**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**(MarkOne)**

| **x**                                         | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-----------------------------------------------|----------------------------------------------------------------------------------------------|
|                                          | ** **                                                                                   |
| For the quarterly period ended March 31, 2007 |
| ** **                                    |
| **or**                                        |
| ** **                                    |
| **o**                                         | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934**           |

**For the transition period from                  to                                                    **

**Commissionfile number 000-30885**

**Retractable Technologies, Inc.**

(Exact name of registrantas specified in its charter)

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

 

**(972)294-1010**

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant  (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x    No o

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o      Acceleratedfiler o      Non-acceleratedfiler x

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes o    No x

APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13, or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmedby a court.   Yes o    No o

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date: 23,739,164 shares of Common Stock, no par value,issued and outstanding on May 1, 2007.

 

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**TABLE OFCONTENTS**
| **PART I-FINANCIAL INFORMATION**        |
|-----------------------------------------|
|                                    |   |   |   | ** ** |
| **ITEM 1.**                             | ** ** | **Financial Statements** | ** ** | **3** |
|                                    |   | ** ** |
| CONDENSED  BALANCE SHEETS               |   | **3** |
| CONDENSED STATEMENTS OF OPERATIONS      |   | **4** |
| CONDENSED STATEMENTS OF CASH FLOWS      |   | **5** |
| NOTES TO CONDENSED FINANCIAL STATEMENTS |   | **6** |
|                                    |   |   |   | ** ** |
| **Item 2.**                             | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** | ** ** | **10** |
|                                    |   |   |   | ** ** |
| **Item 3.**                             | ** ** | **Quantitative and  Qualitative Disclosures About Market Risk** | ** ** | **13** |
|                                    |   |   |   | ** ** |
| **Item 4.**                             | ** ** | **Controls and  Procedures** | ** ** | **13** |
|                                    |   |   |   | ** ** |
| **PART  II- OTHER INFORMATION**         |
|                                    |   |   |   | ** ** |
| **Item 1A.**                            | ** ** | **Risk Factors** | ** ** | **13** |
| ** **                              | ** ** | ** ** | ** ** | ** ** |
| **Item 2.**                             | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds** | ** ** | **14** |
| ** **                              | ** ** | ** ** | ** ** | ** ** |
| **Item 3.**                             | ** ** | **Defaults Upon  Senior Securities** | ** ** | **14** |
| ** **                              | ** ** | ** ** | ** ** | ** ** |
| **Item 5.**                             | ** ** | **Other Information** | ** ** | **14** |
| ** **                              | ** ** | ** ** | ** ** | ** ** |
| **Item  6.**                            | ** ** | **Exhibits** | ** ** | **15** |
|                                    |   |   |   | ** ** |
| **SIGNATURES**                          | ** ** | **16** |

 

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**PART I-FINANCIAL INFORMATION**

**Item 1.        FinancialStatements.**

**RETRACTABLE TECHNOLOGIES, INC.**

**CONDENSED BALANCE SHEETS**
| ** **                                       | ** ** | **March 31, 2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**              | ** ** | ** **                  | ** ** |
|                                             |       |                         |       |                        |       |
| **ASSETS**                                       | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                  |       |                         |       |                        |       |
| Cash and cash  equivalents                       |       | $                            | 45,302,332 |                        | $          | 46,814,689 |   |
| Accounts  receivable, net                        |       | 2,550,762                    |       | 1,956,756                   |       |
| Inventories, net                                 |       | 6,989,837                    |       | 6,385,780                   |       |
| Income taxes  receivable                         |       | 2,357,811                    |       | 2,355,732                   |       |
| Other current  assets                            |       | 336,372                      |       | 267,707                     |       |
| Total current  assets                            |       | 57,537,114                   |       | 57,780,664                  |       |
|                                             |       |                         |       |                        |       |
| Property, plant, and  equipment, net             |       | 12,041,764                   |       | 12,212,140                  |       |
| Intangible assets, net                           |       | 376,401                      |       | 279,846                     |       |
| Other assets                                     |       | 508,898                      |       | 522,294                     |       |
| Total assets                                     |       | $                            | 70,464,177 |                        | $          | 70,794,944 |   |
|                                             |       |                         |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**   | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current liabilities:                             |       |                         |       |                        |       |
| Accounts payable                                 |       | $                            | 5,591,786  |                        | $          | 4,247,630 |   |
| Current portion  of long-term debt               |       | 281,075                      |       | 261,905                     |       |
| Accrued  compensation                            |       | 632,041                      |       | 472,573                     |       |
| Dividends  payable                               |       | 979,193                      |       | —                      |       |
| Marketing fees  payable                          |       | 1,419,760                    |       | 1,419,760                   |       |
| Accrued  royalties to a shareholder              |       | 442,155                      |       | 2,755                       |       |
| Other accrued  liabilities                       |       | 499,587                      |       | 440,253                     |       |
| Current deferred  tax liability                  |       | 39,159                       |       | 45,697                      |       |
| Total current  liabilities                       |       | 9,884,756                    |       | 6,890,573                   |       |
|                                             |       |                         |       |                        |       |
| Long-term debt, net of  current maturities       |       | 4,054,542                    |       | 4,137,231                   |       |
| Long-term deferred tax  liability                |       | 51,290                       |       | 56,828                      |       |
| Total  liabilities                               |       | 13,990,588                   |       | 11,084,632                  |       |
|                                             |       |                         |       |                        |       |
| Stockholders’ equity:                       |       |                         |       |                        |       |
| Preferred stock  $1 par value:                   |       |                         |       |                        |       |
| Series I, Class  B                               |       | 144,000                      |       | 164,000                     |       |
| Series II, Class  B                              |       | 224,700                      |       | 224,700                     |       |
| Series III,  Class B                             |       | 135,245                      |       | 135,245                     |       |
| Series IV, Class  B                              |       | 553,500                      |       | 553,500                     |       |
| Series V, Class  B                               |       | 1,338,721                    |       | 1,363,721                   |       |
| Common stock, no  par value                      |       | —                       |       | —                      |       |
| Additional  paid-in capital                      |       | 53,793,468                   |       | 54,709,108                  |       |
| Retained  earnings                               |       | 283,955                      |       | 2,560,038                   |       |
| Total  stockholders’ equity                 |       | 56,473,589                   |       | 59,710,312                  |       |
| Total liabilities and  stockholders’ equity |       | $                            | 70,464,177 |                        | $          | 70,794,944 |   |

 

See accompanying notes to condensed financialstatements

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**RETRACTABLETECHNOLOGIES, INC.**

**CONDENSED STATEMENTS OFOPERATIONS**

**(unaudited)**
| ** **                                  | ** ** | **Three Months  Ended  March 31, 2007** | ** ** | **Three Months  Ended  March 31, 2006** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
|                                        | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Sales, net                                  |       | $                                                      | 5,773,823  |                                                   | $          | 3,881,805 |   |
| Reimbursed  discounts                       |       | —                                                 |       | 1,640,925                                              |       |
| Total sales                                 |       | 5,773,823                                              |       | 5,522,730                                              |       |
| Cost of sales                               |       |                                                   |       |                                                   |       |
| Cost of manufactured product                |       | 4,074,914                                              |       | 3,241,962                                              |       |
| Royalty expense to shareholder              |       | 439,400                                                |       | 369,228                                                |       |
| Total cost of sales                         |       | 4,514,314                                              |       | 3,611,190                                              |       |
| Gross profit                                |       | 1,259,509                                              |       | 1,911,540                                              |       |
|                                        |       |                                                   | ** ** |                                                   |       |
| Operating  expenses:                        |       |                                                   | ** ** |                                                   |       |
| Sales and marketing                         |       | 1,341,922                                              |       | 1,113,006                                              |       |
| Research and development                    |       | 182,035                                                |       | 315,195                                                |       |
| General and administrative                  |       | 2,476,038                                              |       | 1,723,771                                              |       |
| Total operating expenses                    |       | 3,999,995                                              |       | 3,151,972                                              |       |
| Loss from operations                        |       | (2,740,486                                             | )          | (1,240,432                                             | )          |
|                                        |       |                                                   |       |                                                   |       |
| Interest and  other income                  |       | 541,197                                                |       | 462,197                                                |       |
| Interest  expense, net                      |       | (76,794                                                | )          | (110,707                                               | )          |
| Net loss before  income taxes               |       | (2,276,083                                             | )          | (888,942                                               | )          |
| Benefit for  income taxes                   |       | —                                                 |       | (289,004                                               | )          |
| Net loss                                    |       | (2,276,083                                             | )          | (599,938                                               | )          |
| Preferred stock dividend requirements       |       | (355,051                                               | )          | (367,078                                               | )          |
| Loss applicable  to common shareholders     |       | $                                                      | (2,631,134 | )                                                      | $          | (967,016 | ) |
|                                        |       |                                                   |       |                                                   |       |
| Loss per share -  basic and diluted         |       | $                                                      | (0.11      | )                                                      | $          | (0.04 | ) |
|                                        |       |                                                   |       |                                                   |       |
| Weighted average common  shares outstanding |       | 23,676,664                                             |       | 23,521,551                                             |       |

 

See accompanyingnotes to condensed financial statements

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**RETRACTABLETECHNOLOGIES, INC.**

**CONDENSED STATEMENTS OF CASH FLOWS**

**(unaudited)**
| ** **                                                                                | ** ** | **Three Months  Ended  March 31, 2007** | ** ** | **Three Months  Ended  March 31, 2006** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **Cash  flows from operating activities**                                                 |       |                                                   |       |                                                   |       |
| Net loss                                                                                  |       | $                                                      | (2,276,083 | )                                                      | $          | (599,938 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used by) operating activities |       |                                                   |       |                                                   |       |
| Depreciation and amortization                                                             |       | 363,430                                                |       | 346,768                                                |       |
| Capitalized interest                                                                      |       | (52,002                                                | )          | (11,110                                                | )          |
| Stock option compensation                                                                 |       | 6,478                                                  |       | 166,306                                                |       |
| Provisions for doubtful accounts                                                          |       | —                                                 |       | 46,689                                                 |       |
| Accreted interest                                                                         |       | 31,836                                                 |       | 36,114                                                 |       |
| Deferred income taxes                                                                     |       | —                                                 |       | 28,232                                                 |       |
| Change in assets and liabilities:                                                         |       |                                                   |       |                                                   |       |
| Increase in inventories                                                                   |       | (604,057                                               | )          | (156,012                                               | )          |
| (Increase) decrease in accounts receivable                                                |       | (594,006                                               | )          | 537,145                                                |       |
| Increase in income taxes receivable                                                       |       | (2,079                                                 | )          | (355,440                                               | )          |
| Increase in other current assets                                                          |       | (68,665                                                | )          | (164,753                                               | )          |
| Increase in accounts payable                                                              |       | 1,344,156                                              |       | 35,774                                                 |       |
| Increase (decrease) in other accrued liabilities                                          |       | 658,202                                                |       | (162,961                                               | )          |
| Net cash used by  operating activities                                                    |       | (1,192,790                                             | )          | (253,186                                               | )          |
|                                                                                      |       |                                                   |       |                                                   |       |
| **Cash  flows from investing activities**                                                 |       |                                                   |       |                                                   |       |
| Purchase of property, plant, and equipment                                                |       | (116,794                                               | )          | (569,704                                               | )          |
| Acquisitions of patents, trademarks, licenses and  intangibles                            |       | (107,418                                               | )          | —                                                 |       |
| Net cash used by  investing activities                                                    |       | (224,212                                               | )          | (569,704                                               | )          |
|                                                                                      |       |                                                   |       |                                                   |       |
| **Cash  flows from financing activities**                                                 |       |                                                   |       |                                                   |       |
| Repayments of long-term debt and notes payable                                            |       | (95,355                                                | )          | (135,285                                               | )          |
| Proceeds from the exercise of stock options                                               |       | —                                                 |       | 5,500                                                  |       |
| Net cash used by  financing activities                                                    |       | (95,355                                                | )          | (129,785                                               | )          |
| Net decrease in  cash and cash equivalents                                                |       | (1,512,357                                             | )          | (952,675                                               | )          |
|                                                                                      |       |                                                   |       |                                                   |       |
| Cash and cash  equivalents at:                                                            |       |                                                   |       |                                                   |       |
| Beginning of period                                                                       |       | 46,814,689                                             |       | 52,513,935                                             |       |
| End of period                                                                             |       | $                                                      | 45,302,332 |                                                   | $          | 51,561,260 |   |
|                                                                                      |       |                                                   |       |                                                   |       |
| Supplemental  disclosures of cash flow information:                                       |       |                                                   |       |                                                   |       |
| Interest paid                                                                             |       | $                                                      | 96,960     |                                                   | $          | 102,275 |   |
| Income taxes paid                                                                         |       | $                                                      | —     |                                                   | $          | 38,829 |   |
|                                                                                      |       |                                                   |       |                                                   |       |
| Supplemental  schedule of noncash financing activities:                                   |       |                                                   |       |                                                   |       |
| Preferred  dividends declared                                                             |       | $                                                      | 979,193    |                                                   | $          | — |   |

 

See accompanyingnotes to condensed financial statements

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**RETRACTABLETECHNOLOGIES, INC.**

**NOTES TO CONDENSED FINANCIALSTATEMENTS**

**(unaudited)** 

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

**Business of the Company**

Retractable Technologies, Inc. (the “Company”) wasincorporated in Texas on May 9, 1994, to design, develop, manufacture andmarket safety syringes and other safety medical products for the healthcareprofession. The Company began to develop its manufacturing operations in 1995.The Company’s manufacturing and administrative facilities are located in LittleElm, Texas. The Company’s primary products are the VanishPoint® syringe in the1cc, 3cc, 5cc and 10cc sizes, blood collection tube holders, allergy trays, andIV catheters.  The Company has conductedpreliminary clinical evaluations and worked with national distributors toencourage healthcare facilities to transition from the use of standard syringesto the VanishPoint® syringe.

**Basis of presentation**

The accompanying condensed financial statements areunaudited and, in the opinion of management, reflect all adjustments that arenecessary for a fair presentation of the financial position and results ofoperations for the periods presented. All such adjustments are of a normal andrecurring nature. The results of operations for the periods presented are notnecessarily indicative of the results to 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 statements filedin Form 10-K on April 2, 2007, for the year ended December 31, 2006.

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

**Accounting estimates**

The preparation of financial statements in conformitywith United States generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ significantly fromthose estimates.

**Cash and cash equivalents**

For purposes of reporting cash flows, cash and cashequivalents include unrestricted cash and investments with original maturitiesof three months or less.

**Accounts receivable**

The Company records trade receivables when revenue isrecognized. No product has been consigned to customers. The Company’s allowancefor doubtful accounts is primarily determined by review of specific tradereceivables. Those accounts that are doubtful of collection are included in theallowance. An additional allowance has been established based on a percentageof receivables outstanding. These provisions are reviewed to determine theadequacy of the allowance for doubtful accounts. Trade receivables are chargedoff when there is certainty as to their being uncollectible. Trade receivablesare considered delinquent when payment has not been made within contract terms.

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**Inventories**

Inventories are valued at the lower of cost or market,with cost being determined using a standard cost method, which approximatesaverage cost. A reserve is established for any excess or obsolete inventories.

**Property, plant and equipment**

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

Depreciation and amortization are calculated using thestraight-line method over the following useful lives: 

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

**Long-lived assets**

The Company assesses the recoverability of long-livedassets using an assessment of the estimated undiscounted future cash flowsrelated to such assets. In the event that assets are found to be carried atamounts which are in excess of estimated gross future cash flows, the assetswill be adjusted for impairment to a level commensurate with a discounted cashflow analysis of the underlying assets.

**Reclassifications**

Certain prior year amounts have been reclassified toconform with the current year’s presentation.

**Intangible assets**

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

**Financial instruments**

The fair value of financial instruments is determinedby reference to various market data and other valuation techniques as appropriate.The Company believes that the fair value of financial instruments approximatestheir recorded values.

**Concentration risks**

The Company’s financial instruments exposed toconcentrations of credit risk consist primarily of cash, cash equivalents andaccounts receivable. Cash balances, some of which exceed the federally insuredlimits, are maintained in financial institutions; however, management believesthe institutions are of high credit quality. The majority of accountsreceivable are due from companies that are well-established entities. As aconsequence, management considers any exposure from concentrations of creditrisks to be limited.

The Company manufactures syringes in Little Elm, Texasas well as utilizing a manufacturer in China. During the first three months of 2007, approximately 80.6% of the unitswere produced in China.

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**Revenue recognition**

Revenue is recognized for sales to distributors whentitle and risk of ownership passes to the distributor, 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 to distributors who provide tracking reports whichshow, among other things, the facility that purchased the products, and(ii) a provision for estimated contractual pricing allowances for productsthat the Company has not received tracking reports. Rebates are recorded whenissued and are applied against the customer’s receivable balance. The provisionfor contractual pricing allowances is reviewed at the end of each quarter andadjusted for changes in levels of products for which there is no trackingreport. Additionally, if it becomes clear that tracking reports will not beprovided by individual distributors, the provision is further adjusted. Theestimated contractual allowance is netted against individual distributors’accounts receivable balances for financial reporting purposes. The resultingnet balance is reflected in accounts receivable or accounts payable, asappropriate. The terms and conditions of contractual pricing allowances aregoverned by contracts between the Company and its distributors. Revenue forshipments directly to end-users is recognized when title and risk of ownershippasses from the Company. Any product shipped or distributed for evaluationpurposes is expensed.

**Marketing fees**

The Company paid Abbott Laboratories, Inc.  (“Abbott”)marketing fees for services they provided. The contracted services were toinclude participation 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 thesale of product to Abbott. These fees were paid after Abbott provided theCompany a tracking report of product sales to end-users. These costs wereincluded in Sales and marketing expense in the Statements of Operations. No marketingfees have been accrued since October 15, 2003, the date the National Marketingand Distribution Agreement with Abbott was terminated. The Company has alawsuit against Abbott that will proceed in court and not in arbitration asargued by the defendant.

**Reimbursed Discounts**

The Company received reimbursed discounts from one ofthe settlement agreements reached in its federal antitrust lawsuit, RetractableTechnologies, Inc. v. Becton Dickinson & Co. (“BD”) et al.  Paymentsunder the discount reimbursement program were recognized upon invoicing ofamounts due under the agreement provided collection was reasonably assured. Such amounts are presented in the Condensed Statements of Operations as aseparate component of revenues.  All funds available under the discountreimbursement program were recognized by the third quarter of 2006.

**Incometaxes**

The Company provides for deferred income taxes inaccordance with Statement of Financial Accounting Standard No. 109, *Accounting for Income Taxes* (“SFAS 109”).SFAS 109 requires an asset and liability approach for financial accounting andreporting for income taxes based on the tax effects of differences between thefinancial statement and tax bases of assets and liabilities, based on enactedrates expected to be in effect when such basis differences reverse in futureperiods. Deferred tax assets are periodically reviewed for realizability. TheCompany has established a valuation allowance for its net deferred tax assetsas future taxable income cannot be reasonably assured.

**Earningsper share**

The Company has adoptedStatement of Financial Accounting Standards No. 128, *Earnings PerShare*, which establishes standards for computing and presentingearnings per share.  Basic earnings pershare is computed by dividing net earnings for the period (adjusted for anycumulative dividends for the period) by the weighted average number of commonshares outstanding during the period. The Company’s potentially dilutive Common Stock equivalents consist ofoptions, convertible debt and convertible Preferred Stock and are all

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antidilutive for the threemonths ended March 31, 2007 and 2006. Accordingly, basic loss per share is equal to diluted earnings pershare.

**Researchand development costs**

Research and development costs are expensed asincurred.

**Share-basedcompensation**

The Company has issued options under three stock-baseddirector, officer and employee compensation plans as well as several individualoption agreements.  The two 1996 planshave terminated; however, the options continue until their expected maturitydates.  The Company adopted the fairvalue recognition provisions of Statement of Financial Accounting Standards No.123, *Accounting for Stock-Based Compensation*,to all awards granted, modified, or settled after December 31, 2001.  Awards generally vest over periods up tothree years.

The Company adopted the provisions of Statement ofFinancial Accounting Standards No. 123 (Revised 2004) (“SFAS No. 123 R”),*Share-Based Payment*, effective January1, 2006.  It did not have a materialimpact on the financial statements of the Company.  In accordance with the disclosurerequirements of SFAS No. 123 R, the Company incurred the following share-basedcompensation costs:
|                             | ** ** | **Three Months  Ended March 31,  2007** | ** ** | **Three Months  Ended March 31,  2006** | ** ** |
|-----------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                  | ** ** | ** **                                             | ** ** | ** **                                             | ** ** |
| Cost of sales               |       | $                                                      | 6,648      |                                                   | $          | 26,291 |   |
| Sales and  marketing        |       | 3,086                                                  |       | 46,318                                                 |       |
| Research and  development   |       | (7,863                                                 | )          | 4,625                                                  |       |
| General and  administrative |       | 4,607                                                  |       | 89,072                                                 |       |
|                        |       | $                                                      | 6,478      |                                                   | $          | 166,306 |   |

 

**3.     INVENTORIES**

Inventories consist of the following:
|                    | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------|------------|--------------------------|------------|-----------------------------|------------|
| Raw materials      |       | $                        | 1,716,535  |                        | $          | 1,546,288 |   |
| Finished goods     |       | 5,323,302                |       | 4,889,492                   |       |
|               |       | 7,039,837                |       | 6,435,780                   |       |
| Inventory  reserve |       | (50,000                  | )          | (50,000                     | )          |
|               |       | $                        | 6,989,837  |                        | $          | 6,385,780 |   |

 

**4.     INCOME TAXES**

The Company’s effective tax rates (a benefit for thethree months ended March 31, 2006) on the net loss before income taxes were0.0% and 32.5% for the three months ended March 31, 2007 and 2006,respectively.  The effective rates differfrom the expected rates due to stock option activity, meals and entertainment,changes in the valuation allowance, and other items that were nondeductible forincome tax purposes.

In June 2006, the FinancialAccounting Standards Board (“FASB”) issued Financial InterpretationNo. 48, *Accountingfor Income Tax Uncertainties*(“FIN48”). FIN 48 is effective for years beginning after December 15, 2006.FIN 48 prescribes a recognition threshold and measurement attribute forfinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 requires

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that a company evaluate whether it is “more-likely-than-not”that a tax position will be sustained based upon the technical merits of theposition.  Measurement of the taxposition is based upon the largest amount of benefit that is greater than 50%likely of being realized upon ultimate settlement. The Company adopted FIN 48on January 1, 2007.   FIN 48 had nomaterial effect on the financial statements upon adoption.

**Item 2.        Management’s Discussion and Analysis of Financial Conditionand Results of Operations.**

FORWARD-LOOKING STATEMENT WARNING

Certain statements included by reference in thisfiling containing the words “could,” “may,” “believes,” “anticipates,” “intends,”“expects,” and similar such words constitute forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act. Anyforward-looking statements involve known and unknown risks, uncertainties, andother factors that may cause our actual results, performance, or achievementsto be materially different from any future results, performance, orachievements expressed or implied by such forward-looking statements. Suchfactors include, among others, our ability to maintain liquidity, ourmaintenance of patent protection, the impact of current litigation, the impactof dramatic increases in demand, our ability to quickly increase capacity inthe event of a dramatic increase in demand, our ability to access the market,our ability to decrease production costs, our ability to continue to financeresearch and development as well as operations and expansion of production, therecently increased interest of larger market players, specifically BectonDickinson & Co., Inc. (“BD”), in providing safety needle devices, and otherfactors listed in **Item 1A Risk Factors**.Given these uncertainties, undue reliance should not be placed onforward-looking statements.

The following discussion contains trend informationand other forward-looking statements that involve a number of risks anduncertainties. Our actual future results could differ materially from ourhistorical results of operations and those discussed in the forward-lookingstatements. Variances have been rounded for ease of reading. All periodreferences are to the periods ended March 31, 2007 or 2006.

OVERVIEW

     We have beenmanufacturing and marketing our products since 1997. Our products have been andcontinue to be distributed nationally through numerous distributors. However, wehave been blocked from access to the market by exclusive marketing practicesengaged in by BD, who dominates the market. We believe that its monopolisticbusiness practices continue despite its paying $100 million to settle a lawsuitwith the Company for anticompetitive practices, business disparagement, andtortious interference. Although we have made limited progress in some areas,such as the alternate care and international markets, our volumes are not ashigh as they should be given the nature and quality of our product, the federaland state legislation requiring use of safe needle devices, and various SenateSubcommittee hearings on Group Purchasing Organizations (“GPOs”). We continueto pursue various strategies to have better access to the hospital market, aswell as other markets, including attempting to gain access to the marketthrough our sales efforts and innovative technology. In the event we continueto have only limited market access and the cash provided by the litigationsettlements and generated from operations becomes insufficient, the Companywould take cost cutting measures to reduce cash requirements. Such measurescould result in reduction of units being produced, reduction of workforce,reduction of salaries of officers and other nonhourly employees, and deferralof royalty payments to Thomas Shaw.

We are focusing on methods of upgrading ourmanufacturing capability and efficiency in order to enable us to offer ourtechnology at a reduced price.  Webelieve our current capitalization provides the resources necessary toimplement these changes and greatly improve our manufacturing capacity andefficiency, thereby reducing our unit cost. We are also marketing more productinternationally. In 2004, 2005 and 2006, we were awarded a federal contract tosupply syringes to various African countries. The first award from PATH was for1,530,000 units. The second award was for 11,700,000 units. For the third year,the Company was awarded a contract for 16,400,000 units.  Shipments of the products are generally filledover multiple quarters due principally to logistical requirements for theorders. We are hopeful that these awards will continue to increase under thisprogram.

Product purchases from Double Dove, a Chinesemanufacturer, have enabled us to increase manufacturing capacity with littlecapital outlay and provided a competitive manufactured cost. Double Dovemanufactured, in the first three months of 2007, approximately 80.6% of theunits produced by the Company.  Thesepurchases have

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improved profit margins in spite of limited revenues.The cost of production per unit has generally declined as volumes increased.

We also have a license agreement with BTMD, a Chinesecompany.  The factory, assemblyequipment, and the related infrastructure are substantially complete for someproducts.  We continue to expect a royalty stream in 2007, pending BTMD’sreceipt of all necessary government approvals.

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

*Comparisonof Three Months Ended*

*March 31, 2007, and March 31, 2006*

Domestic sales accounted for 70.8% and 90.6% of therevenues for the three months ended March 31, 2007 and 2006, respectively.International sales accounted for the remaining revenues. Domestic revenues decreased18.3%, principally due to lower domestic pricing in some markets, andinternational revenues increased 224.7%, due primarily to PATH shipments.  The timing of the PATH shipments will varyfrom quarter to quarter. Overall, unit sales increased 61.5%. Domestic unitsales increased 10.1% and international sales increased 282.1%. Domestic unitsales were 55.3% of total unit sales for the three months ended March 31, 2007.

Gross profit decreased primarily due to lower averageselling prices due to higher volume of international sales and lower averagesale prices in domestic markets.  The averagecost of manufactured product sold per unit decreased by 22.2%.  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.  The lower cost in ending inventory at March31, 2007, should have a continuing positive effect on profit margins for the secondquarter.  Royalty expense increased dueto higher gross sales.

The Company had offered certain discounts toparticipating facilities through December 31, 2006.  It was reimbursed up to a cumulative amountof $8.0 million under a litigation settlement agreement. Cumulativereimbursements of $8.0 million were recorded through September 30, 2006. TheCompany continued offering such discounts to participating facilities throughthe end of the year. The discount program ended December 31, 2006.

Operating expenses increased 26.9%. The increase inexpense for Sales and marketing was attributable primarily to compensationcosts, travel and entertainment, and consulting.  The increase was mitigated by a reduction in marketingexpenses. The decrease in Research and development costs was due principally todecreased cost related to engineering samples, consulting, and compensation costs.General and administrative costs increased due to additional legalexpense.  Compensation expense and officeexpense for general and administrative cost also increased, mitigated byreduced travel and entertainment cost and lower bad debt expense.  All departments experienced a reduction in stockoption expense.

Loss from operations increased due principally to lowergross profit margins and higher operating expenses.

The Company’s effective tax rates (a benefit for thethree months ended March 31, 2006) on the net loss before income taxes were 0.0%and 32.5% for the three months ended March 31, 2007 and 2006, respectively.  The effective tax rate for the three monthsended March 31, 2007, was zero due to the fact that all tax benefits have beenfully reserved.

The Company’s balance sheet remains strong with cashmaking up 64.3% of total assets.  Workingcapital was $47.7 million at March 31, 2007, a decrease of $3.2 million fromDecember 31, 2006.  The current ratio was8.4 at December 31, 2006, and 5.8 at March 31, 2007.  The quick ratio decreased from 7.5 atDecember 31, 2006, to 5.1 at March 31, 2007. These indicators continue to demonstrate a strong financial position.  The liability for Accrued royalties to ashareholder was lower at the end of the year due to the payment of the fourthquarter royalties before the end of the year. This allowed the Company to include that payment as a loss carryback in2006.

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Approximately $1.2 million in cash flow was used byoperating activities.  The remaining usesof cash were for capital costs incurred for the acquisition of plant, propertyand equipment and intangible assets, and the repayment of long-term debt.

**LIQUIDITY AND FUTURE CAPITALREQUIREMENTS**

Historical Sources of Liquidity

We have historically funded operations primarily fromproceeds from private placements, loans, and litigation efforts. We werecapitalized with approximately $52.6 million raised from six separate privateplacement offerings. We also funded operations through loans aggregating over$15.0 million. We received cash payments of $88.5 million and discountreimbursements of $8.0 million from litigation settlements.

Internal Sources of Liquidity

*Margins and Market Access*

In early 2004 we began to receive shipment of product fromDouble Dove. We believe as we receive and produce greater quantities our unitcost of goods sold could decrease.  We believe,if we have market access, our profit margins, for the long-term, could increaseas margins tend to improve with additional sales and higher production levels.To be profitable from operations we would need minimal access to hospitalmarkets which has been difficult to obtain due to the monopolistic marketplacewhich was the subject of our lawsuit against BD. We will continue to attempt togain access to the market through our sales efforts and innovative technology.We are focusing on methods of upgrading our manufacturing capability andefficiency in order to enable us to offer our technology at a reduced price. Webelieve our current capitalization provides the resources necessary toimplement these changes and greatly improve our manufacturing capacity andefficiency, thereby reducing our unit cost.

The mix of domestic and international sales affectsthe average sales price of our products. Generally, the higher the ratio ofdomestic sales to international sales, the higher the average sales price willbe. Typically international sales are shipped directly from China. Purchases ofproduct manufactured in China, if available, usually decrease the average costof manufacture for all units as domestic costs, such as indirect labor andoverhead, remain relatively constant. The number of units produced by theCompany and manufactured in China can have a significant effect on the carryingcosts of inventory as well as cost of sales. The Company will continue toevaluate the appropriate mix of products manufactured domestically and thosemanufactured in China to achieve economic benefits as well as to maintain ourdomestic manufacturing capability. Currently, approximately 19.4%****of our syringes are produced domestically.

*Seasonality*

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

*Licensing Agreement*

We entered into a License Agreement with BTMD as ofMay 13, 2005, which was approved by the People’s Republic of China (the “PRC”)on August 1, 2005. We have granted to BTMD a limited exclusive license tomanufacture and a limited exclusive right to sell syringes in the PRC havingretractable needles that incorporate our technology for a term of three years.This License Agreement is subject to the Technology License Agreement datedJune 23, 1995, between Mr. Thomas J. Shaw, our founder and CEO,as licensor and the Company, as licensee. Accordingly, Mr. Shaw willreceive 5% of the licensing proceeds we receive. BTMD has agreed to manufactureand sell these products in the PRC and to pay us a quarterly royalty of two andone-half cents per unit on 1/2 cc, 3 cc, and 5 cc syringes and a royalty ofthree and one-half cents per unit on 1 cc and 10 cc syringes.  The factory, assembly equipment, and therelated infrastructure are substantially complete for some products.  We continue to expect a royalty stream in2007, pending BTMD’s receipt of all necessary government approvals.

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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 have the right, but not the obligation, toterminate the agreement if we have not received certain royalty payments. Wehad the right to terminate the agreement in 2006 because we did not receiveroyalty payments for at least 25,000,000 units. We have the right to terminatethe agreement if we do not receive royalty payments for at least 50,000,000units in 2007 or 100,000,000 units per year for each year thereafter. We havenot received royalties under this agreement; however, we do not plan toterminate the agreement at this time and will continue to work with BTMD tofacilitate production.

*Cash Requirements*

Due to prior litigation settlements, we havesufficient cash reserves and intend to rely on operations, cash reserves, anddebt financing as the primary ongoing sources of cash. In the event we continueto have only limited market access and cash generated from operations becomesinsufficient to support operations, we would take cost cutting measures toreduce cash requirements. Such measures could result in reduction of unitsbeing produced, reduction of workforce, reduction of salaries of officers andother nonhourly employees, and deferral of royalty payments to Thomas Shaw.

External Sources of Liquidity

We have obtained several loans from the inception ofthe Company, which have, together with the proceeds from sales of equities andlitigation efforts, enabled us to pursue development and production of ourproducts. Currently we believe we could obtain additional funds through loansif needed. Furthermore, the shareholders previously authorized an additional5,000,000 shares of a Class C Preferred Stock that could, if necessary, bedesignated and used to raise funds through the sale of equity.

**Item 3.        Quantitativeand Qualitative Disclosures About Market Risk.**

None

**Item 4.        Controlsand Procedures.**

Pursuant to paragraph (b)of Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the “ExchangeAct”) and on May 10, 2007, our President, Chairman, and Chief ExecutiveOfficer, Thomas J. Shaw (the “CEO”), and our Vice President and Chief FinancialOfficer, Douglas W. Cowan (the “CFO”), acting in their capacities as ourprincipal executive and financial officers, evaluated the effectiveness of ourdisclosure controls and procedures, as defined in Rule 13a-15(e) or Rule15d-15(e) under the Exchange Act, and concluded that, as of March 31, 2007, andbased on the evaluation of these controls and procedures as required byparagraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act, there wereno significant deficiencies in these procedures. The CEO and CFO concluded thatour disclosure controls and procedures are effective.

There have been no material changes in our internalcontrols over financial reporting identified in connection with the evaluationrequired by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Actthat occurred during the first fiscal quarter or in any other factor that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrols over financial reporting.

**PART II-OTHER INFORMATION**

**Item 1A.     RiskFactors.**

There were nomaterial changes in Risk Factors applicable to the Company as set forth in ourForm 10-K annual report for 2006 which was filed on April 2, 2007, and which isavailable on EDGAR, other than the following:

Most internationalsales are filled by production from Double Dove.  In the event that we were unable to purchasesuch product from Double Dove, we would need to find an alternative supplier toavoid a disruption in supply.    For the first quarter of 2007, approximately 80.6%of our production was provided by Double Dove.

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**Item 2.        UnregisteredSales of Equity Securities and Use of Proceeds.**

Unregistered Sales ofEquity Securities and Use of Proceeds

None.

Working CapitalRestrictions and Limitations on the Payment of Dividends

$1,060,000 in cashis being held for payment of declared dividends to Series I and Series II ClassB Convertible Preferred shareholders. This dividend shall be paid on July 24, 2007.

The certificates of designation for each of theoutstanding series of Class B Convertible Preferred Stock each provide that, ifa dividend upon any shares of Preferred Stock is in arrears, no dividends maybe paid or declared or any other distribution made upon any stock rankingjunior to such stock and generally no such junior stock may be redeemed.

We maintain cash for use as collateral for letters ofcredit we provide from time to time to enable, among other things, the purchaseof product from China. As of March 31, 2007, we had no funds held as restrictedcash for such purposes. The Board of Directors has authorized management toborrow and incur indebtedness in the form of letters of credit in an aggregateamount, at any one time, of $5,000,000.

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

Series I Class BConvertible Preferred Stock

As of the three monthsended March 31, 2007, the amount of dividends in arrears is $19,000 and the totalarrearage is $245,000.   This amount willbe included in the dividend payment to be made on July 24, 2007.

Series II Class BConvertible Preferred Stock

As of the threemonths ended March 31, 2007, the amount of dividends in arrears is $56,000 andthe total arrearage is $734,000. This amount will be included in the dividendpayment to be made on July 24, 2007.

Series III Class BConvertible Preferred Stock

As of the threemonths ended March 31, 2007, the amount of dividends in arrears is $34,000 andthe total arrearage is $2,887,000.

Series IV Class BConvertible Preferred Stock

As of the threemonths ended March 31, 2007, the amount of dividends in arrears is $138,000 andthe total arrearage is $6,062,000.

Series V Class BConvertible Preferred Stock

As of the threemonths ended March 31, 2007, the amount of dividends in arrears is $108,000 andthe total arrearage is $2,590,000.

**Item 5.        OtherInformation.**

The2007 annual meeting shall be held on September 28, 2007, at 10:00 a.m. at Little Elm City Hall; 100West Eldorado Parkway; Little Elm, Texas, 75068.

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**Item 6.        Exhibits.**
| Exhibit No. | ** ** | **Description of Document**                      |
|-------------|------------|--------------------------------------------------|
|        |       |                                             |
| 31.1        |       | Certification of Principal Executive Officer     |
|        |       |                                             |
| 31.2        |       | Certification of Principal Financial Officer     |
|        |       |                                             |
| 32          |       | Certification Pursuant to 18 U.S.C. Section 1350 |

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**SIGNATURES**

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

 
| DATE:  May 15, 2007 | RETRACTABLE TECHNOLOGIES, INC. |                    |
|--------------------------|--------------------------------|-------------------------|
|                     | (Registrant)                   |                    |
|                     |                           |                    |
|                     |                           |                    |
|                     | BY:                            | /s/ Douglas W. Cowan    |   |
|                     |                           | DOUGLAS W. COWAN        |   |
|                     |                           | VICE PRESIDENT AND      |   |
|                     |                           | CHIEF FINANCIAL OFFICER |   |
|                          |                                |                         |  |  |

 

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