RETRACTABLE TECHNOLOGIES, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, ~~2018~~2019

TABLE OF CONTENTS

~~TABLE OF CONTENTS~~

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

(unaudited)

		September 30, 2018			December 31, 2017			September 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	13,640,696		$	14,877,899		$	5,554,859	$	9,647,292
Accounts receivable, net		4,475,695			5,105,556			6,296,739		4,912,356
Investments in debt and equity securities, at fair value								7,731,228		2,986,156
Inventories, net		7,385,413			6,206,161			6,746,114		7,545,094
Income taxes receivable								100,887		100,887
Other current assets		404,530			418,154			695,480		644,803
Total current assets		25,906,334			26,607,770			27,125,307		25,836,588

Property, plant, and equipment, net		10,976,350			11,353,202			10,697,780		10,851,747
Income taxes receivable		188,456			188,456			100,835		100,835
Other assets		3,477			6,052			109,195		165,856
Total assets	$	37,074,617		$	38,155,480		$	38,033,117	$	36,955,026

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,908,336		$	4,957,750		$	5,686,761	$	5,369,677
Current portion of long-term debt		424,421			410,949			285,715		406,361
Accrued compensation		670,498			547,021			627,408		540,852
Dividends payable		55,113			55,113			54,800		55,113
Accrued royalties to shareholder		1,102,583			793,489			936,458		769,324
Insurance proceeds		312,424			466,293
Other accrued liabilities		1,046,480			657,923			1,220,801		1,467,935
Income taxes payable		10,234			11,407			17,944		10,025
Total current liabilities		8,530,089			7,899,945			8,829,887		8,619,287

Other long-term liabilities								20,899		82,359
Long-term debt, net of current maturities		2,726,146			3,081,409			2,446,345		2,639,647
Total liabilities		11,256,235			10,981,354			11,297,131		11,341,293

Commitments and contingencies — see Note 6

Stockholders’ equity:
Preferred stock, $1 par value:
Series I, Class B		98,500			98,500			96,000		98,500
Series II, Class B		171,200			171,200			171,200		171,200
Series III, Class B		129,245			129,245			129,245		129,245
Series IV, Class B		342,500			342,500			342,500		342,500
Series V, Class B		40,000			40,000			34,000		40,000
Common stock, no par value		—			—			—		—
Additional paid-in capital		61,926,869			62,092,206			61,715,544		61,871,756
Accumulated deficit		(36,889,932	)		(35,699,525	)		(35,752,503	)	(37,039,468	)
Total stockholders’ equity		25,818,382			27,174,126			26,735,986		25,613,733
Total liabilities and stockholders’ equity	$	37,074,617		$	38,155,480		$	38,033,117	$	36,955,026

See accompanying notes to condensed unaudited financial statements

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

		Three Months Ended September 30, 2018			Three Months Ended September 30, 2017			Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017			Three Months Ended September 30, 2019		Three Months Ended September 30, 2018			Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018

Sales, net	$	9,863,272		$	10,412,036		$	25,011,066		$	24,981,833		$	11,639,586	$	9,863,272	$		29,167,950	$	25,011,066
Cost of sales
Cost of manufactured product		6,203,842			6,304,397			15,112,538			15,116,805			6,935,269		6,203,842			17,450,038		15,112,538
Royalty expense to shareholder		863,295			847,301			2,174,778			2,070,699			936,458		863,295			2,528,377		2,174,778
Total cost of sales		7,067,137			7,151,698			17,287,316			17,187,504			7,871,727		7,067,137			19,978,415		17,287,316
Gross profit		2,796,135			3,260,338			7,723,750			7,794,329			3,767,859		2,796,135			9,189,535		7,723,750

Operating expenses:
Sales and marketing		1,033,295			1,220,451			3,251,231			3,472,004			1,007,831		1,033,295			2,862,991		3,251,231
Research and development		146,487			159,921			432,179			465,765			134,919		146,487			377,881		432,179
General and administrative		1,676,579			1,912,824			5,196,224			6,346,731			1,646,685		1,676,579			4,816,214		5,196,224
Total operating expenses		2,856,361			3,293,196			8,879,634			10,284,500			2,789,435		2,856,361			8,057,086		8,879,634
Loss from operations		(60,226	)		(32,858	)		(1,155,884	)		(2,490,171	)
Income (loss) from operations														978,424		(60,226	)		1,132,449		(1,155,884	)

Interest and other income		39,290			19,477			102,133			44,155			91,105		39,290			292,476		102,133
Interest expense		(42,481	)		(52,962	)		(136,446	)		(159,053	)		(40,701	)	(42,481	)		(130,085	)	(136,446	)
Loss before income taxes		(63,417	)		(66,343	)		(1,190,197	)		(2,605,069	)
Income (loss) before income taxes														1,028,828		(63,417	)		1,294,840		(1,190,197	)
Provision for income taxes		—			283			210			848			4,394		—			7,875		210
Net loss		(63,417	)		(66,626	)		(1,190,407	)		(2,605,917	)
Net income (loss)														1,024,434		(63,417	)		1,286,965		(1,190,407	)
Preferred stock dividend requirements		(176,249	)		(176,249	)		(528,747	)		(528,747	)		(175,456	)	(176,249	)		(527,162	)	(528,747	)
Loss applicable to common shareholders	$	(239,666	)	$	(242,875	)	$	(1,719,154	)	$	(3,134,664	)
Income (loss) applicable to common shareholders													$	848,978	$	(239,666	)	$	759,803	$	(1,719,154	)

Basic loss per share	$	(0.01	)	$	(0.01	)	$	(0.05	)	$	(0.10	)
Basic income (loss) per share													$	0.03	$	(0.01	)	$	0.02	$	(0.05	)

Diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.05	)	$	(0.10	)
Diluted income (loss) per share													$	0.03	$	(0.01	)	$	0.02	$	(0.05	)

Weighted average common shares outstanding:
Basic		32,666,454			32,166,454			32,666,454			31,722,010			32,674,954		32,666,454			32,671,648		32,666,454
Diluted		32,666,454			32,166,454			32,666,454			31,722,010			32,674,954		32,666,454			32,671,648		32,666,454

See accompanying notes to condensed unaudited financial statements

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

		Nine Months Ended September 30, 2018			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018
Cash flows from operating activities
Net loss	$	(1,190,407	)	$	(2,605,917	)
Adjustments to reconcile loss to net cash used by operating activities:
Provision for doubtful accounts		—			(81,152	)
Share-based compensation		—			652,862
Net income (loss)							$	1,286,965	$	(1,190,407	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization		669,584			603,580			641,224		669,584
Realized gains on investments								(7,925	)	—
Net unrealized gains on investments								(129,728	)	—
(Increase) decrease in operating assets:
Accounts receivable		629,861			(1,897,332	)		(1,384,383	)	629,861
Inventories		(1,179,252	)		(336,023	)		798,980		(1,179,252	)
Other current assets		13,624			(313,108	)		(50,677	)	13,624
Other assets								56,661		—
Increase (decrease) in operating liabilities:
Accounts payable		(49,414	)		574,258			317,084		(49,414	)
Other accrued liabilities		821,128			507,768			(54,904	)	821,128
Insurance proceeds		(153,869	)		876,250			—		(153,869	)
Income taxes payable		(1,173	)		—			7,919		(1,173	)
Net cash used by operating activities		(439,918	)		(2,018,814	)
Net cash provided (used) by operating activities								1,481,216		(439,918	)

Cash flows from investing activities
Purchase of property, plant, and equipment		(290,153	)		(172,305	)		(487,256	)	(290,153	)
Purchase of debt and equity securities								(6,969,552	)	—
Proceeds from the sales of debt and equity securities								2,362,134		—
Net cash used by investing activities		(290,153	)		(172,305	)		(5,094,674	)	(290,153	)

Cash flows from financing activities
Repayments of long-term debt		(341,795	)		(326,227	)		(313,949	)	(341,795	)
Proceeds from the sale of common stock		—			2,350,100
Payment of Preferred Stock dividends		(165,337	)		(165,339	)
Net cash provided (used) by financing activities		(507,132	)		1,858,534
Payment of preferred stock dividends								(165,026	)	(165,337	)
Net cash used by financing activities								(478,975	)	(507,132	)

Net decrease in cash and cash equivalents		(1,237,203	)		(332,585	)		(4,092,433	)	(1,237,203	)

Cash and cash equivalents at:
Beginning of period		14,877,899			16,199,043			9,647,292		14,877,899
End of period	$	13,640,696		$	15,866,458		$	5,554,859	$	13,640,696

Supplemental schedule of cash flow information:
Interest paid	$	136,445		$	159,053		$	130,085	$	136,446
Income taxes paid	$	1,050		$	2,000		$	—	$	1,050

Supplemental schedule of noncash investing and financing activities:
Preferred dividends declared, not paid	$	55,113		$	55,113		$	54,800	$	55,112
Conversion of preferred stock to common stock							$	8,500	$	—

See accompanying notes to condensed unaudited financial statements

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

The following shows the changes in stockholders’ equity for the three month period ended September 30, ~~2018:~~2019:

Common
Stock

Series I
Class B
Preferred
Stock

Series II
Class B
Preferred
Stock

Series III
Class B
Preferred
Stock

Series IV
Class B
Preferred
Stock

Series V
Class B
Preferred
Stock

Additional
Paid-In
Capital

Accumulated
Deficit

Total

Balance at June 30, 2018
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
61,981,981
$
(36,826,515
)
$
25,936,911

Dividends

—

—

—

—

—

—

(55,112
)
—

(55,112
)
Net Loss

—

—

—

—

—

—

—

(63,417
)

(63,417
)
Balance at September 30, 2018
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
61,926,869
$
(36,889,932
)
$
25,818,382

		Common Stock		Series I Class B Preferred Stock		Series II Class B Preferred Stock		Series III Class B Preferred Stock		Series IV Class B Preferred Stock		Series V Class B Preferred Stock		Additional Paid-In Capital			Accumulated Deficit			Total
Balance at June 30, 2019	$	—	$	96,000	$	171,200	$	129,245	$	342,500	$	34,000	$	61,770,344		$	(36,776,937	)	$	25,766,352
Dividends		—		—		—		—		—		—		(54,800	)		—			(54,800	)
Net Income		—		—		—		—		—		—		—			1,024,434			1,024,434
Balance at September 30, 2019	$	—	$	96,000	$	171,200	$	129,245	$	342,500	$	34,000	$	61,715,544		$	(35,752,503	)	$	26,735,986

The following shows the changes in stockholders’ equity for the three month period ended September 30, ~~2017:~~2018:

Common
Stock

Series I
Class B
Preferred
Stock

Series II
Class B
Preferred
Stock

Series III
Class B
Preferred
Stock

Series IV
Class B
Preferred
Stock

Series V
Class B
Preferred
Stock

Additional
Paid-In
Capital

Accumulated
Deficit

Total

Balance at June 30, 2017
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
61,430,417
$
(34,502,778
)
$
27,709,084

Issuance of New Common Stock

—

—

—

—

—

—

570,100

—

570,100

Dividends

—

—

—

—

—

—

(55,112
)
—

(55,112
)
Share-based Compensation

—

—

—

—

—

—

182,551

—

182,551

Net Loss

—

—

—

—

—

—

—

(66,626
)

(66,626
)
Balance at September 30, 2017
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
62,127,956
$
(34,569,404
)
$
28,339,997

		Common Stock		Series I Class B Preferred Stock		Series II Class B Preferred Stock		Series III Class B Preferred Stock		Series IV Class B Preferred Stock		Series V Class B Preferred Stock		Additional Paid-In Capital			Accumulated Deficit			Total
Balance at June 30, 2018	$	—	$	98,500	$	171,200	$	129,245	$	342,500	$	40,000	$	61,981,981		$	(36,826,515	)	$	25,936,911
Dividends		—		—		—		—		—		—		(55,112	)		—			(55,112	)
Net Loss		—		—		—		—		—		—		—			(63,417	)		(63,417	)
Balance at September 30, 2018	$	—	$	98,500	$	171,200	$	129,245	$	342,500	$	40,000	$	61,926,869		$	(36,889,932	)	$	25,818,382

The following shows the changes in stockholders’ equity for the nine month period ended September 30, 2019:

		Common Stock		Series I Class B Preferred Stock			Series II Class B Preferred Stock		Series III Class B Preferred Stock		Series IV Class B Preferred Stock		Series V Class B Preferred Stock			Additional Paid-In Capital			Accumulated Deficit			Total
Balance at December 31, 2018	$	—	$	98,500		$	171,200	$	129,245	$	342,500	$	40,000		$	61,871,756		$	(37,039,468	)	$	25,613,733
Dividends		—		—			—		—		—		—			(164,712	)		—			(164,712	)
Conversion		—		(2,500	)		—		—		—		(6,000	)		8,500			—			—
Net Income		—		—			—		—		—		—			—			1,286,965			1,286,965
Balance at September 30, 2019	$	—	$	96,000		$	171,200	$	129,245	$	342,500	$	34,000		$	61,715,544		$	(35,752,503	)	$	26,735,986

The following shows the changes in stockholders’ equity for the nine month period ended September 30, 2018:

Common
Stock

Series I
Class B
Preferred
Stock

Series II
Class B
Preferred
Stock

Series III
Class B
Preferred
Stock

Series IV
Class B
Preferred
Stock

Series V
Class B
Preferred
Stock

Additional
Paid-In
Capital

Accumulated
Deficit

Total

Balance at December 31, 2017
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
62,092,206
$
(35,699,525
)
$
27,174,126

Dividends

—

—

—

—

—

—

(165,337
)
—

(165,337
)
Net Loss

—

—

—

—

—

—

—

(1,190,407
)

(1,190,407
)
Balance at September 30, 2018
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
61,926,869
$
(36,889,932
)
$
25,818,382

~~See accompanying notes to condensed unaudited financial statements~~

~~RETRACTABLE TECHNOLOGIES, INC.~~

~~CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~(unaudited)~~

~~The following shows the changes in stockholders’ equity for the nine month period ended September 30, 2017:~~

Common
Stock

Series I
Class B
Preferred
Stock

Series II
Class B
Preferred
Stock

Series III
Class B
Preferred
Stock

Series IV
Class B
Preferred
Stock

Series V
Class B
Preferred
Stock

Additional
Paid-In
Capital

Accumulated
Deficit

Total

Balance at December 31, 2016
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
59,290,333
$
(31,963,487
)
$
28,108,291

Issuance of New Common Stock

—

—

—

—

—

—

2,350,100

—

2,350,100

Dividends

—

—

—

—

—

—

(165,339
)
—

(165,339
)
Share-based Compensation

—

—

—

—

—

—

652,862

—

652,862

Net Loss

—

—

—

—

—

—

—

(2,605,917
)

(2,605,917
)
Balance at September 30, 2017
$
—
$
98,500
$
171,200
$
129,245
$
342,500
$
40,000
$
62,127,956
$
(34,569,404
)
$
28,339,997

		Common Stock		Series I Class B Preferred Stock		Series II Class B Preferred Stock		Series III Class B Preferred Stock		Series IV Class B Preferred Stock		Series V Class B Preferred Stock		Additional Paid-In Capital			Accumulated Deficit			Total
Balance at December 31, 2017	$	—	$	98,500	$	171,200	$	129,245	$	342,500	$	40,000	$	62,092,206		$	(35,699,525	)	$	27,174,126
Dividends		—		—		—		—		—		—		(165,337	)		—			(165,337	)
Net Loss		—		—		—		—		—		—		—			(1,190,407	)		(1,190,407	)
Balance at September 30, 2018	$	—	$	98,500	$	171,200	$	129,245	$	342,500	$	40,000	$	61,926,869		$	(36,889,932	)	$	25,818,382

See accompanying notes to condensed unaudited financial statements

RETRACTABLE TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

Business of the Company

Retractable Technologies, Inc. (the “Company”) was incorporated in Texas on May 9, 1994, and designs, develops, manufactures, and markets safety syringes and other safety medical products for the healthcare profession. The Company began to develop its manufacturing operations in 1995. The Company’s manufacturing and administrative facilities are located in Little Elm, Texas. The Company’s products are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; 0.5mL, 1mL, 2mL, 3mL, 5mL, and 10mL syringes; the blood collection tube holder; the small diameter tube adapter; the allergy tray; the IV safety catheter; the Patient Safe® syringes; the Patient Safe® Luer Cap; the VanishPoint® Blood Collection Set; and the EasyPoint® needle. The Company also sells VanishPoint® autodisable syringes in the international market in addition to the Company’s other products.

Basis of presentation

The accompanying condensed financial statements are unaudited and, in the opinion of Management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year. The unaudited condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company’s audited financial statements incorporated into its Form 10-K filed on ~~April 2, 2018~~March 28, 2019 for the year ended December 31, ~~2017.~~2018.

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 cash, money market accounts, and investments with original maturities of three months or less.

Accounts receivable

The Company records trade receivables when revenue is recognized. No product has been consigned to customers. The Company’s allowance for 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 Allowance for bad debt was ~~$102~~$146 thousand ~~as of December 31, 2017~~ and ~~also~~$150 thousand as of September 30, ~~2018.~~2019 and December 31, 2018, respectively.

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 5,6, Other Accrued Liabilities.

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

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost being determined using actual average cost. The Company compares the average cost to the net realizable value and records the lower value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. 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.

Investments in Debt and Equity Securities

The Company holds high-grade exchange-traded and closed-end funds (ETFs), mutual funds, and debt securities as investments. These assets are readily marketable and are carried at fair value as of the date of the Balance Sheets. Net unrealized and realized gains or losses on investments in debt and equity securities are reflected as a component of interest and other income. Realized gains or losses on investments in debt and equity securities are recognized using the specific identification method.

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 operations.

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

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

Long-lived assets

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

Fair Value Measurements

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

Financial instruments

The Company estimates the fair value of financial instruments through the use of public market prices, quotes from financial institutions, and other available information. Judgment is required in interpreting data to develop estimates of fair value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange. Short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on Management’s estimates, equals their recorded values. Investments in equity securities consist primarily of exchange-traded and closed-end funds and mutual funds and are reported at their fair value based upon quoted prices in active markets. Investments in U.S. Treasury Notes are reported at their fair value based upon quoted prices in active markets. Investments in certificates of deposit (CD) with original maturities of greater than three months are reported at their estimated fair value based upon the duration of the CD and the interest rate earned on the CD versus current interest rates of similar duration CDs. The fair value of long-term liabilities, based on Management’s estimates, approximates their reported values.

Concentration risks

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, certificates of deposit, U.S. Treasury Notes, exchange-traded and closed-end funds, mutual funds, and accounts receivable. Cash balances, some of which exceed federally insured limits, are maintained in financial institutions; however, Management believes the institutions are of high credit quality. The Company assesses market risk in debt and equity securities through consultation with its outside investment advisors. Management is responsible for directing the investing activity based on current economic conditions. 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 three and nine months ended September 30, ~~2018~~2019 and ~~2017:~~2018:


	Three Months ended September 30, 2018	Three Months ended September 30, 2017	Nine Months ended September 30, 2018	Nine Months ended September 30, 2017	Three Months ended September 30, 2019	Three Months ended September 30, 2018	Nine Months ended September 30, 2019	Nine Months ended September 30, 2018
Number of significant customers	3	3	2	2	3	3	3	2
Aggregate dollar amount of net sales to significant customers	$5.4 million	$5.1 million	$10.0 million	$9.4 million	$5.0 million	$5.4 million	$12.6 million	$10.0 million
Percentage of net sales to significant customers	55.2%	49.1%	39.9%	37.5%	43.2%	55.2%	43.3%	39.9%

The Company manufactures some of its products in Little Elm, Texas as well as utilizing manufacturers in China. The Company obtained roughly ~~85.1%~~82.1% and ~~81.7%~~85.1% of its products in the first nine months of ~~2018~~2019 and ~~2017,~~2018, respectively, from its Chinese manufacturers. Purchases from Chinese manufacturers aggregated ~~79.9%~~84.2% and ~~80.1%~~79.9% of products in the three month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. In the event that the Company becomes unable to purchase products from its Chinese manufacturers, the Company would need to find an alternate manufacturer for its blood collection set, IV catheter, Patient Safe® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes and would increase domestic production for the 1mL and 3mL syringes and EasyPoint® needles.

Revenue recognition

~~Revenue is recognized for sales~~The Company recognizes revenue when it has satisfied all performance obligations to the customer, generally when title and risk of ~~ownership passes to the customer, generally upon shipment.~~ ~~When title and risk of ownership have passed to the customer, the Company has satisfied all performance obligations~~loss pass to the customer. Payments from customers with approved credit terms are typically due 30 days from the invoice date. Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances. Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that

purchased the products, and (ii) a provision for estimated contractual pricing allowances for products for which the Company has not received tracking reports. 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 recognized in the period the related sales are recognized and is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report. Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted. The estimated contractual allowance is included in Accounts payable in the Condensed Balance Sheets and deducted from Revenues in the Condensed Statements of Operations. Accounts payable included estimated contractual allowances for ~~$3,443,368~~$4,916,590 and ~~$4,115,628~~$3,896,341 as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors. Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company. End-users do not receive any contractual allowances on their purchases. Any product shipped or distributed for evaluation purposes is expensed.

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

The Company’s domestic return policy provides that a customer may return incorrect shipments within 10 days following arrival at the distributor’s facility. In all such cases, the distributor must obtain an authorization code from the Company and affix the code to the returned product. The Company’s domestic return policy also generally provides that a customer may return product that is overstocked. Overstocking returns are limited to two times in each 12-month period up to 1% of distributor’s total purchase of products for the prior 12-month period. All product overstocks and returns are subject to inspection and acceptance by the Company.

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

The Company requires certain customers to pay in advance of product shipment. Such prepayments from customers are recorded in Other accrued liabilities and are generally recognized as revenue within 30 to 60 days of receipt at the time product is shipped.

The Company recognizes revenue from licensing agreements when collection of such amounts from third parties is reasonably assured. If the Company licenses its products for sale, the Company is obligated to pay Thomas J. Shaw, the owner of certain patented technology, a certain percentage of such revenue pursuant to the terms of the Technology License Agreement between the Company and Mr. Shaw.

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

		For the three months ended September 30, 2018:										For the three months ended September 30, 2019:
Geographic Segment		Syringes		Blood Collection Products		EasyPoint® Needles		Other Products		Total Product Sales		Syringes		Blood Collection Products		EasyPoint® Needles		Other Products		Total Product Sales
U.S. sales	$	6,454,432	$	466,392	$	1,803,904	$	22,968	$	8,747,696	$	7,356,305	$	462,096	$	1,197,176	$	23,631	$	9,039,208
North and South America sales (excluding U.S.)		803,414		240		—		—		803,654		2,344,956		1,150		528		86,100		2,432,734
Other international sales		290,760		12,490		—		8,672		311,922		162,296		2,006		396		2,946		167,644
Total	$	7,548,606	$	479,122	$	1,803,904	$	31,640	$	9,863,272	$	9,863,557	$	465,252	$	1,198,100	$	112,677	$	11,639,586

		For the three months ended September 30, 2018:
Geographic Segment		Syringes		Blood Collection Products		EasyPoint® Needles		Other Products		Total Product Sales
U.S. sales	$	6,454,432	$	466,392	$	1,803,904	$	22,968	$	8,747,696
North and South America sales (excluding U.S.)		803,414		240		—		—		803,654
Other international sales		290,760		12,490		—		8,672		311,922
Total	$	7,548,606	$	479,122	$	1,803,904	$	31,640	$	9,863,272

		For the three months ended September 30, 2017:										For the nine months ended September 30, 2019:
Geographic Segment		Syringes		Blood Collection Products		EasyPoint® Needles		Other Products		Total Product Sales		Syringes		Blood Collection Products		EasyPoint® Needles		Other Products		Total Product Sales
U.S. sales	$	7,019,389	$	309,012	$	1,016,226	$	14,220	$	8,358,847	$	19,150,535	$	1,389,943	$	2,439,139	$	51,605	$	23,031,222
North and South America sales (excluding U.S.)		1,896,492		1,700		—		2,700		1,900,892		4,867,104		5,313		1,044		87,025		4,960,486
Other international sales		117,447		30,800		—		4,050		152,297		622,945		374,498		543		178,256		1,176,242
Total	$	9,033,328	$	341,512	$	1,016,226	$	20,970	$	10,412,036	$	24,640,584	$	1,769,754	$	2,440,726	$	316,886	$	29,167,950

		For the nine months ended September 30, 2018:										For the nine months ended September 30, 2018:
Geographic Segment		Syringes		Blood Collection Products		EasyPoint® Needles		Other Products		Total Product Sales		Syringes		Blood Collection Products		EasyPoint® Needles		Other Products		Total Product Sales
U.S. sales	$	18,097,760	$	991,318	$	2,519,973	$	55,988	$	21,665,039	$	18,097,760	$	991,318	$	2,519,973	$	55,988	$	21,665,039
North and South America sales (excluding U.S.)		2,595,634		8,805		252		900		2,605,591		2,595,634		8,805		252		900		2,605,591
Other international sales		682,134		36,024		456		21,825		740,436		682,134		36,024		456		21,825		740,436
Total	$	21,375,528	$	1,036,147	$	2,520,681	$	78,713	$	25,011,066	$	21,375,528	$	1,036,147	$	2,520,681	$	78,713	$	25,011,066

For the nine months ended September 30, 2017:

Geographic Segment

Syringes

Blood
Collection
Products

EasyPoint®
Needles

Other
Products

Total
Product
Sales

U.S. sales
$
18,260,242
$
821,869
$
1,232,979
$
46,757
$
20,361,847

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

3,531,574

2,944

—

193,934

3,728,452

Other international sales

829,680

42,954

—

18,900

891,534

Total
$
22,621,496
$
867,767
$
1,232,979
$
259,591
$
24,981,833

Income taxes

The Tax Cuts and Job Act (“the Act”) was enacted on December 22, 2017, and the U.S. federal corporate tax rate was reduced from 35% to 21%. U.S. generally accepted accounting principles require companies to account for the effects of changes in income tax rates and laws in the period the change is enacted. Financial results, including provisional amounts, have been calculated for the income tax effects of the change. The U.S. Securities and Exchange Commission issued Staff Accounting Bulletin 118 (SAB 118) allowing companies to use provisional estimates to record the effects of the Act. SAB 118, as codified by Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-05 “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update),” allows companies to complete accounting for these effects no later than one year from the enactment date of the Act. During the quarter ended September 30, 2018, the Company completed its analysis of the provisional estimates made to record the effects of the Act. There were no adjustments made to previously recorded amounts.

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 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~~taxes are classified as General and administrative expense and Interest expense, respectively, in the Condensed Statements of Operations. ~~Such expenses are not material.~~

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. The calculation of diluted EPS excluded ~~93,125~~ shares of Common Stock underlying issued and outstanding stock options for the three and nine months ended September 30, ~~2017~~2019, as ~~their effect was antidilutive.~~the exercise prices of the stock options were below the average stock price for the periods. The calculation of diluted EPS excluded ~~6,126 and 128,540~~ shares of Common Stock underlying issued and outstanding stock options for the three and nine months ended September 30, 2018, ~~and September 30, 2017, respectively,~~ as their effect was antidilutive. The calculation of diluted EPS also excludes the impact of the conversion of convertible preferred stock as the impact was antidilutive for all periods presented. The potential dilution, if any, is shown on the following schedule:

		Three Months Ended September 30, 2019			Three Months Ended September 30, 2018			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Net income (loss)	$	1,024,434		$	(63,417	)	$	1,286,965		$	(1,190,407	)
Preferred stock dividend requirements		(175,456	)		(176,249	)		(527,162	)		(528,747	)
Income (loss) applicable to common shareholders	$	848,978		$	(239,666	)	$	759,803		$	(1,719,154	)
Average common shares outstanding		32,674,954			32,666,454			32,671,648			32,666,454
Average common and common equivalent shares outstanding – assuming dilution		32,674,954			32,666,454			32,671,648			32,666,454
Basic income (loss) per share	$	0.03		$	(0.01	)	$	0.02		$	(0.05	)
Diluted income (loss) per share	$	0.03		$	(0.01	)	$	0.02		$	(0.05	)

Three Months Ended
September 30, 2018

Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2018

Nine Months Ended
September 30, 2017

Net loss
$
(63,417
)
$
(66,626
)
$
(1,190,407
)
$
(2,605,917
)
Preferred dividend requirements

(176,249
)

(176,249
)

(528,747
)

(528,747
)
Loss applicable to common shareholders after assumed conversions
$
(239,666
)
$
(242,875
)
$
(1,719,154
)
$
(3,134,664
)
Average common shares outstanding

32,666,454

32,166,454

32,666,454

31,722,010

Average common and common equivalent shares outstanding – assuming dilution

32,666,454

32,166,454

32,666,454

31,722,010

Basic loss per share
$
(0.01
)
$
(0.01
)
$
(0.05
)
$
(0.10
)
Diluted loss per share
$
(0.01
)
$
(0.01
)
$
(0.05
)
$
(0.10
)

Shipping and handling costs

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

Self-insured employee benefit costs

The Company self-insures health insurance benefits for its employees under certain policy limits. The Company has additional coverage provided by an insurance company. The Company accrues for the cost of such benefits based on known claims and an estimate of incurred but not reported claims.

Research and development costs

Research and development costs are expensed as incurred.

~~Share-based compensation~~Leases

The ~~Company’s share-based payments are accounted~~Company adopted ASU 2016-02, Leases (Topic 842), as amended, on January 1, 2019 effective for ~~using~~ the ~~fair value method.~~quarter ended March 31, 2019. The Company ~~records share-based compensation~~adopted the standard under the modified retrospective approach, which provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach.

The Company determines if an arrangement is a lease at inception. Operating and finance leases are included in Other assets, Other accrued liabilities, and Other long-term liabilities on the Condensed Balance Sheets. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on information available at the commencement date was used in determining the present value of lease payments.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the ~~requisite service period.~~lease term. Leases with an initial term of twelve months or less are not recorded on the Condensed Balance Sheets;

however, rent expense is recognized on a straight-line basis over the lease term. The Company ~~incurred~~did not elect to separate lease and non-lease components at the ~~following share-based compensation costs:~~

Three Months
Ended
September 30, 2018

Three Months
Ended
September 30, 2017

Nine Months
Ended
September 30, 2018

Nine Months
Ended
September 30, 2017

Cost of sales
$
—
$
74,683
$
—
$
270,800

Sales and marketing

—

38,578

—

143,255

Research and development

—

12,458

—

45,174

General and administrative

—

56,832

—

193,633

$
—
$
182,551
$
—
$
652,862

~~Insurance Proceeds~~

~~Receipts from insurance up to~~transition date. The Company elected the ~~amount~~package of ~~any loss recognized by~~practical expedients permitted under the transition guidance, which among other things, allows the Company are considered recoveries. Any such recoveries are recorded when they are received. Insurance recoveries are not recognized as a component of earnings (loss) from operations until all repairs are made.to carry forward the historical lease classification and elect hindsight to determine certain lease terms for existing leases.

Recently Adopted Pronouncements

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The updated guidance was effective for the Company’s quarter ended March 31, 2018. The adoption of ASU 2016-18 did not have a material effect on the Company’s financial statements as the Company currently holds no restricted cash or restricted cash equivalents.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Payments” (ASU 2016-15), clarifying guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU was effective for the Company’s quarter ended March 31, 2018. The adoption of ASU 2016-15 did not have a material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, as well as several subsequently issued clarifying amendments, which provides guidance for revenue recognition. This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services. The ASU, as amended, also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a

contract. ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption. The ASU, as amended, was effective commencing with the Company’s quarter ended March 31, 2018. The Company adopted this amended guidance on a Modified Retrospective basis in the first quarter of 2018. The adoption of the ASU, as amended, had no impact on the opening balance of retained earnings. The Company applied the guidance of ASU No. 2014-09, as amended, to those contracts that were not completed as of January 1, 2018. In implementing the guidance of ASU 2014-09, as amended, the Company applied the practical expedients of FASB ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” Under ASU 2016-12, the Company applies the guidance of ASU 2014-09, as amended, to a portfolio of contracts with similar characteristics, as opposed to individual contracts, as applying the guidance to the portfolio does not materially differ from applying the guidance to individual contracts. In addition, the Company accounts for shipping and handling as activities to fulfill the promise to transfer goods to a customer as opposed to a performance obligation. Historically, freight and handling activities billed to customers have not been material.

In August 2018, the Securities and Exchange Commission (SEC) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, “Disclosure Update and Simplification”. The amendments were effective November 5, 2018. The amendments eliminate or revise several redundant or duplicative requirements between SEC rules and GAAP, including the elimination of the disclosure of the ratio of earnings to fixed charges and the presentation of dividends per share on the face of the statement of operations for interim periods. Among the amendments is the requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. The amendments are effective for all filings made on or after November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the SEC staff ~~has~~ indicated that it would not object if the filer’s first presentation of the changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the effective date of the amendments. The Company ~~has~~ elected to adopt the provisions of Securities Act Release No. 33-10532 for the quarter ended September 30, ~~2018 and has presented condensed statements of changes in stockholders’ equity for the periods ended September 30, 2018 and 2017 in this quarterly report on Form 10-Q.~~

~~Recently Issued Pronouncements~~

In June 2016, the FASB issued Accounting Standards Update 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. This ASU is effective for the Company’s quarter ending March 31, 2020 with early application permitted for the Company’s quarter ending March 31, 2019. The Company is currently assessing the impact that adoption of this guidance will have on its financial statements and related disclosures.2018.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, as well as several subsequently issued clarifying amendments. Under the ASU, as amended, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the guidance, lessor accounting is largely unchanged. The lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. This amendment clarifies Topic 842 and corrected unintended application of guidance and is effective concurrent with Topic 842 or upon issuance if Topic 842 was early adopted. In August 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. This amendment provides additional transition options allowing entities to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented and provides a practical expedient to lessors to elect, by class of underlying assets, to account for non-lease and lease

components as a single arrangement. The Company ~~intends to adopt~~adopted the provisions of ASU 2018-11 through a cumulative effect adjustment. Topic 842, and its subsequent amendments, iswas effective for the Company’s quarter ~~ending~~ended March 31, ~~2019, with early adoption permitted.~~2019. The Company ~~is currently~~has completed evaluating the various accounting policy elections associated with this ASU, as amended, including transition methods and practical expedients, identifying contracts for evaluation, and reviewing contracts to determine if they contain leases. ~~While the~~The Company ~~is currently~~completed evaluating the timing and impact of adopting ASU 2016-02, as amended, ~~the Company anticipates recording~~and recorded lease assets and liabilities ~~less than $250,000~~of $163,007 on its ~~Condensed~~ Balance Sheets in the quarter ended March 31, 2019, with no ~~material~~ impact to its ~~Condensed Statements~~accumulated deficit.

Recently Issued Pronouncements

In June 2016, the FASB issued Accounting Standards Update 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of ~~Operations or~~Credit Losses on Financial Instruments,” as well as subsequent clarifying amendments. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to ~~its accumulated deficit. However,~~those techniques will change to reflect the ~~ultimate~~full amount of expected credit losses. This ASU is effective for the Company’s quarter ending March 31, 2020 with early application permitted. The Company has considered the potential impact from adoption of ~~adopting~~ ASU ~~2016-02~~2016-13, as well as the Targeted Transition Relief as provided by ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326) – Targeted Transition Relief.” The Company expects that the adoption of ASU 2016-13, along with the provisions of ASU 2019-05, will ~~depend~~not have a material impact on the Company’s ~~lease portfolio as of the adoption date. The Company expects to complete these procedures before the end of the year and determine any transition adjustments.~~financial statements, but may require expanded disclosure.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (a Consensus of the FASB Emerging Issues Task Force)”. This amendment requires that implemented costs incurred in a hosting arrangement that is a service contract should be accounted for in accordance with ASC 350-40. Accordingly, costs incurred during the preliminary project and post-implementation stages are expensed and costs associated with the application development phase are capitalized. The amendment also requires that capitalized costs be amortized over the term of the hosting arrangement and that capitalized costs should be evaluated for impairment. The amendment is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The Company ~~is currently assessing~~has completed its assessment of the standard and does not anticipate a material impact ~~that adoption of this ASU will have~~ on its financial statements ~~and related~~or disclosures.

3. INVENTORIES

Inventories consist of the following:

		September 30, 2018		December 31, 2017			September 30, 2019			December 31, 2018
Raw materials	$	1,467,431	$	1,511,339		$	1,356,287		$	1,399,543
Finished goods		6,512,470		5,289,761			5,687,035			6,442,759
		7,979,901		6,801,100			7,043,322			7,842,302
Inventory reserve		(594,488	)	(594,939	)		(297,208	)		(297,208	)
	$	7,385,413	$	6,206,161		$	6,746,114		$	7,545,094

4.FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

		September 30, 2019
		Level 1		Level 2		Level 3		Total
Mutual funds and exchange traded funds	$	6,315,788	$	—	$	—	$	6,315,788
Certificates of deposit		—		1,415,440		—		1,415,440
	$	6,315,788	$	1,415,440	$	—	$	7,731,228

		December 31, 2018
		Level 1		Level 2		Level 3		Total
US Treasury Notes	$	—	$	1,411,156	$	—	$	1,411,156
Certificates of deposit		—		1,575,000		—		1,575,000
	$	—	$	2,986,156	$	—	$	2,986,156

The Company holds high-grade exchange-traded and closed-end funds (ETFs), mutual funds, and debt securities as investments. These assets are readily marketable and are carried at fair value as of the date of the Condensed Balance Sheets. The Company intends to hold these assets for possible future operating requirements.

The following table summarizes gross unrealized gains and losses from investments in debt and equity securities:

		September 30, 2019
				Gross Unrealized				Aggregate
		Cost		Gains		Losses		Fair Value
Mutual funds and exchange traded funds	$	6,201,500	$	114,288	$	—	$	6,315,788
Certificates of deposit		1,400,000		15,440		—		1,415,440
	$	7,601,500	$	129,728		—	$	7,731,228

		December 31, 2018
				Gross Unrealized				Aggregate
		Cost		Gains		Losses		Fair Value
US Treasury Notes	$	1,411,156	$	—	$	—	$	1,411,156
Certificates of deposit		1,575,000		—		—		1,575,000
	$	2,986,156	$	—		—	$	2,986,156

5. INCOME TAXES

The Company’s effective tax rate on the net ~~earnings~~income (loss) before income taxes was 0.6% and 0.0% for the nine months ended September 30, ~~2018~~2019 and September 30, ~~2017.~~2018, respectively. For the three months ended September 30, ~~2018~~2019 and September 30, ~~2017,~~2018, the Company’s effective tax rate on the net ~~earnings~~income (loss) before income taxes was ~~0.0%~~0.4% and ~~(0.4)%~~0.0%, respectively.

5.6. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

September 30, 2018

December 31, 2017

Prepayments from customers
$
440,528
$
355,742

Accrued property taxes

331,284

14,681

Accrued professional fees

233,153

231,826

Other accrued expenses

41,515

55,674

Total
$
1,046,480
$
657,923

6.~~COMMITMENTS AND CONTINGENCIES~~

In May 2010, the Company and an officer’s suit against Becton, Dickinson and Company (“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 trial commenced on September 9, 2013 in the U.S. District Court for the Eastern District of Texas, Tyler Division, and the jury found 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, which was trebled pursuant to statute. The Court granted injunctive relief to take effect January 15, 2015 including, among other things, a requirement to notify certain customers and others regarding misleading disclosures. In connection with BD’s subsequent appeal, on December 2, 2016, the United States Court of Appeals for the Fifth Circuit overturned the antitrust damages. The finding of false advertising liability was affirmed and the case was remanded to the Eastern District of Texas for a redetermination as to the amount of damages to which the Company is entitled. On August 17, 2017, District Court for the Eastern District of Texas issued the Court’s Final Judgment ordering that the Company take nothing in its suit against BD and dismissing the case. The Company filed a notice of Appeal with the United States Court of Appeals for the Fifth Circuit on November 3, 2017. Briefing for the appeal was completed by the parties on May 2, 2018 and oral argument occurred on October 3, 2018.

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. On June 30, 2015, the Court ordered that further proceedings in this matter be stayed and that this case remain administratively closed until resolution of all appeals in the case detailed in the preceding paragraph. The case remains stayed as a result of the ongoing proceedings regarding the Lanham Act claims in the separate proceeding described above.

		September 30, 2019		December 31, 2018
Prepayments from customers	$	530,997	$	860,926
Accrued property taxes		351,100		170,568
Accrued professional fees		188,257		294,903
Other accrued expenses		150,447		141,538
Total	$	1,220,801	$	1,467,935

7. BUSINESS SEGMENT

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

Revenues by geography are as follows:

Three Months Ended
September 30, 2018

Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2018

Nine Months Ended
September 30, 2017

U.S. sales
$
8,747,696
$
8,358,847
$
21,665,039
$
20,361,847

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

803,654

1,900,892

2,605,591

3,728,452

Other international sales

311,922

152,297

740,436

891,534

Total sales
$
9,863,272
$
10,412,036
$
25,011,066
$
24,981,833

		Three Months Ended September 30, 2019		Three Months Ended September 30, 2018		Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018
U.S. sales	$	9,039,208	$	8,747,696	$	23,031,222	$	21,665,039
North and South America sales (excluding U.S.)		2,432,734		803,654		4,960,486		2,605,591
Other international sales		167,644		311,922		1,176,242		740,436
Total sales	$	11,639,586	$	9,863,272	$	29,167,950	$	25,011,066

Long-lived assets by geography are as follows:

September 30, 2018

December 31, 2017

Long-lived assets

U.S.
$
10,856,824
$
11,215,583

International

119,526

137,619

Total
$
10,976,350
$
11,353,202

	September 30, 2019		December 31, 2018
Long-lived assets
U.S.	$	10,602,380	$	10,738,253
International		95,400		113,494
Total	$	10,697,780	$	10,851,747

8. DIVIDENDS

The Board declared and the Company ~~declared dividends in 2017 in the amounts of $12,313 and $42,800~~ paid ~~to Series I Class B and Series II Class B Preferred Stockholders, respectively, on January 6, 2017, April 24, 2017, July 20, 2017, and October 20, 2017. The Company declared~~ dividends in 2018 in the amounts of $12,313 and $42,800 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on January 19, 2018, April 24, 2018, July 20, 2018, and October 23, 2018. The Board declared and the Company paid dividends in 2019 in the amounts of $12,313 and $42,800 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on January 18, 2019 and April 22, 2019. Additionally, the Board declared and the Company paid dividends of $12,000 and $42,800 to Series I Class B and Series II Class B Preferred Stockholders, respectively, on July 19, 2019 and October 21, 2019.

In the second quarter of 2019, shareholders converted a total of 2,500 shares of Series I Class B Preferred Stock and 6,000 shares of Series V Class B Preferred Stock into the same number of shares of Common Stock.

9. ~~PRIVATE PURCHASE~~LEASES

The Company ~~approved three~~has operating leases for a corporate office and equipment. The leases have remaining lease terms of ~~its executive officers~~one to ~~purchase shares directly~~two years. The Company currently has no finance leases. The ROU asset is determined based on the lease liability adjusted for lease incentives received. Lease expense is recognized on a straight-line basis over the lease term. The leases may include various expenses incidental to the use of the property, such as common area maintenance, property taxes and insurance. These costs are separate from the ~~Company. Thomas J. Shaw, CEO, exercised his purchase rights on January 12, 2017, buying two million shares~~minimum rent payment and are not considered in the determination of the lease liability and ROU asset. The Company has not noted any material instances in its leases where these costs were combined with the minimum rent payment and has therefore elected the policy to not separate lease from non-lease components if they are combined with the minimum rent payment. The option periods are not included in the determination of the lease liability and right-of-use asset as the Company is not reasonably certain if it will extend at ~~market price~~the time of lease commencement.

The operating lease cost component of the lease expense was $20,264 and $60,175 for ~~an aggregate purchase price~~the three and nine months ended September 30, 2019. The cash paid for amounts included in the measurement of ~~$1.78 million,~~lease liabilities as a component of cash flows related to leases was $20,264 and ~~he exercised~~$60,175 for the ~~remainder~~three and nine months ended September 30, 2019.

Assets and liabilities associated with these leases included in the Balance Sheets are as follows:

		September 30, 2019		December 31, 2018
OPERATING LEASES
Other assets	$	102,832	$	163,007
Other accrued liabilities	$	81,933	$	80,648
Other long-term liabilities		20,899		82,359
Total operating lease liabilities	$	102,832	$	163,007

The weighted average remaining lease term is 1.24 years and the weighted average discount rate is 4.02%.

Future minimum payments under non-cancelable operating leases and financing leases consist of ~~his purchase rights on August 23, 2017 by purchasing one million shares~~the following at market price for aggregate consideration of $570,100. Mr. Cowan, CFO, and Ms. Larios, Vice President and General Counsel, are authorized to purchase 500,000 shares each at market price any time prior to December 9, 2018. The approximate dollar value of these potential future purchases cannot be predicted.September 30, 2019:

Year ending December 31,
Remainder of 2019	$	21,436
2020		84,155
Total		105,591

Less imputed interest		(2,759	)
Total	$	102,832

10. ~~BONUSES~~HELD-TO-MATURITY SECURITIES – CORRECTION OF ERRORS

In February of 2017, Mr. Cowan and Ms. Larios were each granted cash bonuses of $250,000. Ms. Larios received her bonus in the first quarter of 2017. Mr. Cowan received his bonus in the fourth quarter of 2017.

~~11.~~~~STORM DAMAGE AND INSURANCE PROCEEDS~~

On March 26, 2017, a hail storm passed through Little Elm, Texas, resulting in damage to the Company’s two buildings. During April 2017, the Company performed an inspection of its facilities and determined that possible roof damage had been sustained. In late April 2017, the Company’s insurance carrier inspected the two buildings and confirmed that damage occurred from the hail storm. This damage was principally to the roofs of the buildings but also many of the HVAC units and a wall alongside one of the buildings were also damaged.

The ~~Company’s insurance carrier~~Condensed Balance Sheet as of December 31, 2018 has ~~assessed damages~~been revised to reflect a correction of ~~$1,009,960 and~~an error to the ~~Company’s deductible is $5,000.~~classification of investments previously recorded as Held-to-Maturity. During the quarter ended June 30, 2019, the Company determined that, during 2018, it had incorrectly classified certain investments as Held-to-Maturity that should have been classified as Available-for-Sale. The Company ~~received these funds from its carrier in~~views the ~~second quarter~~correction of ~~2017. Repairs commenced during~~ the ~~third quarter of 2017. The Company expects that all repairs will~~classification error to be ~~completed in the fourth quarter.~~

~~During 2017,~~immaterial to previously filed financial statements. Nonetheless, the Company ~~incurred~~has revised the presentation of the Condensed Balance Sheet at December 31, 2018 to reflect the reclassification of all previously recorded Held-to-Maturity investments as Available-for-Sale. The effect on the Condensed Balance Sheet as of December 31, 2018 is to reclassify $2,986,156 from Held-to-Maturity securities to Investments in debt and ~~recognized $538,667 in repairs due to the storm damage. Repairs during the first nine months of~~equity securities, at fair value. In addition, Total current assets at December 31, 2018 were ~~$203,289. This repair expense~~increased by $1,989,923 as a result of this reclassification. There was ~~offset by the insurance proceeds, resulting in~~ no impact to the Statement of ~~Operations. These costs and offsets are included in General and administrative expense in~~Operations for 2018. The Company will revise its previously-issued financial statements on a prospective basis for this classification error as well as the ~~Statement~~related disclosures of ~~Operations. The remaining insurance proceeds are expected to be recognized as income in~~ the ~~fourth quarter~~fair value of ~~2018.~~financial instruments.

~~12.~~~~LONG-TERM DEBT~~

On April 10, 2018, the Company renewed its loan with American First National Bank, which renewal included a ten-year extension of the Company’s promissory note in the original principal amount of approximately $4.21 million ($3.03 million at date of renewal) and converted the interest rate to an adjustable interest rate equal to the prime rate plus 0.25%. The note matures on April 10, 2028 and is secured by the Company’s land and buildings. The interest rate was 5.5% at September 30, 2018.

~~The following chart summarizes the Company’s obligations under this note to make future payments as of September 30, 2018 for years ending December 31:~~

2018
$
63,102

2019

246,995

2020

260,202

2021

273,703

2022

287,905

Thereafter

1,807,208

$
2,939,115

~~13.~~11. SUBSEQUENT EVENTS

On November ~~8, 2018,~~7, 2019, the Company ~~terminated the employment approximately 20 employees earning total annual compensation of approximately $1.1 million. Some of these positions may be filled~~filed a lawsuit in the ~~future. Under~~44th District Court of Dallas County, Texas (No. DC-19-17946) against Locke Lord, LLP and Roy Hardin in connection with their legal representation of the ~~proposed severance agreements, severance~~Company in its previous litigation against Becton, Dickinson and Company (“BD”). The Company alleges that the defendants breached their fiduciary duties, committed malpractice, and were negligent in their representation of the Company. The Company seeks actual and exemplary damages, disgorgement, costs, ~~are expected to be a maximum of $250 thousand.~~and interest.

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, potential tariffs, our ability to maintain liquidity, our maintenance of patent protection, ~~the impact of current and future Court decisions regarding current litigation,~~ our ability to maintain favorable third party manufacturing and supplier arrangements and relationships, foreign trade risk, 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 impact of larger market players, ~~specifically Becton, Dickinson and Company (“BD”),~~ in providing devices to the safety market, and other factors referenced in Item 1A. Risk Factors 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~~VanishPoint® syringes comprised ~~85.5%~~85.0% of our sales in the first nine months of ~~2018.~~2019. We also manufacture and market the EasyPoint®needle, 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 associated with catheter hub contamination.

In the second quarter of 2016, we began selling the EasyPoint® needle. EasyPoint® needles made up ~~4.9%~~10.3% of revenues for the year ended December 31, 2018 and 8.4% of revenues in the first nine months of ~~2017 and 10.1% of our revenues in the first nine months of 2018.~~2019. The EasyPoint® ~~needle~~ is a retractable needle that can be used with Luer lock syringes, Luer slip syringes, and prefilled syringes to give injections. The EasyPoint® needle can also be used to aspirate fluids and collect blood.

Historically, unit sales have increased in the latter part of the year due, in part, to the demand for syringes during the flu season.

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 facilities that provide long-term nursing and out-patient surgery, emergency care, physician services, health clinics, and retail pharmacies.

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~~Effective May 3, 2019, we settled and released all past claims against BD and MDC in return for a settlement and release of past claims against us from BD and MDC. On May 6, 2019, filings were made with the ~~past that~~U.S. Court of Appeals for the Fifth Circuit to cease further proceedings in our ~~progress is limited principally due to the practices engaged in by BD, the dominant maker and seller of disposable syringes. We initiated an~~ antitrust and false advertising ~~lawsuit in 2007~~suit against ~~BD. Although a district court judgment in 2015 awarded us approximately $340 million in antitrust~~

~~damages from~~ BD and in the ~~Fifth Circuit affirmed a finding~~U.S. District Court for the Eastern District of ~~false advertising liability~~Texas to dismiss BD and MDC’s suit against ~~BD, we were ultimately awarded a take nothing judgment in August 2017 and the case was dismissed.~~ ~~We appealed that ruling, briefing has been completed, and oral arguments occurred October 3, 2018.~~us for patent infringement.

~~Our litigation expenses~~In November 2018, we terminated 19 employees earning total annual compensation of approximately $1.12 million. Severance costs associated with the 2018 terminations were significantly less in 2017 than in prior years. In the first nine months of 2018, our legal expenses, including litigation expenses, were significantly lower as compared to the first nine months of 2017. We have expanded our sales and marketing staff in an effort to gain market share. Costs related to additional compensation, bonuses to Ms. Larios and Mr. Cowan, and stock option expense related to options granted in 2016 were amortized in 2017 and affect comparability to 2017.$244 thousand.

In January 2018, Congress imposed another two-year moratorium on the 2.3% medical device excise tax imposed by Internal Revenue Code section 4191. Thus, the medical device excise tax is not expected to go into effect until January 1, 2020.

On November 8, 2018, we terminated the employment of approximately 20 employees earning total annual compensation of approximately $1.1 million. Some of these positions may be filled in the future. Under the proposed severance agreements, severance costs are expected to be a maximum of $250 thousand.

In 2016, we granted a right to three of our executive officers to purchase shares directly from the Company. Thomas J. Shaw exercised such right on January 12, 2017, buying two million shares at market price for an aggregate purchase price of $1.78 million and purchased one million shares at market price on August 23, 2017 for an aggregate purchase price of $570,100.

We received approximately $1 million from our insurance carrier in the second quarter of 2017 and the majority of these funds have been used to repair our buildings from earlier storm damage. The remaining insurance proceeds are expected to be recognized as income in the fourth quarter of 2018.

In the second quarter of 2018, the Company renewed its loan with American First National Bank, which renewal included a ten-year extension of the Company’s promissory note in the original principal amount of approximately $4.21 million and converted the interest rate to an adjustable interest rate equal to the prime rate plus 0.25%.

Product purchases from our Chinese manufacturers have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost. In the first nine months of ~~2018,~~2019, our Chinese manufacturers produced approximately ~~85.1%~~82.1% of our products. In the event that we become unable to purchase products from our Chinese manufacturers, we would need to find an alternate manufacturer for the blood collection set, IV catheter, Patient Safe® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes and we would increase domestic production for the 1mL and 3mL ~~syringes.~~ ~~New import tariffs on Chinese products could materially adversely affect us. As of the date of this filing,~~ syringes ~~are not included among the Chinese products on which the United States has proposed tariffs.~~and EasyPoint® needles.

In 1995, we entered into a license agreement with Thomas J. Shaw for the exclusive right to manufacture, market, and distribute products utilizing his patented automated retraction technology and other patented technology. This technology is the subject of various patents and patent applications owned by Mr. Shaw. The license agreement generally provides for quarterly payments of a 5% royalty fee on gross sales. The license agreement also provides for royalties to Mr. Shaw in the event the Company receives licensing fees, as described herein.

With increased volumes, our manufacturing unit costs have generally tended to decline. Factors that could affect our unit costs include possible tariffs, 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.

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. Dollar amounts have been rounded for ease of reading. All period references are to the periods ended September 30, ~~2018~~2019 or ~~2017.~~2018.

Comparison of Three Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Domestic sales accounted for 77.7% and 88.7% ~~and 80.3%~~ of ~~the~~ revenues for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Domestic revenues increased ~~4.7% principally due~~3.3%. The domestic product mix may be more heavily weighted to ~~sales of~~ ~~EasyPoint~~® ~~needles~~.syringes. Domestic unit sales ~~increased 19.7%.~~decreased 6.7% principally because the flu season shifted to later in the year. Domestic unit sales were ~~85.8%~~69.2% of total unit sales for the three months ended September 30, ~~2018.~~2019. International revenue and unit sales ~~decreased 45.7%~~increased 133.1% and ~~49.6%~~152.3%, respectively, due to ~~decreased volumes.~~increased unit sales. Our international orders may be subject to significant fluctuation over ~~time.~~time and there is limited predictability with respect to the timing of international orders. Overall unit sales increased ~~0.2%~~15.8%.

The Cost of manufactured product ~~decreased~~increased by ~~1.6%~~11.8% principally due to ~~lower average cost.~~an increase in the units sold. 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. Royalty expense increased ~~1.9%~~8.5% due to ~~higher~~increased gross sales.

Gross profit ~~decreased 14.2%~~increased 34.8% primarily due to ~~lower average sales prices.~~an increase in international sales.

Operating expenses ~~decreased 13.3%. The decrease was due to lower legal expenses, lower travel and entertainment costs, and lower employee costs.~~were almost flat, with a 2.3% decrease.

Our operating ~~loss~~income was ~~$60,226~~$978 thousand compared to an operating loss for the same period last year of ~~$32,858~~$60 thousand due primarily to ~~lower gross profit mitigated by lower operating expenses.~~an increase in international sales.

Interest and other income increased $52 thousand for the quarter ended September 30, 2019 compared to the same period last year due to recognition of unrealized gains on investments and accrued interest on deposits.

Our effective tax rate on the net ~~loss~~income (loss) before income taxes was ~~0.0% and (0.4)%~~0.4% for the three months ended September 30, ~~2018~~2019 and 0.0% for the three months ended September 30, ~~2017, respectively.~~2018.

Comparison of Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018

Domestic sales accounted for 79.4% and 86.6% ~~and 81.5%~~ of ~~the~~ revenues, excluding product licensing fees, for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Domestic revenues increased ~~6.4% principally due~~6.3%. The domestic product mix may be more heavily weighted to ~~sales of~~ ~~EasyPoint~~® ~~needles~~.syringes. Domestic unit sales increased ~~14.2%~~5.8%. Domestic unit sales were ~~81.3%~~72.3% of total unit sales for the nine months ended September 30, ~~2018.~~2019. International revenue, excluding product licensing fees, and unit sales ~~decreased 27.6%~~increased 78.5% and ~~26.4%~~76.3%, respectively, due to ~~decreased volumes.~~increased unit sales. Our international orders may be subject to significant fluctuation over ~~time.~~time and there is limited predictability with respect to the timing of international orders. Overall unit sales increased ~~3.6%~~18.9%.

The Cost of manufactured product ~~was flat~~increased by 15.5% principally due to ~~higher volumes offset by lower average costs.~~an increase in the units sold. 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. Royalty expense increased ~~5.0%~~16.3% due to ~~higher~~increased gross ~~sales.~~sales and product licensing fees. The Company recognized $163 thousand in product licensing fees in the first nine months of 2019. Such licensing fees are subject to a 50% royalty to Mr. Shaw under the terms of his Technology License Agreement.

Gross profit ~~decreased 0.9%~~increased 19.0% primarily due to ~~slightly higher royalty costs.~~an overall increase in sales.

Operating expenses decreased ~~13.7%~~9.3%. The decrease was due to ~~lower legal expenses, bonuses paid~~cost cutting measures implemented in ~~2017, lower employee~~the fourth quarter of 2018. The cost cutting measures included a decrease in payroll costs initiated in November of 2018, as well as a reduction in ~~share-based compensation, and lower travel and entertainment costs.~~legal expenses.

Our operating ~~loss~~income was ~~$1.2~~$1.1 million compared to an operating loss for the same period last year of ~~$2.5~~$1.2 million due primarily to ~~lower operating~~a combination of an increase in sales and a reduction of expenses.

Interest and other income increased $190 thousand for the nine months ended September 30, 2019. This is a result of the increase in the unrealized value of investments and accrued interest on deposits.

Our effective tax rate on the net ~~loss~~income (loss) before income taxes was 0.6% for the nine months ended September 30, 2019 and 0.0% for the nine months ended September 30, ~~2018 and September 30, 2017.~~2018.

Discussion of Balance Sheet and Statement of Cash Flow Items

Cash ~~comprised 36.8%~~comprises 14.6% of total ~~assets at September 30, 2018.~~assets. Working capital was ~~$17.4~~$18.3 million at September 30, ~~2018, a decrease~~2019, an increase of ~~$1.3~~$1.1 million from December 31, ~~2017.~~2018.

Cash flow ~~used~~provided by operations was ~~$440 thousand~~$1.5 million for the nine months ended September 30, ~~2018~~2019 due primarily to ~~increased inventory.~~net income for the period.

~~We also received approximately $1.0~~Investments in debt and equity securities accounts for $7.7 million, ~~in 2017~~or 28.5% of current assets at September 30, 2019, an increase of $4.7 million from our insurance carrier which has been used to repair damage to our buildings from a hail storm. We expect that all repairs will be completed and approved by our insurance adjuster during the fourth quarter ofDecember 31, 2018. The ~~remaining insurance proceeds are expected to be recognized as income in~~balance of $7.7 million includes a $129 thousand net unrealized gain for the ~~fourth quarter of 2018.~~nine months ended September 30, 2019.

LIQUIDITY

At the present time, Management does not intend to publicly raise equity capital. ~~Due to the funds received from prior litigation and direct purchases of our stock, we~~We have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing, when available, as the primary ongoing sources of cash. Our ability to obtain additional funds through loans is uncertain.

In the first quarter of 2019, we invested approximately $4.5 million in exchange-traded and closed-end funds (ETFs) and mutual funds. These investments significantly decreased our cash accounts since December 31, 2018. However, we believe that these investments, along with our investment of approximately $3.0 million in the fourth quarter of 2018, may increase our investment income in the future. During the second quarter of 2019, we sold approximately $1.4 million in debt securities and reinvested in mutual funds. We believe that the alteration of our portfolio of invested funds may provide greater returns on investment. We continue to assess the performance of our investments and will monitor opportunities to utilize invested funds as a means of providing income and adding overall value. Our investments are classified as available for sale and can be readily sold if cash is needed. The timing of any sale, depending on the prevailing market value of the investments at the time, could result in loss of the principal invested.

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 routinely positive or break even quarters, we need increased 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 ~~14.9%~~17.9%) of our products in the U.S. or find other manufacturers. 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. 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. 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.

Seasonality

Historically, unit sales have increased during the flu season.

Cash Requirements

~~Due to funds received from prior litigation, we~~We have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing, when available, as the primary ongoing sources of cash. We have taken steps to decrease our legal and other costs and we continue to evaluate these costs. ~~We terminated approximately 20 employees in the fourth quarter of 2018 which may reduce future costs, although some of the positions may be filled in the future.~~ 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. ~~Some increases in compensation were made in 2017 due to hiring additional sales personnel and nonrecurring bonuses made to two officers.~~

External Sources of Liquidity

We have obtained several loans since 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. Our ability to obtain additional funds through loans is uncertain. Due to the current market price of our Common Stock, it is unlikely we would choose to raise funds by the public sale of equity. We granted a right to three of our executive officers to engage in private purchases of stock at market prices. Thomas J. Shaw exercised such right on January 12, 2017, buying two million shares at market price for an aggregate purchase price of $1.78 million and purchased one million shares at market price on August 23, 2017 for an aggregate purchase price of $570,100.

CAPITAL RESOURCES

There were no material commitments for capital expenditures in the third quarter of ~~2018.~~2019.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

~~No update.~~Not applicable.

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~~John W. ~~Cowan~~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, ~~2018,~~2019, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes during the third quarter of ~~2018~~2019 or subsequent to September 30, ~~2018~~2019 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~~On November 7, 2019, we filed a lawsuit in the ~~financial statements for a complete description~~44th District Court of ~~all~~Dallas County, Texas (No. DC-19-17946) against Locke Lord, LLP and Roy Hardin in connection with their legal ~~proceedings.~~representation in the litigation against BD. We allege that the defendants breached their fiduciary duties, committed malpractice, and were negligent in their representation. We are seeking actual and exemplary damages, disgorgement, costs, and interest.

Item 1A.            Risk Factors.

There were no material changes in our Risk Factors as set forth in our most recent annual ~~and quarterly reports~~report which ~~are~~is available on EDGAR.
~~Item~~ 2.~~Unregistered Sales of Equity Securities and Use of Proceeds~~.
~~None.~~

Item 3.Defaults Upon Senior Securities.

Working Capital Restrictions and Limitations on the Payment of Dividends

The Company declared a dividend to the Series I Class B and Series II Class B Convertible Preferred Shareholders in the aggregate amount of $~~55,113.~~54,800. This dividend was paid on October ~~23, 2018.~~21, 2019.

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.

Series I Class B Convertible Preferred Stock

For the nine months ended September 30, ~~2018,~~2019, no dividends were in arrears.

Series II Class B Convertible Preferred Stock

For the nine months ended September 30, ~~2018,~~2019, no dividends were in arrears.

Series III Class B Convertible Preferred Stock

For the nine months ended September 30, ~~2018,~~2019, the amount of dividends in arrears was $96,934 and the total arrearage was ~~$4,243,000~~$4,372,000 as of September 30, ~~2018.~~2019.

Series IV Class B Convertible Preferred Stock

For the nine months ended September 30, ~~2018,~~2019, the amount of dividends in arrears was $256,875 and the total arrearage was ~~$6,398,000~~$6,740,000 as of September 30, ~~2018.~~2019.

Series V Class B Convertible Preferred Stock

For the nine months ended September 30, ~~2018,~~2019, the amount of dividends in arrears was ~~$9,600~~$8,640 and the total arrearage was ~~$1,006,000~~$1,017,000 as of September 30, ~~2018.~~2019.
~~Item 5.~~~~Other Information.~~
Our next annual meeting of shareholders will be held on May 7, 2019, rather than in September. As a result, the deadlines for receipt of shareholder proposals and director nominations set forth in our proxy statement relating to the meeting held September 7, 2018 must be revised. Both such deadlines for the next annual meeting of shareholders will be January 2, 2019.
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
~~Exhibit No.~~
~~Description of Document~~

101

The following materials from Retractable Technologies, Inc.’s Form 10-Q for the quarter ended September 30, ~~2018,~~2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, (ii) Condensed Statements of Operations for the three ~~months~~ and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, (iii) Condensed Statements of Cash Flows for the nine months ended September 30, 2019 and 2018, (iv) Condensed Statement of Changes in Stockholders’ Equity for the three and ~~2017~~nine months ended September 30, 2019 and ~~(iv)~~2018; and (v) Notes to Condensed Financial Statements
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:
November 14, ~~2018~~2019
RETRACTABLE TECHNOLOGIES, INC.

(Registrant)

BY:
/s/ ~~Douglas~~JOHN W. ~~Cowan~~
FORT III

~~DOUGLAS~~JOHN W. ~~COWAN~~FORT III
VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
AND CHIEF ACCOUNTING OFFICER

2321

Texas		75-2599762
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		~~(I.R.S. Employer~~ Identification No.)

511 Lobo Lane
Little Elm, Texas		75068-5295
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		RVP		NYSE American

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company x
		Emerging growth company o