Retractable Technologies Inc: Form 10-Q for the period ended Jun 30, 2025

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 68.8% of our sales in the first six months of 2025. EasyPoint® products accounted for 27.6% and other products, including our IV safety catheter and blood collection products, were 3.6% of our sales in the first six months of 2025. The significant increase in unit sales of our EasyPoint® needle products for the first six months of 2025 positively affected our overall net revenues, but the lower selling price attributable to the products resulted in a reduction of the total average selling price for the periods presented.

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%. In April 2025, an additional imposition of tariffs at a rate of 145% went into effect on products imported from China. The April 2025 tariff rate applies to our non-syringe and non-needle products, and is in addition to the 100% tariffs on syringes and needles. On May 12, 2025 and effective on May 14, 2025, the tariff rate has been reduced to 30% as a baseline to replace the 145% rate announced in April. The announcement was part of a 90-day agreement while the U.S. and China negotiated a broader deal on trade and tariffs. As a result, and until a final trade deal has been announced, Management believes the tariff rate on needles and syringes imported from China will be 130% and the remaining products we import will be 30%. As foreign trade policy continues to evolve and as new trade deals are being negotiated, uncertainty as to future tariff rates and affected products remains. Tariffs are expected to have a continuing material impact to our results of operations and financial position.

While we have manufacturing capabilities to manufacture most of the products we currently sell domestically, some of our products are sourced exclusively from China. 62% and 91% of the products we obtained in the six months of 2025 and 2024, respectively, were purchased from our manufacturers in China, most of which are now impacted by the tariffs. Tariffs are expected to have a material impact to our results of operations and financial position. Approximately $2.1 million was spent on tariff expenses in the first six months of 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. This shift would decrease tariff expenses but would lead to an increase in our manufacturing workforce costs as we hire new employees. The cost of increasing our manufacturing workforce was estimated to be approximately $3.8 million annually in combined wages and employee benefits. In connection with allocating more resources to domestic manufacturing, in April 2025, we reduced our workforce (predominantly employees engaged in general and administrative functions) by approximately 7%. The reduction is expected to save an estimated $1.6 million in annual wages and benefits, or approximately 7.8% of total estimated workforce costs. The expected savings was offset by one-time separation payments of approximately $300 thousand to the affected workers.

Subsequent to June 30th, we reduced our manufacturing and manufacturing support workforce by approximately $1.6 million on an annualized basis. The reduction comes as we intend to reduce our labor costs as we improve manufacturing.

We have recently adapted some equipment to increase our domestic manufacturing capabilities. The adaptations to existing equipment will allow us to produce 0.5 mL syringes domestically. Once operational, we will no longer rely on imports for these products. We expect that commercial quantities will be available in the second half of 2025.

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.

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.

Recent additions of manufacturing equipment and facilities under the 2020 TIA have increased our production capacity and our overhead costs. Under the TIA and its successor agreement, until June 30, 2030 we must continue to abide by ongoing terms which include 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. Those costs primarily affected our domestic manufacturing because the finished goods we purchased from China were subject to a long-term fixed price contract. Sensitivity to cost fluctuations are likely to become more pronounced as we transition away from production under such a fixed price contract. Other factors that could affect our unit costs include tariffs, supplier cost increases, increases in workforce costs associated with increased domestic production, and changing production volumes. Increases in costs may not be recoverable through price increases of our products.

We believe domestic customers retained products provided for vaccination purposes in inventory. Customers have reported that demand was diminished due to their remaining syringe inventory. It is difficult to estimate how much, if any, of the remaining inventory might still remain in the market.

As detailed in Note 4 to the financial statements, we held $30.0 million in debt and equity securities as of June 30, 2025, which represented 20.4% of our total assets.

Historically, unit sales have increased during the flu season. From 2020-2022, seasonal effects of the flu season on our revenues were 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, there may be more demand for EasyPoint® products during the flu season, particularly in the retail pharmacy market. Purchases from our retail pharmacy customers may differ from purchasing patterns of general line distributors. Second quarter EasyPoint® sales volumes increased primarily for this reason.

Overall demand may be affected by public sentiment and acceptance of the safety and efficacy of vaccinations. While some products in our catalog of products are unrelated to the administration of vaccines, changes in the acceptance of vaccinations could have a material impact on our business.

A material portion of our net loss for the six months ended June 30, 2025 is comprised of approximately $5.6 million in unrealized loss in debt and equity securities on the Condensed Statements of Operations.

As detailed in Note 8 to the financial statements, we received a settlement payment of $1.9 million in May 2025.

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.

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 June 30, 2025 or 2024, as applicable. Dollar amounts have been rounded for ease of reading.

Comparison of Three Months Ended June 30, 2025 and June 30, 2024

Domestic sales accounted for 81.3% and 83.2% of total revenues for the three months ended June 30, 2025 and 2024, respectively. Domestic revenues increased 69.3%, while domestic unit sales increased 81.8%. Domestic unit sales represented 68.9% of total unit sales for the three months ended June 30, 2025. The increase in unit sales did not translate into a proportional increase in domestic revenues, primarily due to a decrease in average selling price. The average selling price was impacted by product mix and higher transaction fees associated with distributor agreements. The average selling price reduction was significantly impacted by the increase in EasyPoint® needle sales in relation to all products sold.

International revenues for the three months ended June 30, 2025 increased 92.6% compared to the same period in 2024. However, average selling price per unit declined relative to the second quarter of 2024, primarily due to a shift in product mix. International sales for the three months ended June 30, 2025 included Easy Point Needles sold at a discount to certain international customers which reduced the overall average selling price. There remains uncertainty regarding the timing of future international orders.

Overall, units sales increased 109.2%.

Cost of manufactured product increased 66.1% principally due to an increase in tariffs, additional period costs related to increased domestic production activities, and inventory write-downs related to certain product lots approaching their expiration dates. Royalty expense increased 39.4% primarily due to the increase in gross sales, slightly offset by a decrease in royalties payable to a shareholder under a sublicensing agreement.

Tariffs are expected to continue to materially increase our costs in future periods. Approximately $561 thousand was spent on tariff expenses in the second quarter of 2025. These costs are included in Cost of manufactured product.

Operating expenses decreased 6% primarily due to a decrease in bad debt expense in the second quarter of 2025 as compared to the second quarter of 2024.

The loss from operations was $5.1 million compared to a loss of approximately $5.8 million for the same period last year. The decreased loss was due to a decrease in bad debt expense.

The unrealized gain on debt and equity securities was $1.6 million due to the increased market values of those securities.

As detailed in Note 8 to the financial statements, we received a settlement payment of $1.9 million in May 2025.

The provision for income taxes was $1.8 thousand as compared to a provision for income taxes of $8.3 million for the same period in 2024. The difference is primarily related to fully reserving our deferred tax asset in the second quarter of 2024.

Comparison of Six Months Ended June 30, 2025 and June 30, 2024

Domestic sales accounted for 85% and 85.5% of total revenues for the six months ended June 30, 2025 and 2024, respectively. Domestic revenues increased 36.6%, while domestic unit sales increased 47.1%. Domestic unit sales represented 74.9% of total unit sales for the six months ended June 30, 2025. The increase in unit sales did not translate into a proportional increase in domestic revenues, primarily due to a decrease in average selling price. The average selling price was impacted by product mix and higher transaction fees associated with distributor agreements. The average selling price reduction was significantly impacted by the increase in EasyPoint® needle sales in relation to all products sold.

International revenues for the six months ended June 30, 2025 increased 42.8% compared to the same period in 2024. However, average selling price per unit declined relative to the first half of 2024, primarily due to a shift in product mix. International sales for the six months ended June 30, 2025 included Easy Point Needles sold at a discount to certain international customers which reduced the overall average selling price. There remains uncertainty regarding the timing of future international orders.

Overall, units sales increased 62.6%.

Cost of manufactured product increased 58.8% principally due to increased unit sales, an increase in tariff cost, additional costs related to an increase in domestic manufacturing activities, and inventory write-downs related to certain product lots approaching their expiration dates. Royalty expense increased 23.4% primarily due to the increase in gross sales, slightly offset by a decrease in royalties payable to a shareholder under a sublicensing agreement.

Tariffs are expected to continue to materially increase our costs in future periods. Approximately $2.1 million was spent on tariff expenses in the first six months of 2025. These costs are included in Cost of manufactured product.

Operating expenses decreased 5.2% primarily due to a decrease in bad debt expense and legal and litigation fees.

The loss from operations was $9.8 million compared to a loss of approximately $8.7 million for the same period last year. The decreased loss was due to lower operating expenses, but was impacted by lower gross profit.

The unrealized loss on debt and equity securities was $5.6 million due to the decreased market values of those securities.

As detailed in Note 8 to the financial statements, we received a settlement payment of $1.9 million in May 2025.

The provision for income taxes was $288 thousand as compared to a provision for income taxes of $8.4 million for the same period in 2024. The difference is primarily related to fully reserving our deferred tax asset in the second quarter of 2024.

Discussion of Balance Sheet and Cash Flow Items

Cash flow used by operations was $5.2 million for the six months ended June 30, 2025 due to a number of factors. Aside from the various reconciling items used in determining the overall use of cash, our net loss for the period was the predominant factor. We recognized approximately $3.0 million in other income from the TIA, offset by $5.6 million in unrealized loss in debt and equity securities 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 increased by $388 thousand, inventories increased nearly $1.9 million, and accounts payable decreased by $230 thousand.

Cash flow from investing activities was $4.3 million for the six months ended June 30, 2025, primarily reflecting $5.0 million in proceeds from the sale of debt and equity securities, partially offset by purchases of property, plant, and equipment and additional investments in debt and equity securities. The $5 million obtained as a result of the sale of securities was used to fund operating activities during the first six months of 2025.

Cash used by financing activities was $280 thousand for the six months ended June 30, 2025. This was primarily 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. As detailed in Note 8 to the financial statements, we received a settlement payment of $1.9 million in May 2025.

The imposition of tariffs on our products will continue to have a material effect on our operating results and liquidity. 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. The conversion of existing equipment plus the purchase of additional molds to produce products which have never been produced domestically is expected to cost approximately $1 million, most of which has already been expended. Those products accounted for roughly 9.4% of our overall domestic unit sales and 16.0% of our domestic syringe unit sales for the three months ended June 30, 2025. The products accounted for roughly and 12.0% of our overall domestic unit sales and 17.3% of our domestic syringe unit sales for the six months ended June 30, 2025. The overall impact of additional workforce needed to produce these and other products is an increase of approximately $3.8 million on an annual basis, although the Company recently reduced its manufacturing and manufacturing support staff by approximately $1.6 million on an annual basis as we refine our manufacturing process and continue to evaluate our importing practices.

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.

Our margins have experienced significant fluctuations over the past two years. Most recently, our margins have faced negative pressure from numerous factors. The tariffs enacted in 2024-2025 have had a direct negative impact on products we import from China to date. In reaction to the tariffs, we have acted to increase our domestic production and reduce, to the extent possible, our reliance on imports. While we believe these efforts will enable us to avoid some of the impact of the tariffs, we will be forced to import the products we are unable to produce in the U.S. As we work to increase our domestic production and achieve manufacturing efficiencies, we will continue to work to minimize our reliance on imported products.

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 we 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 further reduce operational costs. In the event that the foregoing is insufficient, we may liquidate certain assets.

Capital Resources

To produce more units at our U.S. facility, we expect to spend approximately $1 million to purchase molds and convert domestic equipment, some of which has already been expended. While additional equipment expenditures may be necessary in the future, these near-term equipment expenditures were substantially completed in 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 June 30, 2025, we estimate that the total potential future credits to be issued as a result of prior purchases which have not yet been claimed is $2.0 million. These credits are recognized as a liability and included in Accounts payable on the Condensed Balance Sheets.

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 June 30, 2025, our disclosure controls and procedures were effective as of June 30, 2025.

Changes in Internal Control Over Financial Reporting

As of December 31, 2024, Management concluded that a material weakness in internal controls over financial reporting existed. Specifically, Management reported that the Company did not maintain the risk assessment and control activities components of the COSO framework regarding the effective documentation and evaluation of revenue contracts and the related revenue recognition accounting conclusions when entering into significant revenue contracts with customers. Since that time and during the first two quarters of 2025, the Company has implemented processes and procedures to incorporate risk assessment and evaluation of new customer contracts and modifications to existing contracts, to determine the appropriate accounting treatment of the components of revenue recognition and their impact on our financial statements.

The enhanced controls include defining and identifying risk thresholds, review of revenue transactions and contractual terms and obligations included in new or modified contracts with customers. The controls also include the review of such transactions and the evaluation of the appropriate accounting treatment under the guidance of ASC 606 (Revenue from Contracts with Customers). The revenue recognition assessment and conclusion of proper accounting treatment is documented, reviewed and approved by senior members of the Company’s accounting staff, including the

Company’s CFO. Management believes that the enhanced review and approval process provides evidence of oversight and accountability in the process.

Other than the remediation efforts described above, there have been no changes during the second quarter of 2025 or subsequent to June 30, 2025, in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no material changes in our Risk Factors as set forth in our most recent annual report which is available on EDGAR.