UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q




(Mark
One)


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




For
the Quarterly Period Ended September 30, 2009




Or




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




For
the transition period from 
to




Commission
file number: 000 – 52077




MEDPRO
SAFETY PRODUCTS, INC.




(Exact
name of registrant as specified in its charter)




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




(859)
225-5375




(Registrant’s
telephone number, including area code)









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  ̈No
 ̈




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  oNon-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, 13,267,391
shares of Common Stock were outstanding at October 31, 2009.









INDEX





PagePART
      I –
                                          FINANCIAL
      INFORMATIONITEM
      1.
                                          FINANCIAL STATEMENTS
                                          2ITEM
      2.
                                          MANAGEMENT’S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                                          22ITEM
      3.
                                          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
                                          29ITEM
      4.
                                          CONTROLS AND PROCEDURES
                                          29PART
      II –
                                          OTHER
      INFORMATIONITEM
      1.
                                          LEGAL PROCEEDINGS
                                          30ITEM
      1A.
                                          RISK FACTORS
                                          30ITEM
      2.
                                          UNREGISTERED SALES ON EQUITY SECURITIES AND USE OF
      PROCEEDS
                                          30ITEM
      3.
                                          DEFAULTS UPON SENIOR
    SECURITIES
                                          30ITEM
      4.
                                          SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                                          30ITEM
      5.
                                          OTHER INFORMATION
                                          30ITEM
      6.
                                          EXHIBITS
                                          30


1









PART
I – FINANCIAL INFORMATION





Item
1. Financial Statements





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





Balance
      Sheets as of September 30, 2009 and December 31, 2008
                1Statements
      of Operations for the three and nine months ended September 30, 2009 and
      2008
                3Statements
      of Changes in Shareholders’ Equity for the nine months ended September 30,
      2009 and the year ended December 31, 2008
                4Statements
      of Cash Flows for the nine months ended September 30, 2009 and
      2008
                5Notes
      to Unaudited Financial Statements
                6




2





MEDPRO
SAFETY PRODUCTS, INC.


Balance
Sheets


September
30, 2009 and December 31, 2008







September 30, 2009(Unaudited)
                        
                        
                        December31,2008ASSETSCurrent
      AssetsCash
                        
                        $
                        6,738,686
                        
                        
                        $
                        11,636,843Accounts
      receivable, net of allowance of $15,837
                        
                        
                        -
                        
                        
                        
                        -Inventory
                        
                        
                        292,859
                        
                        
                        
                        288,414Accrued
      interest income
                        
                        
                        20,499
                        
                        
                        
                        -Prepaid
      expenses and other current assets
                        
                        
                        21,746
                        
                        
                        
                        9,350Prepaid
      investor relations costs
                        
                        
                        1,634
                        
                        
                        
                        228,660Prepaid
      costs of automation equipment
                        
                        
                        452,855
                        
                        
                        
                        452,855Total
      current assets
                        
                        
                        7,528,279
                        
                        
                        
                        12,616,122Property
      and EquipmentEquipment
      and tooling
                        
                        
                        989,365
                        
                        
                        
                        751,725Leasehold
      improvements
                        
                        
                        192,377
                        
                        
                        
                        114,831Computers,
      network and phones
                        
                        
                        188,191
                        
                        
                        
                        126,061Furniture
      and fixtures
                        
                        
                        117,797
                        
                        
                        
                        81,213Trade
      show booth
                        
                        
                        7,341
                        
                        
                        
                        7,3411,495,071
                        
                        
                        
                        1,081,171Less:
      accumulated depreciation
                        
                        
                        215,020
                        
                        
                        
                        146,680Property
      and equipment, net
                        
                        
                        1,280,051
                        
                        
                        
                        934,491Other
      AssetsIntangible
      assets
                        
                        
                        9,109,547
                        
                        
                        
                        9,109,547Deferred
      financing costs
                        
                        
                        66,160
                        
                        
                        
                        97,489Total
      other assets
                        
                        
                        9,175,707
                        
                        
                        
                        9,207,036Total
      assets
                        
                        $
                        17,984,037
                        
                        
                        $
                        22,757,649





See notes
to financial statements.


1


MEDPRO
SAFETY PRODUCTS, INC.


Balance
Sheets (Continued)


September
30, 2009 and December 31, 2008





September
      30, 2009(Unaudited)
                            
                            
                            December
      31, 2008LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                            
                            $
                            270,221
                            
                            
                            $
                            261,325Accrued
      interest payable
                            
                            
                            12,153
                            
                            
                            
                            34,276Current
      portion of long term debt
                            
                            
                            3,269,773
                            
                            
                            
                            3,262,660Deferred
      revenue
                            
                            
                            452,855
                            
                            
                            
                            464,900Notes
      payable to and advances from shareholders
                            
                            
                            -
                            
                            
                            
                            383,333Current
      portion of technology transfer payments - Visual Connections,
      Inc.
                            
                            
                            750,000
                            
                            
                            
                            2,000,000Total
      current liabilities
                            
                            
                            4,755,002
                            
                            
                            
                            6,406,494Long-Term
      LiabilitiesNotes
      payable - long term portion
                            
                            
                            1,279,870
                            
                            
                            
                            2,607,435Long-term
      portion of technology transfer payments - Visual Connections,
      Inc.
                            
                            
                            -
                            
                            
                            
                            250,0001,279,870
                            
                            
                            
                            2,857,435Total
      liabilities
                            
                            
                            6,034,872
                            
                            
                            
                            9,263,929Shareholders’
      EquitySeries
      A Preferred 6,668,229 shares issued and
      outstanding.  Liquidation preference $1,062,979 and $610,260,
      respectively.
                            
                            
                            66,682
                            
                            
                            
                            66,682Series
      B Preferred 1,493,779 and 1,493,779 shares issued and outstanding,
      respectively.
                            
                            
                            14,938
                            
                            
                            
                            14,938Series
      C Preferred 1,571,523 and 0 shares issued and outstanding,
      respectively.
                            
                            
                            15,715
                            
                            
                            
                            -Common
      stock $.001 par value; 90,000,000 shares authorized; 13,267,391 and
      13,320,391 shares issued and outstanding, respectively.
                            
                            
                            13,267
                            
                            
                            
                            13,320Additional
      paid-in capital
                            
                            
                            65,538,453
                            
                            
                            
                            43,667,689Unearned
      share-based compensation
                            
                            
                            (167,600
                            )
                            
                            
                            (21,885
                            )Treasury
      stock (53,000 common shares)
                            
                            
                            (200,476
                            )Accumulated
      deficit
                            
                            
                            (53,331,814
                            )
                            
                            
                            (30,247,024
                            )Total
      shareholders’ equity
                            
                            
                            11,949,165
                            
                            
                            
                            13,493,720Total
      liabilities and shareholders’ equity
                            
                            $
                            17,984,037
                            
                            
                            $
                            22,757,649




See notes to financial
statements.




2




MEDPRO
SAFETY PRODUCTS, INC.


Statements
of Operations


For
the Three and Nine Months Ended September 30, 2009 and 2008




For the Three
                
                
                For the Three
                
                
                For the Nine
                
                
                For the NineMonths Ended
                
                
                Months Ended
                
                
                Months Ended
                
                
                Months EndedSeptember 30, 2009
                
                
                September 30, 2008
                
                
                September 30, 2009
                
                
                September 30, 2008(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)SalesNeedlyzer
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,180Safe-Mate
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                17,855Automation
      Services and Equipment
                
                
                -
                
                
                
                1,333,333
                
                
                
                12,045
                
                
                
                1,333,333Total
      sales
                
                
                -
                
                
                
                1,333,333
                
                
                
                12,045
                
                
                
                1,352,368Cost
      of goods sold and automation
                
                
                691
                
                
                
                518
                
                
                
                6,013
                
                
                
                6,959Gross
      profit
                
                
                (691
                )
                
                
                1,332,815
                
                
                
                6,032
                
                
                
                1,345,409Operating
      ExpensesSalaries,
      wages, and payroll taxes
                
                
                2,316,296
                
                
                
                1,140,848
                
                
                
                6,823,684
                
                
                
                1,678,115Qualified
      profit sharing plan
                
                
                17,317
                
                
                
                -
                
                
                
                54,122
                
                
                
                -Advertising
      and promotion
                
                
                80,082
                
                
                
                -
                
                
                
                355,811
                
                
                
                -Product
      development costs
                
                
                197,893
                
                
                
                53,074
                
                
                
                618,273
                
                
                
                120,737Professional
      and insurance
                
                
                346,425
                
                
                
                918,032
                
                
                
                969,595
                
                
                
                1,424,585General
      and administrative
                
                
                86,409
                
                
                
                187,350
                
                
                
                260,296
                
                
                
                449,338Travel
      and entertainment
                
                
                101,310
                
                
                
                60,909
                
                
                
                270,233
                
                
                
                258,061Inventory
      write down
                
                
                -
                
                
                
                164,410
                
                
                
                -
                
                
                
                161,477Other
      and loss on disposal of assets
                
                
                -
                
                
                
                397,694
                
                
                
                -
                
                
                
                409,706Depreciation
      and amortization
                
                
                40,383
                
                
                
                32,173
                
                
                
                99,668
                
                
                
                86,572Total
      operating expenses
                
                
                3,186,115
                
                
                
                2,954,490
                
                
                
                9,451,682
                
                
                
                4,588,591Loss
      from operations
                
                
                (3,186,806
                )
                
                
                (1,621,675
                )
                
                
                (9,445,650
                )
                
                
                (3,243,182
                )Other
      income (expenses)Interest
      expense
                
                
                (56,980
                )
                
                
                (135,976
                )
                
                
                (198,063
                )
                
                
                (443,710
                )Other
      Income (Expenses)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Income
      from debt forgiveness
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                65,152Interest
      income
                
                
                13,993
                
                
                
                2,669
                
                
                
                36,852
                
                
                
                46,168Change
      in fair value of derivative   liabilities
                
                
                1,282,353
                
                
                
                -
                
                
                
                21,603,185
                
                
                
                -Total
      other income (expenses)
                
                
                1,239,366
                
                
                
                (133,307
                )
                
                
                21,441,974
                
                
                
                (332,390
                )Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      income/(loss)
                
                $
                (1,947,440
                )
                
                $
                (1,754,982
                )
                
                $
                11,996,324
                
                
                $
                (3,575,572
                )Net
      earnings/(loss) per common shareBasic
      net earnings (loss) per share
                
                $
                (0.15
                )
                
                $
                (0.13
                )
                
                $
                0.90
                
                
                $
                (0.27
                )Fully
      diluted net earnings/(loss) per share
                
                $
                -
                
                
                $
                -
                
                
                $
                0.28
                
                
                $
                -Shares
      used in computing earnings per shareWeighted
      average number of shares outstanding - basic
                
                
                13,286,106
                
                
                
                13,285,072
                
                
                
                13,308,793
                
                
                
                13,285,072Weighted
      average number of shares outstanding - diluted
                
                
                -
                
                
                
                -
                
                
                
                43,268 813
                
                
                
                -




See notes
to financial statements.


3


MEDPRO
SAFETY PRODUCTS, INC.


Statements
of Changes in Shareholders’ Equity


For
the Nine Months Ended September 30, 2009


and
the Year Ended December 31, 2008




AdditionalCommon Stock
                            
                            
                            Preferred Stock
                            
                            
                            Unearned
                            
                            
                            Paid-In
                            
                            
                            Treasury
                            
                            
                            AccumulatedShares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            Compensation
                            
                            
                            Capital
                            
                            
                            Stock
                            
                            
                            Deficiency
                            
                            
                            TotalBalance,
      December 31, 2007
                            
                            
                            13,285,072
                            
                            
                            $
                            13,285
                            
                            
                            
                            6,668,229
                            
                            
                            $
                            66,682
                            
                            
                            $
                            (21,885
                            )
                            
                            $
                            27,628,366
                            
                            
                            $
                            -
                            
                            
                            $
                            (23,707,458
                            )
                            
                            $
                            3,978,990Series
      B convertible preferred shares issued for cash
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,493,779
                            
                            
                            
                            14,938
                            
                            
                            
                            -
                            
                            
                            
                            13,010,815
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            13,025,753Options
      granted to employees and Directors
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (14,580,000
                            )
                            
                            
                            14,580,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Earned
      portion of employee and director options
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,693,250
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,693,250Unearned
      portion of share based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            11,886,750
                            
                            
                            
                            (11,886,750
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Common
      shares issued in exchange for services
                            
                            
                            35,294
                            
                            
                            
                            35
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            335,258
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            335,293Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (6,539,566
                            )
                            
                            
                            (6,539,566
                            )Balance,
      January 1, 2009
                            
                            
                            13,320,366
                            
                            
                            
                            13,320
                            
                            
                            
                            8,162,008
                            
                            
                            
                            81,620
                            
                            
                            
                            (21,885
                            )
                            
                            
                            43,667,689
                            
                            
                            
                            -
                            
                            
                            
                            (30,247,024
                            )
                            
                            
                            13,493,720Cumulative
      effect of change in accounting principal
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (6,321,081
                            )
                            
                            
                            -
                            
                            
                            
                            (35,081,114
                            )
                            
                            
                            (41,402,195
                            )Balance,
      January 1, 2009, as adjusted
                            
                            
                            13,320,366
                            
                            
                            
                            13,320
                            
                            
                            
                            8,162,008
                            
                            
                            
                            81,620
                            
                            
                            
                            (21,885
                            )
                            
                            
                            37,346,608
                            
                            
                            
                            -
                            
                            
                            
                            (65,328,138
                            )
                            
                            
                            (27,908,475
                            )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
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            20,661,129Unearned
      portion of share based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (11,886,750
                            )
                            
                            
                            11,886,750
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Employee
      share based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (579,478
                            )
                            
                            
                            579,478
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Share
      based vendor compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (145,715
                            )
                            
                            
                            145,715
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Earned
      portion of employee and director options
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            5,502,835
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            5,502,835Unearned
      portion of share based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            6,963,393
                            
                            
                            
                            (6,963,393
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Reclassification
      of balance of derivative liability
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,897,881
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,897,881Purchase
      of treasury stock
                            
                            
                            (53,000
                            )
                            
                            
                            (53
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (200,476
                            )
                            
                            
                            -
                            
                            
                            
                            (200,529
                            )Net
      income through September 30, 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            11,996,324
                            
                            
                            
                            11,996,324Balance
      September 30, 2009
                            
                            
                            13,267,391
                            
                            
                            $
                            13,267
                            
                            
                            
                            9,733,531
                            
                            
                            $
                            97,335
                            
                            
                            $
                            (167,600
                            )
                            
                            $
                            65,538,453
                            
                            
                            $
                            (200,476
                            )
                            
                            $
                            (53,331,814
                            )
                            
                            $
                            11,949,165





See notes
to financial statements.


4


MEDPRO
SAFETY PRODUCTS, INC.


Statements
of Cash Flows


For
the Nine Months Ended September 30, 2009 and 2008





For the Nine
                  
                  
                  For the NineMonths Ended
                  
                  
                  Months EndedSeptember 30, 2009
                  
                  
                  September 30, 2008(Unaudited)
                  
                  
                  (Unaudited)Cash
      Flows From Operating ActivitiesNet
      income (loss)
                  
                  $
                  11,996,324
                  
                  
                  $
                  (3,575,571
                  )Adjustments
      to reconcile net income (loss) to net cashflows
      from operating activities:Depreciation
                  
                  
                  68,339
                  
                  
                  
                  20,868Amortization
      of financing costs
                  
                  
                  31,329
                  
                  
                  
                  31,329Write-down
      of inventory
                  
                  
                  -
                  
                  
                  
                  161,477Loss
      on abandonment of equipment
                  
                  
                  -
                  
                  
                  
                  402,494Loss
      on cancellation of license agreement
                  
                  
                  -
                  
                  
                  
                  700,000Share
      based compensation
                  
                  
                  5,502,835
                  
                  
                  
                  870,750Change
      in fair value of warrant (derivative liabilities)
                  
                  
                  (21,603,185
                  )
                  
                  
                  -Changes
      in operating assets and liabilitiesAccounts
      receivable and accrued interest
                  
                  
                  (20,430
                  )
                  
                  
                  (2,721,982
                  )Inventory
                  
                  
                  (4,445
                  )
                  
                  
                  (37,336
                  )Other
      current assets
                  
                  
                  214,353
                  
                  
                  
                  (339,403
                  )Accounts
      payable and accrued expenses
                  
                  
                  8,897
                  
                  
                  
                  2,006,410Accrued
      interest payable
                  
                  
                  (22,123
                  )
                  
                  
                  (343,148
                  )Deferred
      revenue
                  
                  
                  (12,045
                  )
                  
                  
                  -Net
      cash flows from operating activities
                  
                  
                  (3,840,151
                  )
                  
                  
                  (2,824,112
                  )Cash
      Flows From Investing ActivitiesAdvances
      (to)/from SGPF, LLC
                  
                  
                  -
                  
                  
                  
                  24,089Proceeds
      from cancellation of license agreement
                  
                  
                  -
                  
                  
                  
                  2,300,000Purchase
      of intangible assets
                  
                  
                  -
                  
                  
                  
                  (3,345,000
                  )Purchases
      of property, equipment
                  
                  
                  (413,899
                  )
                  
                  
                  (299,860
                  )Net
      cash flows from investing activities
                  
                  
                  (413,899
                  )
                  
                  
                  (1,320,771
                  )Cash
      Flows From Financing ActivitiesCollection
      of notes receivable
                  
                  
                  -
                  
                  
                  
                  2,000,000Payments
      on note - technology transfer payments
                  
                  
                  (1,500,000
                  )
                  
                  
                  -Payment
      of bank fees
                  
                  
                  -
                  
                  
                  
                  (150,000
                  )Proceeds
      from bank borrowings
                  
                  
                  1,500,000
                  
                  
                  
                  -Repayments
      on bank borrowings
                  
                  
                  (2,820,453
                  )
                  
                  
                  (617,534
                  )Proceeds
      from notes payable to and advances from shareholders
                  
                  
                  208Payments
      on notes payable to and advances from shareholders
                  
                  
                  (383,333
                  )
                  
                  
                  (2,466,028
                  )Net
      cash from issuance of preferred shares
                  
                  
                  2,760,000
                  
                  
                  
                  6,500,000Purchase
      of treasury stock
                  
                  
                  (200,529
                  )
                  
                  
                  -Net
      cash flows from financing activities
                  
                  
                  (644,107
                  )
                  
                  
                  5,266,438Net
      (decrease) in cash
                  
                  
                  (4,898,157
                  )
                  
                  
                  1,121,555Cash
      at the beginning of the period
                  
                  
                  11,636,843
                  
                  
                  
                  6,339,301Cash
      at the end of the period
                  
                  $
                  6,738,686
                  
                  
                  $
                  7,460,856Supplemental
      Disclosures of Cash Flow Information:Cash
      paid for interest
                  
                  $
                  222,644
                  
                  
                  $
                  786,858Non-Cash
      ActivityAccrual
      for purchase of intangible assets
                  
                  
                  
                  
                  
                  $
                  2,750,000Non-cash
      proceeds from issuance of Series C preferred shares - derivative liability
      exchanged for Shares
                  
                  $
                  17,901,129




See notes
to financial statements.


5


MEDPRO
SAFETY PRODUCTS, INC.


Notes
to Financial Statements


(Unaudited)




NOTE 1 –
BASIS OF PRESENTATION AND NATURE OF BUSINESS




The
accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 8 of Regulation
S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included.  Operating results for the nine
months ended September 30, 2009 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2009.  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, 2008.




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 nine months ended September 30,
2009 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 $15 million.  Income from the change in derivative
liabilities reflected in the period ended September 30, 2009 did not result in
taxable income and without such income, the Company would have a loss for the
period.




The
Company currently has tax return periods open beginning with December 31, 2005
through December 31, 2008.




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
13,286,106 and 13,308,793 for the three and nine months ended September 30, 2009
and 13,285,072 for both the three and nine months ended September 30,
2008.  There were 25 new common shares issued in 2009.  The
basic earnings per share is based on the weighted average number of common
shares outstanding.  Diluted earnings per share are based on the
weighted average number of common shares outstanding and all dilutive potential
common shares outstanding.  Weighted average common shares outstanding
assuming full dilution were 43,268,813 for the nine months ended September 30,
2009.  Because the Company had  net losses for the three and
nine months ended September 30, 2008 and the three months ended September 30,
2009, there is no dilutive effect and both the basic and diluted losses per
share were the same for these periods.


6




NOTE 4 -
RECENT ACCOUNTING PRONOUNCEMENTS




Recent
Accounting Pronouncements




Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”), which was formerly known as SFAS
168.  ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP.  Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants.  All guidance contained in the Codification carries an equal
level of authority.  The Codification superseded all existing non-SEC
accounting and reporting standards and all other non-grandfathered, non-SEC
accounting literature not included in the Positions or Emerging Issues Task
Force Abstracts.  Instead, it will issue Accounting Standards Updates
(“ASUs”).  The FASB will not consider ASUs as authoritative in their own
right. ASUs will serve only to update the Codification, provide background
information about the guidance and provide the bases of conclusions on the
change(s) in the Codification.  References made to FASB guidance throughout
this document have been updated for the Codification.




In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS
157”), which was primarily codified into Topic 820. This standard defines fair
value, establishes the framework for measuring fair value in accounting
principles generally accepted in the United States and expands disclosure about
fair value measurements. This pronouncement applies under other accounting
standards that require or permit fair value measurements. Accordingly, this
statement does not require any new fair value measurement. This statement is
effective for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The adoption of SFAS 157 did not have a material
impact on our financial statements.




In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities - including an amendment of FAS 115 (“SFAS
159”), which was primarily codified into Topic 825.  SFAS 159 allows
companies to choose, at specified election dates, to measure eligible financial
assets and liabilities at fair value that are not otherwise required to be
measured at fair value. Unrealized gains and losses shall be reported on items
for which the fair value option has been elected in earnings at each subsequent
reporting date. SFAS 159 also establishes presentation and disclosure
requirements. We are continuing to evaluate the desirability of adopting SFAS
159. SFAS 159 was effective for fiscal years beginning after November 15, 2007
and will be applied prospectively. The Company has elected not to adopt SFAS
159.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS 141R”), which was primarily codified into Topic 805
“Business Combinations” in the ASC, and SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements, an amendment of Accounting Research
Bulletin No. 51(“SFAS 160”), which was primarily codified into Topic 810
“Consolidations” in the ASC. SFAS No. 141R requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable We expect
ASC  810 will have an impact on our accounting for future business
combinations once adopted, but the effect will depend on the terms of such
future transactions. SFAS No. 160 clarifies that a noncontrolling interest in a
subsidiary should be reported as equity in the consolidated financial
statements. The calculation of earnings per share will continue to be based on
income amounts attributable to the parent. SFAS No. 141R and SFAS No. 160 are
effective for financial statements issued for fiscal years beginning after
December 15, 2008.  Early adoption is prohibited.  SFAS No. 141R will
impact the valuation of business acquisitions made in 2009 and forward.
 The Company adopted SFAS No. 160 on July 1, 2009. As a result,
implementation of SFAS No. 160 had no impact on the Company’s condensed
consolidated financial statements.  The adoption of this pronouncement did
not have a material impact on the Company's financial position or results of
operations.




In April
2008, the FASB issued EITF 07-05, Determining whether an Instrument (or Embedded
Feature) is indexed to an Entities Own Stock ("EITF 07-05"), which was primarily
codified into Topic 815. The cashless exercise provision of the Company's Series
A, B and C warrants as well as an exercise price protection feature that expires
at the earlier of  December 31, 2009 or the filing of a registration
statement caused the reclassification of the warrants from equity to a
derivative liability based on fair value of the warrants at January 1, 2009. The
cumulative effect of this change in accounting for these warrants was reflected
in the opening balance sheet as of January 1, 2009. The derivative liability was
adjusted to market at March 24, 2009 for warrants exchanged for Series C
preferred stock by two Series A preferred stockholders and at March 31, 2009 for
the remaining Series A and B warrants then outstanding (See Note
10).


7




Although
we recorded derivative liabilities associated with features in our warrants, the
Company never had an obligation to pay any of these liabilities to its
investors.  Since the features that gave rise to the derivative
liability lapsed on August12, 2009 when the Registration Statement was filed
with the SEC the Company recorded income in the third quarter for the decline in
the liability associated with the change in our share price of $1,282,353 which
coupled with earlier quarters totaled $21,603,185 for the nine months ended
September 30, 2009.  The remaining liability of $1,897,881 was
reclassified to Additional Paid in Capital.




FASB
Staff Position (FSP) “SFAS
142-3, Determination of the Useful Life of Intangible Assets,”which was
primarily codified into Topic 350, amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset. The FSP provides that in addition to
considering the entity specific factors in paragraph 11 of Statement No. 142, an
entity shall consider its own historical experience in renewing or extending
similar arrangements. Alternatively, if an entity lacks historical experience,
it shall consider the assumptions a market participant would use consistent with
the highest and best use of the asset, adjusted for the entity specific factors
in paragraph 11 of Statement No. 142. The FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Adoption of this FSP had no material
impact on our results of operations or financial position.




FSP EITF
03-6-1, which was primarily codified into Topic 260, is effective for fiscal
years beginning after December 15, 2008 and is to be applied retrospectively.
This FSP requires share based compensation awards that qualify as participating
securities to be included in basic EPS using the two-class method. A share based
compensation award is considered a participating security if it receives
non-forfeitable dividends. A non-forfeitable dividend would be a dividend that
the participant receives before the award is vested and if the participant
forfeits the actual shares awarded the dividends he/she has received do not have
to be paid back to the company. This guidance was adopted in the first quarter
and has been applied to all periods shown. See Note 7 for further
discussion.




The FASB
finalized four FSPs regarding the accounting treatment for investments including
mortgage-backed securities. These FSPs changed the method for determining if an
Other-than-temporary impairment (“OTTI”) exists and the amount of OTTI to be
recorded through a company’s income statement. The changes brought about by the
FSPs provide greater clarity and reflect a more accurate representation of the
credit and noncredit components of an OTTI event. The four FSPs
are:




•
            FSP
      “SFAS 157-3 Determining
      the Fair Value of a Financial Asset When the Market for That Asset Is Not
      Active” clarifies the application of SFAS 157, “Fair Value
      Measurements,” in a market that is not active and provides an
      example to illustrate key considerations in determining the fair value of
      a financial asset when the market for that financial asset is not active.
      This was codified to Topic 820.




•
            FSP
      “SFAS 157-4 Determining
      Fair Value When the Volume and Level of Activity for the Assets or
      Liability Have Significantly Decreased and Identifying Transactions That
      Are Not Orderly”provides guidelines for making fair value
      measurements more consistent with the principles presented in SFAS 157,
      “Fair Value
      Measurements.” This was codified to Topic
  820.




•
            FSP
      “SFAS 115-2 and SFAS
      124-2, Recognition and Presentation of Other-than-temporary impairments”provides additional guidance designed to create greater clarity and
      consistency in accounting for and presenting impairment losses on
      securities. This was codified to Topic
320.




•
            FSP
      “SFAS 107-1 and APB
      28-1, Interim Disclosures about Fair Value of Financial Instruments”enhances consistency in financial reporting by increasing the
      frequency of fair value disclosures. This was codified to Topic
      825.


8




These
staff positions are effective for financial statements issued for periods ending
after June 15, 2009.  Adoption of these Staff Positions did not have a
material effect on the Company’s financial position or results of
operations.




In May
2009, the FASB issued Statement No. 165, "Subsequent Events," which was
primarily codified into Topic 825, 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 sets forth 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, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that 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. The Company evaluated subsequent events for
recognition or disclosure through November 12, 2009, which is the date the
financial statements were issued.




In June
2009, the FASB issued Statement No. 166, "Accounting for Transfers of Financial
Assets-an amendment of FASB Statement No. 140." This statement removes the
concept of a qualifying special-purpose entity from Statement 140 and removes
the exception from applying FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, to qualifying special-purpose
entities. The objective in issuing this Statement is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. This Statement must be applied as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. Management is
currently evaluating this standard but does not expect the impact of adoption to
be material to the results of operations or financial position of the
Company.




Certain
amounts in the 2008 financial statements have been reclassified to conform to
classifications used to prepare the 2009 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 discontinued the sale of its legacy product, NeedlyzerTM in 2004 and is
continuing to liquidate its inventory completely.  A customer that
expressed interest in purchasing the remaining inventories from the Company
purchased 72 devices and related equipment in 2006 and an additional 75 units in
2007.  The Company had previously reduced the value of this inventory
from its original cost to an amount equivalent to its estimated net realizable
value less all applicable disposition costs that resulted in a write down of the
inventory from its original cost in 2004 of $394,474.




In the
third quarter of 2008, the Company reevaluated its inventory of NeedlyzerTM
units.  Several units were determined to be scrap or were
unsalable.  Non saleable or incomplete units were scrapped or written
off.




The
Company discontinued the sale of its other legacy product, SafemateTM as of the
second quarter 2008.  All remaining inventory was scrapped and written
off in 2008.




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.  To date, none of the existing
patents have been commercially exploited.  The Company expects to
begin delivering product in the fourth quarter of 2009.  Marketing may
be delayed until late 2009 or early 2010, in commercial quantities, but the
Company will accrue minimum royalties in 2010 when the design is frozen and
turned over to its customer on or about January 1, 2010.


9




These
various patents include two Vacu-Mate models with a cost of $2,525,425 and the
Key-LokTM patent at $489,122.  The Company also acquired, in September
2008, the patent rights to the Syringe Guard and Prefilled (“SGPF”) products
from SGPF, LLC, a limited liability company wholly owned by the Company’s
Chairman and CEO.  The cash portion of the purchase price was
$3,345,000. An additional 690,608 shares of common stock will be issued to SGPF,
LLC if the Company achieves certain revenue milestones from SGPF product sales
or certain other conditions or events trigger payment of the share-based
component. The Company also assumed the obligation to pay Visual Connections,
Inc. $1,500,000, the remaining technology transfer payments on the SGPF
products.  The Company recorded the purchase at $4,845,000, equal to
the cash paid plus the debt assumed.  The cost of the purchase will
increase if the conditions for the contingent issuance of shares are
satisfied.




The
Company also entered into an agreement with Visual Connections, Inc. to acquire
a winged infusion device with an active safety sheathing system.  We
have signed a product development agreement for the blood draw modality of this
product which provides for 75,000,000 units to be sold under a minimum volume
contract over a six year period.  We agreed to pay Visual Connections
$1,250,000 as technology transfer payments.




The
following schedule shows the Company’s payment obligations to Visual Connections
as of September 30, 2009 with respect to both the SGPF and winged blood
collection technologies:





Quarter
                  
                  SGPF
                  
                  
                  Wing
                  
                  
                  Payable
      at 9/30/092009Fourth
                  
                  
                  250,000
                  
                  
                  
                  250,000
                  
                  
                  
                  500,0002010First
                  
                  
                  250,000
                  
                  
                  
                  —
                  
                  
                  
                  250,000Total
                  
                  $
                  500,000
                  
                  
                  $
                  250,000
                  
                  
                  $
                  750,000




Amortization
expense also includes the annual charge off of prepaid loan fees of $41,772 per
year.  Total amortization for the nine months ended September 30, 2009
was $31,329.




Estimated
future amortization, based on a five year straight line life after revenue
commences, for these intangibles for future twelve month periods ended on
September 30 is as follows:




12 Months Ending
                    September 30
                  
                  Amount2010
                  
                  $
                  1,314,4262011
                  
                  $
                  1,846,2972012
                  
                  $
                  1,821,9102013
                  
                  $
                  1,821,9102014
                  
                  $
                  1,821,910After
      9/30/14
                  
                  $
                  549,255




10




NOTE 7 –
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 they control. They were
comprised of the following:





September 30,
                                  2009
                                
                                
                                December 31,
                                  2008Short
      term advances with no stated terms settled in the ordinary course of
      business
                                
                                $
                                1,997
                                
                                
                                $
                                1,656Demand
      and promissory notes with varying interest rates, conversion features and
      accrued compensation
                                
                                
                                
                                
                                
                                
                                468,445Less
      amounts reflected in accounts payable
                                
                                
                                (1,997
                                )
                                
                                
                                (86,768
                                )$
                                -
                                
                                
                                $
                                383,333




Short
term advances at December 31, 2008 were owed to various related parties
including a company controlled by our Chairman for unsettled advances and
services.




Demand
and promissory notes payable to related parties at December 31, 2008 included
$85,112 of accrued back pay included in accounts payable.  Of this
amount, our Chief Operating Officer was due $68,420 and $16,692 was due to
another employee.  The remaining $383,333 of the notes payable is
comprised of accrued management fees of $87,500 due to our Chairman, an accrued
loan guarantee fee of $250,000 due to our Chairman, and accrued management fees
of $45,833 due to our Chief Operating Officer.




There was
a contingent share-based purchase price component due SGPF, LLC a single member
limited liability company owned by the Company Chairman.  This amount
has not been recorded since milestones necessary for payment have not been
achieved.




NOTE 8 –
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 agreement calls for a retainer of $15,000 per month,
plus out-of-pocket expenses, beginning March 6, 2008, 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 transactions.  Warren Rustand, a Director of the Company, is a
principal of SC Capital Partners, LLC.




Total
accounts payable, at December 31, 2008, to officers and employees of the
Company, including accrued management fees of $133,333 in 2008, were
$470,101.  These amounts do not include the contingent issuance of
shares to SGPF, LLC, a company owned by MedPro’s Chairman and CEO, and the
assumption of future technology transfer payments in connection with our
purchase of the SGPF technology in September 2008, which is discussed in Note
6.  There were no other amounts payable to employees or related
parties.


11




NOTE 9 –
LONG-TERM DEBT




Long-term
debt at September 30, 2009 and December 31, 2008 was as
follows:





September 30,
                              2009
                            
                            
                            December 31,
                              2008Term
      loan, interest payable at prime plus 2%, monthly principal payments of
      $138,889 beginning June 2008, maturing  August 1, 2011,
      collateralized by an assignment of intellectual properties
                            
                            $
                            2,777,778
                            
                            
                            $
                            4,027,777Revolving
      line of credit, interest at prime plus 2%, payable monthly
      beginning  in April 2007, due April 1, 2009
                            
                            
                            —
                            
                            
                            
                            1,498,475Term
      loan, interest at 3.65% payable monthly, maturing March 31, 2010, secured
      by $1,500,000 interest bearing deposit account.
                            
                            
                            1,500,000
                            
                            
                            
                            —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 its Chairman, CFO and two other
      shareholders
                            
                            
                            271,865
                            
                            
                            
                            343,8434,549,643
                            
                            
                            
                            5,870,095Less:
      current portion
                            
                            
                            3,269,773
                            
                            
                            
                            3,262,660Long-term
      portion
                            
                            $
                            1,279,870
                            
                            
                            $
                            2,607,435





The
revolving line of credit, as amended in November 2008, permits the Company to
draw up to $1,500,000.  The credit agreement was also amended in 2008
to remove financial covenants and include cross-collateral agreements and a
pledge of intangible assets.  The revolving line of credit facility
was paid in full on March 31, 2009 through a new one year term note with
Traditional Bank, Inc.




The
following table summarizes the maturities of long-term debt:




12
      month periods
                    ended September 30
                  
                  Amount2010
                  
                  $
                  3,269,7732011
                  
                  
                  1,222,2222012
                  
                  
                  57,648Total
                  
                  $
                  4,549,643




The
Company is considering entering into an amendment to its term loan agreement
with Fifth Third Bank which waives the personal guarantee of the Company’s
Chairman in exchange for a covenant to maintain a cash balance equal to 100% of
the current outstanding principal balance of the term note with a 30 day cure
provision on default.


12


NOTE 10 –
SHAREHOLDERS’ EQUITY




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




At
September 30, 2009, the Company’s issued and outstanding shares consisted of
13,267,391 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
3,285,715 shares of common were outstanding at September 30, 2009.




In the
private placement to four investment funds completed on December 28, 2007,
MedPro issued a total of 6,668,229 shares of Series A Stock and warrants to
purchase a total of 25,286,692 shares of common stock.  Our reverse
merger with Dentalserv.com as of that date was a condition to the purchase of
the preferred stock and stock purchase warrants under the terms of the preferred
stock purchase agreement with these institutional investors.




The
Series A Stock has 5% cumulative dividends, based on the termination value of
the preferred at the issue date, payable in the event of liquidation,
dissolution and certain other events.  The Preferred Stock is also
convertible, at the option of the holder, at any time into an equal number of
shares of the common stock of the Company, subject to adjustment.  As
of September 30, 2009, if the Company were to liquidate, dissolve or engage in
certain other transactions, the Company would owe the Preferred Shareholders a
liquidation preference dividend of $1,062,979.  This amount has not
been recorded in the financial statements.




In
accounting for the conversion feature embedded within the Series A Stock, the
Company considered FASB SFAS 133 (FASB ASC 815), Accounting for Derivative
Instruments and Hedging Activities; EITF 00-19 (now codified in FASB ASC
815), Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in a
Company’s Own Stock; EITF 98-5 (now codified in FASB ASC 815), Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Features; and EITF 00-27 (now codified in FASB ASC 815), Application of Issue No.
98-5(now codified in FASB ASC 815)to Certain Convertible
Instruments.  Based on an analysis of this accounting
literature described in Note 10 to its audited financial statements, the Company
concluded that the embedded conversion option would not be separately accounted
for as a derivative liability from the Series A Stock because it can only be
settled in shares of the Company’s own stock.  The Company recorded a
deemed dividend in accordance with this guidance in the amount of $3,975,120 by
increasing the retained deficit and increasing additional paid in
capital.  This amount was determined based on the relative estimated
fair value of the embedded conversion feature in the preferred shares and the
detachable warrants.




The
Company’s original four Series A Stockholders were issued one Series “A” warrant
and one Series “B” warrant for each of the 6,668,229 shares of preferred stock
they held.  In addition, for making a total investment of at least $5
million, one Series A Stockholder also received one “J” warrant and one “C”
warrant for each of the 5,975,116 shares of preferred stock it
held.  See Note 10 to the notes to the audited financial statements
included in the Company’s annual report on 10-K for a description of the rights
of the four series of warrants issued with the Series A Stock.  See
Note 13 for details on the valuation of these warrants pursuant to the
Black-Scholes method.




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 or are eligible to be exercised as of the date of the
financial statements.


13




On August
18, 2008, Vision Opportunity Master Fund, Ltd. (“VOMF”), then the sole holder of
J warrants, and the Company amended the J warrants to give VOMF the right to
purchase 1,493,779 shares of newly designated Series B Convertible Preferred
Stock (“Series B Stock”) at a purchase price of $8.72.  The J warrants
originally had given the holder the right to purchase 5,975,116 shares of common
stock at a purchase price of $2.18.  VOMF and its affiliate Vision
Capital Advantage Fund, LLC (“VCAF”, to whom VOMF transferred a portion of its
holdings in September 2009) exercised the J warrants in full in September and
October 2008, and the Company received $13,025,000 in cash for the issuance of
1,493,779 shares of Series B Stock.




Each
share of Series B Stock converts into 4 shares of common stock at the present
conversion price of $2.18 per share, which is subject to
adjustment.  The Series B Stock ranks equal to the Company’s common
stock, but ranks junior to the Series A Stock and to our
indebtedness.  If the Company declares dividends, the Series B
Stockholders will receive dividends on a pro rata basis with the common
stockholders.  Upon liquidation, dissolution or winding up of the
Company, the holder of Series B Stock is entitled to an amount equal to the
amount distributable per share of common stock multiplied by the number of
shares of common stock into which the Series B Stock can be
converted.  The Series B Stock has no general voting
rights.




In March
2009, VOMF and VCAF exercised a portion of their Series C Warrants for cash
totaling $3,000,000 and exchanged the balance of their Series C Warrants plus
all of their Series A and Series B Warrants for shares of newly designated
Series C Convertible Preferred Stock (“Series C Stock”). The two funds acquired
1,571,523 shares of Series C Stock as a result of the warrant exercise and
exchange.




Each
share of Series C Stock is convertible into 10 shares of common stock, which
ratio is subject to adjustment. The Series C Stock ranks equal to the Company’s
Series B Stock and common stock, but junior to the Series A Stock and to our
indebtedness.  If the Company declares dividends, the Series C
Stockholders will receive dividends on a pro rata basis with the Series B
Stockholders and the common stockholders. Upon liquidation, dissolution or
winding up of the Company, the holder of Series C Stock is entitled to an amount
equal to the amount distributable per share of common stock multiplied by the
number of shares of common stock into which the Series C Stock can be converted.
The Series C Stock has no general voting rights.




The
exchange of warrants for Series C Stock was the equivalent of a cashless
exercise of the warrants at an assumed market value of $13.00 per common
share.  The warrant exercise and exchange reduced the total common
share equivalents issuable upon the exercise of the warrants held by the two
Vision Funds from 18,285,692 common shares to 15,715,230 common
shares.




In April
2008, the FASB issued EITF 07-05 (FASB ASC 815), Determining whether an
Instrument (or Embedded Feature) Is indexed to an Entities Own Stock, ("EITF
07-05").  The cashless exercise provision of the Company's Series A, B
and C warrants, as well as an exercise price protection feature that expires at
December 31, 2009, required the reclassification of the warrants pursuant to
EITF 07-05 from equity to a liability based on fair value of the warrants at
January 1, 2009.  The warrants provide that the exercise price adjusts
if the Company issues common stock at a lower price.  The warrants
also authorize cashless exercise by the holder until such time as a registration
statement for the shares underlying the warrants becomes
effective.  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 to reflect the cumulative effect
of EITF 07-05.




The
amount recorded as the cumulative effect of EITF 07-05 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 SFAS 157 (now codified as FASB ASC 820)
inappropriate.  (See Note 12 for a discussion of SFAS
157.)  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.


14




After
consideration of all the factors necessary to determine the value of the
warrants as of January 1, 2009 for purposes of EITF 07-05 and SFAS 157 and the
Company-specific issues regarding trading prices and trading volume, including
the restricted status of nearly 99% of the Company’s common shares under Rule
144 through January 4, 2009, the following inputs were used to value the
warrants.  Share prices ranged from $7.88 at January 1, 2009 to $5.00
at March 24, 2009.  The January price was based on a trailing 20-day
average from the first trade in 2009 due to an extremely thin market and price
volatility.  The Company used a 50% discount from these quoted values
in the Black-Scholes calculation in order to more closely approximate the only
observable input for the warrant values based on the exercise of the Series C
warrants for $2.18 per common share equivalent in March 2009.  We also
considered the expected inefficient market absorption of the common shares
underlying the Series C preferred stock in the warrant exercise, reflecting the
average daily trading volume of fewer than 700 shares during the first quarter
of 2009.  In addition, the Series C preferred issued in exchange for
warrants in March 2009 as well as the 14,339,090 underlying shares of common
stock cannot be transferred for one year, and are subject to additional
“leak-out” transfer restrictions during the subsequent twelve months. The
Company used comparable company volatility rates of 50% in January 2009 and 55%
in March 2009. The discount rate was based on comparable term U.S. Treasury
rates of 0.76% and 0.81%, respectively for January and March 2009.




In March
2009, two Series A preferred stockholders exchanged all of their Series A, B and
C warrants, exercisable for a total of 18,285,692 common shares, for $3,000,000
of cash and a total of 1,571,523 shares of new Series C preferred
stock.  Each Series C preferred share converts into 10 common shares,
a ratio equivalent to $2.18 per common share.  The Company issued
137,614 shares of Series C preferred stock upon the exercise of a portion of the
Series C warrants for the cash, plus an additional 1,433,909 shares of Series C
preferred stock in exchange for all of the remaining Series A, B and C warrants
held by the two stockholders.  A small number of common shares were
issued in lieu of fractional shares of Series C preferred.  The
liability for the warrants exchanged in March 2009 was recomputed using the
Black-Scholes method with updated inputs and the difference was recorded as
income from the decline in debt due to the reduction in fair value of the
outstanding warrants at March 24, 2009 immediately before the
exchange.  The valuation difference on these warrants was
$21,237,919.  The Series C preferred shares were recorded at
$17,901,129, the liability based on fair value at March 24, 2009 for the
warrants exchanged, plus the $3,000,000 cash paid, or $20,901,129 before
issuance costs of $240,000.





A total
of 1,025,882 Series A and B warrants remained outstanding at September 30,
2009.  These warrants were originally recorded as a $2,263,147
liability at January 1, 2009.  Based on the market price of the common
stock at June 30, 2009, the warrant liability increased by $1,250,909 to
$3,180,234, resulting in a reduction of the gain previously
reported.  As of August 12, 2009, the registration statement became
effective and the derivative liability of $3,180,234 was adjusted
off.  Income of $1,282,353 was recorded on the decline in the
derivative liability based on the fair value of the obligation at August 12,
2009 and the balance of $1,897,881 was reclassified as an increase in additional
paid in capital.  No derivative liabilities remain outstanding at
September 30, 2009.





The
inputs used to value the derivative liability immediately before the
registration statement became effective on August 12, 2009, thereby eliminating
the cashless exercise feature in the remaining A and B warrants,
were:





•
            Average
      market price of the Company’s stock between July 1 and August 12, 2009 -
      $3.76


•
            Specific
      Company Volatility – 53%


•
            Risk
      free return rate – 1.18%


•
            Estimated
      life of the warrants - 1.5 years





These
inputs, coupled with the individual warrant exercise prices resulted in a
Black-Scholes value of $1.94 for the A warrant and $1.76 for the B
warrant.


15


The
amount recorded for EITF 07-05 as of January 1, 2009, was adjusted to market at
March 24, 2009 for the warrants exchanged for Series C preferred shares and at
June 30, 2009 for the remaining Series A and B warrants held by the Company's
Series A preferred stockholders.  Total income recognized based on
market value differences in the derivative liability of the warrants for the
first quarter was $22,250,157. The derivative liability at June 30, 2009 was
$3,180,234.  Loss for the second quarter based on the change in fair
value of the derivative liability was $1,929,325. The income from derivative
liabilities adjusted to fair value was a net of $20,320,832 for the six months
ended June 30, 2009.  Taking into account the third quarter adjustment
described above, the derivative liability was adjusted to $1,897,881 resulting
in an increase in income of $1,282,353.  Total derivative liability
income for the nine months ended September 30, 2009 was
$21,603,185.





SFAS 157
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. SFAS 157 establishes a fair value hierarchy that
prioritizes the use of inputs used in valuation methodologies into the following
three levels:





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





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





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





We
concluded there was insufficient trading frequency and volume in MedPro’s shares
to use the Level 1 inputs to value our warrants in a Black-Scholes calculation
under SFAS 157 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 EITF 07-05 and
SFAS 157 analysis:





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





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





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





•
            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.





16


The
factors used to value the remaining derivative liability associated with the
remaining A and B warrants as of June 30, 2009 included the Company’s own
volatility calculated based on month end observations for the first six months
of 2009 of approximately 55%. The Company’s share price at June 30, 2009 was
$5.00. The risk free return rate for the remaining life of the derivatives was
based on U S Treasury rates of 1.11% for the 1.75 years of estimated remaining
life of the warrants.  The A warrant was valued at $3.19 and the B
warrant was valued at $3.01.





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 September 30, 2009 the Company had repurchased 53,000
of its shares on the open market.




NOTE 11 –
LEASE COMMITMENT WITH RELATED PARTY






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




Total
lease expense was $62,775 and $62,300 for the nine months ended September 30,
2009 and 2008, respectively.  Future minimum annual lease payments at
September 30, 2009, were as follows:




12 month period
                    ended September 30
                  
                  Amount2010
                  
                  $
                  83,7002011
                  
                  
                  83,7002012
                  
                  
                  76,725Total
                  
                  $
                  244,125




NOTE 12 –
STOCK OPTIONS AND STOCK PURCHASE WARRANTS




The
Company’s original four Series A Stockholders were issued one Series A warrant
and one Series B warrant for each of the 6,668,229 shares of preferred stock
they held.  In addition, for making a total investment of at least $5
million, one Series A Stockholder (VOMF) also received one Series J warrant and
one Series C warrant for each of the 5,975,116 shares of preferred stock it
held.  See Note 11 to the notes to the audited financial statements
included in our 2008 Annual Report of Form 10-K for a description of the rights
of the four series of warrants issued with the Series A Stock and the values
recorded for our warrants using the Black-Scholes method.




See Note
10 above for a description of the exercise of all of the Series J warrants and a
portion of the Series C warrants by VOMF and its affiliate VCAF, and the
exchange of the remaining Series A, Series B and Series C warrants held by VOMF
and VCAF for preferred stock.




The
Company also issued Series AA warrants to purchase 533,458 common shares for
$1.81 per share as compensation for financial advisory services in connection
with the sale of the Series A Stock and related warrants in December
2007.  The terms of the Series AA warrants are comparable to the terms
of the Series A warrants and expire on December 28, 2012.  None of the
Series AA warrants have been exercised as of September 30, 2009.  The
Company has valued the warrants at $211,928 utilizing the Black-Scholes
method.




17


On August
19, 2009, the Company agreed to a novation of a warrant agreement with Chrystal
Research which expanded the original warrants from 68,036 warrants exercisable
at a $1.99 exercise price, originally issued in 2007 to 100,000 warrants for one
share each of the Company’s common stock.  In addition, the Company
agreed to issue 75,000 warrants for one share each of the Company’s common stock
for an exercise price of $3.75.  All of these warrants are exercisable
for cash (no cashless exercise privileges) and expire on July 13,
2011.  If exercised, the underlying shares will be subject to leak out
provisions over a several year period.  The warrants have been valued
at an additional $145,715 over the original valuation of
$21,885.  Since the work product necessary to make these options
exercisable has not been delivered, no amount has been expensed from the grant
of these warrants.
  The
various inputs used to determine the value of these warrants were:
  •
              Fair
      market value of the Company’s stock at the date of the grant -
      $3.75
 •
              Specific
      Company Volatility – 53%
 •
              Risk
      free return rate – 1.01%
 •
              Estimated
      life of the warrants - 2 years
 •
              Grant
      date – August 19, 2009
 •
              Expiration
      date – July 13, 2011
  At
December 31, 2007, the Company had no written or unwritten stock ownership or
option plans for employees.  The September 2007 preferred stock
purchase agreement among the Company and the Series A Stockholders authorized
the Company to award rights to purchase 3,000,000 common shares to its
management and employees at $1.81 per share, the agreed upon valuation of the
Common Stock in the September 2007 agreement, under an employee stock option
program.  At December 31, 2007, the terms of the purchase rights had
not been established, nor had they been assigned or allocated to any members of
management, directors or employees.
  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 according to the Black-Scholes
model.  On the option grant date, MedPro’s common shares traded at
$9.00 per share, which was also the median trading price for the 30 day period
ending on the grant date.  However, we concluded that there was
insufficient trading frequency and volume in MedPro’s shares to use the grant
date trading price of the shares.  MedPro has 13,267,391 shares
outstanding, but in August 2008 only 134,000 were not restricted under SEC Rule
144 and freely tradable. An average of 1,481 shares traded each day during the
30 days ending on the option grant date, with a median of 200 shares. This
period included seven trading days where no transactions occurred.
  The $9.00
price per share was discounted by 16% to reflect a lack of liquidity arising
chiefly because the options can be exercised only during a 30 day period during
January 2013.  The 16% discount represents the estimated cost under
the Black-Scholes model of a put option that would protect an investor from the
decline in value of an appreciated security until restrictions on sale expire.
Other assumptions used in the valuation included an expected option term of 2.48
years, volatility of 60% based on trading data of comparable public companies,
and an equivalent bond yield of 2.5%.
  18
  The value
of the options was further discounted to reflect the dilutive effect of the
exercise of 3,000,000 options in a thin trading market. SFAS 123(R) (now
codified as FASB ASC 718) provides that no adjustment for potential dilution is
usually needed if the market for the underlying stock is reasonably efficient,
because the potential dilutive effect of option exercises will be reflected in
the market price.  However, an adjustment was warranted for the MedPro
options because an efficient trading market for the underlying shares did not
exist when only 1% of the shares then outstanding were publicly traded
float.  The additional discount was determined through an iterative
process based on the number of shares outstanding, the number of options, the
value of the underlying shares and the value of the options.
  The
unearned compensation is being charged to earnings over 24 months beginning on
August 18, 2008.  The 24 month period coincides with the term of a
non-competition covenant included in the option agreement. The Company recorded
$2,693,250 of compensation expense for the period from August 18 through
December 31, 2008. The balance of the unearned compensation was $11,886,750 at
December 31, 2008.  The Company recorded $5,467,500 of compensation
expense for these options in the nine months ended September 30, 2009, leaving
$6,419,250 of unearned compensation remaining at September 30,
2009.
  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 is $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.
  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 37 days in the third quarter of 2009 was $11,372.  Unearned
share-based compensation for these two directors at September 30, 2009 was
$213,000.
  The
various inputs used to determine the value of these warrants were:
  •
              Fair
      market value of the Company’s stock at the date of the grant -
      $3.70
 •
              Specific
      Company Volatility – 53%
 •
              Risk
      free return rate – 1.05%
 •
              Estimated
      life of the warrants - 2 years
 •
              Grant
      date – August 24, 2009
 •
              Expiration
      date – January 1, 2013
  Under
SFAS 123(R), the requisite service period is usually the vesting
period.  The options issued on August 18, 2008, are fully vested on
the grant date because they can be exercised upon termination of employment or
termination of service on the board of directors (as the case may
be).  However, if employment was terminated immediately, the recipient
would remain subject to a non-competition covenant in the award agreement during
the 24 months following termination, which is an implicit service period other
than the vesting period.
  SFAS
123(R) requires consideration of the following: (a) all vesting and
exercisability conditions; (b) all explicit, implicit, and derived service
periods; and (c) the probability that performance or service conditions will be
satisfied. In this case, the non-compete period is assumed to be the explicit
requisite service period and management believes the probability of the service
conditions being met is nearly 100 percent.
  SFAS
123(R) requires that compensation cost be recognized on a straight-line basis
over the requisite service period for each separately vesting portion or over
the requisite service period for the entire award. In this case, the vesting
period is immediate; therefore compensation expense can only be recognized for
the entire award.
  19
  The
following table summarizes stock option activity for the periods
indicated:
 
 Nine Months Ended
                      September 30, 2009
                    
                    
                    Twelve Months Ended
                      December 31, 2008Shares
                    
                    
                    Average
                      weighted
                      exercise price
                    
                    
                    Shares
                    
                    
                    Average
                      weighted
                      exercise priceOutstanding  beginning
                    
                    
                    3,000,000
                    
                    
                    $
                    1.81
                    
                    
                    
                    0
                    
                    
                    
                    n/aGranted
                    
                    
                    285,715
                    
                    
                    $
                    3.17
                    
                    
                    
                    3,000,000
                    
                    
                    $
                    1.81Exercised
                    
                    
                    0
                    
                    
                    
                    n/a
                    
                    
                    
                    0
                    
                    
                    
                    n/aExpired/cancelled
                    
                    
                    0
                    
                    
                    
                    n/a
                    
                    
                    
                    0
                    
                    
                    
                    n/aOutstanding,
      ending
                    
                    
                    3,285,715
                    
                    
                    $
                    1.93
                    
                    
                    
                    3,000,000
                    
                    
                    $
                    1.81
  The
following table summarizes information about stock options outstanding and
exercisable at September 30, 2009:
 
 Weighted average
                  exercise price
                
                Options
                  outstanding
                
                Average weighted
                  remaining
                  contractual life
                  (years)
                
                Options
                  Exercisable$1.93
                
                3,285,715
                
                3.657
                
                185,715
  NOTE 13 –
DISTRIBUTION AGREEMENTS
  On July
15, 2008, the Company entered into two Medical Supply Manufacturing Agreements
with Greiner Bio-One GmbH, a division of Greiner Bio-One International AG, an
international manufacturer and supplier of medical products with locations in
Austria, Germany, Hungary, United States and Brazil as well as a worldwide
distribution network. The two agreements grant Greiner 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. 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.
  20
  ·
              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 July
2008 agreement for our tube-activated blood collection system and our skin
activated blood collection device superseded and replaced a prior distribution
agreement solely for the tube-activated blood collection system. The July 2008
agreement 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. MedPro also agreed to build a secondary automated
production line approximately 24 months after completion of the IPL, depending
on the distributor’s volume requirements, with the date for completion and
delivery to be determined by the parties. Payment for the second product line
would be made in three installments, the first of which would be due upon
initiation of the design review by the distributor.
  The July
2008 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 July
2008 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.
  In
September 2008, the Company delivered the Vacuette automation plan and the
initial Wing design plan and invoiced the distributor $2,700,000. The Company
recorded $1,000,000 of revenue for the service fee for the Wing design plan,
$333,333 of revenue representing one-third of the fee for the Vacuette design
plan, $158,000 of revenue based on construction costs incurred through September
30, 2008, and the $1,209,000 balance as deferred revenue representing an advance
toward future construction costs.
  In
November 2008, the distributor informed the Company 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. As the
parties discussed how to formally modify their July 2008 agreements, they
reached a final agreement in December 2008 that the Company (a) would retain the
$2,700,000 paid under the initial agreements, (b) had fulfilled its obligations
during the design phase of both contracts, and (c) would apply the $700,000
balance against its construction costs incurred on behalf of the distributor.
Reflecting this agreement, in its year-end financial statements, the Company
reclassified $666,667 of the deferred revenue as the unpaid balance of its fee
for design services, and recognized an additional $530,000 of revenue in the
fourth quarter based on further construction costs. The parties are negotiating
the final ownership and ultimate disposition of assets the Company acquired on
behalf of the distributor.
  NOTE 14 –
TREASURY SHARES PURCHASED
  The
Company announced a buyback program for its own stock in July
2009.  To date the Company has acquired 53,000 shares at an average
price per share of $3.78.  These shares are being held as treasury
shares.
  21
  Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
  The
following discussion and analysis of the financial condition and results of
operations of MedPro Safety Products, Inc. as of and for the nine months ended
September 30, 2009 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 five products in four
related product segments: clinical, phlebotomy, pharmaceutical, and intravenous.
Our objective is to enter into strategic 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.
 
 Our
financial results and operations in future periods will depend upon our ability
to enter into and fulfill distribution agreements for our products currently
under development so that we can generate sustained revenues from our portfolio
of products and technologies. Our operations are currently funded principally
from the proceeds from the sales of securities described below and borrowing
from commercial lenders and related parties.
 
 While 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 we can complete our production
arrangements so we can commence product delivery. We expect to begin product
assembly and delivery in 2009, but the products will not be launched by the
distributor until the late first or early second quarter of 2010. As a result,
we expect to record revenue from the sale of products in the fourth quarter of
2009 and begin accruing minimum royalties, based on contractual minimums, in the
first quarter of 2010.
 
 On
December 28, 2007, we completed a reverse merger with Dentalserv.com, a Nevada
corporation with nominal assets and no active business whose shares were
registered under the Securities Exchange Act. The reverse merger was a condition
to the purchase of our preferred stock purchase and stock purchase warrants by
four institutional investors for $13 million under the terms of our stock
purchase agreement with them. On that date, the following transactions occurred
concurrently:
 
 ·
              The
      5,625,550 shares of DSRV common stock then outstanding were combined into
      approximately 1,406,400 common shares in a 1-for-4 reverse stock
      split.
 
 ·
              Our
      predecessor, a Delaware corporation, merged into DSRV. The combined
      company issued 11,284,754 of its common shares to former shareholders of
      our predecessor corporation in the merger and 593,931 common shares as a
      financial advisory fee. The combined company, a Nevada corporation,
      changed its name from “Dentalserv.com” to “MedPro Safety Products,
      Inc.”
  22
 
 ·
              Four
      investment funds purchased $13 million of newly issued shares of Series A
      Convertible Preferred Stock and warrants to purchase our common stock. We
      received approximately $11.6 million in proceeds from the sale of these
      securities, net of offering fees and
expenses.
 
 We
accounted for these transactions as capital transactions in which we
issued:
 
 ·
              Approximately
      1,406,400 shares of common stock to the DRSV shareholders for the net
      monetary assets of the shell
corporation;
 
 ·
              6,668,229
      shares of Series A Stock and four series of warrants to purchase a
      total of 25,286,690 common shares to the investors for $13,000,000;
      and
 
 ·
              593,931
      shares of common stock and warrants to purchase 533,458 shares of common
      stock and also paid $1,040,000 in cash as an advisory
  fee.
 
 We valued
the warrants according to the Black-Scholes method, based on the assumptions
described in Note 11 of the Notes to Financial Statements as of December 31,
2008. We also increased the retained deficit by $3,975,120 and increased
additional paid in capital by the same amount effective on December 28, 2007 to
reflect the intrinsic value of the right to convert the Series A Stock into
common stock. The $3,975,120 was determined based on the relative estimated fair
value of the embedded conversion feature in the preferred shares and the
detachable warrants. This amount would normally be amortized over the period
between the issue date and the conversion date, but because the Series A Stock
is convertible immediately upon issuance, the entire amount was charged to
retained earnings as a deemed dividend and an increase to additional paid in
capital.
 
 In August
2008, we amended the then outstanding Series J warrant to give Vision
Opportunity Master Fund, Ltd. (“VOMF”), our largest preferred stockholder and
the sole holder of J warrants, the right to purchase 1,493,779 shares of newly
designated Series B Stock at a purchase price of $8.72.  Each share of
Series B Stock converts into 4 shares of common stock.  The original
Series J warrant had given VOMF the right to purchase 5,975,116 shares of common
stock at a purchase price of $2.18 no later than December 31,
2008.  VOMF and Vision Capital Advantage Fund (“VCAF”), an affiliate
to whom VOMF transferred a portion of its holdings in September 2008, exercised
the J warrants in full in September and October 2008, and we received
$13,025,000 in cash for our issuance of 1,493,779 shares of Series B
Stock.
 
 In March
2009, we completed transactions in which VOMF and VCAF exercised a portion of
their Series C Warrants for cash and also exchanged the balance of their Series
C Warrants plus all of their Series A and Series B Warrants for shares of newly
designated Series C Stock.  Each share of Series C Stock converts into
10 shares of common stock.  The two funds acquired 1,571,523 shares of
Series C Stock as a result of the warrant exercise and exchange.  The
exchange of warrants for Series C Stock was the equivalent of a cashless
exercise of the warrants at an assumed market value of $13.00 per common
share.  The warrant exercise and exchange reduced the total common
shares issuable to the two Vision Funds by 2,570,462 common shares, and we
received cash proceeds of $2,760,000 ($3,000,000 less $240,000 in fees to SC
Capital).
 
 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 are described
below.
  23
 
 Revenue
Recognition
 
 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.
 
 Valuation
of Inventory
 
 We
determine our inventory value at the lower of cost or market
value (first-in, first-out method).  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.
 
 Valuation
of Intangible Assets
 
 Our
intangible assets consist principally of intellectual properties such as
regulatory product approvals and patents.  Because products that
incorporate our Vacu-Mate, Key-Lok, Syringe Guard and Winged Safety
set proprietary technologies 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.  As of September 30, 2009, future expected
revenue for our patented technologies is expected to exceed carrying value of
these properties by a substantial amount, and therefore no impairment has been
recorded.  Additionally, since revenue recorded to date on our
Vacuette and winged technologies have not been related to manufacture of
saleable units for human use, no amortization has been recorded.
 
 Valuation
of Warrants as Derivative Liabilities
 
 We
originally recorded warrants issued in connection with the sale of our Series A
preferred stock as equity, and the value of the warrants was reflected in
Additional Paid in Capital based on a Black-Scholes formula
calculation.  Effective for financial statements issued for fiscal
periods beginning after December 15, 2008, or interim periods therein, EITF
07-05 (now codified as FASB ASC 815) 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.  See Notes 10 and 12 for a full discussion of our
outstanding warrants and the recording of derivative liabilities during
2009.  If any of the assumptions used to value our warrants change
significantly, it could result in material changes to our assets, liabilities,
shareholders’ equity and results of operations from quarter to
quarter.
 
 Income
Taxes
 
 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.
  24
 
 Share-based
Employee Compensation
 
 We
account for share-based compensation in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 123(R) “Share-Based Payment (Revised
2004).”  As required by SFAS 123R  (now codified as FASB ASC
718), share-based compensation expense is estimated for equity awards at fair
value at the grant date.  We determine the fair value of equity awards
using the Black-Scholes option pricing model.  The Black-Scholes
option pricing model requires various highly judgmental assumptions including
the expected dividend yield, stock price volatility and expected term of the
award.  If any of the assumptions used in the model change
significantly, share-based compensation expense may differ materially in the
future from that recorded in the current period.  See Note 12 to the
September 30, 2009 Financial Statements for further discussion of share-based
employee compensation.
 
 Results
of Operations for the nine months ended September 30, 2009 and
2008
 
 MedPro
recorded net income of $11,996,324 for the nine months ended September 30, 2009,
as compared to a loss of $(3,575,572) for the nine months ended September 30,
2008. Losses from operations were $(9,445,650) for the first three quarters of
2009 and $(3,243,182) for the same period in 2008. The net income/(loss) for
these periods included net other income of $21,441,974 for 2009 and net other
expense of $(332,390) for 2008. Net other income / (expense) included interest
expense of $(198,063) and $(443,710) for the 2009 and 2008 periods,
respectively. As a result of the implementation of EITF 07-05 as of January 1,
2009, other income for the first nine months of 2009 included $21,603,185 for
the change in fair value of derivative liabilities associated with our stock
purchase warrants. We recorded other income at March 31, 2009 to reflect the
following events during the first quarter of 2009: (i) the exchange of warrants
to purchase 18,285,692 shares of common stock and $3,000,000 in cash for
preferred stock, and (ii) a decrease in the market price of our common stock. In
the second quarter we recorded other expense of $(1,929,325) to reflect the
increase in the valuation of the derivative liability from $1,250,909 at March
31, 2009 to $3,180,234 as of June 30, 2009.  In the third quarter, we
adjusted the derivative valuation by $1,282,353 to reflect the decrease in the
fair value of the liability.  We then wrote off the remaining
derivative liability balance of $1,897,881 through Additional Paid in
Capital.  The write off reflected the expiration of cashless exercise
provisions applicable to the remaining A and B warrants outstanding, as a result
of the effectiveness of our registration of the common shares underlying the
warrants for resale by the holders.
 
 The most
substantial differences in the losses from operations between 2009 and 2008 were
increases in payroll costs (including share-based compensation), product
development costs, advertising and promotion costs, professional and insurance
costs, and qualified profit sharing costs.  Other income / (expense)
reflected a $21,603,185 increase in income from the net decline in the
derivative liability from January 1, 2009 to September 30, 2009. Other expenses,
net, declined $171,179 from 2008 to 2009.  Interest expense declined
$245,647 and other income declined by $74,468.
 
 Professional
and insurance costs declined $454,990 over the same period in 2008 primarily
from the decline in legal costs after our first year as a publicly reporting
entity and costs incurred in connection with the termination of a manufacturing
and licensing relationship in 2008.  Compensation expense increased to
$6,823,684 for the nine months ended September 30, 2009 compared to $1,678,115
for the 2008 period. Non-share-based payroll was higher in 2009 than in 2008 due
to the addition of four new full time employees in late 2008 and one new
employee in the first quarter of 2009. Most of the increase in total payroll
costs came from the $5,502,835 of share-based compensation expense recognized
during the first three quarters of 2009 from non-qualified options granted in
August 2008 and incentive stock options granted in May 2009.
 
 Travel
expenses increased by $12,172 in 2009.  Product development costs were
$497,536 higher in 2009 than 2008. We have been through one verification and
validation build of our blood draw device and have built prototypes of our
winged blood draw set and the prefilled syringe in 2009.  Advertising
and promotion costs were $355,811 for 2009 due to the engagement of an investor
relations firm. Finally, our profit sharing plan established in September 2008
resulted in costs of $54,122 in 2009 versus no such costs for the same period in
2008.
  25
  We
recorded no product sales in the first nine months of 2009 compared to sales of
$19,035 for the nine months ended September 30, 2008. The decline in sales was
principally due to our decision to discontinue sales of the Safe-Mate device in
April 2008 and no 2009 sales of the Needlyzer device, as we focused exclusively
on developing our passive needlestick prevention products.
 
 Other
revenue recorded in the first nine months of 2009 included $12,045 of revenue
from recognition of income from customer advances for specific product
enhancement requests. The same period in 2008 reflected $1,333,333 of revenue
from contract automation and other fee income.
 
 Total
operating expenses were $9,451,682 during the first nine months of 2009 compared
to $4,588,591 for the same period in 2008. The $4,863,091 increase during 2009
reflected the activity in product development, higher salary expense, and higher
professional fees in connection with the new products, and SEC compliance costs.
Other income and expenses in both periods included interest income of $36,852
and $46,168 for 2009 and 2008, respectively. Net other income / (expense) were
$21,441,974 and $(332,390) in 2009 and 2008, respectively. Interest expense
declined from $443,710 in the first nine months of 2008 to $198,063 for the same
period of 2009. This was primarily due to paying off shareholder notes and bank
debt during 2008 and early 2009.
 
 Liquidity
and Capital Resources
 
 Total
assets were $17,984,037 as of September 30, 2009 and $22,757,649 as of December
31, 2008. The $4,773,612 decrease in total assets reflects the impact of the
$9,445,650 loss from operations for the nine months ended September 30,
2009.  Included in the loss from operations was $5,502,835 of non-cash
deductions for share-based compensation.  Net income for the nine
months ended September 30, 2009 also included $21,603,185 of non-cash gain from
derivative valuation adjustments in arriving at net income of $11,996,324. These
adjustments did not increase assets, but only decreased liabilities that were
previously recorded at January 1, 2009 through accumulated deficiency and
additional paid in capital.  The Company has added $413,900 of net
fixed assets in the nine months ended 2009.  Fixed asset additions in
the third quarter of 2009 were $102,323. The decreases in current assets of
$5,087,843 reflect the consumption of cash funding losses and supporting debt
service. Depreciation and amortization totaled $99,668 in the first nine months
of 2009.
 
 Total
cash has declined from $11,636,843 at December 31, 2008 to $6,738,686 as of
September 30, 2009, a decrease of $4,898,157.  During the same nine
month period total debt has declined by $3,203,785.
 
 In March
2009, preferred shareholders exchanged warrants and cash for Series C Preferred
Stock. We received cash proceeds of $3,000,000, less $240,000 of issuance costs,
which increased our assets, equity and available cash. Some of the cash was used
to fund operating losses in the first nine months of 2009.
 
 Total
liabilities of $6,034,872 as of September 30, 2009 were $3,229,057 less than the
$9,263,929 as of December 31, 2008. MedPro paid off or settled various accounts
payable, accrued interest and shareholder debt during 2009. Current liabilities
have decreased by $1,651,492 since the end of 2008. Overall bank debt has
declined by $1,320,452 during the nine months ended September 30, 2009.
Technology transfer payment obligations were reduced by $1,500,000 during
2009.  Net obligations to shareholders, not included in accounts
payable and accrued expenses of $383,333 have been paid off as of September 30,
2009.  Accounts payable and other accrued expenses were $13,227 higher
at September 30, 2009 than at December 31, 2008. Deferred revenue declined by
$12,045 in the first nine months of 2009.
 
 We
recorded derivative liabilities as of January 1, 2009 pursuant to EITF 07-05.
Our opening liabilities increased by $41,402,195 based on the fair value of our
warrants with cashless exercise and certain price protection features. Due to
the decline in the trading price of our stock during the first quarter, we
recorded gain of $22,250,157 to reflect the decreased value of the derivative
liabilities. Of the remaining $19,152,038 of derivative liability, $17,901,129
was credited to Additional Paid in Capital when we issued preferred stock in
exchange for warrants and cash. The derivative liability totaled $1,250,909 at
March 31, 2009, representing 1,025,882 Series A and B warrants that remained
outstanding. The derivative liability was increased by $1,929,325 in the second
quarter of 2009 to $3,180,234, reflecting a change in valuation of the warrants
based on the market value of our stock that has been recorded as other expense
on the statement of operations. During the third quarter of 2009, $1,282,353 of
the remaining derivative liability was adjusted through income to reflect the
change in the fair value of the liability at the date the remainder of the
liability, $1,897,881, was reclassified as paid in capital.  The
entire liability has been recognized as income or reclassified as paid in
capital as of the end of the third quarter 2009.
  26
 
 The
additions to fixed assets during the first nine months of 2009 totaled $413,900
and included $77,546 of office leasehold improvements, $237,640 of new
equipment, and $98,714 of new office equipment, software and
computers.
 
 The
$11,593,000 in net proceeds from our private placement of the Series A Stock and
warrants in December 2007 and the $15,785,000 of net cash proceeds from stock
purchase warrant exercises during 2008 and 2009 provided working capital and
will continue to be the principal source of funding for our operations through
December 31, 2009. We had $6,738,686 in cash at September 30, 2009. Other
sources of funds are expected to include revenues from the sale of our
medical safety products, including anticipated revenues from the sale of blood
collection products we expect to launch in the fourth quarter of 2009, and the
commitment for funding made by our Chairman. In addition, our Series A
Stockholders have the right to fund our future financing needs, but we can seek
alternative financing if they do not exercise their rights.
 
 In July
2008, we entered into two new agreements with a worldwide medical products
company to manufacture and distribute three of our medical safety products,
replacing an earlier agreement for the distribution of our tube-activated blood
collection system. 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.
 
 These
arrangements originally provided that we would receive program fees upon
delivering an automation plan for the production line for the Vacuette product
and the initial production design plan for the Wing product. The arrangements
also provide for up to $8.7 million in capital for equipment, engineering, and
tooling necessary to build the production lines. The balance was to be payable
in installments upon the achievement of certain milestones leading to validation
of the final production lines. We received initial payments totaling $2.7
million on October 3, 2008 upon delivery and acceptance of the automation plan
and the initial design plan by the distributor.
 
 As of the
date of this filing, we continue to negotiate modifications to our agreement to
allow the distributor to redesign and build computerized automation lines for
our three products at its own plant in Austria. Although no new contract has
been finalized, by agreement of the parties we applied the $2,700,000 payment in
October 2008 to the full $1,000,000 program fee for each project pursuant to our
prior arrangement and allocated the remaining $700,000 to pay our out-of-pocket
costs incurred on behalf of the distributor, which had exceeded $700,000 through
September 30, 2009. Of the total $700,000 allocated to expenses incurred on
behalf of our customer, $452,855 was expended for equipment and has been
recorded as a prepaid item with an offsetting amount of deferred revenue. The
balance of $235,100 was booked as income in late 2008 and $12,045 was booked as
income in the first quarter of 2009.
 
 We expect
the definitive agreement to transfer responsibility for completing the
automation line to the distributor will not provide for further payments to us
for building production lines. These payments were intended to reimburse us for
the cost of equipment, molds and fixtures acquired on behalf of our customer,
which we would no longer have to incur. Instead, we will bill only for any
services requested by the distributor and will pass both costs incurred for
time, materials and third party payments on to the distributor as incurred at
their request. Certain ongoing product design and enhancements will remain our
responsibility as the owner of the technology and be performed at our
expense.
 
 On
September 30, 2008, we exercised an option to purchase patents and related
rights to anti-blunting syringe technology from a related party.  The
purchase price is $3,345,000 payable in cash, our assumption of $1,500,000 of
technology transfer payment obligations, and the contingent issuance of 690,608
shares of our common stock. Our obligation to issue the stock portion of the
purchase price is contingent upon our collecting $5,000,000 in revenue from the
sale of products utilizing the technology, the sale or license of all or part of
the product to a third party or a change in control of the
Company.
  27
 
 Our
current credit agreement with one lender included a $5,000,000 term loan and a
$1,500,000 revolving line of credit. As of September 30, 2009, the amount
payable on the term note was $2,777,778 and the revolving line of credit had
been repaid in full. The term loan bears interest at the prime rate plus 2% and
matures on August 1, 2011. We pay monthly principal payments of approximately
$138,889 plus interest. We also have a $1,500,000 term note with a second lender
that bears interest at 3.65%, payable monthly, and matures on March 31, 2010. It
is secured by an interest bearing $1,500,000 deposit account.  We have
another term note with a balance of $271,865 as of September 30, 2009 which
calls for payments of $10,000 per month through July 23, 2010, when the note is
due in full.
 
 The
credit agreement contains various usual and customary terms and conditions of a
revolving line of credit and term loan facility, including limitations on the
payment of cash dividends and other restricted payments, limitations on the
incurrence of additional debt, and prohibitions on a merger or the sale of
assets. Prior financial covenants under the term loan and revolver have been
replaced with cross-collateral agreements and a pledge of our intangible
assets.
 
 We
estimate that funding our continued development and launches of our planned
products, meeting current capital support requirements, and pursuing other
projects as may be determined by the Board of Directors for the next six months
will not require any additional funding in addition to our cash on hand and the
payments due us under our distribution agreements. Whether we commit resources
to optional projects will depend upon our cash position from time to time. Our
primary cash requirements will be to fund (a) launching our blood collection
products for distribution, (b) continuing development of our safety syringe
products and other medical device safety products based on the technology for
which we hold rights, and (c) increasing our administrative capability as needed
to support expanded day-to-day operations.
 
 We will
require additional funding to complete the development and launch of all
of our safety products for which we currently own intellectual property
rights. In addition, development or production costs may increase beyond the
amounts on which we have based our current funding assumptions. If we cannot
find sources of additional funds on reasonable terms, we may be forced to limit
our product development plans, which could adversely affect our efforts to
achieve profitability and to continue our business.
 
 Although
we plan to continue to outsource our developmental and manufacturing resource
needs, we also plan to expand our in-house capabilities. We expect to employ a
senior product development manager and have hired a project engineer to direct
the development of our portfolio of products and to work directly with our
external product development firm. This will allow our current management
personnel to focus on production and marketing as our products complete the
regulatory approval process and distribution can begin.
 
 We will
monitor our cash flow carefully and will maintain limited, but necessary,
employment levels required to sustain operations and advance product
development. During the next several months, we expect to add additional
administrative support personnel and infrastructure as necessary to support the
planned expansion of our operations. We will need to add personnel and
substantially increase the related administrative expenses to continue product
development, increase sales and marketing activities, support our ISO 13485
Quality Certification and comply with periodic reporting and internal control
requirements.
 
 We
continue to add computer systems and related equipment (currently in excess of
$188,190) to support our data and communications requirements.  In
addition, we employ an outside, full service, information technology support
firm to ensure appropriate support of our systems, telephone, and backup of
corporate records for a total of approximately $40,000 over the next twelve
months. We have also purchased product inspection equipment for approximately
$120,000 in connection with the expected launch of our blood collection product.
We have purchased and implemented a document control system in compliance with
our ISO 13485 Quality System.
 
 28
  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.
 
 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 Prime Rate.  Therefore, our interest expense may increase or
decrease due to changes in the interest rate environment.
 
 Item
4. Controls and Procedures
 
 As of the
end of the period covered by this Quarterly Report on Form 10-Q for the quarter
ended September 30, 2009, we carried out an evaluation, under the supervision
and with the participation of our management, including our chief executive
officer and chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934).  Based on this evaluation, our chief executive officer and
chief financial officer concluded that, as of the end of the fiscal quarter
covered by this report, these disclosure controls and procedures are effective
to ensure that information required to be disclosed by us in the reports we file
or submit under the Exchange Act is: (a) recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and (b) accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.
 
 There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, internal control over financial
reporting.
  29
  PART
II – OTHER INFORMATION
 
 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, 2008 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
 
 There
were no unregistered sales of equity securities by the Company during the three
months ended September 30, 2009.
 
 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.  The following table provides information about the Company’s
repurchases of shares during the three months ended September 30,
2009.
 
 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
                  be purchased as part
                  of publicly
                  announced plans or
                  programsJuly
      1 to 31, 2009
                
                
                2,500
                
                
                $
                3.75
                
                
                
                2,500
                
                
                
                997,250August
      1 to 31, 2009
                
                
                50,500
                
                
                
                3.75
                
                
                
                50,500
                
                
                
                947,000September
      1 to 30, 2009
                
                
                0
                
                
                
                —
                
                
                
                0
                
                
                
                947,000
 
 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
 
 Not
applicable
 
 Item
6. Exhibits
 
 (a)           Exhibits
 
 The
following exhibits are filed or furnished as part of this
report:
  30
 
 Exhibit No.
                  
                  Description of Exhibit31.1
                  
                  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.
  31
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act if 1934, the Registrant had
duly caused this amendment to be signed on its behalf by the undersigned
thereunto duly authorized.
  MEDPRO
      SAFETY PRODUCTS, INC.(Registrant)November
      12, 2009
                By:
                /s/W.
      Craig TurnerW.
      Craig TurnerChief
      Executive Officer, Chairman
                  of
      the Board of Directors(Principal
      Executive Officer)November
      12, 2009
                By:
                /s/Marc T.
      RayMarc
      T. RayVice
      President Finance, Chief Financial
                  Officer
      and Chief(Principal
      Financial and Accounting
Officer)
  32
  INDEX
TO EXHIBITS
 
 Exhibit No.
              
              Description of Exhibit31.1
              
              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.
 
  33