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 March 31, 2010




Or





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




For
the transition period from 
to




Commission
file number: 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, 13,168,813shares of Common Stock were outstanding at April 30,
2010.





INDEX





PagePART
      I –
                                                              FINANCIAL
      INFORMATIONITEM
      1.
                                                              FINANCIAL STATEMENTS
                                                              2ITEM
      2.
                                                              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF
      OPERATIONS
                                                              25ITEM
      3.
                                                              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
                                                              31ITEM
      4.
                                                              CONTROLS AND PROCEDURES
                                                              31PART II –
                                                              OTHER
      INFORMATIONITEM
      1.
                                                              LEGAL PROCEEDINGS
                                                              32ITEM
      1A.
                                                              RISK FACTORS
                                                              32ITEM
      2.
                                                              UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF
      PROCEEDS
                                                              32ITEM
      3.
                                                              DEFAULTS UPON SENIOR
    SECURITIES
                                                              33ITEM
      4.
                                                              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                                                              33ITEM
      5.
                                                              OTHER INFORMATION
                                                              33ITEM
      6.
                                                              EXHIBITS
                                                              33


1


PART
I


Item
1.   Financial Statements





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





Balance
Sheets as of March 31, 2010 and December 31, 2009





Statements
of Operations for the three months ended March 31, 2010 and 2009





Statements
of Changes in Shareholders’ Equity for the three months ended March 31, 2010 and
the year ended December 31, 2009





Statements
of Cash Flows for the three months ended March 31, 2010 and 2009





Notes to Unaudited Financial
Statements


2


MedPro
Safety Products, Inc.


Balance
Sheets


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




March 31, 2010
                    
                    
                    December 31, 2009ASSETSCurrent
      AssetsCash
                    
                    $
                    3,340,396
                    
                    
                    $
                    4,072,443Inventory
                    
                    
                    253,012
                    
                    
                    
                    247,981Accrued
      interest income
                    
                    
                    24,886
                    
                    
                    
                    18,694Prepaid
      expenses and other current assets
                    
                    
                    16,391
                    
                    
                    
                    22,048Total
      current assets
                    
                    
                    3,634,685
                    
                    
                    
                    4,361,166Property
      and EquipmentEquipment
      and tooling
                    
                    
                    1,083,066
                    
                    
                    
                    1,042,869Leasehold
      improvements
                    
                    
                    192,377
                    
                    
                    
                    192,377Computers,
      network and phones
                    
                    
                    198,567
                    
                    
                    
                    197,574Furniture
      and fixtures
                    
                    
                    118,019
                    
                    
                    
                    118,019Trade
      show booth
                    
                    
                    7,341
                    
                    
                    
                    7,3411,599,370
                    
                    
                    
                    1,558,180Less:
      accumulated depreciation
                    
                    
                    288,949
                    
                    
                    
                    252,966Property
      and equipment, net
                    
                    
                    1,310,421
                    
                    
                    
                    1,305,214Other
      AssetsIntangible
      assets
                    
                    
                    8,941,185
                    
                    
                    
                    9,067,457Deferred
      financing costs
                    
                    
                    45,274
                    
                    
                    
                    55,718Total
      other assets
                    
                    
                    8,986,459
                    
                    
                    
                    9,123,175Total
      assets
                    
                    $
                    13,931,565
                    
                    
                    $
                    14,789,555





See notes
to financial statements.


3


MedPro
Safety Products, Inc.


Balance
Sheets (Continued)


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




March 31, 2010
                              
                              
                              December 31, 2009LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                              
                              $
                              478,770
                              
                              
                              $
                              406,121Accrued
      interest payable
                              
                              
                              14,383
                              
                              
                              
                              10,674Current
      portion of long term debt
                              
                              
                              3,388,055
                              
                              
                              
                              3,413,533Current
      portion of technology transfer payments – Visual Connections,
      Inc.
                              
                              
                              -
                              
                              
                              
                              250,000Notes
      payable to and advances from shareholders
                              
                              
                              1,300,000
                              
                              
                              
                              -Derivative
      liabilities – fair value of warrants
                              
                              
                              370,026
                              
                              
                              
                              -Total
      current liabilities
                              
                              
                              5,551,234
                              
                              
                              
                              4,080,328Long-Term
      LiabilitiesNotes
      payable - long term portion
                              
                              
                              277,778
                              
                              
                              
                              694,444Total
      long term liabilities
                              
                              
                              277,778
                              
                              
                              
                              694,444Total
      liabilities
                              
                              
                              5,829,012
                              
                              
                              
                              4,774,772Shareholders’
      EquityPreferred
      stock $.01 par value: 10,000,000 shares authorized:Series
      A Preferred6,668,229
      shares issued and outstanding.  Liquidation preference
      $1,364,793 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; 13,215,311 issued and
      outstanding
                              
                              
                              13,215
                              
                              
                              
                              13,215Additional
      paid-in capital
                              
                              
                              68,868,950
                              
                              
                              
                              67,410,070Unearned
      share-based compensation
                              
                              
                              -
                              
                              
                              
                              (167,600
                              )Treasury
      stock (105,080 common shares)
                              
                              
                              (386,370
                              )
                              
                              
                              (386,370
                              )Accumulated
      deficit
                              
                              
                              (60,490,576
                              )
                              
                              
                              (56,951,866
                              )Total
      shareholders’ equity
                              
                              
                              8,102,553
                              
                              
                              
                              10,014,783Total
      liabilities and shareholders’ equity
                              
                              $
                              13,931,565
                              
                              
                              $
                              14,789,555





See notes
to financial statements.


4


MedPro
Safety Products, Inc.


Statements
of Operations (Unaudited)


For
the Three Months Ended March 31, 2010 and 2009





March 31, 2010
                  
                  
                  March 31, 2009SalesAutomation
      Services and Equipment
                  
                  $
                  -
                  
                  
                  $
                  12,045Total
      sales
                  
                  
                  -
                  
                  
                  
                  12,045Cost
      of goods sold and automation
                  
                  
                  -
                  
                  
                  
                  12,045Gross
      profit
                  
                  
                  -
                  
                  
                  
                  -Operating
      ExpensesSalaries,
      wages, and payroll taxes
                  
                  
                  2,263,950
                  
                  
                  
                  2,241,539Qualified
      profit sharing plan
                  
                  
                  14,436
                  
                  
                  
                  18,489Advertising
      and promotion
                  
                  
                  190,436
                  
                  
                  
                  132,127Product
      development costs
                  
                  
                  210,021
                  
                  
                  
                  169,517Professional
      and insurance
                  
                  
                  483,251
                  
                  
                  
                  334,746General
      and administrative
                  
                  
                  74,645
                  
                  
                  
                  78,529Travel
      and entertainment
                  
                  
                  127,749
                  
                  
                  
                  102,341Depreciation
      and amortization
                  
                  
                  172,698
                  
                  
                  
                  27,788Total
      operating expenses
                  
                  
                  3,537,186
                  
                  
                  
                  3,105,076Loss
      from operations
                  
                  
                  (3,537,186
                  )
                  
                  
                  (3,105,076
                  )Other
      Income (Expenses)Interest
      expense
                  
                  
                  (51,353
                  )
                  
                  
                  (75,197
                  )Interest
      and dividend income
                  
                  
                  6,901
                  
                  
                  
                  6,916Change
      in fair value of derivative liabilities
                  
                  
                  42,928
                  
                  
                  
                  22,250,157Total
      other income (expenses)
                  
                  
                  (1,524
                  )
                  
                  
                  22,181,876Provision
      for income taxes
                  
                  
                  -
                  
                  
                  
                  -Net
      income /(loss)
                  
                  $
                  (3,538,710
                  )
                  
                  $
                  19,076,800Net
      earnings /(loss) per common shareBasic
      net earnings /(loss) per share
                  
                  $
                  (0.27
                  )
                  
                  $
                  1.43Fully
      diluted net earnings /(loss) per share
                  
                  $
                  (0.27
                  )
                  
                  $
                  0.49Shares
      used in computing earnings per shareWeighted
      average number of shares outstanding - basic
                  
                  
                  13,215,311
                  
                  
                  
                  13,320,380Weighted
      average number of shares outstanding - diluted
                  
                  
                  13,215,311
                  
                  
                  
                  38,993,163





See notes
to financial statements.


5


MedPro
Safety Products, Inc.


Statements
of Shareholders’ Equity


For
the Three Months Ended March 31, 2010 (Unaudited)


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 through December 31, 2009
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        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
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,871,836
                        
                        
                        
                        -Earned
      portion of vendor share based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        167,600
                        
                        
                        
                        -
                        
                        
                        
                        -Derivative
      liabilities – warrants issued with debt
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (412,956
                        )
                        
                        
                        -Net
      (loss) through March 31, 2010
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (3,538,710
                        )Balance
      March 31, 2010
                        
                        
                        13,215,311
                        
                        
                        $
                        13,215
                        
                        
                        
                        9,733,531
                        
                        
                        $
                        97,334
                        
                        
                        $
                        -
                        
                        
                        $
                        68,868,950
                        
                        
                        $
                        (60,490,576
                        )





See notes
to financial statements.


6


MedPro
Safety Products, Inc.


Statements
of Cash Flows (Unaudited)


For
the Three Months Ended March 31, 2010 and 2009





March 31, 2010
                  
                  
                  March 31, 2009Cash
      Flows From Operating ActivitiesNet
      income (loss)
                  
                  $
                  (3,538,710
                  )
                  
                  $
                  19,076,800Adjustments
      to reconcile net income (loss) to net cash flows from operating
      activities:Depreciation
                  
                  
                  35,984
                  
                  
                  
                  17,345Amortization
                  
                  
                  136,714
                  
                  
                  
                  10,443Share
      based compensation
                  
                  
                  2,039,435
                  
                  
                  
                  1,822,500Change
      in fair value of warrant (derivative liabilities)
                  
                  
                  (42,928
                  )
                  
                  
                  (22,250,157
                  )Changes
      in operating assets and liabilitiesAccounts
      receivable and accrued interest
                  
                  
                  (6,191
                  )
                  
                  
                  70Inventory
                  
                  
                  (5,031
                  )
                  
                  
                  125Other
      current assets
                  
                  
                  5,657
                  
                  
                  
                  56,156Accounts
      payable and accrued expenses
                  
                  
                  76,356
                  
                  
                  
                  204,374Deferred
      revenue
                  
                  
                  -
                  
                  
                  
                  (12,045
                  )Net
      cash flows from operating activities
                  
                  
                  (1,298,714
                  )
                  
                  
                  (1,074,389
                  )Cash
      Flows From Investing ActivitiesPurchases
      of property and equipment
                  
                  
                  (41,189
                  )
                  
                  
                  (204,414
                  )Net
      cash flows from investing activities
                  
                  
                  (41,189
                  )
                  
                  
                  (204,414
                  )Cash
      Flows From Financing ActivitiesPayments
      on note - technology transfer payments
                  
                  
                  (250,000
                  )
                  
                  
                  (500,000
                  )Proceeds
      from bank borrowings
                  
                  
                  -
                  
                  
                  
                  1,501,827Repayments
      on bank borrowings
                  
                  
                  (442,144
                  )
                  
                  
                  (1,940,500
                  )Proceeds
      from notes payable to and advances from shareholders
                  
                  
                  1,300,000
                  
                  
                  
                  208Payments
      on notes payable to and advances from shareholders
                  
                  
                  -
                  
                  
                  
                  (383,333
                  )Net
      cash from issuance of preferred shares
                  
                  
                  -
                  
                  
                  
                  2,760,000Net
      cash flows from financing activities
                  
                  
                  607,856
                  
                  
                  
                  1,438,202Net
      increase / (decrease) in cash
                  
                  
                  (732,047
                  )
                  
                  
                  159,399Cash
      at the beginning of the period
                  
                  
                  4,072,443
                  
                  
                  
                  11,636,843Cash
      at the end of the period
                  
                  $
                  3,340,396
                  
                  
                  $
                  11,796,242Supplemental
      Disclosures of Cash Flow Information:Cash
      paid for interest
                  
                  $
                  47,646
                  
                  
                  $
                  93,128Non-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
      issued  with debt
                  
                  $
                  412,956
                  
                  
                  $
                  -





See notes
to financial statements.


7


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





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 three
months ended March 31, 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 months ended March 31, 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 $21 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 Topic 260, basic
earnings per share were computed using weighted average shareholdings of
13,215,311 and 13,320,380 for the three months ended March 31, 2010 and
2009.  There were no new common shares issued in the three months
ended March 31, 2010.  There were 25 shares issued in the three months
ended March 31, 2009.





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 38,993,163 for the three months ended March 31,
2009.  Because the Company had a net loss for the three months ended
March 31, 2010, there is no dilutive effect and both the basic and diluted
losses per share were the same for this period.


8


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





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, 3,000,000 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 38,993,163.





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.


9


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
4 - RECENT ACCOUNTING PRONOUNCEMENTS – (Continued)





The FASB
has issued Accounting Standard Update (ASU) No. 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.





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 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, the FASB issued guidance on the impact on earnings per share
of the inclusion of share-based transaction.  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.


10


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
4 - RECENT ACCOUNTING PRONOUNCEMENTS – (Continued)





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 for
potential 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 Accounting Standards Update
(“ASU”) 2010-09.





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.


11


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





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.


12


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





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 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.





To date,
two of the existing patents have been utilized to manufacture parts for testing
and evaluation.  The Company expects to begin delivering product in
the third quarter of 2010.  Amortization expense was $136,714 which
included amortization of $126,271 for the intellectual property and amortization
of prepaid loan fees of $10,443.  Estimated future amortization for
the balance of this fiscal year is expected to be $546,011 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,
                  
                  Amount2011
                  
                  $
                  1,109,1042012
                  
                  
                  1,821,9092013
                  
                  
                  1,821,9092014
                  
                  
                  1,695,638After
      12/31/14
                  
                  
                  1,907,706


13


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
7 – LONG-TERM DEBT





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





March 31, 2010
                  
                  
                  December 31, 2009Payable
      to Fifth Third Bank, Term Loan, interest payable at prime plus 2%, monthly
      principal payments of $138,889 beginning June 2008,
      maturing  May 1, 2011, collateralized by an assignment of
      intellectual properties
                  
                  $
                  1,944,444
                  
                  
                  $
                  2,361,111Payable
      to Traditional Bank, Inc., Term loan, interest at 2.45% payable monthly,
      maturing June 30, 2010, secured by $1,500,000 interest bearing deposit
      account.
                  
                  
                  1,500,000
                  
                  
                  
                  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, CFO and two other shareholders
                  
                  
                  221,388
                  
                  
                  
                  246,8663,665,832
                  
                  
                  
                  4,107,977Less:
      current portion
                  
                  
                  3,388,055
                  
                  
                  
                  3,413,533Long-term
      portion
                  
                  $
                  277,777
                  
                  
                  $
                  694,444





The term
note at Traditional Bank was taken out to pay off the line of credit and was
fully collateralized with a certificate of deposit.





The
maturities of long-term for the remainder of this fiscal year will be $2,971,388
and the following table summarizes the maturities of long-term debt for the
fiscal years ended December 31:





Fiscal Years Ended
                    December 312011
                  
                  $
                  694,444





The
financial covenant on the term note with Fifth Third Bank was amended on April
1, 2010 to provide a compensating balance requirement of the lesser of 50% of
the outstanding loan balance or $750,000.  As of the first business
day of each month the covenant amount, plus the current note payment then due,
must be available in a Fifth Third account in the name of the
Company.  In addition, the Company agreed to an assignment of its
patents as collateral.  The Company also assigned the revenue stream
from its minimum volume contracts, in the event of default.  We have
also agreed to extinguish our loan with Fifth Third if we raise additional
equity capital.  The former covenant required 100% of the loan balance
to be covered by cash on deposit in a Company account held in Fifth Third
Bank.  The former covenant will be reinstated after September 30,
2010.


14


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





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. They are comprised of the following:





March 31,
                    2010
                  
                  
                  December 31,
                    2009Short
      term advances with no stated terms settled in the ordinary course of
      business
                  
                  $
                  61,097
                  
                  
                  $
                  49,742Demand
      and promissory notes with varying interest rates and conversion
      features
                  
                  
                  1,300,000
                  
                  
                  
                  -Less
      amounts reflected in accounts payable
                  
                  
                  (61,097
                  )
                  
                  
                  (49,742
                  )$
                  1,300,000
                  
                  
                  $
                  0





Short
term advances consisted of $61,097 and $49,742 for March 31, 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 March 31, 2010, the unpaid advances and invoices for
services consisted of $60,156 due to SC Capital and $941 due to employees for
expense reports.





2010
VOMF Bridge Loans





On
February 8, 2010, MedPro borrowed $500,000 from VOMF.  The loan
provided MedPro with additional liquidity.  The outstanding principal
balance bears interest at an annual rate of 6%, and all principal and interest
was originally due and payable on March 31, 2010.





Under the
terms of the note purchase agreement, we agreed to add a representative of VOMF
to our board of directors upon VOMF’s request.  Other covenants of the
note purchase agreement provide that without the written consent of VOMF, we
will 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, its software 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.





On
February 26, 2010, we increased the outstanding principal balance of the bridge
loan to $850,000 and extended the date on which all principal and interest is
due and payable to June 30, 2010.  In consideration, we issued to VOMF
a five-year warrant to purchase 212,500 shares of our common stock at $4.00 per
share.


15


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
8 – NOTES PAYABLE TO AND ADVANCES FROM SHAREHOLDERS – (Continued)





On March
31, 2010, the Company borrowed an additional $450,000 from VOMF and issued a new
6% promissory note and a five-year warrant to purchase 112,500 shares of our
common stock at $4.00 per share.  At March 31, 2010, the outstanding
principal amount of short-term notes from VOMF totaled
$1,300,000.  All principal and interest is due and payable to June 30,
2010.  The notes and warrants issued on February 26, 2010 and March
31, 2010 have substantially similar terms.





On April
30, 2010, the Company executed a line of credit agreement with VOMF for
$1,000,000, which the Company may draw in installments of up to $300,000 per
month,.  The outstanding principal balance bears interest at 7% and is
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
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.  The initial $250,000 draw on this
line was funded on May 4, 2010, at which time the Company issued 208,334
warrants for its common stock exercisable at $3.00 per share.





NOTE
9 – RELATED PARTY TRANSACTIONS





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 Partners,
LLC.





The
Company also issued Series AA warrants to purchase 533,458 common shares to SC
Capital Partners, LLC 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 expire on December 28, 2012.  None of the AA
warrants have been exercised as of the date of the financial
statements.





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”).


16


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
10 – SHAREHOLDERS’ EQUITY – (Continued)





At March
31, 2010, the Company’s issued and outstanding shares consisted of 13,215,311
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 1,734,340 shares of common and options for 3,332,971 shares
of common were outstanding at March 31, 2010.  After March 31, 2010,
the Company issued warrants to purchase 325,000 common shares at $4.00 per share
and warrants to purchase 208,334 common shares at $3.00 per share, both in
connection with debt issuances.





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 March 31, 2010 the Company had repurchased 105,080 of
its shares in the open market transactions at an average price per share of
$3.68.


Through
April 30, 2010 (during the second quarter of 2010), the Company has acquired
46,498 additional shares of its own common stock at an average price of
$3.03.  Overall shares repurchased have been 151,578 shares at $3.48
per share average cost.





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.


17


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
11 –STOCK PURCHASE WARRANTS – (Continued)





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 factors necessary to determine the value of the
warrants as of January 1, 2009 for purposes of ASC 815 and ASC 820 and
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 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
Stock 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 holders of Series A Stock 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 Stock. Each share of
Series C Stock 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
Stock. 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.





A total
of 1,025,882 Series A and B warrants were outstanding at December 31, 2009. The
cashless exercise feature terminated on August 12, 2009, when the
Company’s registration statement became effective, and no derivative liabilities
remained 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:


18


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
11 –STOCK PURCHASE WARRANTS – (Continued)





·
            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 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.





·
            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.


19


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
11 –STOCK PURCHASE WARRANTS – (Continued)





The
factors used to value the remaining derivative liability associated with the
remaining A and B warrants as of June 30, 2009 included an estimate of the
Company’s 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.





The
warrants we issued during the quarter ended March 31, 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 $4.00 (or 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.





As a
result of these features, the Company has 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;


•
            Estimated
      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.




The
following table sets forth, by level, within the fair value hierarchy, the
Company’s liabilities which have been reflected at fair value as of March 31,
2010:
 
 Level 1
                        Level 2
                        Level 3Derivative
      liabilities
                        $-0-
                        $370,026
                        $-0-Total
      liabilities reflected at fair value
                        $-0-
                        $370,026
                        $-0-
 
 The
following table presents information with respect to warrants to purchase the
Company’s common stock outstanding at March 31, 2010:
 Warrant
                          
                          Number
      of Shares
                          
                          Grant
                            Date
                          Expiration
                            Date
                          
                          Exercise
                            PriceVendor
                          
                          
                          100,000
                          
                          7/13/2007
                          07/13/2011
                          
                          $
                          1.99Vendor
                          
                          
                          75,000
                          
                          7/13/2007
                          07/13/2011
                          
                          $
                          3.75Series
      AA
                          
                          
                          533,458
                          
                          12/28/2007
                          12/28/2012
                          
                          $
                          1.81Series
      A
                          
                          
                          512,941
                          
                          12/28/2007
                          12/28/2012
                          
                          $
                          1.81Series
      B
                          
                          
                          512,941
                          
                          12/28/2007
                          12/28/2012
                          
                          $
                          1.99Non
      Derivatives
                          
                          
                          1,734,340VOMF
                          
                          
                          212,500
                          
                          02/26/2010
                          02/26/2015
                          
                          $
                          4.00VOMF
                          
                          
                          112,500
                          
                          03/31/2010
                          03/31/2015
                          
                          $
                          4.00Derivatives
                          
                          
                          325,000Total
                          
                          
                          2,059,340


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 3,000,000 employee and director stock
options.  We valued the options utilizing the Black-Scholes
model.  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 $1,822,500 of compensation expense for the first quarter of
2010 and 2009. The balance of the unearned compensation was $2,774,250 at March
31, 2010.


20




MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
12 – STOCK OPTIONS – (Continued)





On May
27, 2009, the Company issued incentive options to purchase 185,715 shares of
common stock to its officers and employees pursuant to the MedPro Safety
Products, Inc. 2008 Stock and Incentive Compensation Plan (“2008 Plan”). 
The exercise prices were $4.24 for the 10% shareholder and $3.85 for the balance
of the employees.  At the date of grant, the Company’s shares had been
trading for at least one year.  In valuing the options utilizing the
Black-Scholes method, the Company used the public trading price and the
Company’s own volatility factor of 55% calculated based on closing prices
calculated on a monthly basis.  Since the options were to three specific
classes of employees (10% or more owners, officers and other employees) the
expected life and risk free return factors differed.  The value of the
CEO’s options was 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.  Options by group were
25,974, 51,948 and 107,793.





A second
round of incentive options to purchase 47,256 shares of common stock was issued
to employees other than officers, on October 6, 2009.  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.





On August
24, 2009, the two directors who joined the board in October 2008 were each
granted non-qualified options to purchase 50,000 shares of common stock on the
same terms as the options issued to our other directors on August 18,
2008.  This additional grant of “in the money options” was approved by
VOMF.  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.





On May
27, 2009, the Company awarded incentive stock options to purchase 185,715 common
shares to 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 is $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
term.  The Company recorded $355,106 of unearned compensation expense for
the May 27, 2009 awards.  The unearned compensation is being recorded as
expense over three different periods for the three different classes of
employees at $5,819 per month.  The classes consist of the 10% or more
shareholder employee, the other executive officers and the remainder of the
employees.  The amortization periods range from 2.5 to 6 years. 
Unearned compensation on these options was $296,229 at March 31,
2010.





On August
24, 2009, the Company’s Board approved the issuance of two 50,000 share options
to the two newest directors under the same terms as the 2008 options previously
granted to the employees and the other directors.  The shares are
exercisable at $1.81 each and 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 amortized compensation for the three
months ended March 31, 2010 was $28,047.  Unearned share-based compensation
for these two directors at March 31, 2010 was $156,907.


21


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
12 – STOCK OPTIONS – (Continued)





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.  The unearned compensation is being recorded as
expense over a six year life of the options at $1,277 per month.  Unearned
compensation on these options was $84,502 at March 31, 2010. The following table
summarizes stock option activity for the periods indicated:





Three Months Ended
                    March 31, 2010
                  
                  
                  Twelve Months Ended
                    December 31, 2009Shares
                  
                  
                  Average
                    weighted
                    exercise price
                  
                  
                  Shares
                  
                  
                  Average
                    weighted
                    exercise priceOutstanding  beginning
                  
                  
                  3,332,971
                  
                  
                  $
                  1.95
                  
                  
                  
                  3,000,000
                  
                  
                  
                  n/aGranted
                  
                  
                  0
                  
                  
                  
                  n/a
                  
                  
                  
                  332,971
                  
                  
                  $
                  3.24Exercised
                  
                  
                  0
                  
                  
                  
                  n/a
                  
                  
                  
                  0
                  
                  
                  
                  n/aExpired/cancelled
                  
                  
                  0
                  
                  
                  
                  n/a
                  
                  
                  
                  0
                  
                  
                  
                  n/aOutstanding,
      ending
                  
                  
                  3,332,971
                  
                  
                  $
                  1.95
                  
                  
                  
                  3,332,971
                  
                  
                  $
                  1.95





The
following table summarizes information about stock options outstanding and
exercisable at March 31, 2010:





Weighted average
                    exercise price
                  
                  Options
                    outstanding
                  
                  
                  Average weighted
                    remaining
                    contractual life
                    (years)
                  
                  
                  Options
                    Exercisable$1.95
                  
                  
                  3,332,971
                  
                  
                  
                  3.114
                  
                  
                  
                  232,971





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 $20,925 and $83,700 for the three months ended March 31, 2010
and the year ended December 31, 2009, respectively.  Future minimum lease
payments for the balance of this fiscal year are expected to be $62,775 and for
future annual fiscal periods ended December 31 are as follows:


22


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
13 – LEASE COMMITMENT WITH RELATED PARTY – (continued)





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





NOTE
14 – DEVELOPMENT AND DISTRIBUTION AGREEMENTS





Joint
Development Agreement





On March
8, 2010, the Company entered into a Joint Development Agreement with Helvoet
Pharmaceutical N.V. relating to the development and distribution of our
pre-filled passive safety syringe system.  The joint development agreement
formalizes the relationship between MedPro and Helvoet and establishes their
respective responsibilities and contributions to the project.





The
agreement provides that we will develop the safety syringe portion of the
pre-filled passive safety syringe system, and Helvoet 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, including the responsibilities and
contributions required as a minimum standard for participation.





Headquartered
in Alken, Belgium, Helvoet is a worldwide manufacturer of rubber closures and
aluminum and plastic caps for pharmaceutical packaging, drug delivery and
diagnostics.  With more than 1,250 employees and five plants for rubber
components and four plants for aluminum and plastic caps in Europe and the
United States, Helvoet produces over 12 billion parts per year.  Helvoet is
the pharmaceutical packaging division of the Daetwyler Holding, Altdorf,
Switzerland.





Distribution
Agreements





On July
15, 2008, the Company entered into two Medical Supply Manufacturing Agreements
with an international manufacturer and supplier of medical products with a
worldwide distribution network. The two agreements grant the distributor the
right to manufacture, market and distribute MedPro’s Vacuette tube-activated and
skin-activated blood collection systems and its winged blood collection set.
Each agreement extends for six years from the commencement of initial commercial
manufacturing of the applicable product.





The July
2008 agreements required the Company to perform multiple revenue generating
activities, which are independent and distinct phases of the
project.




·
            First,
      the Company provided services, preparing and delivering the production
      line design for the Vacuette devices and the initial design and
      preproduction plan for the Wing product. The design plans include the
      design and specifications of the medical devices the lines would actually
      produce, thereby allowing a different contractor to use the plans to
      construct the production line.


23


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements





NOTE
14 – DEVELOPMENT AND DISTRIBUTION AGREEMENTS – (Continued),




The
arrangements contemplated the design plans would be delivered by October 1,
2008, and the Company would earn a $1 million fee for design services when the
distributor accepted each of the plans.


·
            Second,
      the Company was to construct the production lines. Payment was based on
      the estimated cost to manufacture the components and assemble the
      production line, plus a potential margin. Installments were to become
      payable upon achievement of agreed-upon
  milestones.


·
            Third,
      the Company granted an exclusive license to the distributor to manufacture
      and sell the product, for which the Company would receive a royalty per
      unit sold.





The
agreement for our tube-activated blood collection system and our skin activated
blood collection device provided that the Company would design, construct,
complete and successfully test an initial automated production line (“IPL”) for
delivery at a mutually acceptable date not earlier than March 31, 2009. 
Payment was to be made in three installments, beginning October 1, 2008 with the
final payment due March 31, 2009.  The agreement provides for production of
a designated minimum number of units each year during the first five years of
the agreement. The distributor is obligated to pay the Company a production
royalty per unit, totaling $33 million over this period. The distributor has the
right to continue to manufacture the products and pay the production royalty in
year six.





The
agreement for our winged blood collection set provided that the Company would
produce an initial design plan for the product for review and the distributor’s
approval by October 1, 2008. Payment of the fee for design services was due upon
delivery and acceptance of the initial design plan, at which time the Company
was to initiate the construction of the production line. Payment for the
construction phase was to be made in three equal installments upon the
achievement of certain milestones leading to validation of the final production
line.  The July 2008 agreement for the winged blood collection set also
provides for production of a designated minimum number of units each year during
the first five years of the agreement. The distributor is obligated to pay the
Company a production royalty per unit, totaling $10.8 million over this period.
The distributor has the right to continue to manufacture the products and pay
the production royalty in year six.





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.





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 will retain 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.


24


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





The
following discussion and analysis of the results of operations and financial
condition of MedPro Safety Products, Inc. for the fiscal years ended December
31, 2009 and 2008 should be read in conjunction with our audited financial
statements and the notes to those financial statements that are included
elsewhere in this report. 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.





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 two such agreements 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.  As of this date, we have entered into a
joint development agreement with a global manufacturer involved in stopper
design and manufacture in the prefilled syringe industry segment.  We will
jointly exploit our prefilled and fillable safety syringes.





Our
strategy for the next 6 to 9 months focuses on completing the steps necessary to
attain pre-market product development milestones and to commence the
distribution of three products in these sectors — two models of blood collectors
and a winged blood collection set. Although we expect to realize significant
revenue from the launch of the first of two models of our blood collection
product, the amount of revenue realized in the next several fiscal quarters
depends on how soon our distribution partner can complete manufacturing
arrangements and commence product delivery.  Delays from issues related to
semi-automated assembly techniques and product design have deferred the
projected date of initial revenue. We expect product assembly and delivery to
begin in the third quarter of 2010.





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.  The Company is currently involved in an
effort to raise additional equity and debt to fully exploit our intellectual
property and expand our ability to get products manufactured and delivered to
commercial markets.


25


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 Vacumate patents in December 2009
since products were first introduced for human use in December.  Because
our products that incorporate our Winged Safety Blood Collection Set, our
Key-Lok proprietary technology and our Syringe Guard family of products are
currently not in production for distribution, we have not begun to amortize
these patents. 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 expected development costs ($58 million)  by approximately
644%.


26


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 Months Ended March 31, 2010 and 2009





MedPro
recorded net (loss) of $(3,538,710) for the three months ended March 31,
2010, as compared to a net income of $22,181,876 for three months ended March
31, 2009.  Losses from operations were $(3,537,186) for 2010 and
$(3,105,076) for 2009.





In 2010,
we recorded net other (expense) of $(1,524) compared to net other income of
$19,076,800 in 2009.  Other income in 2009 included $22,250,157 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 exchange of a majority of the
outstanding warrants for preferred stock and cash and the decrease in our
share price during the first quarter of 2009.  See Note 11 of the notes to
the financial statement for a description of the derivative liabilities recorded
with respect to outstanding warrants to purchase our common stock.





Net other
expense included interest expense of $51,353 for 2010 and $75,197 for
2009.  Interest income was $6,902 for 2010 and $6,916 for 2009. 
Income from the change in fair value of derivative liabilities was $42,928 in
2010 and $22,250,157 in 2009, as previously described.





We had no
sales in either year during the first quarter.  We recorded deferred
revenue of $12,045 in 2009, which was the balance of an advance of $700,000 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.





The most
substantial difference between the losses from operations in 2010 and 2009 was
the $148,505 increase in professional and insurance costs.  Depreciation
and amortization was up $144,910 from 2009 to 2010 primarily due to the
initiation of amortization of two of our intellectual properties. 
Advertising and promotion, which consists predominantly of investor relations
costs, was up $58,309 in 2010 over 2009.





The
compensation charge for stock option awards went from $1,822,500 in 2009 to
$1,871,835 in 2010, a modest increase of $49,335, reflecting the cost of
incentive stock options granted to employees in May and October 2009 and the
options granted to our two newest directors in August 2009.  The balance of
the change in compensation represents a decline of $22,316 of employee cash
compensation due to a reduction of one employee and the suspension of officer
bonuses that occurred in 2009 but not in 2010. Other payroll related costs
declined by $4,382.  The number of our full-time employees decreased from
thirteen in 2009 to twelve in 2010.





The costs
associated with the profit sharing plan in 2010 were $14,436 in 2010 and $18,489
in 2009.  The decline was due to lower compensation in 2010 versus
2009.





On August
18, 2008, we adopted our stock incentive compensation plan and granted options
to purchase 3,000,000 shares of common stock to seven employees and two
directors.  The options may be exercised only during a thirty-day period
ending on January 1, 2013.  If before that date either the recipient
terminates service with us or a change of control occurs, then the recipient
must exercise the options 30 days after the event.  Because the exercise
price was less than market price of our common stock on the date of grant, we
set a date certain for the exercise of the options in order to qualify for
exemptions from excise taxes under IRS deferred compensation
rules.


27


Total
compensation for the August 2008 grants will be $14,580,000, $4.86 per share
underlying the options.  The Black-Scholes model was used to value the
options.  The valuation methodology and underlying assumptions are
described in Note 12 of the notes to the 2009 audited financial statements
included in our 2009 Annual Report on Form 10-K.  The compensation expense
is being charged to earnings over 24 months, which period coincides with the
term of a non-competition covenant included in the option agreement. We recorded
$1,822,500 of compensation expense in 2010 and 2009.  The balance of the
unearned compensation was $2,774,250 at March 31, 2010.





In the
first quarter of 2010, total share-based compensation expense on employee option
awards granted in May and October 2009 totaled $21,288.  The incentive
stock options for 185,715 shares awarded in May were valued at $355,106, and the
options for 47,256 shares awarded in October were valued at $91,944 utilizing
the Black-Scholes valuation methodology.  No expense was recognized in the
first quarter of 2009.





We also
granted options for 50,000 shares to our two directors elected in October 2008
on the same terms and conditions as the options granted in August 2008 to our
four other directors.  The options are exercisable at $1.81 per share only
during January 2013.  The total expense associated with these options was
$224,373.  We recorded $28,047 of share-based compensation expense in 2010
and 156,907 of unearned compensation remains on these options at March 31,
2010.  No expense was recorded in the first quarter of 2009 on these
options.





Professional
and insurance costs increased $148,505 over the same period in 2009. 
Consulting fees, accounting fees and other related expenses increased $127,017
during 2010 while legal fees increased only $16,191.  Insurance costs were
up $4,098 in 2010 over 2009.  Consulting fees were up $132,711 in 2010
primarily due to our engagement of consultants for product road mapping and
product design and development services.  We also incurred $45,000 on
consulting with SC Capital, a company partially owned by one of our
directors.  We paid $18,750 for a research report and $7,875 for third
party consulting on a technical issue with a product under development. 
Total consulting costs were $181,831 in 2010 versus $49,120 in
2009.





Travel
expenses were $25,408 higher in 2010 versus 2009, reflecting increased travel
costs in connection with our recently announced joint development agreement with
an EU joint venture partner and meetings with prospective investor groups in the
U.S.  Total travel expenses were $127,749 and $106,341 in 2010 and 2009,
respectively.





Amortization
expenses increased in 2010 to $136,714 from $10,443 in 2009, reflecting
amortization of intellectual property costs on two products.  There was no
product-related amortization in the first quarter of 2009.





Product
development costs increased $40,504 from 2009 levels.  The increase in
costs reflects the increased production of samples for verification and
validation testing of three products.





Depreciation
and amortization expenses (associated with intellectual property and prepaid
financing costs) increased by $144,910, reflecting the depreciation of
additional testing equipment and manufacturing equipment acquired in 2009 and
2010.  Intangible asset amortization of $126,271 was recorded in 2010,
along with amortization of finance costs of $10,443.  This is $126,271
higher than 2009.  Depreciation in 2010 was $35,984 versus $17,345 in
2009.  Fixed asset additions were $41,190 in the first quarter of
2010.  They consisted primarily of manufacturing molds, jigs and fixtures
($40,197 of $41,190).


28


Liquidity
and Capital Resources





Total
assets were $14,789,555 as of December 31, 2009 and $13,931,565 as of March 31,
2010. The $857,990 decline in total assets reflects the impact of the negative
cash flow from operations, investing and financing activities of $732,047. 
During 2010, our cash decreased by $732,047 to $3,340,396 at March 31, 2010 from
$4,072,443 at December 31, 2009.  We also paid off $692,145 of bank debt in
the first quarter.





Although
we expect to realize significant revenue from the launch of our tube activated
blood collection product, one of three products under distribution
agreements with a worldwide medical products company described below, the amount
of revenue realized over the next several fiscal quarters depends on how soon
our distribution partner can complete manufacturing arrangements and commence
product delivery.  We expect product assembly and delivery to begin in the
third quarter of 2010.  Delays associated with perfecting semi-automated
assembly techniques and some product design issues have deferred the projected
date of initial revenue until the third quarter of 2010.





Despite
our expectation of receiving revenue from product sales in 2010, our current
cash position requires that we obtain additional funding during 2010 to maintain
our current level of operations, as well as to fund the development and launch
of all of the safety products for which we currently own intellectual property
rights and new devices currently under contract.  We will monitor our cash
flow carefully and will maintain only the employment levels necessary to sustain
operations.  If we cannot find sources of additional funds on reasonable
terms, we may be forced to limit or even suspend our operations and product
development plans, which would adversely affect our efforts to achieve
profitability and to continue our business.





During
the first quarter of 2010, we borrowed $1,300,000 from our principal investor,
VOMF, which matures on June 30, 2010.  In connection with this financing,
we granted VOMF warrants to purchase 325,000 shares of common stock at $4 per
share.  The warrant features caused them to be treated as derivative
liabilities and we recorded an additional $412,954 of liabilities as the loans
were recorded.  At March 31, 2010, as the price of our stock declined, we
adjusted the market value of the warrants by $42,928 to reflect the reduction of
the derivative liability and a gain from the adjustment of the market value of
the derivative.





We have
entered into discussions with VOMF to provide funding, as required, for us to
continue to operate through the end of 2010.  VOMF has provided an
additional $1,000,000 line of credit, which we can draw in monthly
installments of up to $300,000.  The line of credit has been provided to
fund operations and the purchase of shares from time to time under our stock
repurchase program.  Since the first of the year, we have been actively
exploring other arrangements for short-term and long term financing with several
institutional investors and other prospects.





Our
credit agreement with a commercial bank originally included a $5,000,000 term
loan and a $1,500,000 revolving line of credit.  During 2009, we paid off
the $1,498,475 balance of the line of credit.  At December 31, 2009, the
outstanding balance of the term loan was $ 2,361,111.  The term loan
matures on August 1, 2011.  Our monthly payment under the term loan is
approximately $138,889 of principal plus interest at the prime rate plus
2%.





Our term
loan agreement was modified in June 2009 to release our Chairman and Chief
Executive Officer from his personal guarantee.  In return, we agreed to
maintain a compensating cash balance with the lender equal to the declining
balance of the term note.  We met the loan covenant at the end of 2009 and
have met it at the end of each subsequent month.  On April 1, 2010, we
entered into a new loan agreement with the lender which adjusted the
compensating balance requirement from 100% of the loan balance to the lesser of
50% of the outstanding loan balance at the first business day of the month or
$750,000 after the bank sweeps the payment due on the first of the month. 
The original covenant is restored after September 30, 2010.  We have
pledged our patents and our guaranteed revenue contracts as collateral for the
loan.  In the event of a default, the lender will collect the revenue on
these contracts directly from our distribution partner.


29


On March
31, 2010, we renewed our $1,500,000 loan at Traditional Bank,
Inc. for an additional ninety days.  That loan is expected to be paid
on June 30, 2010 by applying the $1,500,000 compensating cash balance held in an
account with the lender.





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.  In July 2008, we entered into two
agreements with a worldwide medical products company to manufacture and
distribute three of our blood collection products.  Both agreements
continue for five years from the date we make an initial commercial shipment of
the product.  The distributor has agreed to purchase minimum annual
quantities of both models of the safety needles and our winged blood collection
set over the five-year term of the contract, for royalties totaling over $43
million under both agreements.  As described above, we expect to begin to
receive royalty revenue from the first blood collection product during the
third quarter of 2010. We are optimistic about the prospects for our blood
collection products based upon our pre-marketing activities, general interest in
the skin activated product, and our minimum volume distribution
contracts.





In
addition, in March 2010, we entered into a joint development agreement with
Helvoet Pharmaceutical N.V. 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 Helvoet 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.  Headquartered in
Alken, Belgium, Helvoet is a worldwide manufacturer of rubber closures and
aluminum and plastic caps for pharmaceutical packaging, drug delivery and
diagnostics.





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 require substantial additional funding.  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.





Our
current sales estimates are exclusively for product sales in the United
States.  We do not anticipate revenue from the marketing of the
tube-activated blood collection device in Europe, although its distributor has
received preliminary favorable interest from pre-launch marketing and
demonstration activities.  Our ability to generate future European and
other foreign sales will depend upon applicable regulatory approvals for our
products in Europe.


30


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
4T. 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 March 31, 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
first 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.


31


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 March 31, 2010, we issued warrants to purchase shares of its
common stock in consideration of bridge loans extended to us by Vision
Opportunity Master Fund, Ltd. (“VOMF”).  The warrant purchase price is
$4.00 per share and the warrants have a five-year term.  We also agreed to
appoint a representative of VOMF to its board of directors at such time as
requested by VOMF.  Except for $75,000 which we agreed to use to purchase
shares of its common stock under its stock repurchase program announced on June
25, 2009, the proceeds of the loans were used for general corporate
purposes.  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 presents additional information
regarding the transactions.





Date
                    
                    Principal amount
                      of bridge loan
                    
                    
                    Number of Shares
                      Underlying
                      Warrant
                    
                    
                    Warrant
                      Expiration Date2/6/2010
                    
                    $
                    500,000
                    
                    
                    
                    n/a
                    
                    
                    
                    n/a2/26/2010
                    
                    
                    350,000
                    
                    
                    
                    212,500
                    
                    
                    2/26/20153/31/2010
                    
                    
                    450,000
                    
                    
                    
                    112,500
                    
                    
                    3/31/2015Total
                    
                    $
                    1,300,000
                    
                    
                    
                    325,000





The
following table provides certain information with respect to our purchases of
common stock during the quarter ended March 31, 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
                  Programs1/1/2010
      through 1/31/2010
                
                
                0
                
                
                
                0
                
                
                
                105,080
                
                
                
                894,9202/1/2010
      through 2/28/2010
                
                
                0
                
                
                
                0
                
                
                
                105,080
                
                
                
                894,9203/1/2010
      through 3/31/2010
                
                
                0
                
                
                
                0
                
                
                
                105,080
                
                
                
                894,920Total
                
                
                0
                
                
                
                0
                
                
                
                105,080
                
                
                
                894,920




32


Item
3. Default Upon Senior Securities





Not
applicable.





Item
4. Submission of Matters to a Vote of Securities Holders





Not
applicable.





Item
5. Other Information





None.





Item
6. Exhibits and Financial Statement Schedules.





10.1
                                Sixth
      amendment to credit agreement with Fifth Third Bank (incorporated by
      reference to Exhibit 10.1 to Form 8-K filed April 1,
  2010).*
                                10.2
                                Securities
      Purchase Agreement between MedPro Safety Products, Inc. and Vision
      Opportunity Master Fund, Ltd. dated as of March 31, 2010 (including form
      of 6% Promissory Note and Common Stock Purchase
  Warrant).10.3
                                Securities
      Purchase Agreement between MedPro Safety Products, Inc. and Vision
      Opportunity Master Fund, Ltd. dated as of April 30, 2010 (including
      form of 7% Promissory Note and Common Stock Purchase Warrant) is
      incorporated by reference to Exhibit 10.1 to Form 8-K filed May 7,
      2010.*
                                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


33


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)May
      13, 2010
                    
                    By:
                    /s/W.
      Craig TurnerW.
      Craig TurnerChief
      Executive Officer, Chairmanof
      the Board of Directors(Principal
      Executive Officer)May
      13, 2010
                    
                    By:
                    /s/Marc T.
      RayMarc
      T. RayVice
      President Finance, ChiefFinancial
      Officer and Chief(Principal
      Financial andAccounting
      Officer)




34


INDEX
TO EXHIBITS





Exhibit No.
                  
                  Description of Exhibit10.1
                  
                  Sixth
      amendment to credit agreement with Fifth Third Bank (incorporated by
      reference to Exhibit 10.1 to Form 8-K filed April 1,
  2010).10.2
                  
                  Securities
      Purchase Agreement between MedPro Safety Products, Inc. and Vision
      Opportunity Master Fund, Ltd. dated as of March 31, 2010 (including form
      of 6% Promissory Note and Common Stock Purchase
  Warrant).10.3
                  
                  Securities
      Purchase Agreement between MedPro Safety Products, Inc. and Vision
      Opportunity Master Fund, Ltd. dated as of April 30, 2010 (including
      form of 7% Promissory Note and Common Stock Purchase Warrant) is
      incorporated by reference to Exhibit 10.1 to Form 8-K filed May 7,
      2010.31.1
                  
                  Certification
      of Principal Executive Officer, pursuant to Rule
  13a–14(a).31.2
                  
                  Certification
      of Principal Financial Officer, pursuant to Rule
  13a–14(a).32.1
                  
                  Certification
      of Principal Executive Officer, pursuant to 18 U.S.C Section
      1350.32.2
                  
                  Certification
      of Principal Financial Officer, pursuant to 18 U.S.C Section
      1350.




35