**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**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 September 30,2009**

 

**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**

 

**Retractable Technologies, Inc.**

(Exact name of registrantas 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’s telephonenumber, including area code)

 

 

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

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange 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 mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

APPLICABLE ONLY TOISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THEPRECEDING FIVE YEARS:

 

Indicate by checkmark whether the registrant has filed all documents and reports required to befiled by 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 of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date: 23,820,064 sharesof Common Stock, no par value, issued and outstanding on November 2, 2009.

 

 

 

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**RETRACTABLE TECHNOLOGIES, INC.**

**FORM 10-Q**

**For the Quarterly Period Ended September 30,2009**

 

**TABLE OFCONTENTS**

 

 
| **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** | **10** |
| **Item  3.**                                | **Quantitative  and Qualitative Disclosures About Market Risk** | **16** |
| **Item  4.**                                | **Controls  and Procedures** | **16** |
| ** **                                  |
| **PART II—OTHER  INFORMATION**    |
| ** **                                  |
| **Item 1.**                                 | **Legal Proceedings** | **16** |
| **Item 1A.**                                | **Risk Factors** | **17** |
| **Item 2.**                                 | **Unregistered  Sales of Equity Securities and Use of Proceeds** | **17** |
| **Item 3.**                                 | **Defaults  Upon Senior Securities** | **18** |
| **Item 4.**                                 | **Submission  of Matters to a Vote of Security Holders** | **18** |
| **Item 5.**                                 | **Other Information** | **20** |
| **Item 6.**                                 | **Exhibits** | **20** |
| **SIGNATURES**                              | **20** |

 

 

 

----

 

**PART I—FINANCIAL INFORMATION**

 

**Item 1.        FinancialStatements.**

 

**RETRACTABLE TECHNOLOGIES, INC.**

## **CONDENSED BALANCE SHEETS**

** **

** **
|                                             |       | **September 30,  2009** |       |                        |       |
|--------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**              | ** ** | **December 31,  2008** | ** ** |
|                                             |       |                         |       |                        |       |
| **ASSETS**                                       | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                  |       |                         |       |                        |       |
| Cash and cash equivalents                        | $          |                         | 17,502,934 | $                           |       | 33,283,740 |   |
| Accounts  receivable, net                        |       | 6,111,552                    |       | 3,288,942                   |       |
| Inventories, net                                 |       | 8,442,180                    |       | 6,641,532                   |       |
| Income taxes receivable                          |       | 23,422                       |       | 6,576                       |       |
| Other current assets                             |       | 136,072                      |       | 400,113                     |       |
| Total  current assets                            |       | 32,216,160                   |       | 43,620,903                  |       |
|                                             |       |                         |       |                        |       |
| Property,  plant, and equipment, net             |       | 17,052,253                   |       | 14,435,667                  |       |
| Intangible  assets, net                          |       | 447,285                      |       | 470,115                     |       |
| Other  assets                                    |       | 9,000                        |       | 18,750                      |       |
| Total  assets                                    | $          |                         | 49,724,698 | $                           |       | 58,545,435 |   |
|                                             |       |                         |       |                        |       |
|                                             |       |                         |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**    |       | ** **                   | ** ** | ** **                  | ** ** |
| Current  liabilities:                            |       |                         |       |                        |       |
| Accounts  payable                                | $          |                         | 4,729,785  | $                           |       | 6,144,435 |   |
| Current portion of long-term debt                |       | 2,548,606                    |       | 451,865                     |       |
| Accrued  compensation                            |       | 655,532                      |       | 650,704                     |       |
| Marketing  fees payable                          |       | 1,419,760                    |       | 1,419,760                   |       |
| Accrued  royalties to shareholders               |       | 100,000                      |       | 620,987                     |       |
| Other  accrued liabilities                       |       | 1,124,766                    |       | 852,602                     |       |
| Income  taxes payable                            |       | —                       |       | 103,744                     |       |
| Total  current liabilities                       |       | 10,578,449                   |       | 10,244,097                  |       |
|                                             |       |                         |       |                        |       |
| Long-term  debt, net of current maturities       |       | 5,020,867                    |       | 6,095,535                   |       |
| Total  liabilities                               |       | 15,599,316                   |       | 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                      |       | 55,983,084                   |       | 53,952,183                  |       |
| Retained  deficit                                |       | (24,142,968                  | )          | (14,031,646                 | )          |
| Total  stockholders’ equity                 |       | 34,125,382                   |       | 42,205,803                  |       |
| Total  liabilities and stockholders’ equity | $          |                         | 49,724,698 | $                           |       | 58,545,435 |   |

 

See accompanyingnotes to condensed financial statements

 

 

1

----

 

**RETRACTABLETECHNOLOGIES, INC.**

## **CONDENSED STATEMENTS OFOPERATIONS**

**(unaudited)**

 

 
| ** **                                | ** ** | **Three  Months********Ended********September 30,  2009** | ** ** | ** ** | **Three  Months********Ended********September 30,  2008** | ** ** | ** ** | **Nine  Months********Ended********September 30,  2009** | ** ** | ** ** | **Nine  Months********Ended********September 30,  2008** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------|------------|------------|----------------------------------------------------------------|------------|------------|---------------------------------------------------------------|------------|------------|---------------------------------------------------------------|------------|
|                                      |       |                                                           |       |       |                                                           |       |       |                                                          |       |       |                                                          |       |
| Sales,  net                               | $          | 10,752,445                                                     |       | $          | 8,997,038                                                      |       | $          | 21,763,523                                                    |       | $          | 20,786,420                                                    |       |
| Cost  of sales                            |       |                                                           |       |       |                                                           |       |       |                                                          |       |       |                                                          |       |
| Cost  of manufactured product             |       | 7,034,384                                                      |       |       | 6,219,614                                                      |       |       | 13,613,625                                                    |       |       | 12,851,542                                                    |       |
| Royalty  expense to shareholders          |       | 782,335                                                        |       |       | 651,502                                                        |       |       | 1,645,230                                                     |       |       | 1,547,281                                                     |       |
| Total  cost of sales                      |       | 7,816,719                                                      |       |       | 6,871,116                                                      |       |       | 15,258,855                                                    |       |       | 14,398,823                                                    |       |
| Gross  profit                             |       | 2,935,726                                                      |       |       | 2,125,922                                                      |       |       | 6,504,668                                                     |       |       | 6,387,597                                                     |       |
|                                      |       |                                                           |       |       |                                                           |       |       |                                                          |       |       |                                                          |       |
| Operating  expenses:                      |       |                                                           |       |       |                                                           |       |       |                                                          |       |       |                                                          |       |
| Sales  and marketing                      |       | 1,024,191                                                      |       |       | 1,139,052                                                      |       |       | 3,559,790                                                     |       |       | 3,607,962                                                     |       |
| Research  and development                 |       | 195,753                                                        |       |       | 271,174                                                        |       |       | 826,479                                                       |       |       | 804,006                                                       |       |
| General  and administrative               |       | 5,264,302                                                      |       |       | 2,896,205                                                      |       |       | 12,489,453                                                    |       |       | 8,284,638                                                     |       |
| Total  operating expenses                 |       | 6,484,246                                                      |       |       | 4,306,431                                                      |       |       | 16,875,722                                                    |       |       | 12,696,606                                                    |       |
| Loss  from operations                     |       | (3,548,520                                                     | )          |       | (2,180,509                                                     | )          |       | (10,371,054                                                   | )          |       | (6,309,009                                                    | )          |
|                                      |       |                                                           |       |       |                                                           |       |       |                                                          |       |       |                                                          |       |
| Interest  and other income                |       | 14,176                                                         |       |       | 158,664                                                        |       |       | 54,359                                                        |       |       | 653,782                                                       |       |
| Interest  expense, net                    |       | —                                                         |       |       | (13,893                                                        | )          |       | —                                                        |       |       | (77,161                                                       | )          |
| Net  loss before income taxes             |       | (3,534,344                                                     | )          |       | (2,035,738                                                     | )          |       | (10,316,695                                                   | )          |       | (5,732,388                                                    | )          |
| Benefit  for income taxes                 |       | (100,027                                                       | )          |       | —                                                         |       |       | (205,373                                                      | )          |       | —                                                        |       |
| Net  loss                                 |       | (3,434,317                                                     | )          |       | (2,035,738                                                     | )          |       | (10,111,322                                                   | )          |       | (5,732,388                                                    | )          |
| Preferred  stock dividendrequirements     |       | (342,717                                                       | )          |       | (342,717                                                       | )          |       | (1,028,151                                                    | )          |       | (1,030,302                                                    | )          |
| Loss applicable to commonstockholders     | $          | (3,777,034                                                     | )          | $          | (2,378,455                                                     | )          | $          | (11,139,473                                                   | )          | $          | (6,762,690                                                    | )          |
|                                      |       |                                                           |       |       |                                                           |       |       |                                                          |       |       |                                                          |       |
| Loss  per share – basic and diluted  | $          | (0.16                                                          | )          | $          | (0.10                                                          | )          | $          | (0.47                                                         | )          | $          | (0.28                                                         | )          |
|                                      |       |                                                           |       |       |                                                           |       |       |                                                          |       |       |                                                          |       |
| Weighted average common sharesoutstanding |       | 23,803,397                                                     |       |       | 23,800,064                                                     |       |       | 23,801,175                                                    |       |       | 23,792,733                                                    |       |

 

See accompanyingnotes to condensed financial statements

 

 

2

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**RETRACTABLETECHNOLOGIES, INC.**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(unaudited)**
|                                                                                       | ** ** | **Nine  Months****Ended****September 30,  2009** | ** ** | ** ** | **Nine  Months****Ended****September 30,  2008** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------|-------------------------------------------------------|------------|
| **Cash flows from operating activities**                                                   |       |                                                  |       |       |                                                  |       |
| Net  loss                                                                                  | $          | (10,111,322                                           | )          | $          | (5,732,388                                            | )          |
| Adjustments  to reconcile net loss to net cash provided by (used by) operating activities: |       |                                                  |       |       |                                                  |       |
| Depreciation  and amortization                                                             |       | 1,079,954                                             |       |       | 1,048,773                                             |       |
| Capitalized  interest                                                                      |       | (150,910                                              | )          |       | (153,226                                              | )          |
| Stock  option compensation                                                                 |       | 1,329,566                                             |       |       | —                                                |       |
| Provisions  for doubtful accounts                                                          |       | 182,000                                               |       |       | 143,496                                               |       |
| Accreted  interest                                                                         |       | 33,459                                                |       |       | 41,807                                                |       |
| (Increase)  decrease in assets                                                             |       |                                                  |       |       |                                                  |       |
| Inventories                                                                                |       | (1,800,648                                            | )          |       | 1,079,318                                             |       |
| Accounts  receivable                                                                       |       | (3,004,610                                            | )          |       | (1,919,584                                            | )          |
| Income  taxes receivable                                                                   |       | (16,846                                               | )          |       | 2,345,041                                             |       |
| Other  current assets                                                                      |       | 264,041                                               |       |       | (302,136                                              | )          |
| Increase  (decrease) in liabilities                                                        |       |                                                  |       |       |                                                  |       |
| Accounts  payable                                                                          |       | (1,414,650                                            | )          |       | (925,913                                              | )          |
| Other  accrued liabilities                                                                 |       | 438,340                                               |       |       | 621,415                                               |       |
| Income  taxes payable                                                                      |       | (103,744                                              | )          |       | —                                                |       |
| Net  cash used by operating activities                                                     |       | (13,275,370                                           | )          |       | (3,753,397                                            | )          |
| ** **                                                                                 |       |                                                  |       |       |                                                  |       |
| **Cash flows from investing activities**                                                   |       |                                                  |       |       |                                                  |       |
| Purchase  of property, plant, and equipment                                                |       | (2,150,449                                            | )          |       | (2,161,789                                            | )          |
| Acquisitions  of patents, trademarks, licenses and intangibles                             |       | —                                                |       |       | (89,152                                               | )          |
| Investment  in LLC                                                                         |       | —                                                |       |       | 497,690                                               |       |
| Net  cash used by investing activities                                                     |       | (2,150,449                                            | )          |       | (1,753,251                                            | )          |
| ** **                                                                                 |       |                                                  |       |       |                                                  |       |
| **Cash flows from financing activities**                                                   |       |                                                  |       |       |                                                  |       |
| Repayments  of long-term debt and notes payable                                            |       | (373,987                                              | )          |       | (366,571                                              | )          |
| Proceeds  from long-term debt                                                              |       | —                                                |       |       | 1,328,859                                             |       |
| Proceeds  from the exercise of stock options                                               |       | 19,000                                                |       |       | —                                                |       |
| Net  cash provided by (used by) financing activities                                       |       | (354,987                                              | )          |       | 962,288                                               |       |
|                                                                                       |       |                                                  |       |       |                                                  |       |
| Net  decrease in cash                                                                      |       | (15,780,806                                           | )          |       | (4,544,360                                            | )          |
|                                                                                       |       |                                                  |       |       |                                                  |       |
| Cash  and cash equivalents at:                                                             |       |                                                  |       |       |                                                  |       |
| Beginning  of period                                                                       |       | 33,283,740                                            |       |       | 40,507,431                                            |       |
| End  of period                                                                             | $          | 17,502,934                                            |       | $          | 35,963,071                                            |       |
|                                                                                       |       |                                                  |       |       |                                                  |       |
| Supplemental  disclosures of cash flow information:                                        |       |                                                  |       |       |                                                  |       |
| Interest  paid                                                                             | $          | 117,451                                               |       | $          | 188,581                                               |       |
| Income  taxes paid                                                                         | $          | 15,883                                                |       | $          | —                                                |       |
|                                                                                       |       |                                                  |       |       |                                                  |       |
| Supplemental  disclosure of non-cash investing and financing activities:                   |       |                                                  |       |       |                                                  |       |
| Forgiveness  of royalties by a shareholder                                                 | $          | 682,335                                               |       | $          | —                                                |       |
| Debt  assumed to construct warehouse                                                       | $          | 1,362,602                                             |       | $          | —                                                |       |

 

See accompanyingnotes to condensed financial statements

 

3

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**RETRACTABLE TECHNOLOGIES, INC.**

**NOTES TO CONDENSED FINANCIALSTATEMENTS**

**(unaudited)**

 

 

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

 

**Businessof the Company**

 

Retractable Technologies,Inc. (the “Company”) was incorporated in Texas on May 9, 1994, and designs,develops, manufactures and markets safety syringes and other safety medicalproducts for the healthcare profession. The Company began to develop its manufacturing operations in 1995.  The Company’s manufacturing andadministrative facilities are located in Little Elm, Texas.  The Company’s primary products with Notice ofSubstantial Equivalence to the FDA are the VanishPoint® 0.5cc insulinsyringe; 1cc tuberculin, insulin, and allergy antigen syringes; the 3cc, 5cc,and 10cc syringes; the small diameter tube adapter; the blood collection tubeholder; the allergy tray; the IV safety catheter; and the Patient SafeTMsyringe.

 

**Basis ofpresentation**

 

The accompanyingcondensed financial statements are unaudited and, in the opinion of Management,reflect all adjustments that are necessary for a fair presentation of thefinancial position and results of operations for the periods presented.  All such adjustments are of a normal andrecurring nature.  The results ofoperations for the periods presented are not necessarily indicative of the resultsto be expected for the entire year.  Thecondensed financial statements should be read in conjunction with the financialstatement disclosures contained in the Company’s audited financial statementsincorporated into its Form 10-K filed on March 31, 2009 for the year ended December31, 2008.  Certain prior year amountshave been reclassified to conform with the current period’s presentation.

 

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

 

**Accountingestimates**

 

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples (“GAAP”) requires Management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ significantlyfrom those estimates.

 

**Cash andcash equivalents**

 

For purposes of reportingcash flows, cash and cash equivalents include unrestricted cash, money marketaccounts, and investments with original maturities of three months or less.

 

**Accountsreceivable**

 

The Company records tradereceivables when revenue is recognized. No product has been consigned to customers.  The Company’s allowance for doubtful accountsis primarily determined by review of specific trade receivables.  Those accounts that are doubtful ofcollection are included in the allowance. An additional allowance has been established based on a percentage ofreceivables outstanding.  Theseprovisions are reviewed to determine the adequacy of the allowance for doubtfulaccounts.  Trade receivables are chargedoff when there is certainty as to their being uncollectible.  Trade receivables are considered delinquentwhen payment has not been made within contract terms.

 

 

4

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**Inventories**

 

Inventories are valued atthe lower of cost or market, with cost being determined using a standard costmethod, which approximates average cost. A reserve is established for any excess or obsolete inventories.

 

**Property,plant, and equipment**

 

Property, plant, andequipment are stated at cost. Expenditures for maintenance and repairs are charged to operations asincurred.  Cost includes majorexpenditures for improvements and replacements which extend useful lives orincrease capacity and interest cost associated with significant capitaladditions.  Gains or losses from propertydisposals are included in income.

 

Depreciation and amortization are calculated using the straight-linemethod 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 of long-lived assets using anassessment of the estimated undiscounted future cash flows related to suchassets.  In the event that assets arefound to be carried at amounts which are in excess of estimated gross futurecash flows, the assets will be adjusted for impairment to a level commensuratewith a discounted cash flow analysis of the underlying assets.

 

**Intangible assets**

 

Intangible assets are stated at cost and consist primarily of patents,a license agreement granting exclusive rights to use patented technology, andtrademarks which are amortized using the straight-line method over 17 years.

 

**Financial instruments**

 

The Company estimates the fair market value of financial instrumentsthrough the use of public market prices, quotes from financial institutions andother available 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.

 

**Concentration risks**

 

The Company’s financial instruments exposed to concentrations of creditrisk consist 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 any exposure from concentrations of credit risks to belimited.  The Company had a highconcentration of sales with two significant customers, accounting forapproximately $2.9 million, or 27% of net sales in the third quarter of 2009.

 

5

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The Company manufacturessyringes in Little Elm, Texas as well as utilizing manufacturers 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 67.4% of itsfinished products in the first nine months of 2009 through Double Dove, aChinese manufacturer.  In the event thatthe Company becomes unable to purchase such product from Double Dove, theCompany would need to find an alternate supplier for its 0.5cc insulin syringe,its 5cc and 10cc syringes and its autodisable syringe and increase domesticproduction for 1cc and 3cc syringes to avoid a disruption in supply.

 

**Revenuerecognition**

 

Revenue is recognized forsales to distributors when title and risk of ownership passes to thedistributor, generally upon shipment. Revenue is recorded on the basis of sales price to distributors, lesscontractual pricing allowances. Contractual pricing allowances consist of: (i) rebates granted todistributors who provide tracking reports which show, among other things, thefacility that purchased the products, and (ii) a provision for estimatedcontractual pricing allowances for products that the Company has not receivedtracking reports.  Rebates are recordedwhen issued 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.

 

The Company’s domesticreturn policy is set forth in its standard Distribution Agreement.  This policy provides that a customer mayreturn incorrect shipments within 10 days following arrival at the distributor’sfacility.  In all such cases thedistributor must obtain an authorization code from the Company and affix thecode to the returned product.  TheCompany will not accept returned goods without a returned goods authorizationnumber.  The Company may refund thecustomer’s money or replace the product.

 

The Company’s returnpolicy also provides that a customer may return product that isoverstocked.  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.

 

The Company’s internationaldistribution agreements do not provide for any returns.

 

The Company records anallowance for estimated returns as a reduction to Accounts receivable and Grosssales.  Historically, returns have beenless than 0.5% of total sales.

 

**Marketingfees**

 

Under a sales andmarketing agreement with Abbott Laboratories (“Abbott”), the Company paidmarketing fees until the Company terminated the contract for breach.  The contracted services were to includeparticipation in promotional activities, development of educational andpromotional materials, representation at trade shows, clinical demonstrations,inservicing and training, and tracking reports detailing the placement of theCompany’s products to end-users. Marketing fees were accrued at the time of the sale of product toAbbott.  These fees were paid afterAbbott provided the Company a tracking report of product sales toend-users.  These costs were included inSales and marketing expense in the Condensed Statements of Operations.  No marketing fees have been accrued since October15, 2003, the date the National Marketing and Distribution Agreement withAbbott was terminated.  The Company filedsuit against Abbott in August 2005 for breach of contract.  The District Court has issued a schedulingorder calling for trial in May 2010. ** **See **Note 5.COMMITMENTS AND CONTINGENCIES** for further discussion.

 

6

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**Incometaxes**

 

The Company provides fordeferred income taxes through the use of an asset and liability approach forfinancial accounting and reporting based on the tax effects of differencesbetween the financial statement and tax bases of assets and liabilities, basedon enacted rates expected to be in effect when such differences reverse infuture periods.  Deferred tax assets areperiodically reviewed for realizability. The Company had sufficient taxable income from prior carryback years torealize all of its taxable losses through December 31, 2006.  Taxable losses for 2007 and thereafter aresubject to loss carryforwards.  TheCompany has established a valuation allowance for its net deferred tax asset asfuture taxable income cannot be reasonably assured.  Penalties and interest on uncertain taxpositions are classified as income taxes in the Condensed Statements ofOperations.

 

**Earningsper share**

 

The Company computesbasic earnings per share by dividing net earnings for the period (adjusted forany cumulative dividends for the period) by the weighted average number ofcommon shares 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 and nine months ended September 30, 2009 and2008.  Accordingly basic loss per shareis equal to diluted earnings per share.

 

**Shippingand handling costs**

 

The Company classifiesshipping and handling costs as part of Cost of sales in the CondensedStatements of Operations.

 

**Research and development costs**

 

Research and developmentcosts are expensed as incurred.

 

**Share-based compensation**

 

The Company’s share-basedpayments are accounted for using the fair value method.  The Company records share-based compensationexpense on a straight-line basis over the requisite service period.  The Company incurred the followingshare-based compensation costs:

** **
| ** **                 | ** ** | **Three Months********Ended********September  30, 2009** | ** ** | **Three Months********Ended********September  30, 2008** | ** ** | **Nine Months********Ended********September  30, 2009** | ** ** | **Nine Months********Ended********September  30, 2008** | ** ** |
|----------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
|                       |       |                                                     |       |                                                     |       |                                                    |       |                                                    |       |
| Cost of sales              | $          | 123,030                                                  | $          | —                                                   | $          | 201,501                                                 | $          | —                                                  |       |
|                       |       |                                                     |       |                                                     |       |                                                    |       |                                                    |       |
| Sales and marketing        |       | 74,414                                                   |       | —                                                   |       | 171,192                                                 |       | —                                                  |       |
|                       |       |                                                     |       |                                                     |       |                                                    |       |                                                    |       |
| Research and development   |       | 16,903                                                   |       | —                                                   |       | 29,537                                                  |       | —                                                  |       |
|                       |       |                                                     |       |                                                     |       |                                                    |       |                                                    |       |
| General and administrative |       | 768,884                                                  |       | —                                                   |       | 927,336                                                 |       | —                                                  |       |
|                       | $          | 983,231                                                  | $          | —                                                   | $          | 1,329,566                                               | $          | —                                                  |       |

 

**Recent Pronouncements**

 

In June 2009, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 168, *The FASB AccountingStandards Codification**TM** and the Hierarchy of Generally AcceptedAccounting Principles — a replacement of FASB Statement No. 162* (“SFAS 168”) (FASB ASC 105-10).  SFAS 168 replaces all previously issuedaccounting standards and establishes the *FASB Accounting StandardsCodification**TM** *(“FASB ASC” or the “Codification”) as the source ofauthoritative accounting principles recognized by the FASB to be applied bynongovernmental entities in the preparation of financial statements inconformity 

 

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with U.S. GAAP.  SFAS 168 is effective for all interim andannual periods ending after September 15, 2009. The FASB ASC is not intended to change existing U.S. GAAP.  The adoption of this pronouncement onlyresulted in changes to the Company’s financial statement disclosurereferences.  As such, the adoption ofthis pronouncement had no effect on the Company’s condensed financial position,results of operations, or cash flows.

 

In order to facilitatethe transition to the FASB ASC, the Company has elected to show all referencesto FASB ASC within this report on Form 10-Q along with a parentheticalreference to the previous accounting standard.

 

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “*Determination of the Useful Life of Intangible Assets,*”included in the Codification under FASB ASC 350.  This FSP amends the factors that should beconsidered in developing renewal or extension assumptions used to determine theuseful life of a recognized intangible asset under FASB Statement No. 142, “*Goodwill and Other Intangible Assets*” (“SFAS142”).  The intent of this FSP is toimprove the consistency between the useful life of a recognized intangibleasset under SFAS 142 and the period of expected cash flows used to measure thefair value of the asset under SFAS 141R, and other GAAP.  FSP FAS 142-3 was effective for the Companybeginning January 1, 2009.  The adoptionof FSP FAS 142-3 did not have a material impact on the Company’s financialposition, results of operations, or cash flows.

 

In May 2009, the FASB issued SFAS No. 165, *SubsequentEvents*, included in the Codification under FASB ASC 855, whichestablishes general standards of accounting for and disclosure of eventsoccurring after the balance sheet date, but before the financial statements areissued or available to be issued.  SFAS No.165 also requires entities to disclose the date through which it has evaluatedsubsequent events and the basis for that date. The Company adopted SFAS No. 165 for its second quarter ended June 30,2009.  Its adoption did not have amaterial impact on the Company’s financial position, results of operations, orcash flows.  Refer to **Note 6 SUBSEQUENT EVENTS** for more information regarding theCompany’s evaluation of subsequent events.

 

**3.**      **INVENTORIES**

 

Inventories consist ofthe following:

 
|              | ** ** | **September  30, 2009** | ** ** | **December  31, 2008** | ** ** |
|-------------------|------------|-------------------------|------------|------------------------|------------|
| Raw materials     |       | $                       | 2,735,386  |                   | $          | 1,885,157 |   |
| Finished goods    |       | 5,912,394               |       | 4,961,975              |       |
|              |       | 8,647,780               |       | 6,847,132              |       |
| Inventory reserve |       | (205,600                | )          | (205,600               | )          |
|              |       | $                       | 8,442,180  |                   | $          | 6,641,532 |   |

 

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

 

The Company’s effective tax rate on the net loss before income taxeswas 2.0% and 0.0% for the nine months ended September 30, 2009 and September 30,2008, respectively.  During the quarterended March 31, 2009, the Company recorded a state tax receivable ofapproximately $100,000 attributable to amended returns which were received inthe third quarter.  Additionally, duringthe three months ended September 30, 2009 the Company reduced its accrual foruncertain tax positions as the potential tax payment is not likely to beincurred.

** **

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

 

On August 12, 2005, theCompany filed a lawsuit against Abbott in the U.S. District Court in theEastern District of Texas, Texarkana Division. The Company is alleging fraud and breach of contract in connection withthe National Marketing and Distribution Agreement dated as of May 4, 2000,which was terminated on October 15, 2003.  It is seeking damages which it estimates to bein millions of dollars of lost profits, out of pocket expenses, and otherdamages.  In addition, it is seekingpunitive damages, pre- and post-judgment interest, and attorneys’ fees.  Following Abbott’s unsuccessful attempt toget the case dismissed and ordered to arbitration, Abbott filed an answer andcounterclaim on July 15, 2008, alleging several breaches of contract, breach ofimplied warranty of merchantability, and breach of express warranty, seeking inexcess of $6,000,000 in compensatory damages as well as seeking attorneys’fees.  The Company denies the validity of

 

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Abbott’scounterclaims.  Some discovery hasalready taken place (related to the hearings addressing the prior motion tocompel arbitration) and additional discovery is underway.  The District Court has issued a revisedscheduling order calling for trial in May 2010.

 

In April 2008, theCompany sued Occupational and Medical Innovations Limited (“OMI”) in the U.S.District Court for the Eastern District of Texas, Tyler Division, alleging thatOMI has infringed two U.S. patents that were not at issue in the Australianlitigation (6,572,584 and 7,351,224). The Company also alleged theft of confidential information, intentionalinterference with contracts and engaging in false advertising that wrongfullydisparaged and mischaracterized our syringe products.  The Company further alleged that OMI madefalse allegations regarding the source of origin of its safety syringe productsbeing offered in the U.S. The Company is seeking injunctive relief, unspecifieddamages (including treble damages) and reimbursement of attorneys’ fees in thesuit.  OMI has counterclaimed, seekingdeclaratory judgments of non-infringement and invalidity of the Company’sasserted patents.  OMI is not seekingmonetary damages.  Trial is set for December2009.

 

In June 2007, the Companysued Becton Dickinson and Company (“BD”) in the U.S. District Court for theEastern District of Texas, Marshall Division, alleging infringement of threepatents (5,578,011; 5,632,733; and 6,090,077) and violations by BD of thefederal and state antitrust laws, and of the Lanham Act.  The Company subsequently dropped the5,578,011 patent allegations from the lawsuit. The Company and an officer, a co-plaintiff, were seeking injunctiverelief, unspecified monetary damages and reimbursement of attorneys’ fees inthe suit.  BD counterclaimed fornon-infringement and invalidity of the asserted patents.  In January 2008, the Court severed the patentclaims from the other claims pending resolution of the patent dispute.  In April 2008, the Company and the officersued BD in the U.S. District Court for the Eastern District of Texas, MarshallDivision, alleging infringement of another recently issued patent (7,351,224),and seeking injunctive relief, unspecified monetary damages (including trebledamages) and reimbursement of attorneys fees. BD counterclaimed for non-infringement and invalidity of the asserted patent.  The Court consolidated this case with theabove-stated case filed in June 2007. The case was tried to a jury from October 30 to November 9,2009.  On November 9, the jury returned averdict finding that BD has infringed all three asserted patents, that thethree asserted patents are not invalid, and that BD owes the Company andofficer five million dollars ($5,000,000). Judgment has not yet been entered on the verdict, and post-trialbriefing is presently underway.  TheCompany and officer are also requesting that, based upon the jury verdict ofpatent infringement, the Court enjoin BD from selling the accused Integra® syringes.  Because the jury also found that theinfringement was not willful, there is no probability that the Company andofficer will recover enhanced damages. Any judgment entered upon the jury verdict will be subject to appeal byall parties to the litigation.

 

In September 2007, BD andMDC Investment Holdings, Inc. (“MDC”) sued the Company in the United StatesDistrict Court for the Eastern District of Texas, Texarkana Division, initiallyalleging that the Company is infringing two U.S. patents of MDC (6,179,812 and7,090,656) that are licensed to BD. BD and MDC seek injunctive relief andunspecified damages.  The Company counterclaimedfor declarations of non-infringement, invalidity, and unenforceability of theasserted patents.  The plaintiffssubsequently dropped allegations with regard to patent no. 7,090,656 and theCompany subsequently dropped its counterclaims for unenforceability of theasserted patents.  The Court conducted aclaims construction hearing on September 25, 2008 and issued its claimsconstruction order on November 14, 2008. No trial date has been set.  Theparties have agreed to request a stay of this litigation until after the caseagainst BD has been tried.

 

In September 2008, theCompany and an officer sued Safety Medical International (“SMI”) in the UnitedStates 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 attorneys’fees.  SMI has counterclaimed, seekingdeclaratory judgments of non-infringement and invalidity of the assertedpatents.  SMI is not seeking monetarydamages.  SMI has filed a notice ofbankruptcy in this case and it has been stayed pending the outcome of thoseproceedings.

** **

**6.**      **SUBSEQUENT EVENTS**

 

The Company hasevaluated events occurring after the date of its accompanying unauditedCondensed Balance Sheets through the date of the filing of this QuarterlyReport on Form 10-Q (November 16, 2009) in accordance with SFAS No. 165 and hasdetermined that such events are properly recorded and disclosed.

 

The consolidated patent infringement casebrought by the Company and officer against BD was tried to a jury in UnitedStates District Court for the Eastern District of Texas, Marshall Division,from October 30 to November 9, 2009.  OnNovember 9, the jury returned a verdict finding that BD has infringed all threeasserted patents, that the three asserted patents are not invalid, and that BDowes the Company and officer five million dollars ($5,000,000).  Judgment has not yet been entered on theverdict, and post-trial briefing is presently underway.  The Company and officer are also requestingthat, based upon the jury verdict of patent infringement, the Court enjoin BDfrom selling the accused Integra® syringes. Because the jury also found that the infringement was not willful, thereis no probability that the Company and officer will recover enhanceddamages.  Any judgment entered upon thejury verdict will be subject to appeal by all parties to the litigation.

 

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

 

**FORWARD-LOOKING STATEMENT WARNING**

 

Certain statements included by reference in this filing containing thewords “could,” “may,” “believes,” “anticipates,” “intends,” “expects,” andsimilar such words constitute forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act. Any forward-looking statements involve known and unknown risks,uncertainties, and other factors that may cause our actual results,performance, or achievements to be materially different from any futureresults, 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), our ability to maintain favorable supplier arrangementsand relationships, our ability to receive royalties from Baiyin Tonsun MedicalDevice Co., Ltd. (“BTMD”),  our abilityto quickly increase capacity in response to an increase in demand (such as byincreased orders due to swine flu vaccinations), 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 and Company (“BD”), in providing devices to thesafety 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 our products into themarketplace since 1997.  We currentlyprovide other safety medical products in addition to safety syringeproducts.  One such product is thePatient SafeTM syringe which reduces the risk of syringe and/or medicationcontamination and the potential for healthcare associated illnesses, such ascatheter-related bloodstream infections. Safety syringes comprised 98.6% of our sales in the first nine months of2009.

 

Our products have been and continue to be distributed nationallythrough numerous distributors.  However,we have been blocked from access to the market by exclusive marketing practicesengaged in by BD, which dominates the market. We believe that its monopolistic business practices continue despite itspaying $100 million in 2004 to settle a prior lawsuit with us for anticompetitivepractices, business disparagement, and tortious interference and despite thefact that a jury recently returned a verdict finding that all three patentsasserted by us against BD are valid and infringed by BD.  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.

 

We continue to pursue various strategies to have better access to thehospital market, as well as other markets, including attempting to gain accessto the market through our sales efforts, our innovative technology,introduction of new products, and, when necessary, litigation.  We are also marketing more productsinternationally.

 

Historically, unit sales have increased in the latter part of the yeardue, in part, to the demand for syringes during the flu season.    We expect the H1N1 virus (“Swine Flu”) tohave a longer worldwide immunization duration than the seasonal flu. ** **We have been awarded a contract by the Departmentof Health and Human Services (“DHHS”) to supply a portion of the safetyengineered syringes to be used in the U.S. efforts to vaccinate the U.S.population against the Swine Flu (the “H1N1 Program”).  The impact on us is likely to bematerial.  Sales to the DHHS comprised5.4% and 2.7% of our revenues for the three months and nine months ended September30, 2009, respectively.  We expect ourrevenues and the percentage of revenues attributable to the H1N1 Program toincrease significantly in the fourth quarter of 2009 and the first quarter of2010, provided the H1N1 Program continues as scheduled and we can continue tomeet the demands of the H1N1 Program as well as supplying our traditionalcustomers.

 

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In the event we continue to have only limited market access, the cashprovided by the litigation settlements and generated from operations becomesinsufficient, and royalties from BTMD are not forthcoming, we would takeadditional cost cutting measures to reduce cash requirements.  Such measures could result in the reductionof units being produced, the reduction of workforce, reduction of salaries ofofficers and other nonhourly employees, and the deferral of royaltypayments.  We took such actions at theend of the second quarter of 2009.

 

At the end of the second quarter of 2009 we announced that in theinterest of the long-term survival of the Company we would reorganize some ofthe Company’s functions and implement staff reductions, all in order tominimize our cash expenditures and conserve our resources.  Our workforce was reduced by 16% on July 1,2009.  However, due to the expectedincrease in production from sales to DHHS, we have recently increased theworkforce at the Little Elm facility. Our prior estimate that annual compensation costs and related expenseswould be reduced by $2.1 million annually due to the layoffs will only beslightly affected by the recent rehiring. An anticipated reduction of inventory was estimated to result in aminimum of $1.0 million reduction in cash outlays over the subsequent twelvemonths.  However, due to the potentialorders from the DHHS, that particular initiative is on hold.  Our President and CEO, Thomas J. Shaw, waivedfuture royalty payments beginning July 1, 2009, for an aggregate savings of$1.0 million which we expect to be fully utilized by the end of the year.  Salaries for all personnel above a certainsalary level were cut by 10%.  Suchreduction, along with discontinuing the 401(k) matching, was estimated to save$600,000.  We expect to save anadditional $1.6 million by the following actions: moving most, if not all, ofthe molding of piece parts back to Little Elm; reducing professional fees; andvarious other cost cutting measures. These measures will remain in place as long as Management deems themnecessary.

 

We recorded a $200,000 charge in the second quarter of 2009 forseverance pay offered to the terminated employees.  All severance payments were paid in the thirdquarter of 2009. We will incur a noncash expense of $2.8 million related to theissuance of stock options, most of which will be amortized over twelve monthsbeginning in the third quarter of 2009.

 

We are focusing on methods of upgrading our manufacturing capabilityand efficiency in order to reduce costs. We believe our current capitalization provides the resources necessaryto implement some of these changes and improve our manufacturing capacity andefficiency, thereby reducing our unit costs.

 

Product purchases from Double Dove, a Chinese manufacturer, haveenabled us to increase manufacturing capacity with little capital outlay andhave provided a competitive manufactured cost. Double Dove manufactured, in the first nine months of 2009,approximately 67.4% of the units we produced. The cost of production per unit has generally declined as volumesincreased.  Double Dove increased theprices in the fourth 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 5.2% of ourrevenues for the first nine months of 2009.

 

We previously entered into a License Agreement with BTMD as of May 13,2005. That license expired on May 13, 2008 (prior to the manufacture anddelivery of any products). Nevertheless, BTMD continued to work towardcompleting the facility and gaining the necessary approvals in order to manufactureand sell products. The facility has been completed and BTMD has met Chinesegovernment requirements. BTMD received a Registration Certificate for MedicalDevice on August 24, 2009. Production efforts are currently underway and arebeing tested. We entered into a new agreement (effective as of July 1,2009) with BTMD along similar terms as the prior agreement. This agreementexpires on July 1, 2010 which may automatically extend under certain conditions.Such terms include granting to BTMD a limited exclusive license to manufactureand a limited exclusive right to sell syringes in the People’s Republic ofChina (“PRC”) having retractable needles that incorporate our technology. ThisLicense Agreement is subject to the Technology License Agreement dated June 23,1995 between Mr. Thomas J. Shaw, our founder and CEO, as licensor, and theCompany, as licensee (as amended). Accordingly, Mr. Shaw will receive 5% of thelicensing proceeds we receive. BTMD has agreed to manufacture and sell theseproducts in the PRC and to pay us a quarterly royalty of two and one-half centsper unit on 3 cc and 5 cc syringes and a royalty of three and one-half centsper unit on 0.5cc, 1 cc, and 10 cc syringes. The obligation to pay theroyalties continues even if any and all of our patent rights in the PRC arefound to be invalid or unenforceable for any reason. We still continue toexpect royalty payments although we are unable to predict the date we willbegin to receive such royalties.

 

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With increased volumes, our manufacturing unit costs have generallytended to decline.  Factors that couldaffect our unit costs, in addition to Double Dove’s increase in unit costs of$0.005, include changing production volumes, costs of petroleum products, andtransportation costs.  Increases in suchcosts may not be recoverable through price increases of our products.

 

We completed the expansion of an existing warehouse in the firstquarter of 2009.  This expansionincreased our warehouse area, provided for additional office space, and added asecond Controlled Environment.  This willenable us to do more molding in-house.

 

**LIQUIDITY**

 

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

 

We have historically funded operations primarily from the proceeds fromprivate placements, loans, and litigation settlements.

 

InternalSources of Liquidity

 

*Margins and Market Access*

 

To achieve break-even quarters, we need minimal access to hospitalmarkets which has been difficult to obtain due to the monopolistic marketplacewhich was the subject of our initial lawsuit and now also included in oursecond antitrust lawsuit against BD.  Wewill continue to attempt to gain access to the market through our salesefforts, innovative technology, the introduction of new products and, whennecessary, litigation.

 

We are focusing on methods of upgrading our manufacturing capabilityand efficiency in order to reduce costs. We believe our current capitalization provides the resources necessaryto implement some of these changes and improve our manufacturing capacity andefficiency, thereby reducing our unit costs.

 

Beginning in early 2004, we began to receive shipment of product fromDouble Dove which enabled us to lower our unit costs.  Fluctuations in the cost and availability ofraw materials and inventory and our ability to maintain favorable supplierarrangements and relationships could result in the need to manufacture all (asopposed to approximately 31.8%) of our products in the U.S.  This could temporarily increase unit costs aswe ramp up domestic production.

 

The mix of domestic and international sales affects the average salesprice of our products.  Generally, thehigher the ratio of domestic sales to international sales, the higher theaverage sales price will be.  Typicallyinternational sales 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 relativelyconstant.  Double Dove increased theirprices to us by $0.005 per unit in the fourth quarter of 2008.  The number of units produced by the Companyversus manufactured in China can have a significant effect on the carryingcosts of inventory as well as Cost of sales. We will continue to evaluate the appropriate mix of productsmanufactured domestically and those manufactured in China to achieve economicbenefits as well as to maintain our domestic manufacturing capability.  Currently, approximately 31.8%****of our products are produced domestically. We and DoubleDove have increased production to meet the flu season demand.

 

Fluctuations in the cost of oil (since our products are petroleumbased), transportation costs, and the volume of units purchased from DoubleDove may have an impact on the unit costs of our products.  Increases in such costs may not berecoverable through price increases of our products.  Reductions in oil prices may not quickly affectpetroleum product prices.

 

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*Seasonality*

 

Historically, unit sales have increased in the latter part of the yeardue, in part, to the demand for syringes during the flu season.  We expect the Swine Flu to have a longerworldwide immunization duration than the seasonal flu. ** **We have been awarded a contract by the DHHS to supply a portion of thesafety engineered syringes to be used in the U.S. efforts to vaccinate the U.S.population against the Swine Flu. The impact on us is likely to bematerial.  Sales to the DHHS comprised5.4% and 2.7% of our revenues for the three months and nine months ended September30, 2009, respectively.  We expect ourrevenues and the percentage of revenues attributable to the H1N1 Program toincrease significantly in the fourth quarter of 2009 and the first quarter of2010, provided the H1N1 Program continues as scheduled and we can continue tomeet the demands of the H1N1 Program as well as supplying our traditionalcustomers.

 

*Licensing Agreement*

 

We previously entered into a License Agreement with BTMD as of May 13,2005. That license expired on May 13, 2008 (prior to the manufacture anddelivery of any products). Nevertheless, BTMD continued to work towardcompleting the facility and gaining the necessary approvals in order tomanufacture and sell products. The facility has been completed and BTMD has metChinese government requirements. BTMD received a Registration Certificate forMedical Device on August 24, 2009. Production efforts are currently underwayand are being tested. We entered into a new agreement (effective as ofJuly 1, 2009) with BTMD along similar terms as the prior agreement. Thisagreement expires on July 1, 2010 which may automatically extend under certainconditions. Such terms include granting to BTMD a limited exclusive license tomanufacture and a limited exclusive right to sell syringes in the PRC havingretractable needles that incorporate our technology. This License Agreement issubject to the Technology License Agreement dated June 23, 1995 between Mr.Thomas J. Shaw, our founder and CEO, as licensor, and the Company, as licensee(as amended). Accordingly, Mr. Shaw will receive 5% of the licensing proceedswe receive. BTMD has agreed to manufacture and sell these products in the PRCand to pay us a quarterly royalty of two and one-half cents per unit on 3 ccand 5 cc syringes and a royalty of three and one-half cents per unit on 0.5cc,1 cc, and 10 cc syringes. The obligation to pay the royalties continues even ifany and all of our patent rights in the PRC are found to be invalid orunenforceable for any reason. We still continue to expect royalty paymentsalthough we are unable to predict the date we will begin to receive suchroyalties.

 

*CashRequirements*

 

Due to funds received from prior litigation settlements, we havesufficient cash reserves and intend to rely on operations, cash reserves, anddebt financing as the primary ongoing sources of cash.  However, working capital has decreased $11.7million since December 31, 2008. Litigation costs continue to be a significant expense but we expect thisexpense to decline after the Abbott Laboratories (“Abbott”) trial in May 2010.  We anticipate that decreases in certainoperating expenses and a projected increase in sales will help mitigate cashdecreases.

 

In the event we continue to have only limited market access, the cashprovided by the litigation settlements and generated from operations becomesinsufficient, and royalties from BTMD are not forthcoming, we would takeadditional cost cutting measures to reduce cash requirements.  Such measures could result in the reductionof units being produced, the reduction of workforce, the reduction of salariesof officers and other nonhourly employees, and the deferral of royaltypayments.  We took such actions at theend of the second quarter of 2009.

 

At the end of the second quarter of 2009 we announced that in theinterest of the long-term survival of the Company we would reorganize some ofthe Company’s functions and implement staff reductions, all in order tominimize our cash expenditures and conserve our resources.  Our workforce was reduced by 16% on July 1,2009.  However, due to the expectedincrease in production from sales to DHHS, we have recently increased theworkforce at the Little Elm facility. Our prior estimate that annual compensation costs and related expenseswould be reduced by $2.1 million annually due to the layoffs will only beslightly affected by the recent rehiring. An anticipated reduction of inventory was estimated to result in aminimum of $1.0 million reduction in cash outlays over the subsequent twelvemonths.  However, due to the potentialorders from the DHHS, that particular initiative is on hold.  Our President and CEO, Thomas J. Shaw, waivedfuture royalty payments beginning July 1, 2009, for an aggregate savings of$1.0 million which we expect to be fully utilized by the end of the year.  Salaries for all personnel above a certainsalary level were cut by 10%.  Suchreduction, along with discontinuing the 401(k) matching, was estimated to save$600,000.  We expect to save anadditional $1.6 million by the following actions: moving most, if not all, ofthe molding of piece parts back to Little Elm; reducing professional fees; andvarious other cost cutting measures. These measures will remain in place as long as Management deems themnecessary.  We expect these cost cuttingmeasures to mitigate the reduction in our cash balance.

 

We recorded a $200,000 charge in the second quarter of 2009 forseverance pay offered to the terminated employees.  All severance payments were paid in the thirdquarter of 2009.  We will incur a noncashexpense of $2.8 million related to the issuance of stock options, most of whichwill be amortized over twelve months beginning in the third quarter of 2009.

 

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ExternalSources of Liquidity

 

We have obtained several loans since our inception, which have,together with the proceeds from the sales of equities and litigation efforts,enabled us to pursue development and production of our products.  Given the current economic conditions, ourability to obtain additional funds through loans may be limited.

 

The shareholders previously authorized an additional 5,000,000 sharesof a Class C Preferred Stock that could, if necessary, be designated and usedto raise funds through the sale of equity. Due to the current market price of our Common Stock, it is unlikely wewould choose to raise funds by the sale of equity.

 

In 2008, we received a construction line of credit for up to $4,210,000to fund an expansion of our warehouse. We expect to replace this loan with a permanent financing arrangementbefore its maturity in the first quarter of 2010.

 

**CAPITAL RESOURCES**

 

Trends in CapitalResources

 

Interest expense will increase due to the recent loan****of approximately $4.2 million, but will be somewhatmitigated by lower borrowing rates if current conditions in the credit marketscontinue.  Interest income will continueto be negatively affected by lower interest rates and our prior movement ofcash to U.S. Treasury bills and other U.S. government backed securities.  Although we believe that we have grantedcredit to credit-worthy firms, current economic conditions may affect thetiming and/or collectability of some accounts.

 

MaterialCommitments for Expenditures

 

Wecompleted expansion of our warehouse (including additional warehouse space,additional office space, and a new Controlled Environment) in the first quarterof 2009.  We funded most of thisexpansion with a construction line of credit from Lewisville State Bank, adivision of 1st InternationalBank, for approximately $4.2 million, secured by a second lien deed on the landand existing buildings.  This will bereplaced by permanent financing before its maturity in the first quarter of2010.

 

Due tothe increased activity from flu season, our working capital requirements willbe somewhat increased at least through the end of March 2010.  Such increase will be funded by anticipatedincreased revenues and cash on hand.

 

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

 

The following discussion contains trend information and otherforward-looking statements that involve a number of risks anduncertainties.  Our actual future resultscould differ materially from our historical results of operations and thosediscussed in the forward-looking statements. Variances have been rounded for ease of reading.  All period references are to the periodsended September 30, 2009, or 2008.

 

*Comparison of Three Months Ended September30, 2009, and September 30, 2008*

 

Domestic sales accounted for 84.8% and 86.2% of the revenues for thethree months ended September 30, 2009 and 2008, respectively.  International sales accounted for theremaining revenues.  Domestic revenuesincreased 17.6% principally due to higher volumes.  Approximately 42.6% of the increase indomestic revenues is attributable to sales to the DHHS.   International revenues increased 31.7% dueprimarily to higher volumes and higher prices. Overall, unit sales increased 19.5%. Domestic unit sales increased 20.1% due to flu season.  International unit sales increased 17.9%primarily due to flu season, additional distributors, and new customers forexisting distributors.  Domestic unitsales were 75.5% of total unit sales for the three months ended September 30,2009.

 

Gross profit increased primarily due to higher revenues and lower unitcost of production.  The average cost ofmanufactured product sold per unit decreased by 5.4% due to higher volumes ofproduct sold.  Profit margins

 

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canfluctuate depending upon, among other things, the cost of product manufacturedand the capitalized cost of product recorded in inventory, as well as productsales mix.  Royalty expense increased20.1% due to higher gross sales, but payment of $682,335 has been waived by theshareholder and recorded as additional paid-in capital.

 

Operating expenses increased 50.6%. General and administrative costs increased due primarily to litigation costsand stock option expense.  Compensationcosts declined.  The decrease in expensefor Sales and marketing was attributable primarily to lower compensation costsand marketing expenses.  The decrease wasmitigated by additional stock option expense. Research and development costs decreased due to lower compensation costsand samples.

 

Loss from operations increased due principally to increased litigationcost and stock option expense mitigated by a higher gross profit.

 

Interest expense decreased due to capitalized interest offsettinginterest expense.  Interest expense forthe third quarter of 2009 was zero because of the effect of capitalizedinterest.

 

The Company’s effective tax rate on the net loss before income taxeswas 2.8% and 0% for the three months ended September 30, 2009 and September 30,2008, respectively.

 

*Comparison of Nine Months Ended September 30, 2009and September 30, 2008*

 

Domestic sales accounted for 83.6% and 84.5% of the revenues for thenine months ended September 30, 2009 and 2008, respectively.  International sales accounted for theremaining revenues.  Domestic revenuesincreased 3.5% principally due to sales to the DHHS and international revenuesincreased 11.3% due primarily to higher average sales prices.  Overall, unit sales increased 2.3%.  Domestic unit sales increased 3.8% due to fluseason.  International unit salesdecreased 1.5%.  Domestic unit sales were73.1% of total unit sales for the nine months ended September 30, 2009.

 

Gross profit increased primarily due to increased volumes and higheraverage sales price.  The average cost ofmanufactured product sold per unit increased slightly.  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 increased 6.3% due to highergross sales, but payment of $682,335 has been waived by the shareholder andrecorded as additional paid-in capital.

 

Operating expenses increased 32.9%. General and administrative costs increased due primarily to litigationcosts and stock option expense.  Thedecrease in expense for Sales and marketing was attributable primarily to lowercompensation costs.  The decrease wasmitigated by higher stock option costs. Research and development costs increased due to higher consulting, stockoption expense, and testing costs, mitigated by lower compensation costs.

 

Loss from operations increased due principally to litigation costs andstock option expense mitigated by a higher gross profit.

 

Interest expense decreased due to capitalized interest.  Interest expense for the third quarter of2009 was zero because of the offsetting credit of capitalized interest.

 

The Company’s effective tax rate on the net loss before income taxeswas 2.0% and 0.0% for the nine months ended September 30, 2009 and September 30,2008, respectively.

 

*Discussion of Balance Sheet and Statement of CashFlow Items*

 

The Company’s balance sheet remains strong with cash making up 35.2% oftotal assets.  Working capital was $21.6million at September 30, 2009, a decrease of $11.7 million from December 31,2008.  The current ratio was 4.3 at December31, 2008 and 3.0 at September 30, 2009. The quick ratio was 3.6 at December 31, 2008 and 2.2 at September 30,2009.  One reason for the decline in thecurrent ratio as well as the quick ratio was the decline

 

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incash.  However, these indicators continueto demonstrate a strong financial position. We expect the cost cutting measures described earlier, as well as oursales to the DHHS, to mitigate the reduction in our cash balance.

 

Raw materials inventory increased 45.1% since December 31, 2008 due topreparation for the DHHS order.  Weexpect to be moving the manufacturing of piece parts to Little Elm as a costsaving measure.  In the meantime, weincreased inventory to ensure a smooth transition of the move of molding fromCalifornia to the Little Elm facility as well as to address potential ordersfrom DHHS. Finished goods inventory increased 19.2% since December 31, 2008because of flu season.

 

Other liabilities increased due toprepayments for orders from international customers.

 

Approximately $13.3 million in cash flow in 2009 was used by operatingactivities.  The remaining uses of cashwere primarily for property, plant, and equipment.

 

**Item 3.        Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

Fluctuations in the cost of oil (since our products are petroleumbased) and transportation costs may have an impact on the unit costs of ourproducts.  Increases in such costs maynot be recoverable through price increases of our products.  Reductions in oil prices may not quicklyaffect petroleum product prices. ** **We do not currently anticipate amaterial impact resulting from fluctuations in oil prices.

 

# **Item 4.    Controls and Procedures.**

# ** **

DisclosureControls and Procedures

 

Pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934,Management, with the participation of our President, Chairman, and ChiefExecutive Officer, Thomas J. Shaw (the “CEO”), and our Vice President and ChiefFinancial Officer, Douglas W. Cowan (the “CFO”), acting in their capacities asour principal executive and principal financial officer, evaluated theeffectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e)under the Securities Exchange Act of 1934. The term disclosure controlsand 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) accumulated andcommunicated to our Management, including our principal executive and principalfinancial officers, as appropriate to allow timely decisions regarding requireddisclosure. Based upon this evaluation, the CEO and CFO concluded that, as of September30, 2009, our disclosure controls and procedures were effective.

 

Changesin Internal Control Over Financial Reporting

 

There have been no changes during the third quarter of 2009 orsubsequent to September 30, 2009 in our internal control over financialreporting or in any other factor that has materially affected or is reasonablylikely to materially affect our internal control over financial reporting. 

 

**PART II—OTHER INFORMATION**

 

**Item 1.        LegalProceedings.**

 

On August 12, 2005, we filed a lawsuit against Abbott in the U.S.District Court in the Eastern District of Texas, Texarkana Division.  We are alleging fraud and breach of contractin connection with the National Marketing and Distribution Agreement dated asof May 4, 2000, which was terminated on October 15, 2003.  We are seeking damages which we estimate tobe in millions of dollars of lost profits, out of pocket expenses, and otherdamages.  In addition, we are seekingpunitive damages, pre- and post-judgment interest, and attorneys’ fees.  Following Abbott’s unsuccessful attempt toget the case dismissed and ordered to arbitration, Abbott filed an answer andcounterclaim on July 15, 2008, alleging several breaches of contract, breach ofimplied warranty of merchantability, and breach of express warranty, seeking inexcess of $6,000,000 in compensatory damages as well as seeking attorneys’fees.  We deny the validity of Abbott’scounterclaims.  Some discovery hasalready taken place (related to the hearings addressing the prior motion tocompel arbitration) and additional discovery is underway.  The District Court has issued a revisedscheduling order calling for trial in May 2010.

 

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In April 2008, we sued Occupational and Medical Innovations Limited (“OMI”)in the U.S. District Court for the Eastern District of Texas, Tyler Division,alleging that OMI has infringed two U.S. patents that were not at issue in theAustralian litigation (6,572,584 and 7,351,224).  We also alleged theft of confidential information,intentional interference with contracts and engaging in false advertising thatwrongfully disparaged and mischaracterized our syringe products.  We further alleged that OMI made falseallegations regarding the source of origin of its safety syringe products beingoffered in the U.S. We are seeking injunctive relief, unspecified damages(including treble damages) and reimbursement of attorneys’ fees in thesuit.  OMI has counterclaimed, seekingdeclaratory judgments of non-infringement and invalidity of our assertedpatents.  OMI is not seeking monetarydamages.  Trial is set for December 2009.

 

In June 2007, we sued Becton Dickinson and Company (“BD”) in the U.S.District 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.  We subsequently dropped the5,578,011 patent allegations from the lawsuit. We and Thomas J. Shaw, a co-plaintiff, were seeking injunctive relief,unspecified monetary damages and reimbursement of attorneys’ fees in thesuit.  BD counterclaimed fornon-infringement and invalidity of the asserted patents.  In January 2008, the Court severed the patentclaims from the other claims pending resolution of the patent dispute.  In April 2008, we and Thomas J. Shaw sued BDin the U.S. District Court for the Eastern District of Texas, MarshallDivision, alleging infringement of another recently issued patent (7,351,224),and seeking injunctive relief, unspecified monetary damages (including trebledamages) and reimbursement of attorneys fees. BD counterclaimed for non-infringement and invalidity of the assertedpatent.  The court consolidated this casewith the above-stated case filed in June 2007. This case was tried to a juryfrom October 30 to November 9, 2009. On November 9, the jury returned a verdictfinding that BD has infringed all three asserted patents, that the threeasserted patents are not invalid, and that BD owes us and Thomas J. Shaw fivemillion dollars ($5,000,000).  Judgmenthas not yet been entered on the verdict, and post-trial briefing is presentlyunderway.  We and Thomas J. Shaw are alsorequesting that, based upon the jury verdict of patent infringement, the Courtenjoin BD from selling the accused Integra® syringes. Because the jury also found that the infringement was not willful, thereis no probability that we and Thomas J. Shaw will recover enhanced damages.  Any judgment entered upon the jury verdictwill be subject to appeal by all parties to the litigation.

 

In September 2007, BD and MDC Investment Holdings, Inc. (“MDC”) sued usin the United States District Court for the Eastern District of Texas,Texarkana Division, initially alleging that we are infringing two U.S. patentsof MDC (6,179,812 and 7,090,656) that are licensed to BD. BD and MDC seekinjunctive relief and unspecified damages. We counterclaimed for declarations of non-infringement, invalidity, andunenforceability of the asserted patents. The plaintiffs subsequently dropped allegations with regard to patentno. 7,090,656 and we subsequently dropped our counterclaims forunenforceability of the asserted patents. The Court conducted a claims construction hearing on September 25, 2008and issued its claims construction order on November 14, 2008.  No trial date has been set.  The parties have agreed to request a stay ofthis litigation until after the case against BD has been tried.

 

In September 2008, we and Thomas J. Shaw sued Safety MedicalInternational (“SMI”) in the United States District Court for the EasternDistrict of Texas, Tyler Division, alleging infringement of U.S. patent nos.6,572,584 and 7,351,224, and seeking injunctive relief, unspecified monetarydamages and reimbursement of attorneys’ fees. SMI has counterclaimed, seeking declaratory judgments ofnon-infringement and invalidity of the asserted patents.  SMI is not seeking monetary damages.  SMI has filed a notice of bankruptcy in thiscase and it has been stayed pending the outcome of those proceedings.

 

**Item 1A.     RiskFactors.**

 

There were no materialchanges in the Risk Factors applicable to the Company as set forth in our Form 10-Kannual report for 2008 which was filed on March 31, 2009, and which isavailable on EDGAR.

 

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

# ** **

Unregistered Sales ofEquity Securities and Use of Proceeds

 

None.

 

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Working CapitalRestrictions and Limitations on the Payment of Dividends

 

We maintain cash for use as collateral for letters of credit we providefrom time to time to enable, among other things, the purchase of product fromChina.  As of September 30, 2009, we hadno funds held as restricted cash for such purposes.  The Board of Directors has authorized Managementto borrow and incur indebtedness in the form of letters of credit in anaggregate 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 Senior Securities.**

# ** **

Series I Class BConvertible Preferred Stock

 

As of the nine monthsended September 30, 2009, the amount of dividends in arrears was $54,000 andthe total arrearage was $162,000.

 

Series II Class BConvertible Preferred Stock

 

As of the nine monthsended September 30, 2009, the amount of dividends in arrears was $165,000 andthe total arrearage was $496,000.

 

Series III Class BConvertible Preferred Stock

 

As of the nine monthsended September 30, 2009, the amount of dividends in arrears was $99,000 andthe total arrearage was $3,213,000.

 

Series IV Class BConvertible Preferred Stock

 

As of the nine monthsended September 30, 2009, the amount of dividends in arrears was $414,000 andthe total arrearage was $7,445,000.

 

Series V Class BConvertible Preferred Stock

 

As of the nine monthsended September 30, 2009, the amount of dividends in arrears was $297,000 andthe total arrearage was $3,594,000.

 

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

 

The 2009 Annual Meeting ofStockholders (the “Annual Meeting”) was held on September 25, 2009, at 10:00 a.m.,Central time.  The purposes of themeeting were to: 1) elect two Class 1 Directors; and 2) approve a stock optiongrant to Thomas J. Shaw for the purchase of 3,000,000 shares of Common Stock.

 

Of the 23,800,064 sharesof Common Stock entitled to vote, 20,869,270 were represented in person or by proxy at the AnnualMeeting, which is more than the 11,900,032 required to constitute a quorum.

 

1) The election of two Class1 Directors was put to a vote and the results were as follows:

 
| **Nominees**   | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|----------------|------------|------------|------------|--------------|------------|
|           |       |       |       |         |       |
| Marco  Laterza |       | 20,364,655 |       | 504,615      |       |
| Amy  Mack      |       | 20,344,316 |       | 524,954      |       |

 

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Accordingly, Mr. Laterzaand Ms. Mack were elected as Class 1 Directors to serve until our 2011 AnnualMeeting.  As of the adjournment of theAnnual Meeting, the Board of Directors consisted of the following members:

 
| Thomas J. Shaw   |   | Class 2 Director |
|------------------|--------|------------------|
| Douglas W. Cowan |   | Class 2 Director |
| Marco Laterza    |   | Class 1 Director |
| Amy Mack         |   | Class 1 Director |
| Marwan Saker     |   | Class 2 Director |
| Steven R. Wisner |   | Class 2 Director |
| Clarence Zierhut |   | Class 2 Director |

 

2) The approval of astock option grant for the purchase of 3,000,000 shares of Common Stock toThomas J. Shaw was put to a vote and the results were as follows:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|------------|------------|-------------|------------|-------------|------------|----------------------|------------|
| 15,436,068 |       | 536,085     |       | 319,859     |       | 4,577,258            |       |

 

Accordingly, the stockoption grant was approved.

 

A Special Meeting of Preferred Shareholders (the “Special Meeting”) washeld on September 25, 2009, at 11:00 a.m., Central time.  The purposes of the meeting were to: 1)approve an amendment to the Certificate of Designation, Preferences, Rights andLimitations of Class B Convertible Preferred Stock (the “Series I Certificateof Designation”); 2) approve an amendment to the Certificate of Designation,Preferences, Rights and Limitations of the Series II Class B ConvertiblePreferred Stock (the “Series II Certificate of Designation”); 3) approve anamendment to the Certificate of Designation, Preferences, Rights andLimitations of the Series III Class B Convertible Preferred Stock (the “Series IIICertificate of Designation”); 4) approve an amendment to the Certificate ofDesignation, Preferences, Rights and Limitations of the Series IV Class BConvertible Preferred Stock (the “Series IV Certificate of Designation”); and5) approve an amendment to the Certificate of Designation, Preferences, Rightsand Limitations of the Series V Class B Convertible Preferred Stock (the “SeriesV Certificate of Designation”). The Company is considering purchasing itsCommon Stock from time to time pursuant to a stock repurchase program, when andif the Board of Directors determines it is appropriate.  The amendment which we proposed is necessaryin order to effectuate a stock purchase plan while dividends are inarrears.  It authorizes the purchase of stockunder certain conditions even when payment of past due preferred stockdividends are in arrears.

 

Aninsufficient number of the Preferred Shares of Series I Class B, Series II ClassB, Series III Class B, and Series IV Class B were represented in person or byproxy at the Special Meeting to constitute quorum.  The meeting was adjourned as to theaforementioned series until January 22, 2010 at 10:00 a.m. Central time becausethere was no quorum as to such series.  Anotice of such rescheduled meeting will be sent out in the fourth quarter of2009.

 

Of the 1,238,821 sharesof Series V Class BPreferred Stock entitled to vote, 998,821were represented in person or by proxy at the Annual Meeting, which ismore than the 619,411 required to constitute a quorum.

 

The approval of anamendment to the Series V Certificate of Designation was put to a vote and theresults were as follows:

 
| **For** | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker Non-Votes** | ** ** |
|---------|------------|-------------|------------|-------------|------------|----------------------|------------|
|    |       |        |       |        |       |                 |       |
| 977,321 |       | 21,500      |       | 0           |       | 0                    |       |

 

Accordingly,the Series V Class B Designation amendment was approved and such amendment wasfiled with the Secretary of State.  Theamended Certificate of Designation is attached hereto as an exhibit.

 

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**Item 5.        OtherInformation.**

 

Arescheduled Special Meeting of the Preferred Shareholders of Series I Class B, SeriesII Class B, Series III Class B, and Series IV Class B Convertible PreferredStock will be held January 22, 2010 at 10:00 a.m. Central time.  A notice of such rescheduled meeting will besent out in the fourth quarter of 2009.

 

# **Item 6.        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** as further  amended by the Certificate of Amendment filed October 16, 2009*** |
|        |   |                                                                                                                                                                                                                                       |
| 3(ii)       |   | Third Amended and  Restated Bylaws of RTI** **                                                                                                                                                                                             |
|        |   |                                                                                                                                                                                                                                       |
|  4(v)  |   | Amended Certificate of Designation, Preferences, Rights  and Limitations of the Series V Class B Convertible Preferred Stock***                                                                                                            |
|        |   |                                                                                                                                                                                                                                       |
| 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                                                                                                                                                          |
|        |   |                                                                                                                                                                                                                                       |
| ***         |   | Attached hereto                                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                       |
| ** **       |   | Incorporated herein by  reference to RTI’s Form 10-Q filed on November 14, 2008                                                                                                                                                       |

 

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 

| DATE:  November 16, 2009 | RETRACTABLE TECHNOLOGIES, INC. |
|-------------------------------|-------------------------------------|
|                          | (Registrant)                        |
|                          |                                |
|                          |                                |
|                          | BY:                                 | s/  Douglas W. Cowan |
|                          |                                | DOUGLAS W. COWAN  VICE PRESIDENT AND  CHIEF FINANCIAL OFFICER |

 

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