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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
  
FORM 10-Q
 
(Mark One)
T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2012
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.)
145 Rose Street, Lexington, KY
40507
(Address of principal executive offices)
(Zip Code)
(859) 225-5375
(Registrant’s telephone number, including area code)
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes T   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 T      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  £
Non-accelerated filer  £                                                                Smaller reporting company  T
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  £    No  T
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date, 12,971,008 shares of Common Stock were outstanding at May 1, 2012
 





INDEX




2



PART I

Item 1. Financial Statements

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

Balance Sheets as of March 31, 2012 and December 31, 2011

Statements of Operations for the three months ended March 31, 2012 and 2011

Statements of Changes in Shareholders’ Deficiency for the three months ended March 31, 2012 and the year ended December 31, 2011

Statements of Cash Flows for the three months ended March 31, 2012 and 2011

Notes to Unaudited Financial Statements
 

 

3



MedPro Safety Products, Inc.
Balance Sheets
March 31, 2012 and December 31, 2011


 
March 31,
2012
 
December 31,
2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
3,532,161

 
$
6,173,627

Restricted cash
1,038,468

 
1,206,371

Accounts receivable, net
892,414

 
900,865

Accrued interest income

 
2,628

Prepaid expenses and other current assets
54,387

 
53,899

 
 
 
 
Total current assets
5,517,430

 
8,337,390

 
 
 
 
  Property and Equipment
 

 
 

Equipment and tooling
1,156,002

 
1,152,702

Leasehold improvements
789,456

 
787,248

Computers, network and phones
264,991

 
237,945

Furniture and fixtures
140,726

 
139,521

Trade show booth
28,147

 
27,619

 
 
 
 
  Total property and equipment
2,379,322

 
2,345,035

 
 
 
 
Less: accumulated depreciation
663,430

 
590,340

 
 
 
 
Property and equipment, net
1,715,892

 
1,754,695

  Other Assets
 

 
 

Intangible assets, net of amortization of $1,179,282 and $1,053,011, respectively
7,441,893

 
7,812,726

Deferred financing costs, net of amortization of $772,779 and $649,681, respectively
1,271,721

 
1,394,819

Recoupable royalties - Visual Connections - Wing
100,000

 
100,000

 
 
 
 
Total other assets
8,813,614

 
9,307,545

 
 
 
 
Total assets
$
16,046,936

 
$
19,399,630

 
See notes to financial statements.











4



MedPro Safety Products, Inc.
Balance Sheets (Continued)
March 31, 2012 and December 31, 2011

 
March 31,
2012
 
December 31,
2011
 
(Unaudited)
 
 
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
 
 
 
Current Liabilities
 
 
 
Accounts payable and accrued expenses
$
958,196

 
$
951,646

Accrued interest payable
700,000

 
700,000

Current portion of long term debt
1,757,087

 

Derivative liabilities – fair value of warrants
1,469,747

 
1,293,754

 
 
 
 
Total current liabilities
4,885,030

 
2,945,400

 
 
 
 
Long-Term Liabilities
 

 
 

Senior Notes - long term portion
28,242,913

 
30,000,000

 
 
 
 
Total long-term liabilities
28,242,913

 
30,000,000

 
 
 
 
Total liabilities
33,127,943

 
32,945,400

 
 
 
 
Shareholders’ Deficiency


 


Preferred stock $.01 par value: 10,000,000 shares authorized:
 

 
 

Series A Preferred 6,668,229 shares issued and outstanding.  Liquidation preference $2,577,020 and $2,426,114, respectively
66,682

 
66,682

Series B Preferred 1,493,779 shares issued and outstanding
14,937

 
14,937

Series C Preferred 1,571,523 shares issued and outstanding
15,715

 
15,715

Common stock $.001 par value; 90,000,000 shares authorized; 12,980,063 and 13,042,313 issued and outstanding, respectively
12,980

 
13,043

Additional paid-in capital
70,842,196

 
70,842,537

Accumulated deficit
(88,033,517
)
 
(84,498,684
)
 
 
 
 
Total shareholders’ deficiency
(17,081,007
)
 
(13,545,770
)
 
 
 
 
Total liabilities and shareholders’ deficiency
$
16,046,936

 
$
19,399,630

See notes to financial statements.



5



MedPro Safety Products, Inc.
Statements of Operations
For the Three Months Ended March 31, 2012 and 2011
 
 
 
For the Three Months Ended
 
For the Three Months Ended
 
 
March 31, 2012
 
March 31, 2011
 
 
(Unaudited)
 
(Unaudited)
Revenues
 
 
 
 
Product royalty income
 
$
890,625

 
$
150,000

Total revenue
 
890,625

 
150,000

Cost of revenues and amortization of intellectual property
 
171,586

 
135,168

Gross profit
 
719,039

 
14,832

Operating Expenses
 
 

 
 

Salaries, wages, and payroll taxes
 
937,168

 
827,045

Qualified profit sharing plan
 
21,030

 
14,020

Advertising and promotion
 
199,854

 
38,049

Product development costs
 
369,220

 
247,452

Professional fees
 
590,852

 
351,309

Insurance
 
126,256

 
99,503

General and administrative
 
191,117

 
136,168

Travel and entertainment
 
153,844

 
74,755

Write downs of abandoned equipment, leasehold improvements and technology
 
244,561

 
144,114

Depreciation
 
73,089

 
49,679

Total operating expenses
 
2,906,991

 
1,982,094

Loss from operations
 
(2,187,952
)
 
(1,967,262
)
Other Income/(Expenses)
 
 

 
 

Interest expense - including amortization of financing costs
 
(1,173,097
)
 
(1,173,098
)
Interest income
 
2,209

 
5,502

Change in fair value of derivative liabilities
 
(175,993
)
 
401,297

Total other income /(expenses)
 
(1,346,881
)
 
(766,299
)
Provision for income taxes
 

 

Net (loss)
 
$
(3,534,833
)
 
$
(2,733,561
)
Net (loss) per common share
 
 

 
 

Basic net (loss) per share
 
$
(0.27
)
 
$
(0.21
)
Diluted net (loss) per share
 
$
(0.27
)
 
$
(0.21
)
Shares used in computing earnings per share
 
 

 
 

Weighted average number of shares outstanding - basic
 
13,010,959

 
13,059,492

Weighted average number of shares outstanding - diluted
 
13,010,959

 
13,059,492

 
 
 
 
 
See notes to financial statements. 

6



MedPro Safety Products, Inc.
Statements of Shareholders’ Deficiency
For the Three Months Ended March 31, 2012
and the Year Ended December 31, 2011


 
Common Stock
 
Preferred Stock
 
Paid-In
 
Accumulated
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficiency
 
Balance December 31, 2010
13,091,507

 
$
13,092

 
9,733,531

 
$
97,334

 
$
71,344,241

 
$
(72,466,080
)
 
Earned portion of share-based compensation

 

 

 

 
427,771

 

 
Purchases of treasury shares
(259,355
)
 
(259
)
 

 

 
(637,784
)
 

 
Exercise of employee options
210,161

 
210

 

 

 
(291,691
)
 
$

 
Net (loss)

 

 

 

 

 
(12,032,604
)
 
Balance December 31, 2011
13,042,313

 
13,043

 
9,733,531

 
97,334

 
70,842,537

 
(84,498,684
)
 
Earned portion of share-based compensation

 

 

 

 
152,296

 

 
Purchases of treasury shares
(62,250
)
 
(63
)
 

 

 
(152,637
)
 

 
Net loss for the period ended March 31, 2012

 

 

 

 

 
(3,534,833
)
 
Balance March 31, 2012
12,980,063

 
$
12,980

 
9,733,531

 
$
97,334

 
$
70,842,196

 
$
(88,033,517
)
 
 
See notes to financial statements.


7



MedPro Safety Products, Inc.
Statements of Cash Flows
For the Three Months Ended March 31, 2012 and 2011

 
March 31,
2012
 
March 31,
2011
 
(Unaudited)
 
(Unaudited)
Cash Flows From Operating Activities
 
 

Net income (loss)
$
(3,534,833
)
 
$
(2,733,561
)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
 

 
 

     Depreciation
73,089

 
49,679

Amortization of financing costs and intangible assets
249,369

 
249,369

Write downs of abandoned equipment, leasehold improvements and technology
244,561

 
144,114

Share based compensation
152,296

 
95,577

Change in fair value of warrant (derivative liabilities)
175,993

 
(401,297
)
Changes in operating assets and liabilities
 

 
 

Accounts receivable and accrued interest
11,078

 
4,446

Other current assets
(488
)
 
3,912

Accounts payable and accrued expenses
6,552

 
174,465

Net cash flows from operating activities
(2,622,383
)
 
(2,413,296
)
 Cash Flows From Investing Activities
 
 
 
Purchases of property, equipment and intangibles
(34,286
)
 
(873,085
)
Restricted cash-Interest Reserve
167,903

 
905,223

Net cash flows from investing activities
133,617

 
32,138

 Cash Flows From Financing Activities
 

 
 

Escrowed Senior Note Funds

 
7,870,000

Purchase of treasury shares
(152,700
)
 
(163,569
)
 Net cash flows from financing activities
(152,700
)
 
7,706,431

Net increase / (decrease) in cash
(2,641,466
)
 
5,325,273

Cash at the beginning of the period
6,173,627

 
8,315,644

Cash at the end of the period
$
3,532,161

 
$
13,640,917

Supplemental Disclosures of Cash Flow Information:
 

 
 

Cash paid for interest
$
1,050,000

 
$
1,050,000

Non-Cash Activity
 

 
 

Non-cash portion of derivative liabilities associated with warrants
$
175,993

 
$
(401,297
)
 
 
 
 
See notes to financial statements.



8

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)



NOTE 1 – BASIS OF PRESENTATION

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 considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2012 and 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.  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, 2011.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

The following is a summary of the significant accounting policies followed in the preparation of the accompanying financial statements. 

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

Revenues and Costs Recognition –  Revenues in 2011 and 2012 were derived from royalties on our blood collection products pursuant to our minimum volume contract.  Revenues and accounts receivable under our contracts and within existing customer relationships are recognized when the price has been fixed, delivery has occurred and collectability is reasonably assured.  In the case of our royalty income, revenues are recognized when the amount is determined based on contract terms and no possibility of refund exists.  The Company began accruing revenue from its tube-activated blood collection device during the fourth quarter of 2010 and collected its first revenue in 2011.

Cost of revenues sold includes all direct production costs, shipping and handling costs, royalty expenses and amortization of patents.  General and administrative costs are charged to the appropriate expense category as incurred.

Accounts Receivable – As is customary in the industry, the Company does not require collateral from customers in the ordinary course of business.  Accounts receivable are stated at the amount management expects to collect from outstanding balances.  Management provides for probable uncollected amounts through a charge to earnings and a credit to the allowance for doubtful accounts based on its assessment of the current status of individual accounts.  The Company does not accrue finance charges on its past due accounts receivable.  Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. There were no allowances for doubtful accounts at the end of 2011 or the first quarter of 2012. The Company has only one customer and revenue is pursuant to a minimum volume contract. That customer also manufactures the product.

Property and Equipment – Property and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization for assets placed in service is provided using the straight line method over their estimated useful lives.  The cost of normal maintenance and repairs is charged against earnings.  Expenditures which significantly increase asset values or extend useful lives are capitalized.  The gain or loss on the disposition of property and equipment is recorded in the year of disposition.  

Intangible Assets – Intangible assets consist principally of intellectual properties such as regulatory product approvals and patents. Intangible assets are amortized using the straight line method over their estimated period of benefit, ranging from one to ten years upon being placed in full production.  We evaluate the recoverability of intangible assets periodically and take into account potential triggering events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. Amortization of the Vacumate technology began in December 2009 when products were shipped for human use evaluation by our customer.  Management believes that future revenue from an existing minimum volume contract for this product insures that the carrying value of this asset is not impaired.

Research and Development Costs – Research and development costs are charged to expense as incurred.  These expenses do not include an allocation of salaries and benefits for the personnel engaged in these activities.  Although not expensed as

9

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


research and development, all salaries and benefits for the three month periods ended March 31, 2012 and 2011, have been expensed.

Advertising – Advertising costs are expensed as incurred.  

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.  The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

Cash and Cash Equivalents – For the purposes of the Statements of Cash Flows, the Company considers cash and cash equivalents to be cash in all bank accounts, including money market and temporary investments that have an original maturity of three months or less.

Concentration of Credit Risk – From time to time during the three months ended March 31, 2012 and the year ended December 31, 2011, certain bank account balances exceeded federally insured limits.  The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash.

NOTE 3 – EARNINGS PER SHARE

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

Potentially dilutive securities consist of options, warrants and convertible preferred stock. There were 3,870,809 outstanding options convertible into one share each of common stock at March 31, 2012. Stock purchase warrants outstanding at March 31, 2012 totaled 2,301,012 warrants convertible into an equal number of common shares. There were also three series of convertible preferred shares. Series A Preferred totaled 6,668,229 and convert into one share each of common stock. The Series B Preferred shares totaled 1,493,779 and had a four to one conversion representing 5,975,116 of potential new common shares. Finally, 1,571,523 of Series C Preferred with a ten to one conversion feature have the potential to increase outstanding common shares by 15,715,230.

The Company’s potentially dilutive securities consist of options, warrants and convertible preferred stock.  Since the Company had a loss for the three months ended March 31, 2012 and 2011, the potentially dilutive options, warrants and preferred shares were not considered and earnings per share were only presented on a non-dilutive basis.    
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
 
Recent Accounting Pronouncements

Not Yet Adopted

Not applicable.

Adopted

In September 2011, the FASB issued Accounting Standards Update 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment (ASU 2011-08). ASU 2011-08 allows entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The Company has adopted the provisions of ASU 2011-08. The effects of adoption were not material.

In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 provides that the highest-and-best use and

10

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


valuation-premise concepts included in ASC 820 are only relevant when measuring the fair value of non-financial assets, thereby prohibiting the grouping of financial instruments for purposes of determining their fair values when the unit of account is specified in other guidance. However, under ASU 2011-04 an exception is permitted which allows an entity to measure the fair value of financial instruments that are managed on the basis of the entity's net exposure to a particular market risk, or to the credit risk of a particular counter-party, on a net basis when certain criteria are met. Such criteria include that there is evidence that the entity manages its financial instruments in that way, the entity applies such accounting policy election consistently from period to period, and the entity is required or has elected to measure those financial assets and financial liabilities at fair value in the statement of financial position at the end of each reporting period. Additionally, to qualify for the exception to the valuation premise, the market risks that are being offset must be substantially the same. ASU 2011-04 also extends ASC 820's prohibition on the use of blockage factors in fair value measurements to all three levels of the fair value hierarchy except for fair value measurements of Level 2 and 3 measurements when market participants would incorporate the premium or discount into the measurement at the level of the unit of account specified in other guidance. ASU 2011-04 also provides that an entity should measure the fair value of its own equity instruments from the perspective of a market participant that holds the instruments as assets. Under ASC 820, as amended, expanded disclosures are required including disclosure of quantitative information about significant unobservable inputs used in Level 3 fair value measurements, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. Additional disclosures required under ASU 2011-04 include disclosure of fair value by level for each class of assets and liabilities not recorded at fair value but for which fair value is disclosed, and disclosure of any transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for those transfers. The provisions of ASU 2011-04 are effective for periods beginning after December 15, 2011, with disclosure of the change, if any, in valuation technique and related inputs resulting from application of the amendments to ASC 820 required upon adoption, along with quantification of the total effect of the change, if practicable. The Company's adoption of ASU 2011-04 had no material effects on its financial statements.

In April 2010, the FASB issued ASU 2010-17 Revenue Recognition-Milestone Method (Topic 605). The update is intended to assist with the definition of a milestone event and determining when the application of milestone revenue recognition in connection with revenue recognition for research and development transaction. Disclosures will include the description of the milestone payment arrangement, a description of each milestone and the related payment or contingent payment, a determination whether the milestones are substantive, the factors considered in making the determination of the substantive nature of the milestones and the amount of revenue recognized during the period related to the milestone or milestones.  The standard is effective for fiscal years beginning on or after June 15, 2010. The Company has adopted the standard but does not currently have any such contracts.  The adoption of the standard has not had a material impact on its financial statements.

In January 2010, the FASB issued ASU, 2010-06, Fair Value Measurement and Disclosures (Topic 820-10-65-7), which relates to the disclosure requirements for fair value measurements and provides clarification for existing disclosure requirements. This update will require an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers.  It also will require entities to disclose information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements related to the purchases, sales, issuances and settlements in the roll forward activity of Level 3 fair value measurements.  Those disclosure requirements are effective for fiscal years ending after December 31, 2010. The adoption of the disclosure requirement did not have a material impact on the Company's financial statements.

In 2010, the FASB issued ASU 2010-28, Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.  It is effective for fiscal years beginning after December 15, 2010.  Essentially the FASB is requiring testing be performed at the Reporting Unit level with zero or negative carrying amounts.  For goodwill and other intangible assets, testing for impairment is a two-step test.  When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1).  If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2).  The effect will potentially be an impairment of goodwill or other intangibles that will be required to be reported sooner than under current standards.  The Company has adopted the standard but does not have any negative goodwill issues. Therefore, the adoption did not have a material impact on the Company's financial statements. 

In April 2010, the FASB issued ASU 2010-12 - Income Taxes (Topic 740) Accounting for Certain Tax Effects of the 2010

11

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


Health Care Reform Acts. This updates makes it clear that the two laws passed a few days apart and commonly known as health care reform will be treated as one for accounting purposes despite the fact that they may have been passed in two different fiscal years for some. Our adoption of ASU 2010-12 did not have a material impact on our financial statements.

Reclassifications

Certain amounts in the 2011 financial statements have been reclassified to conform to the classifications used to prepare the 2012 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 – INTANGIBLE ASSETS

The Company’s intangible assets consist primarily of intellectual properties (medical device patents) that give the Company the right to produce or license certain medical devices. These various patents include the skin and tube-activated blood collection devices with an original cost of $2,525,425, the Key-Lok™ patent at $489,122, the syringe guard prefilled family of products at $4,845,000 and the winged infusion set at $1,250,000.  In 2010, the Company wrote the Key-Lok™ patent down to 50% of the $489,122 original cost to $244,561. During the first quarter of 2012, the Company wrote off the balance of the Key-Lok patent cost of $244,561. The write down is reflected under the caption "Write downs of abandoned equipment, leasehold improvements and technology". The write down was triggered based on the limited remaining life of the patents, competing technology in the market and the estimated cost to redesign the product to be more functional. The Company decided to expend its resources on other products.

Through the first quarter of 2012, amortization expense was $249,369, including $126,272 amortization of intellectual property and $123,097 amortization of loan fees. In 2011, amortization expense for the first quarter was the same as in 2012. Amortization for the entire year of 2011 was $997,475 including $505,085 of intellectual property amortization reflected in cost of goods sold and $492,390 of loan fee amortization included in interest expense associated with the Company's Senior Notes. Estimated future amortization of these intangibles is expected to consist of the following amounts for the twelve month periods ended on December 31:

12 month periods
ended December 31,
Amortization
2012
$
809,835

2013
$
1,724,085

2014
$
1,681,995

2015
$
1,219,000

2016
$
1,219,000

After 2016
$
914,250

 
 


12

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


NOTE 6 – LONG-TERM DEBT

Long-term debt at March 31, 2012 and December 31, 2011 consisted of the following:
 
March 31, 2012
December 31, 2011
Senior Notes Payable, Interest at 14%, payable quarterly beginning on October 30, 2010, secured by the royalty contract on blood collection devices, guaranteed by MedPro Safety Products, Inc. on behalf of MedPro Investments, LLC, the issuer
$
30,000,000

$
30,000,000


$
30,000,000

$
30,000,000

      Less: current portion
1,757,087


      Long-term portion
$
28,242,913

$
30,000,000


The Company issued $30,000,000 of Senior Secured 14% Notes due 2016 in two tranches on September 1 and October 1, 2010.  Gross proceeds from the issuance of the Notes were reduced by $2,165,500 of issuance expenses, $4,500,000 of funds held in reserve to pay interest during the ramp up of royalty income, and $7,870,000 held in a reserve payable to the Company upon the receipt of FDA clearance for the Wing device.  The Company used the net proceeds of the issuance of the Notes to pay off all of its outstanding bank debt in September 2010. The FDA cleared the Wing device in November 2010, and the Company received the $7,870,000  plus interest on January 30, 2011.

The interest reserve is used to supplement royalty revenues received under the GBO agreement.  Royalty revenues are deposited into a collection account held in trust and are supplemented from the interest reserve as necessary to complete the scheduled payments on the Notes.  The balance in the interest reserve account at March 31, 2012 and December 31, 2011 was $1,038,468 and $1,206,371, respectively. The 2011 ending balance is less than the total amount of payments due in the next twelve months.  Accordingly, the Company has classified the entire balance of the restricted cash account as a current asset.  However, because royalties increase as minimum product purchases increase over the term of the GBO agreement, the full amount of the interest reserve account is not expected to be used to pay the entire interest payments on the Notes during the next ten months.  The interest reserve will be fully consumed on the payment due on the Senior Notes on January 30, 2013. Payments of principal and interest to the Noteholders are guaranteed by the Company.

Interest payments are subject to adjustment should our proceeds exceed minimum payments specified in the GBO agreement.

The Notes indenture limits the debt the Company can incur while the Notes are outstanding to an additional $7,500,000 of new senior debt and $15,000,000 of unsecured debt.

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

12 month periods
ended December 31,
Maturities
 
 
2012
$

2013
5,606,029

2014
7,957,317

2015
13,254,329

2016
3,182,325

 
 

Total
$
30,000,000


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

13

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)



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

NOTE 7 – NOTES PAYABLE TO AND ADVANCES TO/FROM SHAREHOLDERS

As of March 31, 2012, the Company had accrued severance and related expenses payable to a former officer of $166,757. In addition, the Company had minor receivables from employees totaling a net of $179. As of December 31, 2011, the respective balances were $253,987 and $115. The employee receivables related to unreimbursed personal expenses on the Company credit card that are billed to the employees and collected each month.

14

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


NOTE 8 – RELATED PARTY TRANSACTIONS

On January 11, 2010, we signed a new agreement with SC Capital, which was an extension and modification of our previously existing agreement, to provide the Company with assistance in securing debt or equity and to assist the Company with acquisition or disposition services.  The current contract had an initial 24 month term which has expired and is now continuing on a month to month basis until terminated by 30 day notice.

We pay SC Capital a consulting fee of $15,000 per month until the agreement is terminated.  We agreed to pay additional compensation to SC Capital in connection with any definitive agreements we enter into with parties specifically identified by SC Capital during and within 24 months after termination of the agreement.  For an equity financing transaction, we must pay SC Capital a consulting fee equal to 8% of the principal cash amount of all securities and institutional and secondary financings introduced by SC Capital and provide SC Capital with warrants to purchase a number of shares or units equal to 8% of the number of shares or units sold under the equity financing.  In a debt financing transaction, we must pay SC Capital a consulting fee equal to 3% of any gross proceeds received by MedPro in connection with a debt financing.  In a committed debt facility, the fee owed to SC Capital is to be calculated on the gross available amount committed to us.  In connection with any merger and acquisition transaction occurring during the term of the agreement, SC Capital would be entitled to 2.5% of the total transaction consideration for the first $20 million and 2.0% for any amount over $20 million.  For strategic alliances or other business realignments resulting from SC Capital’s services, we must pay a consulting fee equal to 8% of the value of the transaction. During 2010, we paid SC Capital $600,000 in fees in connection with our issuance of $30,000,000 of Notes.

During 2010, MedPro borrowed a total of $2,800,000 from VOMF under the terms of a series of short-term bridge loans to MedPro with additional financial flexibility.  The annual interest rates on $1,300,000 of these loans was 6% and 7% on the balance. The $2,800,000 outstanding principal balance of the VOMF bridge loans plus accrued interest of $57,214 were paid in full on September 1, 2010.

In consideration of these loans, we issued to VOMF warrants to purchase 416,672 shares of our common stock at $3.00 per share and 325,000 shares of our common stock at $4.00 per share.  Each warrant has a five-year term.  Each warrant provides that the warrant price will adjust if specified corporate transactions occur, including a provision that if we issue any additional shares of common stock at either a price per share less than the warrant exercise price (or the adjusted price then in effect) or without consideration, then the warrant price will adjust to the price per share paid for the additional shares of common stock upon each such issuance.

The following table lists the loans and terms:

Principal
Interest
Shares Subject to
Exercise Price
Date
Amount
Rate
Warrants
Per Share
February 8, 2010
$
500,000

6.00
%


February 26, 2010
350,000

6.00
%
212,500

$
4.00

March 31, 2010
450,000

6.00
%
112,500

$
4.00

May 4, 2010
250,000

7.00
%
208,334

$
3.00

May 28, 2010
300,000

7.00
%
50,001

$
3.00

June 30, 2010
450,000

7.00
%
75,002

$
3.00

August 5, 2010
500,000

7.00
%
83,335

$
3.00


$
2,800,000


741,672


 
 
 
 
 


During 2012 and 2011, the Company leased its office and storage facility in Lexington, Kentucky from a company owned by the Company’s Chairman, which is described in Note 11.

The Company is obligated to issue 690,608 common shares to its CEO in the event the Company recognizes $5,000,000 or more in revenue on the Syringe Guard family of products. Additional triggers for these shares to be awarded include a change in control of the Company, the termination of the CEO or the sale or licensing of any part of the technology to another entity.



15

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


NOTE 9 – 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 are designated as Series C Convertible Preferred (“Series C Stock”) during 2009.

The following table sets forth the number of the shares of the Company’s capital stock issued and outstanding at the end of each of the last two fiscal periods presented in these financial statements:

 
 
Shares outstanding at
March 31,
 
Shares outstanding at
December 31,
 
 
2012
 
2011
Common stock
 
12,980,063

 
13,042,313

Series A Preferred
 
6,668,229

 
6,668,229

Series B Preferred
 
1,493,779

 
1,493,779

Series C Preferred
 
1,571,523

 
1,571,523

Common stock underlying outstanding stock purchase warrants
 
2,301,012

 
2,301,012


The following is a summary of the material rights, preferences, privileges, and restrictions of the Company's three series of convertible preferred Stock. Three Series A Stockholders also hold warrants to purchase common stock that were issued with the Series A Stock.  See Note 10 for a description of the terms of these warrants and how they have been valued under the Black-Scholes methodology.

Series A Convertible Preferred Stock

Dividends. The Series A Stockholders are entitled to receive cash dividends at the rate of 5% of the stated liquidation preference amount ($1.81 per share). Dividends are cumulative, and will only accrue and be payable upon any liquidation of the Company. Dividends on Series A Stock will be paid before dividends on any junior stock.
         
Liquidation Rights. Upon any liquidation, dissolution or winding up of the affairs of the Company, the holder of Series A Stock is entitled to receive $1.81 per share, plus any accrued and unpaid dividends, before any amounts are paid on common stock or any junior stock. The amount of this preferential liquidation distribution would have been $2,577,020 through March 31, 2012 and $2,426,114 through December 31, 2011. These amounts have not been recorded in the financial statements.
         
Voting Rights. The Series A Stockholders have no voting rights, except that as long as there are 200,000 shares of Series A Stock outstanding, the affirmative vote of 75% of the Series A Stock is required for the Company to take the following actions:
 
To authorize the issuance of a series of stock ranking equal or senior to the Series A Stock with respect to liquidation rights.
To repurchase, redeem, or pay dividends on shares of common stock other than de minimus repurchases or contractual redemption obligations.
To reclassify any outstanding securities in a way that materially and adversely affects the rights of Series A Stock.
To make any unauthorized distribution to the holders of stock junior to the Series A Stock.
To voluntarily file for bankruptcy, liquidate assets or make an assignment for the benefit of our creditors.
To discontinue involvement in the Company's current business.
         
Conversion Rights. The Series A Stock is convertible into common stock at any time, in whole or in part, at the option of the holder. Each share of Series A Stock is convertible into the number of common shares equal to the quotient of: (1) $1.95, divided by (2) the conversion price then in effect.


    

16

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


The conversion price is initially $1.95 per share, but is subject to adjustment for certain events, including stock splits, stock dividends, distributions, reclassifications or reorganizations. In addition, the conversion price is subject to adjustment if the Company issues additional shares of common stock or securities convertible into, or exchangeable for, common stock, in either case at a price per common share less than the conversion price then in effect. The conversion price adjustment does not apply to the issuance of shares in certain transactions identified in the certificate of designations.
         
The Series A Stock cannot be converted if it would result in the holder beneficially owning in the aggregate more than 9.9% of our common stock outstanding unless the holder of the Series A Stock waives the restriction.

Buy-In Rights. If the Company fails to timely deliver common stock issuable upon conversion of Series A Stock, and the holder is required to purchase common stock to deliver in satisfaction of a sale of the shares to have been issued upon the conversion, then the Company must pay the holder in cash the difference between the total purchase price the holder paid to acquire the common stock to complete the sale and the amount obtained by multiplying (1) the number of shares of common stock issuable upon conversion of the Series A Stock times (2) the price at which the holder's sell order for those shares was executed.
         
Redemption Rights. Upon the occurrence of a “major transaction,” each holder of Series A Stock can require the Company to redeem all or a portion of the holder's Series A Stock equal to 100% of the liquidation preference amount plus any accrued but unpaid dividends. The Company can elect to pay in common shares based on the conversion price then in effect. A “major transaction” includes a change of control of our company, the sale of more than 50% of our assets, or the purchase of more than 50% of the outstanding shares of our common stock.
         
Upon the occurrence of one of the triggering events listed below, each holder of Series A Stock can require the Company to redeem all or a portion of the holder's Series A Stock at a price per share equal to 120% of the liquidation preference amount plus any accrued but unpaid dividends and liquidated damages.

(1)
The holder's common stock cannot be sold in the public securities market due to the lapse of the effectiveness or unavailability of a resale registration statement for 20 consecutive trading days, unless due to factors solely within the control of the holder.
(2)
Our common stock is suspended from listing or trading on the OTC Bulletin Board or a stock exchange for five consecutive trading days.
(3)
Our inability to convert Series A Stock into shares of common stock.
(4)
Our failure to comply with a conversion notice for 15 days.
(5)
Our common stock is deregistered under the Securities Exchange Act of 1934.
(6)
We consummate a “going private” transaction so that our common stock is no longer registered under the Securities Exchange Act of 1934.
(7)
We breach a term of the Series A Stock purchase agreement, the certificate of designation or any related agreement that has a materially adverse effect on the Series A Stock and is not curable or continues for more than 10 business days.
         
For triggering events (1), (2), (3), and (7), the Company can elect to pay in cash or shares of common stock (the price per share is the conversion price then in effect). For (4), (5), and (6), the Company will redeem for cash.

Registration Rights. The Company entered into a registration rights agreement with the Series A Stockholders at the time of their investment. The agreement required us to register shares of common stock issuable upon the conversion of the Series A Stock and the exercise of the accompanying warrants with the SEC for resale by the holders. The agreement also provides that the Series A Stockholders have certain “piggy-back” registration rights if the Company registers securities for an offering (other than registrations in connection with the acquisition of a business or with employee benefit plans).

In addition, Series A Stockholders may make a written request for registration of shares of common stock not previously registered that are issued upon the occurrence of a "major transaction" or "triggering event." A "major transaction" includes certain consolidation or merger transactions, the sale of more than 50% of the Company's assets, or the purchase of more than 50% of the outstanding shares of our common stock. “Triggering events” are events (1), (2), (3), and (7) listed under “Redemption Rights” above.




17

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


Series B Convertible Preferred 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.

Series C Convertible Preferred Stock

Each share of Series C Stock converts 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 ranks 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 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.

See Note 10 for a detailed description of the terms of our stock purchase warrants issued and outstanding, including the accounting treatment.

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 December 31, 2011 the Company had repurchased 488,239 shares in open market transactions at an average price per share of $2.81.  During the quarter ended March 31, 2012, the Company acquired an additional 62,250 shares of its own common stock at an average price of $2.45 per share for a total cost of $152,700. The total number of shares repurchased has been 550,489 shares at $2.77 per share average cost.  The Company has spent $1,522,264 on share repurchases since the inception of the buy-back program.

NOTE 10 – STOCK OPTIONS, WARRANTS AND DERIVATIVE LIABILITIES

Stock Option Awards

The table below identifies the Company's March 31, 2012 and the year ended December 31, 2011 options granted for Officers, employees and Directors and the factors used to value the share-based compensation expense for each option.

18

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


 
Option Schedule and Valuation Assumptions for 2012 and 2011 Options
 
Grant Date
Expiration Date
Option Term in Years
Number of Options
Exercise Price
Market Price at Grant Date
Estimated Life for Valuation (Years)
Volatility Factor
Risk Free Return Factor
Valuation Per Option
Total Compensation Expense
 
2/2/2011
2/2/2021
10.00

100,000

$
2.62

$
2.62

3.50

72.15
%
1.12
%
$
1.344

$
134,350

 
2/2/2011
2/2/2021
10.00

100,000

$
2.62

$
2.62

4.50

72.15
%
2.10
%
$
1.523

$
152,272

 
2/2/2011
2/2/2021
10.00

100,000

$
2.62

$
2.62

5.50

72.15
%
2.10
%
$
1.578

$
157,843

 
8/15/2011
8/15/2021
10.00

50,000

$
2.96

$
2.96

3.00

78.36
%
0.34
%
$
1.496

$
74,794

 
8/23/2011
1/31/2013
1.44

50,000

$
1.81

$
2.96

1.44

0.77821

0.22
%
$
1.542

$
77,078

 
8/23/2011
8/23/2021
10.00

125,000

$
2.96

$
2.96

3.00

0.77821

0.38
%
$
1.488

$
186,001

 
12/9/2011
12/9/2021
10.00

300,000

$
2.25

$
2.25

9.95

1.04088

0.82
%
$
1.712

$
513,480

 
12/9/2011
12/9/2021
10.00

275,000

$
2.25

$
2.25

9.95

1.04088

1.82
%
$
2.045

$
562,507

 
3/5/2012
3/5/2022
10.00

100,000

$
2.73

$
2.73

5.00

1.13393

0.87
%
$
2.180

$
217,910


During the year ended December 31, 2011

On February 2, 2011, the Compensation Committee of the Board granted three options to the CEO of 100,000 options each year for three years for one common share each, exercisable if the CEO stays through December 31st of the current and the next two succeeding years. The first option became exercisable on December 31, 2011. The valuation and the factors used to value these options are listed in the table above.

In connection with the employment of the Company's new COO, an option for 50,000 shares was granted on August 15, 2011. It may be exercised on the one year anniversary of the grant date. The valuation and the factors used to value these options are listed in the table above.

On August 23, 2011, the Company issued options to acquire 25,000 common shares to each of our five non-employee directors pursuant to a newly adopted 2011 Non-Employee Director Stock Option Program. The valuation and the factors used to value these options are listed in the table above. A total of 500,000 shares were reserved to accommodate the current 125,000 options granted and future awards.

In addition, one Director was granted an option to acquire 50,000 common shares on August 23, 2011 under the same terms granted to the officers, employees and directors present for the August 18, 2008 award. The valuation and the factors used to value these options are listed in the table above.

19

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)



On December 9, 2011, the Company awarded options to acquire common shares to the officers and employees, excluding the CEO. The total award consisted of 575,000 options to acquire one share each of common stock. The valuation and the factors used to value these options are listed in the table above.

During the quarter ended March 31, 2012

On March 5, 2012, the Executive Compensation Committee determined that objective and subjective factors necessary to vest 100,000 options to acquire one common share each of performance based options for the CEO were satisfied. This is the first in a series of three annual options of up to 100,000 shares each that may be awarded to the CEO based on annually established performance goals. The valuation and the factors used to value these options are listed in the table above.
 
A summary of stock option activity for 2012 and 2011 is as follows:
 
 
Shares
 
Average weighted
exercise price
Outstanding at December 31, 2010
 
3,908,471

 
$
2.06

Granted
 
1,100,000

 
$
2.44

Exercised
 
(1,050,000
)
 
$
1.81

Expired/Forfeited
 
(187,662
)
 
$
2.93

Outstanding at December 31, 2011
 
3,770,809

 
$
2.20

Granted
 
100,000

 
$
2.73

Outstanding at March 31, 2012
 
3,870,809

 
$
2.21


The following table summarizes information about stock options outstanding and exercisable at March 31, 2012:
Weighted average
exercise price
 
Options
outstanding
 
Average weighted
remaining contractual
life (years)
 
Options
exercisable
$
1.81

 
1,950,000

 
0.838

 
None

$
1.81

 
100,000

 
0.838

 
None

$
3.85

 
122,079

 
7.152

 
122,079

$
4.24

 
25,974

 
2.156

 
25,974

$
3.65

 
47,256

 
7.514

 
47,256

$
2.70

 
425,500

 
8.496

 
425,500

$
2.62

 
100,000

 
3.840

 
100,000

$
2.62

*
100,000

 
3.840

 
None

$
2.62

*
100,000

 
3.840

 
None

$
2.96

*
50,000

 
9.372

 
None

$
2.96

*
125,000

 
9.394

 
None

$
1.81

 
50,000

 
0.838

 
None

$
2.25

 
575,000

 
9.690

 
575,000

$
2.73

 
100,000

 
4.927

 
100,000

$
2.23

 
3,870,809

 
4.009

 
1,395,809

 * - Non-vested at March 31, 2012 or December 31, 2011. Weighted average remaining life at March 31, 2012.










20

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


The following table summarizes information about non-vested options for the year ended December 31, 2011 and the three months ended March 31, 2012:
 
Shares
Weighted Average Grant Date Fair Value
Per Share Fair Value
Outstanding Non-Vested Options 1/1/2011

$

$

Granted 2011
1,100,000

1,858,386

$
1.69

Vested 2011
(725,000
)
(1,287,476
)
$
1.78

Forfeited 2011


 
Outstanding Non-Vested Options at 12/31/2011
375,000

$
570,910

$
1.52

Granted 2012
100,000

272,500

2.73

Vested 2012
(100,000
)
(272,500
)
(2.73
)
Forfeited 2012

 
 
Outstanding Non-Vested Options at 3/31/2012
375,000

$
570,910

$
1.52


The weighted average fair value per share of options granted was $1.69 for 2011 and $2.73 for the three months ended March 31, 2012. The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
 
March 31, 2012
2011
Dividend yield
—%
—%
Expected volatility
113.39%
90.03%
Expected lives
5.00
5.63
Risk-free interest rate
0.87%
1.23%

The following table summarizes the weighted average price, remaining contractual life and aggregate intrinsic vale of the outstanding options at December 31, 2011 and March 31, 2012:

21

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


 
 
Number of Shares
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life (Years)
Aggregate Intrinsic Value of Options Exercised or Exercisable
 
 
 
 
 
 
Outstanding December 31, 2010
 
3,908,471

$
2.06

3.56

3,407,150

Options granted under 2008 Plan
 
975,000

$
2.38

9.21

$
606,750

Options granted under 2011 Non-employee Director Stock Option Plan
 
125,000

$
2.96

9.65

$
5,000

Options Exercised under 2008 Plan
 
(1,050,000
)
(1.81
)
 
$
(840,000
)
Options Forfeited under 2008 Plan
 
(187,662
)
(2.93
)
 

Outstanding December 31, 2011
 
3,770,809

$
2.20

4.64

$
3,178,900

Options granted under 2008 Plan in 2012
 
100,000

2.73

4.93

27,500

Options outstanding at March 31, 2012
 
3,870,809

$
2.21

4.01

$
3,206,400

 
 
 
 
 
 
Currently Vested Options at March 31, 2012
 
3,495,809

$
3

3.75

$
3,123,400

 
 
 
 
 
 
Exercisable March 31, 2012
 
1,395,809

$
2.67

8.13

$
624,400

 
 
 
 
 
 
Options Not Vested at March 31, 2012
 
375,000

$
2.78

6.43

$
83,000

 
 
 
 
 
 
Options Vested but Not Exercisable Due to Exercise Date Restrictions at March 31, 2012
 
2,100,000

$
1.81

0.84

$
2,499,000


The weighted average remaining contractual life of all options outstanding at December 31, 2011 was 4.16 years and at March 31, 2012 is 4.01. In addition to outstanding stock options, our stockholders have authorized an additional 1,816,529 shares of common stock that may be issued under the share-based payment plans.

The following table summarizes our outstanding non-vested stock options:
Grant
Number
Exercise
Contractual
Date
of Shares
Price
Life in Years
 
 
 
 
2/2/2011
200,000

$
2.62

3.84

8/15/2011
50,000

$
2.96

9.37

8/23/2011
125,000

$
2.96

9.39

 
375,000

$
2.78

6.43


22

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)



As of December 31, 2011, we had $484,816 of total unrecognized compensation cost related to unvested options, net of expected forfeitures, which is expected to be recognized over the following periods: 2012 - $149,816, 2013 - $149,816, 2014 - $118,434, 2015 - $49,254 and 2016 - $17,496.

The intrinsic value of all the "in the money options" outstanding at December 31, 2011 was $0.68 per share on 3,400,500 shares or $2,321,775. The intrinsic value of options exercisable at December 31, 2011 was $0.29 per share on 1,100,500 shares or $321,775. The intrinsic value of the total options exercised for the year ended December 31, 2011 was $0.80 per share or $840,000. No options have been exercised in any other prior period.

Of the 3,770,809 options outstanding and expected to be exercised, 3,400,500 were "in the money" at the December 31, 2011 balance sheet date but only 1,100,500 of those were currently exercisable. The difference of 2,300,000 are the options that are either restricted by a future exercise date (2,100,000 options) or are "in the money" but not vested at year end (200,000 options). The Company has issued 195,309 options that are exercisable and vested but out of the money at yearend and 175,000 that were both out of the money and not vested at the balance sheet date.
    
The intrinsic value of all the "in the money options" outstanding at March 31, 2012 was $0.87 per share on 3,675,500 shares or $3,206,400. The intrinsic value of options exercisable at March 31, 2012 was $0.45 per share on 1,395,809 shares or $624,400.

Of the 3,870,809 options outstanding and expected to be exercised, 3,675,500 were "in the money" at the March 31, 2012 balance sheet date but only 1,200,500 of those were currently exercisable. The difference of 2,475,000 are the options that are either restricted by a future exercise date (2,100,000 options) or are "in the money" but not vested at March 31, 2012 (375,000 options). The Company has issued 195,309 options that are exercisable and vested but out of the money at March 31, 2012.

Stock purchase warrants

Our preferred stockholders received one Series A warrant and one Series B warrant for each of the 6,668,229 shares of Series A Stock they purchased on December 28, 2007. For making a total investment of at least $5 million, VOMF also received one Series J warrant and one C warrant for each of the 5,975,116 shares of Series A Stock it purchased. In 2008, VOMF and VCAF exercised the Series J warrants in full for cash and received 1,493,779 shares of new Series B Stock, which is convertible into four common shares for each share of Series B Stock. In 2009, VMOF and VCAF delivered $3,000,000 of cash and all of the A, B and C warrants they held, receiving in exchange 1,571,523 shares of new Series C Stock, which is convertible into ten common shares for each share of Series C Stock.

Series A and Series B Warrants.
    
As of March 31, 2012 and December 31, 2011, 512,941 Series A warrants and 512,941 Series B warrants remained outstanding. Each Series A warrant entitles holder to purchase one share of common stock at a purchase price of $1.81 per share. Each Series B warrant entitles holder to purchase one share of common stock at a purchase price of $1.99 per share. Both the Series A and Series B warrants may be exercised through December 28, 2012.

The purchase price per share of both the Series A and Series B warrants is subject to adjustment in the event of any stock dividend, stock split, recapitalization, reclassification, merger or similar event. In addition, the purchase price is subject to adjustment in the event of the issuance of additional shares of common stock or common stock equivalents, or other distributions made to the holders of common stock other than permitted issuances.

The warrant holders have the same buy-in rights and registration rights as holders of Series A preferred described in Note 9, above.
         
If the resale registration statement covering the common shares underlying the Series A and Series B warrants is no longer in effect, the holders may, in lieu of exercising their warrants for cash, make a cashless exercise and receive a number of common shares having a market value equal to the difference between the then-current market value of the number of shares for which the warrant is exercised and the exercise price for those shares.

Series AA Warrants.

The Company issued Series AA warrants to purchase 533,458 common shares for $1.81 per share as compensation for financial

23

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


advisory services rendered by SC Capital Partners, LLC in connection with the sale of the preferred stock and warrants on December 28, 2007. The terms of the Series AA warrants are similar to the Series A warrants and expire on December 28, 2012.

As consideration for interim financing provided to the Company by VOMF from February through August in 2010, the Company issued VOMF warrants to purchase 325,000 common shares at $3 per share and 416,672 shares at $4 per share. These warrants expire at various dates in 2015.

See the table below for information about the valuation of the Company's outstanding warrants pursuant to the Black-Scholes method.

Derivative Liabilities and Valuation
    
The Series A Stockholders have the right to redeem their shares if certain events occur. In accounting for this embedded conversion feature, the Company considered ASC 815 (formerly FASB SFAS 133, Accounting for Derivative Instruments and Hedging Activities and EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s own stock) and ASC 470 (formerly EITF 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Features, and EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments).  Under this guidance, the classification of an issuer’s convertible preferred stock as permanent equity depends upon the issuer having control with respect to the manner of redemption of the convertible preferred stock.

The right of Series A Stockholders to redeem their shares arises first in the event of a consolidation or merger that would result in a change of control of the Company, the sale of 50% of its assets, or a purchase of 50% of the outstanding shares of the Company’s common stock.  Mergers, consolidations and asset sales require approval by the board of directors.  A third party could purchase 50% of the outstanding shares only from the Company directly or in a voluntary sale by one or more common shareholders. These circumstances, being characteristic of all equity, do not preclude classification as equity.

Of the other seven events triggering the right of Series A Stockholders to redeem their shares, four are events for which the issuer has the option to redeem in either cash or common shares.  The redemption ratio is fixed and adjusts only if the Company sells common shares at a price less than the price per share at which the preferred stock converts into common stock. In other words, the adjustments to the ratio are not of a dilutive nature that would generally give rise to liability treatment.

The other triggering events would occur only through purposeful actions by the Company or otherwise within its control.

As of March 31, 2012, the Company had 90,000,000 common shares authorized and 12,980,063 common shares issued and outstanding.  Therefore, the Company had a sufficient number authorized and unissued common shares to convert all of the preferred stock at the conversion ratio then in effect had a notice of conversion been presented as of that date, meeting the “current status” test of ASC 815 (formerly EITF 00-19).
The deregistration of Company’s common stock is within its control;
The consummation of a going private transaction is within the Company’s control.

Based on the foregoing analysis, the Company concluded that the embedded conversion feature would not be separately accounted for as a derivative liability from the Series A Stock.

In accordance with this guidance, the Company recorded a deemed dividend in the amount of $3,975,120 by increasing the retained deficit and increasing additional paid in capital by that amount effective on December 28, 2007 to reflect the estimated fair value of the embedded conversion feature in the Series A Stock. The $3,975,120 amount represents the approximately $0.60 difference per share between the $1.81 liquidation value per share of the preferred stock and the $1.21 per share value of the 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.

We have used the Black-Scholes option valuation model to value our stock purchase warrants. However, the Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions including the expected stock price volatility and appropriate adjustments for restrictions on exercising the options. Because our warrants have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially

24

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


affect the fair value estimate, in management’s opinion, this model does not necessarily provide a reliable single measure of the fair value of its warrants. Assumptions used in valuing the Series A and Series B warrants included an expected term of 2.5 years, volatility of 43.54 %, and an equivalent bond yield of 4.36%.

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

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

To reflect the cumulative effect of adopting ASC 815, the Company reduced Additional Paid in Capital by $6,321,081, increased its Accumulated Deficiency by $35,081,114 and recorded a liability of $41,402,196 as of January 1, 2009. The amount of the liability was determined by reference to the fair value of the warrants on that date under FASB ASC 820 (formerly SFAS 157).

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

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

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

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

We concluded there was insufficient trading frequency and volume in MedPro's shares to use the Level 1 inputs to value our warrants in a Black-Scholes calculation under ASC 820 as of January 1, 2009. In particular, we considered that nearly 99% of our outstanding common shares were restricted securities that could not be traded in public markets through January 4, 2009, and our stock continued to trade sporadically thereafter. We also considered the volatility of the trading price, and the time it would take the market to absorb an influx of over 19,000,000 shares underlying the warrants based on then current trading volumes. Accordingly, we used level 2 inputs and level 3 inputs for purposes of our ASC 815 and ASC 820 analysis.

The liability for the warrants exchanged for $3,000,000 of cash and a total of 1,571,523 shares of new Series C Stock in March 2009 was recomputed using the Black-Scholes method with updated inputs, and the difference was recorded as income from the decline in debt due to the reduction in fair value of the outstanding warrants at March 24, 2009, immediately before the exchange. The valuation difference on these warrants was $21,237,919, which accounts for the substantial portion of the total gain of $21,603,185 reported for the year ended December 31, 2009.

As of August 12, 2009, the Company's registration statement became effective, terminating the cashless exercise feature. A total of 1,025,882 Series A and B warrants remained outstanding at December 31, 2009, and all of the derivative liability had been written off or recognized as gain.

All of the warrants we issued in 2010 possess cashless exercise and anti-dilution features covered by ASC 815.

The following factors were used to value the warrants which were issued beginning in the first quarter of 2010 through the third quarter of 2010:




25

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


Factors Used and Valuation of Warrants for 2010 and 2011
 
2/26/2010
3/31/2010
4/30/2010
6/3/2010
6/30/2010
8/5/2010
Total
Exercise Price
$4.00
$4.00
$3.00
$3.00
$3.00
$3.00
 
Number of Warrants
212,500
112,500
208,334
50,001
75,002
83,335
741,672

 
 
 
 
 
 
 
 
3/31/2010
 
 
 
 
 
 
 
Term
5.00
5.00
 
 
 
 
 
Stock Price
$3.10
$3.10
 
 
 
 
 
Volatility
48.00%
48.00%
 
 
 
 
 
Risk Free Return
2.30%
 
 
 
 
 
 
Valuation
$241,940
$128,086
 
 
 
 
$
370,026

 
 
 
 
 
 
 
 
6/30/2010
 
 
 
 
 
 
 
Term
4.67
4.75
4.83
4.92
5.00
 
 
Stock Price
$3.00
$3.00
$3.00
$3.00
$3.00
 
 
Volatility
42.26%
42.26%
42.26%
42.26%
42.26%
 
 
Risk Free Return
1.79%
1.79%
1.79%
1.79%
1.79%
 
 
Valuation
$183,281
$98,246
$241,007
$58,323
$88,198
 
$
669,055

 
 
 
 
 
 
 
 
9/30/2010
 
 
 
 
 
 
 
Term
4.42
4.50
4.58
4.67
4.75
4.83
 
Stock Price
$2.70
$2.70
$2.70
$2.70
$2.70
$2.70
 
Volatility
34.79%
34.79%
34.79%
34.79%
34.79%
34.79%
 
Risk Free Return
1.27%
1.27%
1.27%
1.27%
1.27%
1.27%
 
Valuation
$100,901
$54,339
$154,003
$37,357
$56,623
$63,560
$
466,783

 
 
 
 
 
 
 
 
12/31/2010
 
 
 
 
 
 
 
Term
4.17
4.25
4.33
4.42
4.42
4.58
 
Stock Price
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
 
Volatility
69.62%
69.62%
69.62%
69.62%
69.62%
69.62%
 
Risk Free Return
2.01%
2.01%
2.01%
2.01%
2.01%
2.01%
 
Valuation
$301,888
$161,576
$344,703
$83,396
$125,095
$141,165
$
1,157,823

 
 
 
 
 
 
 
 
3/31/2011
 
 
 
 
 
 
 
Term
3.92
4.00
4.08
4.17
4.17
4.33
 
Stock Price
$2.24
$2.24
$2.24
$2.24
$2.24
$2.24
 
Volatility
72.15%
72.15%
72.15%
72.15%
72.15%
72.15%
 
Risk Free Return
2.24%
2.24%
2.24%
2.24%
2.24%
2.24%
 
Valuation
$193,690
$104,068
$227,144
$55,118
$82,678
$93,828
$
756,526

 
 
 
 
 
 
 
 
6/30/2011
 
 
 
 
 
 
 
Term
3.67
3.75
3.83
3.92
3.92
4.08
 
Stock Price
$2.50
$2.50
$2.50
$2.50
$2.50
$2.50
 
Volatility
82.90%
82.90%
82.90%
82.90%
82.90%
82.90%
 
Risk Free Return
0.81%
0.81%
0.81%
0.81%
1.76%
1.76%
 
Valuation
$253,160
$135,822
$287,018
$69,577
$105,820
$119,852
$
971,249

 
 
 
 
 
 
 
 
9/30/2011
 
 
 
 
 
 
 

26

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


Term
3.41
3.50
3.58
3.68
3.75
4.08
 
Stock Price
$2.40
$2.40
$2.40
$2.40
$2.40
$2.40
 
Volatility
76.27%
76.27%
76.27%
76.27%
76.27%
76.27%
 
Risk Free Return
0.42%
0.42%
0.42%
0.42%
0.42%
0.42%
 
Valuation
$213,339
$114,609
$248,563
$60,307
$90,461
$102,626
$
829,905

 
 
 
 
 
 
 
 
12/31/2011
 
 
 
 
 
 
 
Term
3.17
3.25
3.33
3.42
3.50
3.58
 
Stock Price
$2.75
$2.75
$2.75
$2.75
$2.75
$2.75
 
Volatility
106.74%
106.74%
106.74%
106.74%
106.74%
106.74%
 
Risk Free Return
0.36%
0.36%
0.36%
0.36%
0.36%
0.36%
 
Valuation
$346,734
$185,867
$376,774
$91,286
$138,187
$154,906
$
1,293,754

 
 
 
 
 
 
 
 
3/31/2012
 
 
 
 
 
 
 
Term
2.91
3.00
3.08
3.18
3.25
3.35
 
Stock Price
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
 
Volatility
113.39%
113.39%
113.39%
113.39%
113.39%
113.39%
 
Risk Free Return
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
 
Valuation
$395,063
$212,012
$426,844
$103,527
$156,548
$175,753
$1,469,747

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

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

As of June 30, 2010, these warrants were revalued to $281,527.  The Company recorded an additional gain of $88,499 for these warrants in the second quarter of 2010.

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

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

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

The market price of the Company’s stock on April 30, 2010, June 3, 2010 and June 30, 2010 were all $3.00  per share;
Specific Company Volatility for the valuation dates were  – 44.51, 43.32 and 42.26%, respectively;
Risk free return rates were – 2.43%, 2.17% and 1.79%, respectively; and
Estimated life of the warrants - 5 years.

These inputs, coupled with the individual warrant exercise prices resulted in a Black-Scholes value of approximately $1.25, $1.22 and $1.18 for the respective warrant grant dates.  The quarter end valuations of these warrants were determined based on the valuation factors reflected in the table above.  The adjustments to the derivative liabilities were previously stated above.

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

27

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)



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

The market price of the Company’s stock on August 5, 2010 was $3.00 per share;
Specific Company Volatility for the valuation date was  – 34.79%;
Risk free return rate was – 1.57% at issue date and 1.27 at quarter end; and
Estimated life of the warrants - 5 years.

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

No additional warrants were issued in the fourth quarter of 2010.  At December 31, 2010, the derivative liability for the warrants issued in 2010 was adjusted to $1,157,823, changing the previously recorded gain from $439,589 to a loss of $313,335.  The change in value was caused by a change in volatility of the stock from 34.79% to 69.62%, an increase in the market price of the stock from $2.70 to $3.00 and an increase in the risk free return rate from 1.27% to 2.01%.

The inputs used to value the derivative liability as of December 31,  2010 are reflected in the table above. No additional warrants were issued in 2011.

Liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2012 and December 31, 2011were as follows:

 
Level 1
Level 2
Level 3
Total
2012
 
 
 
 
Derivative liabilities
$

$
1,469,747

$

$
1,469,747

Total Liabilities at Fair Value
$

$
1,469,747

$

$
1,469,747

 
 
 
 
 
2011
 
 
 
 
Derivative liabilities
$

$
1,293,754

$

$
1,293,754

Total Liabilities at Fair Value
$

$
1,293,754

$

$
1,293,754

 
 
 
 
 
Note- No assets or other liabilities were measured at fair value during 2012 or 2011












The following table summarizes the terms and values of the Company’s stock purchase warrants outstanding at March 31, 2012 and December 31, 2011:

28

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


Warrant
Holder
 
Exercise
Price
 
Warrants
Outstanding
 
Weighted
Average
Remaining
Life
 
Shares
Exercisable
 
Black-Scholes
Valuation
2012 Warrant Details
 
 
 
 
 
 
 
 
 
 
VOMF 2/26/2010
 
$
4.00

 
212,500

 
2.91

 
212,500

 
$
395,063

VOMF 3/31/2010
 
$
4.00

 
112,500

 
3.00

 
112,500

 
$
212,012

VOMF 4/30/2010
 
$
3.00

 
208,334

 
3.08

 
208,334

 
$
426,844

VOMF 6/3/2010
 
$
3.00

 
50,001

 
3.18

 
50,001

 
$
103,527

VOMF 6/30/2010
 
$
3.00

 
75,002

 
3.25

 
75,002

 
$
156,548

VOMF 8/5/2010
 
$
3.00

 
83,335

 
3.35

 
83,335

 
$
175,753

A Warrants
 
$
1.81

 
512,941

 
0.75

 
512,941

 
$
203,777

B Warrants
 
$
1.99

 
512,941

 
0.75

 
512,941

 
$
164,994

AA Warrants
 
$
1.81

 
533,458

 
0.75

 
533,458

 
$
211,928

 
 
 
 
 
 
 
 
 
 
 
March 31, 2012 Totals Exercisable at the end of the period.
 
 
 
2,301,012

 
1.50

 
2,301,012

 
$
2,050,446

Weighted average exercise price
 
 
 
 
 
 
 
 
 
$
2.37

 
 
 
 
 
 
 
 
 
 
 
2011 Warrant Details
 
 
 
 
 
 
 
 
 
 
VOMF 2/26/2010
 
$
4.00

 
212,500

 
3.17

 
212,500

 
$
346,734

VOMF 3/31/2010
 
$
4.00

 
112,500

 
3.25

 
112,500

 
$
185,867

VOMF 4/30/2010
 
$
3.00

 
208,334

 
3.33

 
208,334

 
$
376,774

VOMF 6/3/2010
 
$
3.00

 
50,001

 
3.42

 
50,001

 
$
91,286

VOMF 6/30/2010
 
$
3.00

 
75,002

 
3.50

 
75,002

 
$
138,188

VOMF 8/5/2010
 
$
3.00

 
83,335

 
3.58

 
83,335

 
$
154,905

A Warrants
 
$
1.81

 
512,941

 
1.00

 
512,941

 
$
203,777

B Warrants
 
$
1.99

 
512,941

 
1.00

 
512,941

 
$
164,994

AA Warrants
 
$
1.81

 
533,458

 
1.00

 
533,458

 
$
211,928

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011 Totals Exercisable at the end of the period.
 
 
 
2,301,012

 
1.74

 
2,301,012

 
$
1,874,453

Weighted average exercise price
 
 
 
 
 
 
 
 
 
$
2.37

 
 
 
 
 
 
 
 
 
 
 

NOTE 11 – LEASE COMMITMENT

Until April 2011, our Lexington, Kentucky offices were located in space we leased from a partnership in which our Chairman and CEO owns an interest. The lease is non-cancelable and runs through August 2012 at a monthly rent of $6,975. Total expense for this property was $20,925 through the March 31, 2012 and $83,700 for the year ended December 31, 2011. Future minimum lease obligations on this property for 2012 until the termination of this lease are $34,875.  

In 2011, we leased new office space at 145 Rose Street, Lexington, Kentucky. The owner of the building is an LLC owned by unrelated parties. Our monthly rent for the initial five year term is $8,000 per month. We have an option to terminate the lease by giving 90 days notice before the third anniversary of the lease and by paying one year's rent as a penalty for early termination. The initial term of the lease is five years commencing on April 1, 2011 through March 31, 2016. We have three renewal options of three years each. Rent will escalate based on the Consumer Price Index for all U.S. City Average, all items (1982-1984 = 100).

29

MedPro Safety Products, Inc.
Notes to Financial Statements
(Unaudited)


We began leasing space in New York from a temporary office space provider for the twelve months ended December 31, 2012. We have a renewal option with two months free rent for 2013. The 2012 rent is $3,073.50 per month for March through October. We do not pay rent for January, February, November or December.

Future minimum annual lease payments, including renewals, for the twelve month periods ended December 31 are as follows:
12 Month Period Ended December 31
Amount
2012
$
120,588

2013
96,000

2014
96,000

2015
96,000

2016
8,000


$
416,588

 
 

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 March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011 should be read in conjunction with our audited financial statements and the notes to those financial statements that are included elsewhere in this report or our annual filings of Form 10K for 2011.  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.

Preliminary Note Regarding Forward-Looking Statements

This report contains statements about future expectations, activities and events that constitute forward-looking statements. Forward-looking statements are based on our beliefs, assumptions and expectations of our future financial and operating performance and growth plans, taking into account the information currently available to us. Any statements that are not statements of historical fact are forward-looking statements. Words such as “believe,” “may,” “should,” “anticipate,” “estimate,” “expect,”, “intend,” , “likely,” “objective,” “seek,” “plan,” “strive” or similar words, or the negatives of these words, identify forward-looking statements.

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements. In addition to the other factors discussed in “Item 1A Risk Factors” of our Annual Report on Form 10-K and our subsequent reports, factors that could contribute to those differences include, but are not limited to:

Our ability to fund development of our products and operations from third party financing and cash flow from operations.
New product introductions by our current or future competitors could adversely affect our ability to compete in the global market.
The ability of our competitors with greater financial resources to develop and introduce products and services that enables them to compete more successfully than us.
The continued service of key management personnel.
Our ability to attract, motivate and retain qualified employees.
Changes in government laws and regulations affecting the medical device industry, sales practices, price controls, licensing and regulatory approval of new products, or changes in enforcement practices with respect to any such laws and regulations.
Difficulties inherent in product development, including the potential inability to successfully continue technological innovation, complete clinical trials, obtain regulatory approvals in the United States and abroad, or gain and maintain market approval of products, as well as the possibility of encountering infringement claims by competitors with respect to patent or other intellectual property rights, all of which can preclude or delay commercialization of a product.

30



Potential litigation or other proceedings, including product liability and patent infringement claims adverse to us.
The effects, if any, of adverse media exposure or other publicity regarding our business, products or operations.
Product efficacy or safety concerns resulting in product recalls, regulatory action on the part of the FDA (or foreign counterparts) or declining sales.
Our ability to maintain favorable supplier arrangements and relationships with manufacturers and distributors of our products.

Forward-looking statements are not guarantees of performance or results. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe we have chosen these assumptions or bases in good faith and that they are reasonable. We caution you, however, that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. These statements speak only as of the date of this report (or an earlier date to the extent applicable). We do not intend to update these statements unless applicable laws require us to do so.

Overview

MedPro Safety Products, Inc. has acquired and developed a portfolio of medical device safety products incorporating proprietary needlestick prevention technologies that deploy with minimal or no user activation. Our present strategy focuses on developing and commercializing multiple products in four related product segments: clinical, phlebotomy, pharmaceutical, and intravenous.

In July 2010, we entered into a new contract with our distribution partner that grants exclusive rights to manufacture, market and distribute three MedPro blood collection products over a six-year term (the “GBO agreement”). The GBO agreement provides that beginning with the fourth quarter of 2010, we will receive quarterly royalty payments totaling not less than $43,750,000 over the six-year term, and during the same period we will make quarterly financial contributions totaling approximately $6,650,000 to cover a portion of the anticipated expenses of marketing the products.

On September 1 and October 1, 2010, we issued Senior Secured 14% Notes due 2016 (the “Notes”) in the aggregate principal amount of $30 million in private placements to institutional investors. In connection with the Note issuance, we transferred the rights to receive all royalties under the GBO agreement to a new wholly owned subsidiary that is the issuer of the Notes. All of the royalties payable under the GBO agreement are committed to pay the principal and interest due on the notes. We received approximately $23,294,000 in net proceeds after establishing a $4,500,000 interest reserve and paying offering expenses.

We used the net proceeds from the sale of the Notes to pay off all of our bank debt and all principal and accrued interest on bridge loans made by a principal shareholder, which together totaled $4,360,000.   We expect to use the remaining net proceeds to pay royalties on our blood collection technology, our marketing contributions, and to finance the development of other safety products in our portfolio.

Our strategy for the next 18 to 24 months focuses on completing the steps necessary to attain pre-market product development milestones for our prefilled syringe.  Our objective is to enter into strategic partnership agreements with major medical products distribution partners that, whenever possible, would provide for fixed minimum volume contracts, as does the GBO agreement.

Our operations are currently funded principally from the net proceeds of our sale of the Notes.  Our financial results and operations in future periods will depend upon our ability to enter into sales and distribution agreements for our products currently under development so we can generate sustained revenues from our portfolio of products and technologies. Current cash should allow us to operate through June or July 2012. We have secured a letter of commitment for bridge funding from our principal investor and we are working on our capital and operational requirements through 2014 with investment advisors in connection with a potential capital raise in early 2012. We have completed this phase of the capital raise and expect to begin soliciting equity and/or debt participants in the coming weeks.

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

31



the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The significant accounting policies that are believed to be the most critical to fully understanding and evaluating the reported financial results include revenue recognition, recoverability of intangible assets and the recovery of deferred income tax assets.

We recognize sales and associated cost of sales when delivery has occurred and collectability is probable. We began recognizing revenue under the GBO agreement for the fourth quarter of 2010.  Historically, we have had minimal returns for credit, so no reserve for product returns has been established. At this point we have not manufactured products for sale. Our customer has manufacturing responsibility and would be responsible for returns of product. 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.

Our intangible assets consist principally of intellectual properties such as regulatory product approvals and patents. We currently are amortizing certain of our intangible assets using the straight line method based on an estimated economic life, after the products are introduced into the market.  We began amortization of the Vacumate patents in December 2009 since products were first introduced for human use in December.  Our Winged Safety Blood Collection Set was tested in 2011 and is expected to be introduced into the market for human use in 2012.  Our Syringe Guard family of products are currently not in production for distribution.  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 and after an impairment determination, we utilize a net present value of future cash flows analysis to calculate carrying value.  Our forecasted revenue on our current portfolio of intellectual property over the next five years, discounted to the balance sheet date based on a 7.5% discount factor, exceeds our cost of our patents and expected development costs ($67.8 million) by approximately 215%.
 
We wrote down our Key-Lok technology to fifty percent of its original cost in the fourth quarter of 2010.  We have charged off the remaining $244,561 of our Key-Lok patent carrying value in the first quarter of 2012. Management has determined that the technology may require substantial modification before it can be commercially produced and has decided to pursue other technologies.    

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

Results of Operations for the Three Months Ended March 31, 2012 and 2011

MedPro recorded a net loss of $(3,534,833) for the three months ended March 31, 2012, as compared to a net loss of $(2,733,561) for three months ended March 31, 2011.  Losses from operations for the three months ended March 31, 2012 and 2011 were $(2,187,952) and $(1,967,262), respectively.   

Revenue for the three months ended March 31, 2012 was $890,625 compared to $150,000 for the three months ended March 31, 2011 was $150,000. Revenue for both periods was royalty income from the Company's minimum volume contract for its blood collection devices. Cost of revenue and amortization of intellectual property was $171,586 for the 2012 quarter and $135,168 for the same period in 2011.

Total employee compensation, including share-based compensation, for the three months ended March 31, 2012 increased by $110,123 compared to the same period of 2011. First quarter bonuses in 2012 were $53,000 less than in 2011. Compensation expense was also affected by the addition of a new COO in the second quarter of 2011 and the departure of another senior executive later in the year. Share-based compensation was $152,296 in 2012 and $95,578 in 2011. In 2012, share-based compensation was up $56,718 while cash compensation was up only $37,347. Amortization of share-based compensation increased as a result of the grant of 900,000 options during the four fiscal quarters after March 31, 2011. Contributions to our defined contribution/profit sharing plan were up $7,010 in 2012 versus 2011.


32




Advertising and promotion expense increased $161,805 in the three months ended March 31, 2012 versus the same period in 2011.  The increases in investor relations activity in the three months ended March 31, 2012 include $35,066 in new trade show expenses in 2012. Investor relations expenditures, in total, increased $2,963 between the three months ended March 31, 2012 and the same period in 2011. Marketing materials increased by $10,785 from 2011 to 2012. Marketing assistance payments were $112,575 higher in the first quarter of 2012 versus 2011. Other promotional costs increased by $416 between the three month periods ended March 31, 2012 and 2011.

Product development costs were $369,220 in the three months ended March 31, 2012 and $247,452 in the same three month period of 2011, an increase of $121,768. These costs reflect the continued development of the prefilled syringe and IV shuttle tooling and manufacturing costs for samples, as well as, continued improvements to the blood collection devices and the winged collection set. Prefilled syringe packaging design costs were incurred in the first three months of 2011. Engineering and material costs were up $200,245 for the three months ended March 31, 2012. Product improvements for the winged collection set and development costs for the prefilled syringe and the IV shuttle represent the majority of these costs. Completed parts were down $57,498 for the three months ended March 31, 2012. Other testing, sterilization and simulated use costs were $20,979 less in the three months ended March 31, 2012 versus 2011.

Professional fees and costs were up by $239,543 in the three months ended March 31, 2012 versus the same period in 2011. The total costs in 2012 were $590,852 versus $351,309 in 2011. Accounting, auditing, consulting fees and other professional fees, as a subset of the $239,543 increase were up $162,431 during the three months ended March 31, 2012 over the same period in 2011. Recruiting costs were down $48,000 in 2012 versus 2011. Legal fees were up $125,112 this year over 2011.

Consulting fees, included in the $162,431 increase reflected above, increased by $170,105 in 2012 versus
2011. Two contract officers hired in 2012 represent $69,543 of the increase. Fees for a financial consultant totaled $96,881 in 2012. Recurring consulting fees with SC Capital and Advanced Medical totaled $90,000 in both the 2012 and 2011 periods. Accounting, auditing and quality testing costs, also a part of the $162,431 change, were down $7,674 in 2012.

Total legal fees were $232,261 in 2012 and $107,149 in 2011. The increase includes litigation defense costs and significant patent work on new and existing intellectual property.

Total travel costs were $153,844 and $74,755 for the first quarter of 2012 and 2011, respectively. The $79,089 increase reflected increased travel associated with trade shows, board meetings and vendor and customer visits.
    
General and administrative expenses were $191,117 in the 2012 quarter versus $136,168 for the same period in 2011, an increase of $54,949. Building rent, maintenance and related expenses are up $28,195 due to the new office space we occupied in April 2011. Quarterly rent for the new office space was $24,000 higher. We also incurred $6,489 to rent an office in New York for our Executive Vice President of Finance.

Network costs, computer support services and software are up $4,722. Sales tax is up $2,777, contributions are up $2,150 and equipment rental is down $1,675. Parking is up $4,520 in 2012, which was not incurred in the first quarter of last year. Postage and shipping are down $9,247 this year to date versus the prior year. Utilities are up $2,580 in 2012 since we are paying for two locations and are now paying for water in our new location. Office expenses are down $1,300 this year versus 2011. Printing and reference materials are up $2,660 in the current year principally due to trade show marketing materials. The Company paid $31,250 in Directors' fees for the first quarter of 2012 and nothing in the same period of 2011. All other General and Administrative expense categories experienced a change of less than $1,000 individually and, in total, were down $11,683. Effective with the third quarter of 2011, the Company began paying cash fees to its non-employee directors, which totaled $31,250 for the 2012 quarter.

Insurance costs were $126,256 through March 31, 2012, compared to $99,503 through the same period last year. We have had fifteen employees in 2012 increasing our health and benefits coverage costs. We have increased our products liability coverage to include the substantially increased sales of product in 2012. We also instituted an evacuation and medical coverage plan for employees expected to travel out of the country last year. Our property and casualty coverage has also increased since we now have property in several states and in two locations in Lexington. We had to rebid our Director and Officers' liability coverage and the premium is up sharply with increased deductibles.

Depreciation was up $23,410 to $73,089 for the three months ended March 31, 2012. Amortization charges on our intellectual property of $126,271 and amortization of Senior Note issuance costs of $123,098, both for the first three months of 2012, exceeded the 2011 costs for the same period of $126,271 and $123,097, respectively. The depreciation was reflected

33



under cost of operations, and the amortization of our intellectual property was reflected in cost of revenues. Amortization of loan costs on our Senior Debt were reflected in interest expense. All depreciation and amortization costs through three months ended March 31, 2012 totaled $322,458 versus $299,048 in 2011.

During 2011, the Company wrote off $144,114 in leasehold improvements and other fixed costs left behind at the old office and warehouse location. In 2012, the Company wrote off the remaining Key-Lok intellectual property cost of $244,561.

Interest expense was $1,173,097 for the three months ended March 31, 2012 versus $1,173,098 in the same period in 2011. Interest income was $2,209 in the three months ended March 31, 2012 and $5,502 in same period of 2011. 

The net gain from the change in fair value of the derivative liabilities associated with the outstanding warrants in the first three months of 2011 was $401,297. The first three months of 2012 reflected a loss of $175,993.  The difference is attributable to variations in the inputs utilized to value the underlying derivative liabilities on the respective measurement dates..

Liquidity and Capital Resources

Total assets were $19,399,630 as of December 31, 2011 and $16,046,936 as of March 31, 2012. The $3,352,694 decline in total assets reflects the impact of the negative cash flow from operations of $(2,622,383). Similarly, the loss for the three months ended March 31, 2012 of $(3,534,833) corresponds to the asset decline.   

Restricted cash declined from $1,206,371 at the beginning of this quarter to $1,038,468 at March 31, 2012. Collections to the account during the quarter were $890,563 plus a modest amount of interest income. Cash expenses were $1,050,000 in interest expense and $8,500 in fees.
 
Our unrestricted cash decreased from $6,173,627 to $3,532,161 during the three months ended March 31, 2012. This is a decline of $2,641,466 during the quarter.

Fixed assets increased $34,287 during the three months ended March 31, 2012. New manufacturing equipment was up $3,300, leasehold improvements were up $2,208, furniture and fixtures were up $1,205. and computers and phones were up $27,046 during the three months ended March 31, 2012.

We wrote off $244,561of intellectual property representing the balance of the Key-Lok carrying value. Senior Debt issuance costs declined by $123,098, the amount of amortization for the first quarter of 2012.

Accounts payable, accrued expenses and accrued interest were fairly level between the end of 2011 and the first quarter of 2012. Current liabilities as of March 31, 2012 included $1,757,087 of current portion of the Senior Debt. Long term liabilities declined by the same amount.

Shareholders' deficiency increased by $3,535,237. This change represented the net loss for the quarter.

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

Our July 2010 agreement for the distribution of three blood collection products provides for quarterly royalty payments based on minimum volume commitments.  We received our first royalty payment in January 2011. Royalty revenues are scheduled to increase over the next several fiscal quarters. The total value of royalty payments based on minimum production volumes over the six-year term of the new agreement totals $43.75 million. We also agreed to make minimum quarterly marketing contributions that will total approximately $6.65 million over the six-year term of the agreement, payable in proportion to the volume of royalty revenues we receive.

The issuance of $30 million of Notes enabled us to raise cash secured by our right to receive royalty revenues from the sale of our blood collection products over the six-year term of the July 2010 agreement.  The Notes are long-term debt that must be repaid in accordance with their terms regardless of default by our customer. An interest reserve pre-funded $4.5 million of debt service on the Notes.  The royalties received from the sale of our blood collection and infusion products are committed to pay principal and interest to the Noteholders until the July 2010 agreement expires in 2016. We also retain the obligation to make quarterly marketing contributions and to pay royalties on the intellectual property for the blood collection products. We have been using the balance of the proceeds from the sale of the Notes for working capital to fund the

34



commercialization of our technology and to expand our ability to manufacture and deliver products to commercial markets.

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

In addition to our $3,532,161 of unrestricted cash at March 31, 2012, we held restricted cash of $1,038,468 to service interest on our Senior Notes.

We estimate that funding our continued development and launches of our planned products, meeting current capital support requirements, and pursuing other areas of corporate interest as may be determined by the Board of Directors for the next four months will be covered by our existing cash resources.  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, primarily the Wing device, (b) continuing development of our safety syringe products and other medical device safety products based on the technology for which we hold rights, (c) actively pursuing commercialization opportunities for these products and (d) increasing our capability as needed to support these expanded day-to-day operations.

We have projected significant development activity during 2012 and the addition of several new employees and consultants to assist with the development of our new products.  We have no bank debt to service. We have no debt associated with our leasehold improvements or equipment. We are in the process of converting our servers to virtual private servers and utilizing cloud technology. There will be ongoing development and implementation costs on this project approximating $38,500.

Our royalty revenue from our three blood collection and infusion products is committed to pay principal and interest during the six-year term of the Notes. Until royalty revenues increase to cover all payments of principal and interest on the Notes, we expect to cover the balance due from the interest reserve.  During 2012, we estimate our cash required to fund operations, excluding debt service, will be approximately $825,000 per month. Until we earn revenues from the sale of our other products currently under development, we expect to fund our operations from our current cash balance. Other possible sources of cash include borrowing from commercial lenders and proceeds from the sale of securities. Covenants in the indenture of the Senior Notes limit our ability to borrow funds during the six-year term of the Notes to $7,500,000 of new senior debt and $15,000,000 of new subordinated debt.

The Company is actively pursuing commercial financing until we achieve sufficient revenues from our new products to fund operations. We have also engaged investment banking advisors to assist us in preparing to raise capital to fund manufacturing and development costs for our new products, if we do not contract with a customer or manufacturer to assist us with these costs. Although there can be no guarantee regarding future financing, management believes equity or debt financing will be available to continue to fund operations.

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.  We currently have no bank indebtedness. Our Senior Debt is priced at a fixed minimum interest rate of 14% with a possibility of additional interest to the note holders if product sales exceeds the minimum volumes on our minimum volume contract for our blood collection products. Therefore, our interest expense may increase due to changes in sales and demand for these products.

Item 4.  Controls and Procedures.

MedPro’s management, under the supervision and with the participation of the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012.  Based on that evaluation, the CEO and CFO concluded that MedPro’s disclosure controls and procedures are effective in timely making known to them material information required to be disclosed in the reports filed or submitted under the Securities Exchange Act.  There were no changes in MedPro’s internal control over financial reporting during the first quarter of 2012 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.


35



Limitations on the Effectiveness of Controls

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


36



PART II

Item 1.  Legal Proceedings.

On November 1, 2011, Visual Connections, Inc. filed suit against MedPro in federal district court alleging breach of contract, unjust enrichment/constructive trust, and interest. Visual Connections claims that under the terms of the agreements pursuant to which MedPro acquired the intellectual property underlying three medical devices from Visual Connections, Visual Connections is entitled to receive royalty payments on the principal amount of the 14% Senior Notes due 2016 that a wholly owned subsidiary of MedPro issued to institutional investors in September and October 2010. (Visual Connections, Inc. v MedPro Safety Products, Inc., Case No. 11-1307 RGA.) MedPro believes the claim that it owes royalty payments on the proceeds of long-term debt is without merit, and continues to contest the matter vigorously. The Company has filed a cross-motion for judgment on the pleadings in the case.

Item 1A. Risk Factors

Information regarding risk factors appears our Annual Report on Form 10-K for the year ended December 31, 2011 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 securities during the quarter ended March 31, 2012. The following table provides certain information with respect to our purchases of common stock during the three months ended March 31, 2012.

 
 
 
Total Number of
Maximum Number
 
 
 
Shares Purchased as
of Shares That May
 
Total Number
 
Part of Publicly
Yet Be Purchased
 
of Shares
Average Price
Announced Plans or
Under the Plans
Period
Purchased
Paid Per Share
Programs
or Programs
1/1/12-1/31/2012
26,350

$
2.25

514,589

485,411

2/1/2012-2/29/2012
12,700

$
2.46

527,289

472,711

3/1/2012-3/31/2012
23,200

$
2.68

550,489

449,511

Through March 31, 2012
62,250

$
2.45



 
Item 3. Default Upon Senior Securities

Not applicable.

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

Removed and reserved.

Item 5. Other Information

None.




Item 6. Exhibits and Financial Statement Schedules.
 

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3.1
 
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on January 4, 2008).
 
3.2
 
Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on January 4, 2008).
 
3.3
 
Bylaw amendment dated August 10, 2009 (incorporated herein by reference to Form 8-K filed on August 17, 2008).
 
4.1
 
Certificate of Designations, Series A Convertible Preferred Stock Turner (incorporated by reference to Exhibit 4.1 to Amendment No. 1 on Form S-1/A (Reg. No. 333-149163) filed on July 3, 2008).
 
4.2
 
Form of Series A Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.3 to Form 8-K/A filed on September 10, 2007).
 
4.3
 
Form of Series B Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.4 to Form 8-K/A filed on September 10, 2007).
 
4.4
 
Series A Convertible Stock Purchase Agreement dated as of September 5, 2007 (incorporated by reference to Exhibit 4.6 to Form 10-K filed on April 18, 2008).
 
4.5
 
Amendment to Certificate of Designations, Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.6 to Form 10-K filed on March 30, 2009)
 
4.6
 
Certificate of Designations, Series B Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.9 to Form 8-K filed on August 22, 2008)
 
4.7
 
Omnibus Amendment to Series A, B, and C Warrants held by Vision Opportunity Master Fund, Ltd. (incorporated herein by reference to Exhibit 4.10 to Form 8-K filed on August 22, 2008).
 
4.8
 
Certificate of Designations, Series C Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed on March 30, 2009).
 
4.9
 
Form of Common Stock Purchase Warrant held by Vision Opportunity Master Fund, Ltd. (incorporated by reference to Exhibit 4.9 to Form 10-K filed on March 30, 2010).
 
10.1
 
Technology Development and Option Agreement, between SGPF, LLC and MedPro Safety Products, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-K filed on April 18, 2008).
 
10.2
 
Technology Development and Option Agreement, between SGPF, LLC and MedPro Safety Products, Inc. (incorporated by reference to Exhibit 10.2 to Form 10-K filed on April 18, 2008).
 
10.3
 
Amendment to Technology Development and Option Agreement, between SGPF, LLC and MedPro Safety Products, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 6, 2008).
 
10.4
 
Second Amendment to Technology Development and Option Agreement, between SGPF, LLC and MedPro Safety Products, Inc. (incorporated by reference to Exhibit 10.4 to Form 10-Q filed on November 15, 2010).
 
10.5
 
Financial Advisory Agreement dated January 11, 2010, between MedPro Safety Products, Inc and SC Capital Partners LLC. (incorporated by reference to Exhibit 10.5 to Form 10-Q filed on November 15, 2010).

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10.6
 
Medical Supply Manufacturing Agreement, dated as of July 14, 2010, between MedPro Safety Products, Inc. and Greiner Bio-One GmbH (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on August 16, 2010) (portions of the exhibit have been omitted pursuant to a request for confidential treatment).
 
10.7