# Retractable Technologies Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [Retractable Technologies Inc](/companies/rvp.md) (CIK 946563)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 14:32 ET
- Period: 2024-09-30
- Accession: 0001558370-24-015682
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/946563/000155837024015682/tmb-20240930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/946563/000155837024015682/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $10.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $24.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $10.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $22.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | −$14.8k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $1.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $174.7k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $516.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$5.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$13.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $30.5k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $95.8k | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$31.2k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $8.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$1.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$15.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.53 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.53 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 29,937,159 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 29,937,159 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$10.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $3.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $68.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $157.8m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $8.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $74.4m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $986.8k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $325.2k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $83.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,903 characters.

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

### MATERIAL CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS

#### Overview

We have been manufacturing and marketing our products since 1997. Syringes comprised 70.7% of our sales in the first nine months of 2024. EasyPoint® products accounted for 24.4% and other products, including our IV safety catheter and blood collection products, were 4.8% of our sales in the first nine months of 2024.

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

On September 13, 2024, the Office of the U.S. Trade Representative (“USTR”) revealed final adjustments to increase tariffs on certain goods imported from China under Section 301 of the Trade Act of 1974. Among those products included were syringes and needles, at a rate of 100%. As previously noted, for the first nine months of 2024, 90% of the products the Company obtained were purchased from our manufacturers in China, most of which are impacted by the tariffs. The adjusted tariffs were effective on September 27, 2024. Tariffs are expected to have a material impact to our results of operations and financial position. To date, the Company has incurred $568 thousand in tariff expenses and due to existing orders from our Chinese manufacturers, we expect to incur a total of approximately $1.5 million in tariff expenses through February 2025. We are working to lessen the financial impact of the tariffs, including shifting a larger portion of manufacturing of 1mL, 3mL, and EasyPoint® needles to our domestic manufacturing facility, but while these actions would decrease tariff expenses, they would lead to an increase in compensation expense as we must hire additional manufacturing personnel. Certain products must be purchased from third party suppliers as we do not currently have the machinery to manufacture our entire product line in our U.S. facility. When equipment was added to our U.S. facility pursuant to the TIA, it was strictly for product lines typically used in the administration of vaccines, as required by the TIA. We have sued the USTR and other defendants involved in the issuance of the recent tariff adjustment as described in Note 8 to the financial statements seeking an injunction and, ultimately, a decision that the tariffs be set aside, as well as certain costs, fees, and other relief. Some of our requests for injunctions were denied as described in Note 8 to the financial statements and therefore we are currently subject to the tariffs during the pendency of the case. Tariffs at the

100% level without sufficient time to increase our domestic production would considerably increase our costs and may cause irreparable harm.

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

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

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

Over the past several years, we have experienced certain cost increases in raw materials, but those costs primarily affect our domestic manufacturing because the finished goods we purchased from China (being 90% of our products) have been subject to a long-term fixed price contract. Other factors that could affect our unit costs include tariffs, supplier cost increases, and changing production volumes. Increases in costs may not be recoverable through price increases of our products.

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

As detailed in Note 4 to the financial statements, we held $32.8 million in debt and equity securities as of September 30, 2024, which represented 20.8% of our total assets.

Historically, unit sales have increased during the flu season. From approximately 2020-2022, the effect of flu season sales was less impactful due to the dramatic increase in sales attributable to COVID-19 vaccinations. Seasonal trends for syringe sales may now be following pre-pandemic patterns. Additionally, we believe there may be more demand for EasyPoint® products during flu season.

In the third quarter of 2024, our Chinese manufacturers produced approximately 87.3% of our products.

A material portion of our net losses for the nine months ended September 30, 2024 is comprised of the approximately $8.4 million change in valuation allowance which occurred in the second quarter of 2024 on the deferred tax asset which is included as a provision for income taxes on the Condensed Statements of Operations. The devaluation of the deferred tax asset was related to our determination that, based on current information, it was more likely than not that we wouldn’t be in a position to use loss carryforwards against future taxable net income based on a variety of factors and accounting guidelines. The announced implementation of tariffs on imported syringes from China was one of the factors considered in this determination.

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

Included in net sales for the third quarter of 2024 is $38 thousand in licensing fees recorded under a sublicensing agreement with one of our Chinese manufacturers. Under the terms of our licensing agreement with Mr. Shaw, he is entitled to receive 50% of this amount, which is recorded as royalty expense to shareholder in total cost of sales for the year.

### RESULTS OF OPERATIONS

The following discussion may contain trend information and other forward-looking statements that involve a number of risks and uncertainties. Our actual future results could differ materially from our historical results of operations and those discussed in any forward-looking statements. All period references are to periods ended September 30, 2024 or 2023, as applicable. Dollar amounts have been rounded for ease of reading.

### Comparison of Three Months Ended September 30, 2024 and September 30, 2023

Domestic sales accounted for 93.1% and 90.9% of the revenues for the three months ended September 30, 2024 and 2023, respectively. Domestic revenues were essentially flat while domestic unit sales increased 29.6%. Domestic unit sales were 92.4% of total unit sales for the three months ended September 30, 2024. The increase in unit sales not contributing to domestic revenues was primarily driven by a decrease in the average selling price, largely due to higher sales of our EasyPoint® needles, which typically have a lower average selling price. International revenues decreased approximately 23.8%. The decrease in international revenues is primarily due to the timing of international shipments. Overall unit sales increased 22%. There is uncertainty as to the timing of future international orders.

Cost of manufactured product increased 81.6% principally due to a rise in the volume of units sold, higher period costs associated with increased sales, and additional period costs related to increased domestic production activities. Royalty expense increased 11.4% primarily due to the increase in gross sales and royalties received from sublicenses.

The gross profit margin decreased from 41.8% to (0.1%) for the three months ended September 30, 2024. This decline was primarily driven by a decrease in the average selling price, a drop in international sales, and rising production costs. Despite the increase in unit sales, these factors contributed to the overall reduction in gross profit.

Operating expenses were essentially flat, with a slight decrease of 2.6% compared to the three months ended September 30, 2023.

The loss from operations was $5.1 million compared to a loss of $936 thousand for the same period last year. The increased loss was due to lower gross profit for the current period.

The unrealized gain on debt and equity securities was $1.5 million due to the increased market values of those securities.

The benefit for income taxes was $31 thousand for the third quarter of 2024 as compared to a benefit for income taxes of $1.2 million in the third quarter of 2023. This change is primarily due to the increase in valuation allowance on our deferred tax asset in the second quarter of 2024.

Tariffs are expected to materially increase our costs in future periods.

### Comparison of Nine Months Ended September 30, 2024 and September 30, 2023

Domestic sales accounted for 88.8% and 75.5% of the revenues for the nine months ended September 30, 2024 and 2023, respectively. Domestic unit sales increased 10.7% while domestic revenues decreased 3.8% primarily due to the mix of products sold. This decline in revenues was largely driven by a decrease in the average selling price, mainly resulting from increased sales of our EasyPoint® needles, which typically have a lower average selling price. Domestic unit sales were 87.6% of total unit sales for the nine months ended September 30, 2024. International revenues decreased approximately 62.6% predominately due to fewer international vaccination-related sales. Overall unit sales decreased 16.1%. There is uncertainty as to the timing of future international orders.

Cost of manufactured product remained largely consistent, with a slight increase of 4.4%. This change was primarily driven by a decrease in the volume of units sold, partially offset by higher period costs associated with increased domestic production activities.

Operating expenses decreased 5.7% from the prior year. This is substantially due to a reduction of property tax expense as a result of newly enacted property tax exemption legislation relating to medical device property. The decrease was partially offset by an increase in sales and marketing expenses.

The loss from operations was $13.9 million compared to a loss of $8.7 million for the same period last year. The increased loss was due to lower gross profit for the current period.

The unrealized gain on debt and equity securities was $1.4 million due to the increased market values of those securities.

The provision for income taxes was $8.4 million for the first nine months of 2024 as compared to a benefit for income taxes of $1.9 million in the first nine months of 2023. The year-to-date income tax provision is primarily related to fully reserving our deferred tax asset in the second quarter of 2024.

Tariffs are expected to materially increase our costs in future periods.

### Discussion of Balance Sheet and Cash Flow Items

Cash and investments comprise 23.3% of total assets. Cash flow used by operations was $10.5 million for the nine months ended September 30, 2024 due to a number of factors. We recognized approximately $4.4 million in other income from the TIA during the first nine months of 2024, offset by an increase of $8.4 million in valuation allowance related to deferred tax assets which is material to the adjustments to total cash flow from operations. Changes in working capital also impacted cash flows from operating activities. Accounts receivable decreased by $1.6 million, inventories increased by $3.7 million, and accounts payable decreased by $1.5 million.

Cash flow from investing activities was $2.1 million for the nine months ended September 30, 2024 due to the purchase of assets and net sale of securities.

Cash flow used by financing activities was $398 thousand for the nine months ended September 30, 2024 due to repayments of long-term debt and payment of preferred stock dividends.

### LIQUIDITY AND CAPITAL RESOURCES

We have historically funded operations primarily from the proceeds from revenues, private placements, litigation settlements, and loans. We may fund operations going forward from revenues, cash reserves, and investments in trading securities should the need to access those funds arise.

The imposition of 100% tariffs on our imported syringe and needle products will have a material effect on our operating results and liquidity. There have been no such tariffs incurred during the periods represented in this report but such tariffs were enacted effective September 27, 2024. To date, the Company has incurred $568 thousand in tariff expenses, and due to existing orders from our Chinese manufacturers, we expect to incur a total of approximately $1.5 million in tariff expenses through February 2025. Additional capital improvements and increases to our manufacturing workforce will also increase expenses in the near-term as a result of the tariffs and our expected increase in domestic manufacturing.

#### Margins

The mix of domestic and international sales, along with product mix, 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. Additionally, product mix plays a role, with syringe sales typically having higher average selling prices and gross profit margins than our other product lines. Some international sales of our products are shipped directly from China to the customer. The number of units produced by us versus manufactured in China can have a significant effect on the carrying costs of Inventory as well as Cost of sales. Generally, an overall increase in units sold can positively affect our margins. The cost of raw materials used in manufacturing, transportation costs, and the impact of tariffs can also significantly affect our margins. We will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in China to achieve economic benefits as well as to maintain our domestic manufacturing capability.

#### Cash Requirements

We believe we will have adequate means to meet our short-term needs to fund operations for at least 12 months from the date of issuance of the financial statements. Besides cash reserves and expected income from operations, we also have access to our investments which may be liquidated in the event that we need to access the funds for operations. Expected short-term uses of cash include payroll and benefits, royalty expense, inventory purchases, tariffs, contractual obligations, payment of income taxes, quarterly preferred stock dividends, and other operational priorities. Our liabilities are our bank debt as set forth as Long-term debt on our Condensed Balance Sheets and other liabilities detailed herein in Note 6 to the financial statements. We believe we will have adequate means to meet our currently foreseeable long-term liquidity needs although the new tariffs and our costs related to an increase in domestic manufacturing will increase our expenses materially. For the next 1-3 years, we believe our liquidity will decline materially but expect that we may be able to satisfy our long-term cash requirements using a combination of cash and liquidation of our equity investments. If cash needs cannot be met using existing cash and investments, management would reduce operational costs.

#### Capital Resources

We expect to spend approximately $1 million over the next few months using existing cash reserves to convert a portion of our domestic equipment to align to our plan to produce more units at our U.S. facility. While additional equipment expenditures may be necessary in the future, this near-term equipment conversion is expected to be completed by the second quarter of 2025.

CRITICAL ACCOUNTING ESTIMATES

We are responsible for developing estimates for amounts reported as assets and liabilities, and revenues and expenses in conformity with U.S. generally accepted accounting principles (“GAAP”). Those estimates require that we develop assumptions of future events based on past experience and expectations of economic factors. Among the more critical estimates management makes is the estimate for customer rebates. The amount reported as a contractual allowance for rebates involves examination of past historical trends related to our sales to distributors and the related credits issued once our distributors have satisfied their contractual obligations. The estimate includes consideration of historical redemption rates, discount rates, a combination of estimated distributor inventories based on tracking information provided by the distributors or if known, inventory turnover rates. The establishment of a liability for future claims of rebates against sales in the current period requires that we have an understanding of the relevant sales with respect to product categories, sales distribution channels, and the likelihood of contractual obligations being satisfied. We examine the results of estimates against actual results historically and use the determination to further develop our basis for assumptions in future periods, as well as the accuracy of past estimates. Based on distributors purchasing and claiming rebates practices, we do not expect significant changes to the current inputs and assumption used in the estimate calculations. While we believe that we have sufficient historical data, and a firm basis for establishing reserves for contractual obligations, there is an inherent risk that our estimates and the underlying assumptions may not reflect actual future results. In the event that these estimates and/or assumptions are incorrect, adjustments to our reserves may have a material impact on future results. As of September 30, 2024, we estimate that the total potential future credits to be issued as a result of prior purchases which have not yet been claimed is $1.8 million.

## Controls and procedures

As filed, 1,530 characters.

#### 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, John W. Fort III (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 September 30, 2024, our disclosure controls and procedures were effective.

#### Changes in Internal Control Over Financial Reporting

There have been no changes during the third quarter of 2024 or subsequent to September 30, 2024 in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

## Risk factors

As filed, 782 characters.

In addition to the risk factors disclosed in our most recent annual report which is available on EDGAR, the following additional risk factor has been identified.

Recently enacted tariffs on our products are expected to have a material negative impact to our results of operations and financial position. We are working to lessen the financial impact of the tariffs, including shifting a larger portion of manufacturing of 1mL, 3mL, and EasyPoint® needles to our domestic manufacturing facility, but these actions will be expensive and the timeline remains uncertain. Likewise, our lawsuit to exempt our payment of tariffs may not succeed. Consequently, we expect a material increase in costs which is expected to materially impact our operations and may impact long-term viability.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-015682. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.