Summary of MEDPRO SAFETY PRODUCTS, INC.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion and analysis of the results of operations and financial condition of MedPro Safety Products, Inc. for the fiscal years ended December 31, 2008 and 2007 should be read in conjunction with our audited financial statements and the notes to those financial statements that are included elsewhere in this report. References in this Management's Discussion and Analysis or Plan of Operations to "us," "we," "our," and similar terms refers to MedPro Safety Products, Inc. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as "anticipate," "estimate," "plan," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions are used to identify forward-looking statements.

Overview

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

Our strategy for the next 24 months focuses on completing the steps necessary to attain pre-market product development milestones and to commence the distribution of up to five products in these sectors. Our objective is to enter into strategic partnership agreements with major medical products distribution partners, which whenever possible would be fixed minimum volume contracts. We have entered into two such agreements for three of our products. In addition, we are discussing the terms of a similar distribution arrangement with potential partners for a proprietary safety syringe product with an "anti-blunting" feature and a prefilled pharmaceutical safety syringe. Our product development plans also include a needleless intravenous line based on patents and designs we control.

On December 28, 2007, we completed a reverse takeover merger with Dentalserv.com, a Nevada corporation with nominal assets and no active business whose shares were registered under the Securities Exchange Act. The reverse takeover merger was a condition to the purchase of our preferred stock purchase and stock purchase warrants by four institutional investors for $13 million under the terms of our stock purchase agreement with them. On that date, the following transactions occurred concurrently:

· The 5,625,550 shares of DSRV common stock then outstanding were combined into approximately 1,406,400 common shares in a 1-for-4 reverse stock split.

· Our predecessor, a Delaware corporation, merged into DSRV. The combined company issued 11,284,754 of its common shares to former shareholders of our predecessor corporation in the merger and 593,931 common shares as a financial advisory fee. The combined company, a Nevada corporation, changed its name from "Dentalserv.com" to "MedPro Safety Products, Inc."

· Four investment funds purchased $13 million of newly issued shares of Series A Convertible Preferred Stock and warrants to purchase our common stock. We received approximately $11.6 million in proceeds from the sale of these securities, net of offering fees and expenses.

We accounted for these transactions as capital transactions in which we issued:

· Approximately 1,406,400 shares of common stock to the DRSV shareholders for the net monetary assets of the shell corporation;

· 6,668,229 shares of convertible preferred stock and warrants to purchase 25,820,150 common shares to the investors for $13,000,000; and

· 593,931 shares of common stock and warrants to purchase 533,458 shares of common stock and also paid $1,040,000 in cash as an advisory fee.

We valued the warrants according to the Black-Scholes method, based on the assumptions described in Note 11 of the Notes to Financial Statements as of December 31, 2008. We also increased the retained deficit by $3,975,120 and increased additional paid in capital by the same amount effective on December 28, 2007 to reflect the intrinsic value of the right to convert the Series A Stock into common stock. The $3,975,120 was determined based on the relative estimated fair value of the embedded conversion feature in the preferred shares and the detachable warrants. This amount would normally be amortized over the period between the issue date and the conversion date, but because the Series A Stock is convertible immediately upon issuance, the entire amount was charged to retained earnings as a deemed dividend and an increase to additional paid in capital.

In prior years, we generated revenues from sales of two legacy products - the Safe-Mate Dental Safety Needle, a single-patient, multi-injection safety needle designed for the dental market, and the Needlyzer, a legacy needle disposal device. We discontinued marketing the Needlyzer in 2004, and have subsequently been liquidating our inventory through sales from time to time to a distributor in Africa.

We ceased marketing Safe-Mate effective as of the end of the first quarter of 2008. All of the products that MedPro currently has under development or is planning for the future incorporate passive safety designs. As a result of Safe-Mate's non-passive design and limited sales, we decided to focus on what we now view as our core technology and technological distinction in the sharps risk reduction marketplace.

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

Critical Accounting Estimates and Judgments

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

We recognize sales and associated cost of sales when delivery has occurred and collectability is probable. There have been minimal returns for credit, so no reserve for product returns has been established. We provide for probable uncollected amounts through a charge to earnings and a credit to the allowance for doubtful accounts based on our assessment of the current status of individual accounts. We have fully reserved our only receivable from the sale of the Needlyzer devices to a customer in Africa.

We determine our inventory value at the lower of cost (first-in, first-out method) or market value. In the case of slow moving items, we may write down or calculate a reserve to reflect a reduced marketability for the item. The actual percentage reserved depends on the total quantity on hand, its sales history, and expected near term sales prospects. When we discontinue sales of a product, we will write down the value of inventory to an amount equal to its estimated net realizable value less all applicable disposition costs. In 2008, we took an additional write down on our Needlyzer inventory to net realizable value. This charge was $252,432.

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 the remaining life of the patents. Because our products that incorporate our Vacu-Mate and Key-Lok proprietary technology are currently not in production for distribution, we have not begun to amortize these patents. We expect to use the straight line method to amortize these intellectual properties over their estimated period of benefit, ranging from one to ten years, when our products are placed in full production and we can better evaluate market demand for our technology. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists. Once our intellectual property has been placed into productive service, we expect to utilize a net present value of future cash flows analysis to calculate carrying value after an impairment determination.

As part of the process of preparing our consolidated 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 consolidated 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

Comparison of the Years Ended December 31, 2008 and 2007

MedPro recorded a loss of $(6,539,566) for the year ended December 31, 2008, as compared to a loss of $(3,252,600) for year ended December 31, 2007. Net loss attributable to common shareholders in 2007 was $(7,227,720) after deduction of the deemed dividend on the embedded conversion feature inherent in the Series A Convertible Preferred stock. Losses from operations were $(5,920,099) for 2008 and $(2,106,160) for 2007. The net losses for the years included net other expense of $(619,467) for 2008 and $(1,146,440) for 2007. Net other expense included interest expense of $795,083 and $1,168,447 for the years ended in 2008 and 2007. Income from the settlement of long outstanding debt of $113,069 and interest income of $62,547 were included in net other expenses for 2008. Net other expenses for 2007 included interest income of $7,400 and other income of $14,607.

During June and July 2008, the Company began the process of finding a backup contract manufacturer in the United States due to a number of significant problems with our Chinese manufacturer. We terminated our relationship in China and the U.S. and moved to a domestic contract manufacturer. We also terminated our manufacturing, design and engineering contract with an Australian company and negotiated the return of our $3,000,000 conditional license fee (net of $700,000 to reimburse the Australian company for costs incurred over the last two years). As a result, the Company wrote off assets abandoned in China in 2008 totaling $(402,494). These costs included the initial payments for a design plan for automation of the manufacturing process for the Vacumate products ($200,000) and molds, jig and fixtures for parts manufacturing and manual assembly in China ($202,494). In early September, we agreed to purchase $38,000 worth of supplies and raw material from China and have shipped back $100,000 to $125,000 of equipment, jigs and fixtures which we already own.

The most substantial differences in the losses from operations between 2008 and 2007 were increases in professional and insurance costs, payroll costs, travel expenses, inventory write-offs, loss on abandonment of fixed assets and depreciation and amortization. Professional and insurance costs increased $1,144,394 over the same period in 2007 primarily from patent work, FDA compliance, SEC compliance, and the addition of appropriate insurance coverage. This change included the $700,000 settlement cost with Unilife on the cancellation of the manufacturing contract and the license agreement. This amount represented the estimated legal costs associated with the abandoned plans to work together in the future.

Payroll costs increased by $721,473 in 2008 compared to 2007 due to the addition of several employees and increases in compensation. The number of our full-time employees increased from three at September 30, 2007, to thirteen at December 31, 2008. In addition, compensation expense increased as a result of our adoption in 2008 of both a share-based incentive compensation plan and a qualified retirement plan to attract and retain quality employees. The cost associated with the new retirement plan in 2008 was $151,131.

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

Total compensation for the share based plan will be $14,580,000, or $4.86 per share underlying the options. In determining the fair value of the options at the date of grant under SFAS 157, management relied in part upon the report of an independent valuation firm. The Black-Scholes model was used to value the options. The valuation methodology and underlying assumptions are described in Note 11 of the notes to the financial statements.

The unearned compensation from the grant of the options is being charged to earnings over 24 months beginning on August 18, 2008. The 24 month period coincides with the term of a non-competition covenant included in the option agreement. The Company recorded $2,693,250 of compensation expense for the period from August 18 through December 31, 2008. The balance of the unearned compensation is $11,886,750 at year-end.

Travel expenses were $175,541 higher in 2008 versus 2007, reflecting increased directors travel costs, heightened activity with customers and suppliers, and associated developmental engineering expenses. Airfare increased $62,841, representing both more international travel and travel in general, as well as, fuel cost pressures on ticket prices. Hotels, meals, and non-air travel increased $112,701 in 2008.

In connection with the discontinuance of our Safe-Mate product in 2008 and further adjustments to our Needlyzer inventory, the Company recorded inventory adjustments of $294,877 in 2008. We wrote off and destroyed our remaining Safe-Mate inventory for a charge of $42,445 and we wrote down the Needlyzer inventory an additional $252,432.

Sales for 2008 were $19,128 compared to $98,049 for 2007. The decline in sales was principally due to the discontinuance of sales of the Safe-Mate device and no 2008 sales of the Needlyzer device.

Other revenue recorded in 2008 included fee income earned under agreements with the distributor of our Vacumate safety needles and the winged blood collection set. The Company recorded program fees of $1,000,000 on each of the safety needle and the winged blood collection set projects in September 2008 when it delivered the automation plan for producing the safety needle and the design plan for the winged blood collection set.

The Company also recorded $235,100 of income from the reimbursement of automation expenses incurred in connection with the safety needle contract. The Company received an advance of $700,000 in October 2008 for costs associated with automation and other product development activities requested by our distributor. At December 31, 2008 we had spent $687,955 of the advance on automation and the purchase of packaging equipment for $452,855. The equipment cost has been deferred, along with the associated revenue from our customer for its purchase, until it is determine if the equipment will be retained or sold by the customer. The remaining $12,045 of deferred revenue has been spent in 2009.

Other significant differences between 2008 and 2007 included:

· Advertising and promotion costs were $204,286 in 2008. In accordance with the September 2007 stock purchase agreement, we engaged an investor relations firm in September 2008. We pay a monthly retainer of $13,500 for the first 12 months and issued 35,294 shares of common stock at $9.50 per share, or $335,293 in total. Advertising costs in 2007 were insignificant and were absorbed in General and administrative costs.

· Product development costs increased by $309,999 over 2007. These costs reflect significant activity by our contract design and manufacturing firms toward building and refining our product prototypes and test large batches of our product through accelerated ageing and product functionality testing.

· Depreciation and amortization expenses increased by $39,126, reflecting the depreciation of testing equipment and manufacturing equipment we acquired. No intangible asset amortization was recorded in 2008 since commercial shipments have not begun. Other amortization is associated with loan fees.

· We recorded $202,494 of loss in 2008 on the abandonment of assets, molds, jigs and fixtures in China.

· Other income includes gains on the write down of third party payables in settlement of long outstanding accounts payable. We were able to negotiate reductions of amounts due third parties for bills relating to legal costs incurred working with the FDA in connection with our legacy products. These fees were incurred several years ago. Other fees for general corporate work were also written down before being paid in full. The fees totaled $378,628 at December 31, 2007 and were settled for $283,865, a savings of $94,763. The balance of the other income includes fee for service income of $11,200 and misc income of $7,106.

· Interest income was $62,547 in 2008 as compared to $7,400 in 2007. The increase was from temporary investment of excess funds from the sale of preferred shares in late 2007 and September and October of 2008.

Liquidity and Capital Resources

Total assets were $22,757,649 as of December 31, 2008 and $16,261,328 as of December 31, 2007. The $6,496,321 increase in total assets reflected the addition of $6,042,107 of new intellectual property purchases, the cancellation of the Unilife license agreement which netted $2,300,000, but reduced other assets by $3,000,000, and increases in other current assets of $681,515. We also received $2,700,000 of advance payments and fee income from our distribution partner for the production lines for three of our products as well as cash proceeds of $13,026,000 from our sale of preferred stock. Some of the cash was used to fund operating losses of $6,539,566 in 2008.

During September and October 2008, preferred shareholders exercised warrants to purchase Series B Convertible Preferred stock for a total purchase price of $13,026,000, which increased our equity and available cash. The remaining increase in additional paid in capital was associated with the $14,580,000 credit for the employee and director options granted in August 2008. This adjustment was partially offset by unearned share-based compensation of $(11,886,750). The 2008 loss of $(6,539,566) increased the deficit to $(30,247,024) from $(23,707,458).

Total liabilities of $9,263,929 as of December 31, 2008 were $3,018,409 less than the $12,282,338 as of December 31, 2007. MedPro paid off or settled various accounts payable, accrued interest and shareholder debt during 2008. However, we accrued $2,250,000 for the purchase price of new technology. The net reduction of other liabilities totaled $5,268,409.

The additions to fixed assets in 2008 totaled $293,756 and included equipment, computers, phones, office furniture and leasehold improvements. Net write-downs from the abandonment of fixed assets were $436,869 less accumulated depreciation of $34,375 for a net loss on abandonment of assets of $402,494. The loss from abandonment off assets in China was $202,494 and the additional $200,000 of losses was reflected as cost of goods sold in connection with the recovery of automation costs from the $700,000 paid by our customer in connection with the Vacuette® project.

The $11,593,000 in net proceeds from our private placement of the Series A Stock and warrants in December 2007 and the cash proceeds from stock purchase warrant exercises during 2008 provided working capital and will continue to be the principal source of funding for our operations through December 31, 2009. We had $11,636,843 in cash at December 31, 2008. Other sources of funds include revenues from the sale of our medical safety products, including anticipated revenues from the sale of blood collection products we expect to launch in the fourth quarter of 2009, and the commitment for funding made by our Chairman. In addition, our Series A Stockholders have the right to fund our future financing needs, but we can seek alternative financing if they do not exercise their rights.

In July 2008, we entered into two new agreements with a worldwide medical products company to manufacture and distribute three of our medical safety products, replacing an earlier agreement for the distribution of our tube-activated blood collection system. Both agreements continue for five years from the date we make an initial commercial shipment of the product. The distributor has agreed to purchase minimum annual quantities of both models of the safety needles and our winged blood collection set over the five-year term of the contract, for royalties totaling over $43 million under both agreements.

The new agreements provide capital for equipment, engineering, and tooling necessary to produce the three products. The distributor agreed to pay us an amount not to exceed $5.1 million for the production of the two models of the blood collection system, payable in installments, beginning October 1, 2008, with the final payment due March 31, 2009. The distributor also agreed to pay us an amount not to exceed $5 million for the production of the winged blood collection set. We received initial payments totaling $2.7 million on October 3, 2008 upon delivery and acceptance of the initial design plan by the distributor. The balance is payable in two equal installments upon the achievement of certain milestones leading to validation of the final production line.

As of the date of this filing, we are negotiating modifications to our agreement to allow the distributor to build the automation lines for the Vacuette® safety needles and the winged safety blood collection sets at its own plant in Austria. Although no new contract has been finalized, the parties have agreed that the $2,700,000 payment made in October 2008 will be applied to the full $1,000,000 program fee for each project and the remaining $700,000 will be allocated to out-of-pocket costs we incurred on behalf of the distributor. As of December 31, 2008, our out-of-pocket costs totaled $687,955.

If we reach an agreement to transfer responsibility for completing the automation line to the distributor, we would not receive subsequent installments totaling $8.2 million for the automation lines for the Vacuette® safety needles and the winged blood collection set, plus $3.5 million for a second Vacuette® line. These payments were intended to reimburse us for the cost of equipment, molds and fixtures acquired on behalf of our customer, which we would no longer have to incur. Instead, we would bill only for services requested by the distributor and would pass both internal time and materials and third party payments on to the distributor as incurred at their request. Certain ongoing product design and enhancements will remain our responsibility and be performed at our expense.

On September 30, 2008, we exercised an option to purchase patents and related rights to anti-blunting syringe technology from a related party. The purchase price is $3,345,000 payable in cash and the contingent issuance of 690,608 shares of our common stock. The Company paid $1,113,444 of the cash portion of the purchase price before the end of September 2008 and the balance of $2,231,556 was paid in October. Our obligation to issue the stock portion of the purchase price is contingent upon our collecting $5,000,000 in sales revenue from the products, the sale or license of all or part of the product to a third party or a change in control of the Company.

On September 30, 2008 the Company also received a $2.3 million cash payment to terminate our option to acquire exclusive US distribution rights to Unilife products, compensate the Unilife for its expenses incurred in connection with certain strategic initiatives between us since 2006, and complete contract manufacturing work performed for us by Unilife's subsidiary.

Our current credit agreement includes a $5,000,000 term loan and a $1,500,000 revolving line of credit. As of December 31, 2008, the amount payable for the revolving line of credit was $1,498,475 and the amount payable for the term note was $4,027,777. Our indebtedness under the credit agreement bears interest at the prime rate plus 2%. The maturity date of the revolver has been extended to April 1, 2009, and payments of interest are due monthly. The term loan matures on August 1, 2011. We also pay interest monthly on the term loan, and monthly principal payments of approximately $138,889 began in June 2008.

The credit agreement contains various usual and customary terms and conditions of a revolving line of credit and term loan facility, including limitations on the payment of cash dividends and other restricted payments, limitations on the incurrence of additional debt, and prohibitions on a merger or the sale of assets. The former financial covenants under the term loan and revolver have been replaced with cross collateral agreements and pledge of the intangible assets.

We estimate that funding our continued development and launches of our planned products, meeting current capital support requirements, and pursuing other areas of corporate interest as may be determined by the Board of Directors for the next twelve months will not require any additional funding in addition to our cash on hand and the payments due us under our distribution agreements. Whether we commit resources to optional projects will depend upon our cash position from time to time. Our primary cash requirements will be to fund (a) launching our blood collection products for distribution, (b) continuing development of our safety syringe products and other medical device safety products based on the technology for which we hold rights, and (c) increasing our administrative capability as needed to support expanded day-to-day operations.

We will require additional funding to complete the development of and launch all . . .