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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2021

or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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

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

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Common

RVP

NYSE American LLC

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

Preferred Stock

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes     No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes     No  

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 and post 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   

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

The aggregate market value of the common equity held by non-affiliates as of June 30, 2021, was $200,031,281, assuming a closing price of $11.56 and outstanding shares held by non-affiliates of 17,303,744.

APPLICABLE ONLY TO REGISTRANTS 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 Section 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 REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of March 11, 2022, there were 33,123,205 shares of our Common Stock outstanding, excluding treasury shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement filed on an even date herewith for the Annual Meeting of Shareholders to be held May 10, 2022 are incorporated by reference into Part III hereof.

Table of Contents

RETRACTABLE TECHNOLOGIES, INC.

FORM 10-K

For the Fiscal Year Ended December 31, 2021

TABLE OF CONTENTS

PART I

    

 

 

Item 1. Business

2

Item 1A. Risk Factors

6

Item 1B. Unresolved Staff Comments

9

Item 2. Properties

10

Item 3. Legal Proceedings

10

Item 4. Mine Safety Disclosures

10

 

 

PART II

 

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

10

Item 6. Selected Financial Data

12

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

12

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

18

Item 8. Financial Statements and Supplementary Data

F-1

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

19

Item 9A. Controls and Procedures

19

Item 9B. Other Information

19

Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

20

 

 

PART III

 

 

Item 10. Directors, Executive Officers and Corporate Governance

20

Item 11. Executive Compensation

20

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

20

Item 13. Certain Relationships and Related Transactions, and Director Independence

20

Item 14. Principal Accounting Fees and Services

20

 

 

PART IV

 

 

Item 15. Exhibits, Financial Statement Schedules

21

Item 16. Form 10-K Summary

23

SIGNATURES

24

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PART I

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 factors include, among others, the impact of COVID-19 on all facets of logistics and operations, as well as costs, our ability to scale up production volumes in response to an increase 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, specifically Becton, Dickinson and Company ("BD"), in providing devices to the safety market, and other factors referenced in Item 1A. Risk Factors. Given these uncertainties, undue reliance should not be placed on forward-looking statements.

Item 1. Business.

DESCRIPTION OF BUSINESS

General Development of Business

Retractable Technologies, Inc. was incorporated in Texas in 1994. Our business is the manufacturing and marketing of safety medical products (predominately syringes) for the healthcare industry. We have manufacturing facilities in Little Elm, Texas and use manufacturers in China as well. Our syringes are well-suited for administering vaccinations and our revenues for 2021 materially increased over prior years due to demand during the COVID-19 pandemic. In 2020 and 2021, we increased our revenues by 95.9% and 130.1%, respectively, over the prior years. Our $59.4 million revenues in the fourth quarter of 2021 represent an 85.8% increase over the same quarter in the prior year and a 94.7% increase in units sold.  Our principal customer was the U.S. government which purchased products representing 60.3% ($113.7 million) of our revenues in 2021.

We increased our domestic production in 2020 and in 2021, primarily due to the increased demand brought about by the COVID-19 pandemic and resulting U.S. government delivery orders. We have been working to increase our manufacturing capacity in Little Elm, Texas, funded in part by the 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 (“TIA”). The TIA, as amended, calls for $81.0 million in spending by the U.S. government to purchase additional manufacturing equipment, related ancillary equipment, and an increase in our production facility floorspace.  At our own expense, we constructed a new warehouse onsite for housing finished goods and raw materials to be used in the manufacturing process.  In addition, we have increased our workforce significantly to meet the increased production needs and to administer the expansion of our facilities and the increase in manufacturing equipment, as well as to provide support personnel. The expansion efforts represent a significant commitment in terms of financial and technical resources.

Description of Business

Our dominant revenue-generating products are our injection devices (syringes and needles). Such products are marketed under the VanishPoint®, Patient Safe®, and EasyPoint® brands. We have only one reporting segment. Most of our products incorporate a feature whereby our needles retract which is a safety feature designed to protect healthcare workers from needlestick injuries. Our VanishPoint® 1mL syringes meet the criteria set by pharmaceutical manufacturers for low dead space, which results in a reduction of wasted medication caused by residual medication remaining in the syringe after a dose has been administered. In some instances, the low dead space allows for additional doses to be obtained from a medication vial.

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In 2021, the U.S. government was a significant customer due to efforts to vaccinate the U.S. population against COVID-19. On May 1, 2020, we received an order from the Department of Health and Human Services to supply certain automated safety syringes for $83.8 million, plus $10 million in expedited freight costs. The period of performance ended March 2022. In February 2021, we received a new contract from the Department of Health and Human Services for additional safety syringes.  As amended, the contract represented a total of $147 million in revenues and freight costs plus additional reimbursable freight costs of $6 million. As of December 31, 2021, we recorded total sales of $113.7 million to the U.S. government, representing 60.3% of our overall revenues for 2021.

During 2021, we also continued to provide products to our existing and new private healthcare customers. Our growth in sales in 2021 was predominantly driven by demand for syringes for COVID-19 vaccines and flu vaccines.

Our goal is to become a leading provider of safety medical products. Our principal products were designed to protect healthcare workers, patients, and others from needlestick injuries, cross-contamination through reuse, and reduce disposal costs.

VanishPoint® syringe sales have historically comprised most of our sales. VanishPoint® syringe sales were 85.3%, 84.0%, and 93.6% of our revenues in 2019, 2020, and 2021. EasyPoint® products accounted for 5.1% of sales in 2021.

We currently have under development additional safety products that add to or build upon our current product line offering. Notwithstanding the foregoing, our primary focus over the last year has centered on providing existing products to meet demand related to COVID-19 vaccinations.

Our products are sold to and used by healthcare providers primarily in the U.S. (with 11.1% of revenues in 2021 generated from sales outside the U.S.).

In years not dominated by direct sales to the U.S. government, representatives of group purchasing organizations (“GPOs”) and purchasing representatives (rather than the end-users of the product) make the vast majority of decisions relating to the purchase of medical supplies. The GPOs and larger manufacturers often enter into contracts which can prohibit or limit entry in the marketplace by competitors.

We distribute our products throughout the U.S. through general line and specialty distributors. We also use international distributors. We have developed a national direct marketing network in order to market our products to health care customers and their purchaser representatives.

Sources and Availability of Raw Materials

Our product components, including needle adhesives and packaging materials, are purchased from various suppliers. There is no current scarcity of such materials or such suppliers.

Intellectual Property

Intellectual property rights, particularly patent rights, are material to our business. The patent rights are jointly owned by the Company and Thomas J. Shaw, our founder and CEO, and have varying expiration dates. Under the terms of an exclusive license agreement that has been in effect since 1995, the Company is exclusively licensed to use the patent rights held by Mr. Shaw, and Mr. Shaw generally receives a 5% royalty on gross sales of products subject to the license and he receives 50% of the royalties paid to the Company by certain sublicensees of the technology subject to the license.

Recent and expected modifications to our VanishPoint® syringes will effectively cause the modified VanishPoint® syringes products to have extended patent expiration dates. Following the expiration of patents related to the old design, competitors may attempt to copy aspects of such prior design, but not the current design. Patents related to recent modifications to the VanishPoint® syringes and core technology of the VanishPoint® syringes will expire during the years 2028 through 2032. Other patent applications covering inventions applicable to the VanishPoint® syringes are pending.

The Company has unexpired patents which relate to the EasyPoint® technology and other products as well.

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The Company has registered the following trade names and trademarks for our products: VanishPoint®, EasyPoint®, Patient Safe®, VanishPoint® logos, RT and design, the VanishPoint® and design, the spot design and the Company slogans “The New Standard for Safety” ® and “We Make Safety Safe” ®.

Seasonality

Historically, unit sales have increased during the flu season. Seasonal trends have been less pronounced due to demand related to the COVID-19 vaccine.

Dependence on Customers

Although our business has historically derived significant percentages of its revenues from a few customers, we do not believe that the loss of any one of these customers would have a material adverse effect on our business.  The U.S. government was a significant customer from mid-2020 through the end of 2021 in connection with its purchase of syringes for the COVID-19 vaccine.

Government Contracts

In 2020, we entered into a material contract with the U.S. government providing a significant grant and accepted the $83.8 million order under an existing contract for the sale of syringes. In February 2021, we and the Department of Health and Human Services entered into a new contract, and it placed another material order with us for syringes. All such contracts may be terminated by the U.S. government but, given that the 2020 order has been filled and the 2021 orders are nearing completion, we do not believe termination (or renegotiation) is likely.

Government Approval and Government Regulations

Compliance with government regulations represents an important part of our business.  As a manufacturer of medical devices and operating under the TIA, we are subject to stringent regulatory requirements.  In addition, we are also subject to maintain systems to monitor and report our findings to various regulatory bodies.  We are also subject to audit by those bodies and/or third parties acting as proxies to verify our compliance with such regulations. The cost of compliance can be significant in terms of financial and human resource commitments. These costs are ongoing and may become more significant if the regulatory landscape changes.

The development, manufacture, marketing, sale, promotion, and distribution of our products are subject to government regulation by the U.S. Food and Drug Administration (FDA) and similar international regulatory agencies. Regulation by various international, federal and state agencies address the development and approval to market medical products, as well as approval and supervision of manufacturing, labeling, packaging, supply chains, distribution and record-keeping.

For all products manufactured for sale in the domestic market, we have given notice of intent to market to the FDA, and the devices were shown to be substantially equivalent to the predicate devices for the stated intended use. For all products manufactured for sale in the domestic market and foreign market, we hold a Quality Management System certification to ISO 13485:2016. Additionally, for all products manufactured for sale into the applicable countries, we hold a Quality Management System certification in compliance with the Medical Device Single Audit Program (MDSAP). For all products manufactured for sale into European Union countries, we hold a Full Quality Assurance System certification to Directive 93/42/EEC Annex II (excluding section 4). All of these certifications are issued by our notified body, BSI, and are reviewed annually.

Compliance with domestic and international laws and regulations may affect our business. Among other effects, health care regulations and significant changes thereto may substantially increase the time, difficulty, and costs incurred in developing, obtaining, and maintaining approval to market, and marketing newly developed and existing products. We expect this regulatory environment will continue to require effort and investment to ensure compliance. Failure to comply could delay the release of a new product or result in regulatory and enforcement actions, the seizure or recall of a product,

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the suspension or revocation of the authority necessary for a product’s production and sale, and other civil or criminal sanctions including fines and penalties.

The regulation of data privacy and security, and the protection of the confidentiality of certain personal information (including patient health information, financial information, and other sensitive personal information), is increasing. For example, the European Union, various other countries, and various U.S. states (e.g., California) have enacted stricter data protection laws that contain enhanced financial penalties for noncompliance. Similarly, the U.S. Department of Health and Human Services has issued rules governing the use, disclosure, and security of protected health information, and the FDA has issued further guidance concerning cybersecurity for medical devices. In addition, certain countries have issued or are considering “data localization” laws, which limit companies’ ability to transfer protected data across country borders. Failure to comply with data privacy and security laws and regulations can result in business disruption and enforcement actions, which could include civil or criminal penalties.

The sale of medical products is subject to laws and regulations pertaining to health care fraud and abuse, including state and federal anti-kickback, anti-self-referral, and false claims laws in the United States.

We will continue to comply with applicable regulations of all countries in which our products are registered for sale.

We believe that we do not incur material costs in connection with compliance with environmental laws.

Competitive Conditions

Major domestic competitors include BD and Medtronic Minimally Invasive Therapies (“Medtronic,” formerly known as Covidien). Terumo Medical Corp., Smiths Medical, and B Braun are additional competitors with smaller market shares. BD and Medtronic have controlling U.S. market share; greater financial resources; larger and more established sales, marketing, and distribution organizations; and greater market influence, including long-term and/or exclusive contracts. Additionally, BD may be able to use its resources to improve its products through research or acquisitions or develop new products which may compete with our products.

We compete primarily on the basis of healthcare worker and patient safety, product performance, and quality. We believe our competitive advantages include, but are not limited to, our leadership in quality and innovation. We believe our products continue to be the most effective safety devices in today’s market. Our VanishPoint® 1mL syringes meet the criteria set by pharmaceutical manufacturers for low dead space, which results in a reduction of wasted medication caused by residual medication remaining in the syringe after a dose has been administered. In some instances, the low dead space allows for additional doses to be obtained from a medication vial. Our syringe products include passive safety activation, require less disposal space, and are activated while in the patient, reducing exposure to the contaminated needle. Our price per unit is competitive or even lower than the competition once all the costs incurred during the life cycle of a syringe are considered. Such life cycle costs include disposal costs, testing and treatment costs for needlestick injuries, and treatment for contracted illnesses resulting from needlestick injuries.

EasyPoint® retractable needles offer unique safety benefits not found in other commercially available safety needles.  Manually activated safety needles that compete with EasyPoint® must be removed from the patient, exposing the contaminated needle prior to activation of the manual safety mechanism.  EasyPoint® needles allow for activation of the automated retraction mechanism while the needle is still in the patient, reducing exposure to the contaminated needle and effectively reducing the risk of needlestick injuries.  EasyPoint® retractable needles are compatible with Luer-fitting syringes, including pre-filled syringes.  In addition, EasyPoint® retractable needles may be activated with fluid in the syringe, making it applicable for aspiration procedures such as blood collection.

Employees

As of March 11, 2022, we had 235 employees. 233 of such employees were full time employees. We provide equal employment opportunities to all employees and applicants for employment without regard to race, color, religion, gender, national origin, age, disability, marital status, ancestry, veteran status, workers’ compensation status or any other

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characteristic protected by federal, state, or local law. We have adopted a policy of zero tolerance for any form of unlawful discrimination or retaliation. In 2021, we increased wages considerably, particularly for our entry-level employees, in order to compete for labor.

Available Information

We make available, free of charge on our website (www.retractable.com), our Form 10-K Annual Report and Form 10-Q Quarterly Reports and Current Reports on Form 8-K (and any amendments to such reports) as soon as reasonably practical after such reports are filed.

Item 1A. Risk Factors.

You should carefully consider the following material risks facing us. If any of these risks occur, our business, results of operations, or financial condition could be materially affected.

We Are Challenged by Uncertainties in Obtaining and Enforcing Intellectual Property Rights

Our main competitive strength is our technology. We are dependent on patent rights, and if the patent rights are invalidated or circumvented, our business would be adversely affected. Patent protection is considered, in the aggregate, to be of material importance in the design, development, and marketing of our products.

VanishPoint® syringes comprised 93.6% of sales in 2021. When the patents of the VanishPoint® syringes and other products expire, we may experience a significant and rapid loss of sales, and our competitive position in the marketplace may weaken if other competitors use our technology. Such occurrences could have a material adverse effect on profitability.

We do not maintain patent or trademark protection in all foreign countries, but, where possible, have taken steps to protect our patents and trademarks in those countries where we market our products or where we believe other manufacturers are most likely to attempt to replicate our technology. Our lack of patent and trademark protection in certain foreign countries heightens the risk that our designs may be copied by a competitor in those countries.

We Are Vulnerable to New Technologies

Because we have a narrow focus on particular product lines and technology (currently, predominantly retractable needle products), we are vulnerable to the development of superior competing products and to changes in technology which could eliminate or reduce the need for our products. If a superior technology is created, the demand for our products could greatly diminish.

Our Competitors Have Greater Resources

Our competitors have greater financial resources, larger and more established sales and marketing and distribution organizations, and greater market influence, including long-term contracts. These competitors may be able to use these resources to improve their products through research and acquisitions or develop new products, which may compete more effectively with our products. If our competitors choose to use their resources to create products superior to ours, we may be unable to sell our products and our ability to continue operations would be weakened.

Operations May Be Affected by Foreign Trade Policy

We are subject to risks associated with foreign trade policy. In 2021, we used Chinese manufacturers to produce 92% of our products. However, in accordance with the requirements of the TIA, we are currently working to expand our U.S. manufacturing facility.

In the event that we become unable to purchase such product from our Chinese manufacturers, we would need to find an alternate manufacturer for the blood collection set, IV catheter, Patient Safe® syringe, 0.5mL insulin syringe, 0.5mL

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autodisable syringe, and 2mL, 5mL, and 10mL syringes and we would increase domestic production for the 1mL and 3mL syringes. Even with increased domestic production, we may not be able to avoid a disruption in supply.

Trade protection measures, including tariffs, and/or changes to import or export requirements could materially adversely impact our operations. We cannot predict the impact of potential changes to U.S. foreign trade policy. Additionally, we derive 11.1% of our revenues from international sales. International sales, particularly in emerging market countries, are further subject to a variety of regulatory, economic, and political risks as well.

We Are Controlled by One Shareholder

Thomas J. Shaw, our President and Chief Executive Officer, has investment or voting power over a total of 46.9% of the outstanding Common Stock as of March 11, 2022. Mr. Shaw therefore has the ability to direct our operations and financial affairs and significant influence to elect members of our Board of Directors. His interests may not always coincide with the Company’s interests or the interests of other stockholders. This concentration of ownership, for example, may have the effect of delaying, deferring, or preventing a change in control, impeding a merger, consolidation, takeover, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could materially adversely affect the market price of our Common Stock. Mr. Shaw’s rights under the Technology License Agreement, as the owner of the technology we produce, present similar conflicts of interest.

Defensive Measures to Deter Hostile Takeovers

On November 16, 2021, we and Mr. Shaw entered into the Third Amendment to Technology License Agreement (the “Amendment”). The Amendment expands the scope of the Technology License Agreement and provides additional protection to the parties in the event of a Hostile Takeover, as defined by the Amendment. Under the Amendment, under certain conditions, Mr. Shaw is granted the unilateral right to terminate the Technology License Agreement or cancel or convert a license thereunder from exclusive to nonexclusive following a Hostile Takeover.

Additionally, as a public Texas corporation, we are generally prohibited from entering into a business combination with a person who acquires twenty percent or more of our stock for three years unless either: (1) the combination or acquisition is pre-approved by our Board; or (2) the combination is approved by affirmative vote of the shareholders of at least two-thirds of the outstanding voting shares entitled to vote, excluding the affiliated shareholder.  As such, independent of the rights granted to Mr. Shaw under the Amendment, as owner of 46.9% of our stock and Chairman of the Board, Mr. Shaw has considerable influence on all business combination decisions.  

Any Disruption in our Suppliers’ Operations or Timely Availability of Shipments From our Third-Party Freight Carriers, Could Disrupt our Ability to Provide Product to our Customers in a Timely Manner

Our operations are dependent upon timely delivery of finished goods from our Chinese manufacturers and timely delivery of sufficient quantities of components and raw materials for domestic manufacturing. The COVID-19 pandemic has adversely impacted worldwide supply chains and disruptions and delays in the ability of our third-party freight carriers to transport goods continues to be a challenge.

Any continued delays with freight carriers could cause us to not be able to meet customer demand, which could materially and adversely affect our results of operations and cash flows.

Inflationary Price Pressures and Uncertain Availability of Commodities, Raw Materials, Utilities, Labor or Other Inputs Used by us and our Suppliers, or Instability in Logistics and Related Costs, Could Negatively Impact our Profitability

 

Increases in the price of commodities, raw materials, utilities, labor or other inputs that we or our suppliers use in manufacturing and supplying products, components and parts, along with logistics and other related costs, may lead to higher production and shipping costs for our products, parts, and components. Further, increasing global demand for, and uncertain supply of, such materials could disrupt our or our suppliers’ ability to obtain such materials in a timely manner

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to meet our supply needs and/or could lead to increased costs. A material increase in the cost of inputs to our production could lead to higher costs for our products and could negatively impact our operating results.

Our Stock Has Recently Experienced Significant Price Fluctuation

Our stock price experienced significant fluctuation during 2021 and may continue to be unpredictable.  Our stock price fluctuated in 2021 from a high in February of $21.50 per share to a low price in December of $6.57.  As of March 11, 2022, the stock price was $4.52 per share.  Noting that the stock appeared undervalued at the then-current price of $10 per share, we entered into a one-year repurchase plan effective June 2021 for the purchase of up to $10 million of our Common Stock.  Under the plan, 899,899 shares were purchased as of March 11, 2022 for an aggregate purchase price of approximately $7.2 million.  Our stock repurchase history may be accessed at retractable.com/stock-repurchase.

We Face Inherent Product Liability Risks

As a manufacturer and provider of safety needle products, we face an inherent business risk of exposure to product liability claims. Additionally, our success depends on the quality, reliability, and safety of our products and defects in our products could damage our reputation. If a product liability claim is made and damages are in excess of our product liability coverage, our competitive position could be weakened by the amount of money we could be required to pay to compensate those injured by our products. In the event of a recall, we have recall insurance.

Our Business May Be Affected by Changes in the Health Care Regulatory Environment

In the U.S. and internationally, government authorities may enact changes in regulatory requirements, reform existing reimbursement programs, and/or make changes to patient access to health care, all of which could adversely affect the demand for our products and/or put downward pressure on our prices. Future healthcare rulemaking could affect our business. We cannot predict the timing or impact of any future rulemaking or changes in the law.

We May Experience Losses in Our Investment Account

Our investment portfolio is subject to market risk. As a result, the value and liquidity of our cash equivalents and marketable securities could fluctuate substantially. Likewise, our other income and expenses could vary materially depending on gains or losses realized on the sale or exchange of investments and other factors. Increased volatility in the financial markets and overall economic uncertainty could increase the risk that actual amounts realized on our investments may differ from the fair values currently assigned to them. Because 12.7% of our current assets are invested in the market, fluctuations in market values could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

Health Crises Could Have an Adverse Effect on Our Business

Particularly during 2020, several states and local jurisdictions imposed, and others in the future may impose, “shelter-in-place” orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Although our manufacturing facility has continued to operate during the 2020-2022 COVID-19 pandemic, we continue to monitor the evolving situation and cannot guarantee that the situation would be the same for any future pandemic. In the future, we may elect or be required to close temporarily which would result in a disruption in our activities and operations. Our supply chain, including transportation channels, may be impacted by any such restrictions as well. Any such disruption could impact our sales and operating results.

Widespread health crises also negatively affect economies which could affect demand for our products. With significant sales directly to the U.S. government, our risk was somewhat mitigated for the 2021 year. However, in the event of a resurgence of this disease or in the case of any future pandemic, there is no guarantee that revenues from syringes needed for vaccines would offset the effects to our business of a global economic decline.

Health systems and other healthcare providers in our markets that provide procedures that use our products have suffered financially and operationally and may not be able to return to pre-pandemic levels of operations. Travel and

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import restrictions may also disrupt our ability to manufacture or distribute our devices. Any import or export or other cargo restrictions related to our products or the raw materials used to manufacture our products could restrict our ability to manufacture and ship products and harm our business, financial condition, and results of operations.

Our key personnel and other employees could still be affected by COVID-19 or any future pandemic, which could affect our ability to operate efficiently.

Disruption of Critical Information Systems or Material Breaches in the Security of Our Systems Could Harm Our Business, Customer Relations, and Financial Condition

Information technology helps us operate efficiently, interface with customers and suppliers, maintain financial accuracy and efficiency, and accurately produce our financial statements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. If our data management systems do not effectively collect, store, process, and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows, and the timeliness with which we report our internal and external operating results. Third parties may attempt to fraudulently induce employees or customers into giving away sensitive information, which may in turn be used to access our information technology systems. In addition, unauthorized persons may attempt to hack into our systems to obtain our confidential or proprietary information or confidential information we hold on behalf of third parties. If the unauthorized persons successfully hack into or interfere with our system, we may experience a negative impact to our business and reputation. We have programs in place to detect, contain, and respond to data security incidents, and we make ongoing improvements to our systems in order to minimize vulnerabilities, in accordance with industry and regulatory standards. However, we may not be able to anticipate and prevent these intrusions or mitigate them when and if they occur. We also rely on external vendors to supply and/or support certain aspects of our information technology systems. The systems of these external vendors may contain defects in design or manufacture or other problems that could unexpectedly compromise information security of our own systems, and we are dependent on these third parties to deploy appropriate security programs to protect their systems. It is possible for such vulnerabilities to remain undetected for an extended period, including several years or longer. The costs to us to eliminate or alleviate network security problems, bugs, viruses, worms, ransomware and other malicious software programs, and security vulnerabilities could be significant. Our efforts to address these problems may not be successful and could result in unexpected interruptions, delays, cessation of service, and harm to our business operations. Depending on the type of breach, we could also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

Illegal Distribution and Sale by Third Parties of Counterfeit Versions of Our Products Could Have a Negative Impact

Third parties may illegally distribute and sell counterfeit versions of our products which do not meet our rigorous manufacturing and testing standards. Our reputation and business could suffer harm as a result. In addition, diversion of products into other channels may result in reduced revenues.

General Risk Factors

We face risk factors common to other U.S. businesses. We could be subject to complex and costly regulation. Our business could suffer if we or our suppliers encounter manufacturing problems or disruptions to transportation channels. We could be subject to risks associated with doing business outside of the U.S, including risks associated with global economic, regulatory, or political changes, or health crises. Current or worsening economic conditions may adversely affect our business and financial condition.

Item 1B. Unresolved Staff Comments.

Not applicable and none.

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Item 2. Properties.

Our headquarters are located at 511 Lobo Lane, on 35 acres, which we own, overlooking Lake Lewisville in Little Elm, Texas. The headquarters are in good condition and houses our administrative offices and manufacturing facility. The manufacturing facility produced approximately 8% of the units that were manufactured in 2021. As a result of recent expansions, we expect to have significant additional domestic production capacity.

A loan in the original principal amount of approximately $4,210,000 is secured by our land and buildings. See Note 8 to our financial statements for more information.

In the opinion of Management, the property and equipment are suitable for their intended use and are adequately covered by an insurance policy.

Item 3. Legal Proceedings.

Please refer to Note 10 to the financial statements for a complete description of all legal proceedings.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

MARKET INFORMATION

Our Common Stock has been listed on the NYSE American (or its predecessor entities) under the symbol “RVP” since May 4, 2001.  The closing market price on March 11, 2022 was $4.52 per share.

SHAREHOLDERS

As of March 11, 2022, there were 34,023,104 shares of Common Stock issued, of which 899,899 shares were held in treasury.  There were 159 shareholders of record, not including Cede & Co. participants or beneficial owners thereof.

DIVIDENDS

We have not ever declared or paid any dividends on the Common Stock. We have no current plans to pay any cash dividends on the Common Stock.

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information relating to our equity compensation plans as of December 31, 2021:

Equity Compensation Plan Information

Weighted 

Number of securities

average exercise 

 remaining available for 

Number of securities 

price of 

future issuance under 

to be issued upon 

outstanding 

equity compensation 

exercise of 

options, 

plans (excluding 

outstanding options, 

warrants and

securities reflected in 

warrants and rights

 rights

column(a))

Plan category

    

(a)

    

(b)

    

(c)

Equity compensation plans approved by security holders

 

1,523,050

$

11.76

 

650,000

Total

 

1,523,050

$

11.76

 

650,000

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total return for our Common Stock (RVP) from December 31, 2016 to December 31, 2021, to the total returns for the Russell Microcap® and Becton, Dickinson and Company (or “BDX”), a peer issuer. The graph assumes an investment of $100 in the aforementioned equities as of December 31, 2016, and that all dividends are reinvested.

Graphic

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

ISSUER PURCHASES OF EQUITY SECURITIES

    

    

Total Number of 

Approximate

Total  

Shares Purchased as 

Dollar Value of

Number of 

Average Price 

Part of Publicly 

Shares that May Yet Be 

 Shares

Paid Per  

Announced Plans or 

Purchased Under the  

Period

Purchased

Share

Programs

Plans or Programs

October 1, 2021 through October 31, 2021

86,340

$

9.83

86,340

$

6,311,709

November 1, 2021 through November 30, 2021

91,342

    

$

8.84

    

91,342

$

5,504,151

December 1, 2021 through December 31, 2021

105,666

$

7.26

105,666

$

4,737,499

Total

283,348

$

8.55

283,348

(1)These shares were purchased pursuant to our Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, announced on June 7, 2021.  On June 4, 2021, the Board of Directors authorized the repurchase of up to $10 million of Common Stock subject to Rule 10b-18 limitations as well as certain market value constraints specified in the plan.  Notwithstanding the terms of the plan, the exact dollar amount and number of shares which may be purchased pursuant to the plan is difficult to predict.  The plan will expire on June 18, 2022 at the latest.

Item 6. Reserved.

Not required.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

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 factors include, among others, the impact of COVID-19 on all facets of logistics and operations, as well as costs, our ability to scale up production volumes in response to an increase 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, specifically Becton, Dickinson and Company ("BD"), in providing devices to the safety market, and other factors referenced in Item 1A. Risk Factors. Given these uncertainties, undue reliance should not be placed on forward-looking statements.

Overview

We have been manufacturing and marketing our products since 1997. VanishPoint® syringes comprised 93.6% of our sales in 2021. EasyPoint® products accounted for 5.1% of sales in 2021. We also manufacture and market a blood collection tube holder, IV safety catheter, and VanishPoint® Blood Collection Set.

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

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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.  

On May 1, 2020, we were awarded a delivery order under an existing contract by the Department of Health and Human Services of the United States to supply automated retraction safety syringes for COVID-19 vaccination efforts, which order was in the amount of $83.8 million plus $10 million in expedited freight costs.  The period of performance for this order ended in March 2022.

The Department of Health and Human Services awarded us another contract on February 12, 2021 to supply low dead-space safety syringes for COVID-19 vaccination efforts. The base price for the contract and purchase order was $54.2 million for the five-month base period of performance (February 15, 2021 to July 14, 2021).  We received notice that the contract would be extended for seven additional months beyond the base period of performance with a total contract price during such period of approximately $92.8 million plus an additional $6 million in air freight costs. To date, we have received a commitment to exercise the first four option periods which extended through the end of December 2021. The remaining three periods are open but have not yet - and may not - materialize.  For each period, the freight reimbursement cost is included in total overall contract value and is estimated at approximately 25% of the overall price.

Our sales under both of the foregoing orders from the U.S. government were $113.7 million during the year ended December 31, 2021, representing 60.3% of our total sales for the year. Both of the above-mentioned orders as well as the TIA from the U.S. government are material events particular to the COVID-19 pandemic and may not be indicative of future operations.  We have not received new orders beyond the 2021 order option periods.  While we continue to work with the Department of Health and Human Services, significant new orders are uncertain. In the absence of new U.S. government orders and/or an increase in our domestic orders, we would expect our revenues to be materially affected. The addition of manufacturing equipment and facilities will greatly increase our production capacity. If future orders are not placed by the U.S. government and orders from new and existing customers do not materialize, we would have significant excess productive capabilities.

Effective July 1, 2020, we entered into a 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) for $53.7 million in government funding for expanding our domestic production of needles and syringes to meet ongoing and future U.S. COVID-19 medical countermeasures demands.  Effective May 12, 2021, we entered into an amendment to the TIA providing an additional $27.4 million in funding to add 12,500 square feet of controlled environment and two additional assembly lines to increase our existing domestic manufacturing capabilities. The amended completion date is August 29, 2022.  As of March 8, 2022, we have negotiated contracts for the purchase of automated assembly equipment, molds, and molding equipment, as well as portions of auxiliary equipment, for approximately $63.8 million.  We have also received a temporary certificate of occupancy for the $6.7 million 27,800 square foot controlled environment which was funded by the U.S. government under the original agreement.  In addition, we have substantially completed the additional controlled environment space required under the May 12, 2021 amendment.  Finally, we have received the certificate of occupancy for the new $5.9 million 55,000 square foot warehouse which is our financial responsibility.

As a result of the COVID-19 pandemic, we have implemented certain safety precautions at our facility to reduce the risk of the potential spread of the novel coronavirus. All of our employees are required to be vaccinated.  We continue to monitor the evolving situation and will work to further mitigate risks to staff and to customers. We are continuing to evaluate the ever-changing circumstances surrounding this pandemic as it relates to our ability to continue to source materials and products, maintain a workforce, and operate our business effectively and efficiently. We have faced and continue to deal with the logistical challenges of sourcing raw materials and finished goods, particularly finished goods from China.  We utilize multiple transportation providers to ensure we can meet our delivery schedules, but we are subject to the global supply chain and its complexities. To date, the freight challenges have neither caused a loss of customers nor a cessation of production.

On April 17, 2020, we entered into the PPP Loan in the principal amount of $1.4 million in favor of Independent Bank pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act, administered by the U.S. Small Business Administration (“SBA”). On May 13, 2021, we were informed that the SBA

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granted our request for loan forgiveness for the entire original principal amount and accrued interest, for a total of $1.4 million.

We have entered into an agreement to expand our existing administrative offices by 14,000 square feet. We currently expect that the cost of expansion will be approximately $5.6 million. The expected substantial completion date for the new office space is October 2022. To date, we have spent approximately $1 million.

As detailed in Note 4 to the financial statements, we held $13.3 million in debt and equity securities as of December 31, 2021, which represented 12.7% of our current assets. We continually monitor our invested balances.

In response to, among other factors, the global COVID-19 pandemic, our delivery orders from the U.S. government, and the TIA, employee headcount and related salary and benefits costs have increased significantly. As of December 31, 2021, the Company employed approximately 239 full-time, part-time, and temporary employees. This represents approximately a 44.0% increase in our workforce since December 31, 2020.

On March 16, 2021, the Board approved the 2021 Stock Option Plan (the “Plan”) and set aside and reserved 2,000,000 shares of Common Stock for issuance pursuant to the Plan. The Plan was approved by the shareholders at the May 11, 2021 shareholder meeting. The Plan provides for the granting of incentive stock options and non-qualified stock options at a price equal to at least 100% of the fair market value of the Company’s Common Stock as of the date of grant. Participants in the Plan may include employees, consultants, and non-employee Directors. On March 16, 2021, the Compensation and Benefits Committee approved option grants to purchase 1,000,000, 250,000, and 100,000 shares of Common Stock to our chief executive officer, general counsel, and chief financial officer, respectively. These shares will vest in their entirety three years from the grant date.

On March 16, 2021, the Compensation and Benefits Committee modified the annual salaries of our chief executive officer, general counsel, and chief financial officer to $1,000,000, $400,000, and $300,000, respectively. Such salaries were retroactively effective as of January 1, 2021. On March 16, 2021, the Compensation and Benefits Committee also approved issuances of cash bonuses of $300,000, $100,000, and $100,000 to our chief executive officer, general counsel, and chief financial officer, respectively.

In addition to periodic quarterly payments of dividends to preferred shareholders as detailed in Note 12 to the financial statements, on June 4, 2021, the Board of Directors approved payment to Class B Convertible Preferred shareholders of all current dividends, dividends in arrears, as well as dividends still owed to shareholders who converted their preferred stock in the past in the total amount of $5.1 million.  

Effective June 4, 2021, we entered into a repurchase plan (the “Plan”) for the purchase of up to $10 million of our Common Stock.  Under the Plan, open market purchases of our Common Stock commenced June 18, 2021 and 899,899 shares were purchased as of March 11, 2022 for an aggregate purchase price of approximately $7.2 million.

Historically, unit sales have increased during the flu season. Seasonal trends have been less pronounced due to demand related to the COVID-19 vaccine.

Product purchases from our Chinese manufacturers have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost. In 2021, our Chinese manufacturers produced approximately 92% of our products. In the event that we become unable to purchase products from our Chinese manufacturers, we would need to find an alternate manufacturer for the blood collection set, IV catheter, Patient Safe® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes and we would increase domestic production for the 1mL and 3mL syringes and EasyPoint® needles.

In 1995, we entered into a license agreement with Thomas J. Shaw for the exclusive right to manufacture, market, and distribute products utilizing his patented automated retraction technology and other patented technology. This technology is the subject of various patents and patent applications owned by Mr. Shaw. The license agreement generally provides for quarterly payments of a 5% royalty fee on gross sales of products subject to the license and he receives fifty percent (50%) of the royalties paid to the Company by certain sublicensees of the technology subject to the license.

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We have experienced significant cost pressure with respect to transportation costs, particularly freight costs for importing products from our overseas manufacturers.  These costs contribute significantly to the cost of manufactured products and have significantly reduced our gross margins for the last half of 2021.  In addition, we have experienced an increase in raw materials costs, principally the cost of petroleum-based plastics used in our molded components.  Although we experienced certain cost increases in raw materials, those costs primarily affected our domestic manufacturing because the finished goods we purchased from China (being 92% of our products) did not change in price during 2021.  Other factors that could affect our unit costs include increases in tariffs, costs by third party manufacturers, and changing production volumes.  Increases in such costs may not be recoverable through price increases of our products.  

RESULTS OF OPERATIONS

The following discussion may contain trend information and other forward-looking statements that involve a number of risks and uncertainties. Our actual future results could differ materially from our historical results of operations and those discussed in any forward-looking statements. All period references are to our fiscal years ended December 2021 and 2020. Dollar amounts have been rounded for ease of reading.

Comparison of Year Ended

December 31, 2021 and Year Ended December 31, 2020

Domestic sales, including sales to the U.S. government, accounted for 88.9% and 90.2% of the revenues in 2021 and 2020, respectively. Domestic revenues increased 127.0% principally due to increased volumes primarily attributable to orders from the U.S. government. Domestic unit sales increased 111.3%. Domestic unit sales were 83.7% of total unit sales for 2021. Domestic unit sales excluding U.S. government orders rose approximately 28.6%. International revenues increased 158.5% due to an increase in orders from existing international customers, particularly in North (excluding the U.S.) and South America. Our international orders may be subject to significant fluctuation over time. Overall unit sales increased 116.9% and our overall revenues increased by 130.1%. Other than sales to the U.S. government, our increased sales are predominantly attributable to existing customers as well as several new smaller customers who do not operate as distributors. Our sales to the U.S. government were approximately $114 million in 2021.

Cost of manufactured product increased 107.5% principally due to an increase in unit volumes. Royalty expense increased 106.7% due to increased gross sales. Gross profit margins increased from 45.2% in 2020 to 50.6% in 2021 principally due to an overall increase in units sold to the U.S. government, accompanied by freight cost reimbursements.

Operating expenses increased 75.9% from the prior year. This is substantially due to increased headcount and other employee-related expenses, as well as consulting expenses. These increases are due to the growth in order volume and expansion activities required by the TIA.  Included in the increased employee expenses were bonuses and retroactive salary increases for the named executive officers of approximately $650 thousand, $2.2 million in other employee bonuses, and $3.7 million of share-based compensation expense.  Sales and marketing expenses increased due to employee bonuses and an increase of GPO fees on the basis of the increase in sales.

Income from operations was $72.6 million in 2021 compared to income from operations of $24.1 million in 2020. The increase was due to the increase in net revenues and resulting gross profit, primarily driven by the orders from the U.S. government.

Interest and other income decreased 65.5% from the prior year principally due to unrealized losses from our investments.  Interest expense for year ended December 31, 2021 decreased by approximately 12.7% from the prior year. The decrease is primarily attributable to the expiration of certain operating leases and an overall decrease in our loan and private stock purchase installment payments.

For the year ended December 31, 2021, we recorded a provision for income taxes of $18.9 million. For a detailed description of the determination and components of calculating the provision, please refer to Note 11 of the financial statements.

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A comparison of the results of operations for the years ended December 31, 2020 and December 31, 2019 is omitted from this discussion. Such comparison was included in our Annual Report on Form 10-K filed with the SEC on March 31, 2021 in Item 7 of Part II thereof.

LIQUIDITY AND CAPITAL RESOURCES

Discussion of Statement of Cash Flow Items

Cash flow from operations was $32.8 million in 2021, principally due to our net income for the year. The increase in cash was offset by an increase in accounts receivable, largely driven by orders from the U.S. government. There was also an increase in inventory. Additionally, we have recorded deferred taxes of $9.2 million which is material to the adjustments to total cash flow from operations. The deferred tax asset represents amounts available to reduce income taxes payable on taxable income in future years. The determination and calculation of such asset is further discussed in Note 11 of the financial statements.

Cash used by investing activities was $63.0 million for the year ended December 31, 2021 due primarily to the purchase of property, plant and equipment and the purchase of equity securities. The $58.4 million impact to cash from the purchase of fixed assets primarily reflects down payments on orders for certain assets as discussed in Note 22 to the financial statements.  Of the $58.4 million, $11.1 million was spent on additional assembly equipment and a new warehouse outside the TIA reimbursement provisions.  In 2021, we increased our invested cash position by $4.7 million.

Cash provided by financing activities was $41.8 million for the year ended December 31, 2021. This was primarily due to proceeds from the government under the TIA for down payments on our orders for fixed assets, but was offset by the repurchase of both preferred and Common Stock and the payment of dividends.  Our repurchase of common stock in the amount of $5.3 million was a significant use of cash in 2021.  As stated herein in Item 5 of Part II, the exact dollar amount to be purchased under the plan prior to the plan’s termination cannot be predicted, though the total repurchase amount is capped at $10 million.

Internal Sources of Liquidity

We have historically funded operations primarily from the proceeds from revenues, private placements, litigation settlements, and loans. We expect to fund operations going forward from revenues, cash reserves, and investments available for sale if the need to access those funds arises. We do not, and historically have not, utilized lines of credit to fund operations.

Margins

The mix of domestic and international sales affects the average sales price of our products. Generally, the higher the ratio of domestic sales to international sales, the higher the average sales price will be. Some international sales of our products are shipped directly from China to the customer. The number of units produced by us versus manufactured in China can have a significant effect on the carrying costs of Inventory as well as Cost of sales. Generally, an overall increase in units sold can positively affect our margins.  The cost of raw materials used in manufacturing and transportation costs can also significantly affect our margins. We will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in China to achieve economic benefits as well as to maintain our domestic manufacturing capability.

Cash Requirements

We believe we will have adequate means to meet our short-term needs to fund operations for at least 12 months. Besides cash reserves and expected income from operations, we also have access to our investments which may be liquidated in the event that we need to access the funds for operations.  Expected short-term uses of cash include payroll and benefits, royalty expense, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, repurchase of shares, quarterly preferred stock dividends, and other operational priorities. Our long-term plans involving material cash requirements for capital expenditures are detailed in this section below under “Capital Resources” and our

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year-end liabilities are detailed in our financial statements, including Notes 7 through 9 to the financial statements.   We believe we will have adequate means to meet our currently foreseeable long-term liquidity needs.

Contracts with the U.S. Government

As discussed above, we were awarded a material delivery order by the Department of Health and Human Services of the United States in the total amount of approximately $83.8 million, plus certain expedited freight expenses.  In February 2021, we received another material contract from the Department of Health and Human Services for additional safety syringes representing expected revenues and reimbursable freight costs of $54.2 million for a five-month period ending July 14, 2021 and approximately $92.8 million (plus an additional $6 million in air freight costs) for seven monthly option periods. To date, we have received a commitment to exercise the first four option periods which extended through the end of December 2021. As previously stated, we have not received additional orders beyond the first four option periods. While we continue to work with the Department of Health and Human Services, significant future orders are uncertain.

As discussed above, we entered into a TIA with the U.S. government for a total value of approximately $81.0 million in government funding for expanding our domestic production of needles and syringes.  As of March 8, 2022, we have received approximately $67.2 million for down payments on the purchase of certain fixed assets.  As of March 8, 2022, we have contributed approximately $5.9 million towards the completion of the new 55,000 square foot warehouse as a portion of the cost sharing agreement. The Company will continue to fund the expansion efforts primarily through providing the necessary workforce to implement the addition of new assets, as well as provide the ongoing necessary support.

External Sources of Liquidity

We received a PPP Loan in the principal amount of $1.4 million.  On May 13, 2021, we were informed that the entire original principal amount of $1.4 million would be forgiven.  

We consider our investment portfolio a source of liquidity as well. As of December 31, 2021, $13.3 million was invested in third party securities.

Capital Resources

Since the execution of the TIA on July 1, 2020, we have begun construction for significant expansion to our facilities.  As of March 8, 2022, we have received a temporary certificate of occupancy for the approximately 27,800 square feet of additional controlled environment within existing properties and a certificate of occupancy for the 55,000 square feet of new warehouse space.  We have substantially completed an additional 12,500 square feet of controlled environment space. As of March 8, 2022, we have negotiated contracts for the purchase of automated assembly equipment, molds, and molding equipment, as well as portions of auxiliary equipment, under the original TIA and the modification for approximately $63.8 million.  To fund the purchase of the automated assembly equipment, auxiliary equipment, and construction of the controlled environment, we are reimbursed by the U.S. government according to the terms in the TIA.  The TIA also allows us to request an advance of funds for larger purchases when necessary.  The expenditures which are not reimbursable from the U.S. government under the TIA are funded with cash from operations.  The capital assets funded by us under the TIA include the construction of the new warehouse as well as certain accessory equipment.

We have entered into an agreement to expand our existing administrative offices by 14,000 square feet. We currently expect that the cost of expansion will be approximately $5.6 million which we will fund from cash from operations. The expected substantial completion date for the new office space is October 2022. To date, we have spent approximately $1 million.

CRITICAL ACCOUNTING ESTIMATES

We are responsible for developing estimates for amounts reported as assets and liabilities, and revenues and expenses in conformity with U.S. generally accepted accounting principles (“GAAP”).  Those estimates require that we

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develop assumptions of future events based on past experience and expectations of economic factors.  Among the more critical estimates management makes is the estimate for customer rebates.  The amount reported as a contractual allowance for rebates involves examination of past historical trends related to our 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 we have an understanding of the relevant sales with respect to product categories, sales distribution channels, and the likelihood of contractual obligations being satisfied.  We examine the results of estimates against actual results historically and use the determination to further develop our basis for assumptions in future periods, as well as the accuracy of past estimates.  While we believe that we have sufficient historical data, and a firm basis for establishing reserves for contractual obligations, there is an inherent risk that our estimates and the underlying assumptions may not reflect actual future results.  In the event that these estimates and/or assumptions are incorrect, adjustments to our reserves may have a material impact on future results.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable to smaller reporting companies.

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Item 8. Financial Statements and Supplementary Data.

RETRACTABLE TECHNOLOGIES, INC.

FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

DECEMBER 31, 2021, 2020, and 2019

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RETRACTABLE TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

    

Page

 

 

 

Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Dallas, TX, PCAOB ID No. 659)

 

F-3

 

 

 

Financial Statements:

 

 

 

 

 

Balance Sheets as of December 31, 2021 and 2020

 

F-5

Statements of Operations for the years ended December 31, 2021, 2020, and 2019

 

F-6

 

 

 

Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020, and 2019

 

F-7

 

 

 

Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019

 

F-9

 

 

 

Notes to Financial Statements

 

F-10

 

 

 

Financial Statement Schedule:

 

 

 

 

 

Schedule II: Schedule of Valuation and Qualifying Accounts for the years ended December 31, 2021, 2020, and 2019

 

21

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

Retractable Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Retractable Technologies, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition Rebates

As described in Note 2 to the financial statements, the Company’s estimated contractual pricing allowances for rebates at December 31, 2021 is $6.2 million. The Company recognizes revenue when it has satisfied all performance obligations to the customer. 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. Once rebates are issued they are applied against the customer’s receivable balance.

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We identified management’s estimates of contractual pricing allowances for rebates as a critical audit matter because our evaluation of the Company’s methods and assumptions used in estimating the contractual pricing allowances involved especially challenging auditor judgment and required a high degree of audit effort.

The primary procedures we performed to address this critical audit matter included:

Testing management’s process for determining the estimates of contractual pricing allowances for rebates by performing the following procedures:
oObtaining an understanding of management’s process for estimating the contractual pricing allowances for rebates.
oTesting management’s analysis for clerical accuracy.
oTesting the completeness, accuracy, and reliability of underlying data used by management in the estimate.
oEvaluating the reasonableness of significant assumptions used by management.
Comparing rebates issued after period end with the estimated amounts as of period end as part of a retrospective review.
Developing an independent expectation of contractual pricing allowances for rebates as of the period end based on historical trends in sales to distributors and compared such expectation to the Company’s estimate.

/s/ Moss Adams LLP

Dallas, Texas

March 31, 2022

We have served as the Company’s auditor since 2016.

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RETRACTABLE TECHNOLOGIES, INC.

BALANCE SHEETS

    

December 31, 2021

    

December 31, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

29,162,913

$

17,566,682

Accounts receivable, net of allowance for doubtful accounts of $352,217 and $205,822

 

34,859,505

 

21,131,841

Receivable from Technology Investment Agreement (TIA)

5,924,136

11,779,078

Investments in debt and equity securities, at fair value

13,268,986

8,081,833

Inventories

 

20,589,919

 

10,234,646

Other current assets

 

701,969

 

684,317

Total current assets

 

104,507,428

 

69,478,397

Property, plant, and equipment, net

 

87,925,651

 

30,816,504

Deferred tax asset

13,865,834

4,631,206

Other assets

 

5,675

 

44,567

Total assets

$

206,304,588

$

104,970,674

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

20,404,573

$

16,256,444

Current portion of long-term debt

 

289,114

 

1,030,763

Accrued compensation

 

1,056,656

 

826,762

Dividends payable

 

1,438,371

 

49,091

Accrued royalties to shareholder

 

3,450,684

 

1,973,781

Other accrued liabilities

 

3,725,527

 

3,398,904

Income taxes payable

 

4,959,878

 

4,365,770

Total current liabilities

 

35,324,803

 

27,901,515

Other long-term liabilities

69,996,330

24,478,697

Long-term debt, net of current maturities

 

1,814,194

 

2,710,337

Total liabilities

 

107,135,327

 

55,090,549

Commitments and contingencies – see Note 10

Stockholders’ equity:

Preferred stock, $1 par value:

Class B; authorized: 5,000,000 shares

Series II, Class B convertible; outstanding: 156,200 shares at December 31, 2021 and 2020 (liquidation preference of $1,952,500)

 

156,200

 

156,200

Series III, Class B convertible; outstanding: 76,245 and 106,745 shares at December 30, 2021 and 2020, respectively (liquidation preference of $953,063)

 

76,245

 

106,745

Common Stock, no par value; authorized: 100,000,000 shares; 34,013,104 issued and 33,484,935 outstanding and 33,957,204 issued and outstanding at December 31, 2021 and 2020, respectively

 

 

Additional paid-in capital

 

63,024,888

 

59,285,401

Retained earnings (accumulated deficit)

 

41,182,429

 

(9,668,221)

Common stock in treasury – at cost: 528,169 and 0 shares at December 31, 2021 and 2020, respectively

(5,270,501)

Total stockholders’ equity

 

99,169,261

 

49,880,125

Total liabilities and stockholders’ equity

$

206,304,588

$

104,970,674

See accompanying notes to financial statements

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RETRACTABLE TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

Years Ended December 31, 

    

2021

    

2020

    

2019

Sales, net

$

188,382,454

$

81,862,453

$

41,797,179

Cost of sales:

Cost of manufactured product

 

81,711,840

 

39,377,794

 

24,209,401

Royalty expense to shareholder

 

11,318,093

 

5,476,306

 

3,449,822

Total cost of sales

 

93,029,933

 

44,854,100

 

27,659,223

Gross profit

 

95,352,521

 

37,008,353

 

14,137,956

Operating expenses:

Sales and marketing

 

4,477,651

 

4,061,904

 

4,217,863

Research and development

 

901,381

 

574,527

 

516,095

General and administrative

 

17,378,301

 

8,301,169

 

6,432,158

Total operating expenses

 

22,757,333

 

12,937,600

 

11,166,116

Income from operations

 

72,595,188

 

24,070,753

 

2,971,840

Gain on forgiveness of PPP loan

1,377,652

Other income - TIA

425,158

Interest and other income

 

779,996

 

2,262,758

 

351,166

Interest expense

 

(227,183)

 

(260,264)

 

(166,897)

Income before income taxes

 

74,950,811

 

26,073,247

 

3,156,109

Provision for income taxes

 

18,886,570

 

1,850,234

 

7,875

Net income

 

56,064,241

 

24,223,013

 

3,148,234

Preferred Stock dividend requirements

 

(241,703)

 

(573,868)

 

(702,618)

Deemed contribution on extinguishment of preferred stock

2,975,708

Net income applicable to common shareholders

$

55,822,538

$

26,624,853

$

2,445,616

Basic earnings per share

$

1.65

$

0.80

$

0.07

Diluted earnings per share

$

1.63

$

0.80

$

0.07

Weighted average common shares outstanding:

Basic

 

33,870,819

 

33,169,307

 

32,672,475

Diluted

 

34,244,699

 

33,300,654

 

32,672,475

See accompanying notes to financial statements

F-6

Table of Contents

RETRACTABLE TECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Series I Class B

Series II Class B

Series III Class B

Series IV Class B

Series V Class B

Common

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

Balance as of December 31, 2018

 

98,500

$

98,500

 

171,200

$

171,200

 

129,245

$

129,245

 

342,500

$

342,500

 

40,000

$

40,000

 

32,666,454

$

Conversion of Preferred Stock into Common Stock

(2,500)

(2,500)

(6,000)

(6,000)

8,500

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

96,000

96,000

171,200

171,200

129,245

129,245

342,500

342,500

34,000

34,000

32,674,954

Exchange of Preferred Stock for Common Stock

(22,500)

(22,500)

(342,500)

(342,500)

(34,000)

(34,000)

754,000

Conversion of Preferred Stock into Common Stock

(81,700)

(81,700)

(15,000)

(15,000)

96,700

Stock Option Exercises

431,550

Redemption

(14,300)

(14,300)

Dividends

Net income

Balance as of December 31, 2020

156,200

156,200

106,745

106,745

33,957,204

Conversion of Preferred Stock into Common Stock

(30,500)

(30,500)

30,500

Stock Option Exercises

25,400

Dividends

Stock Option Compensation

Repurchase of Common Stock - at cost

(528,169)

Net income

Balance as of December 31, 2021

$

156,200

$

156,200

76,245

$

76,245

$

$

33,484,935

$

See accompanying notes to financial statements

F-7

Table of Contents

RETRACTABLE TECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

    

Additional

    

Retained Earnings/

    

    

Paid-in

(Accumulated

Treasury

Capital

Deficit)

Stock

Total

Balance as of December 31, 2018

$

61,871,756

$

(37,039,468)

$

25,613,733

Conversion of Preferred Stock into Common Stock

8,500

Dividends

(219,512)

(219,512)

Net income

3,148,234

3,148,234

Balance as of December 31, 2019

61,660,744

(33,891,234)

28,542,455

Exchange of Preferred Stock for Common Stock

(3,090,672)

(3,489,672)