10-Q 1 tmb-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM  10-Q

(Mark One)

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from          to          

Commission file number: 001-16465

Retractable Technologies, Inc.

(Exact name of registrant as specified in its charter)

Texas

    

75-2599762

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

511 Lobo Lane

Little Elm, Texas

75068-5295

(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 since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

RVP

NYSE American

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 29,937,159 shares of Common Stock outstanding, excluding 4,087,145 treasury shares, on May 1, 2024.

RETRACTABLE TECHNOLOGIES, INC.

FORM 10-Q

For the Quarterly Period Ended March 31, 2024

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

   

1

CONDENSED BALANCE SHEETS

1

CONDENSED STATEMENTS OF OPERATIONS

2

CONDENSED STATEMENTS OF CASH FLOWS

3

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

4

NOTES TO CONDENSED FINANCIAL STATEMENTS

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

19

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

19

Item 1A.

Risk Factors

19

Item 5.

Other Information

20

Item 6.

Exhibits

20

SIGNATURES

20

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements.

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

(unaudited)

    

March 31, 2024

    

December 31, 2023

ASSETS

Current assets:

Cash and cash equivalents

$

10,011,162

$

12,667,550

Accounts receivable, net

 

7,424,629

 

10,671,721

Investments in debt and equity securities, at fair value

36,630,439

34,621,213

Inventories

 

19,488,819

 

17,581,368

Income taxes receivable

1,155,077

1,155,077

Other current assets

 

1,004,218

 

952,668

Total current assets

 

75,714,344

 

77,649,597

Property, plant, and equipment, net

 

91,815,450

 

93,478,521

Deferred tax asset

8,308,139

8,392,030

Other assets

 

137,160

 

152,064

Total assets

$

175,975,093

$

179,672,212

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

2,594,312

$

4,779,035

Current portion of long-term debt

 

311,060

 

303,991

Accrued compensation

 

722,458

 

865,105

Dividends payable

 

1,417,437

 

1,417,437

Accrued royalties to shareholder

 

649,388

 

1,376,555

Other accrued liabilities

 

1,177,631

 

630,571

Income taxes payable

 

1,655

 

4,802

Total current liabilities

 

6,873,941

 

9,377,496

Other long-term liabilities

68,288,918

69,773,538

Long-term debt, net of current maturities

 

1,152,802

 

1,233,519

Total liabilities

 

76,315,661

 

80,384,553

Commitments and contingencies – see Note 10

Stockholders’ equity:

Preferred stock, $1 par value:

Class B; authorized: 5,000,000 shares

Series II, Class B

 

156,200

 

156,200

Series III, Class B

 

74,245

 

74,245

Common Stock, no par value

 

 

Additional paid-in capital

 

73,160,333

 

73,160,333

Retained earnings

 

39,157,332

 

38,785,559

Common stock in treasury – at cost

(12,888,678)

(12,888,678)

Total stockholders’ equity

 

99,659,432

 

99,287,659

Total liabilities and stockholders’ equity

$

175,975,093

$

179,672,212

See accompanying notes to condensed unaudited financial statements

1

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

Three Months

Three Months

    

March 31, 2024

    

March 31, 2023

    

Sales, net

$

7,599,363

$

11,001,102

Cost of sales:

Cost of manufactured product

 

5,049,046

 

7,361,865

Royalty expense to shareholder

 

649,388

 

769,709

Total cost of sales

 

5,698,434

 

8,131,574

Gross profit

 

1,900,929

 

2,869,528

Operating expenses:

Sales and marketing

 

1,434,742

 

1,350,171

Research and development

 

142,262

 

129,757

General and administrative

 

3,310,062

 

4,130,023

Total operating expenses

 

4,887,066

 

5,609,951

Loss from operations

 

(2,986,137)

 

(2,740,423)

Other income - TIA

1,484,620

1,557,779

Unrealized gain on debt and equity securities

1,732,649

1,492,011

Gain on sale of equity securities

746,262

Interest and other income

 

317,321

 

209,815

Interest expense

 

(33,483)

 

(43,555)

Income before income taxes

 

514,970

 

1,221,889

Provision for income taxes

 

85,586

 

230,917

Net income

 

429,384

 

990,972

Preferred Stock dividend requirements

 

(57,611)

 

(58,111)

Net income applicable to common shareholders

$

371,773

$

932,861

Basic earnings per share

$

0.01

$

0.03

Diluted earnings per share

$

0.01

$

0.03

Weighted average common shares outstanding:

Basic

 

29,937,159

 

29,937,159

Diluted

 

29,945,353

 

29,963,763

See accompanying notes to condensed unaudited financial statements

2

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

Three Months

Three Months

Ended

Ended

    

March 31, 2024

    

March 31, 2023

Cash flows from operating activities

Net income

$

429,384

$

990,972

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

1,889,467

 

1,938,921

Net unrealized gain on investments

(1,732,649)

(1,492,011)

Realized gain on investments

(746,262)

Accreted interest

9,157

Bond amortization

(251)

Deferred taxes

83,891

230,917

Provision for credit losses

 

 

370,573

Net realizable value inventory adjustment

1,845

141,518

Other income - TIA

(1,484,620)

(1,557,779)

(Increase) decrease in operating assets:

Accounts receivable

 

3,247,092

 

(1,849,918)

Inventories

 

(1,909,296)

 

(1,556,397)

Other current assets

 

(51,550)

 

(533,279)

Income taxes receivable

1,100,847

Other assets

14,904

11,178

Increase (decrease) in operating liabilities:

Accounts payable

 

(2,184,723)

 

(1,034,169)

Accrued liabilities

 

(322,754)

 

276,150

Income taxes payable

 

(3,147)

 

Net cash used by operating activities

 

(2,022,407)

 

(3,699,582)

Cash flows from investing activities

Purchase of property, plant, and equipment

 

(226,396)

 

(467,530)

Purchase of debt and equity securities

(276,326)

(15,918,837)

Proceeds from the sales of equity securities

6,784,228

Net cash used by investing activities

 

(502,722)

 

(9,602,139)

Cash flows from financing activities

Repayments of long-term debt

 

(73,648)

 

(70,496)

Proceeds from Technology Investment Agreement (TIA)

1,172,310

Payment of preferred stock repurchase payable

(1,101,110)

Payment of preferred stock dividends

 

(57,611)

 

(58,111)

Net cash used by financing activities

 

(131,259)

 

(57,407)

Net decrease in cash and cash equivalents

 

(2,656,388)

 

(13,359,128)

Cash and cash equivalents at:

Beginning of period

 

12,667,550

 

19,721,345

End of period

$

10,011,162

$

6,362,217

Supplemental schedule of cash flow information:

Interest paid

$

33,483

$

34,398

Income taxes paid

$

$

Supplemental schedule of noncash investing and financing activities:

Preferred dividends declared, not paid

$

57,611

$

1,417,937

Amounts receivable under Technology Investment Agreement (TIA)

$

$

1,390,919

Redemption price payable

$

6,000

$

6,000

See accompanying notes to condensed unaudited financial statements

3

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

The following shows the changes in stockholders’ equity for the three-month period ended March 31, 2024:

    

    

Series II

    

Series III

    

    

    

Class B

Class B

Additional

Treasury

Common

Preferred

Preferred

Paid-In

Retained

Stock –

Stock

Stock

Stock

Capital

Earnings

at cost

Total

Balance at December 31, 2023

$

$

156,200

$

74,245

$

73,160,333

$

38,785,559

$

(12,888,678)

$

99,287,659

Dividends

 

 

 

 

 

(57,611)

 

 

(57,611)

Net Income

 

 

 

 

 

429,384

 

 

429,384

Balance at March 31, 2024

$

$

156,200

$

74,245

$

73,160,333

$

39,157,332

$

(12,888,678)

$

99,659,432

The following shows the changes in stockholders’ equity for the three-month period ended March 31, 2023:

    

    

Series II

    

Series III

    

    

    

Class B

Class B

Additional

Treasury

Common

Preferred

Preferred

Paid-In

Retained

Stock –

Stock

Stock

Stock

Capital

Earnings

at cost

Total

Balance at December 31, 2022

$

$

156,200

$

76,245

$

73,164,501

$

46,028,541

$

(12,888,678)

$

106,536,809

Dividends

 

 

 

 

 

(58,111)

 

(58,111)

Net Income

 

 

 

 

 

990,972

 

990,972

Balance at March 31, 2023

$

$

156,200

$

76,245

$

73,164,501

$

46,961,402

$

(12,888,678)

$

107,469,670

4

RETRACTABLE TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1.    BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

Business of 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 medical products for the healthcare profession.  The Company began to develop its manufacturing operations in 1995.  The Company’s manufacturing and administrative facilities are located in Little Elm, Texas.  The Company’s products are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; 0.5mL, 1mL, 2mL, 3mL, 5mL, and 10mL syringes; the blood collection tube holder; the EasyPoint® blood collection tube holder with needle; the small diameter tube adapter; the allergy tray; the IV safety catheter; the Patient Safe® syringes; the Patient Safe® Luer Cap; the VanishPoint® Blood Collection Set; and the EasyPoint® needle as well as a standard 3mL syringe packaged with an EasyPoint® needle. The Company also sells VanishPoint® autodisable syringes in the international market in addition to the Company’s other products.

Basis of presentation

The accompanying condensed financial statements are unaudited and, in the opinion of Management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented.  All such adjustments are of a normal and recurring nature.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year.  The unaudited condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company’s audited financial statements incorporated into its Form 10-K filed on March 29, 2024 for the year ended December 31, 2023.  

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates. The amount reported as a contractual allowance for rebates involves examination of past historical trends related to sales to customers and the related credits issued once contractual obligations of the customers have been met. The establishment of a liability for future claims of rebates against sales in the current period requires that the Company has an understanding of the relevant sales with respect to product categories, sales distribution channels, and the likelihood of contractual obligations being satisfied.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and investments with original maturities of three months or less.

Accounts receivable

The Company records trade receivables when revenue is recognized.  No product has been consigned to customers.  The Company’s allowance for credit losses is primarily determined by review of specific trade receivables based on historical collection rates and specific knowledge regarding the current creditworthiness of the customers.  Those

5

accounts that are doubtful of collection are included in the allowance.  The Company considers historical experience, the current economic environment, customer credit ratings or bankruptcies, legal disputes, collections on past due amounts, pricing discrepancies, and reasonable and supportable forecasts to develop its allowance for credit losses. Management reviews these factors quarterly to determine if any adjustments are needed to the allowance. Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms. The allowance for credit losses was $891 thousand as of March 31, 2024 and December 31, 2023.

The Company requires certain customers to make a prepayment prior to beginning production or shipment of their order.  Customers may apply such prepayments to their outstanding invoices or pay the invoice and continue to carry forward the deposit for future orders.  Such amounts are included in Other accrued liabilities on the Condensed Balance Sheets and are shown in Note 6, Other Accrued Liabilities.

The Company records an allowance for estimated returns as a reduction to Accounts receivable and Gross sales.  Historically, returns have been insignificant.

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost being determined using actual average cost.  The Company compares the average cost to the net realizable value and records the lower value.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company recorded $2 thousand and $142 thousand lower of cost or net realizable value inventory adjustment associated with the VanishPoint® 3mL and EasyPoint® needle product segments at March 31, 2024 and March 31, 2023, respectively.  

Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories. Once inventory items are deemed to be either excess or obsolete, they are written down to their net realizable value.

Investments in debt and equity securities

The Company holds mutual funds, debt, and equity securities as investments.  These assets are held as trading securities and are carried at fair value as of the date of the Condensed Balance Sheets. Net unrealized and realized gains or losses on these investments are reflected separately on the Condensed Statements of Operations. Realized gains or losses on investments are recognized using the specific identification method.

Property, plant, and equipment

Property, plant, and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to operations as incurred.  Cost includes major expenditures for improvements and replacements which extend useful lives or increase capacity and interest costs associated with significant capital additions.  Gains or losses from disposals are included in Interest and other income.

The Company's property, plant, and equipment primarily consist of buildings, land, assembly equipment, molding machines, molds, office equipment, furniture, and fixtures.  Depreciation and amortization are calculated using the straight-line method over the following useful lives:

Production equipment

    

3 to 13 years

Office furniture and equipment

 

3 to 10 years

Buildings

 

39 years

Building improvements

 

15 years

6

Long-lived assets

The Company assesses the recoverability of long-lived assets using an assessment of the estimated undiscounted future cash flows related to such assets.  In the event that assets are found to be carried at amounts which are in excess of estimated gross future cash flows, the assets will be adjusted for impairment to a level commensurate with fair value determined using a discounted cash flow analysis or appraised values of the underlying assets.

Fair value measurements

For assets and liabilities that are measured using quoted prices in active markets, total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability.  For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets.  For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black-Scholes model.

Financial instruments

The Company estimates the fair value of financial instruments through the use of public market prices, quotes from financial institutions, and other available information.  Judgment is required in interpreting data to develop estimates of fair value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange.  Short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on Management's estimates, equals their recorded values.  Investments in debt and equity securities consist primarily of individual equity securities and mutual funds and are reported at their fair value based upon quoted prices in active markets. The fair value of long-term liabilities, based on Management’s estimates, approximates their reported values.

Concentration risks

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, certificates of deposit, exchange-traded and closed-end funds, mutual funds, equity securities, and accounts receivable. Cash balances, some of which exceed federally insured limits, are maintained in financial institutions; however, Management believes the institutions are of high credit quality. The Company assesses market risk in equity securities through consultation with its outside investment advisors. Management is responsible for directing investment activity based on current economic conditions. The majority of accounts receivable are due from companies which are well-established entities. Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers for the three-month periods ended March 31, 2024 and 2023:

Three Months Ended

Three Months Ended

    

March 31, 2024

    

March 31, 2023

    

Number of significant customers

 

2

 

3

 

 

Aggregate dollar amount of net sales to significant customers

$

3.4

million

$

7.0

million

Percentage of net sales to significant customers

44.3%

63.5%

The Company manufactures some of its products in Little Elm, Texas as well as utilizing manufacturers in China.  The Company obtained 90.4% and 92.6% of its products in the first three months of 2024 and 2023, respectively, from its Chinese manufacturers.  In the event that the Company becomes unable to purchase products from its Chinese manufacturers, the Company may need to find an alternate manufacturer for its blood collection set, EasyPoint® blood collection tube holder with needle, IV catheter, Patient Safe® syringe, 0.5mL insulin syringe, 0.5mL autodisable

7

syringe, and 2mL, 5mL, and 10mL syringes, and would increase domestic production for the 1mL and 3mL syringes and EasyPoint® needles.

Revenue recognition

The Company recognizes revenue when control of performance obligations passes to the customer, generally when the product ships.  Payments from customers with approved credit terms are typically due 30 days from the invoice date. Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances. Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products for which the Company has not received tracking reports.  When rebates are issued, they are applied against the customer’s receivable balance.  Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company. If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor.  One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is recognized in the period the related sales are recognized and is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report.  Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted.  The estimated contractual allowance is included in Accounts payable in the Condensed Balance Sheets and deducted from Revenues in the Condensed Statements of Operations.  Accounts payable included estimated contractual allowances for $1.6 million and $2.2 million as of March 31, 2024 and December 31, 2023, respectively.  The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors. Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company.  End-users do not receive any contractual allowances on their purchases.  Any product shipped or distributed for evaluation purposes is expensed.

The Company provides product warranties that: i) the products are fit for medical use as generally defined within the boundaries of United States FDA approval; ii) the products are not defective; and iii) the products will conform to the descriptions set forth in their respective labeling, provided that they are used in accordance with such labeling and the Company’s written directions for use.  The Company has historically not incurred significant warranty claims.

The Company’s domestic return policy provides that a customer may return incorrect shipments within 10 days following arrival at the distributor’s facility.  In all such cases, the distributor must obtain an authorization code from the Company and affix the code to the returned product.  The Company’s domestic return policy also generally provides that a customer may return product that is overstocked.  Overstocking returns are limited to two times in each 12-month period up to 1% of distributor’s total purchase of products for the prior 12-month period.  All product overstocks and returns are subject to inspection and acceptance by the Company.  The Company has not historically incurred significant returns.

On February 5, 2024, the Company initiated a voluntary recall of its EasyPoint Needle lot number K220402 which was shipped within the U.S. between July 20, 2022 and September 20, 2023. The Company shipped 477,600 units of the products into the market and is working with customers and distributors to determine how many of the units remain unused and subject to the recall. The recall is due to the possible detachment of the needle cannula from the needle holder, which could result in serious injury. The Company has advised its customers and distributors to review their inventory for the affected products, segregate and quarantine the affected products, discontinue any distribution of the affected products, inform all personnel not to use the affected products, and report and return remaining inventory to the Company. The Company submitted a Removal Report with the U.S. Food and Drug Administration on February 9, 2024, and will continue to work with it in connection with the recall.  The Company estimates that the potential expense related to the recall is approximately $116 thousand.

The Company’s international distribution agreements generally do not provide for any returns.

The Company requires certain customers to pay in advance of product shipment.  Such prepayments from customers are recorded in Other accrued liabilities and are generally recognized as revenue upon shipment of the product.

8

The Company periodically recognizes revenue from licensing agreements of its intellectual property. Such licensing agreements provide licensee with right to use the Company’s intellectual property.  The Company accounts for revenue generated under these licensing agreements in accordance with ASC 606.  A license may be perpetual or time limited in its application. The Company has concluded that its licensing agreement is distinct as the customer can benefit from the license on their own. In accordance with ASC 606, the licensing agreement is considered functional as it is without professional services, updates and technical support. The Company has determined the current licensing agreement is sales-based or usage-based as defined in ASC 606.  In accordance with ASC 606, the Company recognizes revenue from sales-based or usage-based license at the later of a) subsequent sale or usage occurrence or b) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).  The Company recognized $99 thousand in licensing fees for the three months ended March 31, 2024.  No licensing fees were recognized for the three months ended March 31, 2023.   If the Company licenses its products for sale and the customers of the sublicensee are not known to the Company, the Company is obligated to pay Thomas J. Shaw, the owner of certain patented technology, fifty percent (50%) of such revenue pursuant to the terms of the Technology License Agreement between the Company and Mr. Shaw.

Disaggregated information of revenue recognized from contracts with customers and licensing fees recognized are as follows:

For the three months ended March 31, 2024:

    

    

Blood 

    

    

    

Collection 

EasyPoint®

Other 

Total

Geographic Segment

Syringes

Products

Needles

Products

Revenue

U.S. sales

$

5,653,309

367,609

612,871

7,379

$

6,641,168

North and South America sales (excluding U.S.)

 

154,537

96

 

154,633

Other international revenue

 

572,478

143,460

87,024

600

 

803,562

Total

$

6,380,324

$

511,165

$

699,895

$

7,979

$

7,599,363

For the three months ended March 31, 2023:

    

    

Blood 

    

    

    

Total

Collection

EasyPoint®

Other 

Product 

Geographic Segment

Syringes

 Products

Needles

Products

Sales

U.S. sales

$

4,803,086

$

398,376

$

212,487

$

9,499

$

5,423,448

North and South America sales (excluding U.S.)

 

4,561,280

 

 

 

212,040

 

4,773,320

Other international sales

 

505,542

 

212,200

 

86,592

 

 

804,334

Total

$

9,869,908

$

610,576

$

299,079

$

221,539

$

11,001,102

Income taxes

The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in the financial statements based on whether it is “more-likely-than-not” that a tax position will be sustained based upon the technical merits of the position.  Measurement of the tax position is based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.  

The Company provides for deferred income taxes through utilizing an asset and liability approach for financial accounting and reporting based on the tax effects of differences between the financial statement and tax bases of assets and liabilities, based on enacted rates expected to be in effect when such differences reverse in future periods.  Deferred tax assets are periodically reviewed for realizability.  Management has concluded that a $283 thousand valuation allowance is needed for state net operating losses as of March 31, 2024 and December 31, 2023.

9

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options and/or common stock issuable upon the conversion of convertible preferred stock.

The calculation of diluted EPS under the treasury stock method included the following shares in the three-month periods ending March 31, 2024 and 2023:

Three Months Ended

Three Months Ended

    

March 31, 2024

    

March 31, 2023

Common stock underlying issued and outstanding stock options

8,194

 

26,604

Common stock issuable upon the conversion of convertible preferred shares

 

8,194

 

26,604

The potential dilution, if any, is shown on the following schedule:

Three Months Ended

Three Months Ended

    

March 31, 2024

    

March 31, 2023

    

Net income

$

429,384

$

990,972

Preferred stock dividend requirements

 

(57,611)

 

(58,111)

Income applicable to common shareholders

$

371,773

$

932,861

Average common shares outstanding

 

29,937,159

 

29,937,159

Average common and common equivalent shares outstanding — assuming dilution

 

29,945,353

 

29,963,763

Basic earnings per share

$

0.01

$

0.03

Diluted earnings per share

$

0.01

$

0.03

Shipping and handling costs

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

Share-based Compensation

The Company’s share-based payments are accounted for using the Black-Scholes fair value method.  The Company generally records share-based compensation expense on a straight-line basis over the requisite service period.  The Company records forfeitures as they occur.

Self-insured employee benefit costs

The Company self-insures certain health insurance benefits for its employees under certain policy limits. The Company has additional coverage provided by an insurance company for any individual with claims in excess of $100,000 and/or total plan claims in excess of $1.7 million for the plan year.

Research and development costs

Research and development costs are expensed as incurred.

10

Technology Investment Agreement (TIA)

Effective July 1, 2020, the Company entered into a Technology Investment Agreement (“TIA”) with the United States Government Department of Defense, U.S. Army Contracting Command-Aberdeen Proving Ground, Natick Contracting Division & Edgewood Contracting Division (ACC-APG, NCD & ECD) on behalf of the Biomedical Advanced Research and Development Authority (BARDA), as amended, for $81,029,518 in government funding for expanding the Company’s domestic production of needles and syringes. At the request of the US government, the TIA was transferred to a successor agreement, identified as Other Transaction Agreement in April 2023.  Such agreement contains no additional requirements and, for the purposes of this report, the agreement shall continue to be referred to herein as the “TIA”.  Under this agreement, the Company has made significant additions to its facilities which allows the Company to increase domestic production capacity.  For further explanation, please refer to Note 7 – Technology Investment Agreement.

As reimbursements were received from the U.S. government for expenditures under the TIA, the Company recorded a deferred liability. In 2021, the deferred liability began to be systematically amortized as a gain over the life of the related property, plant, and equipment and is presented as Other income – TIA on the Statements of Operations.  For any reimbursements received for expenditures not capitalized as property, plant, and equipment, Other income – TIA was recognized in the same period as the expense.  

Recently Issued Pronouncements

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements — Amendments to Remove References to the Concepts Statements”, which amends the Codification to remove references to various concepts statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas.   ASU 2024-02 is effective for public business entities for fiscal periods beginning after December 15, 2024.  For all other entities, it is effective for fiscal years, including interim periods within those fiscal years beginning after December 15, 2025.  Early adoption is permitted for all entities, for any fiscal year or interim period for which financial statements have not yet been issued or made available for issuance.   The Company is evaluating the new guidance to determine the impact it may have, if any, on its financial statements.

In December of 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The updated accounting guidance improves transparency of income tax disclosures, including the disaggregation of existing disclosures related to the effective tax rate reconciliation and income taxes paid. ASU No. 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted.  For all other entities, it is effective for annual periods beginning after December 15, 2025.   Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.   Prospective application is required, with retrospective application permitted. The Company is evaluating the adoption of the amendments and the potential impact it may have, if any, on its financial statements.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, intended to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.  The amendment also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.  ASU No. 2022-03 is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.  Early adoption is permitted.  For all other entities, it is effective for fiscal years, including interim periods within those fiscal years beginning after December 15, 2024.  Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.  The adoption of the amendments is unlikely to have a material effect on the Company’s financial statements or disclosures.  

11

3.    INVENTORIES

Inventories consist of the following:

    

March 31, 2024

    

December 31, 2023

Raw materials

$

4,269,481

$

4,349,029

Finished goods

15,219,338

13,232,339

$

19,488,819

$

17,581,368

4.    FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820, “Fair Value Measurements”, defines fair value, establishes a framework for measuring fair value and requires additional disclosures regarding certain fair value measurements.  ASC 820 establishes a three-tier hierarchy for measuring fair value, as follows:

Level 1 – quoted market prices in active markets for identical assets and liabilities

Level 2 – inputs other than quoted prices that are directly or indirectly observable

Level 3 – unobservable inputs where there is little or no market activity

The following tables summarize the values of assets designated as Investments in debt and equity securities:

March 31, 2024

    

Level 1

    

Level 2

    

Level 3

    

Total

Equity securities

$

20,101,975

$

$

$

20,101,975

Mutual funds

15,855,747

15,855,747

Municipal bonds

672,717

672,717

$

36,630,439

$

$

$

36,630,439

December 31, 2023

    

Level 1

    

Level 2

    

Level 3

    

Total

Equity securities

$

18,282,556

$

$

$

18,282,556

Mutual funds

15,656,757

15,656,757

Municipal bonds

 

681,900

681,900

$

34,621,213

$

$

$

34,621,213

The investment assets are readily marketable and are carried at fair value as of the date of the Condensed Balance Sheets. The Company intends to hold these assets for possible future operating requirements. The following table summarizes gross unrealized gains and losses from Investments in debt and equity securities:

March 31, 2024

Cumulative Unrealized

Aggregate

    

Cost

    

Gains

    

Losses

    

Fair Value

Equity securities

$

24,111,677

(4,009,702)

20,101,975

Mutual funds

15,775,033

80,714

15,855,747

Municipal bonds

635,475

37,242

672,717

$

40,522,185

$

117,956

$

(4,009,702)

$

36,630,439

12

December 31, 2023

Cumulative Unrealized

Aggregate

    

Cost

    

Gains

    

Losses

    

Fair Value

Equity securities

$

24,074,112

$

$

(5,791,556)

$

18,282,556

Mutual funds

15,576,527

80,230

15,656,757

Municipal bonds

 

635,425

46,475

681,900

$

40,286,064

$

126,705

$

(5,791,556)

$

34,621,213

Unrealized gains on investments in debt and equity securities were $1.7 million and $1.5 million for the three months ended March 31, 2024 and 2023, respectively.

5.    INCOME TAXES

The Company’s effective tax rate on the net income before income taxes was 16.6% and 18.9% for the three months ended March 31, 2024 and 2023, respectively.  

A reconciliation of the federal statutory corporate tax rate to the Company’s effective tax rate is as follows:

Three Months Ended

Three Months Ended

    

March 31, 2024

    

March 31, 2023

    

U.S. statutory federal tax rate

 

21.0

%  

21.0

%  

 

State tax, net of federal tax

 

0.8

%  

0.1

%  

 

Stock options

%  

(1.0)

%  

Section 162(m); Limit on Compensation

1.8

%  

%  

Return-to-provision and other

 

(7.0)

%

(1.2)

%  

 

Effective tax rate

 

16.6

%

18.9

%

 

The Company uses the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence  should be commensurate with the extent to which it can be objectively verified. The Company reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets, to evaluate the need for a valuation allowance at March 31, 2024 and 2023.  As a result of this review, the Company concluded that a $283 thousand valuation allowance is needed for state net operating losses as of March 31, 2024.  

The effective tax rate for the three months ended March 31, 2024 was different from the federal statutory rate due primarily to compensation limits under IRC Section 162(m).  

6.    OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

    

March 31, 2024

    

December 31, 2023

Prepayments from customers

$

485,345

$

201,492

Accrued property taxes

166,089

Accrued professional fees

424,732

320,899

Current portion – preferred stock repurchase

 

6,000

 

6,000

Other accrued expenses

 

95,465

 

102,180

Total

$

1,177,631

$

630,571

13

7.    TECHNOLOGY INVESTMENT AGREEMENT

Effective July 1, 2020, the Company entered into the Technology Investment Agreement (TIA) with the U.S. government to expand the Company’s manufacturing capacity for hypodermic safety needles in response to the worldwide COVID-19 global pandemic.  The award is an expenditure-type TIA, whereby the U.S. government has made payments to the Company for the Company’s expenditures for equipment and supplies related to the expansion.  The Company’s contributions under the terms of the TIA include providing facilities, technical expertise, labor and maintenance for the TIA-funded equipment for a ten-year term.  In May of 2021, the Company and the U.S. government amended the TIA agreement to include two additional assembly lines and additional controlled environment space.  

The Company has received all equipment, has completed all property construction required by the TIA, and all reimbursement requests have been submitted.  No further amounts for expansion under the TIA are expected to be submitted or collected.

At the request of the US government, the TIA was transferred to a successor agreement, identified as Other Transaction Agreement in April 2023.  Such agreement contains no additional requirements, and, for the purposes of this report, the agreement shall continue to be referred to herein as the “TIA”.  The successor agreement governs ongoing terms established by the TIA until June 30, 2030, which includes maintenance of equipment, availability of capacity, and US government preference in the event of a public health emergency.

Under the TIA, reimbursable amounts are reflected as Other long-term liabilities on the Balance Sheets until the time the deferred income can be systematically amortized over a period matching the useful life of the purchased assets.  Other long-term liabilities from the TIA were $68,288,918 and $74,439,649 at March 31, 2024 and 2023, respectively.

8.    COMMITMENTS AND CONTINGENCIES

On November 7, 2019, the Company filed a lawsuit in the 44th District Court of Dallas County, Texas (No. DC-19-17946) against Locke Lord, LLP and Roy Hardin in connection with their legal representation of the Company in its previous litigation against Becton, Dickinson and Company ("BD"). The Company alleged that the defendants breached their fiduciary duties, committed malpractice, and were negligent in their representation of the Company. The Company seeks actual and exemplary damages, disgorgement, costs, and interest.  On September 2, 2022, the Company filed a Second Amended Petition alleging legal malpractice and negligence.  On February 20, 2024, the Defendants filed another Motion for Summary Judgment on the Company’s remaining claim of legal malpractice. A hearing on that Motion for Summary Judgment was held on April 18, 2024 and an order denying Defendants’ Motion was signed May 10, 2024.  A new trial date has not been set yet.

9.    BUSINESS SEGMENT

The Company does not operate in separate reportable segments. Shipments to international customers generally require a prepayment either by wire transfer or an irrevocable confirmed letter of credit.  The Company does extend credit to international customers on some occasions depending upon certain criteria, including, but not limited to, the credit worthiness of the customer, the stability of the country, banking restrictions, and the size of the order.  All transactions are in U.S. currency.

Revenues by geography are as follows:

Three Months Ended

Three Months Ended

    

March 31, 2024

    

March 31, 2023

    

U.S. sales

$

6,641,168

$

5,423,448

North and South America sales (excluding U.S.)

 

154,633

 

4,773,320

Other international sales

 

803,562

 

804,334

Total sales

$

7,599,363

$

11,001,102

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Long-lived assets by geography are as follows:

    

March 31, 2024

    

December 31, 2023

Long-lived assets

U.S.

$

87,653,114

$

89,237,030

International

4,162,336

4,241,491

Total

$

91,815,450

$

93,478,521

10.  DIVIDENDS

A payment of $39,050 was paid within one month of each quarter’s end in 2023 and in January and April of 2024 to Series II preferred shareholders.  Series III preferred shareholders were paid a cash dividend of $19,061 within one month of each remaining quarter’s end in 2023. A payment of $18,561 was made to Series III shareholders in January and April of 2024.

In June 2021, the Board of Directors approved payments to its Series II, Series III, and former Series IV and Series V Class B Preferred Shareholders in the cumulative amount of $5,056,945 representing all current dividends, dividends in arrears, as well as dividends still owed to shareholders who converted their preferred stock in the past.  The dividends were paid on July 22, 2021 to all shareholders who had been contacted and confirmed as the rightful owner entitled to payment. The Company has not yet established contact with all former shareholders, most of whom converted their shares prior to 2001. The Company is continuing its efforts to establish contact with approximately 90 former shareholders who are entitled to approximately $1.4 million. This, along with the current declared dividends, are reflected in Dividends payable on the Condensed Balance Sheets.

11.  PRIVATE EXCHANGES AND REDEMPTION

In 2020, the Company entered into several agreements with shareholders to purchase its outstanding Class B Convertible Preferred Stock.  The consideration for these purchases consisted of both cash and Common Stock.  In addition, in each such transaction, the preferred shareholder counterparty waived all rights to unpaid dividends in arrears.  The aggregate cash consideration equaled $3,786,000, of which $482,670 was paid in 2020.  The balance was paid in equal installments of $1,101,110 over a three-year period which began in February 2021 and the last payment was made in February 2023.

Effective November 2023, the Company entered into a privately negotiated transaction with a preferred shareholder to redeem 2,000 shares of Series III Class B Stock for a purchase price equal to approximately $6 thousand.

12.  TREASURY STOCK

Treasury share purchases are accounted for under the cost method and are included as a component of treasury stock in the Company’s balance sheets.

Of the 100 million authorized shares of Common Stock, 34,024,304 shares were issued and 29,937,159 shares outstanding as of both December 31, 2023 and March 31, 2024.

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

FORWARD-LOOKING STATEMENT WARNING

Certain statements included by reference in this filing containing the words “could,” “may,” “believes,” “anticipates,” “intends,” “expects,” and similar such words constitute forward-looking statements within the meaning of the 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 future results, performance, or achievements expressed or implied by such forward-looking statements. Such

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factors include, among others: material changes in demand; potential tariffs; our ability to maintain liquidity; our maintenance of patent protection; our ability to maintain favorable third party manufacturing and supplier arrangements and relationships; foreign trade risk; our ability to access the market; production costs; the impact of larger market players in providing devices to the safety market; and any other factors referenced in Item 1A. Risk Factors in Part II. Given these uncertainties, undue reliance should not be placed on forward-looking statements.

MATERIAL CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We have been manufacturing and marketing our products since 1997. Syringes comprised 84.0% of our sales in the first three months of 2024.  EasyPoint® products accounted for 9.2% and other products, including our IV safety catheter and blood collection products, were 6.8% of our sales in the first three months of 2024.

Our products have been and continue to be distributed nationally and internationally through numerous distributors. Some of our popular syringe products provide low dead-space.  Low dead-space syringes reduce residual medication remaining in the syringe after the dose has been administered.  In some instances, the low dead-space allows for additional doses of medication to be obtained from the vials.  

In 2020 and 2021, we were awarded significant orders and contracts by the U.S. government for safety syringes for COVID-19 vaccination efforts.  From 2020 through the first quarter of 2022, the U.S. government was a significant customer.  We cannot predict whether any future U.S. government orders may occur.

In 2020, we entered into a Technology Investment Agreement (“TIA”) with the U.S. government which provided significant government funding for expanding our domestic production of needles and syringes to meet ongoing and future U.S. COVID-19 medical countermeasures demands.  Recent additions of manufacturing equipment and facilities have increased our production capacity and our overhead costs.  There are currently no plans to further expand our production or administrative facilities, nor do we have material commitments for additional manufacturing equipment purchases. At the request of the US government, the TIA was transferred to a successor agreement, identified as Other Transaction Agreement in April 2023.  Such agreement contains no additional requirements, and, for the purposes of this report, the agreement shall continue to be referred to herein as the “TIA”.  The successor agreement governs ongoing terms established by the TIA until June 30, 2030, which includes maintenance of equipment, availability of capacity, and US government preference in the event of a public health emergency.

The U.S. government orders as well as the TIA are material events particular to the COVID-19 pandemic and are not indicative of future operations.

Although we have recently experienced certain cost increases in raw materials, those costs primarily affected our domestic manufacturing because the finished goods we purchased from China (being 90.4% of our products) are subject to a long-term fixed price contract. Other factors that could affect our unit costs include increases in tariffs, supplier cost increases, and changing production volumes.  Increases in costs may not be recoverable through price increases of our products.

We believe domestic customers have retained products provided for vaccination purposes in inventory, leading to a decrease in our 2023-2024 domestic sales.  Customers have reported that demand was diminished due to their remaining syringe inventory. It is difficult to estimate how much of the remaining inventory might still remain in the market.

As detailed in Note 4 to the financial statements, we held $36.6 million in debt and equity securities as of March 31, 2024, which represented 20.8% of our total assets.

On July 13, 2023, we received a refund of previously paid estimated state tax payments of approximately $8 million.  The $8 million was recorded as Income Taxes Receivable on the Balance Sheets at December 31, 2022 through June 30, 2023.

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Historically, unit sales have increased during the flu season. From approximately 2020-2022, the effect of flu season sales was less impactful due to the dramatic increase in sales attributable to COVID-19 vaccinations.  Seasonal trends may now be follo