10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

or

o 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	75068-0009
(Address of principal executive offices)	(Zip Code)

(972) 294-1010

(Registrant’s telephone number, including area code)

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

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 x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 x  No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)	Smaller reporting company x

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

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 o  No o

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:  27,326,472 shares of Common Stock, no par value, issued and outstanding on May 1, 2014, excluding treasury shares.

RETRACTABLE TECHNOLOGIES, INC.

FORM 10-Q

For the Quarterly Period Ended March 31, 2014

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
NOTES TO CONDENSED FINANCIAL STATEMENTS		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
SIGNATURES		18

PART I—FINANCIAL INFORMATION

Item 1.       Financial Statements.

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

		March 31, 2014
		(unaudited)		December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	24,198,456	$	27,629,359
Accounts receivable, net		3,174,724		3,476,718
Inventories, net		5,404,275		5,735,589
Other current assets		604,082		1,065,641
Total current assets		33,381,537		37,907,307
Property, plant, and equipment, net		11,324,601		10,910,172
Intangible and other assets, net		277,647		279,965
Total assets	$	44,983,785	$	49,097,444
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,845,655	$	5,107,778
Litigation proceeds subject to stipulation		7,724,826		7,724,826
Current portion of long-term debt		201,982		247,064
Accrued compensation		643,453		815,044
Dividends payable		57,613		57,613
Accrued royalties to shareholders		496,242		602,209
Other accrued liabilities		1,559,139		1,975,018
Income taxes payable		4,807		90,972
Total current liabilities		14,533,717		16,620,524
Long-term debt, net of current maturities		3,539,796		3,576,932
Total liabilities		18,073,513		20,197,456
Commitments and contingencies — see Note 6
Stockholders’ equity:
Preferred stock $1 par value:
Series I, Class B		103,500		103,500
Series II, Class B		178,700		178,700
Series III, Class B		130,245		130,245
Series IV, Class B		542,500		542,500
Series V, Class B		40,000		40,000
Common stock, no par value		—		—
Additional paid-in capital		59,031,842		58,983,166
Retained deficit		(32,019,906	)	(29,981,514	)
Common stock in treasury – at cost		(1,096,609	)	(1,096,609	)
Total stockholders’ equity		26,910,272		28,899,988
Total liabilities and stockholders’ equity	$	44,983,785	$	49,097,444

See accompanying notes to condensed financial statements

1

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

		Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Sales, net	$	6,040,378		$	7,173,112
Cost of sales
Cost of manufactured product		3,820,784			3,840,094
Royalty expense to shareholders		496,242			556,965
Total cost of sales		4,317,026			4,397,059
Gross profit		1,723,352			2,776,053
Operating expenses:
Sales and marketing		1,096,694			1,063,287
Research and development		184,724			180,848
General and administrative		2,431,678			2,898,952
Total operating expenses		3,713,096			4,143,087
Loss from operations		(1,989,744	)		(1,367,034	)
Interest and other income		10,396			11,440
Interest expense, net		(57,168	)		(52,063	)
Loss before income taxes		(2,036,516	)		(1,407,657	)
Provision for income taxes		1,876			1,876
Net loss		(2,038,392	)		(1,409,533	)
Preferred stock dividend requirements		(228,999	)		(229,068	)
Loss applicable to common shareholders	$	(2,267,391	)	$	(1,638,601	)
Basic loss per share	$	(0.08	)	$	(0.06	)
Diluted loss per share	$	(0.08	)	$	(0.06	)
Weighted average common shares outstanding:
Basic		27,258,689			27,238,495
Diluted		27,258,689			27,238,495

See accompanying notes to condensed financial statements

2

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

		Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Cash flows from operating activities
Net loss	$	(2,038,392	)	$	(1,409,533	)
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:
Depreciation and amortization		326,482			314,179
Loss on disposal of assets		—			(1,000	)
(Increase) decrease in assets:
Inventories		331,314			(201,770	)
Accounts receivable		301,994			536,846
Other current assets		461,559			483,634
Increase (decrease) in liabilities:
Accounts payable		(1,262,123	)		(1,836,871	)
Other accrued liabilities		(693,437	)		(17,770	)
Income taxes payable		(86,165	)		1,876
Net cash used by operating activities		(2,658,768	)		(2,130,409	)
Cash flows from investing activities
Purchase of property, plant, and equipment		(738,597	)		(63,890	)
Proceeds from sale of assets		—			1,000
Net cash used by investing activities		(738,597	)		(62,890	)
Cash flows from financing activities
Repayments of long-term debt and notes payable		(82,214	)		(77,657	)
Repurchase of Common Stock		—			(101,672	)
Proceeds from the exercise of stock options		106,289			—
Payment of Preferred Stock dividends		(57,613	)		(57,613	)
Net cash used by financing activities		(33,538	)		(236,942	)
Net decrease in cash and cash equivalents		(3,430,903	)		(2,430,241	)
Cash and cash equivalents at:
Beginning of period		27,629,359			25,963,313
End of period	$	24,198,456		$	23,533,072
Supplemental schedule of cash flow information:
Interest paid	$	57,168		$	62,537
Income taxes paid	$	87,995		$	—
Supplemental schedule of noncash investing and financing activities:
Preferred dividends declared, not paid	$	57,613		$	57,613

See accompanying notes to condensed financial statements

3

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 primary products with Notice of Substantial Equivalence to the FDA are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; the 3mL, 5mL, and 10mL syringes; the blood collection tube holder; the small diameter tube adapter; the allergy tray; the IV safety catheter; the Patient Safe® syringe; the Patient Safe® Luer Cap; and the VanishPoint® Blood Collection Set.

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 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 31, 2014 for the year ended December 31, 2013.

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.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include unrestricted cash, the proceeds subject to a stipulation (discussed elsewhere herein), 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 doubtful accounts is primarily determined by review of specific trade receivables.  Those accounts that are doubtful of collection are included in the allowance.  This provision is reviewed to determine the adequacy of the allowance for doubtful accounts.  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 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

4

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 5, Other Accrued Liabilities.

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

Inventories

Inventories are valued at the lower of cost or market, with cost being determined using actual average cost.  The Company compares the average cost to the market price and records the lower value.  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.  A reserve is established for any excess or obsolete inventories or they may be written off.

Property, plant, and equipment

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

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
Automobiles	7 years

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 of the underlying assets.

The Company’s property, plant, and equipment primarily consist of buildings, land, assembly equipment for syringes, molding machines, molds, office equipment, furniture, and fixtures.

Intangible assets

Intangible assets are stated at cost and consist primarily of intellectual property which is amortized using the straight-line method over 17 years.

Financial instruments

The Company estimates the fair market 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 market 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

5

estimates, equals their recorded values.  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, 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 majority of accounts receivable are due from companies which are well-established entities.  As a consequence, Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers for the first quarters of 2014 and 2013:

	Three Months ended March 31, 2014	Three Months ended March 31, 2013
Number of significant customers	3	1
Aggregate dollar amount of net sales to significant customers	$3.0 million	$1.4 million
Percentage of net sales to significant customers	49.1%	19.2%

The Company manufactures syringes in Little Elm, Texas as well as utilizing manufacturers in China.  The Company purchases most of its product components from single suppliers, including needle adhesives and packaging materials.  There are multiple sources of these materials.  The Company obtained roughly 53.3% and 70.8% of its finished products in the first three months of 2014 and 2013, respectively, from the Company’s primary Chinese manufacturer.  Other Chinese manufacturers produced 11.1% of the units produced, which units consisted of Patient Safe® syringes and catheters.  In the event that the Company becomes unable to purchase products from its primary Chinese manufacturer, the Company would need to find an alternate manufacturer for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe, and increase domestic production for 1mL and 3mL syringes.

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  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 that the Company has not received tracking reports.  Rebates are recorded when issued and 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 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 and deducted from revenues in the Statements of Operations.  Accounts payable included estimated contractual allowances for $3,167,259 and $3,611,692 as of March 31, 2014 and December 31, 2013, 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.  Any product shipped or distributed for evaluation purposes is expensed.

Certain distributors have taken rebates to which they are not entitled, such as utilizing a rebate for products not purchased directly from the Company.  Major customers said they have ceased the practices resulting in claiming non-contractual rebates.  Rebates can only be claimed on purchases made directly from the Company. The Company has established a reserve for the collectability of these non-contractual rebate

6

amounts.  The expense for the reserve is recorded in Operating expense, General and administrative.  The reserve for such non-contractual deductions is included in the allowance for doubtful accounts.  There has been no change to the reserve contractual rebates in the periods currently presented.

The Company’s domestic return policy is set forth in its standard Distribution Agreement.  This 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 will not accept returned goods without a returned goods authorization number.  The Company may refund the customer’s money or replace the product.

The Company’s domestic return policy also 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’s international distribution agreements do not provide for any returns.

Litigation proceeds and settlements

Proceeds from litigation are recognized when realizable.  Generally, realization is not reasonably assured and expected until proceeds are collected; however, see Note 6, COMMITMENTS AND CONTINGENCIES, for a discussion of proceeds received from Becton Dickinson and Company (“BD”) pursuant to a stipulation in the patent infringement case Retractable Technologies, Inc. and Thomas Shaw v. Becton Dickinson and Company, Civil Action No. 2:07-cv-250, in the U.S. District Court for the Eastern District of Texas, Marshall Division.

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.  The Company utilized some of its net operating loss carry forwards in 2013 and paid Alternative Minimum Tax on its taxable income.  The Company has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest related to income tax are classified as General and administrative expense and Interest expense, respectively, in the Condensed Statements of Operations.

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 or common stock issuable upon the conversion of convertible preferred stock and convertible debt.  The calculation of diluted EPS excluded 2.0 million and 0.5 million shares of Common Stock underlying issued and outstanding stock options at March 31, 2014 and March 31, 2013, respectively, as their effect was antidilutive.  The potential dilution, if any, is shown on the following schedule:

7

		Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Net loss	$	(2,038,392	)	$	(1,409,533	)
Preferred dividend requirements		(228,999	)		(229,068	)
Loss available to common shareholders after assumed conversions	$	(2,267,391	)	$	(1,638,601	)
Average common shares outstanding		27,258,689			27,238,495
Average common and common equivalent shares outstanding - assuming dilution		27,258,689			27,238,495
Basic loss per share	$	(0.08	)	$	(0.06	)
Diluted loss per share	$	(0.08	)	$	(0.06	)

Shipping and handling costs

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

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

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

Recent Pronouncement

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”).  ASU 2013-11 requires, unless certain conditions exists, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward.  ASU 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013, with early adoption permitted.  Retrospective application is also permitted.  The adoption of ASU 2013-11, effective with the reporting period beginning January 1, 2014 did not have an impact on the Company’s financial statements.

3.     INVENTORIES

Inventories consist of the following:

		March 31, 2014		December 31, 2013
Raw materials	$	1,696,519	$	1,666,525
Finished goods		4,389,151		4,750,459
		6,085,670		6,416,984
Inventory reserve		(681,395	)	(681,395	)
	$	5,404,275	$	5,735,589

4. INCOME TAXES

The Company’s effective tax rate on the net loss before income taxes was (0.1)% and (0.1)% for the three months ended March 31, 2014 and March 31, 2013, respectively.

8

5.     OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

		March 31, 2014		December 31, 2013
Prepayments from customers	$	1,152,115	$	1,720,896
Accrued property taxes		107,570		—
Accrued professional fees		187,023		169,125
Other accrued expenses		112,431		84,997
	$	1,559,139	$	1,975,018

6.     COMMITMENTS AND CONTINGENCIES

On May 19, 2010, final judgment was entered in the U.S. District Court for the Eastern District of Texas, Marshall Division for the Company which ordered that the Company recover $5,000,000 plus prejudgment and post-judgment interest, and ordered a permanent injunction for BD’s 1mL and 3mL Integra syringes until the expiration of certain patents.  The permanent injunction was stayed for the longer of the exhaustion of the appeal of the district court’s case or twelve months from May 19, 2010.  In June 2010, BD filed an appeal in the U.S. Court of Appeals for the Federal Circuit appealing the final judgment entered on May 19, 2010.  In July 2011, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit reversed the district court’s judgment that BD’s 3mL Integra infringed the Company’s ‘224 patent and ‘077 patent.  The U.S. Court of Appeals for the Federal Circuit affirmed the district court’s judgment that the 1mL Integra infringes the Company’s ‘244 and ‘733 patents.  The U.S. Court of Appeals for the Federal Circuit also affirmed the district court’s judgment that the ‘077 patent is not invalid for anticipation or obviousness.  The Company had petitioned for a rehearing by all the judges of the Federal Circuit as to whether the three-judge panel properly construed the Company’s patent claim language in finding that the 3mL Integra did not infringe.  The Company’s petition for rehearing by all of the judges of the Federal Circuit was denied with two dissents being issued.  The Company filed a petition for certiorari asking the Supreme Court to review the matter.  That petition was denied in January of 2013.  On August 7, 2013, the U.S. District Court for the Eastern District of Texas issued an order adopting the Magistrate Judge’s Report and Recommendation and denying BD’s Rule 60 motion seeking a reduction in damages.  On October 29, 2013, BD filed its Notice of Appeal of the August 7, 2013 order to the Federal Circuit.  Oral argument for this appeal occurred on May 9, 2014.  On September 30, 2013, the Company received payment of $7,724,826 (the “Judgment Amount”) from BD pursuant to a stipulation in this case.  The stipulation provides that if, as a result of BD’s appeal of the District Court’s denial of BD’s Rule 60 motion, it is judicially determined that BD owes an amount less than the Judgment Amount, BD shall be entitled to restitution by the Company of any excess payment, with interest.  Otherwise, the payment of the Judgment Amount shall constitute satisfaction of the patent infringement judgment and BD shall owe no further money damages to the Company in this case.  The Judgment Amount has been reflected as a current liability in the Balance Sheets since the proceeds are not yet realizable.

In May 2010, the Company and an officer’s suit against BD in the U.S. District Court for the Eastern District of Texas, Marshall Division alleging violations of antitrust acts, false advertising, product disparagement, tortious interference, and unfair competition was reopened.  The Company and an officer filed a Second Amended Complaint on July 23, 2010 setting forth additional detail regarding the allegations of BD’s illegal conduct.  BD filed a motion to dismiss and the U.S. District Court for the Eastern District of Texas, Marshall Division denied that motion in part and granted it in part, granting the Company the right to re-plead certain allegations by May 13, 2011.  The Company and an officer filed a Third Amended Complaint in May 2011, setting forth additional detail regarding the alleged illegal conduct by BD.  Trial was initially set for February 2012.  However, in January 2012 the parties agreed to a continuance to allow the petition for certiorari to be considered.  As stated above, the petition was denied in January of 2013.  A hearing to re-set a trial date in light of BD’s motion for continuance was held May 3, 2013.  The trial commenced on September 9, 2013 in Tyler, Texas, and the jury returned its verdict on September 19, 2013, finding that BD illegally engaged in anticompetitive conduct with the intent to acquire or maintain monopoly power in the safety syringe market and engaged in false advertising under the Lanham Act.  The jury awarded the Company $113,508,014 in

9

damages for the antitrust claim, which is subject to being trebled pursuant to statute.  The Court conducted a hearing for post-trial motions in early 2014.  Orders have not yet issued.  BD has stated that it plans to appeal the verdict.

In September 2007, BD and MDC Investment Holdings, Inc. (“MDC”) sued the Company in the United States District Court for the Eastern District of Texas, Texarkana Division, initially alleging that the Company is infringing two U.S. patents of MDC (6,179,812 and 7,090,656) that are licensed to BD. BD and MDC seek injunctive relief and unspecified damages.  The Company counterclaimed for declarations of non-infringement, invalidity, and unenforceability of the asserted patents.  The plaintiffs subsequently dropped allegations with regard to patent no. 7,090,656 and the Company subsequently dropped its counterclaims for unenforceability of the asserted patents.  The United States District Court for the Eastern District of Texas, Texarkana Division conducted a claims construction hearing on September 25, 2008 and issued its claims construction order on November 14, 2008.  The case has been stayed pending resolution of the Company’s first filed case against BD described above.  There has been no activity in this case since the stay.

7.     BUSINESS SEGMENTS

	Three Months EndedMarch 31, 2014		Three Months EndedMarch 31, 2013
U.S. sales	$	4,950,177	$	5,736,230
North and South America sales (excluding U.S.)	836,552		592,289
Other international sales	253,649		844,593
Total sales, net	$	6,040,378	$	7,173,112

	March 31, 2014		December 31, 2013
Long-lived assets
U.S.	$	11,096,803	$	10,676,053
International	$	227,798	$	234,119

The Company does not operate in separate reportable segments.  The Company has minimal long-lived assets in foreign countries.  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.

8.     STOCK REPURCHASE PROGRAM

On July 10, 2012, the Company authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  Under the plan, the Company purchased 83,097 shares in the first quarter of 2013.  The plan was terminated effective August 30, 2013.

Pursuant to the Certificates of Designation, Preferences, Rights And Limitations of the Series I Class B and Series II Class B Convertible Preferred Stock, the Company would have been prohibited from purchasing its Common Stock while dividends were in arrears.  Therefore, to facilitate the Common Stock repurchase plan, the Company paid dividends on the Series I Class B Preferred Stock in the amount of $12,938 at each date on January 21, 2013 and April 22, 2013.  The Company paid dividends to Series II Class B Preferred Stockholders in the amount of $44,675 on each of the same dates listed in the preceding sentence.

9.     DIVIDENDS

On December 20, 2013 and April 1, 2014, the Board of Directors announced dividends on the Series I Class B Preferred Stock in the amount of $12,938 on each date which were paid on January 20, 2014 and April 21,

10

2014.  The Company also announced and paid dividends to Series II Class B Preferred Stockholders in the amount of $44,675 on the same dates.  See Note 8 for information about dividends paid during the term of the Stock Repurchase Program.

10.  SUBSEQUENT EVENTS

Effective May 9, 2014, the Company reduced its workforce by 13.7% in an effort to cut costs. The Company expects its compensation costs will be reduced in an amount exceeding $1 million annually. The Company expects to pay approximately $300 thousand in severance costs in the second quarter of 2014.

On April 11, 2014, the Company issued a letter of credit in the amount of $535,224 to fund the purchase of manufacturing equipment. Such letter of credit is secured by funds held in a Company bank account.

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 factors include, among others, our ability to maintain liquidity, our maintenance of patent protection, the impact of current litigation, our ability to maintain favorable third party manufacturing and supplier arrangements and relationships, our ability to quickly increase capacity in response to an increase in demand, our ability to access the market, our ability to maintain or lower production costs, our ability to continue to finance research and development as well as operations and expansion of production, the continuing interest of larger market players, specifically BD, in providing devices to the safety market, and 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.  Safety syringes comprised 93.0% of our sales in the first quarter of 2014. We also manufacture and market the blood collection tube holder, IV safety catheter, and VanishPoint® Blood Collection Set.  We currently provide other safety medical products in addition to safety products utilizing retractable technology.  One such product is the Patient Safe® syringe, which is uniquely designed to reduce the risk of bloodstream infections resulting from catheter hub contamination.

Historically, unit sales have increased during the flu season.  The decrease in domestic sales in the first quarter of 2014 may be attributable to the timing of the flu season and less national flu vaccination press coverage.

Our products have been and continue to be distributed nationally and internationally through numerous distributors.  Although we have made limited progress in some areas, such as the alternate care market, our volumes are not as high as they should be given the nature and quality of our products and the federal and state legislation requiring the use of safe needle devices. The alternate care market is composed of alternate care facilities that provide long-term nursing and out-patient surgery, emergency care, and physician services.

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

We have reported in the past that our progress is limited principally due to exclusive marketing practices engaged in by BD, the dominant maker and seller of disposable syringes.  On September 19, 2013, a Texas jury returned a verdict in our litigation against BD, finding that BD illegally engaged in anticompetitive conduct with the intent to acquire or maintain monopoly power in the safety syringe market and engaged in false advertising under the Lanham Act.  The jury awarded us $113,508,014 in damages for the antitrust claim, which is subject to being trebled pursuant to statute.  The Court conducted a hearing for post-trial motions in early 2014.  Orders have not yet issued.  BD has stated that it plans to appeal the verdict.  We have not received the $113,508,014 or any other amounts pursuant to the verdict in the aforementioned antitrust litigation against BD.

On September 30, 2013, we received payment of $7,724,826 (the “Judgment Amount”) from BD pursuant to a stipulation in the patent infringement case Retractable Technologies, Inc. and Thomas Shaw v. Becton Dickinson and Company, Civil Action No. 2:07-cv-250, in the U.S. District Court for the Eastern District of Texas,

11

Marshall Division.  The stipulation provides that if, as a result of BD’s appeal of the District Court’s denial of BD’s Rule 60(B)(5) motion, it is judicially determined that BD owes an amount less than the Judgment Amount, BD shall be entitled to restitution by us of any excess payment, with interest.  Otherwise, the payment of the Judgment Amount shall constitute satisfaction of the patent infringement judgment and BD shall owe no further money damages to us in the patent infringement case.  The Judgment Amount is included as cash on the balance sheet and shown as a liability on the balance sheet under “Litigation proceeds subject to stipulation”.  The Judgment Amount is only related to the patent infringement portion of the claims against BD.  We have determined not to use the Judgment Amount to fund operations until a final judgment is obtained on appeal.

In the first quarter of 2014, we took steps to decrease our non-litigation legal costs.  We expect such costs to remain lower in the future.  For the first quarter of 2014, our non-litigation legal costs were reduced by approximately $360 thousand.  Additionally, effective May 9, 2014, we reduced our workforce by 13.7% in an effort to cut costs.  We expect our compensation will be reduced in an amount exceeding $1 million annually. We expect to pay approximately $300 thousand in severance costs in the second quarter of 2014. In the future, if such cost cutting measures prove insufficient, we may reduce the number of units being produced, further reduce the workforce, reduce the salaries of officers and other employees, and/or defer royalty payments.

Section 4191 of the Internal Revenue Code, enacted by the Health Care and Education Reconciliation Act of 2010 in conjunction with the Patient Protection and Affordable Care Act provides for an excise tax of 2.3% on medical devices.  At the present time the excise tax is applicable to domestic sales of our products, except those which are sold to exempt organizations.  The majority of our sales are domestic and not in the retail market.  The tax is imposed on sales, not profits.  There is no assurance this tax can be passed along to our customers.  We expect the impact of this tax to be approximately $750,000 in 2014.

On July 10, 2012, the Company authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  The plan was terminated effective August 30, 2013.  Under the plan, we purchased a total of 722,920 shares of our Common Stock.

Pursuant to the Certificates of Designation, Preferences, Rights And Limitations of the Series I Class B and Series II Class B Convertible Preferred Stock, we would be prohibited from purchasing our Common Stock while dividends were in arrears.  Therefore, to facilitate the Common Stock repurchase plan, we paid quarterly dividends on the Series I Class B and Series II Class B Preferred Stock during the term of the repurchase plan.  Notwithstanding the termination of the repurchase plan, the Board of Directors have authorized dividends to be paid to the Series I Class B and Series II Class B Preferred Stockholders in successive quarters.  Dividends were paid on November 11, 2013, January 20, 2014, and April 21, 2014, each in the cumulative amount of $57,613.  These dividends may be suspended at any time by the Board of Directors.

Product purchases from our primary Chinese manufacturer have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost.  In the first quarter of 2014, our primary Chinese manufacturer manufactured approximately 53.3% of the units we produced.  Other Chinese manufacturers produced 11.1% of the units produced, which units consisted of Patient Safe® syringes and catheters.  In the event that we become unable to purchase products from our primary Chinese manufacturer, we would need to find an alternate manufacturer for the 0.5mL insulin syringe and the 2mL, 5mL, and 10mL syringes, and we would increase domestic production for the 1mL and 3mL syringes.

In 1995, we entered into a license agreement with Thomas J. Shaw for the exclusive right to manufacture, market, and distribute products utilizing automated retraction 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.

With increased volumes, our manufacturing unit costs have generally tended to decline.  Factors that could affect our unit costs include increases in costs by third party manufacturers, changing production volumes, costs of petroleum products, and transportation costs.  Increases in such costs may not be recoverable through price increases of our products.

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

12

operations and those discussed in any forward-looking statements.  Dollar amounts have been rounded for ease of reading.  All period references are to the periods ended March 31, 2014 or 2013.

RESULTS OF OPERATIONS

The following table contains selected information from our condensed statements of operations, expressed as a percentage of revenue:

	Three Months Ended March 31,
	2014		2013
Cost of sales
Cost of manufactured product	63.3	%	53.5	%
Gross profit	28.5		38.7
Operating expenses:
Sales and marketing	18.2		14.8
Research and development	3.0		2.8
General and administrative	40.3		40.4
Total operating expenses	61.5		57.8
Loss from operations	(33.0	)	(19.1	)
Net interest expense	0.8		0.6
Provision for income taxes	—		—
Net loss	(33.8	)%	(19.7	)%

Comparison of Three Months Ended March 31, 2014 and March 31, 2013

Sales

Domestic sales accounted for 82.0% and 80.0% of the revenues for the three months ended March 31, 2014 and 2013, respectively.  Domestic revenues decreased 13.7% principally due to lower sales volumes.  Domestic unit sales decreased 11.9%.  Domestic unit sales were 79.5% of total unit sales for the three months ended March 31, 2014.  International unit sales and revenues decreased 42.7% and 24.1%, respectively.  Overall unit sales decreased 20.6%.

Gross Profit and Cost of Sales

Gross profit decreased 37.9% primarily due to lower sales volume and increased unit cost of manufacture.  Gross profit as a percentage of net sales was 28.5% in the first quarter of 2014 as compared to 38.7% in 2013 due to lower sales volumes and higher manufacturing costs.

The average cost of manufactured products sold per unit increased by 25.4% due to lower production volumes.  Profit margins can fluctuate depending upon, among other things, the cost of manufactured product and the capitalized cost of product recorded in inventory, as well as product sales mix.  The cost of manufactured products as a percentage of net sales was 63.3% in the first quarter of 2014 as compared to 53.5% in 2013 due to higher unit manufacturing costs.  Royalty expense decreased 10.9% due to decreased gross sales.

Operating Expenses

Operating expenses decreased 10.4% or $430 thousand.  The decrease was primarily due to decreases in General and administrative expenses, the largest of which were non-litigation legal costs, which decreased approximately $360 thousand, and donations of products to charity, which decreased approximately $142 thousand.  An increase in compensation expense was offset by a decrease in Medical Device Excise taxes due to our establishment of a reserve for refunds for such taxes.  Sales and marketing and Research and development expenses were relatively flat.  The above table showing these expenses as a percentage of revenue shows a variation among periods, but this variation is primarily due to the fact that revenue was lower in the first quarter of 2014.

13

Loss from Operations

Our operating loss was $2.0 million compared to an operating loss for the same period last year of $1.4 million due primarily to lower revenues and higher manufacturing costs.

Income Taxes

Our effective tax rate on the net loss before income taxes was (0.1)% and (0.1)% for the three months ended March 31, 2014 and March 31, 2013, respectively.

Discussion of Balance Sheet and Statement of Cash Flows

Our balance sheet remains strong with cash making up 53.8% of total assets.  Working capital was $18.8 million at March 31, 2014, a decrease of $2.4 million from December 31, 2013.

Approximately $2.7 million in cash flow in the three months ended March 31, 2014 was used by operating activities.  Our cash balance was positively affected by the receipt of litigation proceeds subject to a stipulation (discussed elsewhere herein).

LIQUIDITY

At the present time, Management does not intend to raise equity capital.  Due to the funds received from prior litigation settlements, we have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing as the primary ongoing sources of cash.

The note payable to Deutsche Leasing USA, Inc. in the original principal amount of $327,726 was paid in full in April 2014 and the note payable to Deutsche Leasing USA, Inc. in the original principal amount of $207,260 will be paid in full in November 2014.  The monthly payment for the loan which matured in April was $9,900 and the monthly payment for the loan maturing in November is $6,300.

Historical Sources of Liquidity

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

Internal Sources of Liquidity

Margins and Market Access

To routinely achieve break even quarters, we need minimal access to hospital markets which has been difficult to obtain.  We will continue to attempt to gain access to the market through our sales efforts, innovative technology, the introduction of new products, and, when necessary, litigation.

We continue to focus on methods of upgrading our manufacturing capability and efficiency in order to reduce costs.

Fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable manufacturing arrangements and relationships could result in the need to manufacture all (as opposed to 35.6%) of our products in the U.S.  This could temporarily increase unit costs as we ramp up domestic production.

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.  Typically international sales are shipped directly from China to the customer.  Purchases of product manufactured in China, if available, usually decrease the average cost of manufacture for all units.  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.  We

14

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.

Fluctuations in the cost of oil (since our products are petroleum based) and transportation and the volume of units purchased from our Chinese manufacturers may have an impact on the unit costs of our product.  Increases in such costs may not be recoverable through price increases of our products.  Reductions in oil prices may not quickly affect petroleum product prices.

Seasonality

Historically, unit sales have increased during the flu season.

Cash Requirements

Due to funds received from prior litigation settlements, we have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing as the primary ongoing sources of cash.  In the first quarter of 2014, we took steps to decrease our non-litigation legal costs and we expect such costs to remain lower in the future.  Additionally, effective May 9, 2014, we reduced our workforce by 13.7% in an effort to cut costs.  In the future, if such cost cutting measures prove insufficient, we may reduce the number of units being produced, further reduce the workforce, reduce the salaries of officers and other employees, and/or defer royalty payments.

External Sources of Liquidity

We have obtained several loans from our inception, which have, together with the proceeds from the sales of equities and litigation efforts, enabled us to pursue development and production of our products.  Furthermore, the shareholders previously authorized an additional 5,000,000 shares of a Class C Preferred Stock that could, if necessary, be designated and used to raise funds through the sale of equity.  Due to the current market price of our Common Stock, it is unlikely we would choose to raise funds by the sale of equity.

On September 30, 2013, we received payment of $7,724,826 from BD pursuant to a stipulation (discussed elsewhere herein) in the patent infringement case Retractable Technologies, Inc. and Thomas Shaw v. Becton Dickinson and Company, Civil Action No. 2:07-cv-250, in the U.S. District Court for the Eastern District of Texas, Marshall Division.  Such amount is included as cash on the balance sheet and shown as a liability on the balance sheet under “Litigation proceeds subject to stipulation”.

On September 19, 2013, a Texas jury returned a verdict in our litigation against BD, finding that BD illegally engaged in anticompetitive conduct with the intent to acquire or maintain monopoly power in the safety syringe market and engaged in false advertising under the Lanham Act.  The jury awarded us $113,508,014 in damages for the antitrust claim, which is subject to being trebled pursuant to statute.  The Court conducted a hearing for post-trial motions in early 2014.  Orders have not yet issued.  BD has stated that it plans to appeal the verdict.  We have not received the $113,508,014 or any other amounts pursuant to the verdict in the aforementioned antitrust litigation against BD.

CAPITAL RESOURCES

Repurchase of Common Stock

On July 10, 2012, the Company authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  The plan was terminated effective August 30, 2013.  Under the plan, we purchased a total of 722,920 shares of our Common Stock.

Purchase of Equipment

We are in the process of purchasing manufacturing equipment and molds in the amount of $1.5 million.  See Note 10 to the financial statements regarding a letter of credit associated with this purchase. If debt financing is not available, we will fund the purchase with existing funds.

15

CONTRACTUAL OBLIGATIONS

We are in the process of purchasing manufacturing equipment and molds in the amount of $1.5 million.  See Note 10 to the financial statements regarding a letter of credit associated with this purchase. If debt financing is not available, we will fund the purchase with existing funds.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

No update.

Item 4.Controls and Procedures.

Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, Management, with the participation of our President, Chairman, and Chief Executive Officer, Thomas J. Shaw (the “CEO”), and our Vice President and Chief Financial Officer, Douglas W. Cowan (the “CFO”), acting in their capacities as our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934.  The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in our periodic reports is: i) recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms; and ii) accumulated and communicated to our Management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon this evaluation, the CEO and CFO concluded that, as of March 31, 2014, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes during the first quarter of 2014 or subsequent to March 31, 2014 in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.Legal Proceedings.

Please refer to Note 6 to the financial statements for a complete description of all legal proceedings.

Item 1A.Risk Factors.

There were no material changes in the Risk Factors applicable to the Company as set forth in our Form 10-K annual report for 2013 which was filed on March 31, 2014, and which is available on EDGAR.

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

Working Capital Restrictions and Limitations on the Payment of Dividends

As of April 1, 2014, the Board of Directors announced a dividend to the Series I Class B and Series II Class B Convertible Preferred Shareholders in the aggregate amount of $57,613.  This dividend was paid on April 21, 2014.

The certificates of designation for each of the outstanding series of Class B Convertible Preferred Stock each currently provide that, if a dividend upon any shares of Preferred Stock is in arrears, no dividends may be paid or declared upon any stock ranking junior to such stock and generally no junior preferred stock may be redeemed.  However, under certain conditions, and for certain Series of Class B Convertible Preferred Stock, we may purchase junior stock when dividends are in arrears.

16

Item 3.Defaults Upon Senior Securities.

Series I Class B Convertible Preferred Stock

As of the three months ended March 31, 2014, the amount of dividends in arrears was $13,000 and the total arrearage was $13,000.

Series II Class B Convertible Preferred Stock

As of the three months ended March 31, 2014, the amount of dividends in arrears was $45,000 and the total arrearage was $45,000.

Series III Class B Convertible Preferred Stock

As of the three months ended March 31, 2014 the amount of dividends in arrears was $33,000 and the total arrearage was $3,660,000.

Series IV Class B Convertible Preferred Stock

As of the three months ended March 31, 2014, the amount of dividends in arrears was $136,000 and the total arrearage was $7,559,000.

Series V Class B Convertible Preferred Stock

As of the three months ended March 31, 2014, the amount of dividends in arrears was $3,000 and the total arrearage was $945,000.

Item 5.Other Information.

The 2014 annual meeting will be held on September 5, 2014, at 10:00 a.m. Central time at Little Elm Town Hall; 100 West Eldorado Parkway; Little Elm, Texas 75068.

Item 6.Exhibits.

Exhibit No.	Description of Document
31.1	Certification of Principal Executive Officer
31.2	Certification of Principal Financial Officer
32	Certification Pursuant to 18 U.S.C. Section 1350
101	The following materials from Retractable Technologies, Inc.’s Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Condensed Statements of Operations for the three months ended March 31, 2014 and 2013, (iii) Condensed Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and (iv) Notes to Condensed Financial Statements

17

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE:	May 15, 2014	RETRACTABLE TECHNOLOGIES, INC.
		(Registrant)
		BY:	/s/ Douglas W. Cowan
			DOUGLAS W. COWAN VICE PRESIDENT, CHIEF FINANCIAL OFFICER, AND CHIEF ACCOUNTING OFFICER

18

EX-31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Exhibit 31.1

I, Thomas J. Shaw, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Retractable Technologies, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)	Any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:May 15, 2014

/s/ Thomas J. Shaw

THOMAS J. SHAW

PRESIDENT, CHAIRMAN, AND

CHIEF EXECUTIVE OFFICER

EX-31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Exhibit 31.2

I, Douglas W. Cowan, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Retractable Technologies, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b)Any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:May 15, 2014

/s/ Douglas W. Cowan

DOUGLAS W. COWAN

VICE PRESIDENT,

CHIEF FINANCIAL OFFICER,

AND CHIEF ACCOUNTING OFFICER

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Solely in connection with the filing of the Quarterly Report of Retractable Technologies, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Thomas J. Shaw, Chief Executive Officer, and Douglas W. Cowan, Chief Financial Officer, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

Date:	May 15, 2014	/s/ Thomas J. Shaw
		THOMAS J. SHAW PRESIDENT, CHAIRMAN, AND CHIEF EXECUTIVE OFFICER
		/s/ Douglas W. Cowan
		DOUGLAS W. COWAN VICE PRESIDENT, CHIEF FINANCIAL OFFICER, AND CHIEF ACCOUNTING OFFICER

XML

INCOME TAXES (Details)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
INCOME TAXES
Effective tax rate (as a percent)	(0.10%)	(0.10%)

XML

INCOME TAXES

3 Months Ended

Mar. 31, 2014

INCOME TAXES

INCOME TAXES

4. INCOME TAXES

The Company’s effective tax rate on the net loss before income taxes was (0.1)% and (0.1)% for the three months ended March 31, 2014 and March 31, 2013, respectively.

XML

STOCK REPURCHASE PROGRAM (Details) (USD $)	3 Months Ended		0 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Apr. 21, 2014 Series I, Class B	Jan. 20, 2014 Series I, Class B	Dec. 20, 2013 Series I, Class B	Apr. 22, 2013 Series I, Class B	Jan. 21, 2013 Series I, Class B	Apr. 21, 2014 Series II, Class B	Jan. 20, 2014 Series II, Class B	Apr. 22, 2013 Series II, Class B	Jan. 21, 2013 Series II, Class B
Stock repurchase program
Stock repurchased under the Common Stock repurchase plan (in shares)		83,097
Preferred stock dividends paid	$ 57,613	$ 57,613	$ 12,938	$ 12,938	$ 12,938	$ 12,938	$ 12,938	$ 44,675	$ 44,675	$ 44,675	$ 44,675

XML

BUSINESS SEGMENTS (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Sales by geographical areas
Total sales	$ 6,040,378	$ 7,173,112
U.S.
Sales by geographical areas
Total sales	4,950,177	5,736,230
Long-lived assets
Long-lived assets	11,096,803		10,676,053
North and South America sales (excluding U.S.)
Sales by geographical areas
Total sales	836,552	592,289
Other international sales
Sales by geographical areas
Total sales	253,649	844,593
International
Long-lived assets
Long-lived assets	$ 227,798		$ 234,119

XML

DIVIDENDS (Details) (USD $)	3 Months Ended		0 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Apr. 21, 2014 Series I, Class B	Apr. 02, 2014 Series I, Class B	Jan. 20, 2014 Series I, Class B	Dec. 20, 2013 Series I, Class B	Apr. 22, 2013 Series I, Class B	Jan. 21, 2013 Series I, Class B	Apr. 21, 2014 Series II, Class B	Apr. 02, 2014 Series II, Class B	Jan. 20, 2014 Series II, Class B	Apr. 22, 2013 Series II, Class B	Jan. 21, 2013 Series II, Class B
Dividends
Preferred stock dividends paid	$ 57,613	$ 57,613	$ 12,938		$ 12,938	$ 12,938	$ 12,938	$ 12,938	$ 44,675		$ 44,675	$ 44,675	$ 44,675
Preferred dividends announced, not paid	$ 57,613	$ 57,613		$ 12,938						$ 44,675

XML

SUBSEQUENT EVENTS (Details) (Subsequent events, USD $)	0 Months Ended		3 Months Ended	0 Months Ended
	May 09, 2014	Apr. 11, 2014 Letter of credit	Jun. 30, 2014 Expected	May 09, 2014 Minimum Expected
SUBSEQUENT EVENTS
Percentage of reduction in workforce	13.70%
Annual reduction in compensation costs				$ 1,000,000
Payment for severance costs			300,000
Face amount		$ 535,224

XML

INVENTORIES

3 Months Ended

Mar. 31, 2014

INVENTORIES

INVENTORIES

3.     INVENTORIES

Inventories consist of the following:

		March 31, 2014		December 31, 2013
Raw materials	$	1,696,519	$	1,666,525
Finished goods		4,389,151		4,750,459
		6,085,670		6,416,984
Inventory reserve		(681,395	)	(681,395	)
	$	5,404,275	$	5,735,589

XML

CONDENSED BALANCE SHEETS (USD $)	Mar. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 24,198,456	$ 27,629,359
Accounts receivable, net	3,174,724	3,476,718
Inventories, net	5,404,275	5,735,589
Other current assets	604,082	1,065,641
Total current assets	33,381,537	37,907,307
Property, plant, and equipment, net	11,324,601	10,910,172
Intangible and other assets, net	277,647	279,965
Total assets	44,983,785	49,097,444
Current liabilities:
Accounts payable	3,845,655	5,107,778
Litigation proceeds subject to stipulation	7,724,826	7,724,826
Current portion of long-term debt	201,982	247,064
Accrued compensation	643,453	815,044
Dividends payable	57,613	57,613
Accrued royalties to shareholders	496,242	602,209
Other accrued liabilities	1,559,139	1,975,018
Income taxes payable	4,807	90,972
Total current liabilities	14,533,717	16,620,524
Long-term debt, net of current maturities	3,539,796	3,576,932
Total liabilities	18,073,513	20,197,456
Commitments and contingencies - see Note 6
Preferred stock $1 par value:
Common stock, no par value
Additional paid-in capital	59,031,842	58,983,166
Retained deficit	(32,019,906)	(29,981,514)
Common stock in treasury - at cost	(1,096,609)	(1,096,609)
Total stockholders' equity	26,910,272	28,899,988
Total liabilities and stockholders' equity	44,983,785	49,097,444
Series I, Class B
Preferred stock $1 par value:
Preferred stock	103,500	103,500
Series II, Class B
Preferred stock $1 par value:
Preferred stock	178,700	178,700
Series III, Class B
Preferred stock $1 par value:
Preferred stock	130,245	130,245
Series IV, Class B
Preferred stock $1 par value:
Preferred stock	542,500	542,500
Series V, Class B
Preferred stock $1 par value:
Preferred stock	$ 40,000	$ 40,000

XML

BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2014

BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

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 primary products with Notice of Substantial Equivalence to the FDA are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; the 3mL, 5mL, and 10mL syringes; the blood collection tube holder; the small diameter tube adapter; the allergy tray; the IV safety catheter; the Patient Safe® syringe; the Patient Safe® Luer Cap; and the VanishPoint® Blood Collection Set.

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 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 31, 2014 for the year ended December 31, 2013.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $)	3 Months Ended
	Mar. 31, 2014 item	Mar. 31, 2013 item	Dec. 31, 2013
Concentration risks
Number of significant customers	3	1
Aggregate dollar amount of net sales to significant customers	$ 6,040,378	$ 7,173,112
Revenue recognition
Estimated contractual allowance	3,167,259		3,611,692
Change to reserve regarding non-contractual rebates	0
Period for return of incorrect shipments	10 days
Number of times overstocking returns are limited	2
Period for return of product due to overstock	12 months
Maximum percentage of distributor's total purchase for the prior 12-month period	1.00%
Sales | Customer concentration risk
Concentration risks
Aggregate dollar amount of net sales to significant customers	$ 3,000,000	$ 1,400,000
Concentration risk (as a percent)	49.10%	19.20%
Product components | Supplier concentration risk
Concentration risks
Concentration risk (as a percent)	53.30%	70.80%
Product components | Supplier concentration risk | Other Chinese manufacturers
Concentration risks
Concentration risk (as a percent)	11.10%

XML

INVENTORIES (Details) (USD $)	Mar. 31, 2014	Dec. 31, 2013
INVENTORIES
Raw materials	$ 1,696,519	$ 1,666,525
Finished goods	4,389,151	4,750,459
Inventory, gross	6,085,670	6,416,984
Inventory reserve	(681,395)	(681,395)
Inventory, net	$ 5,404,275	$ 5,735,589

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include unrestricted cash, the proceeds subject to a stipulation (discussed elsewhere herein), 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 doubtful accounts is primarily determined by review of specific trade receivables.  Those accounts that are doubtful of collection are included in the allowance.  This provision is reviewed to determine the adequacy of the allowance for doubtful accounts.  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 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 5, Other Accrued Liabilities.

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

Inventories

Inventories are valued at the lower of cost or market, with cost being determined using actual average cost.  The Company compares the average cost to the market price and records the lower value.  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.  A reserve is established for any excess or obsolete inventories or they may be written off.

Property, plant, and equipment

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

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
Automobiles	7 years

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 of the underlying assets.

The Company’s property, plant, and equipment primarily consist of buildings, land, assembly equipment for syringes, molding machines, molds, office equipment, furniture, and fixtures.

Intangible assets

Intangible assets are stated at cost and consist primarily of intellectual property which is amortized using the straight-line method over 17 years.

Financial instruments

The Company estimates the fair market 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 market 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.  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, 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 majority of accounts receivable are due from companies which are well-established entities.  As a consequence, Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers for the first quarters of 2014 and 2013:

	Three Months ended March 31, 2014	Three Months ended March 31, 2013
Number of significant customers	3	1
Aggregate dollar amount of net sales to significant customers	$3.0 million	$1.4 million
Percentage of net sales to significant customers	49.1%	19.2%

The Company manufactures syringes in Little Elm, Texas as well as utilizing manufacturers in China.  The Company purchases most of its product components from single suppliers, including needle adhesives and packaging materials.  There are multiple sources of these materials.  The Company obtained roughly 53.3% and 70.8% of its finished products in the first three months of 2014 and 2013, respectively, from the Company’s primary Chinese manufacturer.  Other Chinese manufacturers produced 11.1% of the units produced, which units consisted of Patient Safe® syringes and catheters.  In the event that the Company becomes unable to purchase products from its primary Chinese manufacturer, the Company would need to find an alternate manufacturer for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe, and increase domestic production for 1mL and 3mL syringes.

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  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 that the Company has not received tracking reports.  Rebates are recorded when issued and 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 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 and deducted from revenues in the Statements of Operations.  Accounts payable included estimated contractual allowances for $3,167,259 and $3,611,692 as of March 31, 2014 and December 31, 2013, 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.  Any product shipped or distributed for evaluation purposes is expensed.

Certain distributors have taken rebates to which they are not entitled, such as utilizing a rebate for products not purchased directly from the Company.  Major customers said they have ceased the practices resulting in claiming non-contractual rebates.  Rebates can only be claimed on purchases made directly from the Company. The Company has established a reserve for the collectability of these non-contractual rebate amounts.  The expense for the reserve is recorded in Operating expense, General and administrative.  The reserve for such non-contractual deductions is included in the allowance for doubtful accounts.  There has been no change to the reserve contractual rebates in the periods currently presented.

The Company’s domestic return policy is set forth in its standard Distribution Agreement.  This 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 will not accept returned goods without a returned goods authorization number.  The Company may refund the customer’s money or replace the product.

The Company’s domestic return policy also 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’s international distribution agreements do not provide for any returns.

Litigation proceeds and settlements

Proceeds from litigation are recognized when realizable.  Generally, realization is not reasonably assured and expected until proceeds are collected; however, see Note 6, COMMITMENTS AND CONTINGENCIES, for a discussion of proceeds received from Becton Dickinson and Company (“BD”) pursuant to a stipulation in the patent infringement case Retractable Technologies, Inc. and Thomas Shaw v. Becton Dickinson and Company, Civil Action No. 2:07-cv-250, in the U.S. District Court for the Eastern District of Texas, Marshall Division.

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.  The Company utilized some of its net operating loss carry forwards in 2013 and paid Alternative Minimum Tax on its taxable income.  The Company has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest related to income tax are classified as General and administrative expense and Interest expense, respectively, in the Condensed Statements of Operations.

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 or common stock issuable upon the conversion of convertible preferred stock and convertible debt.  The calculation of diluted EPS excluded 2.0 million and 0.5 million shares of Common Stock underlying issued and outstanding stock options at March 31, 2014 and March 31, 2013, respectively, as their effect was antidilutive.  The potential dilution, if any, is shown on the following schedule:

		Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Net loss	$	(2,038,392	)	$	(1,409,533	)
Preferred dividend requirements		(228,999	)		(229,068	)
Loss available to common shareholders after assumed conversions	$	(2,267,391	)	$	(1,638,601	)
Average common shares outstanding		27,258,689			27,238,495
Average common and common equivalent shares outstanding - assuming dilution		27,258,689			27,238,495
Basic loss per share	$	(0.08	)	$	(0.06	)
Diluted loss per share	$	(0.08	)	$	(0.06	)

Shipping and handling costs

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

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

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

Recent Pronouncement

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”).  ASU 2013-11 requires, unless certain conditions exists, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward.  ASU 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013, with early adoption permitted.  Retrospective application is also permitted.  The adoption of ASU 2013-11, effective with the reporting period beginning January 1, 2014 did not have an impact on the Company’s financial statements.

XML

CONDENSED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
CONDENSED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Common stock, no par value (in dollars per share)	$ 0.0	$ 0.0

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of estimated useful lives of property, plant and equipment

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

Schedule of significant customers

	Three Months ended March 31, 2014	Three Months ended March 31, 2013
Number of significant customers	3	1
Aggregate dollar amount of net sales to significant customers	$3.0 million	$1.4 million
Percentage of net sales to significant customers	49.1%	19.2%

Schedule of earnings per share

		Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Net loss	$	(2,038,392	)	$	(1,409,533	)
Preferred dividend requirements		(228,999	)		(229,068	)
Loss available to common shareholders after assumed conversions	$	(2,267,391	)	$	(1,638,601	)
Average common shares outstanding		27,258,689			27,238,495
Average common and common equivalent shares outstanding - assuming dilution		27,258,689			27,238,495
Basic loss per share	$	(0.08	)	$	(0.06	)
Diluted loss per share	$	(0.08	)	$	(0.06	)

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 01, 2014
Document and Entity Information
Entity Registrant Name	RETRACTABLE TECHNOLOGIES INC
Entity Central Index Key	0000946563
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		27,326,472
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1

XML

INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2014

INVENTORIES

Schedule of inventories

		March 31, 2014		December 31, 2013
Raw materials	$	1,696,519	$	1,666,525
Finished goods		4,389,151		4,750,459
		6,085,670		6,416,984
Inventory reserve		(681,395	)	(681,395	)
	$	5,404,275	$	5,735,589

XML

CONDENSED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
CONDENSED STATEMENTS OF OPERATIONS
Sales, net	$ 6,040,378	$ 7,173,112
Cost of sales
Cost of manufactured product	3,820,784	3,840,094
Royalty expense to shareholders	496,242	556,965
Total cost of sales	4,317,026	4,397,059
Gross profit	1,723,352	2,776,053
Operating expenses:
Sales and marketing	1,096,694	1,063,287
Research and development	184,724	180,848
General and administrative	2,431,678	2,898,952
Total operating expenses	3,713,096	4,143,087
Loss from operations	(1,989,744)	(1,367,034)
Interest and other income	10,396	11,440
Interest expense, net	(57,168)	(52,063)
Loss before income taxes	(2,036,516)	(1,407,657)
Provision for income taxes	1,876	1,876
Net loss	(2,038,392)	(1,409,533)
Preferred stock dividend requirements	(228,999)	(229,068)
Loss applicable to common shareholders	$ (2,267,391)	$ (1,638,601)
Basic loss per share (in dollars per share)	$ (0.08)	$ (0.06)
Diluted loss per share (in dollars per share)	$ (0.08)	$ (0.06)
Weighted average common shares outstanding:
Basic (in shares)	27,258,689	27,238,495
Diluted (in shares)	27,258,689	27,238,495

XML

BUSINESS SEGMENTS

3 Months Ended

Mar. 31, 2014

BUSINESS SEGMENTS

BUSINESS SEGMENTS

7.     BUSINESS SEGMENTS

	Three Months EndedMarch 31, 2014		Three Months EndedMarch 31, 2013
U.S. sales	$	4,950,177	$	5,736,230
North and South America sales (excluding U.S.)	836,552		592,289
Other international sales	253,649		844,593
Total sales, net	$	6,040,378	$	7,173,112

	March 31, 2014		December 31, 2013
Long-lived assets
U.S.	$	11,096,803	$	10,676,053
International	$	227,798	$	234,119

The Company does not operate in separate reportable segments.  The Company has minimal long-lived assets in foreign countries.  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.

XML

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2014

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

6.     COMMITMENTS AND CONTINGENCIES

On May 19, 2010, final judgment was entered in the U.S. District Court for the Eastern District of Texas, Marshall Division for the Company which ordered that the Company recover $5,000,000 plus prejudgment and post-judgment interest, and ordered a permanent injunction for BD’s 1mL and 3mL Integra syringes until the expiration of certain patents.  The permanent injunction was stayed for the longer of the exhaustion of the appeal of the district court’s case or twelve months from May 19, 2010.  In June 2010, BD filed an appeal in the U.S. Court of Appeals for the Federal Circuit appealing the final judgment entered on May 19, 2010.  In July 2011, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit reversed the district court’s judgment that BD’s 3mL Integra infringed the Company’s ‘224 patent and ‘077 patent.  The U.S. Court of Appeals for the Federal Circuit affirmed the district court’s judgment that the 1mL Integra infringes the Company’s ‘244 and ‘733 patents.  The U.S. Court of Appeals for the Federal Circuit also affirmed the district court’s judgment that the ‘077 patent is not invalid for anticipation or obviousness.  The Company had petitioned for a rehearing by all the judges of the Federal Circuit as to whether the three-judge panel properly construed the Company’s patent claim language in finding that the 3mL Integra did not infringe.  The Company’s petition for rehearing by all of the judges of the Federal Circuit was denied with two dissents being issued.  The Company filed a petition for certiorari asking the Supreme Court to review the matter.  That petition was denied in January of 2013.  On August 7, 2013, the U.S. District Court for the Eastern District of Texas issued an order adopting the Magistrate Judge’s Report and Recommendation and denying BD’s Rule 60 motion seeking a reduction in damages.  On October 29, 2013, BD filed its Notice of Appeal of the August 7, 2013 order to the Federal Circuit.  Oral argument for this appeal occurred on May 9, 2014.  On September 30, 2013, the Company received payment of $7,724,826 (the “Judgment Amount”) from BD pursuant to a stipulation in this case.  The stipulation provides that if, as a result of BD’s appeal of the District Court’s denial of BD’s Rule 60 motion, it is judicially determined that BD owes an amount less than the Judgment Amount, BD shall be entitled to restitution by the Company of any excess payment, with interest.  Otherwise, the payment of the Judgment Amount shall constitute satisfaction of the patent infringement judgment and BD shall owe no further money damages to the Company in this case.  The Judgment Amount has been reflected as a current liability in the Balance Sheets since the proceeds are not yet realizable.

In May 2010, the Company and an officer’s suit against BD in the U.S. District Court for the Eastern District of Texas, Marshall Division alleging violations of antitrust acts, false advertising, product disparagement, tortious interference, and unfair competition was reopened.  The Company and an officer filed a Second Amended Complaint on July 23, 2010 setting forth additional detail regarding the allegations of BD’s illegal conduct.  BD filed a motion to dismiss and the U.S. District Court for the Eastern District of Texas, Marshall Division denied that motion in part and granted it in part, granting the Company the right to re-plead certain allegations by May 13, 2011.  The Company and an officer filed a Third Amended Complaint in May 2011, setting forth additional detail regarding the alleged illegal conduct by BD.  Trial was initially set for February 2012.  However, in January 2012 the parties agreed to a continuance to allow the petition for certiorari to be considered.  As stated above, the petition was denied in January of 2013.  A hearing to re-set a trial date in light of BD’s motion for continuance was held May 3, 2013.  The trial commenced on September 9, 2013 in Tyler, Texas, and the jury returned its verdict on September 19, 2013, finding that BD illegally engaged in anticompetitive conduct with the intent to acquire or maintain monopoly power in the safety syringe market and engaged in false advertising under the Lanham Act.  The jury awarded the Company $113,508,014 in damages for the antitrust claim, which is subject to being trebled pursuant to statute.  The Court conducted a hearing for post-trial motions in early 2014.  Orders have not yet issued.  BD has stated that it plans to appeal the verdict.

In September 2007, BD and MDC Investment Holdings, Inc. (“MDC”) sued the Company in the United States District Court for the Eastern District of Texas, Texarkana Division, initially alleging that the Company is infringing two U.S. patents of MDC (6,179,812 and 7,090,656) that are licensed to BD. BD and MDC seek injunctive relief and unspecified damages.  The Company counterclaimed for declarations of non-infringement, invalidity, and unenforceability of the asserted patents.  The plaintiffs subsequently dropped allegations with regard to patent no. 7,090,656 and the Company subsequently dropped its counterclaims for unenforceability of the asserted patents.  The United States District Court for the Eastern District of Texas, Texarkana Division conducted a claims construction hearing on September 25, 2008 and issued its claims construction order on November 14, 2008.  The case has been stayed pending resolution of the Company’s first filed case against BD described above.  There has been no activity in this case since the stay.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Earnings per share
Shares of common stock underlying issued and outstanding stock options excluded from calculation of diluted EPS	2,000,000	500,000
Net loss	$ (2,038,392)	$ (1,409,533)
Preferred dividend requirements	(228,999)	(229,068)
Loss applicable to common shareholders	$ (2,267,391)	$ (1,638,601)
Average common shares outstanding	27,258,689	27,238,495
Average common and common equivalent shares outstanding - assuming dilution	27,258,689	27,238,495
Basic loss per share (in dollars per share)	$ (0.08)	$ (0.06)
Diluted loss per share (in dollars per share)	$ (0.08)	$ (0.06)

XML

OTHER ACCRUED LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2014

OTHER ACCRUED LIABILITIES

Schedule of other accrued liabilities

		March 31, 2014		December 31, 2013
Prepayments from customers	$	1,152,115	$	1,720,896
Accrued property taxes		107,570		—
Accrued professional fees		187,023		169,125
Other accrued expenses		112,431		84,997
	$	1,559,139	$	1,975,018

XML

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2014

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

10.  SUBSEQUENT EVENTS

Effective May 9, 2014, the Company reduced its workforce by 13.7% in an effort to cut costs. The Company expects its compensation costs will be reduced in an amount exceeding $1 million annually. The Company expects to pay approximately $300 thousand in severance costs in the second quarter of 2014.

On April 11, 2014, the Company issued a letter of credit in the amount of $535,224 to fund the purchase of manufacturing equipment. Such letter of credit is secured by funds held in a Company bank account.

XML

STOCK REPURCHASE PROGRAM

3 Months Ended

Mar. 31, 2014

STOCK REPURCHASE PROGRAM

STOCK REPURCHASE PROGRAM

8.     STOCK REPURCHASE PROGRAM

On July 10, 2012, the Company authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  Under the plan, the Company purchased 83,097 shares in the first quarter of 2013.  The plan was terminated effective August 30, 2013.

Pursuant to the Certificates of Designation, Preferences, Rights And Limitations of the Series I Class B and Series II Class B Convertible Preferred Stock, the Company would have been prohibited from purchasing its Common Stock while dividends were in arrears.  Therefore, to facilitate the Common Stock repurchase plan, the Company paid dividends on the Series I Class B Preferred Stock in the amount of $12,938 at each date on January 21, 2013 and April 22, 2013.  The Company paid dividends to Series II Class B Preferred Stockholders in the amount of $44,675 on each of the same dates listed in the preceding sentence.

XML

DIVIDENDS

3 Months Ended

Mar. 31, 2014

DIVIDENDS

DIVIDENDS

9.     DIVIDENDS

On December 20, 2013 and April 1, 2014, the Board of Directors announced dividends on the Series I Class B Preferred Stock in the amount of $12,938 on each date which were paid on January 20, 2014 and April 21, 2014.  The Company also announced and paid dividends to Series II Class B Preferred Stockholders in the amount of $44,675 on the same dates.  See Note 8 for information about dividends paid during the term of the Stock Repurchase Program.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting estimates

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.

Cash and cash equivalents

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include unrestricted cash, the proceeds subject to a stipulation (discussed elsewhere herein), money market accounts, and investments with original maturities of three months or less.

Accounts receivable

Accounts receivable

The Company records trade receivables when revenue is recognized.  No product has been consigned to customers.  The Company’s allowance for doubtful accounts is primarily determined by review of specific trade receivables.  Those accounts that are doubtful of collection are included in the allowance.  This provision is reviewed to determine the adequacy of the allowance for doubtful accounts.  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 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 5, Other Accrued Liabilities.

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

Inventories

Inventories

Inventories are valued at the lower of cost or market, with cost being determined using actual average cost.  The Company compares the average cost to the market price and records the lower value.  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.  A reserve is established for any excess or obsolete inventories or they may be written off.

Property, plant, and equipment

Property, plant, and equipment

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

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
Automobiles	7 years

Long-lived assets

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 of the underlying assets.

The Company’s property, plant, and equipment primarily consist of buildings, land, assembly equipment for syringes, molding machines, molds, office equipment, furniture, and fixtures.

Intangible assets

Intangible assets

Intangible assets are stated at cost and consist primarily of intellectual property which is amortized using the straight-line method over 17 years.

Financial instruments

Financial instruments

The Company estimates the fair market 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 market 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.  The fair value of long-term liabilities, based on Management’s estimates, approximates their reported values.

Concentration risks

Concentration risks

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, 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 majority of accounts receivable are due from companies which are well-established entities.  As a consequence, Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers for the first quarters of 2014 and 2013:

	Three Months ended March 31, 2014	Three Months ended March 31, 2013
Number of significant customers	3	1
Aggregate dollar amount of net sales to significant customers	$3.0 million	$1.4 million
Percentage of net sales to significant customers	49.1%	19.2%

The Company manufactures syringes in Little Elm, Texas as well as utilizing manufacturers in China.  The Company purchases most of its product components from single suppliers, including needle adhesives and packaging materials.  There are multiple sources of these materials.  The Company obtained roughly 53.3% and 70.8% of its finished products in the first three months of 2014 and 2013, respectively, from the Company’s primary Chinese manufacturer.  Other Chinese manufacturers produced 11.1% of the units produced, which units consisted of Patient Safe® syringes and catheters.  In the event that the Company becomes unable to purchase products from its primary Chinese manufacturer, the Company would need to find an alternate manufacturer for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe, and increase domestic production for 1mL and 3mL syringes.

Revenue recognition

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  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 that the Company has not received tracking reports.  Rebates are recorded when issued and 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 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 and deducted from revenues in the Statements of Operations.  Accounts payable included estimated contractual allowances for $3,167,259 and $3,611,692 as of March 31, 2014 and December 31, 2013, 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.  Any product shipped or distributed for evaluation purposes is expensed.

Certain distributors have taken rebates to which they are not entitled, such as utilizing a rebate for products not purchased directly from the Company.  Major customers said they have ceased the practices resulting in claiming non-contractual rebates.  Rebates can only be claimed on purchases made directly from the Company. The Company has established a reserve for the collectability of these non-contractual rebate amounts.  The expense for the reserve is recorded in Operating expense, General and administrative.  The reserve for such non-contractual deductions is included in the allowance for doubtful accounts.  There has been no change to the reserve contractual rebates in the periods currently presented.

The Company’s domestic return policy is set forth in its standard Distribution Agreement.  This 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 will not accept returned goods without a returned goods authorization number.  The Company may refund the customer’s money or replace the product.

The Company’s domestic return policy also 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’s international distribution agreements do not provide for any returns.

Litigation proceeds and settlements

Litigation proceeds and settlements

Proceeds from litigation are recognized when realizable.  Generally, realization is not reasonably assured and expected until proceeds are collected; however, see Note 6, COMMITMENTS AND CONTINGENCIES, for a discussion of proceeds received from Becton Dickinson and Company (“BD”) pursuant to a stipulation in the patent infringement case Retractable Technologies, Inc. and Thomas Shaw v. Becton Dickinson and Company, Civil Action No. 2:07-cv-250, in the U.S. District Court for the Eastern District of Texas, Marshall Division.

Income taxes

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.  The Company utilized some of its net operating loss carry forwards in 2013 and paid Alternative Minimum Tax on its taxable income.  The Company has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest related to income tax are classified as General and administrative expense and Interest expense, respectively, in the Condensed Statements of Operations.

Earnings per share

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 or common stock issuable upon the conversion of convertible preferred stock and convertible debt.  The calculation of diluted EPS excluded 2.0 million and 0.5 million shares of Common Stock underlying issued and outstanding stock options at March 31, 2014 and March 31, 2013, respectively, as their effect was antidilutive.  The potential dilution, if any, is shown on the following schedule:

		Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Net loss	$	(2,038,392	)	$	(1,409,533	)
Preferred dividend requirements		(228,999	)		(229,068	)
Loss available to common shareholders after assumed conversions	$	(2,267,391	)	$	(1,638,601	)
Average common shares outstanding		27,258,689			27,238,495
Average common and common equivalent shares outstanding - assuming dilution		27,258,689			27,238,495
Basic loss per share	$	(0.08	)	$	(0.06	)
Diluted loss per share	$	(0.08	)	$	(0.06	)

Shipping and handling costs

Shipping and handling costs

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

Research and development costs

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

Share-based compensation

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

Recent Pronouncement

Recent Pronouncement

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”).  ASU 2013-11 requires, unless certain conditions exists, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward.  ASU 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013, with early adoption permitted.  Retrospective application is also permitted.  The adoption of ASU 2013-11, effective with the reporting period beginning January 1, 2014 did not have an impact on the Company’s financial statements.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	3 Months Ended
	Mar. 31, 2014 item
Accounts receivable
Number of products consigned to customers	0
Intangible assets
Useful lives of intellectual property	17 years
Production equipment | Minimum
Property, plant, and equipment
Useful lives	3 years
Production equipment | Maximum
Property, plant, and equipment
Useful lives	13 years
Office furniture and equipment | Minimum
Property, plant, and equipment
Useful lives	3 years
Office furniture and equipment | Maximum
Property, plant, and equipment
Useful lives	10 years
Buildings
Property, plant, and equipment
Useful lives	39 years
Building improvements
Property, plant, and equipment
Useful lives	15 years
Automobiles
Property, plant, and equipment
Useful lives	7 years

XML

OTHER ACCRUED LIABILITIES (Details) (USD $)	Mar. 31, 2014	Dec. 31, 2013
OTHER ACCRUED LIABILITIES
Prepayments from customers	$ 1,152,115	$ 1,720,896
Accrued property taxes	107,570
Accrued professional fees	187,023	169,125
Other accrued expenses	112,431	84,997
Other accrued liabilities	$ 1,559,139	$ 1,975,018

XML

CONDENSED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities
Net loss	$ (2,038,392)	$ (1,409,533)
Adjustments to reconcile net loss to net cash provided by (used by) operating activities:
Depreciation and amortization	326,482	314,179
loss on disposal of assets		(1,000)
(Increase) decrease in assets:
Inventories	331,314	(201,770)
Accounts receivable	301,994	536,846
Other current assets	461,559	483,634
Increase (decrease) in liabilities:
Accounts payable	(1,262,123)	(1,836,871)
Other accrued liabilities	(693,437)	(17,770)
Income taxes payable	(86,165)	1,876
Net cash used by operating activities	(2,658,768)	(2,130,409)
Cash flows from investing activities
Purchase of property, plant, and equipment	(738,597)	(63,890)
Proceeds from sale of assets		1,000
Net cash used by investing activities	(738,597)	(62,890)
Cash flows from financing activities
Repayments of long-term debt and notes payable	(82,214)	(77,657)
Repurchase of Common Stock		(101,672)
Proceeds from the exercise of stock options	106,289
Payment of Preferred Stock dividends	(57,613)	(57,613)
Net cash used by financing activities	(33,538)	(236,942)
Net decrease in cash and cash equivalents	(3,430,903)	(2,430,241)
Cash and cash equivalents at:
Beginning of period	27,629,359	25,963,313
End of period	24,198,456	23,533,072
Supplemental schedule of cash flow information:
Interest paid	57,168	62,537
Income taxes paid	87,995
Supplemental schedule of noncash investing and financing activities:
Preferred dividends declared, not paid	$ 57,613	$ 57,613

XML

OTHER ACCRUED LIABILITIES

3 Months Ended

Mar. 31, 2014

OTHER ACCRUED LIABILITIES

OTHER ACCRUED LIABILITIES

5.     OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

		March 31, 2014		December 31, 2013
Prepayments from customers	$	1,152,115	$	1,720,896
Accrued property taxes		107,570		—
Accrued professional fees		187,023		169,125
Other accrued expenses		112,431		84,997
	$	1,559,139	$	1,975,018

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $)	0 Months Ended		1 Months Ended
	Sep. 30, 2013 BD	Sep. 19, 2013 BD	Jul. 31, 2011 BD item	May 31, 2010 BD	Sep. 30, 2007 BD and MDC Investment Holdings, Inc. item
COMMITMENTS AND CONTINGENCIES
Recovery amount				$ 5,000,000
Period from specified date for permanent injunction to stay				12 months
Number of judges on panel			3
Number of dissents being issued			2
Judgment amount received pursuant to stipulation	7,724,826
Value of damages awarded		$ 113,508,014
Number of U.S. patents infringed upon					2

XML

BUSINESS SEGMENTS (Tables)

3 Months Ended

Mar. 31, 2014

BUSINESS SEGMENTS

Schedule of sales and long-lived assets by geographical areas

	Three Months EndedMarch 31, 2014		Three Months EndedMarch 31, 2013
U.S. sales	$	4,950,177	$	5,736,230
North and South America sales (excluding U.S.)	836,552		592,289
Other international sales	253,649		844,593
Total sales, net	$	6,040,378	$	7,173,112

	March 31, 2014		December 31, 2013
Long-lived assets
U.S.	$	11,096,803	$	10,676,053
International	$	227,798	$	234,119