UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549







FORM
10-Q




(Mark
One)




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




For
the Quarterly Period Ended September 30, 2010




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: 000 – 52077





MEDPRO
SAFETY PRODUCTS, INC.


(Exact
name of registrant as specified in its charter)




Nevada
            
            91-2015980(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)817
      Winchester Road, Suite 200, Lexington, KY
            
            40505(Address
      of principal executive offices)
            
            (Zip
      Code)





(859)
225-5375


(Registrant’s
telephone number, including area code)








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 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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o       No o





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





Large
accelerated filer   ̈                                                              Accelerated
filer   ̈


Non-accelerated
filer   ̈                                                                Smaller
reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes   ̈    No  x





Indicate
the number of shares outstanding of each of the issuer’s class of common stock,
as of the latest practicable date, 13,139,253
shares of Common Stock were outstanding at November 1, 2010.












INDEX





PagePART
      I –
              FINANCIAL
      INFORMATION
              
              3ITEM
      1.
              FINANCIAL
      STATEMENTS
              
              3ITEM
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              
              29ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              36ITEM
      4.
              CONTROLS
      AND PROCEDURES
              
              36PART
      II –
              OTHER
      INFORMATION
              
              37ITEM
      1.
              LEGAL
      PROCEEDINGS
              
              37ITEM
      1A.
              RISK
      FACTORS
              
              37ITEM
      2.
              UNREGISTERED
      SALES ON EQUITY SECURITIES AND USE OF PROCEEDS
              
              37ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES
              
              37ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              37ITEM
      5.
              OTHER
      INFORMATION
              
              37ITEM
      6.
              EXHIBITS
              
              38
  2


PART
I




Item
1. Financial Statements





The
following financial statements of MedPro Safety Products, Inc. are
submitted:




Balance
      Sheets as of September 30, 2010 and December 31, 2009Statements
      of Operations for the three and nine months ended September 30, 2010 and
      2009Statements
      of Changes in Shareholders’ Equity for the nine months ended September 30,
      2010 and the year ended December 31, 2009Statements
      of Cash Flows for the nine months ended September 30, 2010 and
      2009Notes
      to Unaudited Financial Statements
  3





MedPro
Safety Products, Inc.


Balance
Sheets


September
30, 2010 and December 31, 2009





September
      30,
              2010
            
            
            December 31,
              2009(Unaudited)ASSETSCurrent
      AssetsCash
            
            $
            5,469,632
            
            
            $
            4,072,443Restricted
      cash
            
            
            4,500,000
            
            
            
            -Accounts
      receivable, net of allowance of $21,225
            
            
            270
            
            
            
            -Inventory
            
            
            268,678
            
            
            
            247,981Accrued
      interest income
            
            
            -
            
            
            
            18,694Prepaid
      expenses and other current assets
            
            
            30,049
            
            
            
            20,414Prepaid
      investor relations costs
            
            
            -
            
            
            
            1,634Total
      current assets
            
            
            10,268,629
            
            
            
            4,361,166Property
      and EquipmentEquipment
      and tooling
            
            
            1,384,257
            
            
            
            1,042,869Leasehold
      improvements
            
            
            192,377
            
            
            
            192,377Computers,
      network and phones
            
            
            204,578
            
            
            
            197,574Furniture
      and fixtures
            
            
            117,756
            
            
            
            118,019Trade
      show booth
            
            
            7,341
            
            
            
            7,3411,906,309
            
            
            
            1,558,180Less:
      accumulated depreciation
            
            
            374,689
            
            
            
            252,966Property
      and equipment, net
            
            
            1,531,620
            
            
            
            1,305,214Other
      AssetsIntangible
      assets, net of amortization of $446,110 and $42,840,
      respectively
            
            
            8,664,187
            
            
            
            9,067,457Deferred
      financing costs, net of amortization of $183,333 and $127,616,
      respectively
            
            
            1,728,500
            
            
            
            55,718Reserve
      pending FDA product clearance
            
            
            7,870,000
            
            
            
            -Due
      from Visual Connections, Inc. – Prepaid Wing Royalties
            
            
            100,000
            
            
            
            -Total
      other assets
            
            
            18,362,687
            
            
            
            9,123,175Total
      assets
            
            $
            30,162,936
            
            
            $
            14,789,555




See notes
to financial statements.





4




MedPro
Safety Products, Inc.


Balance
Sheets (Continued)


September
30, 2010 and December 31, 2009





September
      30,
              2010
            
            
            December 31,
              2009(Unaudited)LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses
            
            $
            703,794
            
            
            $
            406,121Accrued
      interest payable
            
            
            291,667
            
            
            
            10,674Current
      portion of long term debt
            
            
            -
            
            
            
            3,413,533Current
      portion of technology transfer payments
            
            
            -
            
            
            
            250,000Derivative
      liabilities – fair value of warrants
            
            
            466,899
            
            
            
            -Total
      current liabilities
            
            
            1,462,360
            
            
            
            4,080,328Long-Term
      LiabilitiesBank
      debt
            
            
            -
            
            
            
            694,444Senior
      Notes
            
            
            25,000,000
            
            
            
            -Total
      long term liabilities
            
            
            25,000,000
            
            
            
            694,444Total
      liabilities
            
            
            26,462,360
            
            
            
            4,774,772Shareholders’
      EquityPreferred
      stock $.01 par value: 10,000,000 shares authorized:Series
      A Preferred6,668,229
      shares issued and outstanding.  Liquidation preference
      $1,668,264 and$1,215,544,
      respectively
            
            
            66,682
            
            
            
            66,682Series
      B Preferred1,493,779
      shares issued and outstanding
            
            
            14,937
            
            
            
            14,937Series
      C Preferred1,571,523
      shares issued and outstanding
            
            
            15,715
            
            
            
            15,715Common
      stock$.001
      par value; 90,000,000 shares authorized; 13,139,793 and 13,215,311 issuedand
      outstanding, respectively
            
            
            13,140
            
            
            
            13,215Additional
      paid-in capital
            
            
            71,933,667
            
            
            
            67,410,070Unearned
      share-based compensation
            
            
            -
            
            
            
            (167,600
            )Treasury
      stock (181,138 and 105,080 common shares, respectively)
            
            
            (614,560
            )
            
            
            (386,370
            )Accumulated
      deficit
            
            
            (67,729,005
            )
            
            
            (56,951,866
            )Total
      shareholders’ equity
            
            
            3,700,576
            
            
            
            10,014,783Total
      liabilities and shareholders’ equity
            
            $
            30,162,936
            
            
            $
            14,789,555




See notes
to financial statements.





5





MedPro
Safety Products, Inc.


Statements
of Operations


For
the Three and Nine Months Ended September 30, 2010 and 2009




For
      the Three
            
            
            For
      the Three
            
            
            For
      the Nine
            
            
            For
      the NineMonths
      Ended
            
            
            Months
      Ended
            
            
            Months
      Ended
            
            
            Months
      EndedSeptember
      30, 2010
            
            
            September
      30, 2009
            
            
            September
      30, 2010
            
            
            September
      30, 2009(Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)
            
            
            (Unaudited)SalesAutomation
      Services and Equipment
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            12,045Total
      sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,045Cost
      of goods sold and automation
            
            
            18,441
            
            
            
            691
            
            
            
            22,625
            
            
            
            6,013Gross
      profit
            
            
            (18,441
            )
            
            
            (691
            )
            
            
            (22,625
            )
            
            
            6,032Operating
      ExpensesSalaries,
      wages, and payroll taxes
            
            
            1,377,640
            
            
            
            2,316,296
            
            
            
            5,960,217
            
            
            
            6,823,684Qualified
      profit sharing plan
            
            
            14,436
            
            
            
            17,317
            
            
            
            45,713
            
            
            
            54,122Promotion
      and investor relations
            
            
            13,547
            
            
            
            80,082
            
            
            
            216,518
            
            
            
            355,811Product
      development costs
            
            
            179,940
            
            
            
            197,893
            
            
            
            628,627
            
            
            
            618,273Professional
      and insurance
            
            
            452,201
            
            
            
            346,425
            
            
            
            1,431,147
            
            
            
            969,595General
      and administrative
            
            
            172,985
            
            
            
            86,409
            
            
            
            277,426
            
            
            
            260,296Travel
      and entertainment
            
            
            65,709
            
            
            
            101,310
            
            
            
            335,933
            
            
            
            270,233Loss
      on disposal of assets
            
            
            682
            
            
            
            -
            
            
            
            682
            
            
            
            -Royalty
      expense
            
            
            600,000
            
            
            
            -
            
            
            
            600,000
            
            
            
            -Depreciation
      and amortization
            
            
            233,867
            
            
            
            40,383
            
            
            
            580,899
            
            
            
            99,668Total
      operating expenses
            
            
            3,111,007
            
            
            
            3,186,115
            
            
            
            10,077,162
            
            
            
            9,451,682Loss
      from operations
            
            
            (3,129,448
            )
            
            
            (3,186,806
            )
            
            
            (10,099,787
            )
            
            
            (9,445,650
            )Other
      Income (Expenses)Interest
      expense
            
            
            (1,019,230
            )
            
            
            (56,980
            )
            
            
            (1,130,337
            )
            
            
            (198,063
            )Interest
      income
            
            
            924
            
            
            
            13,993
            
            
            
            13,396
            
            
            
            36,852Change
      in fair value of derivative liabilities
            
            
            297,514
            
            
            
            1,282,353
            
            
            
            439,589
            
            
            
            21,603,185Total
      other income (expenses)
            
            
            (720,792
            )
            
            
            1,239,366
            
            
            
            (677,352
            )
            
            
            21,441,974Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      income/(loss)
            
            $
            (3,850,240
            )
            
            $
            (1,947,440
            )
            
            $
            (10,777,139
            )
            
            $
            11,996,324Net
      earnings/(loss) per common shareBasic
      net earnings (loss) per share
            
            $
            (0.29
            )
            
            $
            (0.15
            )
            
            $
            (0.82
            )
            
            $
            0.90Fully
      diluted net earnings/(loss) per share
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            0.28Shares
      used in computing earnings per shareWeighted
      average number of sharesoutstanding
      - basic
            
            
            13,146,822
            
            
            
            13,286,106
            
            
            
            13,175,996
            
            
            
            13,308,793Weighted
      average number of sharesoutstanding
      - diluted
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/A
            
            
            
            43,268,813





See notes to financial
statements.




6




MedPro
Safety Products, Inc.


Statements
of Shareholders’ Equity


For
the Nine Months Ended September 30, 2010


and
the Year Ended December 31, 2009





Common Stock
            
            
            Preferred Stock
            
            
            Unearned
            
            
            Paid-In
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Compensation
            
            
            Capital
            
            
            DeficiencyBalance,
      January 1, 2009
            
            
            13,320,366
            
            
            $
            13,320
            
            
            
            8,162,008
            
            
            $
            81,619
            
            
            $
            (21,885
            )
            
            $
            37,346,609
            
            
            $
            (65,328,139
            )Series
      C convertible preferred shares issued for cash and exchange of warrants,
      net of issuance costs of $240,000 (fractional shares issued in common
      stock)
            
            
            25
            
            
            
            -
            
            
            
            1,571,523
            
            
            
            15,715
            
            
            
            -
            
            
            
            20,645,414
            
            
            
            -Share
      based vendor compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (145,715
            )
            
            
            145,715
            
            
            
            -Earned
      portion of employee and director options
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            7,374,450
            
            
            
            -Write
      off balance of derivative liability
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,897,882
            
            
            
            -Purchase
      of treasury stock
            
            
            (105,080
            )
            
            
            (105
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,376,273Balance
      December 31, 2009
            
            
            13,215,311
            
            
            $
            13,215
            
            
            
            9,733,531
            
            
            $
            97,334
            
            
            $
            (167,600
            )
            
            $
            67,410,070
            
            
            $
            (56,951,866
            )Earned
      portion of employee and director options
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,745,087
            
            
            
            -Earned
      portion of vendor share based compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            167,600
            
            
            
            -
            
            
            
            -Derivative
      liabilities – warrants
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (221,490
            )
            
            
            -Purchase
      of treasury stock
            
            
            (75,518
            )
            
            
            (76
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      (loss)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (10,777,139
            )Balance
      September 30, 2010
            
            
            13,139,793
            
            
            $
            13,139
            
            
            
            9,733,531
            
            
            $
            97,334
            
            
            $
            -
            
            
            $
            71,933,667
            
            
            $
            (67,729,005
            )




See
notes to financial statements.





7




MedPro
Safety Products, Inc.


Statements
of Cash Flows


For
the Nine Months Ended September 30, 2010 and 2009





September
      30,
              2010
            
            
            September
      30,
              2009(Unaudited)
            
            
            (Unaudited)Cash
      Flows From Operating ActivitiesNet
      income (loss)
            
            $
            (10,777,139
            )
            
            $
            11,996,324Adjustments
      to reconcile net income (loss) to net cashflows
      from operating activities:Depreciation
            
            
            121,912
            
            
            
            68,339Amortization
            
            
            458,987
            
            
            
            31,329Debt
      discount accretion
            
            
            685,000
            
            
            
            -Loss
      on disposal of equipment
            
            
            682
            
            
            
            -Share
      based compensation
            
            
            4,912,686
            
            
            
            5,502,835Change
      in fair value of warrant (derivative liabilities)
            
            
            (439,589
            )
            
            
            (21,603,185
            )Changes
      in operating assets and liabilitiesAccounts
      receivable and accrued interest
            
            
            18,424
            
            
            
            (20,430
            )Inventory
            
            
            (20,697
            )
            
            
            (4,445
            )Other
      current assets
            
            
            (8,001
            )
            
            
            214,353Accounts
      payable and accrued expenses
            
            
            297,673
            
            
            
            8,897Accrued
      interest payable
            
            
            280,992
            
            
            
            (22,123
            )Deferred
      revenue
            
            
            -
            
            
            
            (12,045
            )Net
      cash flows from operating activities
            
            
            (4,469,070
            )
            
            
            (3,840,151
            )Cash
      Flows From Investing ActivitiesPurchases
      of property, equipment and intangibles
            
            
            (2,077,500
            )
            
            
            (413,899
            )Reserve
      pending FDA product clearance
            
            
            (7,870,000
            )
            
            
            -Restricted
      cash-Interest Reserve
            
            
            (4,500,000
            )
            
            
            -Prepaid
      royalties
            
            
            (100,000
            )
            
            
            -Net
      cash flows from investing activities
            
            
            (14,547,500
            )
            
            
            (413,899
            )Cash
      Flows From Financing ActivitiesTechnology
      transfer payments
            
            
            (250,000
            )
            
            
            (1,500,000
            )Proceeds
      from bank borrowings
            
            
            -
            
            
            
            1,500,000Repayments
      on bank borrowings
            
            
            (4,107,977
            )
            
            
            (2,820,453
            )Proceeds
      from notes payable to and advances fromshareholders
            
            
            2,800,000
            
            
            
            208Payments
      on notes payable to and advances fromshareholders
            
            
            (2,800,000
            )
            
            
            (383,333
            )Proceeds
      from the issuance of Senior Notes
            
            
            25,000,000
            
            
            
            -Net
      cash from issuance of preferred shares
            
            
            -
            
            
            
            2,760,000Purchase
      of treasury shares
            
            
            (228,264
            )
            
            
            (200,529
            )Net
      cash flows from financing activities
            
            
            20,413,759
            
            
            
            (644,107
            )Net
      increase / (decrease) in cash
            
            
            1,397,189
            
            
            
            (4,898,157
            )Cash
      at the beginning of the period
            
            
            4,072,443
            
            
            
            11,636,843Cash
      at the end of the period
            
            $
            5,469,632
            
            
            $
            6,738,686Supplemental
      Disclosures of Cash Flow Information:Cash
      paid for interest
            
            $
            196,409
            
            
            $
            222,644Non-Cash
      ActivityNon-cash
      proceeds from issuance of Series C preferred shares –derivative
      liability exchanged for Shares
            
            $
            -
            
            
            $
            17,901,129Non-cash
      portion of derivative liabilities associated with warrants
            
            $
            221,490
            
            
            $
            -




See notes
to financial statements.





8




MedPro
Safety Products, Inc.


Notes
to Financial Statements


(Unaudited)





NOTE
1 – BASIS OF PRESENTATION AND NATURE OF BUSINESS





The
accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 8 of Regulation
S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included.  Operating results for the nine
months ended September 30, 2010 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2010.  For
further information, refer to the Company’s financial statements and footnotes
thereto included in the Company’s annual report on Form 10-K for the year ended
December 31, 2009.





NOTE
2 – INCOME TAXES





Income
tax expense is provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred
taxes.  Deferred taxes are recognized for differences between the
basis of assets and liabilities for financial statement and income tax
purposes.  The differences relate primarily to the effects of net
operating loss carry forwards and differing basis, depreciation methods, and
lives of depreciable assets. The deferred tax assets represent the future tax
return consequences of those differences, which will be deductible when the
assets are recovered.




No income
tax benefit (expense) was recognized for the three or nine months ended
September 30, 2010 as a result of tax losses in this period and because deferred
tax benefits, derived from the Company’s prior net operating losses, were
previously fully reserved and the Company has cumulative net operating losses
for tax purposes in excess of $27 million.




The
Company currently has tax return periods open beginning with December 31, 2006
through December 31, 2009.





NOTE
3 – EARNINGS PER SHARE





In
accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
“Earnings Per Share”, which was primarily codified into ASC Topic 260, basic
earnings per share were computed using weighted average shareholdings of
13,175,996 and 13,308,793 for the nine months ended September 30, 2010 and
2009.  There were no new common shares issued in the nine months ended
September 30, 2010.  There were 25 shares issued in the nine months
ended September 30, 2009.   The weighted average shares
outstanding for the three months ended September 30, 2010 and 2009 were
13,146,822 and 13,286,106, respectively.





The basic
earnings per share are calculated on the weighted average number of common
shares outstanding.  Diluted earnings per share are based on the
weighted average number of common shares outstanding and all dilutive potential
common shares outstanding.  Weighted average common shares outstanding
assuming full dilution were 43,268,813 for the nine months ended September 30,
2009.  Because the Company had a net loss for the three and nine month
periods ended September 30, 2010, there is no dilutive effect and both the basic
and diluted losses per share were the same for this period.




9




NOTE
3 – EARNINGS PER SHARE – Continued,





Basic
earnings / (loss) per common share represents the amount of earnings / (loss)
for the period available to each share of common stock outstanding during the
reporting period.  Diluted earnings (loss)


per
common share is the amount of earnings (loss) for the period available to each
share of common stock outstanding during the reporting period and to each share
that would have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the period.





The
Company’s potentially dilutive securities consist of options and warrants, as
well as, convertible preferred stock.  Since the Company had a loss in
2010, the potentially dilutive options, warrants and preferred shares were not
considered and earnings per share were only presented on a non dilutive
basis.  In 2009, the Company had 1,627,376 warrants, 3,285,715 options
and 9,733,531 preferred shares (in three different Series with different
conversion features) which had an impact on calculating fully diluted earnings
per share.  The common stock equivalent numbers of shares convertible
from the preferred shares were 28,358,575 shares.  After adjustment
for potential buy back of convertible preferred and warrants and options, the
fully diluted shares were 43,268,813.





NOTE
4 - RECENT ACCOUNTING PRONOUNCEMENTS




Recent
Accounting Pronouncements





Not Yet
Adopted





In
October 2009, the FASB issued new accounting guidance (Accounting Standards
Update (ASU), 2009-13) related to revenue arrangements with multiple
deliverables, Revenue
Recognition (“Topic 605-25-65-1”): Multiple Deliverable Revenue Arrangements — A
Consensus of the FASB Emerging Issues Task Force, that provides
principles for allocation of consideration among an arrangement’s
multiple-elements, allowing more flexibility in identifying and accounting for
separate deliverables. The guidance introduces an estimated selling price method
for valuing the elements of a bundled arrangement if vendor-specific objective
evidence or third-party evidence of selling price is not available, and
significantly expands related disclosure requirements. This guidance is
effective on a prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Alternatively, adoption may be on a retrospective basis, and early application
is permitted. We are currently evaluating the impact of adopting this guidance
on our financial statements.





Adopted





In June
2009, the FASB issued accounting guidance that eliminates the exemption from
consolidation for qualifying special-purpose entities, effective for financial
asset transfers occurring after the beginning of an entity’s first fiscal year
that begins after November 15, 2009. We currently do not have any of these
entities.




In June
2009, the FASB issued accounting guidance that assists in determining whether an
enterprise has a controlling financial interest in a variable interest entity.
This guidance is effective as of the beginning of the first fiscal year that
begins after November 15, 2009. We currently do not have any such
arrangements.





The FASB
has issued ASU 2010-01, Equity (Topic 505): Accounting for
Distributions to Shareholders with Components of Stock and Cash. The
amendments to the Codification in this ASU clarify that the stock portion of a
distribution to shareholders that allows them to elect to
receive cash or stock with a potential limitation on the total amount of cash
that all shareholders can elect to receive in the aggregate is considered a
share issuance that is reflected in earnings per share prospectively and is not
a stock dividend. This ASU codifies the consensus reached in EITF Issue No.
09-E, “Accounting for Stock Dividends, Including Distributions to Shareholders
with Components of Stock and Cash.”   The Company recognizes that
the standard is applicable to its financial statements for this period but it
has no applicable dividend transactions and therefore implementation has had no
effect on its financial statements.  ASU 2010-01 is effective for
interim and annual periods ending on or after December 15, 2009, and should be
applied on a retrospective basis.





10


NOTE
4 - RECENT ACCOUNTING PRONOUNCEMENTS – Continued,





In
January 2010, the FASB issued ASU, 2010-06, Fair Value Measurement and
Disclosures(Topic 820-10-65-7), which relates to the disclosure
requirements for fair value measurements and provides clarification for existing
disclosures requirements. This update will require an entity to disclose
separately the amounts of significant transfers in and out of Levels 1 and
2 fair value measurements and to describe the reasons for the
transfers.  It also will require entities to disclose information
about purchases, sales, issuances and settlements to be presented separately
(i.e. present the activity on a gross basis rather than net) in the
reconciliation for fair value measurements using significant unobservable inputs
(Level 3 inputs). This guidance clarifies existing disclosure requirements
for the level of disaggregation used for classes of assets and liabilities
measured at fair value and requires disclosures about the valuation techniques
and inputs used to measure fair value for both recurring and nonrecurring fair
value measurements using Level 2 and Level 3 inputs. The new
disclosures and clarifications of existing disclosure are effective for fiscal
years beginning after December 15, 2009, except for the disclosure
requirements for or related to the purchases, sales, issuances and settlements
in the roll forward activity of Level 3 fair value
measurements.  Those disclosure requirements are effective for fiscal
years ending after December 31, 2010. We have implemented this standard in
our financial disclosures effective in the first quarter of 2010.





In April
2010, the FASB issued ASU 2010-10, Accounting for Certain Tax Effects
of the 2010 Health Care Reform Acts (Topic 740-10-S99-4), which relates
to the impact of the differing signature dates for the two healthcare bills on
the tax provision and deferred taxes of a registrant.  The Company
believes that the standard has no impact on its financial statements or
disclosures.





In June
2008, effective for financial statements issued after December 15, 2009, ASC
260-10-65-2, Determining
Whether Instruments Granted in Share-Based Transactions Are Participating
Securities, was issued by the FASB as guidance on the impact on earnings
per share of the inclusion of share-based transactions.  The adoption
of Codification Topic ASC 260-10-65-2 did not have a material impact on the
Company’s financial position, results of operations or earnings per
share.





In
December 2007, the FASB ratified Codification Topic ASC 808-10-65-1, Collaborative Arrangements,
which applies to collaborative arrangements where no separate legal entity
exists and in which the parties are active participants and are exposed to
significant risks and rewards that depend on the success of the
activity.  This issue, among other things, requires certain statement
of operations presentation of transactions with third parties and of payments
between parties to the collaborative arrangement, along with disclosure about
the nature and purpose of the arrangement.  The provisions of
Codification Topic ASC 808 are effective for fiscal years beginning on or after
December 15, 2008.  The Company adopted Codification Topic 808 on
January 1, 2009. The adoption of Codification Topic 808 did not have a
material impact on the Company’s financial position or results of
operations.





In May
2009, the FASB issued Statement No. 165, Subsequent Events, which was
primarily codified into ASC Topic 855 (“Topic 855”). Topic 855 establishes
general standards of accounting for and disclosures of events that occur after
the balance sheet date but before financial statements are issued or are
available to be
issued. In particular, this Statement requires the following: (a) the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur forpotential
recognition or disclosure in the financial statements, (b) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, and (c) the disclosures an
entity should make about events or transactions that occurred after the balance
sheet date. In accordance with this Statement, an entity should apply the
requirements to interim or annual financial periods ending after June 15, 2009.
Topic 855 was updated by FASB ASU 2010-09.




11




NOTE
4 - RECENT ACCOUNTING PRONOUNCEMENTS – Continued,





On
February 24, 2010, the FASB issued ASU 2010-09, effective immediately, which
amended ASC Topic 855, Subsequent Events. The
amendments were made to address concerns about conflicts with SEC guidance and
other practice issues. Among the provisions of the amendment, the FASB defined a
new type of entity, termed an “SEC filer,” which is an entity required to file
or furnish its financial statements with the SEC. Entities
other than registrants whose financial statements are included in SEC filings
(e.g., businesses or real estate operations acquired or to be acquired, equity
method investees, and entities whose securities collateralize registered
securities) are not SEC filers. While an SEC filer is still required by GAAP to
evaluate subsequent events through the date its financial statements are issued,
it is no longer required to disclose in the financial statements that it has
done so or the date through which subsequent events have been
evaluated.  The Company does not believe the changes had a material
impact on our results or financial position.





In
February 2008, ASC 820-10-15-1A was amended, which delayed the effective date of
ASC 820, Fair Value
Measurements and Disclosures, for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until the beginning of the first quarter of fiscal year 2009. The Company’s
adoption of 820-10-15-1A on January 1, 2009 did not have a material impact
on the Company’s financial position, results of operations or cash
flows.





In April
2008, ASC 350-30-65-1, Determination of the Useful Life of Intangible
Assets (“ASC 350-30-65-1”), amended the factors considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under ASC 350, Intangibles-Goodwill and Other , ASC
350-30-65-1 requires a consistent approach between the useful life of a
recognized intangible asset under ASC 350 and the period of expected cash flows
used to measure the fair value of an asset under ASC 805. ASC 350-30-65-1 also
requires enhanced disclosures when an intangible asset’s expected future cash
flows are affected by an entity’s intent and/or ability to renew or extend the
arrangement. ASC 350-30-65-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and is applied
prospectively. Early adoption is prohibited. The Company’s adoption of ASC
350-30-65-1 on January 1, 2009 did not have a material impact on the
Company’s financial position, results of operations or cash flows.





In June
2008, ASC 815-10-65-3, Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock, provides
guidance for determining whether an equity-linked financial instrument (or
embedded feature) is indexed to an entity’s own stock, which would qualify as a
scope exception under ASC 815-10-15-74(a),  Accounting for Derivative
Instruments and Hedging Activities.





ASC 815
is effective for fiscal years beginning after December 15, 2008 and early
adoption for an existing instrument is not permitted. The Company’s adoption of
ASC 815 on January 1, 2009 had a material impact on the Company’s financial
position, results of operations and cash flows.  Its impact is more
fully disclosed in the Notes to our financial statements and reflected on our
Statement of Shareholders’ Equity.




12





NOTE
4 - RECENT ACCOUNTING PRONOUNCEMENTS – Continued,





In
December 2007, the FASB issued FASB ASC 805-10 (Prior authoritative literature:
SFAS No. 141 (revised 2007), “Business Combinations”, which
replaces FASB Statement No. 141). FASB ASC 805-10 establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any non
controlling interest in the acquiree and the goodwill acquired. The Statement
also establishes disclosure requirements which will enable users to evaluate the
nature and financial effects of the business combination.  FASB ASC
805-10 will change how business combinations are accounted for and will impact
financial statements both on the acquisition date and in subsequent periods. The
adoption of FASB ASC 805-10 did not have an impact on the Company’s financial
position and results of operations although it may have a material impact on
accounting for business combinations in the future which cannot currently be
determined.





In April
2009, ASC 820-10-65-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, provided
additional guidance for estimating fair value in accordance with ASC 820, Fair
Value Measurements and Disclosures, when the volume and level of activity for
the asset or liability have significantly decreased. This ASC also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. This ASC emphasizes that even if there has been a significant decrease
in the volume and level of activity for the asset or liability and regardless of
the valuation technique(s) used, the objective of a fair value measurement
remains the same. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction (that is, not a
forced liquidation or distressed sale) between market participants at the
measurement date under current market conditions. ASC 820-10-65-4 is effective
for interim and annual reporting periods ending after June 15, 2009, and is
applied prospectively. Accordingly, the Company adopted the provisions of ASC
820-10-65-4 on April 1, 2009.  The adoption of this guidance did
not have a material impact on the Company’s financial position, results of
operations or cash flows.





In April
2009, ASC 825-10-65-1, Interim Disclosures about Fair Value of
Financial Instruments, was revised to require disclosures about fair
value of financial instruments in interim as well as annual financial
statements. This standard is effective for periods ending after June 15,
2009. Accordingly, the Company adopted the provisions of ASC 825-10-65-1 on
April 1, 2009. The adoption of this guidance did not have a material impact
on the Company’s financial position, results of operations or cash flows.
However, the provisions of ASC 825-10-65-1 may, in the future, result in
additional disclosures with respect to the fair value of the Company’s financial
instruments.





In
January 2010, guidance was issued to alleviate diversity in the accounting for
distributions to shareholders that allow the shareholder to elect to receive
their entire distribution in cash or shares but with a limit on the aggregate
amount of cash to be paid. The amendment states that the stock portion of a
distribution to shareholders that allows them to elect to receive cash or shares
with a potential limitation on the total amount of cash that all shareholders
can elect to receive in the aggregate is considered a share issuance. The
amendment is effective for interim and annual periods ending on or after
December 15, 2009 and had no impact on the Company’s financial
statements.  The Company does not currently, nor does it expect to
issue dividends to shareholders in the foreseeable future.





In April
2009, guidance was issued by the FASB, ASC 320-10-65-1, Recognition and Presentation of
Other Than Temporary Impairments, effective for financial statements
issued after June 15, 2009, on the reporting for other than temporary
impairments.  The adoption of this guidance did not have a material
impact on the Company’s financial position, results of operations or cash
flows.




13




NOTE
4 - RECENT ACCOUNTING PRONOUNCEMENTS – Continued,





Reclassifications





Certain
amounts in the 2009 financial statements have been reclassified to conform to
the classifications used to prepare the 2010 financial
statements.  These reclassifications had no material impact on the
Company’s financial position, results of operations, or cash flow as previously
reported.





NOTE
5 – INVENTORY





The
Company’s inventory consists primarily of the Needlyzer product at cost, less an
amount that is necessary to adjust inventory to its estimated net realizable
value less all applicable disposition costs.





NOTE
6 – INTANGIBLE ASSETS





The
Company’s intangible assets consist primarily of intellectual properties
(medical device patents) that give the Company the right to produce and exploit,
commercially, certain medical devices.  The various patents include
the skin and tube-activated blood collection devices with a cost of $2,525,425,
the Key-LokTM patent at $489,122, the syringe guard prefilled family of products
at $4,845,000 and the winged infusion set at $1,250,000.  The Company
also has loan fees recorded as intangible assets.





During
the third quarter the Company paid off all bank borrowings and thus fully
amortized the original loans fees of $183,333.  New loan fees of
$1,728,500 were recorded as of September 30, 2010.  These fees will be
amortized over the term of the notes ending October 30, 2016 and beginning
coincident with the commencement of the minimum volume royalty agreement, the
collateral for the notes, which is October 1, 2010.





To date,
two of the existing patents have been utilized to manufacture parts for testing
and evaluation.  The Company expects its customer to begin delivering
product in the fourth quarter of 2010.  Revenue based on minimum
production volumes will be earned by the Company beginning with the fourth
quarter of 2010.





Amortization
expense was $458,987 which included amortization of $403,270 for the
intellectual property and amortization of loan fees of
$55,717.  Estimated future amortization for the balance of this fiscal
year is expected to be $245,440 (financing costs $94,712 and intellectual
property $150,728) and amortization of the following amounts for the fiscal
years ended on December 31 are expected to be as follows:





Fiscal
      Year Ending
              December 31,
            
            Intellectual Property
              Amount
            
            
            Financing Costs
              Amount2011
            
            $
            1,821,909
            
            
            $
            284,1372012
            
            $
            1,821,909
            
            
            $
            284,1372013
            
            $
            1,821,909
            
            
            $
            284,1372014
            
            $
            1,779,819
            
            
            $
            284,137After
      12/31/14
            
            $
            1,267,912
            
            
            $
            497,240




14




NOTE
7 – LONG-TERM DEBT





Long-term
debt at September 30, 2010 and December 31, 2009 consisted of the
following:





September 30,
              2010
            
            
            December 31,
              2009Senior
      14% Notes due 2016 to various noteholders,
      interest due quarterly beginningOctober
      31, 2010, principal payments commence when revenue from the guaranteed
      minimum volume contract is sufficient to cover principal and interest;
      100% of the minimum volume contract revenue, reduced by certain limited
      expenses, is allocated to debt service through October 30,
      2016
            
            $
            25,000,000
            
            
            $
            -Payable
      to Fifth Third Bank, Term Loan, interestpayable
      at prime plus 2%, monthly principal payments of $138,889 beginning June
      2008, maturing  May 1, 2011, collateralized by an assignment of
      intellectual properties, paid in full September 1, 2010
            
            
            -
            
            
            
            2,361,111Payable
      to Traditional Bank, Inc., Term loan, interest at 2.45% payable monthly,
      maturing July 1, 2010, secured by $1,500,000 interest bearing deposit
      account.  Loan paid in full July 1, 2010.
            
            
            -
            
            
            
            1,500,000Payable
      to Whitaker Bank, Draw Loan, interest payable at 7.5% monthly payments of
      principal and interest of $10,000 due through July 23, 2010, secured by
      certain inventory of the Company and personally guaranteed by the
      Company’s Chairman and CFO.  Note was extended 60 days on July
      23, 2010.  Principal and interest paid in full on September 1,
      2010.
            
            
            -
            
            
            
            246,86625,000,000
            
            
            
            4,107,977Less:
      current portion
            
            
            -
            
            
            
            3,413,533Long-term
      portion
            
            $
            25,000,000
            
            
            $
            694,444




15




NOTE
7 – LONG-TERM DEBT – Continued,





There are
no maturities of long-term debt for the remainder of this fiscal
year.  The following table summarizes the maturities of long-term debt
for the fiscal years ended December 31:




Fiscal
      Year Ended December 312011
              
              $
              -2012
              
              
              -2013
              
              
              4,671,6912014
              
              
              6,631,0972015
              
              
              11,045,2742016
              
              
              2,651,938





On
September 1, 2010, MedPro completed the issuance of $25 million principal amount
of Senior Secured 14% Notes due 2016 (the “Notes”) in a private placement to
institutional investors. In connection with the Note issuance, MedPro
transferred contract rights to receive all royalties from the distribution of
three safety blood collection and infusion products to a newly formed, wholly
owned MedPro subsidiary, MedPro Investments, LLC (“Issuer”), which issued the
Notes. MedPro received approximately $18,649,000 in net proceeds after the
establishment of a $4,500,000 interest reserve and payment of offering
expenses.





The
maturity date of the Notes is October 30, 2016. The Notes are obligations solely
of the Issuer.  The Notes bear interest on the unpaid principal
balance at a minimum rate of 14% per annum.





The
Company established the following reserves with respect to the
Notes:





·
            An
      interest reserve, funded from a portion of the proceeds of the offering,
      for payment of interest due prior to January 30, 2013, if royalty revenues
      are not sufficient to cover interest and principal
    payments;


·
            A
      reserve, funded by MedPro from a portion of the purchase price paid to
      MedPro, to cover potential liquidated damages payable if regulatory
      approval of the Wing product is
delayed.





The
minimum volume of royalties
payable from the distribution of MedPro’s three safety blood collection and
infusion productsis $43,750,000.  Assuming the contract
revenue only achieves the minimum volume, the note holders will earn an
approximate yield of 14%.  If the revenue from the contract exceeds
the minimum volume, the note holders will earn a higher yield on their
investment.  The yield cannot be reasonably estimated since volume is
unknown.





The use
of proceeds on the first tranche is presented in tabular form
below:





Source and Use of Funds
            
            AmountProceeds
      from Sale of Senior Notes
            
            $
            25,000,000Offering
      fees and expenses
            
            
            (1,851,445
            )Reserve
      for interest payments
            
            
            (4,500,000
            )Net
      proceeds to Company
            
            $
            19,648,555Reserve
      pending FDA product clearance (funded by Company)
            
            
            (7,870,000
            )Pay
      off Fifth Third Bank  and Vision Opportunity Master Fund
      Loans
            
            
            (4,112,967
            )Net
      proceeds after FDA reserve and debt repayment
            
            $
            6,665,588




16




NOTE
7 – LONG-TERM DEBT – Continued,





The funds
held in the reserve pending FDA product clearance will be released to the
Company when the Company delivers the FDA Freedom to Practice clearance letter
with respect to the Wing device.  The Company expects FDA clearance by
December 31, 2010.  The Company has responded to inquiries from the
FDA and is awaiting clearance or a further letter of questions.





On
October 1, 2010, the Company received net proceeds of $4,644,587 (after payment
of offering fees and expenses) from the sale of a second tranche of Notes in an
aggregate principal amount of $5,000,000.





Royalty
collections through October 30, 2016 are allocated to the payment of principal
and interest on the Notes.   Once principal is paid down to
$1,000,000, additional interest is paid to the note holders based on cash flow
under the contract.  The final $1,000,000 of principal is paid with
the last payment on the notes.  Any payments made in 2016 are reduced
by the marketing assistance payments due to our customer under the minimum
volume contract.  The reduction for the marketing assistance payment
is payable to the Company.  The Company is also entitled to receive a
servicing fee of $5,000 per quarter, plus out of pocket expenses, subject to
quarterly limitations.





The Note
covenants restrict additional senior borrowing to $7,500,000 and new
subordinated debt to $15,000,000.





NOTE
8 – NOTES PAYABLE TO AND ADVANCES FROM SHAREHOLDERS





Notes
payable to and advances from shareholders represent loans and advances received
from officers, directors, shareholders and entities over which they exert
significant control.  Short term advances consisted of $866 and
$49,742 for September 30, 2010 and December 31, 2009, respectively, which were
due to various related parties including a company controlled by our Chairman
for charter air services and unpaid expense reports submitted after year end
totaling $35,550.  An additional $3,634 of expense reports due to our
Chief Operating Officer and an employee were part of the year-end short term
advances.  Finally, the Company owed SC Capital $10,557 for travel
expenses incurred in 2009 but billed in 2010.  At September 30, 2010,
the unpaid advances and invoices for services consisted of $806 due to officers
and $80 due to employees for expense reports.





2010
VOMF Bridge Loans





During
2010, MedPro borrowed a total of $2,800,000 from VOMF in short-term bridge
loans.  The following table provides certain information about each
bridge loan.





Date
            
            Principal
              Amount
            
            
            Interest
      Rate
            
            
            Shares
      subject to Warrants
            
            
            Exercise
      Price
              per
      shareFebruary
      8, 2010
            
            $
            500,000
            
            
            
            6
            %
            
            
            —
            
            
            
            —February
      26, 2010
            
            
            350,000
            
            
            
            6
            %
            
            
            212,500
            
            
            $
            4.00March
      31, 2010
            
            
            450,000
            
            
            
            6
            %
            
            
            112,500
            
            
            
            4.00May
      4, 2010
            
            
            250,000
            
            
            
            7
            %
            
            
            208,334
            
            
            
            3.00May
      28, 2010
            
            
            300,000
            
            
            
            7
            %
            
            
            50,001
            
            
            
            3.00June
      30, 2010
            
            
            450,000
            
            
            
            7
            %
            
            
            75,002
            
            
            
            3.00August
      5, 2010
            
            
            500,000
            
            
            
            7
            %
            
            
            83,335
            
            
            
            3.00Total
            
            $
            2,800,000
            
            
            
            
            
            
            
            741,672




17




NOTE
8 – NOTES PAYABLE TO AND ADVANCES FROM SHAREHOLDERS – Continued,





The
outstanding principal balance of the bridge loans made in February and March
bore interest at an annual rate of 6%.  The terms of these loans were
extended to September 30, 2010.  Under the terms of the note purchase
agreement executed in late February 2010, we agreed to add a representative of
VOMF to our board of directors upon VOMF’s request.  Other covenants
provided that without the written consent of VOMF, we would not guarantee or
incur additional indebtedness in excess of $100,000, other than trade accounts
payable incurred in the ordinary course of business, refinancing of current
indebtedness, and financing secured by purchase money liens, liens on equipment
and other permitted liens.  We also agreed not to sell any of our
properties, assets and rights including, without limitation and intellectual
property, to any person except for sales to customers in the ordinary course of
business; or with the prior written consent of VOMF.  We also issued
warrants to purchase 25,000 shares of our common stock at an exercise price of
$4.00 per share to VOMF for each $100,000 principal amount borrowed. Each
warrant has a five-year term from the date of issuance.





On April
30, 2010, the Company entered into a line of credit agreement with VOMF for
$1,000,000, which the Company could draw in installments of up to $300,000 per
month.  The outstanding principal balance bears interest at 7% and was
due on the earlier of January 1, 2011, or the date on which the Company raises
$20,000,000 or more of new equity or debt.  The Company also agreed to
issue warrants to purchase 166,666 shares of common stock upon the execution of
the credit agreement and warrants to purchase 16,667 shares of common stock for
each $100,000 drawn on the credit agreement.  The exercise price of
the warrants is $3.00 per share and each has a five-year term from the date of
issuance.  The Company made draws on the line of credit on May 4, May
28 and June 30, 2010.





On August
5, 2010, the Company borrowed an additional $500,000 from VOMF and issued a new
7% promissory note and a five-year warrant to purchase 83,335 shares of our
common stock at $3.00 per share.  This note was due September 30,
2010.  In connection with these loans and the associated warrants, the
Company recorded $685,000 of loan discount pursuant to ASC Topic
835.





The
$2,800,000 outstanding principal balance of the VOMF bridge loans plus accrued
interest of $57,214 were paid in full on September 1, 2010. Previously recorded
loan discount, accumulating to $685,000, was expensed as interest when the loans
were paid.





NOTE
9 – RELATED PARTY TRANSACTIONS





As part
of the September 2006 debt restructuring, our Chairman agreed to personally
guarantee the term loan and revolving line of credit under the Company’s credit
agreement with a commercial lender, for which the Company agreed to pay him
$250,000 annually.  The final fee was accrued in 2008 and paid in
2009.  The personal guarantee was released in 2009.





On March
6, 2008, the Company entered into a consulting agreement with SC Capital
Partners, LLC to assist it with future capital requirements, strategic financial
planning and support of the Company’s efforts to build shareholder
liquidity.  The contract was replaced with a new contract on January
11, 2010.  The agreement calls for a retainer of $15,000 per month,
plus out-of-pocket expenses, beginning on the date of execution.  The
agreement may be terminated by the Company with appropriate notice or upon
satisfaction of the goals of the agreement.  The agreement also
contains certain fees for future capital milestones achieved.  Warren
Rustand, a director of the Company, is a principal of SC Capital.





18





NOTE
9 – RELATED PARTY TRANSACTIONS – Continued,





The
Company also issued Series AA warrants to purchase 533,458 common shares to SC
Capital for $1.81 per share as compensation for financial advisory services in
connection with the December 28, 2007 private placement.  The terms of
these warrants are comparable to the terms of the “A” warrants and they expire
on December 28, 2012.  None of the AA warrants have been exercised as
of the date of the financial statements.





As a part
of the issuance of the Notes on September 1, 2010, S C Capital was paid a fee of
$500,000.   When the second tranche closed on October 1, 2010, SC
Capital earned an additional $100,000 fee in the fourth quarter.





NOTE
10 – SHAREHOLDERS’ EQUITY





The
Company is authorized to issue 90,000,000 shares of common stock with a par
value of $0.001 per share, and 10,000,000 shares of preferred stock with a par
value of $.01 per share, which is issuable in series.  Of the
10,000,000 shares of preferred stock authorized, 6,668,229 shares are designated
as Series A Convertible Preferred Stock (“Series A Stock”), 1,493,779 shares are
designated as Series B Convertible Preferred Stock (“Series B Stock”) and
1,571,523 shares are designated as Series C Convertible Preferred Stock (“Series
C Stock”).





At
September 30, 2010, the Company’s issued and outstanding shares consisted of
13,139,793 shares of common stock, 6,668,229 shares of Series A Stock, 1,493,779
shares of Series B Stock, and 1,571,523 shares of Series C Stock.  In
addition, warrants to purchase 2,476,012 shares of common and options for
3,908,471 shares of common were outstanding at September 30,
2010.  The Company issued an additional 83,335 warrants to purchase
common shares in connection with the final $500,000 of borrowing from VOMF on
August 5, 2010.  The warrants are exercisable for five years at $3.00
per share.





See Note
12 of the notes to our audited financial statements included in our Annual
Report on Form 10-K for 2009 for a detailed description of the terms of our
three series of preferred stock and stock purchase warrants issued and
outstanding, including the accounting treatment.





The
Company had previously authorized the issuance of warrants to purchase up to
68,036 common shares for $1.99 per share as compensation for the publication of
a research report about the Company in a medical device industry
publication.  These warrants became exercisable when the report was
delivered to the Company and will expire on December 28, 2012.  During
2009, the Company and the warrant holder negotiated a settlement of a
disagreement resulting in the issuance of an additional 31,964 warrants under
the original terms and 75,000 warrants exercisable under the original timing but
at the market price of $3.75 per share at the date of issuance.  Since
the report was completed in the first quarter of 2010, we have expensed the
unearned portion of these warrants in the first quarter of 2010.





On June
25, 2009, the Company announced that its Board of Directors had authorized the
repurchase of up to one million shares of the Company’s common
stock.  Through June 30, 2010 the Company had repurchased 172,243 of
its shares in the open market transactions at an average price per share of
$3.42.  None of these purchases occurred in the first quarter of
2010.  During the quarter ended September 30, 2010, the Company
acquired an additional 8,355 shares of its own common stock at an average price
of $3.02.  The total number of shares repurchased has been 181,138
shares at $3.40 per share average cost.  The Company has spent
$616,320 on share repurchases since the inception of the buy-back
program.





19


NOTE
11 –STOCK PURCHASE WARRANTS





Effective
for financial statements issued for fiscal periods beginning after December 15,
2008, or interim periods therein, ASC 815 (formerly, EITF 07-05) requires that
warrants and convertible instruments with certain conversion or exercise price
protection features be recorded as derivative liabilities on the balance sheet
based on the fair value of the instruments.





The
warrants the Company issued in connection with its sale of Series A Stock on
December 28, 2007, possess features covered by ASC 815.  The warrants
provide for cashless exercise after one year.  They also provided that
if before January 1, 2009, we issued any additional shares of common stock at a
price per share less than $1.81 (or the adjusted warrant exercise price then in
effect) or without consideration, then the exercise price would adjust to the
price per share paid for the additional shares of common stock upon each such
issuance.





To
reflect the cumulative effect of adopting ASC 815, the Company reduced
Additional Paid in Capital by $6,321,081, increased its Accumulated Deficiency
by $35,081,114 and recorded a liability of $41,402,196 as of January 1,
2009.  The amount of the liability was determined by reference to the
fair value of the warrants at January 1, 2009. Approximately 1% of the Company’s
outstanding common was freely tradable at January 1, 2009. The thinly traded
market for the Company’s shares at January 1, 2009, and the volatility of its
trading price made the use of level one inputs (quoted market prices in active
markets for the warrants or the Company’s shares) under FASB ASC 820 (formerly
SFAS 157) as inappropriate. The Company used average share prices in a
Black-Scholes calculation using volatility inputs from similar companies and
taking into account the time it would take for the market to absorb the influx
of over 19,000,000 common shares underlying the warrants based on then current
trading volumes. As a result, some level two inputs, such as sales of warrants
for cash, and some level three inputs, unobservable inputs developed using
estimates and assumptions expected to be utilized by market participants, were
used to determine fair value of the warrants for the derivative liability
analysis.





After
consideration of all the known relevant factors necessary to determine the value
of the warrants as of January 1, 2009 for purposes of ASC 815 and ASC 820 and
the Company-specific issues regarding trading prices and trading volume,
including the restricted status of nearly 99% of the Company’s common shares
under Rule 144 through January 4, 2009, the following inputs were used to value
the warrants.  Share prices ranged from $7.88 at January 1, 2009 to
$5.00 at March 24, 2009.  The January price was based on a trailing
20-day average from the first trade in 2009 due to an extremely thin market and
price volatility. The Company used a 50% discount from these quoted values in
the Black-Scholes calculation in order to more closely approximate the only
observable input for the warrant values based on the exercise of the Series C
warrants for $2.18 per common share equivalent in March 2009.  We also
considered the expected inefficient market absorption of the common shares
underlying the Series C preferred stock in the warrant exercise, reflecting the
average daily trading volume of fewer than 700 shares during the first quarter
of 2009.  In addition, the Series C preferred issued in exchange for
warrants in March 2009 as well as the 14,339,090 underlying shares of common
stock cannot be transferred for one year, and are subject to additional
“leak-out” transfer restrictions during the subsequent twelve
months.  The Company used comparable company volatility rates of 50%
in January 2009 and 55% in March 2009.  The discount rate was based on
comparable term U.S. Treasury rates of 0.76% and 0.81%, respectively for January
and March 2009.





In March
2009, two Series A preferred stockholders exchanged all of their Series A, B and
C warrants, exercisable for a total of 18,285,692 common shares, for $3,000,000
of cash and a total of 1,571,523 shares of new Series C preferred stock. Each
Series C preferred share converts into 10 common shares, a ratio equivalent to
$2.18 per common share.  The Company issued 137,614 shares of Series C
preferred stock upon the exercise of a portion of the Series C warrants for the
cash, plus an additional 1,433,909 shares of
Series C preferred stock in exchange for all of the remaining Series A, B and C
warrants held by the two stockholders.  A small number of common
shares were issued in lieu of fractional shares of Series C preferred. The
liability for the warrants exchanged in March 2009 was recomputed using the
Black-Scholes
method with updated inputs and the difference was recorded as income from the
decline in debt due to the reduction in fair value of the outstanding warrants
at March 24, 2009 immediately before the exchange.  The
valuation difference on these warrants was $21,237,919 which accounts for the
substantial portion of the total gain for the year ended December 31, 2009, of
$21,603,185.




20




NOTE
11 –STOCK PURCHASE WARRANTS - Continued,





A total
of 1,025,882 Series A and B warrants remained outstanding at December 31, 2009.
As of August 12, 2009, the Company’s registration statement became effective and
no derivative liabilities remain outstanding at December 31,
2009.  ASC 820 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.  ASC 820
establishes a fair value hierarchy that prioritizes the use of inputs used in
valuation methodologies into the following three levels:





·
            Level
      1: Quoted prices (unadjusted) for identical assets or liabilities in
      active markets. A quoted price in an active market provides the most
      reliable evidence of fair value and must be used to measure fair value
      whenever available.





·
            Level
      2: Significant other observable inputs other than Level 1 prices such as
      quoted prices for similar assets or liabilities; quoted prices in markets
      that are not active; or other inputs that are observable or can be
      corroborated by observable market data.


·
            Level
      3: Significant unobservable inputs that reflect a reporting entity’s own
      assumptions about the assumptions that market participants would use in
      pricing an asset or liability. For example, level 3 inputs would relate to
      forecasts of future earnings and cash flows used in a discounted future
      cash flows method.





We
concluded there was insufficient trading frequency and volume in MedPro’s shares
to use the Level 1 inputs to value our warrants in a Black-Scholes calculation
under ASC 820 as of January 1, 2009. In particular, we noted that nearly 99% of
our outstanding common shares were restricted securities under Rule 144 that
could not be traded in public markets through January 4, 2009, and our stock
continued to trade sporadically thereafter. According, we used the following
level 2 inputs and level 3 inputs for purposes of our ASC 815 and ASC 820
analysis:





·
            MedPro
      share prices ranging from $7.88 at January 1, 2009 to $5.00 at March 24,
      2009. The January price was based on a trailing 20-day average from the
      first trade in 2009 due to an extremely thin market and price volatility.
      These values were then discounted by 50% to more closely approximate the
      only observable input for the warrant values — the exercise of the Series
      C warrants for $2.18 per common share equivalent in March
      2009.





·
            The
      time it would take for the market to absorb the influx of over 19,000,000
      common shares underlying the warrants, based on the average daily trading
      volume of fewer than 700 shares during the first quarter of
      2009.





·
            Transfer
      restrictions on the Series C preferred stock issued in exchange for
      warrants in March 2009, as well as the 14,339,090 underlying shares of
      common stock, which cannot be transferred for one year, and are subject to
      additional “leak-out” restrictions during the subsequent twelve
      months.




21




NOTE
11 –STOCK PURCHASE WARRANTS - Continued,





·
            Share
      price volatility rates of 50% in January 2009 and 55% in March 2009 for
      comparable companies.





·
            A
      discount rate based on comparable term U.S. Treasury rates of 0.76% and
      0.81%, respectively for January and March 2009.


·
            Average
      share prices using volatility inputs from similar companies, and taking
      into account common shares underlying the warrants based on then current
      trading volumes.





The
factors used to value the remaining derivative liability associated with the
remaining A and B warrants as of June 30, 2009 included the Company’s own
volatility calculated based on month end observations for the first six months
of 2009 of approximately 55%.  The Company’s share price at
June


30, 2009
was $5.00. The risk free return rate for the remaining life of the derivatives
was based on U S Treasury rates of 1.11% for the 1.75 years of estimated
remaining life of the warrants.  The A warrant was valued at $3.19 and
the B warrant was valued at $3.01. Many of the conversion features expired in
August 2009 when the registration statement for the common stock underlying
convertible preferred stock and warrants became effective. Other terms expired
at the end of 2009.  By year end, all of the derivative liability had
been written off or recognized as gain.





All of
the warrants we issued in 2010 provide for cashless exercise after one
year.  In addition, if we issue any additional shares of common stock
at a price per share less than the adjusted warrant exercise price then in
effect or without consideration, then the exercise price will adjust to the
price per share paid for the additional shares of common stock upon each such
issuance.





The
warrants we issued in the first quarter of 2010 had an exercise price of $4.00
per share.  As a result of the cashless exercise and anti-dilution
features, the Company had recorded a liability for the fair market value of
these warrants at their respective issue dates of $412,954.  The
derivative liability was adjusted to $370,026 due to a decline in the market
value of the warrants of $42,928 as of March 31, 2010.





The
inputs used to value the derivative liability as of the issue date of the
respective warrants and at March 31, 2010 were:





·
            The
      market price of the Company’s stock on February 26, 2010 of $3.40 and
      March 31, 2010 of $3.10;


·
            Specific
      Company Volatility for the quarter of  – 48%


·
            Risk
      free return rate – 2.3%


·
            Estimated
      life of the warrants - 5 years





These
inputs, coupled with the individual warrant exercise prices resulted in a
Black-Scholes value of $1.34 for the February 26, 2010 warrants and $1.14 for
the March 31, 2010 warrants.  The $0.20201 decline in the 212,500
warrants from February 26, 2010 to March 31, 2010 resulted in a gain of $42,928
on the derivative liability as of March 31, 2010.





As of
June 30, 2010, these warrants were revalued to $294,253.  The Company
recorded an additional gain of $75,773 for these warrants in the second quarter
of 2010.




22




NOTE
11 –STOCK PURCHASE WARRANTS - Continued,





The
warrants we issued in the second quarter of 2010 had an exercise price of $3.00
per share.  As a result of the cashless exercise and anti-dilution
features, the Company had recorded a liability associated with these warrants at
their respective issue dates of $410,902.  The derivative liability
for these warrants was adjusted to $387,529 due to a decline in the market value
of the warrants of $23,374 as of June 30, 2010.





The
combined gain on derivative valuation for the quarter was
$99,147.  Gain on derivative valuation for the six months ended June
30, 2010 was $142,075.





The
inputs used to value the derivative liability as of the issue date of the
respective warrants and at June 30, 2010 were:





·
            The
      market price of the Company’s stock on April 30, 2010, June 3, 2010 and
      June 30, 2010 were all $3.00 per share;


·
            Specific
      Company Volatility for the valuation dates were  – 44.51, 43.32
      and 42.26%, respectively;


·
            Risk
      free return rates were – 2.43%, 2.17% and 1.79%, respectively;
      and


·
            Estimated
      life of the warrants - 5 years.





These
inputs, coupled with the individual warrant exercise prices resulted in a
Black-Scholes value of approximately $1.25, $1.22 and $1.18 for the respective
warrant grant dates.  The quarter end valuations of these warrants
were determined based on a $3.00 market price, 42.26% volatility, 1.79% risk
free return and estimated remaining lives of the warrant based on their
respective maturity dates.  The adjustments to the derivative
liabilities were previously stated above.





The
warrants we issued in the third quarter of 2010 also have an exercise price of
$3.00 per share.  As a result of the cashless exercise and
anti-dilution features, the Company had recorded a liability associated with
these warrants at their respective issue dates of $82,631.  The
derivative liability for these warrants was adjusted to $63,698 due to a decline
in the market value of the warrants of $18,933 as of September 30,
2010.  The combined gain on derivative valuation for the quarter was
$297,514.  Gain on derivative valuation for the nine months ended
September 30, 2010 was $439,589.





The
inputs used to value the derivative liability as of the issue date of the
respective warrants and at September 30, 2010 were:





·
            The
      market price of the Company’s stock on August 5, 2010 was $3.00 per
      share;


·
            Specific
      Company Volatility for the valuation date was  –
      34.79%;


·
            Risk
      free return rate was – 1.57% at issue date and 1.27 at quarter end;
      and


·
            Estimated
      life of the warrants - 5 years.





These
inputs, coupled with the individual warrant exercise prices resulted in a
Black-Scholes value of approximately $0.99 for the warrant grant
date.  The quarter end valuations of these warrants were determined
based on a $3.00 market price, a 34.79% volatility, 1.27% risk free return and
estimated remaining lives of the warrant based on their respective maturity
dates.  The adjustments to the derivative liabilities were previously
stated above.




23




NOTE
12 – STOCK OPTIONS





On August
18, 2008, the Company adopted the MedPro Safety Products, Inc. 2008 Stock and
Incentive Compensation Plan (“2008 Plan”) and issued stock options to its
directors and employees in the amounts and on the terms agreed upon in the
September 2007 stock purchase agreement with the Series A
Stockholders.  The Company’s employees, including its three executive
officers, were granted a total of 2,800,000 options.  The two
non-employee directors each were granted 100,000 options.  The options
may be exercised at an exercise price of $1.81 per share only on the earliest of
the 30 days following January 1, 2013, the date of the holder’s death or 100%
disability, termination of employment or service


as a
director, and the date of a change in control of the Company.  Because
the exercise price was less than market price of MedPro stock on the date of
grant, the Company set a date certain for the exercise of the options in order
to qualify for exemptions from excise taxes under IRS deferred compensation
rules.





The
Company recorded unearned compensation expense of $14,580,000, or $4.86 per
underlying share, for the grant of these 3,000,000 options. The unearned
compensation is being charged to earnings over 24 months beginning on August 18,
2008.  The 24 month period coincides with the term of a
non-competition covenant included in the option agreement. The Company recorded
$3,645,000 of compensation expense for the first two quarters of 2010 and
2009.  The balance of the unearned compensation of $951,750 was
expensed in the third quarter of 2010.  There is no remaining unearned
compensation on these options at September 30, 2010.





On May
27, 2009, the Company awarded incentive stock options to purchase 185,715 common
shares to all of its employees.  The exercise price of the options was
$3.85 per share, the market price at the close of trading on the grant date,
except that the exercise price for the options to purchase 25,974 shares awarded
to the Company’s Chairman was $4.24, 110% of the market price, because he is a
10% shareholder.  The options are exercisable immediately and have a
ten year term, except for the Chairman’s options, which are limited to a
five-year exercise term.  The Company recorded $355,106 of unearned
compensation expense for the May 27, 2009 awards.  The Company is
recording compensation expense over three different periods for the Chairman,
other officers and other employees, respectively, at $5,819 per month. Unearned
compensation for these options was $261,314 at September 30, 2010.





The CEO’s
options were valued based on a 2.5 year life with 1.23% risk-free
return.  The other officer options were based on a 5 year life and a
2.43% risk-free return.  Finally, the employee options were based on a
6 year life and a 2.83% risk-free return.  The resulting values were
$1.21, $1.90 and $2.09 per option, respectively, utilizing these
inputs.





On August
24, 2009, the Company awarded an option to purchase 50,000 shares to both of the
directors elected in October 2008.  The options have the same terms as
the options previously granted to the employees and the other directors in
August 2008.  The option exercise price is $1.81 per share and the
options may only be exercised between January 1, 2013 and January 31,
2013.  The unearned compensation booked at August 24, 2009 for these
two options was $224,372. The Company recorded compensation expense of $84,140
($28,047 per quarter) for the nine months ended September 30,
2010.  The factors utilized to value these options were a volatility
factor of 53%, a life of 2 years, $3.70 fair value at grant based on market
prices and a1.05% risk-free rate of return.  The resulting option
value based on the $1.81 exercise price was $2.24.  Unearned
compensation for these options was $100,814 at September 30, 2010.





On
October 6, 2009, the Company awarded incentive stock options to purchase 47,256
common shares to its employees, excluding officers.  The exercise
price of the options was $3.65 per share, the market price at the close of
trading on the grant date.  The options are exercisable immediately
and have a ten year term. The Company recorded $91,944 of unearned compensation
expense for the October 6, 2009 awards.




24




NOTE
12 – STOCK OPTIONS – Continued,





The
unearned compensation is being recorded as expense over a six year life of the
options at $1,277 per month. The Company recorded compensation expense of
$11,493 ($3,831 per quarter) for the nine months ended September 30,
2010.   The factors used to value these options were a life of 6
years, market prices for the stock value ($3.65 exercise price at date of
grant), a 55% volatility factor and a 2.25% risk-free return.  The
resulting option value was $1.95.  Unearned compensation on these
options was $76,840 at September 30, 2010.





On
September 29, 2010, the Company awarded non qualified stock options to purchase
575,500 common shares to its employees, including the COO and CFO, but excluding
the CEO.  The exercise price of the options was $2.70 per share, the
market price at the close of trading on the grant date.  The options
are exercisable immediately and have a five year term. The Company recorded
$422,824 of unearned compensation expense for the September 29, 2010
awards.





The
unearned compensation is being recorded as expense over a two and one-half year
life for the officer options at $6,029 per month. The Company recorded
compensation expense of $198 for the one day period ended September 30,
2010.   The employee options are being recorded over five years
at $4,032 per month.  The Company recorded $133 of earned compensation
for the one day period ended September 30, 2010.





The
factors used to value these options were a life of 2.5 and 5 years, market
prices for the stock value ($2.70 exercise price at date of grant), a 34.79%
volatility factor and a 0.67% and 1.28% risk-free return.





The
resulting option values were $0.60 and $0.88, respectively for officers and
employees.  Unearned compensation on these options was $422,493 at
September 30, 2010.





We valued
the options granted under the 2008 Plan utilizing the Black-Scholes
model.  The values of the options granted under the 2008 Plan on
August 18, 2008, May 27, 2009, August 24, 2009, and October 6, 2009 and the
inputs the Company used to determine those values under the Black-Scholes method
are described in Note 12 of the Notes to the Audited Financial Statements
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2009.





The
following table summarizes stock option activity for the periods
indicated:





Nine
      Months Ended
              September
      30, 2010
            
            
            Twelve
      Months Ended
              December
      31, 2009Shares
            
            
            Average
      weighted exercise
    price
            
            
            Shares
            
            
            Average
      weighted exercise
    priceOutstanding  beginning
      of period
            
            
            3,332,971
            
            
            $
            1.95
            
            
            
            3,000,000
            
            
            $
            1.81Granted
            
            
            575,500
            
            
            $
            2.70
            
            
            
            332,971
            
            
            $
            3.24Exercised
            
            
            0
            
            
            
            n/a
            
            
            
            0
            
            
            
            n/aExpired/cancelled
            
            
            0
            
            
            
            n/a
            
            
            
            0
            
            
            
            n/aOutstanding,
      end ofPeriod
            
            
            3,908,471
            
            
            $
            2.06
            
            
            
            3,332,971
            
            
            $
            1.95




25




NOTE
12 – STOCK OPTIONS – Continued,





The
following table summarizes information about stock options outstanding and
exercisable at September 30, 2010:





Weighted
      average exercise
price
            
            Options
              outstanding
            
            Average
      weighted remaining contractual life (years)
            
            Options
              Exercisable$2.06
            
            3,908,471
            
            2.898
            
            808,471





NOTE
13 – LEASE COMMITMENT WITH RELATED PARTY





The
Company leases its office and storage facility in Lexington, Kentucky, under a
non-cancelable operating lease with a related party.  On January 10,
2007, the Company signed a lease addendum that extended the term of the original
1998 lease through August 2012 with two five-year extension
options.  The amended lease provides for lease payments of $3,500 per
month from January 1, 2007, through July 31, 2007, and $6,500 per month from
August 1, 2007, through January 31, 2008.  Beginning on February 1,
2008, the lease payment increased to $6,975 per month ($83,700 per year) for the
remainder of the term when the Company increased its leased space by an
additional 1,063 square feet.





Total
lease expense was $62,775 for the nine months ended September 30, 2010 and 2009,
respectively.  Future minimum lease payments for the balance of this
fiscal year are expected to be $20,925 and for future annual fiscal periods
ended December 31 are as follows:




Fiscal
      Year Ended
              December 31,2011
            
            $
            83,7002012
            
            
            55,800Total
            
            $
            139,500




Lease of New Office
Space





On
October 29, 2010, the Company signed a lease on new office space to accommodate
expected growth in staff over the next 12 to 18 months.  The new
premises will cost the Company $8,000 per month rent, after a 90 day rent
abatement period, and will continue for five years.  The new space
should comfortably accommodate 25 people with ample conference space,
collaborative work area, and state of the art remote conferencing technology to
cut down on travel costs.





Our
existing space is being actively marketed but we may have to pay dual rent for a
period of time until this space is rented.





NOTE
14 – DEVELOPMENT AND DISTRIBUTION AGREEMENTS





Joint
Development Agreement





On March
8, 2010, the Company entered into a Joint Development Agreement with a worldwide
manufacturer of rubber closures and aluminum and plastic caps for pharmaceutical
packaging, drug delivery and diagnostics.  The joint development
agreement establishes the respective responsibilities and contributions of the
parties in connection with the development and distribution of our pre-filled
passive safety syringe system.




26




NOTE
14 – DEVELOPMENT AND DISTRIBUTION AGREEMENTS – Continued,





The
agreement provides that we will develop the safety syringe portion of the
pre-filled passive safety syringe system, and the co-adventurer will develop
rubber components for the product including determining the appropriate chemical
rubber formulation and component design for use with the medicament cartridge.
The agreement also establishes a general framework for formalizing the role of
additional participants in the project.





Distribution
Agreements





On July
15, 2008, the Company entered into two Medical Supply Manufacturing Agreements
with an international manufacturer and supplier of medical products through its
worldwide distribution network. The two agreements granted the distributor the
right to manufacture, market and distribute MedPro’s tube-activated and
skin-activated blood collection systems and its winged blood collection
set.





We
recorded program fees of $1,000,000 on each of the safety needle and the winged
blood collection set projects in September 2008 when we delivered the automation
plan for producing the safety needle and the design plan for the winged blood
collection set, as provided in the two agreements.





In
October 2008 we received an advance of $700,000 for costs associated with
automation and other product development activities requested by our
distributor.  In November 2008, the distributor informed us that it
had decided to change the production lines to incorporate greater
computerization and would modify the design plans and construct the production
lines itself.  At December 31, 2008 we had spent $687,955 of the
advance.  In 2008 we recorded $235,100 of the advance as income from
the reimbursement of automation expenses. We had also used the advance to
purchase packaging equipment for $452,855, which cost was deferred, along with
the associated revenue from our customer for its purchase, during 2008. After we
reached an oral understanding with the customer during 2009 that we would retain
the packaging equipment, we applied $452,855 of deferred revenue from the 2008
advance against the purchase price.  We retained the equipment at a
zero dollar carrying value.  We recognized the remaining $12,045 of
deferred revenue from the 2008 advance during the first quarter of
2009.





On July
16, 2010, we entered into a new agreement with our distributor with respect to
our three blood collection and infusion products (the “July 2010 Agreement”)
that terminated and superseded the two prior agreements.  The July
2010 Agreement has a term ending six years from October 1, 2010, which may be
extended for up to three years in certain circumstances.





During
the term of the July 2010 Agreement, the distributor will pay a total minimum
royalty of not less than $43,750,000 (the “Royalty Amount”).  Royalty
payments will be made no later than the fifteenth day following the end of each
calendar quarter, based on a minimum number of units for each calendar
quarter.  Until the Royalty Amount has been paid in full, if the
aggregate royalties paid for all preceding quarters in the aggregate exceeds the
minimum aggregate royalties owed on minimum quarterly production for all
preceding quarters, then the minimum royalty obligation for the next quarter
will be reduced accordingly.





The
Company agreed to make a quarterly financial contribution to the distributor to
help cover the anticipated expenses of marketing the products once production
has begun.  Our marketing contributions would total approximately
$6.65 million over the six-year term of the July 2010 Agreement.




27




NOTE
14 – DEVELOPMENT AND DISTRIBUTION AGREEMENTS – Continued,





The July
2010 Agreement also resolved the issue of prior advances to the Company by
adjusting the prior fees paid to the Company to $2,350,000 from
$2,700,000.  The Company agreed to credit the customer with $350,000
against future obligations to the Company.  The Company recorded these
transactions as a $275,000 purchase of a packaging machine, which had previously
been recorded at a zero basis even though the Company had paid $452,855 for the
machine, and $75,000 of expense in the third quarter of 2010.





NOTE
15 – SUBSEQUENT EVENTS





Second Tranche of
$30,000,000 Senior 14% Notes





On
October 1, 2010, MedPro Safety Products, Inc. completed the issuance of the
final $5 million tranche of Senior Secured 14% Notes due 2016 (the “Notes”) in a
private placement to an institutional investor. The terms of the Notes, the
purchase and sale agreement and related ancillary documents are the same as the
initial $25 million tranche of Notes completed on September 1.  MedPro
received approximately $4,645,000 in net proceeds after the payment of offering
expenses.  MedPro expects to use the net proceeds to finance the
development of its safety products.





28





Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations





The
following discussion and analysis of the financial condition and results of
operations of MedPro Safety Products, Inc. as of and for the nine months ended
September 30, 2010 should be read in conjunction with our audited financial
statements and the notes to those financial statements that are included
elsewhere in this report or our annual filings of Form 10K for
2009.  References in this Management’s Discussion and Analysis or Plan
of Operations to “us,” “we,” “our,” and similar terms refers to MedPro Safety
Products, Inc. This discussion includes forward-looking statements based upon
current expectations that involve risks and uncertainties, such as plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. Words such as “anticipate,”
“estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions are used to identify
forward-looking statements.





Overview





MedPro
Safety Products, Inc. has developed and acquired a portfolio of medical device
safety products incorporating proprietary needlestick prevention technologies
that deploy with minimal or no user activation. Our present strategy focuses on
developing and commercializing multiple products in four related product
segments: clinical, phlebotomy, pharmaceutical, and intravenous. We believe
there is a well defined market for our products, encouraged by Federal
Needlestick Safety and Prevention Act, which requires the use of safety products
similar to those we are developing.





Our
long-term strategy is to enter into partnership agreements with major medical
products distribution partners, which whenever possible would be fixed minimum
volume contracts. We have entered into one such agreement for three of our
products.  In addition, we are discussing the terms of a similar
distribution arrangement with potential partners for a proprietary safety
syringe product with an “anti-blunting” feature and a prefilled pharmaceutical
safety syringe.  Our product development plans also include a needleless
intravenous line based on patents and designs we control.  We have
entered into a development agreement with a global manufacturer involved in
stopper design to jointly commercialize our prefilled and fillable safety
syringes.  We have also acquired intellectual property rights to a
safety needle for “pen” delivery systems for various medicaments such as
insulin.





We are
currently completing the steps necessary to commence the distribution of three
products -- two models of blood collectors and a winged blood collection
set.  In July 2010 we entered into a new agreement for the manufacture
and distribution of our three blood collection products, terminating and
superseding the prior agreements relating to these products.  Our new
July 2010 agreement provides for royalty payments based on minimum volume
commitments to commence October 1, 2010.  The agreement contemplates that
the production and sale of our three blood collection and infusion products, and
therefore the amount of revenue realized, will increase over the next several
fiscal quarters. The total value of royalty payments based on minimum production
volumes over the six-year term of the July 2010 agreement totals $43,750,000. We
also agreed to make a marketing contribution totaling approximately $6.65
million over the six-year term of the agreement.  The July 2010
agreement was described in the Company’s Form 8-K filed July 22,
2010.





In
addition, in March 2010 we entered into a joint development agreement with an
international manufacturer of pharmaceutical syringe components for the
development and distribution of our pre-filled passive safety syringe
system.  The agreement provides that we will develop the safety
syringe portion of the pre-filled passive safety syringe system, and our joint
development partner will develop rubber components for use with the medicament
cartridge. The agreement also establishes a general framework for formalizing
the role of additional participants in the project.  Other components
for the prefilled syringe product have been designed by third parties in
anticipation of exploitation of this product.





29


Our
financial results and operations in future periods will depend upon our ability
to enter into sales and distribution agreements for our products currently under
development so we can generate sustained revenues from our portfolio of products
and technologies. Our operations are currently funded from the proceeds from
sales of securities, revenue from operations and borrowing from commercial
lenders and related parties.





Senior
Note Offering





On
September 1, 2010, MedPro completed the issuance of $25 million principal amount
of Senior Secured 14% Notes due 2016 (the “Notes”) in a private placement to
institutional investors. In connection with the Note issuance, MedPro
transferred all of its rights under the July 2010 agreement to receive royalties
from the distribution of three safety blood collection and infusion products to
a newly formed, wholly owned MedPro subsidiary, MedPro Investments, LLC
(“Issuer”), which issued the Notes. The maturity date of the Notes is October
30, 2016. The Notes are obligations solely of the Issuer.  The Notes
bear interest on the unpaid principal balance at a rate of 14% per annum. The
transaction is described in the Company’s Form 8-K filed September 8,
2010.





MedPro
received approximately $18,649,000 in net proceeds after the establishment of a
$4,500,000 interest reserve and payment of offering expenses.  The
trustee for the Notes will use the interest reserve to pay interest due prior to
January 30, 2013, if royalty revenues are not sufficient to cover interest and
principal payments when due.





MedPro
also established and funded a $7,870,000 reserve from the net proceeds to cover
potential liquidated damages payable if regulatory approval of one the blood
collection products is delayed. The funds will be released from the reserve when
we deliver the FDA Freedom to Practice clearance letter with respect to the Wing
device.  We expect FDA clearance by December 31, 2010, which will
entitle us to receive all of the reserved funds.





We used
the net proceeds to pay off all of our bank debt and all principal and accrued
interest on bridge loans made by a principal shareholder, which together totaled
$4,359,833.





On
October 1, 2010, we received net proceeds of $4,644,587 (after payment of
offering fees and expenses) from the sale of a second tranche of Notes in an
aggregate principal amount of $5,000,000.





Transaction
costs for both tranches of Notes totaled $2,206,858.  They consisted
of fees to the investment banking firms of $1,800,000 (6%), legal fees for all
parties of $362,000, expenses of $37,858 and trustee fees of
$7,000.  The Company capitalized, as loan fees, the $1,500,000
investment banking fees, the trustee set up fee of $3,500 and the bond counsel
fees of $225,000 for the initial $25,000,000 tranche.  These costs and
the associated costs with the second tranche will be amortized over the term of
the revenue stream commencing on October 1, 2010 for six years.





The
balance of the net proceeds from the both tranches of the Notes will be used for
the development of our safety products and to fund ongoing
operations.





30




Critical
Accounting Estimates and Judgments





Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”). The preparation of our
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures. We base our estimates on historical experience and various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates. The significant
accounting policies that are believed to be the most critical to fully
understanding and evaluating the reported financial results include revenue
recognition, inventory valuations for slow moving items, recoverability of
intangible assets and the recovery of deferred income tax assets.





We
recognize sales and associated cost of sales when delivery has occurred and
collectability is probable. There have been minimal returns for credit, so no
reserve for product returns has been established. We provide for probable
uncollected amounts through a charge to earnings and a credit to the allowance
for doubtful accounts based on our assessment of the current status of
individual accounts. We have fully reserved our only receivable from the sale of
the Needlyzer devices to a customer in Africa.  We continue to have
ongoing discussions with this customer about selling our remaining inventory in
a single transaction if they can get funding to pay old invoices (approximately
$21,225) and cover the cost of shipping these devices to Ghana on
consignment.





We determine our inventory
value at the lower of cost (first-in, first-out method) or market value. In the
case of slow moving items, we may write down or calculate a reserve to reflect a
reduced marketability for the item. The actual percentage reserved depends on
the total quantity on hand, its sales history, and expected near term sales
prospects. When we discontinue sales of a product, we will write down the value
of inventory to an amount equal to its estimated net realizable value less all
applicable disposition costs.





Our
intangible assets consist principally of intellectual properties such as
regulatory product approvals and patents. We currently are amortizing certain of
our intangible assets using the straight line method based on an estimated
economic life, after the products are introduced into the market, of five
years.  We began amortization of the patents for our two blood
collectors in December 2009 when these products were first introduced for human
use in December.  Because our winged blood collection product, our
Key-Lok technology and our Syringe Guard family of products are currently not in
production for distribution, we have not begun to amortize the patents for those
technologies. We expect to use the straight line method to amortize these
intellectual properties over their estimated period of benefit, ranging from one
to ten years, when our products are placed in full production and we can better
evaluate market demand for our technology.





We
evaluate the recoverability of intangible assets periodically and take into
account events or circumstances that warrant revised estimates of useful lives
or indicate that impairment exists.  Once our intellectual property has
been placed into productive service, we expect to utilize a net present value of
future cash flows analysis to calculate carrying value after an impairment
determination.  Our forecasted revenue on our current portfolio of
intellectual property over the next five years, discounted to the balance sheet
date based on our current borrowing rate, is in excess of our cost of our
patents and estimated development costs ($58 million) by approximately
594%.





We have
also recognized a $100,000 asset for costs incurred in connection with the
development of our Winged Safety Blood Collection Set.  We are allowed
to offset the first $100,000 of these costs against future product
royalties.  Royalties due Visual Connections, Inc. on the first
75,000,000 units will approximate $318,000.  The Company is also
entitled to reimbursement of costs beyond $100,000 for the Wing
development.  We are in the process of determining whether we will
accrue an asset for the additional costs.  If we determine that
additional funds are due MedPro we will book an additional asset prior to year
end.  These amounts are recoupable over the six year contract and may
be settled in cash.  Costs are still being incurred and accumulated
for discussion with Visual Connections, Inc.  the Company has
determined that following a course of open discourse with Visual Connections,
Inc. and written documentation of transactions or decisions between the two
entities will avoid confusion and misunderstandings in the future.





31


As part
of the process of preparing our financial statements, we must estimate our
actual current tax liabilities together with assessing temporary differences
resulting from differing treatment of items for tax and accounting
purposes.  These differences result in deferred tax assets and
liabilities, which are included within the balance sheet.  We must
assess the likelihood that the deferred tax assets will be recovered from future
taxable income and, to the extent we believe that recovery is not likely, a
valuation allowance must be established.  To the extent we establish a
valuation allowance or increase or decrease this allowance in a period, the
impact will be included in the tax provision in the statement of
operations.





Results
of Operations for the Three and Nine Months Ended September 30, 2010 and
2009





MedPro
recorded net (loss) of ($3,850,240) for the three months ended September
30, 2010, as compared to a net (loss) of ($1,947,440) for three months ended
September 30, 2009.  Losses from operations for the three month
periods ended September 30 were $(3,129,448) for 2010 and $(3,186,806) for
2009.  For the nine month periods ended September 30, 2010 and 2009,
net income or (loss) was ($10,777,139) for 2010 and $11,996,324 for
2009.





Three
Months Ended September 30, 2010 and 2009





Total compensation, including
share-based compensation was ($938,656) lower in the three months ended
September 30, 2010 versus 2009.  We completed the amortization of
compensation costs from the August 18, 2008 employee and director options in the
third quarter of 2010.  This resulted in a quarterly decrease in
share-based compensation in 2010 of ($870,750), which accounts for most of the
decline.  We also had one less employee in 2010, one less biweekly
payroll in 2010, but higher individual pay, all of which account for the
remaining ($67,906) difference.





Qualified profit sharing expense in
2010 was ($2,881) less in 2010 versus the third quarter of
2009.  Participation is off slightly in the basic 4% minimum
contribution in 2010 versus 5% contribution required in the prior year to get
the maximum match.  We changed providers beginning July 1,
2010.





Promotion
and investor relations expense was down ($66,535) in the 2010 period versus
2009.  Expenditures for investor relations costs declined by ($64,547)
in the quarter to quarter comparison for the three months ended September 30,
2010 and 2009.  This reflects our more conservative use of investor
relations services in 2010 while we were focused on closing our Senior Note
transaction.





Professional
fees and insurance costs were up $105,776 reflecting additional legal work in
the 2010 third quarter over 2009.  Factors contributing to the
increase include legal and advisory fees for the $30,000,000 Senior Note
transaction and engaging consultants to assist us with product positioning in
2010.  Overall insurance costs were up $12,356.  Accounting,
auditing and certification costs were down ($4,509).  Other legal
costs were down ($25,059) while legal and consulting costs for the Senior Note
transaction were $122,988 in the third quarter of 2010.





32


Travel
costs were down ($35,601) in the third quarter of 2010 versus
2009.  The major change was a decline in airfare of
($30,357).





General
and administrative costs were up $86,576.  Conferences were up
$7,702.  Postage and shipping was up $5,862.  Printing was
up $6,623, mostly for the annual report and shareholder’s
meeting.  Property taxes of $8,754 were accrued earlier this year
(2009 were later in the year).  The balance of the change relates to
timing of expenses between the second and third quarter of
2010.





Depreciation
and amortization were up $193,484 reflecting amortization charges on our holder
intellectual property cost this year versus 2009 and the final charge off of
finance costs with the payoff of the bank debt.





Product
development costs were down ($17,953) in 2010.  Engineering costs were
down ($100,749) while direct manufacturing costs for verification and validation
were up $82,796.





Interest
expense was $962,250 higher in 2010 versus 2009 primarily due to the issuance of
the Senior Notes in September of 2010 and the accretion of $685,000 of debt
discount as interest expense in 2010.   Interest income was $924
for 2010 and $13,993 for 2009.  The gain on change in fair value of
derivative liabilities in 2010 was $297,514 and $1,282,353 in the third quarter
of 2009.  The difference is attributable to the difference in the size
of the derivative liabilities between periods and the inputs utilized to value
the underlying derivative liabilities.





During
the third quarter of 2010, we resolved a dispute with respect to claims to
accrued minimum royalties totaling $1,000,000 under the terms of the technology
acquisition agreement related to our blood collection products. Although the
Company believed it had valid defenses to these asserted claims, we negotiated
and paid $600,000 in September 2010 to settle and release all past claims to
royalties on these products.





Nine
Months Ended September 30, 2010 versus 2009





For the
nine months ended September 30, 2010, we recorded net other expenses of
($677,352) compared to net other income of $21,441,974 for the same period
in 2009.  Other income in 2009 included $21,603,185 of gain associated
with derivative liabilities originally recorded on January 1,
2009.  The gain was primarily due to the decline in the carrying value
of the derivative liability as a result of the exercise and exchange of warrants
for cash and preferred stock and the decrease in the market price of our shares
during the first three quarters of 2009.  See Note 8 of the notes to
the financial statements for a description of the derivative liabilities
recorded with respect to outstanding warrants to purchase our common
stock.  The net other expenses of ($677,352) in 2010 included $439,589
of gain from change in the carrying value of derivative liabilities recorded for
the grant of warrants with debt issued in 2010, also resulting from a decrease
in the market price of our shares.





Interest
expense was $932,274 higher in 2010 versus 2009 primarily due to the issuance of
the Senior Notes in September of 2010.  Net other expense included
interest expense of $1,130,337 for 2010 and $198,063 for
2009.  Interest income was $13,396 for 2010 and $36,852 for
2009.  Interest expense in 2010 included one month accrual of $291,667
of interest on the $25,000,000 in Notes and the accretion of $685,000 of
discount on debt associated with the VOMF bridge loans.





We had no
sales in for 2010.  We recorded revenue of $12,045 in 2009, which was
the balance of an advance we received in October 2008 for costs associated with
automation and other product development activities requested by our distributor
in connection with the distribution agreement for our blood collection
products.





33


The most
substantial difference between the losses from operations in 2010 and 2009 was
the ($863,467) decrease in salaries, wages and payroll
taxes.  This is due primarily to the end of amortization, in August
2010 of the share-based compensation from the 3,000,000 share option recorded in
August 2008 and amortized over 24 months.  Depreciation and
amortization was up $481,231 from 2009 to 2010 primarily due to the initiation
of amortization of two of our intellectual properties.  Promotion and
investor relations, which consists predominantly of investor relations costs,
was down ($139,293) in 2010 as compared to 2009 as a result of changing IR firms
thereby cutting the Company’s monthly cost by 77% for these
services.





The
compensation charge for stock option awards went from $1,851,330 in 2009 to
$1,001,416 in 2010, a decrease of ($849,914), reflecting the incentive stock
options granted to employees in May and October 2009 and the options granted to
our two newest directors in August 2009, as well as, the termination of monthly
amortization of $607,500 from the 2008 options discussed above.  The
balance of the change in compensation and other payroll related cost of $20,836
reflect an increase of payroll costs in 2010 as compared to
2009.  The number of our full-time employees decreased from thirteen
in 2009 to twelve in 2010.





Options
granted on September 29, 2010 were valued at $422,824.  The
amortization for 2010 was $331.





The costs
associated with the profit sharing plan in 2010 were $45,713 and $54,122 in
2009.  The decline of ($8,409) was due to fewer employees and reduced
participation above the minimum level for matching in 2010 versus
2009.




Professional
fees and insurance costs were up $461,552 in the nine months of 2010 over
2009.   Legal expenses were $692,228 in the 2010 as compared to
$491,064 through the third quarter of 2009.  As discussed above, we
incurred additional legal and advisory fees in connection with the Senior Note
transaction.  Other legal costs were down ($10,089) while regulatory
legal costs were up $88,308 as a result of the FDA consulting we needed in
connection with the 510(k) on our wing product.   Overall
insurance costs were up $11,777.  Accounting, auditing and
certification costs were down ($16,874).  Consulting fees were
$262,073 higher in 2010.  They included FDA Regulatory consulting,
product consulting and product positioning consulting.  In addition,
the Company continues to employ SC Capital as an investment
counsel.





Travel
and entertainment costs were up $65,701 in 2010.  Airfare was up
$44,419, hotels were up $24,391, ground transportation was up $13,570, while
meals were down ($11,469).  Car rentals were down
($6,129).  The balance was made up by numerous smaller
fluctuations.





Product
development costs increased $10,354 from 2009 levels.  The increase in
costs reflects the increased production of samples for verification and
validation testing of three products.





Amortization
expenses increased in 2010 to $458,987 from $85,073 in 2009, reflecting
amortization of intellectual property costs on two products.  There
was no product-related amortization in the first half of 2009.





Depreciation
and amortization expenses (associated with intellectual property and prepaid
financing costs) increased by $481,231, reflecting the depreciation of
additional testing equipment and manufacturing equipment acquired in 2009 and
2010.  Intangible asset amortization of $403,270 was recorded in 2010,
along with amortization of finance costs of $55,717.  Depreciation in
2010 was $121,912 versus $68,339 in 2009.  Fixed asset additions were
$353,099 in the first nine months of 2010.  They consisted primarily
of manufacturing molds, jigs and fixtures ($345,338 of the total).





34


Liquidity
and Capital Resources





Total
assets were $14,789,555 as of December 31, 2009 and $30,162,936 as of September
30, 2010. The $15,373,381 increase in total assets reflects the impact of the
negative cash flow from operations of ($4,468,800) offset by the $20,413,489 net
gain from financing activities.  During 2010, our unrestricted cash
increased from $4,072,443 to $5,469,632 at September 30, 2010.  During
2010, we have also paid off $7,158,247 of bank debt and shareholder
advances.





Our
financial results and operations in future periods will depend upon our ability
to enter into sales and distribution agreements for our products currently under
development so we can generate sustained revenues from our portfolio of products
and technologies.  We plan to continue to monitor our cash position
carefully.





Our July
2010 agreement for the distribution of three blood collection products provides
for royalty payments based on minimum volume commitments commencing October 1,
2010.  The amount of revenue we realize will increase over the next several
fiscal quarters. The total value of royalty payments based on minimum production
volumes over the six-year term of the new agreement totals $43,750,000. We also
agreed to make a marketing contribution totaling approximately $6.65 million
over the six-year term of the agreement.





Our sale
of $30 million of Notes enabled us to monetize our right to receive minimum
royalty revenues of $43,750,000 from production of our blood collection products
over the six-year term of the July 2010 agreement.  An interest
reserve prefunds $4,500,000 of debt service on the Notes.  We retain
the obligation to make a marketing contribution totaling approximately $6.65
million under the July 2010 agreement, which is payable in proportion to the
volume of royalty revenues we receive over the agreement’s six-year term. We
expect to use the balance of the proceeds from the sale of the Notes for working
capital to fund the commercialization of our technology and expand our ability
to manufacture and deliver products to commercial markets.





The net
proceeds from the sale of the Notes enabled us to pay off all current bank and
shareholder debt in September 2010.  At December 31, 2009, the
outstanding balance of our term loan with a commercial bank was $
2,361,111.  The term loan was originally set to mature on August 1,
2011.  Our monthly payment under the term loan was $138,889 of
principal plus interest at the prime rate plus 2%. We had pledged our patents
and our guaranteed revenue contracts as collateral for the loan, and in the
event of a default, the lender would have been able to collect royalty revenue
directly from our distribution partner. On July 1, 2010, we repaid a
separate $1,500,000 bank loan by applying the $1,500,000 compensating cash
balance held in an account with the lender.  A third term note in the
amount of $195,416, originally due on July 23, 2010, and extended to September
23, 2010, was also paid in full in September 2010.





During
the first nine months of 2010, we borrowed a total $2,800,000 from our principal
investor, VOMF, which was bearing interest at rates of 6% and 7% per
annum.  In connection with this bridge financing, we granted VOMF
warrants for the purchase 325,000 shares of common stock at $4 per share and
416,672 warrants to purchase common shares at $3.00 per share.  The
outstanding principal and all accrued interest on the bridge financing was paid
in full on September 1, 2010.





Covenants
limit our ability to borrow funds during the six-year term of the Notes to
$7,500,000 of new senior debt and $15,000,000 of new subordinated
debt.





35


In
addition to our $5,469,632 of unrestricted cash at September 30, 2010, an
additional $7,870,000 is being held in a reserve account until we obtain FDA
clearance for one of our blood collection products.  We currently
anticipate that we will be able to obtain such approval by the end of
2010.





We
estimate that funding our continued development and launches of our planned
products, meeting current capital support requirements, and pursuing other areas
of corporate interest as may be determined by the Board of Directors for the
next twelve months will be covered by our existing cash resources and amounts
due from our reserve.  Whether we commit resources to optional
projects will depend upon our cash position from time to time. Our primary cash
requirements will be to fund (a) launching our blood collection products for
distribution, (b) continuing development of our safety syringe products and
other medical device safety products based on the technology for which we hold
rights, and (c) increasing our administrative capability as needed to support
expanded day-to-day operations.





We have
projected significant development activity during 2011 and the addition of seven
new employees to assist with the development of our new products.  We
have no bank debt to service and we have paid for all of our current
technology.





Our
royalty revenue from our three blood collection and infusion products is
committed to pay principal and interest during the six-year term of the Notes.
Until royalty revenues increase to cover all payments of principal and interest
on the Notes, we expect to cover the balance due from the interest
reserve.  During 2011, we estimate our cash required to fund
operations will be approximately $850,000 per month, which we expect to fund
from our cash balance.





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.





We are
not party to any forwards and futures, options, swaps, or other instruments that
would expose us to market risk associated with activities in derivative
financial instruments, other financial instruments, and derivative commodity
instruments.  Our bank indebtedness is priced at interest rates geared
to the lender’s prime rate.  Therefore, our interest expense may
increase or decrease due to changes in the interest rate
environment.





Item
4.  Controls and Procedures.





MedPro’s
management, under the supervision and with the participation of the Chief
Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2010.  Based on that evaluation, the
CEO and CFO concluded that MedPro’s disclosure controls and procedures are
effective in timely making known to them material information required to be
disclosed in the reports filed or submitted under the Securities Exchange
Act.  There were no changes in MedPro’s internal control over
financial reporting during the third quarter of 2010 that have materially
affected, or are reasonably likely to materially affect, the internal control
over financial reporting.





Limitations
on the Effectiveness of Controls





A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be
met.  Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs.  Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, with
our company have been detected.  These inherent limitations include
the realities that judgments in decision-making can be faulty, that breakdowns
can occur because of simple errors or mistakes, and that controls can be
circumvented by the acts of individuals or groups.  Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.





36





PART
II




Item
1.  Legal Proceedings.





We
are not a party to any pending legal proceedings as of this
date.





Item
1A. Risk Factors





Information
regarding risk factors appears our Annual Report on Form 10-K for the year ended
December 31, 2009 under Item 1A – Risk Factors.  There have been no
material changes from the risk factors previously discussed in our Form
10-K.





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





During
the quarter ended September 30, 2010, the Company issued warrants to purchase
shares of its common stock in consideration of a $500,000 in short term bridge
loans extended to us by Vision Opportunity Master Fund, Ltd.
(“VOMF”).  The Company agreed to issue 83,335 warrants for the
purchase of one share each of the Company’s common stock as consideration for
the $500,000 loan.  The warrant purchase price was $3.00 per share and
the warrants have a five-year term.  These transactions between us and
VOMF, a principal holder of our common and preferred stock, were exempt
transactions not involving any public offering within the meaning of section
4(2) of the Securities Act of 1933, as amended.





The
following table provides certain information with respect to our purchases of
common stock during the three quarters ended September 30, 2010.




Period
            
            Total
      Number of Shares Purchased
            
            
            Average
      Price Paid per Share
            
            
            Total
      Number of Shares Purchased as part of Publicly Announced Plans or
      Programs
            
            
            Maximum
      Number of Shares that May Yet Be Purchased Under the Plans or
      Programs4/1/2010
      through 4/30/2010*
            
            
            46,498
            
            
            $
            3.03
            
            
            
            151,578
            
            
            
            848,4225/1/2010
      through 5/31/2010
            
            
            20,665
            
            
            $
            3.02
            
            
            
            172,243
            
            
            
            827,7576/1/2010
      through 6/30/2010
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            827,7577/1/2010
      through9/30/2010
            
            
            8,355
            
            
            $
            3.02
            
            
            
            180,598
            
            
            
            819,402Total
            
            
            75,518
            
            
            $
            3.02
            
            
            
            180,598
            
            
            
            819,402







*-No
treasury stock was purchased in the first quarter of 2010.





Item
3. Default Upon Senior Securities





Not
applicable.





Item
4. Reserved





Item
5. Other Information





None.




37





Item
6. Exhibits and Financial Statement Schedules.





3.1
            Amended
      and Restated Articles of Incorporation (incorporated by reference to
      Exhibit 3.1 to Form 8-K filed on January 4,
      2008).3.2
            Bylaws
      (incorporated by reference to Exhibit 3.2 to Form 8-K filed on
      January 4, 2008).3.3
            Bylaw
      amendment dated August 10, 2009 (incorporated herein by reference to Form
      8-K filed on August 17, 2008).4.1
            Certificate
      of Designations, Series A Convertible Preferred Stock Turner (incorporated
      by reference to Exhibit 4.1 to Amendment No. 1 on Form S-1/A (Reg. No.
      333-149163) filed on July 3, 2008).4.2
            Form
      of Series A Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 4.3 to Form 8-K/A filed on September 10, 2007).4.3
            Form
      of Series B Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 4.4 to Form 8-K/A filed on September 10, 2007).4.4
            Series
      A Convertible Stock Purchase Agreement dated as of September 5, 2007
      (incorporated by reference to Exhibit 4.6 to Form 10-K filed on April 18,
      2008).4.5
            Amendment
      to Certificate of Designations, Series A Convertible Preferred Stock
      (incorporated by reference to Exhibit 4.6 to Form 10-K filed on March 30,
      2009)4.6
            Certificate
      of Designations, Series B Convertible Preferred Stock (incorporated herein
      by reference to Exhibit 4.9 to Form 8-K filed on August 22,
      2008).4.7
            Omnibus
      Amendment to Series A, B, and C Warrants held by Vision Opportunity Master
      Fund, Ltd. (incorporated herein by reference to Exhibit 4.10 to Form 8-K
      filed on August 22, 2008).4.8
            Certificate
      of Designations, Series C Convertible Preferred Stock (incorporated herein
      by reference to Exhibit 4.1 to Form 8-K filed on March 30,
      2009).4.9
            Form
      of Common Stock Purchase Warrant held by Vision Opportunity Master Fund,
      Ltd. (incorporated by reference to Exhibit 4.9 to Form 10-K filed on March
      30, 2010).10.1
            Technology
      Acquisition Agreement, dated February 19, 2007, by and among SGPF, LLC,
      Hooman Asbaghi and Visual Connections, Inc (incorporated by reference to
      Exhibit 10.1 to Form 10-K filed on April 18, 2008)10.2
            Technology
      Development and Option Agreement, between SGPF, LLC and MedPro Safety
      Products, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-K
      filed on April 18, 2008).10.3
            Amendment
      to Technology Development and Option Agreement, between SGPF, LLC and
      MedPro Safety Products, Inc. (incorporated by reference to Exhibit 10.1 to
      Form 8-K filed on October 6, 2008).*
            10.4
            Second
      Amendment to Technology Development and Option Agreement, between SGPF,
      LLC and MedPro Safety Products, Inc.*
            10.5
            Financial
      Advisory Agreement dated January 11, 2010, between MedPro Safety Products,
      Inc and SC Capital Partners LLC.




38




10.6
            Medical
      Supply Manufacturing Agreement, dated as of July 14, 2010, between MedPro
      Safety Products, Inc. and Greiner Bio-One GmbH (incorporated by reference
      to Exhibit 10.1 to Form 10-Q filed on August 16, 2010) (portions of the
      exhibit have been omitted pursuant to a request for confidential
      treatment).*
            10.7
            Purchase
      and Sale Agreement dated as of September 1, 2010, between MedPro
      Investments, LLC, and MedPro Safety Products, Inc.*
            10.8
            Pledge
      and Security Agreement made by MedPro Safety Products, Inc. to U.S. Bank
      National Association, as Trustee, dated as of September 1,
      2010.*
            10.9
            Indenture
      dated as of September 1, 2010, by and between MedPro Investments, LLC, as
      issuer of the Notes, and U.S. Bank National Association, as initial
      trustee of the Notes (portions of the exhibit have been omitted pursuant
      to a request for confidential treatment).*
            10.10
            Continuing
      Unconditional Guarantee, dated as of September 1, 2010, is made by MedPro
      Safety Products, Inc., to U.S. Bank National Association, as trustee under
      the Indenture.10.11
            MedPro
      Safety Products, Inc. 2008 Stock and Incentive Compensation Plan
      (incorporated by reference to Exhibit 10.9 to Form 8-K filed on August 22,
      2008).10.12
            Form
      of Nonqualified Stock Option Award Agreement (incorporated by reference to
      Exhibit 10.10 to Form 8-K filed on August 22, 2008).10.13
            Form
      of Incentive Stock Option Award Agreement (incorporated by reference to
      Exhibit 10.13 to Form 10-K filed on March 30, 2010).10.14
            Employment
      Agreement with Marc T. Ray (incorporated by reference to Exhibit 10.1 to
      Form 8-K filed on April 7, 2009).10.15
            Employment
      Agreement with W. Craig Turner (incorporated by reference to Exhibit 10.1
      to Form 8-K filed on July 22, 2009).10.16
            Employment
      Agreement with Agreement with Walter W. Weller (incorporated by reference
      to Exhibit 10.1 to Form 8-K filed on October 21, 2009).*
            31.1
            Certification
      of Chief Executive Officer pursuant to SEC Rule
  13(a)-14(a)*
            31.2
            Certification
      of Chief Financial Officer pursuant to SEC Rule
  13(a)-14(a)*
            32.1
            Certification
      of Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title
      18 of the U.S. Code*
            32.2
            Certifications
      of Chief Financial Officer, pursuant to Section 1350 of Chapter 63 of
      Title 18 of the U.S. Code





*    Filed
herewith




39




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act if 1934, the Registrant had
duly caused this amendment to be signed on its behalf by the undersigned
thereunto duly authorized.




MEDPRO SAFETY PRODUCTS,
      INC.(Registrant)November
      15, 2010
              By:
              /s/
      W. Craig
      TurnerW.
      Craig TurnerChief
      Executive Officer, Chairman of the Board of Directors(Principal
      Executive Officer)




November
      15, 2010
              By:
              /s/
      Marc T.
      RayMarc
      T. RayVice
      President Finance, Chief Financial Officer and Chief(Principal
      Financial and Accounting Officer)




40




INDEX TO
EXHIBITS





Exhibit
    No.
            
            Description3.1
            
            Amended
      and Restated Articles of Incorporation (incorporated by reference to
      Exhibit 3.1 to Form 8-K filed on January 4,
      2008).3.2
            
            Bylaws
      (incorporated by reference to Exhibit 3.2 to Form 8-K filed on
      January 4, 2008).3.3
            
            Bylaw
      amendment dated August 10, 2009 (incorporated herein by reference to Form
      8-K filed on August 17, 2008).4.1
            
            Certificate
      of Designations, Series A Convertible Preferred Stock Turner (incorporated
      by reference to Exhibit 4.1 to Amendment No. 1 on Form S-1/A (Reg. No.
      333-149163) filed on July 3, 2008).4.2
            
            Form
      of Series A Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 4.3 to Form 8-K/A filed on September 10, 2007).4.3
            
            Form
      of Series B Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 4.4 to Form 8-K/A filed on September 10, 2007).4.4
            
            Series
      A Convertible Stock Purchase Agreement dated as of September 5, 2007
      (incorporated by reference to Exhibit 4.6 to Form 10-K filed on April 18,
      2008).4.5
            
            Amendment
      to Certificate of Designations, Series A Convertible Preferred Stock
      (incorporated by reference to Exhibit 4.6 to Form 10-K filed on March 30,
      2009)4.6
            
            Certificate
      of Designations, Series B Convertible Preferred Stock (incorporated herein
      by reference to Exhibit 4.9 to Form 8-K filed on August 22,
      2008).4.7
            
            Omnibus
      Amendment to Series A, B, and C Warrants held by Vision Opportunity Master
      Fund, Ltd. (incorporated herein by reference to Exhibit 4.10 to Form 8-K
      filed on August 22, 2008).4.8
            
            Certificate
      of Designations, Series C Convertible Preferred Stock (incorporated herein
      by reference to Exhibit 4.1 to Form 8-K filed on March 30,
      2009).4.9
            
            Form
      of Common Stock Purchase Warrant held by Vision Opportunity Master Fund,
      Ltd. (incorporated by reference to Exhibit 4.9 to Form 10-K filed on March
      30, 2010).10.1
            
            Technology
      Acquisition Agreement, dated February 19, 2007, by and among SGPF, LLC,
      Hooman Asbaghi and Visual Connections, Inc (incorporated by reference to
      Exhibit 10.1 to Form 10-K filed on April 18, 2008)10.2
            
            Technology
      Development and Option Agreement, between SGPF, LLC and MedPro Safety
      Products, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-K
      filed on April 18, 2008).10.3
            
            Amendment
      to Technology Development and Option Agreement, between SGPF, LLC and
      MedPro Safety Products, Inc. (incorporated by reference to Exhibit 10.1 to
      Form 8-K filed on October 6, 2008).*
            10.4
            
            Second
      Amendment to Technology Development and Option Agreement, between SGPF,
      LLC and MedPro Safety Products, Inc.*
            10.5
            
            Financial
      Advisory Agreement dated January 11, 2010, between MedPro Safety Products,
      Inc and SC Capital Partners LLC.




41




10.6
            
            Medical
      Supply Manufacturing Agreement, dated as of July 14, 2010, between MedPro
      Safety Products, Inc. and Greiner Bio-One GmbH (incorporated by reference
      to Exhibit 10.1 to Form 10-Q filed on August 16, 2010) (portions of the
      exhibit have been omitted pursuant to a request for confidential
      treatment).*
            10.7
            
            Purchase
      and Sale Agreement dated as of September 1, 2010, between MedPro
      Investments, LLC, and MedPro Safety Products, Inc.*
            10.8
            
            Pledge
      and Security Agreement made by MedPro Safety Products, Inc. to U.S. Bank
      National Association, as Trustee, dated as of September 1,
      2010.*
            10.9
            
            Indenture
      dated as of September 1, 2010, by and between MedPro Investments, LLC, as
      issuer of the Notes, and U.S. Bank National Association, as initial
      trustee of the Notes (portions of the exhibit have been omitted pursuant
      to a request for confidential treatment).*
            10.10
            
            Continuing
      Unconditional Guarantee, dated as of September 1, 2010, is made by MedPro
      Safety Products, Inc., to U.S. Bank National Association, as trustee under
      the Indenture.10.11
            
            MedPro
      Safety Products, Inc. 2008 Stock and Incentive Compensation Plan
      (incorporated by reference to Exhibit 10.9 to Form 8-K filed on August 22,
      2008).10.12
            
            Form
      of Nonqualified Stock Option Award Agreement (incorporated by reference to
      Exhibit 10.10 to Form 8-K filed on August 22, 2008).10.13
            
            Form
      of Incentive Stock Option Award Agreement (incorporated by reference to
      Exhibit 10.13 to Form 10-K filed on March 30, 2010).10.14
            
            Employment
      Agreement with Marc T. Ray (incorporated by reference to Exhibit 10.1 to
      Form 8-K filed on April 7, 2009).10.15
            
            Employment
      Agreement with W. Craig Turner (incorporated by reference to Exhibit 10.1
      to Form 8-K filed on July 22, 2009).10.16
            
            Employment
      Agreement with Agreement with Walter W. Weller (incorporated by reference
      to Exhibit 10.1 to Form 8-K filed on October 21, 2009).*
            31.1
            
            Certification
      of Chief Executive Officer pursuant to SEC Rule
  13(a)-14(a)*
            31.2
            
            Certification
      of Chief Financial Officer pursuant to SEC Rule
  13(a)-14(a)*
            32.1
            
            Certification
      of Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title
      18 of the U.S. Code*
            32.2
            
            Certifications
      of Chief Financial Officer, pursuant to Section 1350 of Chapter 63 of
      Title 18 of the U.S. Code





*    Filed
herewith




42