml version of the IntegraTM in January 2005. We are unable to predict
whether BD's marketing efforts will be successful and whether the licenses will
generate meaningful revenues for us. If our licensees are not successful in
marketing products incorporating our technology, if we are not successful in
marketing products acquired through purchases, such as the Safety Huber Needle,
and if we are not successful in licensing or entering into other suitable
arrangements relating to the sale of additional products incorporating our
technology, we may never generate meaningful revenues, in which case our
long-term viability would be threatened.

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.

         Although we have increased our product sales, to date, a substantial
portion of our revenues have been derived from "up front" license payments made
by BD and Enpath Medical Inc. (formerly Medamicus) under license agreements with
us. We anticipate that royalty payments from BD related to sales of products
incorporating our technology will represent a substantial portion of our
revenues for at least the next twelve months. BD has the right to terminate its
license agreement with us upon 60 days' notice and would be subject to no
further funding obligations to us with respect to the products incorporating our
technology licensed under the agreement. The ability of BD to sell products
subject to the license agreement will depend on competitive factors and the
resources BD commits to the sale of the products. The extent to which BD commits
its resources to the sale of products is entirely within BD's control. BD is not
obligated to pursue the development and commercialization of these products.
Therefore, our licensing arrangements with BD may not result in the successful
commercialization of products incorporating our technology and may not generate
any future royalty payments. If BD terminates the licensing agreements, is
unsuccessful in developing or selling the products subject to the license
agreement or otherwise determines not to pursue the development and sale of
these licensed products, our business will be significantly harmed.

IF WE ENGAGE IN ANY ACQUISITION OR BUSINESS COMBINATION, WE WILL INCUR A VARIETY
OF RISKS THAT COULD ADVERSELY AFFECT OUR BUSINESS OPERATIONS.

         From time to time we have considered, and we will continue to consider
in the future, strategic business initiatives intended to further the
development of our business. These initiatives may include acquiring businesses,
technologies or products or entering into a business combination with another
company. For example, we purchased the Safety Huber Needle business from Luther
Needlesafe, Inc. on April 1, 2004. The transaction was accounted for as an
acquisition of a business. If we continue to pursue such a strategy, we could,
among other things:

                                       9
<PAGE>
         o  issue equity securities that would dilute our stockholders'
            percentage ownership;

         o  utilize substantial cash resources and incur substantial debt, which
            may place constraints on our operations;

         o  spend substantial operational, financial and management resources in
            integrating new businesses, technologies and products;

         o  assume substantial actual or contingent liabilities; or

         o  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.

         Moreover, any strategic business initiative may not provide anticipated
benefits and could, if unsuccessful, hurt our long-term business prospects.

IF WE ARE UNABLE TO RAISE ADDITIONAL FUNDS AS REQUIRED, WE MAY HAVE TO REDUCE
THE SCOPE OF, OR CEASE, OUR OPERATIONS.

         We believe that we have sufficient funds to support our planned
operations and capital expenditures for at least the next twelve months. The
availability of resources over a longer term will be dependent on our ability to
enter into licensing agreements and to receive royalty payments from our current
and future licensees, the ability of Alliance Medical to successfully market the
Safety Huber Needle and our ability to enter into, and profitably operate under
joint venture or similar arrangements. If we are unsuccessful in negotiating
additional agreements, or if licensing revenues are insufficient to support
operations, we may seek to raise funds through public or private equity
offerings or debt financings.

         If we raise additional capital by issuing equity securities, our
stockholders' percentage ownership will be reduced, and our stockholders may
experience substantial dilution. Any equity securities issued in future equity
offerings may provide rights, privileges or preferences superior to our common
stock. If we raise additional funds by issuing debt securities, we may be
subject to significant restrictions on our operations. If we raise additional
funds through joint ventures or other collaborations and license arrangements,
we may be required to relinquish rights to our technology or products
incorporating our technology or grant licenses on terms that are not favorable
to us.

         If adequate funds are not available on acceptable terms, 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.

         Products incorporating our technology are medical devices subject to
regulation by the United States Food and Drug Administration (FDA). The FDA
regulates, among other things, product manufacture, testing, labeling,
packaging, storage, handling, distribution, advertising and promotion of medical
devices in the United States. Medical devices incorporating our technology must
be cleared or approved by the FDA before they can be sold in the United States.

         Our licensees pursue regulatory approvals. As a result, our ability to
receive royalties from products incorporating our licensed technology may be
impaired or delayed if the licensees do not devote sufficient resources to the
regulatory approval effort. Moreover, obtaining FDA approval or clearance to
market a product can be a lengthy and costly process, which in some cases
involves extensive clinical studies. Our licensees may not be able to obtain the
necessary FDA authorizations to enable marketing of products incorporating
licensed technology in a timely fashion, or at all.

                                       10
<PAGE>
         Even if our licensees obtain the necessary approvals or clearances,
later problems with the product could cause the FDA to suspend or revoke the
approvals or clearances. Also, if the FDA authorizes marketing of products
incorporating licensed technology, our licensees will be subject to continuing
requirements governing, among other things, modifications made to the products'
labeling, the claims that can be made for the products, reporting of adverse
events and recalls and manufacturing processes. We could confront similar
difficulties and obstacles if, in connection with joint venture or similar
arrangements, we directly pursued regulatory approvals or clearances. Failure to
comply with the FDA's requirements can result in issuance of FDA Warning
Letters, agency refusal to approve or clear products, revocation or withdrawal
of approvals previously granted, product seizures, injunctions, recalls,
operating restrictions, limitations on continued marketing and civil and
criminal penalties.

         There is a different set of regulatory requirements in place for the
European Union (EU). To market a product in the EU a manufacturer must be
entitled to affix to the device a CE marking, which is a European symbol of
adherence to quality assurance standards and compliance with applicable European
medical device directives. A CE marking allows a device to be marketed in all
member states of the EU and accordingly, failure to be entitled to affix a CE
marking will prohibit the marketing of a device anywhere in the EU.

         The responsibilities for compliance with the CE requirements lies with
the "manufacturer of the device," which is defined in the Medical Devices
Directive (MDD) as the party responsible for the design, manufacture, packaging
and labeling of the device before it is placed on the EU market, regardless of
whether these operations are carried out by this party or on its behalf.
Accordingly, we rely upon our licensees and strategic collaborators under whose
names products incorporating our technology are marketed to satisfy the
necessary compliance criteria, and if our licensees do not devote sufficient
resources to this process, our ability to receive royalties from the sale of the
products by the licensees and strategic collaborators will be diminished.
Furthermore, the licensees and strategic collaborators may not be able to
satisfy the necessary requirements to allow marketing of products based on our
technology in a timely fashion or at all.

         In the case of devices incorporating a medicinal product as a single
integrated product, such as the safety pre-filled glass syringe, the regulatory
requirements are those relating to medicines as opposed to devices, in which
case our licensees and, if applicable, our strategic collaborators, must make an
application for a marketing authorization under Directive 2001/83/EC. The
application must be made to one EU country, and if approved, is then mutually
recognized in all other remaining EU countries. The process can be very lengthy,
if authorization is granted at all.

         Our failure or the failure of our licensees or strategic collaborators
to comply with the FDA and other applicable foreign or domestic regulations
could cause our business to be harmed significantly.

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.

         Our Safety Huber Needle and 1Shot Safety Dental Syringe are
manufactured for us by contract manufacturers. In addition, we plan to
manufacture and market additional products incorporating our technology, either
ourselves, or through joint ventures or other contractual arrangements under
which third parties manufacture and, in some instances, sell our products. Our
current contractual arrangements require, and any future contractual
arrangements into which we enter will require, us to seek separate clearance or
approval by the FDA of these products, to pay user fees for applications filed
and to comply with ongoing FDA requirements for submission of safety and other
post-market information. Moreover, obtaining FDA approval or clearance to market
a product can be a lengthy and costly process, which in some cases involves
extensive clinical studies. We may not be able to obtain the necessary FDA
authorizations to enable marketing of products incorporating licensed technology
in a timely fashion, or at all. Even if we obtain the necessary approvals for
clearances, later problems with the product could cause the FDA to suspend or
revoke the approvals or clearances. These arrangements also may involve our
assumption of commercial manufacturing responsibility with respect to some of
our products. If we engage in commercial manufacturing, we will be required to
adhere to requirements pertaining to the FDA's current Quality System
Regulation, commonly known as the QSR. The current QSR requirements govern the
methods, facilities and controls used for the manufacture, testing, design,
packaging, labeling, storage and distribution of medical devices. Compliance
with QSR requirements will involve continued expenditure of time, money, and
effort. We may not be able to comply with current QSR regulations or other FDA
regulatory requirements, resulting in delay or inability to manufacture the
products. To the extent that we utilize contract manufacturers, those
manufacturers will be subject to the QSR and other requirements described above.

                                       11
<PAGE>
         Our failure or the failure of our licensees or contract manufacturers
to comply with FDA and other applicable regulations could cause our business to
be harmed significantly.

WE ARE DEPENDENT ON OUR LICENSEES AND CONTRACT MANUFACTURERS FOR THE MANUFACTURE
OF PRODUCTS INCORPORATING OUR TECHNOLOGY.

         We previously have relied on our licensees to arrange for the
commercial manufacture of products incorporating our technology. Our licensees
generally manufacture products incorporating our technology at their own
facilities. Pursuant to an agreement between Owens-Illinois, Closure Inc. and
us, Owens-Illinois is manufacturing one of our products and may manufacture
another if we enter into a distribution agreement for that product. Also,
pursuant to an agreement we assumed in connection with our purchase of the
Safety Huber Needle business from Luther, PEDI is manufacturing our Safety Huber
Needles. Contracting with third parties or relying on licensees to manufacture
products incorporating our technology presents the following risks:

         o  delays in the manufacture of the products could have a material
            adverse effect on the marketing of the products;

         o  the manufacturers may not comply with requirements imposed by the
            FDA or other governmental agencies, which are described in the
            preceding risk factor;

         o  we may have to share intellectual property rights to improvements in
            the manufacturing processes or new manufacturing processes for the
            products;

         o  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

         o  we may not be able to find substitute manufacturers, if necessary.

         Any of these factors could delay commercialization of products
incorporating our technology and adversely affect the sale of the products and
our license or joint venture revenues.

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.

         Our intellectual property consists of patents, licenses, trade secrets
and trademarks. Our success depends in part on our ability to:

         o  obtain and maintain patents and other intellectual property;

         o  establish and maintain trademarks;

         o  operate without infringing the proprietary rights of others; and

         o  otherwise maintain adequate protection of our technology and
            products in the United States and other countries.

         We have a number of patents and pending United States patent
applications relating to our product technology. Patent applications filed by us
or on our behalf may not result in patents being issued to us. Even if a patent
is issued, the patent may not afford protection against competitors with similar
technology. Furthermore, others may independently develop similar technology or
duplicate our technology.

                                       12
<PAGE>
         Our commercial success depends in part on our avoiding the infringement
of patents and proprietary rights of other parties and developing and
maintaining a proprietary position with regard to our own technology and
products. We cannot predict with certainty whether we will be able to enforce
our patents. We may lose part or all of our patents as a result of challenges by
competitors. Patents that may be issued, publications relating to technology
subject to our patent applications or other actions could block our ability to
obtain patents or to operate as we would like. Others may develop similar
technology or duplicate technology that we have developed or claim that we are
infringing their patents.

         We may become involved in litigation or interference proceedings
declared by the U.S. Patent and Trademark Office, or oppositions or other
intellectual property proceedings outside of the United States. If any of our
competitors have filed patent applications or obtained patents that claim
inventions that we also claim, we may have to participate in an interference
proceeding to determine who has the right to a patent for these inventions in
the United States. If a litigation or interference proceeding is initiated, we
may have to spend significant amounts of time and money to defend our
intellectual property rights or to defend against infringement claims of others.
Litigation or interference proceedings could divert our management's time and
effort. Even unsuccessful claims against us could result in significant legal
fees and other expenses, diversion of management time and disruption in our
business. Any of these events could harm our ability to compete and adversely
affect our business.

         An adverse ruling arising out of any intellectual property dispute
could invalidate or diminish our intellectual property position. An adverse
ruling could also subject us to significant liability for damages, prevent us
from using processes or products, or require us to license intellectual property
from third parties. Costs associated with licensing arrangements entered into to
resolve litigation or an interference proceeding may be substantial and could
include ongoing royalties. We may not be able to obtain any necessary licenses
on satisfactory terms.

         In addition, we rely on trade secrets to protect technology. We attempt
to protect our proprietary technology by requiring certain of our employees and
key consultants to execute non-disclosure and non-competition agreements.
However, these agreements could be breached, and our remedies for breach may be
inadequate. In addition, our trade secrets may otherwise become known or
independently discovered by our competitors. If we lose any of our trade
secrets, our business and ability to compete could be harmed.

BECAUSE WE ARE DEPENDENT ON A SINGLE CORE TECHNOLOGY, WE ARE PARTICULARLY
VULNERABLE TO THE DEVELOPMENT OF PRODUCTS INCORPORATING COMPETING TECHNOLOGY AND
TECHNOLOGICAL CHANGE.

         The majority of the products we have designed and developed to date,
and products we currently intend to design and develop, are based upon our
proprietary retraction technology. Our focus on a single core technology makes
us vulnerable to the development of superior competing products and changes in
technology that could eliminate any demand for products incorporating our
technology. Our business would suffer if a superior competing product were
developed, or if there were a reduced demand for products incorporating our
technology. Moreover, we may not be able to successfully develop additional
product applications of our technology.

WE ARE DEPENDENT ON KEY PERSONNEL, AND IF WE ARE UNABLE TO RETAIN THESE
PERSONNEL, OUR BUSINESS COULD BE HARMED.

         Our success depends upon the skills, experience and efforts of our
executive officers and certain marketing and technical personnel. If any of our
key personnel do not continue in their present capacities, our operations could
be materially adversely affected.

PRODUCTS INCORPORATING OUR TECHNOLOGY MAY NOT ACHIEVE MARKET ACCEPTANCE.

         The use of safety needles is relatively new. Although the market for
syringes, fluid collection devices and infusion therapy devices is large, actual
sales of products incorporating our technology have not been significant. Sales
of products incorporating our technology will depend mostly upon our licensees'
ability to demonstrate the operational and safety advantages of products
incorporating our technology compared to standard syringes, fluid collection
devices and infusion therapy devices, and safety medical devices developed by
competitors. Our licensees and others who have contracted to sell products
incorporating our technology may be unable to sell products due to the higher
cost of safety medical devices relative to standard medical devices. There may
never be a significant demand for products incorporating our technology.

                                       13
<PAGE>
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.

         We currently have limited sales and marketing capabilities, and we do
not intend to build a sales and marketing infrastructure for commercial sales of
products incorporating our technology. Accordingly, we are dependent on our
licensees and other strategic collaborators to sell products incorporating our
technology and generate royalties for us. If our licensees and strategic
collaborators do not devote sufficient effort to the sale and marketing of
products incorporating our technology, or are otherwise unsuccessful in
marketing these products, our business will suffer. In this regard, the
co-promotion agreement with Abbott Laboratories to co-market our pre-filled
injector products has not been successful.

WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS.

         The manufacture and sale of medical devices entails an inherent risk of
liability in the event of product failure or claim of harm caused by product
operation. We may not be able to avoid product liability claims. Although we are
unaware of any potential claims, we currently maintain product liability
insurance coverage ($1,000,000 per occurrence and in the aggregate), such
coverage may not be sufficient to protect us or may not remain available at a
reasonable cost. If we are unable to obtain sufficient insurance coverage on
reasonable terms or to otherwise protect against potential product liability
claims, we could be severely harmed if a person brings a successful product
liability claim against us.

OUR MARKETS ARE HIGHLY COMPETITIVE.

         The safety medical device market is highly competitive. Products
incorporating our technology will compete in the United States and abroad with
the safety products and standard products manufactured and distributed by
companies such as:

         o  Tyco International, Inc. (Kendall Healthcare Products Company),
         o  B. Braun,
         o  Terumo Medical Corporation of Japan, and
         o  Johnson & Johnson.

         Developers of safety medical devices against whom we compete include:

         o  New Medical Technologies,
         o  Retractable Technologies, Inc.,
         o  Univec, Inc.,
         o  Specialized Health Products International, Inc., and
         o  Safety Syringes, Inc.

         Many of our competitors are substantially larger and better financed
than we are and have more experience in developing medical devices than we do.
These competitors may use their substantial resources to improve their current
products or to develop additional products that may compete more effectively
with products incorporating our technology. In addition, new competitors may
develop products that compete with products incorporating our technology, or new
technology may arise that could significantly affect the demand for products
incorporating our technology. We cannot predict the development of future
competitive products or companies. We will be materially adversely affected if
we are unable to compete successfully.

OUR STOCK PRICE IS VOLATILE.

         Historically, our stock price, like the market price of the securities
of other companies engaged in the design and development of medical devices, has
fluctuated widely. In this regard, the closing price per share of our stock as
reported by Nasdaq declined from $42.15 on July 26, 2001 to $0.81 on March 28,
2005. On March 29, 2005, the closing price per share was $$0.83. Our stock price
may be subject to similar future fluctuations in response to:

                                       14
<PAGE>
         o  announcements regarding technological innovations by us or our
            competitors;

         o  the licensing of products or the formation of joint ventures or
            similar arrangements by us or our competitors;

         o  government regulatory action regarding products incorporating our
            technology;

         o  the development of new products by us or our competitors;

         o  general conditions in the medical device industry;

         o  quarter-to-quarter variations in operating results; and

         o  our failure to meet analysts' expectations.

         Investors may lose money upon the resale of our shares.

OUR COMMON STOCK IS SUBJECT TO DILUTION.

         As of December 31, 2004, there were 16,749,486 shares of our common
stock issued and outstanding. In addition, an aggregate of 3,670,076 additional
shares of our common stock are issuable pursuant to stock options granted under
our Non-Qualified Stock Option Plan and warrant agreements. As of March 1, 2005,
24,822 shares of our common stock were available for issuance under our
Non-Qualified Stock Option Plan. Our common stock may be subject to further
dilution should we offer our equity securities in the future.

WE ARE UNLIKELY TO PAY DIVIDENDS ON OUR COMMON STOCK.

         No cash dividends have been paid on our common stock. We anticipate
that future earnings, if any, will be used to finance operations and expand our
business. Accordingly, we do not anticipate that we will pay cash dividends in
the future.

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.

         Various provisions of our certificate of incorporation and bylaws and
Delaware law could delay or prevent a third party from acquiring shares of our
stock.

         We have an authorized class of 5,000,000 shares of preferred stock,
none of which are issued and outstanding. The Board of Directors has the
authority, without shareholder approval, to issue preferred stock in one or more
series and to fix the relative rights and preferences of the preferred stock,
including their redemption, dividend and conversion rights. The issuance of
preferred stock could have the effect of delaying, deterring or preventing a
change in control.

         Section 203 of the Delaware General Corporation Law generally prohibits
a public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and other specified transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of a
corporation's voting stock. Section 203 may discourage transactions in which our
stockholders might otherwise receive a premium for their shares over the then
current price and may limit our stockholders' ability to approve transactions
even if they believe the transaction is in their best interests.

ITEM 2. PROPERTIES

         We lease a facility of approximately 26,000 square feet in Ventura,
California. In addition to our corporate offices, the facility includes space
for the following:

                                       15
<PAGE>
         o  a research and development laboratory equipped with assembly and
            test equipment for concept modeling and product development;

         o  a machine shop equipped with tools for the fabrication of new
            product parts for concept modeling and assembly; and

         o  a 3,120 square foot class 100,000 clean room used for the assembly
            of prototypes.

         Our annual lease payments for this facility are approximately $185,104,
and the lease expires on October 31, 2008.

ITEM 3. LEGAL PROCEEDINGS

         There are no legal proceedings pending or, to the knowledge of
management, threatened against us.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None




                                       16
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

         Our common stock trades on the Nasdaq National Market under the symbol
"MEDC." Set forth below are the high and low sales prices of our common stock,
as reported by Nasdaq, during each of the quarterly periods in 2003 and 2004.

MARKET INFORMATION

FISCAL YEAR ENDED DECEMBER 31, 2003                   HIGH             LOW
-----------------------------------                 --------          ------
First Quarter.....................................  $  10.13          $ 2.90
Second Quarter....................................      5.29            2.90
Third Quarter.....................................      5.62            3.69
Fourth Quarter....................................      4.50            3.25

FISCAL YEAR ENDED DECEMBER 31, 2004                    HIGH            LOW
-----------------------------------                 --------          ------
First Quarter.....................................  $   4.80          $ 3.50
Second Quarter....................................      3.88            1.66
Third Quarter.....................................      2.09            0.86
Fourth Quarter....................................      1.48            0.89

         On March 29, 2005, the last reported price of our common stock was
$0.83.

HOLDERS

         As of March 29, 2005, we estimate that we had approximately 113 holders
of record of our common stock. We believe that the number of beneficial holders
of our stock is greater.

DIVIDENDS

         We have never paid dividends, and we do not anticipate declaring or
paying any cash dividends in the foreseeable future. We currently intend to
retain any future earnings for use in our business.


                                       17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

         The following table sets forth selected consolidated financial data
with respect to the five most recent fiscal years ended December 31, 2004, 2003,
2002, 2001 and 2000. The selected consolidated statement of operations data set
forth below for the fiscal year ended December 31, 2004 is derived from the
consolidated financial statements which have been audited by BDO Seidman, LLP,
independent registered public accounting firm, as indicated in their report
which is included elsewhere in the Annual Report and our consolidated financial
statements as of, and for the years ended, December 31, 2003, 2002, 2001 and
2000 were audited by another auditor. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements of
Med-Design, and the Notes thereto, included elsewhere in the Annual Report, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7.
<TABLE>
<CAPTION>
                                      2004            2003             2002             2001             2000
-------------------------------------------------------------------------------------------------------------------
<S>                             <C>               <C>              <C>              <C>              <C>
Year ended December 31,:
  Revenue...............         $  1,773,507     $    826,725     $    474,325     $  2,330,000     $  4,128,993
  Net loss..............           (6,161,348)      (6,046,489)      (8,081,061)      (4,026,991)      (2,793,365)

  Dividends on Series A
    preferred stock.....                   --               --               --               --          150,000

  Net loss per common
    share...............         $      (0.37)    $      (0.42)    $      (0.67)    $      (0.38)    $      (0.30)

At December 31,:
  Total assets..........         $ 24,176,933     $ 28,546,429     $ 16,989,224     $  8,259,960     $  8,565,573
  Long-term payable.....              706,342            1,506            4,080           16,806           20,895
-------------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FUTURE UNCERTAINTIES

         The following discussion should be read in conjunction with the
consolidated financial statements and accompanying notes, which appear elsewhere
in the Annual Report on Form 10-K. It contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including those discussed below and elsewhere in this Annual Report on
Form 10-K, particularly under the heading "Risk Factors."

OVERVIEW

         We consider the following to be the most important matters on which
management focuses in evaluating our operating performance and financial
condition.

         Revenue Growth. We believe that revenue growth is the key factor
affecting our results of operations. Our revenues have historically consisted of
royalties and up-front licensing fees. In 2004, we recognized a majority of our
revenues from sales of our Safety Huber Needle. Our arrangement regarding the
sale of the Safety Huber Needle, under which we have contracted for manufacture
and distribution of the product and purchased the sublicense rights to the
intellectual property, provides us with an expanded safety product line and
provides greater potential for per unit revenues than would be the case with a
licensed product. We believe our short term revenue growth will largely be
dependent on our ability to gain market share in the expanding Safety Huber
Needle market and the efforts of BD in selling products incorporating technology
licensed from us. Sales of the Safety Huber Needle in 2004 were below
management's expectations. We evaluated the realization of the acquired license
rights under SFAS 144 and concluded that there was sufficient undiscounted cash
flows to support the carrying value amount. The current fair value of the
acquired license rights is less than the carrying value. We will continue to
evaluate the realization of the assets and record an impairment charge if
necessary. Management continues to provide the distributor of our Safety Huber
Needle with sales assistance and other support in an effort to increase sales of
the Safety Huber Needle. We cannot assure that this effort will achieve
meaningful success.

                                       18
<PAGE>
         The extent to which BD commits its resources to the sale of our
licensed technology products is entirely within BD's control. Management has
been disappointed with the pace of commercialization of these products in the
past and has encouraged BD to accelerate its efforts. In this regard, although
license revenues from BD have increased, all of such revenues constitute minimum
royalties. Although management is encouraged by the growth in sales of the BD
VacutainerTM Push Button Blood Collection Set and the limited launch of the 1ml
version of the IntegraTM Syringe in February 2004, management expected greater
revenues to be generated in 2004, and the fact that Med-Design is paid only
minimum royalties underscores the limited market penetration of these new
products.

         We receive royalties from the sale of the Safety Seldinger Device from
Enpath Medical, Inc. Royalties from this product were approximately $120,000 in
2003 and declined to approximately $78,000 in 2004. Enpath Medical, Inc.'s major
customer decided to use a non-safety version of Seldinger, and sales declined
significantly. On December 29, 2004, we entered into Addendum Number Two to the
Development and Licensing Agreement with Enpath Medical, Inc. for the Safety
Seldinger Device to eliminate the minimum purchase requirement to maintain
exclusivity. We expect the future royalties from this product will decrease
significantly.

         Management was also disappointed with the sales of the 1Shot Safety
Dental Syringe. This product, which Med-Design has contract manufactured, was
launched in June 2003. Revenue was approximately $168,000 in 2003, and declined
to approximately $19,000 in 2004. Management is attempting to assist Sultan
Chemists, the product's distributor, with its efforts to increase sales through
alternative marketing channels as well as a campaign to increase the awareness
of safety legislation through lobbyists.

         In addition to the efforts of management to increase sales of the
Safety Huber Needle and the 1Shot Safety Dental Syringe, management is focused
on increasing revenues by entering into additional collaborative arrangements
and possibly by acquiring complementary businesses.

         We rely on our licensees to provide us with sales information in order
to calculate the royalties due to us as a result of sales. While we have to date
relied on this sales information without independent verification, we are
currently developing appropriate procedures to verify this information in the
future and will have such information audited when we deem it appropriate.

         Liquidity. We have historically generated cash principally from
issuances of equity and up-front licensing fees. In 2004, revenue from sales of
the Safety Huber Needle and the minimum royalty payments from BD also
contributed cash but considerably less than necessary to support operations.
Although we believe that our cash on hand is sufficient to support ongoing
operations for at least the next twelve months, our ultimate success depends on
our ability to generate sufficient revenues to support operations. If we cannot
generate sufficient revenues to support operations, we will likely have to rely
upon debt or equity financing. There is no assurance we will be able to obtain
such financing.

RESULTS OF OPERATIONS

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

         Total revenue was $1,773,507 in 2004, as compared to revenue of
$826,725 in 2003. Revenue in 2004 reflects $1,011,641 in sales of the Safety
Huber Needle, all of which occurred after our acquisition of the Safety Huber
Needle business in April 2004, royalties of $664,341 from BD and $78,581 from
Enpath Medical, Inc. and $18,944 from sales of the1Shot Safety Dental Syringe.
Revenue in 2003 reflected sales of the 1Shot Safety Dental Syringe of $168,471
and royalty payments from the sale of our licensed products of $658,254.

                                       19
<PAGE>
         Product costs, which consist of $942,535 direct and indirect costs
related to our contract manufactured products, the amortization of the
investment in acquired licensed products of $297,622, consulting expense of
$75,000 and a write-off of inventory obsoleted due to design change of $154,000,
were $1,469,581 for the period ended December 31, 2004. Product costs for the
period ended December 31, 2003 consisted of direct and indirect costs related to
the Safety Dental Syringe sales of $153,953.

         General and administrative expenses were $5,441,572 in 2004, a decrease
of $486,141 as compared to general and administrative expenses of $5,927,713 in
2003. The decrease was primarily due to a reduction of charges for stock based
compensation of $1,011,389 offset by increases in professional and technical
fees and audit fees of approximately $480,000 related to implementing internal
controls principally to effect compliance with the applicable provisions of the
Sarbanes-Oxley Act.

         Research and development expenses were $1,187,835 in 2004, a decrease
of $297,056, as compared to research and development expenses of $1,484,891 in
2003. The decrease was due primarily to a reduction in expenditures for employee
compensation resulting from a reduction in work force. We have focused our R&D
activities on design changes to our current portfolio driven by the preferences
expressed by potential customers, and therefore are comfortable reducing
employee related expenditures.

         Investment income was $591,588 in 2004, a decrease of $64,653 as
compared to $526,935 in 2003. The decrease was due to a decrease in invested
cash resulting from the purchase of the assets of the Safety Huber Needle
business.

         Realized loss on investments were $401,319 for the year ended December
31, 2004. We sold fixed income securities which yielded lower rates of interest
to avoid further deterioration of our portfolio in a rising interest market. The
securities were sold in September 2004 at a loss of $340,000.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

         Total revenue was $826,725 in 2003, as compared to revenue of $474,325
in 2002. Revenue in 2003 reflected the sales of the 1Shot Safety Dental Syringe
as well as royalty payments under our licensing agreements, including $445,701
in minimum royalty payments from BD and Enpath Medical, Inc. Revenue in 2002
also reflected royalty payments from the sale of our licensed products.

         General and administrative expenses were $5,927,713 in 2003, a decrease
of $674,707 as compared to general and administrative expenses of $6,602,420 in
2002. The decrease was primarily due to a reduction of expenditures for employee
compensation of approximately $227,000 resulting from a reduction in staff,
legal expense reductions of approximately $266,000, professional cost decreases
of approximately $125,000 and stock based compensation decreases of
approximately $309,000 offset by an increase in bad debt expense of $250,000.

         Research and development expenses were $1,484,891 in 2003, a decrease
of $484,818 as compared to research and development expenses of $1,969,709 for
the corresponding period in 2002. The decrease is partially attributable to a
$350,000 charge recorded in December 2002 resulting from the settlement of a
claim by our former Director of Research and Development and consulting costs of
approximately $96,000 in 2002 related to the implementation of a quality program
required for companies engaged in the manufacture of medical devices.

         Investment income was $526,935 in 2003, an increase of $224,106 as
compared to $302,829 in 2002. The increase was due primarily to an increase of
approximately $11,000,000 in invested cash in 2003.

         In 2002, we recorded an impairment charge on our investment in Enpath
Medical Inc. (formerly Medamicus) of $331,419.

LIQUIDITY AND CAPITAL RESOURCES

         In 2004, our principal sources of cash were $1,116,614 of royalties
from the sale of our licensed products, $928,173 from the sale of our contract
manufactured products and the net sale of investment securities of $8,811,613,
however available for sale securities decreased by $9,195,030 from 2003 to 2004.
In 2003 our principal sources of cash were the net proceeds of approximately
$16,000,000 from our August 2003 private placement of common stock, the
$2,241,329 of cash generated from our sale of Enpath Medical, Inc. common stock,
and royalties of $329,398 from the sale of our licensed products. Additionally,
in 2002, our principal source of cash was the net proceeds of approximately
$14,200,000 from our March 2002 private placement of common stock.

                                       20
<PAGE>
         Our primary uses of cash in 2004 consisted of general and
administrative costs, including cash payments of $2,036,799 for salaries and
research and development costs and the purchase of the Safety Huber Needle
business of $5,901,240. General and administrative costs in 2003 included cash
payments of $2,115,645 for salaries and research and development costs. General
and administrative costs in 2002 included cash payments of $2,687,661 for
salaries and research and development costs.

         At December 31, 2004, we had a $3,000,000 revolving line of credit at
Wachovia Bank under which borrowings would be collateralized by substantially
all of our assets. This facility can be used to fund working capital needs and
finance capital equipment purchases; however, advances for capital equipment
financing may not exceed $600,000. Any borrowings to meet working capital needs
will bear interest at LIBOR plus 2.25%, while borrowings to finance capital
equipment purchases would bear interest at the prime rate plus 2.5%. There were
no borrowings under this facility during 2004 and 2003. The Wachovia facility
expires on May 31, 2005.

         On March 29, 2005, we established an additional revolving line of
credit under which we may borrow up to $3,000,000 with U.S. Bank. The facility
is collateralized by our investments in U.S. Bank. Any borrowing would bear
interest at LIBOR plus 1.75%. There are no financial covenants. The facility
expires on March 29, 2006 and there is no assurance that we will be successful
in negotiating a continuation of the availability of the line of credit or terms
that will be available to us. There are no amounts outstanding under the
agreement.

         At December 31, 2004, we had cash, cash equivalents and available for
sale securities of $14,600,270 as compared to $25,029,749 at 2003. We believe
that we have sufficient funds to support our planned operations for at least the
next twelve months. The availability of resources over a longer term will be
dependent on our ability to increase sales of our manufactured products and
royalty payments we receive from our licensees, enter into new licensing
agreements, enter into and profitably operate under collaborative arrangements,
and raise additional equity or debt financing. We have not generated sufficient
cash flows from operations to support our operations on an on-going basis and
anticipate that we may need to seek additional sources of funding in the future.
If we are unsuccessful in negotiating additional agreements, or if licensing
revenues and revenues from sales of our manufactured products are insufficient
to support our operations, we may be required to reduce the scope of, or cease,
our operations.

CONTRACTUAL OBLIGATIONS

         Our contractual obligations as of December 31, 2004 consist of the
following:
<TABLE>
<CAPTION>
                                                                 Payments due by period
                                         -----------------------------------------------------------------------
                                                  Total        Less than 1 year      1-3 years        3-5 years
                                         -----------------------------------------------------------------------
<S>                                            <C>                <C>                <C>             <C>
Operating lease obligations                  $  751,464         $  196,874         $  399,501        $155,089
Employment agreement obligations                570,151            489,013             81,138               -
Purchase obligations                            586,000            586,000                  -               -
Obligations under Luther agreement              750,000            250,000            500,000               -
Consulting agreement - Luther                   325,000            100,000            225,000               -
Consulting agreement - Donegan                  474,869            343,060            131,809               -
                                         -----------------------------------------------------------------------
Total                                        $3,457,484         $1,964,947         $1,337,448        $155,089
                                         =======================================================================
</TABLE>
         During 2003, we renewed our lease for office space in Ventura,
California. The renewal is for five years beginning November 1, 2003 and
terminating October 31, 2008. The base rent of $15,310 per month and can be
increased annually by 3%.

                                       21
<PAGE>
         On October 14, 2004 James M. Donegan resigned as President and Chief
Executive Officer of Med-Design. Mr. Donegan and Med-Design executed a
Separation Agreement and Release on October 14, 2004. Pursuant to the agreement,
Mr. Donegan has, and will continue, to make himself available on a part-time
basis for consultation with Med-Design. Med-Design began to pay Mr. Donegan an
aggregate of $497,275 of which $321,512 remains to be paid in bi-weekly
installments through November 15, 2005 with the remaining balance of $150,971 to
be paid in bi-weekly installments from November 15, 2005 to November 14, 2006.
In addition, through November 15, 2005, Med-Design continued to provide medical
and life coverage for Mr. Donegan. Med-Design also accelerated vesting of
options to purchase 120,000 shares of Med-Design common stock at an exercise
price of $3.25 per share, and granted options to purchase 30,000 shares of
common stock at an exercise price of $0.92 per share. Med-Design also agreed to
continue to pay, through April 30, 2005, $2,500 per month to cover Mr. Donegan's
rent and utilities, and agreed to provide all benefits accrued or earned as of
the date of the agreement.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         In preparing our financial statements, we are required to make
estimates and assumptions that, among other things, affect the reported amounts
of assets and liabilities and reported amounts of revenues and expenses. These
estimates and assumptions are most significant where they involve levels of
subjectivity and judgment necessary to account for highly uncertain matters or
matters susceptible to change, and where they can have a material impact on our
financial condition and operating performance. We discuss below the more
significant estimates and related assumptions used in the preparation of our
consolidated financial statements. If actual results were to differ materially
from the estimates made, the reported results could be materially affected.

         Patents. Med-Design capitalizes costs incurred in connection with
patent acquisitions and patent applications. These costs are amortized using the
straight line method over the estimated useful life of the patents, not to
exceed the legal life. The statutory legal life of a patent is 20 years from the
date of application. The carrying value of the patents are regularly reviewed by
management for impairments whenever events or changes and circumstances indicate
that the carrying amount may not be recoverable. Impairments, if any, are
recognized when the expected future cash flows derived from the patent is less
than the carrying value. The estimates of useful lives of the patents and
expected future cash flows are based on a number of factors including product
demand, market conditions, technology developments and the activities of our
competitors. Med-Design does not believe that the value of any of its patents
are impaired and does not believe that it is likely that there will be a change
in the future. Historically, Med-Design has never recorded an impairment to the
value of its patent portfolio. If future events or evaluations cause management
to conclude that the value of one or more patents is impaired, we may recognize
significant losses, and our financial condition may be negatively affected, in
the future.

         Investment in Acquired License Rights. We acquired the Safety Huber
Needle business of Luther Needlesafe Products, Inc. We amortized the acquired
license rights over 16 years, which represents both the term of the sublicense
agreement and the expiration date related to the patent. The carrying value of
the investment and the related estimated remaining lives are evaluated at each
balance sheet date. An impairment or charge in useful life would be recorded
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable or the useful life has changed in accordance with SFAS
No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets."

         Recoverability of Long-Lived Assets and Goodwill. We test long-lived
assets, including property and equipment and amortizable intangible assets, for
recoverability whenever events or change in circumstances indicate that we may
not be able to recover the asset's carrying amount. When events or changes in
circumstances indicate an impairment may exist, we evaluate the recoverability
by determining whether the undiscounted cash flows expected to result from the
use and eventual disposition of that asset cover the carrying value at the
evaluation date. If the undiscounted cash flows are not sufficient to recover
the carrying value, we measure any impairment loss as the excess of the carrying
amount of the asset over its fair value.

         We conduct a review for impairment of goodwill at least annually.
Additionally, on an interim basis, we assess the impairment of goodwill whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors that we consider important which could trigger an
impairment review include significant underperformance relative to historical or
expected future operating results, significant changes in the manner or use of
the acquired assets or the strategy for the overall business, significant
negative industry or economic trends or a decline in a company's stock price for
a sustained period.

                                       22
<PAGE>
         Estimates of recovery of carrying values of long-lived assets and
goodwill are based on a number of assumptions which may not prove to be correct.
In addition, it is reasonably possible that our accounting estimates with
respect to the ultimate recoverability of the carrying value of long-lived
assets and goodwill could change in the near term and that the effect of such
changes on our Consolidated Financial Statements could be material. While we
believe that the current recorded carrying values of our long-lived assets and
goodwill are not impaired, there can be no assurance that a significant
write-down or write-off will not be required in the future.

         Available for Sale Securities. Available-for-sale securities are
reported at a fair value, based on quoted market prices, with the net unrealized
gain or loss reported as a component of "Accumulated other comprehensive income
(loss)" in stockholders' equity.

         We record an impairment charge when we believe an investment has
experienced a decline in value that is other-than-temporary. In determining if a
decline in market value below cost for a publicly traded security is
other-than-temporary, we evaluate the relevant market conditions, offering
prices, trends of earnings, price multiples and other key measures. When a
decline in value is deemed to be other-than-temporary, we recognize an
impairment loss in the current period to the extent of the decline below the
carrying value of the investment. Factors involved in the determination of
potential impairment include fair value as compared to amortized cost, length of
time the value has been below amortized cost, credit worthiness of the issuer,
forecasted financial performance of the issuer, position of the security in the
issuer's capital structure, the presence and estimated value of collateral or
other credit enhancement, length of time to maturity, interest rates and our
intent and ability to hold the security until the market value recovers. Adverse
changes in market conditions or poor operating results of underlying investments
could result in additional other-than-temporary losses in future periods.
Moreover, if management's evaluation is not correct, we may recognize
significant impairment losses in later periods.

         Revenue Recognition. We recognize revenue in accordance with SEC Staff
Accounting Bulletin (SAB) No. 104, "Revenue Recognition." SAB No. 104 requires
that four basic criteria must be met before revenue can be recognized: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred or
services rendered; (3) the fee is fixed and determinable; and (4) collectibility
is reasonably assured. Determination of criteria (3) and (4) require
management's judgments regarding the fixed nature of the fee charged for
services rendered and products delivered and the collectibility of those fees.
To satisfy the criteria, we: (1) input orders based upon receipt of a customer
purchase order; (2) record revenue upon shipment of goods when risk of loss and
title transfer under our arrangements with customers or otherwise complying with
the terms of the purchase order; (3) confirm pricing through the customer
purchase order and; (4) validate creditworthiness through past payment history,
credit agency reports and other financial data. Other than through warranty
rights, our customers do not have explicit or implicit rights of return. Should
changes in conditions cause management to determine the revenue recognition
criteria are not met for certain future transactions, such as a determination
that an outstanding account receivable has become uncollectible, revenue
recognized for any reporting period could be adversely affected.

         Income Taxes. Med-Design accounts for income taxes under the asset and
liability method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. A
valuation allowance is recorded for deferred tax assets where it appears more
likely than not that we will not recover the deferred tax asset.

         We experienced an ownership change as defined by Internal Revenue Code
Section 382 in 1997. Losses incurred through January 23, 1997 amounting to $4.9
million are generally limited in their utilization to $1.7 million per year. It
is possible that recent ownership changes may result in further limitations
under Section 382.

NEW ACCOUNTING PRONOUNCEMENTS

         In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS 151 "Inventory Costs- An Amendment of ARB No. 43, Chapter 4." SFAS
151 amends the guidance in ARB No. 43, Chapter 4 to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material. The provisions of SFAS 151 are effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is
not expected to have a material effect on our financial condition or results of
operations.

                                       23
<PAGE>
         In December 2004, the FASB issued SFAS 153 "Exchanges of Non-monetary
Assets - an amendment of APB Opinion No. 29". SFAS 153 amends APB Opinion 29 to
eliminate the similar productive asset exception and establishes that exchanges
of productive assets should be accounted for at fair value, rather than at
carryover basis unless (1) neither the asset received nor the asset surrendered
has a fair value that is determinable within reasonable limits, (2) the
transaction is an exchange transaction to facilitate sales to customers, or (3)
the transaction lacks commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of SFAS 153 are
effective for non-monetary exchanges occurring in fiscal periods beginning after
June 15, 2005. The adoption of SFAS 153 is not expected to have a material
effect on our financial condition or results of operations.

         In December 2004, the FASB issued SFAS 123R, "Share-Based Payment."
SFAS 123R establishes that employee services received in exchange for
share-based payment result in a cost that should be recognized in the income
statement as an expense when the services are consumed by the enterprise. It
further establishes that those expenses be measured at fair value determined as
of the grant date. The provisions of SFAS 123R become effective in the third
quarter of 2005. We previously applied Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") and the Financial
Accounting Standards Board Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation" in accounting for our stock plans. We
had adopted the disclosure only provisions of Statement of Financial Accounting
Standards N0. 123 "Accounting for Stock Based Compensation. The adoption of SFAS
123R is expected to increase stock-based compensation. We are currently
assessing the impact of the accounting standard on our results of operations and
financial position.





                                       24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         There were no amounts outstanding under our revolving line of credit at
December 31, 2004. If we were to borrow under our credit facility, borrowings to
meet working capital needs would bear interest at LIBOR plus 2.25% and
borrowings to finance capital equipment purchases would bear interest at the
prime rate plus 2.5%. As a result, any such borrowings would be subject to
interest rate fluctuations which could increase our interest expense,
respectively.

         We invest a portion of excess cash in marketable securities in
accordance with our investment guidelines as approved by our Board of Directors.
These investments include corporate debt securities and U.S. government and
agencies securities. These investments are in highly liquid, low risk securities
where our risk of loss is at a minimum.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Incorporated by reference from the consolidated financial statements
and notes thereto of Med-Design which are attached hereto beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)       Evaluation of Disclosure Controls and Procedures

          Our management, with the participation of our Acting, Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
report. Disclosure controls and procedures are defined in SEC regulations as
controls and other procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the reports that it files
or submits under the Securities Exchange Act of 1934, as amended, is recorded,
summarized and reported within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
an issuer in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is accumulated and communicated to the issuer's
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on their evaluation and in light
of the material weakness in internal control discussed below, the Acting, Chief
Executive Officer and Chief Financial Officer concluded that these controls were
not effective as of December 31, 2004. Med-Design is currently studying ways to
ensure ongoing compliance with relevant accounting and financial reporting
requirements. Med-Design and BDO are continuing to review these matters. A
controls system cannot provide absolute assurance that the objectives of the
controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.

(b)      Management's Report on Internal Control Over Financial Reporting

          The Sarbanes-Oxley Act of 2002 (the "Act") imposed many requirements
regarding corporate governance and financial reporting. One requirement under
section 404 of the Act, beginning with this annual report, is for management to
report on the Company's internal controls over financial reporting and for our
independent registered public accountants to attest to this report. In late
November 2004, the Securities and Exchange Commission issued an exemptive order
providing a 45 day extension for the filing of these reports and attestations by
eligible companies. We elected to utilize this 45 day extension, therefore, this
Form 10-K does not include these reports. Med-Design's management and BDO
Seidman have not yet completed the annual report on internal control over
financial reporting and the related audit report for the year ended December 31,
2004. These reports will be included in an amended Form 10-K expected to be
filed in April 2005. During 2004, we spent considerable time and resources
analyzing, documenting and testing our system of internal controls.

                                       25
<PAGE>
         While the Company has not completed its Sarbanes-Oxley Section 404
assessment, the Company's management is currently assessing the effectiveness of
its internal control over financial reporting as of December 31, 2004 using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework. As of the date of this
Annual Report on Form 10-K, management has identified a material weakness in its
internal control over financial reporting related to the misapplication of Step
1 of Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment of Long-Lived Assets" related to our evaluation of the recoverability
of the acquired license rights which caused us to reverse a previously recorded
impairment charge. This adjustment related to the fourth quarter of 2004 and did
not affect prior periods.

         A material weakness in internal control over financial reporting (as
defined in Auditing Standard No. 2 of the Public Company Accounting Oversight
Board) is a significant deficiency, or combination of significant deficiencies,
that results in more than a remote likelihood that a material misstatement of
the annual or interim financial statements will not be prevented or detected.

(c)      Change in Internal Control over Financial Reporting

         No change in our internal control over financial reporting occurred
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


                                       26
<PAGE>
                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         This information will be included in an amendment to this Form 10-K,
which will be filed within 120 days after the close of our fiscal year covered
by this report.

ITEM 11. EXECUTIVE COMPENSATION

         This information will be included in an amendment to this Form 10-K,
which will be filed within 120 days after the close of our fiscal year covered
by this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

         This information will be included in an amendment to this Form 10-K,
which will be filed within 120 days after the close of our fiscal year covered
by this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         This information will be included in an amendment to this Form 10-K,
which will be filed within 120 days after the close of our fiscal year covered
by this report.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

          This information will be included in an amendment to this Form 10-K,
which will be filed within 120 days after the close of our fiscal year covered
by this report.




                                       27
<PAGE>
                                     PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this Report:

         1. Financial Statements. The following financial statements and notes
thereto of Med-Design which are attached hereto beginning on page F-1, have been
incorporated by reference into Item 8 of this Report on Form 10-K:

                                                                           Page
                                                                           ----
     Reports of Independent Registered Public Accounting Firms              F-2
     Consolidated Balance Sheets as of December 31, 2004 and 2003           F-4
     Consolidated Statements of Operations for the years ended December
       31, 2004, 2003 and 2002                                              F-5
     Consolidated Statements of Stockholders' Equity and Comprehensive
       Loss for the years ended December 31, 2004, 2003 and 2002            F-6
     Consolidated Statements of Cash Flows for the years ended December
       31, 2004, 2003 and 2002                                              F-7
     Notes to Consolidated Financial Statements                             F-8

         2. All schedules are omitted because they are inapplicable, or not
required, or the information is shown in the financial statements or notes
thereto.

(b) List of Exhibits. The following is a list of exhibits filed as part of this
annual report on Form 10-K. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference.



                                       28
<PAGE>
EXHIBIT
NUMBER                               DESCRIPTION
------                               -----------
3.1(1)         Certificate of Incorporation of Med-Design.

3.2(8)         Certificate of Amendment to Certificate of Incorporation of
               Med-Design

3.3(1)         Bylaws of Med-Design.

4.1(1)         Specimen of Common Stock Certificate of Med-Design.

10.1(4)        Amended and Restated Non-Qualified Stock Option Plan.

10.2(2)        Lease Agreement dated June 15, 1995 between Moen Development and
               MDC Research Ltd. and guaranteed by Med-Design.

10.3           Renewal Lease Agreement dated November 1, 2003, Moen Development
               and MDC Research Ltd.**

10.4(9)        Asset Purchase Agreement dated April 1, 2004 between Med-Design
               and Luther Needlesafe Product, Inc.

10.5(4)        Licensing and Option Agreement dated December 11, 1998 with
               Becton, Dickinson and Company.

10.6(4)        Equity agreement dated December 11, 1998 with Becton, Dickinson
               and Company.

10.7(5)        Addendum to License Agreement dated December 11, 1999 with
               Becton, Dickinson and Company.

10.8(5)        Second Addendum to License Agreement dated January 25, 2000 with
               Becton, Dickinson and Company.

10.9(6)        Warrant Agreement dated April 25, 2000 between Med-Design and
               Lawrence Ellis.*

10.10(6)       Licensing Agreement dated May 11, 2000 with Becton, Dickinson and
               Company.

10.11(7)       2001 Equity Compensation Plan.

10.12          Separation of Employment Agreement dated October 10, 2004 between
               Med-Design and James Donegan.**

10.13(10)      Employment Agreement dated October 10, 2002 between Med-Design
               and Joseph Bongiovanni.

10.14(10)      Employment Agreement dated October 10, 2002 between Med-Design
               and Lawrence D. Ellis.

10.15(11)      Employment Agreement dated May 15, 2002 between Med-Design and
               David Dowsett

10.16(11)      Employment Agreement extension dated October 17, 2003 between
               Med-Design and David Dowsett

10.17(12)      Developing and Licensing Agreement for Safety "Seldinger" Needle
               Device between Med-Design and Enpath Medical, Inc. dated as of
               August 25, 2000 )the "Enpath Agreement").

10.18(13)      Addendum Number One to the Enpath Agreement.

10.19(14)      Addendum Number Two to the Enpath Agreement.

10.20          Plastics Engineering & Development Incorporated Manufacturing
               Agreement dated as of May 22, 2003.**

10.21          New Alliance of Independent Medical Distributors, Inc.
               Exclusive Master Sales & Distribution Agreement dated as of
               November 1, 2003 Agreement.**

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).**

99.1           Experts**


                                       29
<PAGE>
---------------
*    Constitutes management contract or compensatory plan or arrangement
     required to be filed as an exhibit to this Form 10-K

**   Filed herewith

(1)  Incorporated by reference to Form SB-2 filed April 7, 1995 and Amendment
     Nos. 1, 2 and 3 thereto (File No. 33-901014).

(2)  Incorporated by reference to Form 10-KSB filed on March 29, 1996.

(3)  Incorporated by reference to Form 10-KSB filed on March 31, 1998.

(4)  Incorporated by reference to Form 10-KSB filed on March 31, 1999.

(5)  Incorporated by reference to Form 10-KSB filed on March 7, 2000.

(6)  Incorporated by reference to Form 10-K filed March 23, 2001.

(7)  Incorporated by reference to Schedule 14A filed on June 28, 2001.

(8)  Incorporated by reference to Form 10-K filed on April 1, 2002.

(9)  Incorporated by reference to Form 8-K filed on April 15, 2004.

(10) Incorporated by reference to Form 10-K filed on March 28, 2003.

(11) Incorporated by reference to Form 10-K filed on March 12, 2004.

(12) Incorporated by reference to Exhibit 10.1 to Form 8-K filed by Enpath
     Medical, Inc. on September 19, 2000.

(13) Incorporated by reference to Exhibit 10.1 to Form S-3 filed by Enpath
     Medical, Inc. on October 16, 2001.

(14) Incorporated by reference to Form 8-K filed on January 3, 2005.




                                       30
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                            THE MED-DESIGN CORPORATION


Date: March 30, 2005                        By: DAVID R. DOWSETT
                                                -------------------------------
                                                David R. Dowsett
                                                Acting, Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature                                Title                                                Date
---------                                -----                                                ----
<S>                                      <C>                                                 <C>
DAVID R. DOWSETT                         Acting, Chief Executive Officer                      March 30, 2005
------------------------------
David R. Dowsett

LAWRENCE D. ELLIS                        Vice President, Finance and Chief Financial          March 30, 2005
------------------------------           Officer (Principal Financial Officer and Principal
Lawrence D. Ellis                        Accounting Officer)


RALPH BALZANO                            Director                                             March 30, 2005
------------------------------
Ralph Balzano

JOSEPH N. BONGIOVANNI, III               Director                                             March 30, 2005
------------------------------
Joseph N. Bongiovanni, III

PAUL CASTIGNANI                          Director                                             March 30, 2005
------------------------------
Paul Castignani

D. WALTER COHEN                          Director                                             March 30, 2005
------------------------------
D. Walter Cohen

JAMES M. DONEGAN                         Director                                             March 30, 2005
------------------------------
James M. Donegan

VINCENT J. PAPA                          Director                                             March 30, 2005
------------------------------
Vincent J. Papa

JAMES E. SCHLEIF                         Director                                             March 30, 2005
------------------------------
James E. Schleif

                                         Director
------------------------------
Stephen E. Smith, Jr.

PASQUALE L. VALLONE                      Director                                             March 30, 2005
------------------------------
Pasquale L. Vallone

GILBERT M. WHITE                         Director                                             March 30, 2005
------------------------------
Gilbert M. White
</TABLE>
<PAGE>
                   Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                      <C>
Reports of Independent Registered Public Accounting Firms...................................                F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003 ...............................                F-4

Consolidated Statements of Operations for years ended                                                       F-5
     December 31, 2004, 2003 and 2002.......................................................

Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the years                        F-6
     ended December 31, 2004, 2003 and 2002.................................................

Consolidated Statements of Cash Flows for the years ended                                                   F-7
     December 31, 2004, 2003 and 2002.......................................................

Notes to Consolidated Financial Statements..................................................        F-8 to F-31
</TABLE>


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of The Med-Design Corporation:


We have audited the accompanying consolidated balance sheet of The Med-Design
Corporation (the "Company") as of December 31, 2004 and the related consolidated
statements of operations, stockholders' equity and comprehensive loss and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2004
and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.


/s/ BDO Seidman LLP

Los Angeles, California
March 29, 2005

                                      F-2
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of The Med-Design Corporation:


In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows present fairly, in all material respects, the financial
position of The Med-Design Corporation and its subsidiaries (the "Company") at
December 31, 2003, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards of the Public Company Accounting Oversight Board (United
States), which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


PricewaterhouseCoopers LLP


Philadelphia, Pennsylvania
March 5, 2004


                                      F-3

<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                    December 31,             December 31,
                                                                                        2004                    2003
                                                                                   --------------           --------------
<S>                                                                                <C>                      <C>
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents..................................................   $    3,964,388           $    5,198,837
     Available-for-sale securities .............................................       10,635,882               19,830,912
     Trade receivables..........................................................          386,979                  655,056
     Inventory..................................................................           39,250                   39,243
     Prepaid expenses and other current assets..................................          236,265                  265,761
                                                                                   --------------           --------------

       Total current assets.....................................................       15,262,764               25,989,809

     Property, plant, and equipment, net  ......................................          714,477                  782,872
     Patents, net of accumulated amortization of $1,046,700 and $843,133 at
         December 31, 2004 and December 31, 2003, respectively..................        1,816,760                1,773,748
     Acquired license rights, net of accumulated amortization of $297,622 at
         December 31, 2004......................................................        6,150,879                       --
     Goodwill  .................................................................          232,053                       --
                                                                                   --------------           --------------

    Total Assets................................................................   $   24,176,933           $   28,546,429
                                                                                  ===============           ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Current maturities of long-term payable ...................................   $      250,000           $           --
     Capital lease obligations..................................................               --                    1,506
     Accounts payable...........................................................          458,122                  451,110
     Accrued compensation and benefits..........................................          111,912                  162,740
     Accrued professional fees..................................................          325,000                  138,950
     Other accrued expenses.....................................................           68,742                   27,466
                                                                                   --------------           --------------
       Total current liabilities................................................        1,213,776                  781,772

    Long-term payable, less current maturities..................................          456,342                       --
                                                                                   --------------           --------------

       Total liabilities........................................................        1,670,118                  781,772
                                                                                   --------------           --------------

Commitments and contingencies (Note 8)..........................................

STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares
         outstanding ...........................................................               --                       --
    Common stock, $.01 par value, 30,000,000 shares authorized; 16,749,486
         shares and 16,572,390 shares issued and outstanding as of December 31,
         2004 and December 31, 2003, respectively...............................          167,495                  165,724
    Additional paid-in capital..................................................       71,917,610               71,033,777
    Accumulated deficit.........................................................      (49,441,079)             (43,279,731)
    Accumulated other comprehensive (loss) income...............................         (137,211)                (155,113)
                                                                                   --------------           --------------

Total stockholders' equity......................................................       22,506,815               27,764,657
                                                                                   --------------           --------------

Total Liabilities and Stockholders' Equity......................................   $   24,176,933           $   28,546,429
                                                                                   ==============           ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------------------
                                                                  2004               2003                2002
                                                              ------------        -----------        ------------
<S>                                                           <C>                 <C>                <C>
Revenue................................................
     Product sales.....................................       $  1,030,585        $   168,471        $         --
     Licensing royalties...............................            742,922            658,254             474,325
                                                              ------------        -----------        ------------
     Total revenue.....................................          1,773,507            826,725             474,325

Operating expense:.....................................
     Product costs.....................................          1,469,581            153,953                  --
     General and administrative........................          5,441,572          5,927,713           6,602,420
     Research and development..........................          1,187,835          1,484,891           1,969,709
                                                              ------------        -----------        ------------

     Total operating expenses..........................          8,098,988          7,566,557           8,572,129
                                                              ------------        -----------        ------------

Loss from operations...................................         (6,325,481)        (6,739,832)         (8,097,804)
Interest expense.......................................            (26,136)              (422)             (1,042)
Investment income......................................            591,588            526,935             302,829
Realized gain (loss) on investments....................           (401,319)           166,830            (285,044)
                                                              ------------        -----------        ------------

Net loss...............................................        ($6,161,348)       ($6,046,489)        ($8,081,061)
                                                              ============        ===========        ============

Basic and diluted loss per common share ...............           ($ 0.37)           ($ 0.42)             ($0.67)
                                                              ============        ===========        ============

Weighted average common shares outstanding.............         16,712,934         14,282,613          12,116,143
                                                              ============        ===========        ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-5
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
                                                                                             UNREALIZED
                                                                                              GAINS &
                                                                                              LOSS ON
                                                                 ADDITIONAL                  AVAILABLE-
                                         COMMON                   PAID-IN       ACCUMULATED   FOR-SALE   STOCKHOLDERS' COMPREHENSIVE
                                         SHARES       AMOUNT      CAPITAL         DEFICIT    SECURITIES     EQUITY     INCOME (LOSS)
                                         ------       ------      -------         -------    ----------  ------------- -------------
<S>                                   <C>           <C>        <C>            <C>            <C>        <C>            <C>
Balance December 31, 2001.........     10,963,386    $109,634   $36,869,326    ($29,152,181)  $ 56,780   $ 7,883,559    ($3,996,130)
  Issuance of common stock in
    connection with exercise of
    stock options and warrants....        103,784       1,038       252,046                                  253,084
  Issuance of common stock in
    connection with private
    placement, net................      1,326,260      13,262    14,179,178                               14,192,440
  Issuance of stock in
    connection with employment
    agreements....................        126,368       1,264        (1,264)
  Stock based compensation........                                1,783,863                                1,783,863
  Change in unrealized gains
    (loss) on Available-for-sale-
    securities....................                                                               5,951         5,951          5,951

  Net loss........................                                               (8,081,061)              (8,081,061)    (8,081,061)
                                       ----------    --------   -----------    ------------   --------   -----------    -----------
Balance December 31, 2002.........     12,519,798    $125,198   $53,083,149    ($37,233,242)  $ 62,731   $16,037,836    ($8,075,110)
                                       ----------    --------   -----------    ------------   --------   -----------    ===========
  Issuance of common stock in
    connection with exercise of
    stock options and warrants....        320,900       3,209       594,590                                  597,799
  Issuance of common stock in
    connection with private
    placement, net................      3,598,844      35,989    15,874,080                               15,910,069
  Issuance 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                                1,483,286
  Change 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    ($6,264,333)
                                       ----------    --------   -----------    ------------   --------   -----------    ===========
  Issuance of common stock in
    connection with exercise of
    stock options and warrants....         50,300         503       163,203                                  163,706
  Issuance of stock in
    connection with employment
    agreements....................         59,702         597          (597)                                      --
  Stock based compensation........                                  471,898                                  471,898
  Issuance of stock in connection
    with Huber purchase...........         67,094         671       249,329                                  250,000
  Change in unrealized gains
    (loss) on Available-for-sale-
    securities....................                                                              17,902        17,902         17,902

  Net 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)
                                       ==========    ========   ===========    ============   ========   ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-6
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                         --------------------------------- ---------
                                                            2004             2003            2002
                                                         -----------     -----------     -----------
<S>                                                     <C>             <C>             <C>
Cash flows from operating activities:
Net loss...........................................      ($6,161,348)    ($6,046,489)    ($8,081,061)
Adjustments to reconcile net loss to cash used in
    operating activities:
      Depreciation and amortization................          735,776         420,333         511,307
      Amortization of discount on long-term payable           25,530              --              --


      Loss (gain) from sale of available-for-sale
        securities.................................          401,319        (166,830)        285,044
      Loss on disposal of fixed assets.............            5,382              --              --
      Default of related party note................               --         250,000              --
      Stock-based compensation.....................          471,898       1,483,286       1,783,863

    Changes in operating assets and liabilities:
      Trade receivable.............................          268,077        (511,468)             --
      Prepaid expenses and other current assets....            7,496        (119,059)       (274,376)
      Inventory....................................           89,993              --              --
      Accounts payable.............................            7,012         160,335          92,634
      Accrued expenses.............................          176,498        (327,377)        495,079
                                                         -----------     -----------     -----------

      Net cash used in operating activities........       (3,972,367)     (4,857,269)     (5,187,510)
                                                         -----------     -----------     -----------

Cash flows from investing activities:
    Purchase of property and equipment.............          (88,077)       (439,371)       (292,084)
    Additions to patents...........................         (246,578)       (293,191)       (148,577)
    Notes receivable - related party...............               --              --        (525,000)
    Repayment of note receivable - related party...               --              --         275,000
    Investments in available-for-sale securities...       (8,735,936)    (16,579,932)    (12,125,034)
    Sale of available-for-sale securities..........       17,547,549       8,946,176       5,089,772
    Acquisition of business........................       (5,901,240)             --              --
                                                         -----------     -----------     -----------

      Net cash provided by (used in) investing
        activities.................................        2,575,718      (8,366,318)     (7,725,923)
                                                         -----------     -----------     -----------

Cash flows from financing activities:
    Capital lease payments.........................           (1,506)         (2,574)        (12,726)
    Warrants and stock options exercised...........          163,706         597,799         253,084
    Proceeds from private placement, net...........               --      15,910,069      14,192,440
                                                         -----------     -----------     -----------

      Net cash provided by financing activities....          162,200      16,505,294      14,432,798
                                                         -----------     -----------     -----------

Increase (decrease) in cash and cash equivalents...       (1,234,449)      3,281,707       1,519,365
Cash and cash equivalents, beginning of period.....        5,198,837       1,917,130         397,765
                                                         -----------     -----------     -----------
Cash and cash equivalents, end of period...........      $ 3,964,388     $ 5,198,837     $ 1,917,130
                                                         ===========     ===========     ===========
Cash paid during the period:
    Interest paid..................................      $    26,135     $       422     $     1,042
    Taxes paid.....................................           46,681          59,099           9,435
Non-cash investing and financing activities:
    Change in unrealized (loss) gain on available-
      for-sale securities..........................           17,902        (217,844)          5,951
    Advances for purchase of fixed assets
      transferred from Prepaid Assets to Property
      and Equipment................................           22,000         234,645              --
    Acquired business (note 5):
    Non-cash consideration:
      Fair value of common stock issued............          250,000              --              --
      Liability - additional purchase consideration          680,812              --              --
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-7
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       NATURE OF BUSINESS

         The Med-Design Corporation and its subsidiaries ("Med-Design" or the
"Company") are principally engaged in the design, development and licensing and
contract manufacture of safety medical devices intended to reduce the incidence
of accidental needlesticks. Each safety medical device the Company designs and
develops incorporates the Company's proprietary needle retraction technology.
The Company's technology enables health care professionals to retract a needle
into the body of the medical device for safe disposal without any substantial
change in operating technique. Med-Design's product technology generally can be
categorized into the following five groups: hypodermic syringes used to inject
drugs and other fluids into the body; fluid collection devices used to draw
blood or other fluids from the body; injectors used to inject drugs and other
fluids into the body from a pre-filled cartridge, vial or capsule; infusion
therapy devices used to provide access to patients' vessels; and specialty
safety devices for needle based and other applications.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION:

         The accompanying consolidated financial statements include the accounts
of The Med-Design Corporation and its wholly owned subsidiaries, MDC Investment
Holdings, Inc. and MDC Research Ltd. All significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS:

         Med-Design considers all bank depository cash accounts with initial
maturities of three months or less to be cash equivalents.

CONCENTRATIONS OF CREDIT RISK:

         Financial instruments which potentially subject Med-Design to
concentration of credit risk, consist principally of cash and
available-for-sale-securities. At times, Med-Design's cash balances exceed FDIC
insurance limits. The Company invests cash balances in financial institutions
with high credit ratings.

         Med-Design invests in high credit quality financial instruments and,
through diversification, attempts to limit the extent of credit exposure on
available-for-sale-securities.

         The Company performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary, but generally does not require collateral. Revenue and accounts
receivable from significant customers representing 10% of total revenues were as
follows:
<TABLE>
<CAPTION>
                                                 As of and for the year ended December 31,
                       -----------------------------------------------------------------------------------------------
                                 2004                             2003                              2002
                       --------------------------    -------------------------------    ------------------------------
                         % of         % of A/R,           % of            % of A/R,         % of           % of A/R,
                        Revenue          Net             Revenue             Net           Revenue            Net
                       ----------    ------------    ---------------    ------------    --------------    ------------
<S>                    <C>           <C>             <C>                <C>             <C>               <C>
Company A                 45.1            37.4               --              --                --              --
Company B                 37.4            48.7             66.3              --              66.3             9.0
Company C                  4.4             1.1             33.7             100              33.7            91.0
</TABLE>

                                      F-8

<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

AVAILABLE-FOR-SALE-SECURITIES:

         Med-Design's investments are classified as available-for-sale
securities and accordingly, any unrealized holding gains or losses, net of
taxes, are excluded from income and recognized as a separate component of
stockholders' equity until realized. Investments in marketable securities are
made consistent with Med-Design's investment guidelines as developed by
management and approved by the Board of Directors. Available-for-sale securities
are reported at fair value, based on quoted market prices, with the net
unrealized gain or loss reported as a component of "Accumulated other
comprehensive income (loss)" in stockholders' equity.

         The Company records an impairment charge when it believes an investment
has experienced a decline in value that is other-than-temporary. In determining
if a decline in market value below cost for a publicly traded security is
other-than-temporary, the Company evaluates the relevant market conditions,
offering prices, trends of earnings, price multiples and other key measures.
When a decline in value is deemed to be other-than-temporary, the Company
recognizes an impairment loss in the current period to the extent of the decline
below the carrying value of the investment. Factors involved in the
determination of potential impairment include for value as compared to amortized
cost, length of time the value has been below amortized cost, credit worthiness
of the issuer, forecasted financial performance of the issuer, position of the
security in the issuer's capital structure, the presence and estimated value of
collateral or other credit enhancement, length of time to maturity, interest
rates and our intent and ability to hold the security until the market value
recovers.

         Adverse changes in market conditions or poor operating results of
underlying investments could result in additional other-than-temporary losses in
future periods.

PROPERTY, PLANT AND EQUIPMENT:

         Property, plant and equipment are carried at cost. Significant
additions or improvements extending the assets' useful lives are capitalized.
When property, plant and equipment are sold, retired or otherwise disposed of,
the applicable costs and accumulated depreciation are removed from the accounts
and the resulting gain or loss recognized.

         Depreciation is computed by the straight-line method, utilizing rates
based upon the estimated service life of the various classes of assets.
Leasehold improvements are depreciated over the remaining lease term or asset
life if shorter.

SEGMENT REPORTING

          Segment Reporting: SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" requires a business enterprise, based upon a
management approach, to disclose financial and descriptive information about its
operating segments. Operating segments are components of an enterprise about
which separate financial information is available and regularly evaluated by the
chief operating decision maker(s) of an enterprise. The Company has one business
segment, which consists of the design, development and licensing and contract
manufacture of safety medical devices.


                                      F-9


<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SIGNIFICANT ACCOUNTING POLICIES, CONTINUED


IMPAIRMENT OF LONG-LIVED ASSETS:

         The Company evaluates the recoverability of long-lived assets except
for goodwill and the related estimated remaining lives at each balance sheet
date. An impairment or change in useful life would be recorded whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable or the useful life has changed in accordance with SFAS No. 144,
"Accounting for the Impairment of Disposal of Long-Lived Assets."

         During the years ended December 31, 2004, 2003 and 2002 there were no
impairments of long-lived assets.

PATENTS:

         Patents, patent applications, and patent rights are stated at
acquisition costs. The weighted-average amortization period for patents acquired
was 16 years, 17 years and 18 years for the years ended December 31, 2004, 2003
and 2002, respectively. Amortization of patents is recorded by the straight-line
method over the estimated useful lives of the patents, not to exceed the legal
life. Patent amortization expense for the years ended December 31, 2004, 2003
and 2002 was $203,567, $184,058, and $172,536, respectively. The estimated
aggregate amortization expense for 2005 through 2010 is $209,809 per year.

INVESTMENT IN ACQUIRED LICENSE RIGHTS:

         On April 1, 2004, Med-Design acquired the assets of the Safety Huber
Needle business of Luther Needlesafe Products, Inc., which has been accounted
for as an acquisition of a business in accordance with Statement of Financial
Accounting Standards No. 141 with the guidance in "EITF 98-3", Determining
Whether a Non-monetary Transaction Involves Receipt of Production Assets or of a
Business. The Company amortizes acquired license rights over 16 years, which
represents both the term of the underlying sublicense agreement and expiration
date of the related patent. Amortization expense for the acquired license rights
was $297,623 for the year ended December 31, 2004. The estimated aggregate
amortization expense for 2005 through 2010 is $396,828 per year.

GOODWILL RESULTING FROM BUSINESS ACQUISITION:


         The Company accounts for goodwill in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 142. SFAS No. 142 addresses the
accounting and reporting of goodwill subsequent to its acquisition. SFAS No. 142
provides that goodwill will no longer be amortized. Goodwill of a reporting unit
is tested for impairment on an annual basis or between annual tests if an event
occurs or circumstances change that would reduce the fair value of a reporting
unit below its carrying amount.


                                      F-10
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

REVENUE RECOGNITION:

         Fees received in connection with the entry into licensing contracts for
the Company's patented, proprietary products are recorded as revenue following
the execution of a binding agreement, and when the Company has fulfilled its
obligations under the arrangement or when Med-Design's only remaining obligation
is to maintain and defend the licensed patent rights.

         Royalties received on licensed products which are based on the
licensee's product volume are recorded as revenue in the period when the royalty
payments are earned. Minimum contractual royalty payments related to licensed
products are recorded as revenue during the period to which the minimum payments
relate.

         Revenues from the sale of the Safety Dental Needle are recorded upon
acknowledgement of receipt of the product by our distributor, Sultan Chemists.
Title and risk of loss are the Company's obligation until acknowledgement by the
customer per the contract.

         Revenues from the sale of the Safety Huber Needle are recorded upon
shipment of the product to the Company's distributor. Title and risk of loss are
the buyer's obligation upon shipment per contract.

         Sales returns and allowances are recorded as an adjustment of revenue
when they occur. Med-Design historically has experienced an immaterial number of
returns and does not believe that experience affects its revenue recognition at
this time.

ACCOUNTS RECEIVABLE:

         Med-Design does not believe an allowance for doubtful accounts is
necessary. Historically, the Company has collected 100% of its outstanding
receivables. The majority of Med-Design's receivables have historically been
related to royalty revenue with manufacturing companies and large distributors
that have substantial financial means and a history of timely payment to the
Company.

PRODUCT COST:

         Product cost includes direct expenditures for material, packaging,
sterilization, freight, amortization of investment in acquired license rights
and consulting expense related to the acquisition of the Safety Huber Needle
business. The Company also allocates some of its overhead (labor, use of
facilities and depreciation) to product cost.

INCOME TAXES:

         Med-Design accounts for income taxes under the asset and liability
method in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. A
valuation allowance is recorded for deferred tax assets where it appears more
likely than not that the Company will not be able to recover the deferred tax
asset.

RESEARCH AND DEVELOPMENT:

         Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.

                                      F-11
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2.       SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

STOCK BASED COMPENSATION:

         The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and the Financial
Accounting Standards Board Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation," in accounting for its stock plans.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Had compensation expense for Med-Design's Stock Option Plan been recorded
based on the fair value of the options and warrants at the grant dates in 2004,
2003 and 2002, consistent with the provisions of SFAS 123, Med-Design's net loss
and net loss per share would have reflected the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
                                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                               -----------------------------------------------------------
                                                                    2004                 2003                 2002
                                                                    ----                 ----                 ----
<S>                                                            <C>                  <C>                   <C>
Net loss - as reported................................         ($  6,161,348)       ($  6,046,489)        ($  8,081,061)

Total stock-based employee compensation expense
     included in reported net loss....................             471,898              1,483,286            1,783,863

Total stock-based employee compensation expense
     determined under fair-value based method for all
     awards...........................................            (1,715,048)          (4,317,862)          (6,794,591)
                                                               ----------------     -----------------     ----------------

Pro forma net loss....................................           ($7,404,498)         ($8,881,065)        ($13,091,789)
                                                               ================     =================     ================
Net loss per share:

Basic and diluted loss per share - as reported........                ($0.37)              ($0.42)               ($0.67)

Basic and diluted loss per share - pro forma..........                ($0.44)              ($0.62)               ($1.08)
</TABLE>
         The fair value of each option or warrant grant was estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 2004, 2003 and
2002: dividend yield of 0.00%; expected volatility of 98.15% to 101.00%,
expected live of 5 years and range of risk free interest rate from 3.376% to
4.00% in 2004; dividend yield of 0.00%; expected volatility of 97.76% to
100.97%, expected live of 9 years and range of risk free interest rate of 1.00%
to 2.00% in 2003: dividend yield of 0.00%; expected volatility of 98.15% to
109.22%, expected lives of 8 years and range of risk free interest rate of 2.00%
to 3.00% in 2002

ESTIMATES UTILIZED IN THE PREPARATION OF FINANCIAL STATEMENTS:

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.

                                      F-12
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2.       SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

 COMPREHENSIVE INCOME (LOSS):

         Comprehensive income (loss) consists of net income and other gains and
losses affecting shareholders' equity that, under accounting principles
generally accepted in the United States of America, are excluded from net income
(loss). Such items consist of unrealized gains and losses on marketable equity
investments.

NEW ACCOUNTING PRONOUNCEMENTS:

         In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS 151 "Inventory Costs- An Amendment of ARB No. 43, Chapter 4." SFAS
151 amends the guidance in ARB No. 43, Chapter 4 to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material. The provisions of SFAS 151 are effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is
not expected to have a material effect on the Company's financial condition or
results of operations.

         In December 2004, the FASB issued SFAS 153. "Exchanges of Non-monetary
Assets - an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 amends APB
Opinion 29 to eliminate the similar productive asset exception and establishes
that exchanges of productive assets should be accounted for at fair value,
rather than at carryover basis unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable
limits, (2) the transaction is an exchange transaction to facilitate sales to
customers, or (3) the transaction lacks commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The provisions of
SFAS 153 are effective for non-monetary exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have
a material effect on the Company's financial condition or results of operations.

         In December 2004, the FASB issued SFAS 123R, "Share-Based Payment".
SFAS 123R establishes that employee services received in exchange for
share-based payment result in a cost that should be recognized in the income
statement as an expense when the services are consumed by the enterprise. It
further establishes that those expenses be measured at fair value determined as
of the grant date. The provisions of SFAS 123R become effective in the third
quarter of 2005. The Company previously applied Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (" APB 25") and the
Financial Accounting Standards Board Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" in accounting for its stock
plans. The Company had adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." The adoption of SFAS 123R is expected to increase stock-based
compensation. The Company is currently assessing the impact of the accounting
standard on the Company's results of operations and financial position.


                                      F-13
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.       AVAILABLE-FOR-SALE SECURITIES

Gross unrealized gains and losses on available-for-sale securities as of
December 31, 2004 and 2003 are as follows:
<TABLE>
<CAPTION>
                                                                          GROSS         GROSS
                                                     AMORTIZED COST     UNREALIZED    UNREALIZED   ESTIMATED FAIR
                                                                          GAINS         LOSSES          VALUE
<S>                                                 <C>                 <C>           <C>          <C>
                         2004
   US government and agency securities                     $8,384,342       $--          ($66,297)      $8,318,045
   Corporate debt securities                                2,388,751        --           (70,914)       2,317,837

                                                    ---------------------------------------------------------------
       Total                                              $10,773,093       $--          (137,211)     $10,635,882
                                                    ===============================================================

                         2003
   US government and agency securities                    $17,455,913       $--         ($107,308)     $17,348,605
   Corporate debt securities                                2,528,993        --           (48,422)       2,480,571
   Publicly-traded corporate equity securities                  1,119       617                 --           1,736

                                                    ---------------------------------------------------------------
       Total                                              $19,986,025      $617         ($155,730)     $19,830,912
                                                    ===============================================================
</TABLE>
         Gross unrealized losses on U.S. government and agency securities had
been in a continuous loss position for less than 12 months as of December 31,
2004 and 2003.

         Net unrealized gains and losses on available-for-sale securities
consists of the following:
<TABLE>
<CAPTION>
                                                                            FOR THE YEARS ENDED DECEMBER 31,
                                                               -----------------------------------------------------------
                                                                      2004                2003                  2002
                                                                      ----                ----                  ----
<S>                                                                 <C>                 <C>                    <C>
Unrealized holding gains (losses) during the period...              $419,221            ($384,674)             $290,995

Less:  reclassification adjustment for gains (losses)
     included in net loss.............................              (401,319)             166,830              (285,044)
                                                               ----------------     -----------------     ----------------
Net gains (losses) on available-for-sale securities...               $17,902            ($217,844)               $5,951
                                                               ================     =================     ================
</TABLE>
         Investment income for the years ended December 31, 2004, 2003 and 2002
was $591,886, $526,935 and $349,204 respectively.

         At December 31, 2002, Med-Design held 235,442 shares of Enpath Medical
Inc. common stock valued at $1,989,502 and included in available-for-sale
securities at December 31, 2002.

                                      F-14
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.       AVAILABLE-FOR-SALE SECURITIES, CONTINUED

         In accordance with FSAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and consistent with the Company's accounting policy
for marketable equity securities, in the fourth quarter of fiscal 2002, the
Company determined that the decline in the fair value of its investment in
Enpath Medical Inc. stock (which was received as part of a development and
licensing agreement in 2001) was other than temporary. Accordingly, the Company
established a new basis of $448,078 for the portion of the investment that was
purchased for more than $8.45 per share, equivalent to its fair market value at
December 31, 2002. As a result, the Company realized a loss of $331,419. During
2003, Med-Design liquidated all but 132 shares of its remaining holdings in
Enpath Medical Inc. common stock at a gain of $108,821.

         During 2004, Med-Design liquidated its remaining holdings in Enpath
Medical Inc. common stock at a gain of $631. The Company realized losses
totaling $423,313 from sales of fixed income securities throughout 2004. The
Company sold these fixed income securities, which yielded lower rates of
interest, to avoid further deterioration of its portfolio in a rising interest
market.

4.       PROPERTY, PLANT AND EQUIPMENT

         Balances of major classes of assets and accumulated depreciation and
amortization at December 31, 2004 and 2003 are as follows:
<TABLE>
<CAPTION>
                                                                   ESTIMATED
                                                                USEFUL LIVES IN
                                                                     YEARS             2004             2003
                                                                ---------------   -------------     -------------
<S>                                                             <C>               <C>               <C>
Leasehold improvements...................................        Life of lease    $     199,921     $     199,921
Machinery and equipment..................................             5-7             1,601,308         1,496,940
Office furniture & fixtures..............................              7                312,201           312,201
Computer equipment & software............................             2-5               174,922           140,115
                                                                                  -------------     -------------
                                                                                      2,288,352         2,149,177
Less:  Accumulated depreciation and amortization.........                            (1,573,875)       (1,366,305)
                                                                                  -------------     -------------
                                                                                  $     714,477     $     782,872
                                                                                  =============     =============
</TABLE>

Depreciation and amortization expense was $234,585, $236,274, and $338,771 for
the years ended December 31, 2004, 2003 and 2002, respectively.

                                      F-15
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


5.       INVESTMENT IN ACQUIRED LICENSE RIGHTS

ACQUISITION OF A BUSINESS

         On April 1, 2004, the Company acquired the assets of the Safety Huber
Needle business of Luther Needlesafe Products, Inc. The Company paid $5.6
million in cash, $250,000 in the Company's common stock (67,094 shares valued at
$3.73 per share, which was the average of the reported closing prices of the
Company's common stock on the Nasdaq National Market for the 10 trading days
preceding the date of the acquisition) and $750,000 to be paid in cash or, at
the Company's option, in the Company's common stock at $250,000 each April 1
over the next three years. The three-year payment arrangement was valued at its
discounted present value of $680,812. The purchase price of the acquired
business was thus $6,832,052, inclusive of costs related to the acquisition of
$301,240. Results of operations for the Safety Huber Needle business are
included in the Company's income statement effective April 1, 2004. The Low
Profile Safety Huber, the version of the Safety Huber Needle product, marketed
by the Company and used for the delivery of chemotherapeutic agents, was
launched in the U.S. in October 2003. This acquisition expands the Company's
safety product line, provides an additional contract manufacturing capability
and an established distribution channel for the Company's portfolio products.
Based on research conducted on the Company's behalf, the market for this product
is expanding and the Company believes that through its internal sales efforts,
it could secure a reasonable percentage of the market. See also Note 8.

SAFETY HUBER NEEDLE BUSINESS TRANSACTION SUMMARY

Purchase price:
     Cash                                                  $      5,901,240
     Stock                                                          250,000
     Liability--additional purchase consideration                   680,812
                                                           ----------------
                                                           $      6,832,052
                                                           ================

Allocated as follows:

     Inventory                                             $         90,000
     Property and equipment                                          61,498
     Acquired license rights                                      6,448,501
     Goodwill                                                       232,053
                                                           ----------------
                                                           $      6,832,052
                                                           ================


         The acquired license rights are being amortized over the remaining
         patent life of approximately 16 years. The life of the patent is also
         the life of the sublicense agreement. Goodwill is expected to be a
         non-taxable deduction.


                                      F-16
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.       INVESTMENT IN ACQUIRED LICENSE RIGHTS, CONTINUED

         The following unaudited pro forma information presents the combined
results of operations of the Company and the Safety Huber Needle business for
the years ended December 31, 2004 and 2003 as if the acquisition had occurred on
January 1, of each year and January 1, 2004.

                     PRO FORMA STATEMENT OF OPERATIONS DATA
                      FOR THE YEAR ENDED DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                        Historical
                                        -------------------------------------------

                                                                     Safety
                                            The Med-Design        Huber Needle             Pro Forma                 Pro
                                             Corporation            Business              Adjustments               Forma
                                        -------------------------------------------   --------------------    ------------------
<S>                                        <C>                      <C>                     <C>                   <C>
Revenue                                    $     1,773,507          $  257,404              $       --            $2,030,911

Net 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
</TABLE>
(a) Net loss was adjusted for pro forma purposes to recognize the effect of the
difference between historical costs of the business and the costs attributable
to the recorded values of assets and liabilities following the acquisition and
bonuses, interest and shares issued to effect the acquisition. Those net loss
decreases (increases) were:

                                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
                                                           ==========

(1) Represents bonuses to Luther executives resulting from the disposition of
the assets related to the Low Profile Huber Needle business.


(2) Represents interest paid by Luther related to the Huber Needle.

                                      F-17
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


5.       INVESTMENT IN ACQUIRED LICENSE RIGHTS, CONTINUED


                     PRO FORMA STATEMENT OF OPERATIONS DATA
                      FOR THE YEAR ENDED DECEMBER 31, 2003
<TABLE>
<CAPTION>
                                                        Historical
                                        -------------------------------------------

                                                                     Safety
                                            The Med-Design        Huber Needle             Pro Forma                 Pro
                                             Corporation            Business              Adjustments               Forma
                                        -------------------------------------------   --------------------    ------------------
<S>                                        <C>                      <C>                     <C>                   <C>
Revenue                                        $ 826,725            $718,909                $     --             $1,545,634

Net 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
</TABLE>
(a) Net loss was adjusted for pro forma purposes to recognize the effect of the
difference between historical costs of the business and the costs attributable
to the recorded values of assets and liabilities following the acquisition and
interest and shares issued to effect the acquisition. Those net loss (increases)
decreases were:


                          Depreciation/Amortization          ($551,025)
                                   Interest Expense             47,478 (1)
      Amortization of discount on long-term payable            (34,040)
                                                             ---------
                                                             ($537,587)
                                                             =========

(1) Represents interest paid by Luther related to the Huber Needle.


                                      F-18
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES


              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

6.       SHORT-TERM BORROWINGS

         At December 31, 2004, Med-Design had a $3,000,000 revolving line of
credit at Wachovia Bank under which borrowings would be collateralized by
substantially all the assets of the Company. This facility can be used to fund
working capital needs and finance capital equipment purchases; however, advances
for the capital equipment financing may not exceed $600,000. Any borrowing to
meet working capital needs will bear interest at LIBOR plus 2.25%, while
borrowings to finance capital equipment purchases will bear interest at the
prime rate plus 2.5%. There were no borrowings under this facility during 2004
and 2003. The Wachovia facility expires on May 31, 2005.

         On March 29, 2005, the Company established an additional revolving line
of credit under which the Company may borrow up to $3,000,000 with U.S. Bank.
The facility is collateralized by the Company's investments in U.S. Bank. Any
borrowing would bear interest at LIBOR plus 1.75%. There are no financial
covenants. The facility expires on March 29, 2006 and there is no assurance that
the Company will be successful in negotiating a continuation of the availability
of the line of credit or terms that will be available to the Company. There are
no amounts outstanding under the agreement.

7.       CAPITAL LEASE OBLIGATIONS

         The Company entered into certain capital lease obligations with
interest at 12.66% per annum and monthly payments of $243. The capital lease
obligations were satisfied in 2004.

8.       COMMITMENTS AND CONTINGENCIES

         Med-Design leases a building, office space, and office equipment under
non-cancelable operating leases that expire at various times through 2008.

         Total rent expense under all operating leases for years ended December
31, 2004, 2003 and 2002 was $197,260, $182,131 and $164,422, respectively.

         The aggregate amount of minimum future lease payments at December 31,
2004, which have remaining non-cancelable lease terms in excess of one year is
as follows:

            2005....................................    $ 196,874
            2006....................................      197,233
            2007....................................      202,268
            2008....................................      155,089
                                                        ---------
                                                        $ 751,464
                                                        =========

         In August 2000, Med-Design's stockholders approved the issuance of a
warrant to purchase 50,000 shares of common stock at an exercise price of $6.26
per share and the issuance of 125,000 shares of common stock to John F. Kelley,
at the time a director of the Company, in connection with the performance of
consulting services. The compensation arrangement was approved, subject to the
conclusion of negotiations of Mr. Kelley's contract. The Company is unable to
predict whether it will be able to negotiate a compensation arrangement with Mr.
Kelley or the ultimate impact on its financial condition or results of
operations.

                                      F-19

<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.       COMMITMENTS AND CONTINGENCIES, CONTINUED

         The Company maintains employment agreements with its officers. The
agreements range from a period of three to four years. Although there are
conditions under which these agreements can be terminated before expiration, the
Company, at December 31, 2004, has a future compensation commitment of $570,152
with respect to employment agreements.

         The Company agreed to purchase inventory related to its dental injector
syringes from Owens-Illinois, Inc. The inventory will be purchased in 2005 at a
cost of approximately $194,000.

         The Company, in an effort to reduce costs related to Safety Huber
Needle production costs, agreed to purchase raw materials from PEDI, the
Company's contract manufacturer, that it had already purchased on the Company's
behalf. The raw materials will be purchased in 2005 at a cost of approximately
$392,000. The Company had previously purchased inventory from PEDI at a 15% mark
up.

         In conjunction with the acquisition of the Safety Huber Needle business
(Note 5), the Company entered into a four year consulting agreement with the
seller that provides for quarterly payments of $25,000. Related costs are
charged to product costs and expenses.

         On October 14, 2004, James M. Donegan resigned as President and Chief
Executive Officer of Med-Design. Mr. Donegan and the Company executed a
Separation Agreement and Release on October 14, 2004. Pursuant to the agreement,
Mr. Donegan will make himself available on a part-time basis for consultation
with the Company. In connection with the consulting agreement, the Company will
pay Mr. Donegan an aggregate of $497,275, of which $321,512 will be paid in
bi-weekly installments from October 14, 2004 through November 15, 2005 and the
remaining balance of $150,971 will be paid in bi-weekly installments from
November 15, 2005 to November 14, 2006. In addition, until November 15, 2005,
the Company will provide medical and life coverage for Mr. Donegan or, if such
coverage is not permitted or would affect the tax status of the plans, the
Company will pay any required premiums under the Consolidated Omnibus Budget
Reconciliation Act (COBRA). The Company will accrue these amounts as the
consulting services are provided by Mr. Donegan. The Company also accelerated
vesting of options to purchase 120,000 shares of Company common stock at an
exercise price of $3.25 per share, and granted options to purchase 30,000 shares
of common stock at an exercise price of $0.92 per share. The Company also agreed
to continue to pay, through April 30, 2005, $2,500 per month to cover Mr.
Donegan's rent and utilities, and agreed to provide all benefits accrued or
earned as of the date of the agreement.

9.       LICENSING REVENUES

         Becton Dickinson is the principal licensee of Med-Design's patented
product technology. Under the December 11, 1998 license agreement, Becton
Dickinson licensed certain of Med-Design's product technology in the fields of
blood collection and infusion therapy and obtained an option to license
additional product technology. The Company granted BD the exclusive worldwide
rights to manufacture and market our patented product technology.

         On March 12, 2000, Med-Design signed a binding term letter with Becton
Dickinson for the syringe outlining the terms for a definitive agreement
pursuant to which Becton Dickinson would license the products subject to the
option to license. Med-Design recorded as revenue $1.5 million in the form of an
up-front licensing fee upon the signing of the binding term letter. On May 11,
2000, Med-Design entered into a definitive license agreement with Becton

                                      F-20

<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.       LICENSING REVENUES, CONTINUED

Dickinson based upon the terms of the March 12, 2000 binding term letter
pursuant to which Med-Design received, and recorded as revenue, an additional
$2.5 million in up-front licensing fees and the right to receive royalty
payments based on Becton Dickinson's net sales of the products licensed under
such agreement for the remaining life of the underlying patents.

         Enpath Medical Inc., formerly Medamicus, Inc., is also a licensee of
Med-Design's patented products. On September 25, 2000, Med-Design entered into a
development and licensing agreement granting Enpath a license to market and
manufacture the Company's Safety Seldinger Introducer Needle for certain venous
applications. Under the terms of the agreement, Med-Design receives royalty
payments based on the net sales of the Safety Seldinger Introducer Needle by
Enpath. Royalties from this product were approximately $120,000 in 2003 and
declined to approximately $78,000 in 2004. Enpath's major customer decided to
use a non-safety version of Seldinger and sales declined significantly.

         On September 7, 2001, Med-Design entered into an Addendum ("the
Addendum") to the development and licensing agreement with Enpath Medical Inc.
The Addendum grants Enpath Medical Inc. an exclusive license to manufacture and
market the Company's Safety Seldinger Introducer Needle in the arterial access
market. Under the terms of the Addendum, Med-Design received an initial payment
of $2,000,000, $1,000,000 of which was paid in 68,027 shares of Enpath Medical
Inc. common stock valued at the closing price on the date the Company entered
into the Addendum and $1,000,000 of which was paid in cash on October 15, 2001.
The Company recorded this amount as an up-front payment of licensing fees. In
addition, Med-Design is entitled to receive royalties of 20% of net sales of the
product, which royalty rate may be reduced to 17% if certain sales volumes are
met. The agreement is in effect for the remaining life of the underlying
patents.

         On December 29, 2004, Med-Design entered into Addendum Number Two,
dated as of December 27, 2004, to the development and licensing agreement with
Enpath to eliminate the minimum purchase amount required in 2004 for Enpath to
maintain exclusivity under the development and licensing agreement. In
consideration for the Company executing Addendum Number Two, Enpath agreed to
negotiate exclusively with the Company until April 30, 2005 for the potential
sale of Enpath's safety needle business.

10.      BASIC AND DILUTED EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted loss per
share (EPS):
<TABLE>
<CAPTION>
                                                                             WEIGHTED AVERAGE
                                                         LOSS               SHARES OUTSTANDING             EPS
                                                  --------------------    -----------------------    ------------------
<S>                                               <C>                     <C>                        <C>
2004
Basic and diluted EPS
Net loss applicable to common stockholders             ($6,161,348)              16,712,934               ($0.37)
                                                  --------------------    -----------------------    ------------------

2003
Basic and diluted EPS
Net loss applicable to common stockholders             ($6,046,489)              14,282,613               ($0.42)
                                                  --------------------    -----------------------    ------------------

2002
Basic and diluted EPS
Net loss applicable to common stockholders             ($8,081,061)              12,116,143               ($0.67)
                                                  --------------------    -----------------------    ------------------
</TABLE>

                                      F-21

<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


10.      BASIC AND DILUTED EARNINGS PER SHARE, CONTINUED

         Options, warrants and unvested stock grants to purchase 3,670,076,
3,745,827, and 2,611,619 shares of Med-Design's common stock as of December 31,
2004, 2003 and 2002, respectively were not included in computing diluted
earnings per share as the effect of these instruments is anti-dilutive.

11.      STOCKHOLDERS' EQUITY

         COMMON STOCK

         On March 25, 2002, Med-Design completed a private equity placement of
the Company's common stock. Med-Design sold 1,326,260 shares of its common stock
at a price per share of $11.31, or an aggregate of $15,000,000. The net proceeds
to the Company after the issuance costs were approximately $14,200,000.

         On August 1, 2003, the Company completed a private equity placement of
its common stock in which the Company sold an aggregate of 3,598,844 shares of
its common stock at a price per share of $4.64, or an aggregate of $16,698,636.
In addition, the Company sold to each purchaser in the private equity placement
warrants to purchase an aggregate of 1,199,607 shares of its common stock. The
exercise price of the warrant is $6.03 per share. The net proceeds to the
Company after giving effect to issuance costs were approximately $16,000,000.

         In connection with the private equity placement, Med-Design granted the
placement agent a five-year warrant to purchase 233,925 shares of Med-Design
common stock at an exercise price of $6.03 per share. The fair value of this
warrant was calculated as $1,055,844 using the Black-Scholes valuation model in
accordance with SFAS 123 and was recorded as issuance costs.


                                      F-22
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.      STOCK OPTION PLANS

         In 1995, Med-Design adopted a Non-Qualified Stock Option Plan ("Stock
Option Plan"), which provides for the grant of 1,000,000 (as adjusted to reflect
a 2 for 1 stock split effective February 12, 1996) options to directors,
officers and employees of the Company. Under the Stock Option Plan, the exercise
price of each option may not be less than the fair market value (as of the date
of grant) of the Company's common stock and the term of each option may be no
more than 10 years from the date of grant. Additionally, the Stock Option Plan
provides for the annual issuance of options for the purchase of 10,000 shares of
common stock to each non-employee director.

         Options granted to employees under the Stock Option Plan vest at a rate
of 20% or 33 1/3% per year and expire either, in five, seven or ten years from
the date of grant. Certain option grants include accelerated vesting provisions
based upon achieving stock trading values or earnings per share. Options granted
to Directors expire at the end of five years and vest one year from the date of
grant.

         On June 11, 2001, the Board adopted the 2001 Equity Compensation Plan,
the "2001 Plan". The 2001 Plan provides for the grant of 1,690,000 shares to
directors, officers and employees of the Company and is administered by the
Company's Compensation Committee. The Compensation Committee has the authority
to (i) determine the individuals to whom grants will be made under the 2001
Plan; (ii) determine the type, size and terms of each grant; (iii) determine the
time when grants will be made and the duration of any applicable exercise or
restriction period; (iv) amend the terms of any previously issued grant; and (v)
deal with any other matters arising under the Plan.

         As of December 31, 2004 there were 24,822 shares available for future
grants which may be applied to either plan.

         On October 10, 2002, Med-Design issued a stock option to purchase
29,297 shares of common stock to a consultant at an exercise price of $3.25 per
share. The stock option vests as to 14,648 shares per year on each of the first
two anniversaries of the date of the grant, and expires on October 10, 2007 and
2009. The stock option remained unexercised at December 31, 2004.

         On September 22, 2003, Med-Design issued a stock option to purchase
25,000 shares of common stock to a consultant at an exercise price of $4.52 per
share. The option vests as to one half of the underlying shares per year on each
of the first two anniversary dates and expire on September 22, 2013. The stock
option remained unexercised at December 31, 2004.

         On September 22, 2003, Med-Design issued a stock option to purchase
25,000 shares of common stock to a director of the Company at an exercise price
of $4.52 per share for consulting services. The stock option vests on September
22, 2009 and expires on September 22, 2013. Vesting is accelerated upon the
completion of certain specific events related to the financial performance of
the Company. The accelerated vesting provisions of this option have not been
met. The stock based compensation expense associated with these options is
amortized over the vesting period. If the provisions of the accelerated vesting
are met, the option will fully vest, and Med-Design


                                      F-23
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


12.      STOCK OPTION PLANS, CONTINUED

will recognize the remaining unamortized stock based compensation expense in the
period in which full vesting occurs. The stock option remained unexercised at
December 31, 2004.

         Activity under the employee stock option plans during the years ended
December 31, 2004, 2003 and 2002 is as follows:
<TABLE>
<CAPTION>
                                                 2004                            2003                            2002
                                   -----------------------------    -----------------------------    -----------------------------
                                                        WEIGHTED                         WEIGHTED                         WEIGHTED
                                                        AVERAGE                          AVERAGE                          AVERAGE
                                                        EXERCISE                         EXERCISE                         EXERCISE
           OPTIONS                      SHARES           PRICE           SHARES           PRICE           SHARES           PRICE
---------------------------        ---------------      --------    ---------------     ---------    ---------------      --------
<S>                                <C>                <C>           <C>                 <C>          <C>                <C>
Granted....................                190,000       $ 1.08             327,794       $ 4.69             817,296       $ 6.68
Exercised..................                   (300)        3.25             (20,900)        1.53             (37,400)        2.19
Forfeited..................                     --           --            (146,850)       13.64             (54,320)       16.71
Expired....................                (70,749)        9.93                  --           --                  --           --
                                   ---------------      -------     ---------------     --------     ---------------      -------
Outstanding at end of
   year....................              2,104,544       $ 8.24           1,985,593       $ 8.99           1,825,549       $ 9.97
                                   ===============      =======     ===============     ========     ===============      =======
Options exercisable at
   year-end................              1,716,146       $ 8.62           1,219,114       $10.00             912,088       $ 9.56
                                   ===============      =======     ===============     ========     ===============      =======
Option price range at end
    of year................        $0.92 to $17.97                  $1.56 to $17.97                  $0.81 to $17.97
                                   ===============                  ===============                  ===============
Weighted-average fair value
   of options granted during
   year... .................                 $0.53                            $4.12                            $5.66
                                   ===============                  ===============                  ===============
</TABLE>

The following table summarizes information regarding employee stock options
outstanding at December 31, 2004:
<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
                         ---------------------------------------------------------    ----------------------------------

                              Number
                          Outstanding at      Weighted-Average    Weighted-Average         Number        Weighted-Average
 Range of Exercise         December 31,           Remaining           Exercise         Outstanding at        Exercise
       Prices                  2004           Contractual Life          Price         December 31, 2004       Price
---------------------    -----------------    ------------------    --------------    ------------------   -------------
<S>                       <C>                  <C>                 <C>                <C>                 <C>
   $0.92 to $3.90             693,500               7.0               $  2.59              573,500           $  2.44
   $4.14 to $8.48             515,672               6.6               $  6.29              331,341           $  6.28
  $11.01 to $17.97            895,372               2.7               $ 13.74              811,305           $ 13.95
                            ---------              ----               -------            ---------           -------
                            2,104,544               5.1               $  8.24            1,716,146           $  8.62
                            =========              ====               =======            =========           =======

</TABLE>
                                      F-24
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


13.      STOCK BASED COMPENSATION

         The Company entered into arrangements, subject to shareholder approval,
which was obtained on August 7, 2000, for the issuance of shares of common
stock, stock options and warrants to purchase shares of common stock to officers
of the Company during 2000. Compensation expense in the amount of $471,898,
$1,483,286, and $1,783,863 was recorded during the years ended December 31,
2004, 2003 and 2002 based on the difference between the exercise price of the
options and warrants and the fair value of Med-Design's common stock on August
7, 2000 of $12.63 and calculated in accordance with the individual vesting
schedules of these grants.

         In August, 2000, the Company's stockholders approved an employment
contract for the Company's then Chairman and CEO, which provided for the
issuance of 59,702 shares of common stock per year for the next four years
totaling 238,806 shares beginning April 1, 2000 provided he remained an officer,
director or consultant of the Company. The fair value of Med-Design common stock
at the date of shareholder approval of this grant was $12.63 per share.
Compensation expense of $274,076, $822,228 and $822,228 was recorded in 2004,
2003, and 2002, respectively, with respect to these grants.

         In November 1999, the Company approved the issuance, subject to
shareholder approval, which was received in August 2000, of 200,000 shares of
common stock to the then Chief Operating Officer. The stock vested at the
earlier of the date when the Company's common stock traded at $22.00 or higher
for 30 days or November 11, 2004 provided he had not resigned or been discharged
for cause. On July 2, 2001, Med-Design stock maintained a market price of $22.00
or higher for 30 days, and this agreement was revised to provide that a third of
the stock vested on August 6, 2001, and the remaining shares vested in two equal
tranches on August 6, 2002 and August 6, 2003. Compensation expense of $490,974
and $841,688 was recorded in 2003 and 2002, respectively, with respect to these
grants.

         On March 15, 2002, the Company issued warrants to purchase 18,000
shares of common stock at an exercise price of $12.50 per share to each of two
consultants for consulting services rendered through March 15, 2005 and recorded
compensation expense of $100,483, $100,483, and $79,549 during the years ended
December 31, 2004, 2003, and 2002, respectively, based on the fair value of the
warrants, calculated using the Black-Scholes valuation model.

         On October 10, 2002, the company issued a stock option to purchase
29,297 shares at an exercise price of $3.25 per share for consulting services to
be rendered through October 10, 2004 and recorded compensation expense of
$8,175, $33,084, and $17,151 during the years ended December 31, 2004, 2003 and
2002, respectively, based on the fair value of the stock option, calculated
using the Black-Scholes valuation model.

         On September 22, 2003, the Company issued a stock option to purchase
25,000 shares of common stock at an exercise price of $4.52 per share to a
consultant for consulting services to be rendered through September 22, 2005 and
recorded compensation expense of $50,618 and $12,654 during the years ended
December 31, 2004 and 2003, respectively, based on the fair value of the stock
options, calculated using the Black-Scholes valuation model.

         On September 22, 2003, the Company issued a stock option to purchase
25,000 shares of common stock at an exercise price of $4.52 per share to a
consultant for consulting services and recorded compensation expense of $14,462
and $3,656 during the years ended December 31, 2004 and 2003, respectively,
based on the fair value of the stock options, calculated using the Black-Scholes
valuation model.

         On September 22, 2003, the Company issued a stock option to purchase
5,000 shares of common stock at an exercise price of $4.52 per share to a
consultant for consulting services and recorded compensation expense during the
year ended December 31, 2003 in the amount of $20,247 based on the fair value of
the stock options, calculated using the Black-Scholes valuation model.

                                      F-25
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


13.      STOCK BASED COMPENSATION, CONTINUED

         On October 14, 2004, the Company issued a stock option to purchase
30,000 shares of common stock at an exercise price of $0.92 per share to the
Company's former Chairman and CEO and recorded compensation expense during the
year ended December 31, 2004 in the amount of $24,084 based on the fair value of
the stock options, calculated using the Black-Scholes valuation model.

         On October 14, 2004, the Company accelerated vesting of options to the
Company's former Chairman and CEO to purchase 120,000 shares of common stock at
an exercise price of $3.25 per share. The exercise price of the stock options
exceeded the fair market value of the Company's stock at the date of
acceleration.

14.      WARRANTS OUTSTANDING

         As of December 31, 2004 and 2003, warrants to purchase a total of
1,565,532 and 1,700,532 shares of Med-Design's common stock were outstanding
with various vesting periods and expiration dates as outlined below.

         On January 21, 1999, Med-Design issued a warrant to purchase 50,000
shares of common stock at an exercise price of $3.25 to a director of the
Company who was engaged to perform consulting services. The warrant was
exercisable upon issuance and was exercised on January 21, 2004.

         On March 5, 1999 Med-Design issued a warrant to purchase 100,000 shares
of common stock at $3.94 per share to an officer of the Company. The warrant
vested on March 5, 2000 and expired on March 5, 2004. The warrant was exercised
as to 25,000 shares on November 2, 2000. The remaining 75,000 unexercised
warrants were cancelled upon their expiration date in 2004.

         On November 5, 1999, in connection with the acquisition of a patent,
Med-Design issued a warrant to purchase 25,000 shares of common stock at an
exercise price of $8.00 per share. The warrant was exercisable on or before
November 5, 2004. The warrant was exercised as to 15,000 shares on July 27,
2001. The remaining 10,000 unexercised warrants were cancelled upon their
expiration date in 2004.

         On February 18, 2000, the Company issued a warrant to purchase 40,000
shares of common stock to a director of Med-Design in connection with his
separation from the Company. The warrant vested upon issuance, expired on
February 18, 2005 and had an exercise price of $16.375. The warrant remained
unexercised at December 31, 2004 and was cancelled on February 18, 2005.


                                      F-26
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


14.      WARRANTS OUTSTANDING, CONTINUED

         On April 25, 2000, Med-Design issued a warrant to purchase 66,000
shares of common stock at $11.875 per share to it's then Chief Operating
Officer. The warrant vested as to 33,000 shares in November 2000 and 33,000
shares in November 2001 and was scheduled to expire on April 25, 2005. The
warrant was cancelled in March 2004 due to the resignation of the officer.

         On April 25, 2000, Med-Design issued a warrant to purchase 66,000
shares of common stock at $11.875 per share to its Chief Financial Officer. The
warrant vested as to 33,000 shares on November 2000 and 33,000 shares in
November 2001 and expires on April 25, 2005. The warrant was exercised as to
50,000 shares on July 10, 2001. The warrant remained unexercised as to 16,000
shares at December 31, 2004.

         On March 15, 2002, Med-Design issued two warrants to purchase 18,000
shares of common stock at $12.50 per share to each of two consultants. The
warrants vest one-third a year on each anniversary date for the next three years
and expire on December 27, 2007. The warrants remained unexercised at December
31, 2004. The consulting service is being performed and the fair value of the
warrants is being amortized over the next three years 2003, 2004 and 2005.

         On March 22, 2002, in connection with a private equity placement,
Med-Design issued a warrant to purchase 40,000 shares of common stock at
$14.1375 per share to the placement agent. The warrant vested immediately and
expires on March 22, 2007. The warrant had a fair value of $319,604, calculated
using the Black Scholes model, which was recorded as issuance costs. The warrant
remained unexercised at December 31, 2004.

         On August 1, 2003, in connection with a private equity placement,
Med-Design issued warrants to purchase 1,199,607 shares of common stock to
investors in the private placement. The warrants vested upon issuance and expire
on August 1, 2008. The exercise price of the warrants is $6.03. The warrants
remain unexercised at December 31, 2004.

         On August 1, 2003, in connection with the private equity placement,
Med-Design issued warrants to purchase 233,925 shares of common stock to the
placement agent. The warrants have an exercise price of $6.03 and vested upon
issuance. The warrants expire on August 1, 2008. The warrants had a fair value
of $1,055,821, calculated using the Black Scholes model, which was recorded as
issuance costs. The warrants remained unexercised at December 31, 2004.

15.      DEFINED CONTRIBUTION BENEFIT PLAN

Med-Design sponsors a 401(k) defined contribution benefit plan. Participation in
the plan is available to substantially all employees. The Company makes an
annual contribution of 3% of gross salaries for all eligible employees. The
Company contributed $43,625 and $52,410 to the plan in 2004 and 2003,
respectively. No amount was contributed in 2002.

                                      F-27
<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


16.      INCOME TAXES

         The following is a summary of the components of income taxes from
operations:
<TABLE>
<CAPTION>
                                                         2004                 2003                 2002
                                                    -------------        -------------        -------------
<S>                                                <C>                  <C>                  <C>
CURRENT PROVISION
Federal....................................         $          --        $          --        $          --
State......................................                    --                   --                   --
                                                    -------------        -------------        -------------
                                                               --                   --                   --
DEFERRED TAX PROVISION (BENEFIT)
Federal....................................            (2,122,625)          (2,501,691)          (3,448,520)
State......................................              (708,818)            (277,372)          (1,329,290)
                                                    -------------        -------------        -------------
Total benefit for income taxes.............            (2,831,444)          (2,779,063)          (4,777,810)
Less: Valuation allowance..................             2,831,444            2,779,063            4,777,810
                                                    -------------        -------------        -------------
                                                    $          --        $          --        $          --
                                                    =============        =============        =============
</TABLE>

The deferred income tax assets and liabilities recorded in the consolidated
balance sheets at December 31, 2004, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>
                                                         2004                 2003                 2002
                                                    ------------          -----------          -----------
<S>                                                <C>                   <C>                  <C>
ASSETS

Operating loss carryforwards................         $18,496,195          $15,778,858          $12,411,976
Research and development tax credits........             544,658              492,317              474,049
Amortization................................           1,423,305            1,119,965              641,813
Deferred compensation expense...............             873,215              667,939            1,276,106
Other.......................................            (878,792)            (431,941)              94,131
                                                    ------------          -----------          -----------
Total deferred tax assets...................          20,458,581           17,627,138           14,898,075

Valuation allowance.........................         (20,458,581)         (17,627,138)         (14,898,075)
                                                    ------------          -----------          -----------

Net deferred tax assets (liabilities).......        $         --          $        --          $        --
                                                    ============          ===========          ===========
</TABLE>


<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.      INCOME TAXES, CONTINUED


         At December 31, 2004, the Company had a federal net operating loss
carry forward of approximately $57 million which will expire in the years 2011
through 2023. At December 31, 2004, the Company had a net operating loss for
state purposes of approximately $54 million, which began expiring in 2004 and
will continue to expire through 2012.

         Included in the net operating loss carryforward is certain option and
warrant exercises that total approximately $14.0 million gross at December 31,
2004. However, these benefits were deferred because the Company is in a net
operating loss position. Such benefits will be credited to additional paid-in
capital in the year in which the benefits are realized.

         In addition, the Company experienced an ownership change in accordance
with Internal Revenue Code Section 382 in 1997. Losses incurred through January
23, 1997 amounting to $4.9 million are generally limited in their utilization to
$1.7 million per year. It is possible that recent ownership changes may result
in further limitations under Section 382.

         The Company has unused research and development tax credits in the
amount of $0.53 million which will expire in the years 2011 through 2023.

         A reconciliation of the Federal statutory rate (34%) to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
                                                        2004                 2003                  2002
                                                    -----------          ------------          -----------
<S>                                                  <C>                  <C>                   <C>
Tax at U.S. statutory income tax rate......          (2,082,328)          (2,046,884)           (2,705,872)
True-up of net operating losses - relating                   --                   --              (742,648)
   to stock based compensation.............
Other......................................             (40,297)            (454,808)                   --
Increase in Valuation Allowance............           2,122,625            2,501,692             3,448,520
                                                    -----------          -----------           -----------
                                                    $        --          $        --           $        --
                                                    ===========          ===========           ===========
</TABLE>

                                      F-29

<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


17.      RELATED PARTY TRANSACTIONS

         During 2004, 2003, and 2002, the Company paid $18,335, $22,717, and
$26,610, respectively, for legal services to a firm, of which a partner is a
director, officer, and stockholder of Med-Design.

         On April 15, 2002, pursuant to a Note and Pledge Agreement, the Company
loaned $250,000 to Michael W. Simpson, the Company's former Chief Operating
Officer, which was collateralized by 66,666 shares of Med-Design's common stock
issued to Mr. Simpson on August 6, 2003. The Note was repayable on the earlier
of (i) April 15, 2004, (ii) the date on which Mr. Simpson ceased to be an
employee, consultant or director of Med-Design, (iii) the date on which
Med-Design provided notice to Mr. Simpson that the closing price of the common
stock had been $30.00 or higher for 20 consecutive days as reported on the
Nasdaq National Market, or (iv) the date on which Mr. Simpson sold or
transferred the pledged securities. The Note accrued interest at 16% per year
until the issuance of the pledged securities to Mr. Simpson on August 6, 2003,
as of which time the Note accrued interest at the prime lending rate plus 1%.

         On April 25, 2003, the Company entered into a new employment agreement
with Mr. Simpson following his resignation as director and officer of the
Company as of March 13, 2003. The initial term of the agreement was from March
20, 2003 through July 15, 2003. Under the agreement, Mr. Simpson was to receive
total compensation of $45,538 for the initial period of the agreement. Total
compensation for the initial period was increased on June 10, 2003 by $14,230
for a total of $60,480. In addition, the new employment agreement provided for
the deferral, until termination of the agreement, of the $46,250 in severance
that Mr. Simpson was entitled to under his previous employment agreement. On
July 14, 2003, the Company extended the agreement with Mr. Simpson to August 15,
2003. Following termination of the agreement on August 15, 2003, the Company
began making payments to Mr. Simpson of the severance amounts (which payments
were required to be made in equal monthly installments through December 15,
2003).

         On October 23, 2003, the Company entered into an agreement with Mr.
Simpson regarding the repayment of the $250,000 Note issued on April 15, 2002
and all accrued interest thereunder. Under the terms of this agreement, the
Company cancelled the Note issued on April 15, 2002 (the "Old Note") and issued
a new note (the "New Note") to Mr. Simpson evidencing the $250,000 outstanding
principal amount. The New Note was effective as of November 15, 2003, matures on
November 15, 2006 and accrues interest at 5% per year. The New Note requires
monthly payments to the Company of $1,500 until maturity, with the remainder of
the then outstanding principal and interest due November 15, 2006, and is
collateralized by a mortgage on real property owned by Mr. Simpson. Pursuant to
the terms of the agreement, the Company released to Mr. Simpson a stock
certificate evidencing the 66,666 shares of Med-Design common stock and Mr.
Simpson was obligated to pay the Company the accrued interest of $28,925 on the
Old Note within 15 working days of his receipt of a signed copy of the
agreement, a stock certificate evidencing the 66,666 shares of Med-Design common
stock, a legal opinion on the transferability of such shares and a prospectus
pursuant to which the shares may be sold.

         On September 9, 2003, the Company filed a registration statement
covering the resale of the shares of its common stock by a number of its
security holders. Such registration statement includes the 66,666 shares of
Med-Design common stock held by Mr. Simpson.

         The agreement also provides for the payment in full of the New Note
upon the sale of the real property collateralizing the New Note. In addition, if
Mr. Simpson sells any of his 66,666 shares of Med-Design common stock, a
percentage of the proceeds of such sale, such percentage to be agreed upon at
the time of the sale by the parties, will be paid to the Company to reduce the
balance on the New Note. Under the agreement, the Company also agreed to
consider in its sole discretion paying Mr. Simpson a cash bonus, in such amount
that the Company may determine in its sole discretion, for any Company project
in which Mr. Simpson was engaged during his employment with the Company if such
project results in a revenue-producing event for the Company, provided that such
event occurs by August 15, 2004.

                                      F-30

<PAGE>
                   THE MED-DESIGN CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

17.      RELATED PARTY TRANSACTIONS, CONTINUED

         On February 26, 2004, Mr. Simpson advised the Company that he is unable
to fulfill his obligations under the New Note. The Company therefore recorded a
charge at December 31, 2003 of $250,000 plus accrued interest of $28,925 as a
bad debt expense. On October 29, 2004, the Company was advised that Mr. Simpson
had filed for Chapter 7 bankruptcy.

         Mr. Simpson was issued a credit card in the Company's name during his
tenure as an executive officer of the Company. Mr. Simpson was authorized to use
the credit card for expenses incurred in connection with the performance of his
duties as an executive officer of the Company. When Mr. Simpson resigned, a
balance of approximately $14,000 remained on the credit card that did not relate
to Company duties which Mr. Simpson refused to pay same. The Company received
notice of this claim and has settled with the credit card company.

18.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following methods and assumptions were considered by Med-Design in
determining its fair value disclosures for financial instruments:

         Cash and cash equivalents: The carrying amount reported in the balance
sheet approximates fair value.

         Marketable securities: Available-for-sale securities consist of
corporate bonds, common stock and commercial paper. Fair value is based on
quoted market prices.

         The carrying value of long term payable is reported at discounted fair
value based on current market interest rates.

19.      QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
                                                                             QUARTER ENDED
                                                    ------------------------------------------------------------------
2004                                                 MARCH 31          JUNE 30          SEPTEMBER 30       DECEMBER 31
----                                                -----------      -----------        -------------      -----------
<S>                                                 <C>             <C>                  <C>              <C>
Revenue.......................................          $89,511         $369,330             $489,474         $825,192

Operating 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)

                                                                             QUARTER ENDED
                                                    ------------------------------------------------------------------
2003                                                 MARCH 31          JUNE 30          SEPTEMBER 30       DECEMBER 31
----                                                -----------      -----------        -------------      -----------

Revenue........................................         $39,091          $42,145             $140,135         $605,354

Operating loss.................................     ($1,909,624)     ($1,761,906)         ($1,710,535)     ($1,357,766)

Net loss.......................................     ($1,756,269)     ($1,590,436)         ($1,472,680)     ($1,227,104)

Basic and diluted loss per share...............          ($0.14)          ($0.13)              ($0.10)          ($0.05)
</TABLE>

            Quarterly computations of loss per share amounts are made
independently. Therefore, the sum of the per share amounts for the quarter may
not agree with the per share amounts for the year.

                                      F-31