Table of Contents

** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

** **

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

** **

**For thequarterly period ended March 31, 2009**

** **

**or**

** **

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

** **

**For thetransition period from                     to**

** **

**Commissionfile 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  Noo

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  Yes x  Noo

 

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 (Do not check if a smaller reporting  company) | Smaller  reporting company  x |
|                                                                    |                               |

 

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 BANKRUPTCY

PROCEEDINGS DURINGTHE 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 1934 subsequentto the distribution of securities under a plan confirmed by a court.   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, 2009.

 

 

 

----

Table ofContents

 

**RETRACTABLETECHNOLOGIES, INC.**

**FORM 10-Q**

**Forthe Quarterly Period Ended March 31, 2009**

 

**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.** | 13 |
| ** **                                 | ** ** |   |
| **Item 4.**                                | **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.** | 16 |
| ** **                                 | ** ** |   |
| **SIGNATURES**                             | 17 |
|                                            |  |  |  |

** **

Table of Contents

 

**PART I—FINANCIAL INFORMATION**

 

**Item 1.        FinancialStatements.**

 

**RETRACTABLE TECHNOLOGIES, INC.**

## **CONDENSED BALANCE SHEETS**

 
| ** **                                      | ** ** | **March 31,  2009** | ** ** | ** **                 | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                      | ** ** | **(unaudited)**          | ** ** | **December 31, 2008** | ** ** |
|                                            |       |                     |       |                       |       |
| **ASSETS**                                      | ** ** | ** **               | ** ** | ** **                 | ** ** |
| Current assets:                                 |       |                     |       |                       |       |
| Cash and cash equivalents                       |       | $                        | 28,652,448 |                       | $          | 33,283,740 |   |
| Accounts receivable, net                        |       | 1,737,238                |       | 3,288,942                  |       |
| Inventories, net                                |       | 7,765,844                |       | 6,641,532                  |       |
| Income taxes receivable                         |       | 111,360                  |       | 6,576                      |       |
| Other current assets                            |       | 816,469                  |       | 400,113                    |       |
| Total current assets                            |       | 39,083,359               |       | 43,620,903                 |       |
|                                            |       |                     |       |                       |       |
| Property, plant, and equipment, net             |       | 16,854,375               |       | 14,435,667                 |       |
| Intangible assets, net                          |       | 467,505                  |       | 470,115                    |       |
| Other assets                                    |       | 10,500                   |       | 18,750                     |       |
| Total assets                                    |       | $                        | 56,415,739 |                       | $          | 58,545,435 |   |
|                                            |       |                     |       |                       |       |
| ** **                                      | ** ** | ** **               | ** ** | ** **                 | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**   | ** ** | ** **               | ** ** | ** **                 | ** ** |
| Current liabilities:                            |       |                     |       |                       |       |
| Accounts payable                                |       | $                        | 6,647,331  |                       | $          | 6,144,435 |   |
| Current portion of long-term debt               |       | 2,574,656                |       | 451,865                    |       |
| Accrued compensation                            |       | 766,192                  |       | 650,704                    |       |
| Marketing fees payable                          |       | 1,419,760                |       | 1,419,760                  |       |
| Accrued royalties to shareholders               |       | 433,832                  |       | 620,987                    |       |
| Other accrued liabilities                       |       | 873,600                  |       | 852,602                    |       |
| Income taxes payable                            |       | 103,336                  |       | 103,744                    |       |
| Total current liabilities                       |       | 12,818,707               |       | 10,244,097                 |       |
|                                            |       |                     |       |                       |       |
| Long-term debt, net of current maturities       |       | 5,125,857                |       | 6,095,535                  |       |
| Total liabilities                               |       | 17,944,564               |       | 16,339,632                 |       |
|                                            |       |                     |       |                       |       |
| 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                  |       | 552,500                    |       |
| Series V, Class B                     |       | 1,238,821                |       | 1,238,821                  |       |
| Common stock, no par value                      |       | —                   |       | —                     |       |
| Additional paid-in capital                      |       | 54,125,196               |       | 53,952,183                 |       |
| Retained deficit                                |       | (17,939,287              | )          | (14,031,646                | )          |
| Total stockholders’ equity                 |       | 38,471,175               |       | 42,205,803                 |       |
| Total liabilities and stockholders’ equity |       | $                        | 56,415,739 |                       | $          | 58,545,435 |   |

 

See accompanying notes to condensed financial statements

 

1

Table of Contents

 

**RETRACTABLETECHNOLOGIES, INC.**

## **CONDENSED STATEMENTS OF OPERATIONS**

**(unaudited)**

** **
| ** **                                 | ** ** | **Three  Months  Ended  March 31, 2009** | ** ** | **Three  Months  Ended  March 31, 2008** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | ** **                                    | ** ** | ** **                                    | ** ** |
| Sales, net                                 |       | $                                             | 5,258,465  |                                          | $          | 5,315,155 |   |
| Cost of sales                              |       |                                          |       |                                          |       |
| Cost of manufactured product               |       | 3,595,457                                     |       | 3,596,914                                     |       |
| Royalty expense to shareholders            |       | 433,832                                       |       | 432,510                                       |       |
| Total cost of sales                        |       | 4,029,289                                     |       | 4,029,424                                     |       |
| Gross profit                               |       | 1,229,176                                     |       | 1,285,731                                     |       |
|                                       |       |                                          |       |                                          |       |
| Operating expenses:                        |       |                                          |       |                                          |       |
| Sales and marketing                        |       | 1,135,667                                     |       | 1,167,908                                     |       |
| Research and development                   |       | 278,361                                       |       | 265,508                                       |       |
| General and administrative                 |       | 3,856,872                                     |       | 2,928,580                                     |       |
| Total operating expenses                   |       | 5,270,900                                     |       | 4,361,996                                     |       |
| Loss from operations                       |       | (4,041,724                                    | )          | (3,076,265                                    | )          |
|                                       |       |                                          |       |                                          |       |
| Interest and other income                  |       | 28,737                                        |       | 253,669                                       |       |
| Interest expense, net                      |       | —                                        |       | (40,999                                       | )          |
| Net loss before income taxes               |       | (4,012,987                                    | )          | (2,863,595                                    | )          |
| Provision (benefit) for income taxes       |       | (105,346                                      | )          | —                                        |       |
| Net loss                                   |       | (3,907,641                                    | )          | (2,863,595                                    | )          |
| Preferred stock dividend requirements      |       | (342,717                                      | )          | (344,868                                      | )          |
| Loss applicable to common shareholders     |       | $                                             | (4,250,358 | )                                             | $          | (3,208,463 | ) |
|                                       |       |                                          |       |                                          |       |
| Loss per share                             |       | $                                             | (0.18      | )                                             | $          | (0.13 | ) |
|                                       |       |                                          |       |                                          |       |
| Weighted average common shares outstanding |       | 23,800,064                                    |       | 23,778,072                                    |       |

 

See accompanyingnotes to condensed financial statements

 

2

Table ofContents

 

**RETRACTABLETECHNOLOGIES, INC.**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(unaudited)**

** **
| ** **                                                                                 | ** ** | **Three  Months  Ended  March 31, 2009** | ** ** | **Three  Months  Ended  March 31, 2008** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| **Cash  flows from operating activities**                                                  |       |                                          |       |                                          |       |
| Net loss                                                                                   |       | $                                             | (3,907,641 | )                                             | $          | (2,863,595 | ) |
| Adjustments  to reconcile net loss to net cash provided by (used by) operating activities: |       |                                          |       |                                          |       |
| Depreciation and amortization                                                              |       | 342,640                                       |       | 350,735                                       |       |
| Capitalized interest                                                                       |       | (52,810                                       | )          | (46,741                                       | )          |
| Share-based compensation                                                                   |       | 173,014                                       |       | —                                        |       |
| Accreted interest                                                                          |       | 11,878                                        |       | 14,599                                        |       |
| (Increase) decrease in assets:                                                             |       |                                          |       |                                          |       |
| Inventories                                                                                |       | (1,124,312                                    | )          | 350,472                                       |       |
| Accounts receivable                                                                        |       | 1,551,704                                     |       | (109,343                                      | )          |
| Income taxes receivable                                                                    |       | (104,784                                      | )          | 1,957,021                                     |       |
| Other current assets                                                                       |       | (416,356                                      | )          | (98,282                                       | )          |
| Increase (decrease) in liabilities:                                                        |       |                                          |       |                                          |       |
| Accounts payable                                                                           |       | 502,896                                       |       | (727,862                                      | )          |
| Other accrued liabilities                                                                  |       | (50,669                                       | )          | 91,425                                        |       |
| Income taxes payable                                                                       |       | (408                                          | )          | 8,604                                         |       |
| Net cash used by operating activities                                                      |       | (3,074,848                                    | )          | (1,072,967                                    | )          |
|                                                                                       |       |                                          |       |                                          |       |
| **Cash flows from investing activities**                                                   |       |                                          |       |                                          |       |
| Purchase of property, plant, and equipment                                                 |       | (1,432,774                                    | )          | (110,603                                      | )          |
| Net cash used by investing activities                                                      |       | (1,432,774                                    | )          | (110,603                                      | )          |
|                                                                                       |       |                                          |       |                                          |       |
| **Cash flows from financing activities**                                                   |       |                                          |       |                                          |       |
| Repayments of long-term debt and notes payable                                             |       | (123,670                                      | )          | (114,264                                      | )          |
| Net cash used by financing activities                                                      |       | (123,670                                      | )          | (114,264                                      | )          |
|                                                                                       |       |                                          |       |                                          |       |
| Net decrease in cash                                                                       |       | (4,631,292                                    | )          | (1,297,834                                    | )          |
|                                                                                       |       |                                          |       |                                          |       |
| Cash and cash equivalents at:                                                              |       |                                          |       |                                          |       |
| Beginning of period                                                                        |       | 33,283,740                                    |       | 40,507,431                                    |       |
| End of period                                                                              |       | $                                             | 28,652,448 |                                          | $          |  39,209,597 |   |
|                                                                                       |       |                                          |       |                                          |       |
| Supplemental disclosures of cash flow information:                                         |       |                                          |       |                                          |       |
| Interest paid                                                                              |       | $                                             | 40,932     |                                          | $          |  73,142 |   |
| Income taxes paid                                                                          |       | $                                             | 15,883     |                                          | $          |  — |   |
|                                                                                       |       |                                          |       |                                          |       |
| Supplemental schedule of noncash financing activities:                                     |       |                                          |       |                                          |       |
| Debt assumed to construct warehouse                                                        |       | $                                             | 1,264,906  |                                          | $          |  — |   |

 

See accompanyingnotes to condensed financial statements

 

3

Table ofContents

 

**RETRACTABLETECHNOLOGIES, INC.**

**NOTES TO CONDENSED FINANCIALSTATEMENTS**

**(unaudited)**

 

**1.**              **BUSINESS OF THE COMPANYAND BASIS OF PRESENTATION**

 

**Businessof the Company**

 

RetractableTechnologies, Inc. (the “Company”) was incorporated in Texas on May 9,1994, and designs, develops, manufactures and markets safety syringes and othersafety medical products for the healthcare profession.  The Company began to develop its manufacturingoperations in 1995.  The Company’smanufacturing and administrative facilities are located in Little Elm,Texas.  The Company’s primary productswith Notice of Substantial Equivalence to the FDA are the VanishPoint® 0.5cc insulin syringe; 1cc tuberculin, insulin,and allergy antigen syringes; the 0.5cc, 3cc, 5cc, and 10cc syringes; theautodisable syringe; the small diameter tube adapter; the blood collection tubeholder; the allergy tray; the IV safety catheter; and the Patient SafeTMsyringe.

 

**Basisof presentation**

 

Theaccompanying condensed financial statements are unaudited and, in the opinionof Management, reflect all adjustments that are necessary for a fairpresentation of the financial position and results of operations for theperiods presented.  All such adjustmentsare of a normal and recurring nature. The results of operations for the periods presented are not necessarilyindicative of the results to be expected for the entire year.  The condensed financial statements should beread in conjunction with the financial statement disclosures contained in theCompany’s audited financial statements incorporated into its Form 10-Kfiled on March 31, 2009 for the year ended December 31, 2008.  Certain prior year amounts have beenreclassified to conform with the current period’s presentation.

 

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

 

**Accountingestimates**

 

Thepreparation of financial statements in conformity with U.S. generally acceptedaccounting principles (“GAAP”) requires Management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer significantly from those estimates.

 

**Cashand cash equivalents**

 

Forpurposes of reporting cash flows, cash and cash equivalents includeunrestricted cash, money market accounts, and investments with originalmaturities of three months or less.

 

**Accountsreceivable**

 

TheCompany records trade receivables when revenue is recognized.  No product has been consigned tocustomers.  The Company’s allowance fordoubtful accounts is primarily determined by review of specific tradereceivables.  Those accounts that aredoubtful 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

Table ofContents

 

**Inventories**

 

Inventoriesare valued at the lower of cost or market, with cost being determined using astandard cost method, which approximates average cost.  A reserve is established for any excess orobsolete inventories.

 

**Property,plant, and equipment**

 

Property,plant, and equipment are stated at cost.  Expenditures for maintenance and repairs arecharged to operations as incurred.  Costincludes major expenditures for improvements and replacements which extenduseful lives or increase capacity and interest cost associated with significantcapital additions.  Gains or losses fromproperty disposals are included in income.

 

Depreciationand amortization are calculated using the straight-line method over thefollowing 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-livedassets**

 

TheCompany assesses the recoverability of long-lived assets using an assessment ofthe estimated undiscounted future cash flows related to such assets.  In the event that assets are found to becarried at amounts which are in excess of estimated gross future cash flows,the assets will be adjusted for impairment to a level commensurate with adiscounted cash flow analysis of the underlying assets.

 

**Intangibleassets**

 

Intangibleassets are stated at cost and consist primarily of patents, a license agreementgranting exclusive rights to use patented technology, and trademarks which areamortized using the straight-line method over 17 years.

 

**Financialinstruments**

 

EffectiveJanuary 1, 2008, the Company adopted Statement of Financial AccountingStandard (“SFAS”) No. 157, *Fair ValueMeasurements*(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fairvalue in accordance with accounting principles generally accepted in the UnitedStates, and expands disclosure requirements about fair value measurements.  In accordance with Financial AccountingStandards Board (“FASB”) Staff Position FAS 157-2, *Effective Date of FASB Statement No. 157* (FSP 157-2),the Company deferred the adoption of SFAS 157 for its nonfinancial assets andnonfinancial liabilities, except those items recognized or disclosed at fairvalue on an annual or more frequent recurring basis, until January 1,2009.  The adoption of SFAS 157 did nothave a material impact on the Company’s fair value measurements.

 

TheCompany estimates the fair market value of financial instruments through theuse of public market prices, quotes from financial institutions and otheravailable information.  Judgment isrequired in interpreting data to develop estimates of market value and,accordingly, amounts are not necessarily indicative of the amounts that couldbe realized in a current market exchange. Short-term financial instruments, including cash and cash equivalents,accounts receivable, accounts payable and other liabilities, consist primarilyof instruments without extended maturities, the fair value of which, based onManagement’s estimates, equals their recorded values.

 

5

Table ofContents

 

**Concentration risks**

 

TheCompany’s financial instruments exposed to concentrations of credit riskconsist primarily of cash, cash equivalents, and accounts receivable.  Cash balances, some of which exceed federallyinsured limits, are maintained in financial institutions; however, Managementbelieves 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 had a high concentration of saleswith two significant customers, accounting for $1.5 million, or 28.6% of netsales in the first quarter of 2009.

 

TheCompany manufactures syringes in Little Elm, Texas as well as utilizingmanufacturers in China.  The Companypurchases most of its product components from single suppliers, includingneedle adhesives and packaging materials. There are multiple sources of these materials.  The Company obtained roughly 72.1% of itsfinished products in the first quarter through Double Dove, a Chinesemanufacturer.  In the event that theCompany becomes unable to purchase such product from Double Dove, the Companywould need to find an alternate supplier for its 0.5cc insulin syringe, its 5ccand 10cc syringes and its autodisable syringe and increase domestic productionfor 1cc and 3cc syringes to avoid a disruption in supply.

 

**Revenue recognition**

 

Revenueis recognized for sales to distributors when title and risk of ownership passesto the distributor, generally upon shipment. Revenue is recorded on the basis of sales price to distributors, less contractualpricing allowances.  Contractual pricingallowances consist of: (i) rebates granted to distributors who providetracking reports which show, among other things, the facility that purchasedthe products, and (ii) a provision for estimated contractual pricingallowances for products that the Company has not received trackingreports.  Rebates are recorded whenissued and are applied against the customer’s receivable balance.  The provision for contractual pricingallowances is reviewed at the end of each quarter and adjusted for changes inlevels 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 pass fromthe Company.  Any product shipped ordistributed for evaluation purposes is expensed.

 

TheCompany’s domestic return policy is set forth in its standard DistributionAgreement.  This policy provides that acustomer may return incorrect shipments within 10 days following arrival at thedistributor’s facility.  In all suchcases the distributor must obtain an authorization code from the Company andaffix the code to the returned product. The Company will not accept returned goods without a returned goodsauthorization number.  The Company mayrefund the customer’s money or replace the product.

 

TheCompany’s return policy also provides that a customer may return product thatis overstocked.  Overstocking returns arelimited to two times in each 12-month period up to one percent of distributor’stotal purchase of products for the prior 12-month period.  All product overstocks and returns aresubject to inspection and acceptance by manufacturer.

 

TheCompany’s international distribution agreements do not provide for any returns.

 

TheCompany records an allowance for estimated returns as a reduction to Accountsreceivable and Gross sales. Historically, returns have been less than 0.5% of total sales.

 

**Marketing fees**

 

Undera sales and marketing agreement with Abbott Laboratories (“Abbott”), theCompany paid marketing fees until the Company terminated the contract forbreach.  The contracted services were toinclude participation in promotional activities, development of educational andpromotional materials, representation 

 

6

Tableof Contents

 

attrade shows, clinical demonstrations, inservicing and training, and trackingreports detailing 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 2005for breach of contract.  The DistrictCourt has issued a scheduling order calling for trial in January 2010. ** **See **Note 5 COMMITMENTS AND CONTINGENCIES** forfurther discussion.

 

**Incometaxes**

 

TheCompany provides for deferred income taxes in accordance with SFAS No. 109,*Accounting for Income Taxes* (“SFAS109”).  SFAS 109 requires an asset andliability approach for financial accounting and reporting for income taxesbased on the tax effects of differences between the financial statement and taxbases of assets and liabilities, based on enacted rates expected to be ineffect when such differences reverse in future periods.  Deferred tax assets are periodically reviewedfor realizability.  The Company hadsufficient taxable income from prior carryback years to realize all of itstaxable losses through December 31, 2006. Taxable losses for 2007 and thereafter are subject to losscarryforwards.  The Company hasestablished a valuation allowance for its net deferred tax asset as future taxableincome cannot be reasonably assured. Penalties and interest on uncertain tax positions are classified asincome taxes in the Condensed Statements of Operations.

 

**Earnings per share**

 

TheCompany has adopted SFAS No. 128, *EarningsPer Share*, which establishes standards for computing and presentingearnings per share.  Basic earnings pershare is computed by dividing net earnings for the period (adjusted for anycumulative dividends for the period) by the weighted average number of commonshares outstanding during the period. The Company’s potentially dilutive Common Stock equivalents, consistingof options, convertible debt and convertible Preferred Stock, are allantidilutive for the three months ended March 31, 2009 and 2008.  Accordingly basic loss per share is equal todiluted earnings per share.

 

**Shipping and handling costs**

 

TheCompany classifies shipping and handling costs as part of Cost of sales in theCondensed Statements of Operations.

 

**Research and development costs**

 

Researchand development costs are expensed as incurred.

 

**Share-based compensation**

 

TheCompany’s share-based payments are accounted for in accordance with theprovisions of SFAS No. 123 (Revised 2004) (“SFAS 123 R”), *Share-Based Payment*, using the fair valuemethod.  The Company records share-basedcompensation expense on a straight-line basis over the requisite serviceperiod.  In accordance with thedisclosure requirements of SFAS 123 R, the Company incurred the followingshare-based compensation costs:

 
| ** **                 | ** ** | **Three Months   Ended   March 31, 2009** | ** **    | **Three Months   Ended   March 31, 2008** | ** ** |
|----------------------------|------------|------------------------------------------------|---------------|------------------------------------------------|------------|
| Cost of sales              |       | $                                              | 39,082        |                                           | $          | — |   |
| Sales and marketing        |       | 48,389                                         |          | —                                         |       |
| Research and development   |       | 6,317                                          |          | —                                         |       |
| General and administrative |       | 79,226                                         |          | —                                         |       |
|                       |       | $                                              |  173,014 |                                           | $          | — |   |

 

7

Table ofContents

 

**RecentPronouncements**

 

In April 2008,the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)FAS 142-3, “*Determination of the Useful Lifeof Intangible Assets*”.  ThisFSP amends the factors that should be considered in developing renewal orextension assumptions used to determine the useful life of a recognizedintangible asset under FASB Statement No. 142, “*Goodwill and Other Intangible Assets*” (“SFAS 142”).  The intent of this FSP is to improve theconsistency between the useful life of a recognized intangible asset under SFAS142 and the period of expected cash flows used to measure the fair value of theasset under SFAS 141R, and other GAAP. FSP FAS 142-3 was effective for the Company beginning January 1,2009.  The adoption of FSP FAS 142-3 didnot have a material impact on the Company’s financial position, results ofoperations, or cash flows.

 

**3.**              **INVENTORIES**

 

Inventories consist ofthe following:

 
| ** **        | ** ** | **March 31, 2009** | ** **      | **December 31, 2008** | ** ** |
|-------------------|------------|-------------------------|-----------------|----------------------------|------------|
| Raw materials     |       | $                       | 2,532,699       |                       | $          | 1,885,157 |   |
| Finished goods    |       | 5,438,745               |            | 4,961,975                  |       |
|              |       | 7,971,444               |            | 6,847,132                  |       |
| Inventory reserve |       | (205,600                | )               | (205,600                   | )          |
|              |       | $                       |  7,765,844 |                       | $          | 6,641,532 |   |

 

**4.**              **INCOME TAXES**

 

TheCompany’s effective tax rate on the net loss before income taxes was 2.6% and0.0% for the three months ended March 31, 2009 and March 31, 2008,respectively.  During the quarter ended March 31,2009, the Company recorded a state tax receivable of approximately $100,000attributable to amended returns.

** **

**5.**              **COMMITMENTS AND CONTINGENCIES**

 

On August 12,2005, the Company filed a lawsuit against Abbott in the United States DistrictCourt in the Eastern District of Texas, 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.  The Company is seeking damages whichit estimates to be in millions of dollars of lost profits, out of pocketexpenses, and other damages.  In addition, the Company is seeking punitivedamages, pre- and post-judgment interest, and attorney’s fees.  FollowingAbbott’s unsuccessful attempt to get the case dismissed and ordered toarbitration, Abbott filed an answer and counterclaim on July 15, 2008,alleging several breaches of contract, breach of implied warranty ofmerchantability, and breach of express warranty, seeking in excess of$6,000,000 in compensatory damages as well as seeking attorneys’ fees. The Company denies the validity of Abbott’s counterclaims.  Some discoveryhas already taken place (related to the hearings addressing the prior motion tocompel arbitration) and additional discovery is underway.  The DistrictCourt has issued a scheduling order calling for trial in January 2010.

 

In April 2008,the Company sued Occupational and Medical Innovations Limited (“OMI”), anAustralian company, in the United States District Court for the EasternDistrict of Texas, Tyler Division, alleging that OMI has infringed two U.S.patents (6,572,584 and 7,351,224).  The Company also alleges theft ofconfidential information, intentional interference with contracts and engagingin false advertising that wrongfully disparages and mischaracterizes theCompany’s syringe products.  The Company further alleges that OMI madefalse allegations regarding the source of origin of its safety syringe productsbeing offered in the U.S.  The Company seeks injunctive relief,unspecified damages (including treble damages) and reimbursement of attorneysfees in the suit.  OMI has counterclaimed against the Company, seekingdeclaratory judgments of non-infringement and invalidity of the assertedpatents.  OMI is not seeking monetary damages.  Trial is set for December 2009and discovery is ongoing.

 

8

Table ofContents

 

In June 2007,the Company sued Becton Dickinson and Company (“BD”) in the United StatesDistrict Court for the Eastern District of Texas, Marshall Division, alleginginfringement of three patents (5,578,011; 5,632,733; and 6,090,077) andviolations by BD of the federal and state antitrust laws, and of the LanhamAct.  The Company subsequently dropped the 5,578,011 patent allegationsfrom the lawsuit.  The Company and an officer, a co-plaintiff, are seekinginjunctive relief, unspecified monetary damages and reimbursement of attorneysfees in the suit.  BD counterclaimed for non-infringement and invalidityof the asserted patents.  In January 2008, the Court severed thepatent claims from the other claims pending resolution of the patent dispute,which is set for trial in October 2009.  In April 2008, theCompany and that same officer sued BD in the United States District Court forthe Eastern District of Texas, Marshall Division, alleging infringement ofanother issued patent (7,351,224), and seeking injunctive relief, unspecifiedmonetary damages (including treble damages) and reimbursement of attorneysfees.  BD counterclaimed for non-infringement and invalidity of theasserted patent.  The Company and officer moved to consolidate this casewith the other patent case against BD that was pending in Marshall and theCourt granted the Company’s motion, consolidating this case with theabove-stated case filed in June 2007.  The Court issued its claimconstruction order in this matter on January 4, 2009.

 

In September 2007,BD and MDC Investment Holdings, Inc. (“MDC”) sued the Company in theUnited States District Court for the Eastern District of Texas, TexarkanaDivision, initially alleging that the Company is infringing two U.S. patents ofMDC (6,179,812 and 7,090,656) that are licensed to BD. BD and MDC seekinjunctive relief and unspecified damages.  The Company counterclaimed fordeclarations of non-infringement, invalidity and unenforceability of theasserted patents.  The plaintiffs subsequently dropped allegations withregard to patent no. 7,090,656 and the Company subsequently dropped itscounterclaims for unenforceability of the asserted patents.  The Courtconducted a claims construction hearing on September 25, 2008 and issuedits claims construction order on November 14, 2008.  No trial datehas been set.

 

In September 2008,the Company and an officer sued Safety Medical International (“SMI”) in theUnited States District Court for the Eastern District of Texas, Tyler Division,alleging infringement of U.S. patent nos. 6,572,584 and 7,351,224 and seekinginjunctive relief, unspecified monetary damages and reimbursement of attorneysfees.  SMI has counterclaimed against the Company, seeking declaratoryjudgments of non-infringement and invalidity of the asserted patents.  SMIis not seeking monetary damages.  Trial is set for December 2010.

 

**Item 2.        Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

FORWARD-LOOKING STATEMENTWARNING

 

Certainstatements included by reference in this filing containing the words “could,” “may,”“believes,” “anticipates,” “intends,” “expects,” and similar such wordsconstitute forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act.  Anyforward-looking statements involve known and unknown risks, uncertainties, andother factors that may cause our actual results, performance, or achievementsto be materially different from any future results, performance, orachievements expressed or implied by such forward-looking statements.  Such factors include, among others, ourability to maintain liquidity, our maintenance of patent protection, the impactof current litigation (as it affects our costs as well as market access and theviability of our patents), our ability to maintain favorable supplierarrangements and relationships, our ability to receive royalties from BaiyinTonsun Medical Device Co., Ltd. (“BTMD”), the impact of dramatic increases indemand, our ability to quickly increase capacity in the event of a dramaticincrease in demand, our ability to access the market, our ability to maintainor lower production costs, our ability to continue to finance research anddevelopment as well as operations and expansion of production, the increasedinterest of larger market players, specifically Becton Dickinson &Company (“BD”), in providing devices to the safety market, and other factorsreferenced in **Item 1A. Risk Factors**inPart II.  Given these uncertainties,undue reliance should not be placed on forward-looking statements.

 

OVERVIEW

 

Wehave been manufacturing and marketing our products into the marketplace since1997.  We currently provide other safetymedical products in addition to safety syringe products.  One such product, the Patient SafeTM 

 

9

Tableof Contents

 

syringe, which reducesthe risk of infection resulting from IV line contamination, entered the marketin 2008.  Safety syringes comprised 98.7%of our sales in the first three months of 2009.

 

Ourproducts have been and continue to be distributed nationally through numerousdistributors.  However, we have beenblocked from access to the market by exclusive marketing practices engaged inby BD, who dominates the market.  Webelieve that its monopolistic business practices continue despite its paying$100 million in 2004 to settle a prior lawsuit with us for anticompetitivepractices, business disparagement, and tortious interference.  Although we have made limited progress insome areas, such as the alternate care and international markets, our volumesare not as high as they should be given the nature and quality of our products,the federal and state legislation requiring the use of safe needle devices, andvarious Senate Subcommittee hearings on Group Purchasing Organizations.

 

Wecontinue to pursue various strategies to have better access to the hospitalmarket, as well as other markets, including attempting to gain access to themarket through our sales efforts, our innovative technology, introduction ofnew products, and, when necessary, litigation. We are also marketing more product internationally.  Beginning in 2004, we were given an award(from PATH) to supply syringes to various African countries under the President’sEmergency Plan for AIDS Relief (PEPFAR). Awards increased significantly from 2004 to 2007.  The continuation of PEPFAR has beenreauthorized by Congress through 2013. However, funding for the procurement of safety syringes in this programis uncertain.

 

Additionally,an Australian distributor was awarded a one-year contract in March 2007 tosupply our VanishPoint® automated retraction syringes toall of Queensland Health’s 202 acute care facilities.  Queensland Health is a department within thegovernment of Queensland, Australia.  Thecontract was renewed for an additional two years.  VanishPoint® productsare distributed in Australia by Brisbane-based Scientific Educational SuppliesPty Ltd.  The number of internationaldistributors continues to increase.

 

In theevent we continue to have only limited market access, the cash provided by thelitigation settlements and generated from operations becomes insufficient, androyalties from BTMD are not forthcoming, we would take cost cutting measures toreduce cash requirements.  Such measurescould result in the reduction of units being produced, the reduction ofworkforce, reduction of salaries of officers and other nonhourly employees, andthe deferral of royalty payments.

 

We arefocusing on methods of upgrading our manufacturing capability and efficiency inorder to reduce costs.  We believe ourcurrent capitalization provides the resources necessary to implement some ofthese changes and improve our manufacturing capacity and efficiency, therebyreducing our unit cost.

 

Productpurchases from Double Dove, a Chinese manufacturer, have enabled us to increasemanufacturing capacity with little capital outlay and have provided acompetitive manufactured cost.  DoubleDove manufactured, in the first three months of 2009, approximately 72.1% of theunits we produced.  The cost of productionper unit has generally declined as volumes increased.  Double Dove increased the prices in thefourth quarter of 2008 to us by $0.005 per unit.  Product cost reductions could be adverselyaffected by increased material and transportation costs.  We believe we could make up any long-termdisruption in these supplies by utilizing more of the capacity at the LittleElm facility, except for the 0.5cc insulin syringe, the 5cc and 10cc syringesand the autodisable syringe which altogether comprised about 4.5% of our firstquarter 2009 revenues.

 

We hada Licensing Agreement with BTMD which expired on May 13, 2008.  Royalties that were expected were notreceived due to the time needed to build the factory, assembly equipment, andthe related infrastructure as well as the need of BTMD to meet the requisiteChinese government requirements.  Thefacility has been completed and BTMD is in the process of meeting Chinesegovernment requirements.  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 we have an effective agreement,Chinese government requirements are met, and BTMD is able to produce and sellproducts.

 

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

 

10

Table ofContents

 

Withincreased volumes, our manufacturing unit costs have generally tended todecline.  Factors that could affect ourunit costs, in addition to Double Dove’s increase in unit costs of $0.005,include changing  production volumes,costs of petroleum products, and transportation costs.  Increases in such costs may not berecoverable through price increases of our products.

 

Wehave completed the expansion of an existing warehouse.  This expansion increases our warehouse area,provides for additional office space, and adds a second ControlledEnvironment.  This will enable us to domore molding in-house.

 

**LIQUIDITYAND FUTURE CAPITAL REQUIREMENTS**

 

At thepresent time, Management does not intend to raise equity capital.  Due to the funds received from priorlitigation settlements, we have sufficient cash reserves and intend to rely onoperations, cash reserves, and debt financing as the primary ongoing sources ofcash.

 

Historical Sourcesof Liquidity

 

Wehave historically funded operations primarily from the proceeds from privateplacements, loans, and litigation settlements.

 

In2008, we received a construction line of credit for up to $4,210,000 to fund anexpansion of our warehouse.  Weanticipate replacing this loan with a new permanent financing arrangementduring the second quarter of 2009.

 

Internal Sourcesof Liquidity

 

*Marginsand Market Access*

 

Toachieve break even quarters, we need minimal access to hospital markets whichhas been difficult to obtain due to the monopolistic marketplace which was thesubject of our initial lawsuit and now also included in our second lawsuitagainst BD.  We will continue to attemptto gain access to the market through our sales efforts, innovative technology,the introduction of new products and, when necessary, litigation.

 

We arefocusing on methods of upgrading our manufacturing capability and efficiency inorder to reduce costs.  We believe ourcurrent capitalization provides the resources necessary to implement some ofthese changes and improve our manufacturing capacity and efficiency, therebyreducing our unit cost.

 

Beginningin early 2004, we began to receive shipment of product from Double Dove whichenabled us to lower our unit costs. Fluctuations in the cost and availability of raw materials and inventoryand our ability to maintain favorable supplier arrangements and relationshipscould result in the need to manufacture all (as opposed to 27.9%) of ourproducts in the U.S.  This couldtemporarily increase unit costs as we ramp up domestic production.

 

Themix of domestic and international sales affects the average sales price of ourproducts.  Generally, the higher theratio of domestic sales to international sales, the higher the average salesprice will be.  Typically internationalsales are shipped directly from China to the customer.  Purchases of product manufactured in China,if available, usually decrease the average cost of manufacture for all units asdomestic costs, such as indirect labor and overhead, remain relatively constant.  Double Dove increased their prices to us by$0.005 per unit in the fourth quarter of 2008. 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.  We will continue toevaluate 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 27.9%****ofour products are produced domestically.

 

Fluctuationsin the cost of oil (since our products are petroleum based),  transportation costs, and the volume of unitspurchased from Double Dove may have an impact on the unit costs of ourproducts.  Increases in 

 

11

Tableof Contents

 

such costs may not berecoverable through price increases of our products.  Reductions in oil prices may not quicklyaffect petroleum product prices.

 

*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.  Royalties that were expected were notreceived due to the time needed to build the factory, assembly equipment, andthe related infrastructure as well as the need of BTMD to meet the requisiteChinese government requirements.  The facilityhas been completed and BTMD is in the process of meeting Chinese governmentrequirements.  We still continue toexpect royalty payments, although we are unable to predict the date we willbegin to receive such royalties.  Weshould begin earning royalties once we have an effective agreement, Chinesegovernment requirements are met, and BTMD is able to produce and sell products.

 

*CashRequirements*

 

Due tofunds received from prior litigation settlements, we have sufficient cashreserves and intend to rely on operations, cash reserves, and debt financing asthe primary ongoing sources of cash. Litigation costs continue to be a significant expense.  In the event we continue to have only limitedmarket access and cash generated from operations becomes insufficient tosupport operations, we would take cost cutting measures to reduce cashrequirements.  Such measures could resultin the reduction of units being produced, the reduction of workforce, thereduction of salaries of officers and other nonhourly employees, and thedeferral of royalty payments.

 

External Sourcesof Liquidity

 

Wehave obtained several loans since our inception, which have, together with theproceeds from the sales of equities and litigation efforts, enabled us topursue development and production of our products.  Given the current economic conditions, ourability to obtain additional funds through loans is limited.  Furthermore, the shareholders previouslyauthorized an additional 5,000,000 shares of a Class C Preferred Stockthat could, if necessary, be designated and used to raise funds through thesale of equity.  Due to the currentmarket price of our Common Stock, it is unlikely we would choose to raise fundsby the sale of equity.

 

**CAPITALRESOURCES**

 

Trends in CapitalResources

 

Interestexpense will increase due to the recent loan****ofapproximately $4.2 million, but will be somewhat mitigated by lower borrowingrates if current conditions in the credit markets continue.  Interest income may be negatively affected bylower interest rates and our prior 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.

 

MaterialCommitments for Expenditures

 

Wehave completed expansion of our warehouse (including additional warehousespace, additional office space, and a new Controlled Environment).  We funded most of this expansion with a loanfrom Lewisville State Bank, a division of 1st InternationalBank, for approximately $4.2 million, secured by a second lien deed on the landand existing buildings.****We expectdraws under the construction line of credit, which totaled $4,210,000, will bereplaced by permanent financing in the second quarter of 2009.

 

12

 

Table ofContents

 

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

 

Thefollowing discussion contains trend information and other forward-lookingstatements that involve a number of risks and uncertainties.  Our actual future results could differmaterially from our historical results of operations and those discussed in theforward-looking statements.  Varianceshave been rounded for ease of reading. All period references are to the periods ended March 31, 2009, or2008.

 

*Comparisonof Three Months Ended*

*March 31,2009, and March 31, 2008*

 

Domesticsales accounted for 78.8% and 86.4% of the revenues for the three months ended March 31,2009 and 2008, respectively.  International sales accounted for theremaining revenues.  Domestic revenuesdecreased 9.7% principally due to lower volumes somewhat mitigated by higheraverage sales prices and international revenues increased 54.0% due primarilyto increased volumes and higher average sales prices.  Overall, unit sales decreased 1.5%.  Domestic unit sales decreased 10.8% andinternational unit sales increased 25.4%. Domestic unit sales were 67.4% of total unit sales for the three monthsended March 31, 2009.

 

Grossprofit decreased primarily due to decreased volumes mitigated by slightlyhigher unit costs.  The average cost ofmanufactured product sold per unit increased by 1.5%.  Profit margins can fluctuate depending upon,among other things, the cost of product manufactured and the capitalized costof product recorded in inventory, as well as product sales mix.  Royalty expense was flat.

 

Operatingexpenses increased 20.8%.  The decreasein expense for Sales and marketing was attributable primarily to lowercompensation costs, travel and entertainment, fees and office expense.  The decrease was mitigated by stock optionexpense related to the exchange offer in the fourth quarter of last year.  Research and development costs wereflat.  Higher supply costs were offset bylower validation and engineering samples. General and administrative costs increased due primarily to litigationcosts.  Stock option expense alsoincreased due to the exchange offer last year.

 

Lossfrom operations increased due principally to litigation costs.

 

Interestexpense declined due to lower interest rates and lower cash balances.  Interest expense for the first quarter of2009 was zero because capitalized interest was equal to interest expense.

 

TheCompany’s effective tax rate on the net loss before income taxes was 2.6% and0.0% for the three months ended March 31, 2009 and March 31, 2008,respectively.

 

TheCompany’s balance sheet remains strong with cash making up 50.8% of totalassets.  Working capital was $26.3million at March 31, 2009, a decrease of $7.1 million from December 31,2008.  The current ratio was 4.3 at December 31,2008 and 3.0 at March 31, 2009.  Thequick ratio was 3.6 at December 31, 2008 and 2.4 at March 31,2009.  One reason for the decline in thecurrent ratio as well as the quick ratio was the inclusion of our $2.2 millionbuilding and real estate loan maturing in March of 2010.  We expect to refinance this loan.  These indicators continue to demonstrate astrong financial position.

 

Accounts receivable declined from the end of theyear due to lower receivable balances of two major customers.  Sales to these two customers were lower thanthe sales in the previous quarter.

 

Rawmaterials inventory increased $648,000 in order to provide an adequate supplyof piece parts which are currently manufactured by an outside party.  We expect to be moving the manufacturing ofthose piece parts to Little Elm as a cost saving measure.  Finished goods inventory increased $477,000.  We increased inventory levels to ensure thatwe had enough material for production and finished goods while equipment isbeing installed and validated in our Little Elm facility.

 

Approximately$3.1 million in cash flow was used by operating activities.  The remaining uses of cash were for theacquisition of plant, property and equipment and intangible assets, and therepayment of long-term debt.

 

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

 

Noupdate

 

13

Table ofContents

 

**Item 4.        Controlsand Procedures.**

 

DisclosureControls and Procedures

 

Pursuantto Rule 13a-15(b) of the Securities Exchange Act of 1934, Management,with the participation of our President, Chairman, and Chief Executive Officer,Thomas J. Shaw (the “CEO”), and our Vice President and Chief Financial Officer,Douglas W. Cowan (the “CFO”), acting in their capacities as our principalexecutive and principal financial officer, evaluated the effectiveness of ourdisclosure controls and procedures, as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934.  Theterm disclosure controls and procedures**meanscontrols and other procedures that are designed to ensure that informationrequired to be disclosed by us in our periodic reports is: i) recorded,processed, summarized and reported, within the time periods specified in theSecurities and Exchange Commission’s rules and forms; and ii) accumulatedand communicated to our Management, including our principal executive andprincipal financial officers, as appropriate to allow timely decisionsregarding required disclosure. Based upon this evaluation, the CEO and CFOconcluded that, as of March 31, 2009, our disclosure controls andprocedures were effective.

 

Changes inInternal Control Over Financial Reporting

 

Therehave been no changes during the first quarter of 2009 or subsequent to March 31,2009 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.

 

**PART II—OTHER INFORMATION**

 

**Item 1.        Legal Proceedings.**

 

Asummary of all litigation matters was included in our Form 10-K filed on March 31,2009.  There are no material updates atthis 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 2008 which was filed on March 31,2009, 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

 

None.

 

Purchases of EquitySecurities by the Issuer and Affiliated Purchasers

 

Issuer Purchasesof Equity Securities

 
| Period               |   | Total   Number  of Shares   (or Units)   Purchased |   | Average   Price Paid   Per Share  (or Unit) |   | Total Number of  Shares   (or Units) Purchased as   Part of Publicly   Announced Plans or   Programs |   | Maximum Number  (or   Approximate Dollar Value) of   Shares (or Units) that May Yet  Be Purchased Under the Plans  or Programs |   |
|----------------------|--------|----------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|
| March 13,  2009 |   | 200,000(1)                                         |   | $1.00                                       |   | 0                                                                                                         |   | N/A                                                                                                                                 |   |

 

(1)           These shares were purchased by anaffiliated purchaser in a private transaction, not through a publicly announcedplan or program.

 

14

Table ofContents

 

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, 2009, we had no fundsheld as restricted cash for such purposes. The Board of Directors has authorized Management to borrow and incur indebtednessin the form of letters of credit in an aggregate amount, at any one time, of$5,000,000.

 

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

 

**Item 3.****       ****Defaults Upon SeniorSecurities.**

 

Series I Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2009, the amount of dividends in arrearsis $18,000 and the total arrearage is $126,000.

 

Series II Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2009, the amount of dividends in arrearsis $55,000 and the total arrearage is $386,000.

 

Series III Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2009, the amount of dividends in arrearsis $33,000 and the total arrearage is $3,149,000.

 

Series IV Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2009, the amount of dividends in arrearsis $138,000 and the total arrearage is $7,169,000.

 

Series V Class BConvertible Preferred Stock

 

As ofthe three months ended March 31, 2009, the amount of dividends in arrearsis $99,000 and the total arrearage is $3,396,000.

 

**Item 4.****       ****Submission of Matters toa Vote of Security Holders.**

 

Not applicable

 

**Item 5.****       ****Other Information.**

 

The 2009 annual meeting shall be held on September 25,2009, at 10:00 a.m. at Little Elm City Hall; 100 West Eldorado Parkway;Little Elm, Texas, 75068.

 

15

# Tableof Contents

 

# **Item6.        Exhibits.**

#  

| Exhibit No.  |   | Description of Document                                                                                                                                           |
|------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |   |                                                                                                                                                              |
| 3(i)                   |   | Third Amended and  Restated Articles of Incorporation of RTI filed on November 1, 2004* as  amended by that Statement of Change of Registered Office/Agent** |
|                   |   |                                                                                                                                                              |
| 3(ii)                  |   | Third Amended and  Restated Bylaws of RTI***                                                                                                                      |
|                   |   |                                                                                                                                                              |
| 31.1                   |   | Certification of  Principal Executive Officer ** **                                                                                                               |
|                   |   |                                                                                                                                                              |
| 31.2                   |   | Certification of  Principal Financial Officer ** **                                                                                                               |
|                   |   |                                                                                                                                                              |
| 32                     |   | Certification Pursuant  to 18 U.S.C. Section 1350 ** **                                                                                                      |

 
| *      |   | Incorporated herein by  reference to RTI’s Form 10-Q filed on November 14, 2005 |
|--------|--------|------------------------------------------------------------------------------------------------|
|   |   |                                                                                           |
| **     |   | Incorporated herein by  reference to RTI’s Form 10-K filed on March 31, 2008    |
|   |   |                                                                                           |
| ***    |   | Incorporated herein by  reference to RTI’s Form 10-Q filed on November 14, 2008 |
|   |   |                                                                                           |
| ** **  |   | Attached hereto                                                                                |

 

16

Table of Contents

** **

**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,  2009 | RETRACTABLE  TECHNOLOGIES, INC. |
|-------------------------------------|---------------------------------|
|                                | (Registrant)                    |
|                                |                            |
|                                |                            |
|                                | BY:                             | s/Douglas  W. Cowan |   |
|                                |                            | DOUGLAS W. COWAN  VICE PRESIDENT AND  CHIEF FINANCIAL OFFICER |

 

17