**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

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

 

**For the quarterly period ended         March 31, 2008**

 

**or**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934**

 

**For the transition period from                                          to**

 

**Commission file number 000-30885**

 

**RetractableTechnologies, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Texas**                                                              | ** ** | **75-2599762**                        |
|------------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or  organization) |       | (I.R.S. Employer  Identification No.) |
|                                                                   |       |                                  |
| **511  Lobo Lane**                                                     | ** ** | ** **                            |
| **Little  Elm, Texas**                                                 | ** ** | **75068-0009**                        |
| (Address of  principal executive offices)                              |       | (Zip Code)                            |

 

**(972)294-1010**

(Registrant’stelephone number, including area code)

 

 

(Former name,former address, and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x          No o

 

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

 

| Large accelerated filer  o                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company x |
| (Do not check if a  smaller reporting company) |   |                              |

 

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

 

APPLICABLE ONLY TOISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by acourt.   Yes o    No o

 

APPLICABLE ONLY TOCORPORATE ISSUERS

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date: 23,800,064 shares of Common Stock, no par value,issued and outstanding on May 1, 2008.

 

 

----

 

**RETRACTABLETECHNOLOGIES, INC.**

**FORM 10-Q**

**Forthe Quarterly Period Ended March 31, 2008**

 

**TABLEOF CONTENTS**

 
| **PART I—FINANCIAL  INFORMATION**  |
|----------------------------------------------|
| ** **                                   |
| **Item 1.**                                  | **Financial  Statements.** | 1 |
| ** **                                   | ** ** |   |
| **CONDENSED BALANCE  SHEETS**                | 1 |
| **CONDENSED  STATEMENTS OF OPERATIONS**      | 2 |
| **CONDENSED  STATEMENTS OF CASH FLOWS**      | 3 |
| **NOTES TO  CONDENSED FINANCIAL STATEMENTS** | 4 |
| ** **                                   |   |
| **Item 2.**                                  | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations.** | 9 |
| ** **                                   | ** ** |   |
| **Item 3.**                                  | **Quantitative  and Qualitative Disclosures About Market Risk.** | 14 |
| ** **                                   | ** ** |   |
| **Item 4T.**                                 | **Controls and  Procedures.** | 14 |
| ** **                                   | ** ** |   |
| **PART II—OTHER  INFORMATION**     |
| ** **                                   |
| **Item 1.**                                  | **Legal Proceedings.** | 14 |
| ** **                                   | ** ** |   |
| **Item 1A.**                                 | **Risk Factors.** | 14 |
| ** **                                   | ** ** |   |
| **Item 2.**                                  | **Unregistered  Sales of Equity Securities and Use of Proceeds.** | 14 |
| ** **                                   | ** ** |   |
| **Item 3.**                                  | **Defaults  Upon Senior Securities.** | 15 |
| ** **                                   | ** ** |   |
| **Item 4.**                                  | **Submission  of Matters to a Vote of Security Holders.** | 15 |
| ** **                                   | ** ** |   |
| **Item 5.**                                  | **Other Information.** | 15 |
| ** **                                   | ** ** |   |
| **Item 6.**                                  | **Exhibits.** | 15 |
| ** **                                   | ** ** |   |
| **SIGNATURES**                               | 16 |

 

 

**PART I—FINANCIAL INFORMATION**

 

**Item 1.        FinancialStatements.**

 

**RETRACTABLETECHNOLOGIES, INC.**

## **CONDENSED BALANCE SHEETS**

 
| ** **                                      | ** ** | **March 31, 2008** | ** ** | ** **                 | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                      | ** ** | **(unaudited)**         | ** ** | **December 31, 2007** | ** ** |
|                                            |       | ** **              |       |                       |       |
| **ASSETS**                                      | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current assets:                                 |       |                    |       |                       |       |
| Cash and cash equivalents                       |       | $                       | 39,209,597 |                       | $          | 40,507,431 |   |
| Accounts receivable, net                        |       | 1,776,979               |       | 1,667,636                  |       |
| Inventories, net                                |       | 6,686,657               |       | 7,037,129                  |       |
| Income taxes receivable                         |       | 388,020                 |       | 2,345,041                  |       |
| Other current assets                            |       | 457,089                 |       | 358,807                    |       |
| Total current assets                            |       | 48,518,342              |       | 51,916,044                 |       |
|                                            |       |                    |       |                       |       |
| Property, plant, and equipment, net             |       | 11,301,895              |       | 11,483,423                 |       |
| Intangible assets, net                          |       | 413,696                 |       | 424,560                    |       |
| Other assets                                    |       | 504,900                 |       | 505,899                    |       |
| Total assets                                    |       | $                       | 60,738,833 |                       | $          | 64,329,926 |   |
|                                            |       |                    |       |                       |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**   | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current liabilities:                            |       |                    |       |                       |       |
| Accounts payable                                |       | $                       | 4,807,503  |                       | $          | 5,535,365 |   |
| Current portion of long-term debt               |       | 460,760                 |       | 387,906                    |       |
| Accrued compensation                            |       | 669,345                 |       | 539,330                    |       |
| Marketing fees payable                          |       | 1,419,760               |       | 1,419,760                  |       |
| Accrued royalties to shareholders               |       | 432,510                 |       | 619,304                    |       |
| Other accrued liabilities                       |       | 420,147                 |       | 263,339                    |       |
| Current deferred tax liability                  |       | 19,594                  |       | 20,626                     |       |
| Total current liabilities                       |       | 8,229,619               |       | 8,785,630                  |       |
|                                            |       |                    |       |                       |       |
| Long-term debt, net of current maturities       |       | 3,574,740               |       | 3,747,259                  |       |
| Long-term deferred tax liability                |       | 31,695                  |       | 36,200                     |       |
| Total liabilities                               |       | 11,836,054              |       | 12,569,089                 |       |
|                                            |       |                    |       |                       |       |
| Stockholders’ equity:                      |       |                    |       |                       |       |
| Preferred stock $1 par value:                   |       |                    |       |                       |       |
| Series I, Class B                     |       | 144,000                 |       | 144,000                    |       |
| Series II, Class B                    |       | 219,700                 |       | 219,700                    |       |
| Series III, Class B                   |       | 130,245                 |       | 130,245                    |       |
| Series IV, Class B                    |       | 552,500                 |       | 553,500                    |       |
| Series V, Class B                     |       | 1,238,821               |       | 1,282,471                  |       |
| Common stock, no par value                      |       | —                  |       | —                     |       |
| Additional paid-in capital                      |       | 53,869,174              |       | 53,818,987                 |       |
| Retained deficit                                |       | (7,251,661              | )          | (4,388,066                 | )          |
| Total stockholders’ equity                 |       | 48,902,779              |       | 51,760,837                 |       |
| Total liabilities and stockholders’ equity |       | $                       | 60,738,833 |                       | $          | 64,329,926 |   |

 

See accompanying notes to condensed financialstatements

 

1

 

**RETRACTABLE TECHNOLOGIES, INC.**

## **CONDENSED STATEMENTS OF OPERATIONS**

**(unaudited)**

 

 
| ** **                                 | ** ** | **Three Months  Ended  March 31, 2008** | ** ** | **Three Months  Ended  March 31, 2007** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                 | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Sales, net                                 |       | $                                                      | 5,315,155  |                                                   | $          | 5,773,823 |   |
| Cost of sales                              |       |                                                   |       |                                                   |       |
| Cost of manufactured product               |       | 3,596,914                                              |       | 4,074,914                                              |       |
| Royalty expense to shareholders            |       | 432,510                                                |       | 439,400                                                |       |
| Total cost of sales                        |       | 4,029,424                                              |       | 4,514,314                                              |       |
| Gross profit                               |       | 1,285,731                                              |       | 1,259,509                                              |       |
|                                       |       |                                                   |       |                                                   |       |
| Operating expenses:                        |       |                                                   |       |                                                   |       |
| Sales and marketing                        |       | 1,167,908                                              |       | 1,341,922                                              |       |
| Research and development                   |       | 265,508                                                |       | 182,035                                                |       |
| General and administrative                 |       | 2,928,580                                              |       | 2,476,038                                              |       |
| Total operating expenses                   |       | 4,361,996                                              |       | 3,999,995                                              |       |
| Loss from operations                       |       | (3,076,265                                             | )          | (2,740,486                                             | )          |
|                                       |       |                                                   |       |                                                   |       |
| Interest and other income                  |       | 253,669                                                |       | 541,197                                                |       |
| Interest expense, net                      |       | (40,999                                                | )          | (76,794                                                | )          |
| Net loss                                   |       | (2,863,595                                             | )          | (2,276,083                                             | )          |
| Preferred stock dividend requirements      |       | (344,868                                               | )          | (355,051                                               | )          |
| Net loss applicable to common shareholders |       | $                                                      | (3,208,463 | )                                                      | $          | (2,631,134 | ) |
|                                       |       |                                                   |       |                                                   |       |
| Net loss per share - basic and diluted     |       | $                                                      | (0.13      | )                                                      | $          | (0.11 | ) |
|                                       |       |                                                   |       |                                                   |       |
| Weighted average common shares outstanding |       | 23,778,072                                             |       | 23,676,664                                             |       |

 

See accompanyingnotes to condensed financial statements

 

2

 

**RETRACTABLETECHNOLOGIES, INC.**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(unaudited)**

** **

** **
| ** **                                                                                 | ** ** | **Three Months  Ended  March 31, 2008** | ** ** | **Three Months  Ended  March 31, 2007** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| **Cash flows from operating activities**                                                   |       |                                              |       |                                              |       |
| Net loss                                                                                   |       | $                                                 | (2,863,595 | )                                                 | $          | (2,276,083 | ) |
| Adjustments  to reconcile net loss to net cash provided by (used by) operating activities: |       |                                              |       |                                              |       |
| Depreciation and amortization                                                              |       | 350,735                                           |       | 363,430                                           |       |
| Capitalized interest                                                                       |       | (46,741                                           | )          | (52,002                                           | )          |
| Stock option compensation                                                                  |       | —                                            |       | 6,478                                             |       |
| Accreted interest                                                                          |       | 14,599                                            |       | 31,836                                            |       |
| (Increase) decrease in assets:                                                             |       |                                              |       |                                              |       |
| Inventories                                                                                |       | 350,472                                           |       | (604,057                                          | )          |
| Accounts receivable                                                                        |       | (109,343                                          | )          | (594,006                                          | )          |
| Income taxes receivable                                                                    |       | 1,957,021                                         |       | (2,079                                            | )          |
| Other current assets                                                                       |       | (98,282                                           | )          | (68,665                                           | )          |
| Increase (decrease) in liabilities:                                                        |       |                                              |       |                                              |       |
| Accounts payable                                                                           |       | (727,862                                          | )          | 1,344,156                                         |       |
| Other accrued liabilities                                                                  |       | 100,029                                           |       | 658,202                                           |       |
| Net cash used by operating activities                                                      |       | (1,072,967                                        | )          | (1,192,790                                        | )          |
|                                                                                       |       |                                              |       |                                              |       |
| **Cash flows from investing activities**                                                   |       |                                              |       |                                              |       |
| Purchase of property, plant, and equipment                                                 |       | (110,603                                          | )          | (116,794                                          | )          |
| Acquisitions of patents, trademarks, licenses and intangibles                              |       | —                                            |       | (107,418                                          | )          |
| Net cash used by investing activities                                                      |       | (110,603                                          | )          | (224,212                                          | )          |
|                                                                                       |       |                                              |       |                                              |       |
| **Cash flows from financing activities**                                                   |       |                                              |       |                                              |       |
| Repayments of long-term debt and notes payable                                             |       | (114,264                                          | )          | (95,355                                           | )          |
| Net cash used by financing activities                                                      |       | (114,264                                          | )          | (95,355                                           | )          |
|                                                                                       |       |                                              |       |                                              |       |
| Net decrease in cash                                                                       |       | (1,297,834                                        | )          | (1,512,357                                        | )          |
|                                                                                       |       |                                              |       |                                              |       |
| Cash and cash equivalents at:                                                              |       |                                              |       |                                              |       |
| Beginning of period                                                                        |       | 40,507,431                                        |       | 46,814,689                                        |       |
| End of period                                                                              |       | $                                                 | 39,209,597 |                                              | $          | 45,302,332 |   |
|                                                                                       |       |                                              |       |                                              |       |
| Supplemental disclosures of cash flow information:                                         |       |                                              |       |                                              |       |
| Interest paid                                                                              |       | $                                                 | 73,142     |                                              | $          | 96,960 |   |
| Income taxes paid                                                                          |       | $                                                 | —     |                                              | $          | — |   |
|                                                                                       |       |                                              |       |                                              |       |
| Supplemental schedule of noncash financing activities:                                     |       |                                              |       |                                              |       |
| Preferred dividends declared                                                               |       | $                                                 | —     |                                              | $          | 979,193 |   |

 

See accompanyingnotes to condensed financial statements

 

3

 

 

**RETRACTABLE TECHNOLOGIES, INC.**

**NOTES TOCONDENSED FINANCIAL STATEMENTS**

**(unaudited)**

 
| **1.** | ** ** | **BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION** |
|--------|------------|-------------------------------------------------------|

 

**Business of the Company**

 

Retractable Technologies, Inc. (the “Company”) was incorporated inTexas on May 9, 1994, and designs, develops, manufactures and marketssafety syringes and other safety medical products for the healthcareprofession.  The Company began to developits manufacturing operations in 1995. The Company’s manufacturing and administrative facilities are located inLittle Elm, Texas.  The Company’s primaryproducts with Notice of Substantial Equivalence to the FDA are the VanishPoint® 1cctuberculin, insulin, and allergy antigen syringes; the 3cc, 5cc, and 10ccsyringes; the autodisable syringe; the small diameter tube adapter; the bloodcollection tube holder; the allergy tray; and the IV safety catheter.  The Company also has the PatientSafeTM syringe, which the Company anticipates will enter the market in2008.  The Company has conductedpreliminary clinical evaluations and worked with national distributors to encouragehealthcare facilities to transition from the use of standard syringes to theVanishPoint® syringe.

 

**Basis of presentation**

 

The accompanying condensed financial statements areunaudited and, in the opinion of Management, reflect all adjustments that arenecessary for a fair presentation of the financial position and results ofoperations for the periods presented. All such adjustments are of a normal and recurring nature.  The results of operations for the periodspresented are not necessarily indicative of the results to be expected for theentire year.  The condensed financialstatements should be read in conjunction with the financial statementdisclosures contained in the Company’s audited financial statementsincorporated into its Form 10-K filed on March 31, 2008 for the yearended December 31, 2007.

 
| **2.** | ** ** | **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** |
|--------|------------|------------------------------------------------|

 

**Accounting estimates**

 

The preparation of financial statements inconformity with U.S. generally accepted accounting principles requiresManagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ significantly from those estimates.

 

**Cash and cash equivalents**

 

For purposes of reporting cash flows, cash and cashequivalents include unrestricted cash, money market accounts, and investmentswith original maturities of three months or less.

 

**Accounts receivable**

 

The Company records trade receivables when revenueis recognized.  No product has beenconsigned to customers.  The Company’sallowance for doubtful accounts is primarily determined by review of specifictrade receivables.  Those accounts thatare doubtful of collection are included in the allowance.  An additional allowance has been establishedbased on a percentage of receivables outstanding.  These provisions are reviewed to determinethe adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when thereis certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not beenmade within contract terms.

 

4

 

**Inventories**

 

Inventories are valued at the lower of cost ormarket, with cost being determined using a standard cost method, whichapproximates average cost.  A reserve isestablished for any excess or obsolete inventories.

 

**Property, plant, and equipment**

 

Property, plant, and equipment are stated atcost.  Expenditures for maintenance andrepairs are charged to operations as incurred. Cost includes major expenditures for improvements and replacements whichextend useful lives or increase capacity and interest cost associated withsignificant capital additions.  Gains orlosses from property disposals are included in income.

 

Depreciation and amortization are calculated usingthe straight-line method over the following useful lives:

 
|   | Production  equipment           |   | 3  to 13 years |
|--------|---------------------------------|--------|----------------|
|   | Office  furniture and equipment |   | 3  to 10 years |
|   | Buildings                       |   | 39  years      |
|   | Building  improvements          |   | 15  years      |
|   | Automobiles                     |   | 7  years       |

 

**Long-lived assets**

 

The Company assesses the recoverability oflong-lived assets using an assessment of the estimated undiscounted future cashflows related to such assets.  In theevent that assets are found to be carried at amounts which are in excess ofestimated gross future cash flows, the assets will be adjusted for impairmentto a level commensurate with a discounted cash flow analysis of the underlyingassets.

 

**Intangible assets**

 

Intangible assets are stated at cost and consistprimarily of patents, a license agreement granting exclusive rights to usepatented technology, and trademarks which are amortized using the straight-linemethod over 17 years.

 

**Financial instruments**

 

Effective January 1, 2008, the Company adopted Statementof Financial Accounting Standards (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS 157”).  SFAS 157 defines fair value, establishes aframework for measuring fair value in accordance with accounting principlesgenerally accepted in the United States, and expands disclosure requirementsabout fair value measurements.  Inaccordance with Financial Accounting Standards Board (“FASB”) Staff PositionFAS 157-2, *Effective Date of FASB Statement No. 157*(FSP 157-2), the Company will defer the adoption of SFAS 157 for itsnonfinancial assets and nonfinancial liabilities, except those items recognizedor disclosed at fair value on an annual or more frequent recurring basis, untilJanuary 1, 2009.  The adoption ofSFAS 157 did not have a material impact on the Company’s fair valuemeasurements.

 

The Company estimates the fair market value offinancial instruments through the use of public market prices, quotes fromfinancial institutions and other available information.  Judgment is required in interpreting data todevelop estimates of market value and, accordingly, amounts are not necessarilyindicative of the amounts that could be realized in a current marketexchange.  Short-term financialinstruments, including cash and cash equivalents, accounts receivable, accountspayable and other liabilities, consist primarily of instruments without extendedmaturities, the fair value of which, based on Management’s estimates, equalstheir recorded values.

 

**Concentration risks**

 

The Company’s financial instruments exposed toconcentrations of credit risk consist primarily of cash, cash equivalents, andaccounts receivable.  Cash balances, someof which exceed the federally insured limits, are

 

5

 

maintained in financial institutions; however,Management believes the institutions are of high credit quality.  The majority of accounts receivable are duefrom companies which are well-established entities.  As a consequence, Management considers anyexposure from concentrations of credit risks to be limited.

 

The Company manufactures syringes in Little Elm,Texas as well as utilizing a manufacturer in China.  The Company purchases most of its productcomponents from single suppliers, including needle adhesives and packagingmaterials.  There are multiple sources ofthese materials.  The Company currentlyobtains roughly 76.7% of its finished products through Double Dove, a Chinesemanufacturer.  In the event that theCompany was unable to purchase such product from Double Dove, the Company wouldneed to find an alternate supplier for its 5cc and 10cc syringes and increasedomestic production for 1cc and 3cc syringes to avoid a disruption in supply.

 

**Revenue recognition**

 

Revenue is recognized for sales to distributors whentitle and risk of ownership passes to the distributor, generally uponshipment.  Revenue is recorded on thebasis of sales price to distributors, less contractual pricing allowances.  Contractual pricing allowances consist of: (i) rebatesgranted to distributors who provide tracking reports which show, among otherthings, the facility that purchased the products, and (ii) a provision forestimated contractual pricing allowances for products that the Company has notreceived tracking reports.  Rebates arerecorded when issued and are applied against the customer’s receivablebalance.  The provision for contractualpricing allowances is reviewed at the end of each quarter and adjusted forchanges in levels of products for which there is no tracking report.  Additionally, if it becomes clear thattracking reports will not be provided by individual distributors, the provisionis further adjusted.  The estimatedcontractual allowance is netted against individual distributor’s accountsreceivable balances for financial reporting purposes.  The resulting net balance is reflected inaccounts receivable or accounts payable, as appropriate.  The terms and conditions of contractualpricing allowances are governed by contracts between the Company and itsdistributors.  Revenue for shipmentsdirectly to end-users is recognized when title and risk of ownership passes fromthe Company.  Any product shipped ordistributed for evaluation purposes is expensed.

 

The Company’s domestic return policy is set forth inits standard Distribution Agreement. This policy provides that a customer may return incorrect shipmentswithin 10 days following arrival at the distributor’s facility.  In all such cases the distributor must obtainan authorization code from the Company and affix the code to the returnedproduct.  The Company will not acceptreturned goods without a returned goods authorization number.  The Company may refund the customer’s moneyor replace the product.

 

The Company’s return policy also provides that acustomer may return product that is overstocked.  Overstocking returns are limited to two timesin each 12-month period up to one percent of distributor’s total purchase ofproducts for the prior 12-month period. All product overstocks and returns are subject to inspection andacceptance by manufacturer.

 

The Company’s international distribution agreementsdo not provide for any returns.

 

The Company records an allowance for estimatedreturns as a reduction to Accounts receivable and Gross sales.  Historically, returns have been less than0.48% of Total sales.

 

**Marketing fees**

 

Under a sales and marketing agreement with AbbottLaboratories (“Abbott”), the Company paid marketing fees until the Companyterminated the contract for breach.  Thecontracted services were to include participation in promotional activities,development of educational and promotional materials, representation at tradeshows, clinical demonstrations, inservicing and training, and tracking reportsdetailing the placement of the Company’s products to end-users.  Marketing fees were accrued at the time ofthe sale of product to Abbott.  Thesefees were paid after Abbott provided the Company a tracking report of productsales to end-users.  These costs wereincluded in Sales and marketing expense in the Condensed Statements ofOperations.  No marketing fees have beenaccrued since October 15, 2003, the date the National Marketing andDistribution Agreement with Abbott was terminated.  The Company filed suit against Abbott in August 2005

 

6

 

for breach of contract.  The Company does not expect the eventualliability for marketing fees, if any, to exceed the amount accrued.

 

**Income taxes**

 

The Company provides for deferred income taxes inaccordance with SFAS No. 109, *Accountingfor Income Taxes* (“SFAS 109”). SFAS 109 requires an asset and liability approach for financialaccounting and reporting for income taxes based on the tax effects ofdifferences between the financial statement and tax bases of assets andliabilities, based on enacted rates expected to be in effect when suchdifferences reverse in future periods. Deferred tax assets are periodically reviewed for realizability.  The Company had sufficient taxable incomefrom prior carryback years to realize all of its taxable losses through December 31,2006.  Taxable losses for 2007 andthereafter are subject to loss carryforwards. The Company has established a valuation allowance for its net deferredtax asset as future taxable income cannot be reasonably assured.  Penalties and interest on uncertain taxpositions are classified as income taxes in the Condensed Statements ofOperations.

 

**Earnings per share**

 

The Company has adopted SFAS No. 128, *Earnings Per Share*, which establishesstandards for computing and presenting earnings per share.  Basic earnings per share is computed bydividing net earnings for the period (adjusted for any cumulative dividends forthe period) by the weighted average number of common shares outstanding duringthe period.  The Company’s potentiallydilutive Common Stock equivalents, consisting of options, convertible debt andconvertible Preferred Stock, are all antidilutive for the three months ended March 31,2008 and 2007.  Accordingly basic lossper share is equal to diluted earnings per share.

 

**Shipping and handling costs**

 

The Company classifies shipping and handling costsas part of Cost of sales in the Condensed Statements of Operations.

 

**Research and development costs**

 

Research and development costs are expensed asincurred.

 

**Share-based compensation**

 

The Company has issued options under threestock-based Director, independent contractor and employee compensation plans aswell as several individual option agreements. Two of the plans have terminated; however, the options continue untiltheir expected maturity dates.

 

The Company’s share-based payments are accounted forin accordance with the provisions of SFAS No. 123 (Revised 2004) (“SFAS123 R”), *Share-Based Payment*,using the fair value method.  The Companyrecords share-based compensation expense on a straight-line basis over therequisite service period, generally over periods up to three years.  In accordance with the disclosurerequirements of SFAS No. 123 R, the Company incurred the followingshare-based compensation costs:

 
| ** **                 | ** ** | **Three Months  Ended  March 31, 2008** | ** ** | **Three Months  Ended  March 31, 2007** | ** ** |
|----------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                 | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Cost of sales              |       |                                                   | $          | —                                                 |       |   | $ | 6,648 |   |
| Sales and marketing        |       |                                                   | —     |                                                   |       | 3,086 |   |
| Research and development   |       |                                                   | —     |                                                   |       | (7,863 | ) |
| General and administrative |       |                                                   | —     |                                                   |       | 4,607 |   |
|                       |       |                                                   | $          | —                                                 |       |   | $ | 6,478 |   |

 

7

 
| **3.** | ** ** | **INVENTORIES** |
|--------|------------|-----------------|

 

Inventories consist of the following:

 
| ** **        | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------|------------|------------------------------|------------|---------------------------------|------------|
|              |       |                         |       |                            |       |
| Raw materials     |       |                         | $          | 1,554,219                       |       |   | $ | 1,743,990 |   |
| Finished goods    |       |                         | 5,338,038  |                            |       | 5,498,739 |   |
|              |       |                         | 6,892,257  |                            |       | 7,242,729 |   |
| Inventory reserve |       |                         | (205,600   | )                               |       | (205,600 | ) |
|              |       |                         | $          | 6,686,657                       |       |   | $ | 7,037,129 |   |

 
| **4.** | ** ** | **OTHER ASSETS** |
|--------|------------|------------------|

 

In 2006, the Company invested $500,000 in a limitedliability company.  The Company exercisedits option to have that investment returned. The investment was returned in April 2008.

 
| **5.** | ** ** | **INCOME TAXES** |
|--------|------------|------------------|

 

The Company’s effective tax rate on the net lossbefore income taxes was 0.0% for the three months ended March 31, 2008 andMarch 31, 2007.

 

In June 2006, the FASB issued FinancialInterpretation No. 48, *Accounting forIncome Tax Uncertainties*(“FIN 48”). FIN 48 is effective for years beginning after December 15,2006.  FIN 48 prescribes a recognitionthreshold and measurement attribute for financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  FIN 48 requires that a companyevaluate whether it is “more-likely-than-not” that a tax position will besustained based upon the technical merits of the position.  Measurement of the tax position is based uponthe largest amount of benefit that is greater than 50% likely of being realizedupon ultimate settlement.  The Companyadopted FIN 48 on January 1, 2007. FIN 48 had no material effect on the financial statements uponadoption.  During 2007, the Companyreserved approximately $100,000 for state nexus issues.

 
| **6.** | ** ** | **COMMITMENTS AND CONTINGENCIES** |
|--------|------------|-----------------------------------|

 

On August 12, 2005, the Company filed a lawsuitagainst Abbott in the United States District Court in the Eastern District ofTexas, Texarkana Division.  The Companyis alleging fraud and breach of contract in connection with the NationalMarketing and Distribution Agreement dated as of May 4, 2000, which wasterminated on October 15, 2003.  TheCompany is seeking damages which it estimates to be in millions of dollars oflost profits, out of pocket expenses, and other damages.  In addition, it is seeking punitive damages,pre- and post-judgment interest and attorney’s fees.  On October 31, 2005, Abbott moved todismiss the suit and to compel arbitration of the dispute.  The Court ruled in the Company’s favor anddenied the motion to compel arbitration. Abbott appealed the decision to the Fifth Circuit on February 27,2007.  Briefing has been completed andoral argument was conducted on March 3, 2008.  It is not possible to predict when exactlythe Fifth Circuit will decide the appeal or how.  Whether the matter proceeds in litigation orarbitration, Abbott may counterclaim for amounts that Abbott believes are owedby the Company under the agreement.

 

In August 2006, the Company was sued byOccupational and Medical Innovations Limited (“OMI”) in Federal Court ofAustralia, alleging that two letters written to OMI by outside counselcontained unjustified threats, but seeking no damages.  OMI later amended its complaint to seek adeclaratory judgment that OMI does not infringe the Company’s Australianpatents, again seeking no damages. Following a one-day trial in June 2007, the Court held that one ofthe two letters written by outside counsel contained an unjustified threat andawarded costs to OMI.  A one-day trial ofthe declaratory judgment (that OMI does not infringe on the Company’s Australianpatents) was held on April 1, 2008.** **No decision has been reached.

 

On June 15, 2007, the Company filed a lawsuitagainst Becton Dickinson & Company (“BD”) in the United StatesDistrict Court for the Eastern District of Texas, Marshall Division.  The Company subsequently

 

8

 

amended its complaint to add Thomas J. Shaw as aplaintiff.  The Company and Mr. Shaware alleging violations of the federal and state antitrust laws, violation ofthe Lanham Act, and patent infringement. The Company and Mr. Shaw are seeking both damages and injunctiverelief in the suit.  In January 2008,the Court severed the patent claims from the other claims and stayedproceedings in the other claims pending resolution of the patent dispute.  BD has denied the allegations and hascounterclaimed for a declaration that the Company’s asserted patents areinvalid and unenforceable.  The patentcase is set for trial in March 2009.

 

On September 6, 2007, BD and MDC InvestmentHoldings, Inc. filed a complaint against the Company in the United StatesDistrict Court for the Eastern District of Texas, Texarkana Division.  Plaintiffs allege that the VanishPoint®product line infringes U.S. patent nos. 6,179,812 and 7,090,656.  Plaintiffs seek a declaration ofinfringement, an injunction against further infringement, compensatory damages(with interest), the costs of the litigation, and such other relief as theCourt deems just and proper.  The Companyhas counterclaimed for a declaration that the asserted patents are invalid andunenforceable.  No trial date has beenset.

 

On March 14, 2008, MedSafe Technologies LLCfiled a complaint against the Company and BD in the United States DistrictCourt for the District of South Carolina, Greenville Division.  Theplaintiff alleges that the Company’s VanishPoint® syringeproduct line and BD’s IntegraTM productline infringe U.S. patent no. 6,074,370. ****The plaintiff seeks unspecified damages including compensatorydamages (with prejudgment interest) and any further relief as the Court deemsappropriate.  No trial date has been set.

 

On April 1, 2008, the Company and Mr. ThomasJ. Shaw****filed a complaint againstBD in the United States District Court for the Eastern District of Texas,Marshall Division.  The Company allegesthat BD has infringed U.S. patent no. 7,351,224 issued on April 1,2008.  The Company seeks actual damages(with prejudgment interest, costs and increased damages pursuant to 35 U.S.C. §284); a permanent injunction against BD, its officers, agents, servants,employees, and others acting in concert with them to permanently restrainfurther infringement of this patent; attorneys’ fees, costs and treble damages;and all other relief to which they are entitled.  No trial date has been set.

 

Also on April 1, 2008, the Company filed acomplaint against OMI in the United States District Court for the EasternDistrict of Texas, Tyler Division.  TheCompany alleges that OMI has willfully infringed U.S. patent nos. 6,572,584 and7,351,224.  The Company also allegestheft of confidential information, intentional interference with contracts andengaging in false advertising that wrongfully disparages and mischaracterizesthe Company’s products.  OMI also madefalse allegations regarding the source of origin of its safety syringe productsthat are being offered in the U.S.  TheCompany seeks actual damages (with prejudgment interest, costs and increaseddamages pursuant to 35 U.S.C. § 284); a permanent injunction against OMI, itsofficers, agents, servants, employees, and others acting in concert with themfrom infringement, false claims and disclosure or use of confidentialinformation or trade secrets or for selling retractable syringes thatincorporate any confidential information or trade secrets; attorneys’ fees,costs and treble damages; and all other relief to which it is entitled.  No trial date has been set.

 

Beginning in 2008, the Company plans to expand itswarehouse (to include additional warehouse space, additional office space and anew Clean Room).  This expansion will befunded by a loan from a bank for approximately $4.2 million, secured by asecond lien deed to the land and existing buildings.

 

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

 

FORWARD-LOOKINGSTATEMENT WARNING

 

Certain statements included by reference in thisfiling containing the words “could,” “may,” “believes,” “anticipates,” “intends,”“expects,” and similar such words constitute forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act.  Any forward-looking statements involve knownand unknown risks, uncertainties, and other factors that may cause our actualresults, performance, or achievements to be materially different from anyfuture results, performance, or achievements expressed or implied by suchforward-looking statements.  Such factorsinclude, among others, our ability to maintain liquidity, our maintenance ofpatent protection, the impact of current litigation (as it affects our costs aswell as market access and the viability of our patents), the ability tosuccessfully renegotiate or extend the Baiyin Tonsun Medical Device Co., Ltd. (“BTMD”)

 

9

 

licenseagreement and the receipt of payments thereunder, the impact of dramaticincreases in demand, our ability to maintain and quickly increase production capacityin the event of a dramatic increase in demand, our ability to access themarket, our ability to maintain or lower production costs, our ability tocontinue to finance research and development as well as operations andexpansion of production, the increased interest of larger market players,specifically Becton Dickinson & Company (“BD”), in providing devicesto the safety market, and other factors referenced in **Item 1A. Risk Factors**in Part II.  Given these uncertainties, undue relianceshould not be placed on forward-looking statements.

 

OVERVIEW

 

 

We have been manufacturing and marketing ourproducts into the marketplace since 1997. We currently expect to provide other safety medical products in additionto safety syringe products.  One suchproduct, the Patient SafeTM syringe, which reduces the risk of infectionresulting from IV contamination, should enter the market in 2008.  Safety syringes comprised 98.8% of our salesin the first three months of 2008.

 

Our products have been and continue to bedistributed nationally through numerous distributors.  However, we have been blocked from access tothe market by exclusive marketing practices engaged in by BD, who dominates themarket.  We believe that its monopolisticbusiness practices continue despite its paying $100 million in 2004 to settle alawsuit with us for anticompetitive practices, business disparagement, andtortious interference.  Although we madelimited progress in some areas, such as the alternate care and internationalmarkets, our volumes are not as high as they should be given the nature andquality of our product, the federal and state legislation requiring use of safeneedle devices, and various Senate Subcommittee hearings on Group PurchasingOrganizations.

 

We continue to pursue various strategies to havebetter access to the hospital market, as well as other markets, includingattempting to gain access to the market through our sales efforts, ourinnovative technology, introduction of new products and, when necessary,litigation.  We are also marketing moreproduct internationally.  Beginning in2004, we were given an award (from PATH) to supply syringes to various Africancountries.  Awards increasedsignificantly from 2004 to 2007. However, currently there is no funding for this program.  It is uncertain that funding will bere-established.  Additionally, anAustralian distributor was awarded a one-year contract in March 2007 tosupply our VanishPoint® automated retraction syringes to all ofQueensland Health’s 202 acute care facilities. Queensland Health is a department within the government of Queensland,Australia.  The contract was renewed fortwo years.  VanishPoint® productsare distributed in Australia by Brisbane-based Scientific Educational SuppliesPty Ltd.

 

In the event we continue to have only limited marketaccess and the cash provided by the litigation settlements and generated fromoperations becomes insufficient, the Company would take cost cutting measuresto reduce cash requirements.  Suchmeasures could result in reduction of units being produced, reduction ofworkforce, reduction of salaries of officers and other nonhourly employees, anddeferral of royalty payments.

 

We are focusing on methods of upgrading ourmanufacturing capability and efficiency in order to reduce costs.  We believe our current capitalizationprovides the resources necessary to implement some of these changes and improveour manufacturing capacity and efficiency, thereby reducing our unit cost.

 

Product purchases from Double Dove, a Chinesemanufacturer, have enabled us to increase manufacturing capacity with littlecapital outlay and have provided a competitive manufactured cost.  Double Dove manufactured, in the first threemonths of 2008, approximately 76.7% of the units produced by the Company.  These purchases have improved profit marginsin spite of limited revenues.  The costof production per unit has generally declined as volumes increased.  We believe we could make up any long-termdisruption in these supplies by utilizing more of the capacity at the LittleElm facility, except for 5cc and 10cc syringes which comprised about 3.4% ofour first quarter 2008 revenues.

 

We had a Licensing Agreement with BTMD which expiredon May 13, 2008.  We are in theprocess of negotiating an extension of this agreement.  Royalties that were expected in 2007 were notreceived due to the time

 

10

 

neededto build the factory, assembly equipment, and the related infrastructure aswell as the need of BTMD to meet the requisite Chinese governmentrequirements.  The facility has beencompleted and BTMD is in the process of meeting Chinese governmentrequirements.  Although successfulrenegotiation and/or extension of this agreement cannot be assured, we stillcontinue to expect royalty payments although we are unable to predict the datewe will begin to receive such royalties. We should begin earning royalties once Chinese government requirementsare met and BTMD is able to produce and sell products.

 

Historically, unit sales have increased in thelatter part of the year due, in part, to the demand for syringes during the fluseason.

 

With increased volumes, our manufacturing unit costshave tended to decline.  However, lowerproduction volumes, increasing costs of petroleum products and transportationcould mitigate this trend.

 

We are committed to the expansion of an existingwarehouse.  This expansion will increaseour warehouse area, provide for additional office space, and add a second CleanRoom.

 

**LIQUIDITY AND FUTURE CAPITAL REQUIREMENTS**

 

At the present time, Management does not intend toraise equity capital in 2008.  Due to thelitigation settlements, we have sufficient cash reserves and intend to rely onoperations, cash reserves, and debt financing as the primary ongoing sources ofcash.

 

Historical Sources of Liquidity

 

We have historically funded operations primarilyfrom the proceeds from private placements, loans, and litigationsettlements.  We were capitalized withapproximately $52,600,000 raised from six separate private placementofferings.  We raised $47,375,600 in cashfrom the private sales of an aggregate of 11,710,221 shares of ConvertiblePreferred Stock.  In addition, weobtained a cancellation of $3,679,284 in debt and $1,550,000 in Accountspayable in exchange for Series V Class B Convertible Preferred Stock.

 

We obtained $3,910,000 in 2000 from bank loans ofwhich $3,435,000 has been repaid and $475,000 was refinanced with a new notewith Lewisville State Bank, a division of 1st InternationalBank.  Additionally, we received a SmallBusiness Administration loan of $1,000,000 in 1996 to pay for portions ofautomated assembly equipment, multi-cavity molds, and other equipment.  This loan has been repaid.  Furthermore, we borrowed $5,000,000 in 2000under our Credit Agreement with Abbott Laboratories (“Abbott”).  In October 2002 we repaid the Abbottnote with proceeds from a new note from Katie Petroleum, Inc. for$3,000,000 and a portion of the proceeds from a private placement.

 

Internal Sources of Liquidity

 

*Margins and Market Access*

 

To achieve break even quarters, we need minimalaccess to hospital markets which has been difficult to obtain due to themonopolistic marketplace which was the subject of our initial lawsuit and nowalso included in our second lawsuit against BD. We will continue to attempt to gain access to the market through oursales efforts, innovative technology, the introduction of new products and,when necessary, litigation.

 

We are focusing on methods of upgrading ourmanufacturing capability and efficiency in order reduce costs.  We believe our current capitalizationprovides the resources necessary to implement some of these changes and improveour manufacturing capacity and efficiency, thereby reducing our unit cost.

 

Beginning in early 2004, we began to receiveshipment of product from Double Dove which enabled us to sell product at lowercosts.  Fluctuations in the cost andavailability of raw materials and inventory and the ability to maintainfavorable supplier arrangements and relationships could result in the need tomanufacture all (as opposed to 23.3%) of the products in the U.S.  This could temporarily increase unit costs aswe ramp up domestic production.

 

11

 

 

The mix of domestic and international sales affectsthe average sales price of our products. Generally, the higher the ratio of domestic sales to internationalsales, the higher the average sales price will be.  Typically international sales are shipped directlyfrom China.  Purchases of productmanufactured in China, if available, usually decrease the average cost ofmanufacture for all units as domestic costs, such as indirect labor andoverhead, remain relatively constant. The number of units produced by the Company versus manufactured in Chinacan have a significant effect on the carrying costs of inventory as well asCost of sales.  The Company will continueto evaluate the appropriate mix of products manufactured domestically and thosemanufactured in China to achieve economic benefits as well as to maintain ourdomestic manufacturing capability. Currently, approximately 23.3%****ofour syringes are produced domestically.

 

Sinceour products are made from petroleum products, the increasing costs of oil andtransportation may have a negative impact on our costs to the extent they maynot be recoverable through price increases of our products.

 

*Seasonality*

 

Historically,unit sales have increased in the latter part of the year due, in part, to thedemand for syringes during the flu season.

 

*LicensingAgreement*

 

We hada Licensing Agreement with BTMD which expired on May 13, 2008.  We are in the process of negotiating anextension of this agreement.  Royaltiesthat were expected in 2007 were not received due to the time needed to buildthe factory, assembly equipment, and the related infrastructure as well as theneed of BTMD to meet the requisite Chinese government requirements.  The facility has been completed and BTMD isin the process of meeting Chinese government requirements.  Although successful renegotiation and/orextension of this agreement cannot be assured, we still continue to expectroyalty payments although we are unable to predict the date we will begin toreceive such royalties.  We should beginearning royalties once Chinese government requirements are met and BTMD is ableto produce and sell products.  Weanticipate that receipt of such royalties would have a positive effect on ourliquidity.

 

*CashRequirements*

 

Due toprior litigation settlements, we have sufficient cash reserves and intend torely on operations, cash reserves, and debt financing as the primary ongoingsources of cash.  In the event wecontinue to have only limited market access and cash generated from operationsbecomes insufficient to support operations, we would take cost cutting measuresto reduce cash requirements.  Suchmeasures could result in reduction of units being produced, reduction ofworkforce, reduction of salaries of officers and other nonhourly employees, anddeferral of royalty payments.

 

External Sourcesof Liquidity

 

Wehave obtained several loans from our inception, which have, together with theproceeds from the sales of equities and litigation efforts, enabled us topursue development and production of our products.  Currently we believe we could obtainadditional funds through loans if needed. Furthermore, the shareholders previously authorized an additional5,000,000 shares of a Class C Preferred Stock that could, if necessary, bedesignated and used to raise funds through the sale of equity.  We are in the process of finalizing a loanfor approximately $4.2 million to fund an expansion of the warehouse (whichwill include additional warehouse space, additional office space, and a newClean Room.)

 

**CAPITALRESOURCES**

 

Trends in CapitalResources

 

Interestexpense will increase due to the pending loan of approximately $4.2 million,but will be somewhat mitigated by lower borrowing rates if current conditionsin the credit markets continue.  Interestincome may be

 

12

 

negatively affected bylower interest rates and our recent movement of cash to U.S. Treasury bills andother U.S. government backed securities. Although we believe that we have granted credit to credit-worthy firms,current economic conditions may affect the timing and/or collectability of someaccounts.

 

In2006, the Company invested $500,000 in a limited liability company.  The Company exercised its option to have thatinvestment returned.  The investment wasreturned in the second quarter of 2008.

 

MaterialCommitments for Expenditures

 

Capitalexpenditures in 2008 are dependent upon several factors, including, but notlimited to, the success of projects to decrease production costs, the successfulintroduction of new products, and access to debt financing.

 

Beginningin the second quarter of 2008, we plan to expand our warehouse (to includeadditional warehouse space, additional office space, and a new CleanRoom).  We expect to fund this expansionwith a loan from Lewisville State Bank, a division of 1st InternationalBank, for approximately $4.2 million, secured by a second lien deed on the landand existing buildings.

 

**MATERIALCHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The followingdiscussion contains trend information and other forward-looking statements thatinvolve a number of risks and uncertainties. Our actual future results could differ materially from our historicalresults of operations and those discussed in the forward-lookingstatements.  Variances have been roundedfor ease of reading.  All periodreferences are to the periods ended March 31, 2008, or 2007.

 

*Comparisonof Three Months Ended*

*March 31,2008, and March 31, 2007*

 

Domesticsales accounted for 86.4% and 70.2% of the revenues for the three months ended March 31,2008 and 2007, respectively. International sales accounted for the remaining revenues.  Domestic revenues increased 13.3% principallydue to increased volumes and higher average sales prices and internationalrevenues decreased 58.0% due primarily to the absence of PATH shipments in2008.  Overall, unit sales decreased20.7%.  Domestic unit sales increased7.5% and international unit sales decreased 54.9%.  Domestic unit sales were 74.4% of total unitsales for the three months ended March 31, 2008.

 

Grossprofit increased primarily due to lower cost of manufactured product.  Costs of manufactured product decreased dueto lower volumes mitigated by higher unit costs.  The average cost of manufactured product soldper unit increased by 11.2%.  Profitmargins can fluctuate depending upon, among other things, the cost of productmanufactured and the capitalized cost of product recorded in inventory, as wellas product sales mix.  Royalty expensedecreased 1.6% due to lower gross sales.

 

Operatingexpenses increased 9.1%.  The decrease inexpense for Sales and marketing was attributable primarily to fewer trade showsand promotional material, lower compensation, and less travel and entertainmentcosts.  The decrease was mitigated byhigher consulting costs.  The increase inResearch and development costs was due principally to increased cost related tocompensation, consulting and validation costs. General and administrative costs increased due to additional legalexpense as well as higher compensation costs.

 

Lossfrom operations increased due principally to higher operating expenses.

 

TheCompany’s effective tax rate on the net loss before income taxes was 0.0% forthe three months ended March 31, 2008 and March 31, 2007.

 

TheCompany’s balance sheet remains strong with cash making up 64.6% of totalassets.  Working capital was $40.3million at March 31, 2008, a decrease of $2.8 million from December 31,2007.  The current ratio was 6.0 at December 31,2007 and 5.9 at March 31, 2008.  Thequick ratio remained unchanged at 5.1 for December 31, 2007 and March 31,2008.  These indicators continue todemonstrate a strong financial position.

 

13

 

Approximately$1.1 million in cash flow was used by operating activities.  The remaining uses of cash were for capitalcosts incurred for the acquisition of plant, property and equipment andintangible assets, and the repayment of long-term debt.

 

**Item 3.       Quantitative and Qualitative Disclosures About Market Risk.**

 

None.

 

**Item 4T.    Controls and Procedures.**

 

Pursuantto paragraph (b) of Rule 13a-15 or Rule 15d-15 of the SecuritiesExchange Act of 1934 and on May 9, 2008, Management, with theparticipation of our President, Chairman, and Chief Executive Officer, ThomasJ. Shaw (the “CEO”), and our Vice President and Chief Financial Officer,Douglas W. Cowan (the “CFO”), acting in their capacities as our principalexecutive and financial officers, evaluated the effectiveness of our disclosurecontrols and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e).  The CEO and CFO concluded that, as of March 31,2008 (the end of the period covered by the report), based on the evaluation ofthese controls and procedures required by paragraph (b) of Rule 13a-15or Rule 15d-15, there were no significant deficiencies in these controlsand procedures.  The CEO and CFOconcluded that our disclosure controls and procedures are effective to ensurethat information required to be disclosed in our periodic reports is recorded,processed, summarized, and reported within the time periods specified in theSEC’s rules and forms.

 

Therehave been no changes during the first quarter of 2008 or subsequent to March 31,2008 in our internal control over financial reporting or in any other factorthat has materially affected or is reasonably likely to materially affect ourinternal control over financial reporting.

 

OurManagement, including the CEO and CFO, does not expect that our disclosurecontrols and procedures or our internal control over financial reporting willprevent or detect all errors and all instances of fraud.  A control system, no matter how well designedand operated, can provide only reasonable, not absolute, assurance that thecontrol system’s objectives will be met.

 

**PART II—OTHER INFORMATION**

 

**Item 1.       Legal Proceedings.**

 

Thereare no material updates at this time.

 

**Item 1A.    Risk Factors.**

 

Therewere no material changes in the Risk Factors applicable to the Company as setforth in our Form 10-K annual report for 2007 which was filed on March 31,2008, and which is available on EDGAR.

 

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

 

Unregistered Salesof Equity Securities and Use of Proceeds

 

Threeaccredited investors converted 44,650 shares of Preferred Stock into CommonStock on a one for one basis for no additional consideration.

 

Working CapitalRestrictions and Limitations on the Payment of Dividends

 

Wemaintain cash for use as collateral for letters of credit we provide from timeto time to enable, among other things, the purchase of product from China.  As of March 31, 2008, we had no fundsheld as restricted cash for such purposes. The Board of Directors has authorized Management to borrow and incurindebtedness in the form of letters of credit in an aggregate amount, at anyone time, of $5,000,000.

 

14

 

Thecertificates of designation for each of the outstanding series of Class BConvertible Preferred Stock each provide that, if a dividend upon any shares ofPreferred Stock is in arrears, no dividends may be paid or declared or anyother distribution made upon any stock ranking junior to such stock andgenerally no such junior stock may be redeemed.

 

**Item 3.       Defaults Upon Senior Securities.**

 

Series I Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2008, the amount of dividends in arrearsis $18,000 and the total arrearage is $54,000.

 

Series II Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2008, the amount of dividends in arrearsis $55,000 and the total arrearage is $166,000.

 

Series III Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2008, the amount of dividends in arrears is$33,000 and the total arrearage is $3,018,000.

 

Series IV Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2008, the amount of dividends in arrearsis $138,000 and the total arrearage is $6,616,000.

 

Series V Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2008, the amount of dividends in arrearsis $101,000 and the total arrearage is $3,000,000.

 

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

 

Not applicable

 

**Item 5.     Other Information.**

 

The 2008 annual meeting shall be held on September 26,2008, at 10:00 a.m. at Little Elm City Hall; 100 West Eldorado Parkway;Little Elm, Texas, 75068.

 

# **Item 6.       Exhibits.**

 
| Exhibit No. | ** ** | ** **                                             | Description of  Document |
|------------------|------------|--------------------------------------------------------|--------------------------|
|             |       |                                                   |                     |
| 31.1             |       | Certification of  Principal Executive Officer          |
|             |       |                                                   |
| 31.2             |       | Certification of  Principal Financial Officer          |
|             |       |                                                   |
| 32               |       | Certification Pursuant  to 18 U.S.C. Section 1350 |

 

15

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

| DATE:  | May 15, 2008 | RETRACTABLE  TECHNOLOGIES, INC. |                    |
|--------|-------------------|---------------------------------|-------------------------|
|   |              | (Registrant)                    |                    |
|   |              |                            |                    |
|   |              |                            |
|   |              | BY:                             | /s/  Douglas W. Cowan   |   |
|   |              |                            | DOUGLAS W. COWAN        |
|   |              |                            | VICE PRESIDENT AND      |
|   |              |                            | CHIEF FINANCIAL OFFICER |
|        |                   |                                 |                         |  |

 

16