10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

or

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

For the transition period from     to     

Commission file number:  001-16465

Retractable Technologies, Inc.

(Exact name of registrant as specified in its charter)

Texas	75-2599762
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
511 Lobo Lane
Little Elm, Texas	75068-0009
(Address of principal executive offices)	(Zip Code)

(972) 294-1010

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes o  No o

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,273,164 shares of Common Stock, no par value, outstanding on November 5, 2012.

RETRACTABLE TECHNOLOGIES, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2012

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	1
CONDENSED BALANCE SHEETS		1
CONDENSED STATEMENTS OF OPERATIONS		2
CONDENSED STATEMENTS OF CASH FLOWS		3
NOTES TO CONDENSED FINANCIAL STATEMENTS		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	18
Item 6.	Exhibits	18
SIGNATURES		19

PART I—FINANCIAL INFORMATION

Item 1.       Financial Statements.

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

		September 30, 2012
		(unaudited)			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	25,008,688		$	25,673,263
Accounts receivable, net		5,220,775			3,576,411
Inventories, net		4,946,034			6,237,419
Income taxes receivable		79,334			39,485
Other current assets		672,941			218,529
Total current assets		35,927,772			35,745,107
Property, plant, and equipment, net		11,980,357			12,653,856
Intangible and other assets, net		332,275			362,976
Total assets	$	48,240,404		$	48,761,939
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,738,389		$	3,500,301
Current portion of long-term debt		310,556			620,472
Accrued compensation		589,220			628,794
Dividends payable		57,613			—
Accrued royalties to shareholders		772,142			122,239
Other accrued liabilities		1,465,334			1,065,943
Income taxes payable		28,297			29,471
Total current liabilities		5,961,551			5,967,220
Long-term debt, net of current maturities		3,913,663			4,143,267
Total liabilities		9,875,214			10,110,487
Commitments and contingencies — see Note 6
Stockholders’ equity:
Preferred stock $1 par value:
Series I, Class B		103,500			103,500
Series II, Class B		178,700			178,700
Series III, Class B		130,245			130,245
Series IV, Class B		542,500			542,500
Series V, Class B		46,607			46,607
Common stock, no par value		—			—
Additional paid-in capital		58,674,220			57,284,670
Retained deficit		(21,226,790	)		(19,634,770	)
Common Shares in treasury - at cost		(83,792	)		—
Total stockholders’ equity		38,365,190			38,651,452
Total liabilities and stockholders’ equity	$	48,240,404		$	48,761,939

See accompanying notes to condensed financial statements

1

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

		Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Sales, net	$	9,444,157		$	8,270,608		$	25,602,046		$	25,994,211
Cost of sales
Cost of manufactured product		5,318,351			4,208,993			14,114,956			14,175,830
Royalty expense to shareholders		772,142			672,084			1,962,780			2,002,720
Total cost of sales		6,090,493			4,881,077			16,077,736			16,178,550
Gross profit		3,353,664			3,389,531			9,524,310			9,815,661
Operating expenses:
Sales and marketing		1,034,419			937,868			2,939,142			2,487,136
Research and development		244,015			169,279			601,008			539,161
General and administrative		2,286,614			2,308,759			7,372,663			7,903,586
Total operating expenses		3,565,048			3,415,906			10,912,813			10,929,883
Loss from operations		(211,384	)		(26,375	)		(1,388,503	)		(1,114,222	)
Interest and other income		11,286			15,322			34,199			48,920
Interest expense, net		(68,994	)		(62,455	)		(211,344	)		(184,911	)
Litigation settlements, net		—			1,900,000			—			5,700,000
Income (loss) before income taxes		(269,092	)		1,826,492			(1,565,648	)		4,449,787
Provision (benefit) for income taxes		3,869			(1,952	)		26,372			50,514
Net income (loss)		(272,961	)		1,828,444			(1,592,020	)		4,399,273
Preferred stock dividend requirements		(229,527	)		(342,217	)		(688,581	)		(1,026,651	)
Earnings (loss) applicable to common shareholders	$	(502,488	)	$	1,486,227		$	(2,280,601	)	$	3,372,622
Basic earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.14
Diluted earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.13
Weighted average common shares outstanding:
Basic		26,972,818			24,027,053			25,870,073			24,005,761
Diluted		26,972,818			25,950,804			25,870,073			26,364,753

See accompanying notes to condensed financial statements

2

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

		Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Cash flows from operating activities
Net income (loss)	$	(1,592,020	)	$	4,399,273
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:
Depreciation and amortization		986,761			987,161
Provision for doubtful accounts		30,854			429,815
Provision for inventory valuation		90,000			52,835
Reserve for non-contractual deductions		—			471,072
Accreted interest		3,773			14,518
(Increase) decrease in assets:
Inventories		1,201,385			981,766
Accounts receivable		(1,675,218	)		868,033
Income taxes receivable		(39,849	)		(4,431	)
Other current assets		(454,412	)		560,141
Increase (decrease) in liabilities:
Accounts payable		(761,912	)		(918,429	)
Accrued liabilities, other		1,009,720			(2,740,123	)
Income taxes payable		(1,174	)		(106,254	)
Net cash provided by (used by) operating activities		(1,202,092	)		4,995,377
Cash flows from investing activities
Purchase of property, plant, and equipment		(282,560	)		(653,873	)
Net cash used by investing activities		(282,560	)		(653,873	)
Cash flows from financing activities
Repayments of long-term debt and notes payable		(543,293	)		(444,552	)
Proceeds from the exercise of stock options		1,620,000			44,001
Repurchase of Common Stock		(83,792	)		—
Payment of Preferred Stock dividends		(172,838	)		(291,700	)
Net cash used by financing activities		820,077			(692,251	)
Net increase (decrease) in cash and cash equivalents		(664,575	)		3,649,253
Cash and cash equivalents at:
Beginning of period		25,673,263			23,266,039
End of period	$	25,008,688		$	26,915,292
Supplemental disclosures of cash flow information:
Interest paid	$	207,571		$	210,307
Income taxes paid	$	71,328		$	134,057
Supplemental disclosure of noncash investing and financing activities:
Preferred dividends declared	$	57,613		$	72,925
Debt assumed for the purchase of molding machines	$	—		$	327,725

See accompanying notes to condensed financial statements

3

RETRACTABLE TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1.BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

Business of the Company

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

Basis of presentation

The accompanying condensed financial statements are unaudited and, in the opinion of Management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented.  All such adjustments are of a normal and recurring nature.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year.  The condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company’s audited financial statements incorporated into its Form 10-K filed on March 30, 2012 for the year ended December 31, 2011.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include unrestricted cash, 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.  These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible.  Trade receivables are considered delinquent when payment has not been made within contract terms.

The Company requires certain distributors to make a prepayment prior to beginning production or shipment of their order.  Distributors may apply such prepayments to their outstanding invoices or pay the invoice and continue to carry forward the deposit for future orders.  Such amounts are included in Other accrued liabilities on the Condensed Balance Sheets and are shown in Note 5, Other Accrued Liabilities.

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

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Inventories

Inventories are valued at the lower of cost or market, with cost being determined using actual average cost.  The Company compares the average cost to the market price and records the lower value.  Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories.  A reserve is established for any excess or obsolete inventories or they may be written off.

Property, plant, and equipment

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

Depreciation and amortization are calculated using the straight-line method over the following useful lives:

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

Long-lived assets

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

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

Intangible assets

Intangible assets are stated at cost and consist primarily of patents, a license agreement granting exclusive rights to use patented technology, and trademarks which are amortized using the straight-line method over 17 years.

Financial instruments

The Company estimates the fair market value of financial instruments through the use of public market prices, quotes from financial institutions, and other available information.  Judgment is required in interpreting data to develop estimates of market value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange.  Short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on Management’s estimates, approximates their recorded values.  In addition, the Company believes that the fair value of the long-term debt instruments approximates their recorded values.

5

Concentration risks

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.  Cash balances, some of which exceed federally insured limits, are maintained in financial institutions; however, Management believes the institutions are of high credit quality.  The majority of accounts receivable are due from companies which are well-established entities.  As a consequence, Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers in 2012 and 2011:

	Nine Months ended September 30, 2012	Nine Months ended September 30, 2011	Three Months ended September 30, 2012	Three Months ended September 30, 2011
Number of significant customers	3	4	2	3
Aggregate dollar amount of net sales to significant customers	$10.6 million	$13.0 million	$3.4 million	$4.1 million
Percentage of net sales to significant customers	41.3%	50.1%	35.6%	49.6%

The Company manufactures syringes in Little Elm, Texas as well as utilizing manufacturers in China.  The Company purchases most of its product components from single suppliers, including needle adhesives and packaging materials.  There are multiple sources of these materials.  The Company obtained roughly 69.6% and 68.6% of its finished products in the first nine months of 2012 and 2011, respectively, from Double Dove, a Chinese manufacturer.  Purchases from Double Dove aggregated 71.9% and 62.8% of finished products in the three month periods ended September 30, 2012 and 2011, respectively.  In the event that the Company becomes unable to purchase such product from Double Dove, the Company would need to find an alternate supplier for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe and increase domestic production for 1mL and 3mL syringes to avoid a disruption in supply.

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances.  Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products that the Company has not received tracking reports.  Rebates are recorded when issued and are applied against the customer’s receivable balance.  Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company.  If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor.  One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report.  Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted.  The estimated contractual allowance is netted against the individual distributor’s accounts receivable balances for financial reporting purposes.  The resulting net balance is reflected in accounts receivable or accounts payable, as appropriate.  The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors.  Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company.  Any product shipped or distributed for evaluation purposes is expensed.

Certain distributors have taken rebates to which they are not entitled, such as utilizing a rebate for products not purchased directly from the Company.  The Company has been in discussions with the principal customers that claimed non-contractual rebates.  Major customers said they have ceased the practices resulting in

6

claiming non-contractual rebates.  Rebates can only be claimed on purchases made directly from the Company. The Company has established a reserve for the collectability of these non-contractual rebate amounts.  The majority of expense for the reserve is recorded as a reduction of revenues and the remaining expense is recorded in Operating expense, General and administrative.  The reserve for such non-contractual deductions is a reduction of accounts receivable.

The Company’s domestic return policy is set forth in its standard Distribution Agreement.  This policy provides that a customer may return incorrect shipments within 10 days following arrival at the distributor’s facility.  In all such cases the distributor must obtain an authorization code from the Company and affix the code to the returned product.  The Company will not accept returned goods without a returned goods authorization number.  The Company may refund the customer’s money or replace the product.

The Company’s domestic return policy also provides that a customer may return product that is overstocked.  Overstocking returns are limited to two times in each 12-month period up to 1% of distributor’s total purchase of products for the prior 12-month period.  All product overstocks and returns are subject to inspection and acceptance by the Company.

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

Litigation settlements

Proceeds from litigation settlements are recognized when realizable.  Generally, realization is not reasonably assured and expected until proceeds are collected.  In 2010 and 2011, the Company received quarterly option payments, totaling $8 million, from Hospira, Inc. (“Hospira”) for a one-year option to negotiate a licensing agreement for certain uses of the Patient Safe® syringe.  This option expired unexercised in July 2011.  The Company recognizes proceeds from litigation settlements net of any associated royalty expense.

Income taxes

The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in the financial statements based on whether it is “more-likely-than-not” that a tax position will be sustained based upon the technical merits of the position.  Measurement of the tax position is based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The Company provides for deferred income taxes through utilizing an asset and liability approach for financial accounting and reporting based on the tax effects of differences between the financial statement and tax bases of assets and liabilities, based on enacted rates expected to be in effect when such differences reverse in future periods.  Deferred tax assets are periodically reviewed for realizability.  The Company utilized some of its net operating loss carry forwards in 2011 and paid Alternative Minimum Tax on its taxable income.  The Company has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest on uncertain tax positions are classified as income taxes in the Condensed Statements of Operations.

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period.  Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible preferred stock and convertible debt.  The potential dilution, if any, is shown on the following schedule:

7

		Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Net income (loss)	$	(272,961	)	$	1,828,444		$	(1,592,020	)	$	4,399,273
Preferred dividend requirements		(229,527	)		(342,217	)		(688,581	)		(1,026,651	)
Effect of dilutive securities:
Convertible debt interest and loan fees		—			2,259			—			(6,955	)
Earnings (loss) available to common shareholders	$	(502,488	)	$	1,488,486		$	(2,280,601	)	$	3,365,667
Average common shares outstanding		26,972,818			24,027,053			25,870,073			24,005,761
Dilutive stock equivalents from stock options		—			1,815,360			—			2,250,601
Shares issuable upon conversion of convertible debt		—			108,391			—			108,391
Average common and common equivalent shares outstanding - assuming dilution		26,972,818			25,950,804			25,870,073			26,364,753
Basic earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.14
Diluted earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.13

Shipping and handling costs

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

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

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

3.INVENTORIES

Inventories consist of the following:

		September 30, 2012			December 31, 2011
Raw materials	$	1,441,584		$	1,282,357
Finished goods		3,714,203			5,213,497
		5,155,787			6,495,854
Inventory reserve		(209,753	)		(258,435	)
	$	4,946,034		$	6,237,419

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4.INCOME TAXES

The Company’s effective tax rate on the net income (loss) before income taxes was (1.7)% and 1.1% for the nine months ended September 30, 2012 and September 30, 2011, respectively.  For the three months ended September 30, 2012 and September 30, 2011, the Company’s effective tax rate on the net income (loss) before income taxes was (1.4)% and (0.1)%, respectively.

5.OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

		September 30, 2012		December 31, 2011
Prepayments from customers	$	917,039	$	869,334
Accrued property taxes		349,787		—
Accrued professional fees		120,339		134,790
Other accrued expenses		78,169		61,819
	$	1,465,334	$	1,065,943

Prepayments from customers are attributable primarily to purchases by South American customers.

6.COMMITMENTS AND CONTINGENCIES

In June 2010, Becton, Dickinson and Company (“BD”) filed an appeal in the U.S. Court of Appeals (the “Court”) for the Federal Circuit appealing a final judgment entered on May 19, 2010 for the Company and against BD’s counterclaims in patent litigation.  Such final judgment ordered that the Company recover $5,000,000 plus prejudgment interest, and ordered a permanent injunction for BD’s 1mL and 3mL Integra syringes until the expiration of certain patents.  The permanent injunction was stayed for the longer of the exhaustion of the appeal of the district court’s case or twelve months from May 19, 2010.  In July 2011, a three-judge panel of the Court reversed the district court’s judgment that BD’s 3mL Integra infringed the Company’s ‘224 patent and ‘077 patent.  The Court affirmed the district court’s judgment that the 1mL Integra infringes the Company’s ‘244 and ‘733 patents.  The Court also affirmed the district court’s judgment that the ‘077 patent is not invalid for anticipation or obviousness.  Out of eight principal issues that were contested in the appeal, the Company and an officer prevailed on six and BD prevailed on two.  The Company had petitioned for a rehearing by all the judges of the Federal Circuit as to whether the three-judge panel properly construed the Company’s patent claim language in finding that the 3mL Integra did not infringe.  The Company’s petition for rehearing by all of the judges of the Federal Circuit was denied with two dissents being issued. The Company filed a petition for certiorari asking the Supreme Court to review the matter.  That petition should be accepted or rejected by December 2012.

In May 2010, the Company and an officer’s suit against BD in the U.S. District Court for the Eastern District of Texas, Marshall Division alleging violations of antitrust acts, false advertising, product disparagement, tortious interference, and unfair competition was reopened.  The Company and an officer filed a Second Amended Complaint on July 23, 2010 setting forth additional detail regarding the allegations of BD’s illegal conduct.  BD filed a motion to dismiss and the Court denied that motion in part and granted it in part, granting the Company the right to re-plead certain allegations by May 13, 2011.  The Company and an officer filed a Third Amended Complaint in May 2011, setting forth additional detail regarding the alleged illegal conduct by BD.  Trial was initially set for February 2012.  However, in January 2012 the parties agreed to a continuance to allow the petition for certiorari to be considered.  As a result of retirement, a new judge will be assigned.  It is currently believed that trial will proceed in the spring of 2013.

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

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allegations with regard to patent no. 7,090,656 and the Company subsequently dropped its counterclaims for unenforceability of the asserted patents.  The Court conducted a claims construction hearing on September 25, 2008 and issued its claims construction order on November 14, 2008.  The case has been stayed pending resolution of the Company’s first filed case against BD described above.

7.BUSINESS SEGMENTS

		Three MonthsEndedSeptember 30, 2012		Three MonthsEndedSeptember 30, 2011		Nine MonthsEndedSeptember 30, 2012		Nine MonthsEndedSeptember 30, 2011
U.S. sales	$	7,157,486	$	7,956,439	$	19,943,687	$	21,120,938
North and South America sales (excluding U.S.)		124,988		218,969		544,960		4,422,056
Other international sales		2,161,683		95,200		5,113,399		451,217
Total sales	$	9,444,157	$	8,270,608	$	25,602,046	$	25,994,211

	September 30, 2012		December 31, 2011
Long-lived assets
U.S.	$	11,754,977	$	12,412,502
International	$	225,380	$	241,354

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

8.STOCK REPURCHASE PROGRAM

On July 10, 2012, the Company authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  Under the plan, the Company purchased 38,315 shares in the three months ended September 30, 2012.  Notwithstanding the terms of the plan, the exact number of shares which may be purchased in the future pursuant to the plan is difficult to predict given the current market in the Company’s Common Stock.  The plan will expire on August 1, 2014 at the latest.

Pursuant to the Certificates of Designation, Preferences, Rights And Limitations of the Series I Class B and Series II Class B Convertible Preferred Stock, the Company would be prohibited from purchasing its Common Stock while dividends are in arrears.  Therefore, in order to continue the Common Stock repurchase plan, the Company plans to continue to pay dividends on the Series I Class B and Series II Class B Preferred Stock if such payments can be made in accordance with state law and other contractual obligations.  The Company paid such dividends on July 31, 2012 to the Series I Class B and Series II Class B Convertible Preferred Stockholders in the amounts of $38,813 and $134,025, respectively.  On September 28, 2012, the Company declared dividends to holders of the Series I Class B and Series II Class B Convertible Preferred Stock in the amounts of $12,938 and $44,675, respectively.  The dividends were paid on October 22, 2012 to shareholders of record as of the close of business on October 10, 2012.

9.STOCK OPTION EXERCISE

On July 10, 2012, the chief executive officer of the Company exercised a portion of his stock option.  The Company issued 2,000,000 shares of Common Stock to him at an exercise price of $0.81 (aggregate consideration of $1,620,000).

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Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENT WARNING

Certain statements included by reference in this filing containing the words “could,” “may,” “believes,” “anticipates,” “intends,” “expects,” and similar such words constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act.  Any forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.  Such factors include, among others, our ability to maintain liquidity, our maintenance of patent protection, the impact of current litigation, our ability to maintain favorable supplier arrangements and relationships, our ability to quickly increase capacity in response to an increase in demand, our ability to access the market, our ability to maintain or lower production costs, our ability to continue to finance research and development as well as operations and expansion of production, the increased interest of larger market players, specifically Becton Dickinson and Company (“BD”), in providing devices to the safety market, the applicability of a new medical device excise tax to our products, 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 into the marketplace since 1997.  Safety syringes comprised 99.1% of our sales in the first nine months of 2012. We also manufacture and market the blood collection tube holder, IV safety catheter, and VanishPoint® Blood Collection Set.  We currently provide other safety medical products in addition to safety products utilizing retractable technology.  One such product is the Patient Safe® syringe, which is uniquely designed to reduce the risk of bloodstream infections resulting from catheter hub contamination.

Historically, unit sales have increased 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 alternate care facilities that provide long-term nursing and out-patient surgery, emergency care, and physician services.  The fact that our progress is limited is principally due to exclusive marketing practices engaged in by BD, the dominant maker and seller of disposable syringes and other needle products, which practices have blocked us from access to the market.  A suit against BD is currently pending alleging violations of state and federal antitrust acts and false advertising.  BD has ceased marketing the infringing 1mL Integra syringe.

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.

In the event we continue to have only limited market access and the cash provided by the litigation settlements and generated from operations becomes insufficient, we would take additional cost cutting measures to reduce cash requirements.  Such measures could result in the reduction of units being produced, the reduction of workforce, the reduction of salaries of officers and other nonhourly employees, and the deferral of royalty payments.  We took such actions at the end of the second quarter of 2009.  Salary reductions put in place in the second quarter of 2009 remain in place for executive officers, but all other employees affected by the salary reduction had their salaries increased by the amount of the reduction, effective August 6, 2012.

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Section 4191 of the Internal Revenue Code, enacted by the Health Care and Education Reconciliation Act of 2010 in conjunction with the Patient Protection and Affordable Care Act provides for an excise tax of 2.3% on medical devices beginning in 2013.  At the present time the excise tax is applicable to domestic sales of our products, except those which are sold at retail.  The majority of our sales are domestic and not in the retail market.  The tax is imposed on sales, not profits.  We estimate the impact of this tax to be in excess of $500 thousand in 2013.  There is no assurance this tax can be passed along to our customers.

We have brought additional molding operations to Little Elm as a cost saving measure.  The addition of four molding machines in 2011 was part of that endeavor.  We continue to focus on methods of upgrading our manufacturing capability and efficiency in order to reduce costs.

In 2010 and 2011, the Company received quarterly option payments, totaling $8 million, from Hospira, Inc. (“Hospira”) for a one-year option to negotiate a licensing agreement for certain uses of the Patient Safe® syringe.  This option expired unexercised in July 2011.

On September 12, 2011, we commenced an offer to purchase outstanding Class B Convertible Preferred Stock (the “Preferred Stock”) for cash and Common Stock (the “2011 Exchange Offer”) and also engaged in private purchases with three Preferred Stockholders.  As of December 31, 2011, Preferred Stockholders had tendered a total of 1,277,464 shares of Preferred Stock.  A total of $1,357,275 and 1,277,464 shares of Common Stock were issued as consideration to these Preferred Stockholders.  These Preferred Stockholders agreed to waive all unpaid dividends in arrears associated with their tendered Preferred Stock, which resulted in a waiver of a total of $3,637,025 in unpaid dividends in arrears.

On July 10, 2012, we authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  Under the plan, we purchased 38,315 shares in the three months ended September 30, 2012.  Notwithstanding the terms of the plan, the exact number of shares which may be purchased in the future pursuant to the plan is difficult to predict given the current market in our Common Stock.

Pursuant to the Certificates of Designation, Preferences, Rights And Limitations of the Series I Class B and Series II Class B Convertible Preferred Stock, we would be prohibited from purchasing our Common Stock while dividends are in arrears.  Therefore, in order to continue the Common Stock repurchase plan, we plan to continue to pay dividends on the Series I Class B and Series II Class B Preferred Stock if such payments can be made in accordance with state law and other contractual obligations.  We paid such dividends on July 31, 2012 to the Series I Class B and Series II Class B Convertible Preferred Stockholders in the amounts of $38,813 and $134,025, respectively.  On September 28, 2012, we declared dividends to holders of the Series I Class B and Series II Class B Convertible Preferred Stock in the amounts of $12,938 and $44,675, respectively.  The dividends were paid on October 22, 2012 to shareholders of record as of the close of business on October 10, 2012.

Product purchases from Double Dove, a Chinese manufacturer, have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost.  In the nine months ended September 30, 2012, Double Dove manufactured approximately 69.6% of the units we produced.  We believe we could make up any long-term disruption in these purchases by utilizing more of the capacity at the Little Elm facility, except for the 0.5mL insulin syringe, the 2mL, 5mL and 10mL syringes, and the autodisable syringe which altogether comprised about 8.2% of our revenues for the nine months ended September 30, 2012.

In 1995, we entered into a license agreement with Thomas J. Shaw for the exclusive right to manufacture, market, and distribute products utilizing automated retraction technology.  This technology is the subject of various patents and patent applications owned by Mr. Shaw.  The license agreement generally provides for quarterly payments of a 5% royalty fee on gross sales.  This license agreement was amended as of September 7, 2012 to clarify and set forth the calculation and amount of the royalty, including in the event that we have sublicensed our products.

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

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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, 2012 or 2011.

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 2012 and September 30, 2011

Domestic sales accounted for 75.8% and 96.2% of the revenues for the three months ended September 30, 2012 and 2011, respectively.  Domestic revenues decreased 10.0% principally due to lower average selling prices mitigated by higher sales volumes.  Domestic unit sales increased 5.9%.  Domestic unit sales were 64.8% of total unit sales for the three months ended September 30, 2012.  International revenues increased from $314 thousand in 2011 to $2.3 million in 2012, primarily due to increased sales volume.  Overall unit sales increased 54.7%.

Gross profit decreased 1.1% primarily due to lower average sales prices mitigated by lower average unit cost of manufacture.  The cost of manufactured product increased by 26.4% due to higher volume mitigated by lower unit cost.  Gross profit as a percentage of net sales was 35.5% in the three months ended September 30, 2012 as compared to 41.0% in 2011 due to lower average selling prices.  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 14.9% due to higher gross sales.

Operating expenses increased 4.4%.  The decrease in General and administrative expense was due primarily to lower legal costs.  The increase of $97 thousand in Sales and marketing expense was due to the addition of sales personnel and sales bonuses.  The increase was mitigated by lower fees and consulting costs.  Research and development costs increased $75 thousand due principally to increased labor costs and testing costs.

Our operating loss was $211 thousand compared to an operating loss for the same period last year of $26 thousand due primarily to slightly lower gross profit and marginally higher operating expenses.

In the three months ended September 30, 2011, Litigation settlements, net reflects cash proceeds of $2.0 million from Hospira less royalty expense of $100 thousand.

Our effective tax rate on the net income (loss) before income taxes was (1.4)% and (0.1)% for the three months ended September 30, 2012 and September 30, 2011, respectively.

Comparison of Nine Months Ended September 30, 2012 and September 30, 2011

Domestic sales accounted for 77.9% and 81.3% of the revenues for the nine months ended September 30, 2012 and 2011, respectively.  Domestic revenues decreased 5.6% principally due to lower sales volumes and lower average sales prices.  Domestic unit sales decreased 4.2%.  Domestic unit sales were 65.4% of total unit sales for the nine months ended September 30, 2012.  International revenues increased from $4.9 million in 2011 to $5.7 million in 2012 primarily due to increased sales volumes.  Overall unit sales increased 4.0%.

Gross profit decreased 3.0% primarily due to lower average sales prices.  The average cost of manufactured product sold per unit decreased by 4.3%.  Gross profit as a percentage of net sales was 37.2% in the nine months ended September 30, 2012 as compared to 37.8% in 2011 due to lower average sales price mitigated by higher sales volumes.  Profit margins can fluctuate depending upon, among other things, the cost of manufactured product and the capitalized cost of product recorded in inventory, as well as product sales mix.  Royalty expense decreased 2.0% due to lower gross sales.

Operating expenses decreased 0.2%.  General and administrative expense decreased $531 thousand due principally to a lower accrual for bad debt expense, lower legal costs, larger donations, and higher consulting fees.  The increase of $452 thousand in Sales and marketing expense was due to the addition of sales personnel and sales bonuses. Travel and entertainment costs also increased.  Research and development costs increased 11.5% due principally to increased labor costs and testing costs.

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Our operating loss was $1.4 million compared to an operating loss for the same period last year of $1.1 million due primarily to lower average sales prices.

For the nine months ended September 30, 2011, Litigation settlements, net reflects cash proceeds of $6.0 million from Hospira less royalty expense of $300,000.

Our effective tax rate on the net income (loss) before income taxes was (1.7)% and 1.1% for the nine months ended September 30, 2012 and September 30, 2011, respectively.

Discussion of Balance Sheet and Statement of Cash Flow Items

Our balance sheet remains strong with cash making up 51.8% of total assets.  Working capital was $30.0 million at September 30, 2012, an increase of $188 thousand from December 31, 2011.

Finished goods inventory decreased 28.8% since December 31, 2011 because of increasing unit sales.

Approximately $1.2 million in cash flow in the nine months ended September 30, 2012 was used by operating activities.  Our cash balance decreased primarily due to our net loss (exclusive of noncash charges) and an increase in certain working capital items.

We purchased 38,315 shares of our Common Stock pursuant to our Common Stock repurchase plan as of September 30, 2012.  The average share price since the plan’s start date on August 1, 2012 was $1.16.

Our preferred stock dividend requirements were reduced $337 thousand and $112 thousand for the nine months and three months ended September 30, 2012, respectively, as a result of the 2011 Exchange Offer in the fourth quarter of 2011.

LIQUIDITY

Historical Sources of Liquidity

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

Internal Sources of Liquidity

Margins and Market Access

To routinely achieve break even quarters consistently, we need minimal access to hospital markets which has been difficult to obtain due to the monopolistic marketplace which was the subject of our initial lawsuit and now also included in our second antitrust lawsuit against BD.  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 supplier arrangements and relationships could result in the need to manufacture all (as opposed to 29.6%) of our products in the U.S.  This could temporarily increase unit costs as we ramp up domestic production.

The mix of domestic and international sales affects the average sales price of our products.  Generally, the higher the ratio of domestic sales to international sales, the higher the average sales price will be.  Typically international sales are shipped directly from China to the customer.  Purchases of product manufactured in China, if

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available, usually decrease the average cost of manufacture for all units.  Domestic costs, such as indirect labor and overhead, remain relatively constant.  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.

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

Seasonality

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

Licensing Agreement

In 2010 and 2011, the Company received quarterly option payments, totaling $8 million, from Hospira, Inc. (“Hospira”) for a one-year option to negotiate a licensing agreement for certain uses of the Patient Safe® syringe.  This option expired unexercised in July 2011.

Cash Requirements

Due to funds received from prior litigation settlements and operating at minimal cash usage, we have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing as the primary ongoing sources of cash.  In the event we continue to have only limited market access and cash generated from operations becomes insufficient to support operations, we would take additional cost cutting measures to reduce cash requirements.  Such measures could result in the reduction of units being produced, the reduction of workforce, the reduction of salaries of officers and other nonhourly employees, and the deferral of royalty payments.

External Sources of Liquidity

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

In 2010 and 2011, the Company received quarterly option payments, totaling $8 million, from Hospira, Inc. (“Hospira”) for a one-year option to negotiate a licensing agreement for certain uses of the Patient Safe® syringe.  This option expired unexercised in July 2011.

On July 10, 2012, Thomas J. Shaw, our chief executive officer, exercised a portion of his stock option.  The Company issued 2,000,000 shares of Common Stock to him at an exercise price of $0.81 (aggregate consideration of $1,620,000).

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CAPITAL RESOURCES

Repurchase of Preferred Shares

On September 12, 2011, we commenced  the 2011 Exchange Offer and also engaged in private purchases with three Preferred Stockholders.  As of December 31, 2011, Preferred Stockholders had tendered a total of 1,277,464 shares of Preferred Stock.  A total of $1,357,275 and 1,277,464 shares of Common Stock were issued as consideration to these Preferred Stockholders.  These Preferred Stockholders agreed to waive all unpaid dividends in arrears associated with their tendered Preferred Stock, which resulted in a waiver of a total of $3,636,793 in unpaid dividends in arrears.

Repurchase of Common Stock

On July 10, 2012, we authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  Under the plan, we purchased 38,315 shares in the three months ended September 30, 2012.  Notwithstanding the terms of the plan, the exact number of shares which may be purchased in the future pursuant to the plan is difficult to predict given the current market in our Common Stock.

Pursuant to the Certificates of Designation, Preferences, Rights And Limitations of the Series I Class B and Series II Class B Convertible Preferred Stock, we would be prohibited from purchasing our Common Stock while dividends are in arrears.  Therefore, in order to continue the Common Stock repurchase plan, we plan to continue to pay dividends on the Series I Class B and Series II Class B Preferred Stock if such payments can be made in accordance with state law and other contractual obligations.

Material Commitments for Expenditures

In 2011, we purchased molding machines to expand our in-house molding capability and further reduce costs.  Financing was completed in the second quarter of 2011 for three molding machines in the amount of $327,725.  The purchase and financing for a fourth molding machine for $207,261 was completed in the fourth quarter of 2011.

Item 3.       Quantitative and Qualitative Disclosures About Market Risk.

No update.

Item 4.   Controls and Procedures.

Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, Management, with the participation of our President, Chairman, and Chief Executive Officer, Thomas J. Shaw (the “CEO”), and our Vice President and Chief Financial Officer, Douglas W. Cowan (the “CFO”), acting in their capacities as our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934.  The term disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in our periodic reports is: i) recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms; and ii) accumulated and communicated to our Management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based upon this evaluation, the CEO and CFO concluded that, as of September 30, 2012, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes during the third quarter of 2012 or subsequent to September 30, 2012 in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.       Legal Proceedings.

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

Item 1A.    Risk Factors.

Section 4191 of the Internal Revenue Code, enacted by the Health Care and Education Reconciliation Act of 2010 in conjunction with the Patient Protection and Affordable Care Act provides for an excise tax of 2.3% on medical devices beginning in 2013.  At the present time the excise tax is applicable to domestic sales of our products, except those which are sold at retail.  The majority of our sales are domestic and not in the retail market.  The tax is imposed on sales, not profits.  We estimate the impact of this tax to be in excess of $500 thousand in 2013.  There is no assurance this tax can be passed along to our customers.

There were no other material changes in the Risk Factors applicable to the Company as set forth in our Form 10-K annual report for 2011 which was filed on March 30, 2012, and which is available on EDGAR.

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

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities

Period	Total Number of Shares (or Units) Purchased	Average Price Paid Per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 10, 2012	2,000,000(1)	$0.81	—	N/A
August 1, 2012 through August 31, 2012	18,490(2)	$1.15	18,490	$2,978,715(2)
September 1, 2012 through September 30, 2012	19,825(2)	$1.17	19,825	$2,955,525(2)
TOTAL	2,038,315

(1)           These shares were purchased by an affiliated purchaser in a private transaction (stock option exercise), not through a publicly announced plan or program.

(2)           These shares were purchased pursuant to our Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, announced on Form 8-K on July 12, 2012.  On July 10, 2012, the Board of Directors authorized the repurchase of up to $3 million of Common Stock subject to Rule 10b-18 limitations as well as certain market value constraints specified in the plan.  Notwithstanding the terms of the plan, the exact dollar amount and number of shares which may be purchased pursuant to the plan is difficult to predict given the current market in the Company’s Common Stock.  The plan will expire on August 1, 2014 at the latest.

Working Capital Restrictions and Limitations on the Payment of Dividends

On September 28, 2012, the Board of Directors declared a dividend to the Series I Class B and Series II Class B Convertible Preferred Shareholders in the aggregate amount of $57,613.  This dividend was paid on October 22, 2012.

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.

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Item 3.       Defaults Upon Senior Securities.

Series I Class B Convertible Preferred Stock

For the nine month period ended September 30, 2012, the amount of dividends in arrears was $13,000 and the total arrearage at the end of the period was $13,000.

Series II Class B Convertible Preferred Stock

For the nine month period ended September 30, 2012, the amount of dividends in arrears was $45,000 and the total arrearage at the end of the period was $45,000.

Series III Class B Convertible Preferred Stock

For the nine month period ended September 30, 2012, the amount of dividends in arrears was $99,000 and the total arrearage at the end of the period was $3,464,000.

Series IV Class B Convertible Preferred Stock

For the nine month period ended September 30, 2012, the amount of dividends in arrears was $408,000 and the total arrearage at the end of the period was $6,746,000.

Series V Class B Convertible Preferred Stock

For the nine month period ended September 30, 2012, the amount of dividends in arrears was $12,000 and the total arrearage at the end of the period was $926,000.

Item 6.       Exhibits.

Exhibit No.	Description of Document
10	Second Amendment to Technology License Agreement between Thomas J. Shaw and Retractable Technologies, Inc. dated as of the 7th day of September, 2012 *
31.1	Certification of Principal Executive Officer *
31.2	Certification of Principal Financial Officer *
32	Certification Pursuant to 18 U.S.C. Section 1350 *
101	The following materials from Retractable Technologies, Inc.’s Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of September 30, 2012 and December 31, 2011, (ii) Condensed Statements of Operations for the nine months and three months ended September 30, 2012 and 2011, (iii) Condensed Statements of Cash Flows for the nine months ended September 30, 2012 and 2011, and (iv) Notes to Condensed Financial Statements**
*	Filed herewith
**	Furnished herewith

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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, 2012	RETRACTABLE TECHNOLOGIES, INC.
		(Registrant)
	BY:	/s/ Douglas W. Cowan
		DOUGLAS W. COWAN VICE PRESIDENT, CHIEF FINANCIAL OFFICER, AND CHIEF ACCOUNTING OFFICER

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EX-10

Exhibit 10

SECOND AMENDMENT TO

TECHNOLOGY LICENSE AGREEMENT

This SECOND AMENDMENT TO TECHNOLOGY LICENSE AGREEMENT (this “Second Amendment”) is made and entered into as of the 7th day of September, 2012, by and between THOMAS J. SHAW, a resident of the State of Texas (“Licensor”) and RETRACTABLE TECHNOLOGIES, INC., a Texas corporation (“Licensee”).

RECITALS:

A.Licensor and Licensee have heretofore entered into that certain Technology License Agreement dated as of June 23, 1995, as amended by that certain First Amendment to Technology License Agreement dated as of July 3, 2008 (as amended, the “Technology License Agreement”), pursuant to which Licensor agreed to grant Licensee an exclusive license to manufacture, market, sell, distribute and otherwise exploit certain retractable syringe technology and certain other technology covered by certain patents and patent applications owned by Licensor.

B.Licensor and Licensee desire to amend the Technology License Agreement in order to specify the amount of royalties payable to Licensor under the Technology License Agreement with respect to certain products that may be sold and distributed by a sublicensee pursuant to a sublicense agreement.

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

1.New Item 3 of Section Three.  The existing item 3 of Section Three of the Technology License Agreement entitled “Consideration” is hereby deleted in its entirety and the following new item 3 is hereby inserted in the Technology License Agreement:

“3.The amount of royalty shall be determined in the following manner.  If the customer of Licensee is the end user of the Product, the five percent (5%) royalty shall be based upon the price to the end user (the “End User Price”).  If the customer of Licensee is a third party intermediary unrelated to Licensee, the five percent (5%) royalty shall be based on the price to the intermediary.  If Licensee distributes Product through one or more related entities, such as subsidiaries, affiliated companies, parent companies, holding companies or unincorporated divisions or the like, the five percent (5%) royalty shall be based on the price from the last of the related entities in the chain of distribution to the first third party intermediary customer or the End User Price, as the case may be.  Licensee shall have the obligation to render royalty payments to Licensor based upon a “price” which is determined in good faith as representing the real monetary value to be received by Licensee from the sale of Licensed Products to third party intermediary customers and end users without resorting to artificially low prices designed mainly to reduce royalty otherwise due.

If a sublicensee that has been duly approved by Licensor has sales of the Licensed Products, the amount of royalty payable to Licensor by Licensee shall be equal to five percent (5%) of the gross sales price with respect to Product sold by such sublicensee to unaffiliated customers, if known.  If the sublicensee’s customers are not known to Licensee, Licensor shall be entitled to receive from Licensee an amount equal to fifty percent (50%) of the royalties actually paid to Licensee by such sublicensee. However, in no event shall the royalties paid to Licensor by Licensee with respect to the sale of Product by a sublicensee exceed an amount equal to fifty percent (50%) of the royalties received by Licensee from such sublicensee (the “Sublicense Royalty Cap”).

Notwithstanding anything contained in this Agreement to the contrary, in the event of the occurrence of a Change in Control (as hereinafter defined) of Licensee, the Sublicense Royalty Cap shall be immediately and permanently removed with respect to any royalties due to Licensor

-1-

with respect to the sale of Product by approved sublicensees after such Change in Control.  For purposes of this Agreement, a “Change in Control” shall mean (i) a sale, transfer or other conveyance of all or substantially all of the assets of Licensee on a consolidated basis; (ii) the acquisition of beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) by any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), directly or indirectly, of securities representing fifty percent (50%) or more of the total number of votes that may be cast for the election of directors of Licensee; (iii) the failure at any annual or special meeting of Licensee’s stockholders of any of the persons nominated by the Board of Licensee in the proxy material mailed to stockholders by the management of Licensee to win election to seats on the Board, excluding only those who die, retire voluntarily, are disabled or are otherwise disqualified in the interim between their nomination and the date of the meeting; (iv) Licensee merges or consolidates with another corporation or entity in which Licensee is not the surviving entity; or (v) Licensee becomes a majority-owned subsidiary of another corporation or entity.”

2.Consent to Sublicense Agreement.  Licensor hereby consents to the form of Licensee’s “Consent to Sublicense Agreement” attached hereto as Exhibit A.  Licensor continues to reserve the right to approve all further sublicensing by Licensee pursuant to the terms of the Technology License Agreement, including but not limited to, any modification, expansion or further change to the form of “Consent to Sublicense Agreement”.

3.No Other Amendment; Definitions.  Except as specifically modified and amended pursuant to Section 1 hereof, the Technology License Agreement shall remain in full force and effect without revision thereto.  Moreover, all capitalized terms used in this Second Amendment, unless otherwise defined herein or the context specifically provides otherwise, shall have the same meanings herein as attributed to such terms in the Technology License Agreement.

4.Binding Effect.  This Second Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns or, as appropriate, heirs and legal representatives.

5.Applicable Law.  THIS SECOND AMENDMENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.

6.Jurisdiction and Venue.  Any judicial proceedings brought by or against any party on any dispute arising out of this Second Amendment or any matter related thereto shall be brought in the state or federal courts of Dallas County, Texas, and, by execution and delivery of this Second Amendment each of the parties accepts for itself the exclusive jurisdiction and venue of the aforesaid courts as trial courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Second Amendment after exhaustion of all appeals taken (or by the appropriate appellate court if such appellate court renders judgment).

7.Descriptive Headings; Language Interpretation.  The descriptive headings of this Second Amendment are inserted for convenience only and do not constitute a part of this Second Amendment.  In the interpretation of this Second Amendment, unless the context otherwise requires, (a) words importing the singular shall be deemed to import the plural and vice versa, (b) words denoting gender shall include all genders, and (c) references to parties, articles, sections, schedules, paragraphs and exhibits shall mean the parties, articles, sections, schedules, paragraphs and exhibits of and to this Second Amendment.

8.Integration.  This Second Amendment contains the entire understanding of the parties with respect to the subject matter hereof.  There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein.  This Second Amendment supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof.

-2-

9.Counterparts.  This Second Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Second Amendment to produce or account for more than one such counterpart.

(Signature page follows.)

-3-

IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as of the date set forth above.

LICENSOR:	By:			/s/ Thomas J. Shaw
				Thomas J. Shaw, individually
LICENSEE:	RETRACTABLE TECHNOLOGIES, INC.
	By:		/s/ Steven R. Wisner
		Printed Name:				Steven R. Wisner
		Title:			Exec. V.P. Eng. & Prod.

-4-

SCHEDULE 1

SUBLICENSE AGREEMENT

Exhibit A

EXHIBIT A

CONSENT TO

SUBLICENSE AGREEMENT

This CONSENT TO SUBLICENSE AGREEMENT (this “Consent”) is made and entered into as of the              day of                       , 20      , by and between THOMAS J. SHAW, a resident of the State of Texas (“Licensor”) and RETRACTABLE TECHNOLOGIES, INC., a Texas corporation (“Licensee”).

RECITALS

A.Licensor and Licensee have heretofore entered into that certain Technology License Agreement dated as of June 23, 1995, as amended by that certain First Amendment to Technology License Agreement dated as of July 3, 2008 and that certain Second Amendment to Technology License Agreement dated as of                       , 2012 (as amended, the “Technology License Agreement”), pursuant to which Licensor agreed to grant Licensee an exclusive license to manufacture, market, sell, distribute and otherwise exploit certain retractable syringe technology and certain other technology covered by certain patents and patent applications owned by Licensor (collectively, the “Licensed Technology”).

B.Licensee desires to grant to [insert name of proposed Sublicensee] (“Sublicensee”) a sublicense to manufacture and sell certain products and/or components thereof utilizing the Licensed Technology pursuant to that certain Sublicense Agreement dated                         , 20      , a copy of which is attached hereto as Schedule 1 (the “Sublicense Agreement”).

C.As provided in Section Two of the Technology License Agreement, Licensee may not sublicense any of the Licensed Technology other than pursuant to terms and conditions that are set forth in a written sublicense agreement that is subject to the prior written consent of Licensor.

D.Licensor desires to consent to the proposed sublicense to Sublicensee as evidenced by the Sublicense Agreement, subject to the terms and conditions of this Consent.

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

1.Consent to Sublicense Agreement.  Subject to the terms and conditions of this Consent, Licensor hereby consents to Licensee entering into the Sublicense Agreement and granting to Sublicensee the sublicense contemplated thereby.

2.Limited Consent.  Notwithstanding anything contained in this Consent to the contrary, Licensee shall not amend, modify, revise or otherwise change any provision of the Sublicense Agreement without the prior written consent of Licensor, which consent may be withheld in Licensor’s sole judgment.  Moreover, Licensee shall not waive, fail to enforce or otherwise relinquish any right under the Sublicense Agreement (including any amendment thereto), including, without limitation, any right to terminate the Sublicense Agreement without the prior written consent of Licensor, which consent may be withheld in Licensor’s sole judgment.

3.No Amendment.  The Technology License Agreement shall remain in full force and effect without revision thereto.

4.Binding Effect.  This Consent shall be binding upon and inure to the benefits of the parties hereto and their respective successors and assigns or, as appropriate, heirs and legal representatives.

5.Applicable Law.  THIS CONSENT, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.

- 1 -

6.Jurisdiction and Venue.  Any judicial proceedings brought by or against any party on any dispute arising out of this Consent or any matter related thereto shall be brought in the state or federal courts of Dallas County, Texas, and, by execution and delivery of this Consent each of the parties accepts for itself the exclusive jurisdiction and venue of the aforesaid courts as trial courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Consent after exhaustion of all appeals taken (or by the appropriate appellate court if such appellate court renders judgment).

7.Descriptive Headings; Language Interpretation.  The descriptive headings of this Consent are inserted for convenience only and do not constitute a part of this Consent.  In the interpretation of this Consent, unless the context otherwise requires, (a) words importing the singular shall be deemed to import the plural and vice versa, (b) words denoting gender shall include all genders, and (c) references to parties, articles, sections, schedules, paragraphs and exhibits shall mean the parties, articles, sections, schedules, paragraphs and exhibits of and to this Consent.

8.Integration.  This Consent contains the entire understanding of the parties with respect to the subject matter hereof.  There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth or referred to herein. This Consent supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof.

9.Counterparts.  This Consent may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Consent to produce or account for more than one such counterpart.

(Signature page follows.)

- 2 -

IN WITNESS WHEREOF, the undersigned have executed this Consent as of the date set forth above.

LICENSOR:
	Thomas J. Shaw, Individually
LICENSEE:	RETRACTABLE TECHNOLOGIES, INC.
	By:
		Printed Name:
		Title:

- 3 -

EX-31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Exhibit 31.1

I, Thomas J. Shaw, certify that:

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

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

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

4.Theregistrant’sothercertifyingofficer(s)andIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:

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

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

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

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

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

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

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

Date:November 14, 2012

/s/ Thomas J. Shaw

THOMAS J. SHAW

PRESIDENT, CHAIRMAN, AND

CHIEF EXECUTIVE OFFICER

EX-31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Exhibit 31.2

I, Douglas W. Cowan, certify that:

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

2.Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;

3.Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperations,andcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;

4.Theregistrant’sothercertifyingofficer(s)andIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:

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

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

(c)Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and

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

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

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

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

Date:November 14, 2012

/s/ Douglas W. Cowan

DOUGLAS W. COWAN

VICE PRESIDENT,

CHIEF FINANCIAL OFFICER,

AND CHIEF ACCOUNTING OFFICER

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Solely in connection with the filing of the Quarterly Report of Retractable Technologies, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Thomas J. Shaw, Chief Executive Officer, and Douglas W. Cowan, Chief Financial Officer, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date:November 14, 2012

/s/ Thomas J. Shaw

THOMAS J. SHAW

PRESIDENT, CHAIRMAN, AND

CHIEF EXECUTIVE OFFICER

/s/ Douglas W. Cowan

DOUGLAS W. COWAN

VICE PRESIDENT, CHIEF FINANCIAL OFFICER,

AND CHIEF ACCOUNTING OFFICER

XML

INCOME TAXES (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
INCOME TAXES
Effective tax rate (as a percent)	(1.40%)	(0.10%)	(1.70%)	1.10%

XML

INCOME TAXES

9 Months Ended

Sep. 30, 2012

INCOME TAXES

INCOME TAXES

4.INCOME TAXES

The Company’s effective tax rate on the net income (loss) before income taxes was (1.7)% and 1.1% for the nine months ended September 30, 2012 and September 30, 2011, respectively.  For the three months ended September 30, 2012 and September 30, 2011, the Company’s effective tax rate on the net income (loss) before income taxes was (1.4)% and (0.1)%, respectively.

XML

STOCK REPURCHASE PROGRAM (Details) (USD $)	3 Months Ended	9 Months Ended		1 Months Ended		1 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Jul. 31, 2012 Series I, Class B	Sep. 30, 2012 Series I, Class B	Jul. 31, 2012 Series II, Class B	Sep. 30, 2012 Series II, Class B
STOCK REPURCHASE PROGRAM
Number of shares repurchased	38,315
Stock repurchase program
Preferred stock dividends paid		$ 172,838	$ 291,700	$ 38,813		$ 134,025
Preferred stock dividends declared	$ 57,613	$ 57,613			$ 12,938		$ 44,675

XML

BUSINESS SEGMENTS (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Sales by geographical areas
Total sales, net	$ 9,444,157	$ 8,270,608	$ 25,602,046	$ 25,994,211
Long-lived assets
U.S.	11,754,977		11,754,977		12,412,502
International	225,380		225,380		241,354
U.S. sales
Sales by geographical areas
Total sales, net	7,157,486	7,956,439	19,943,687	21,120,938
North and South America sales (excluding U.S.)
Sales by geographical areas
Total sales, net	124,988	218,969	544,960	4,422,056
Other international sales
Sales by geographical areas
Total sales, net	$ 2,161,683	$ 95,200	$ 5,113,399	$ 451,217

XML

STOCK OPTION EXCERCISE (Details) (USD $)	0 Months Ended	9 Months Ended
	Jul. 10, 2012	Sep. 30, 2012	Sep. 30, 2011
STOCK OPTION EXERCISE
Number of common stock isuued to chief executive officer on exercised of stock option (in shares)	2,000,000
Exercise price of stock option (in dollar per share)	$ 0.81
Aggregate consideration from issue of common stock	$ 1,620,000	$ 1,620,000	$ 44,001

XML

INVENTORIES

9 Months Ended

Sep. 30, 2012

INVENTORIES

INVENTORIES

3.INVENTORIES

Inventories consist of the following:

		September 30, 2012			December 31, 2011
Raw materials	$	1,441,584		$	1,282,357
Finished goods		3,714,203			5,213,497
		5,155,787			6,495,854
Inventory reserve		(209,753	)		(258,435	)
	$	4,946,034		$	6,237,419

XML

CONDENSED BALANCE SHEETS (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 25,008,688	$ 25,673,263
Accounts receivable, net	5,220,775	3,576,411
Inventories, net	4,946,034	6,237,419
Income taxes receivable	79,334	39,485
Other current assets	672,941	218,529
Total current assets	35,927,772	35,745,107
Property, plant, and equipment, net	11,980,357	12,653,856
Intangible and other assets, net	332,275	362,976
Total assets	48,240,404	48,761,939
Current liabilities:
Accounts payable	2,738,389	3,500,301
Current portion of long-term debt	310,556	620,472
Accrued compensation	589,220	628,794
Dividends payable	57,613
Accrued royalties to shareholders	772,142	122,239
Other accrued liabilities	1,465,334	1,065,943
Income taxes payable	28,297	29,471
Total current liabilities	5,961,551	5,967,220
Long-term debt, net of current maturities	3,913,663	4,143,267
Total liabilities	9,875,214	10,110,487
Commitments and contingencies - see Note 6
Preferred stock $1 par value:
Common stock, no par value
Additional paid-in capital	58,674,220	57,284,670
Retained deficit	(21,226,790)	(19,634,770)
Common Shares in treasury - at cost	(83,792)
Total stockholders' equity	38,365,190	38,651,452
Total liabilities and stockholders' equity	48,240,404	48,761,939
Series I, Class B
Current liabilities:
Dividends payable	12,938
Preferred stock $1 par value:
Preferred Stock	103,500	103,500
Series II, Class B
Current liabilities:
Dividends payable	44,675
Preferred stock $1 par value:
Preferred Stock	178,700	178,700
Series III, Class B
Preferred stock $1 par value:
Preferred Stock	130,245	130,245
Series IV, Class B
Preferred stock $1 par value:
Preferred Stock	542,500	542,500
Series V, Class B
Preferred stock $1 par value:
Preferred Stock	$ 46,607	$ 46,607

XML

BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2012

BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

1.BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

Business of the Company

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

Basis of presentation

The accompanying condensed financial statements are unaudited and, in the opinion of Management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented.  All such adjustments are of a normal and recurring nature.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year.  The condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company’s audited financial statements incorporated into its Form 10-K filed on March 30, 2012 for the year ended December 31, 2011.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (Litigation settlements, Hospira, USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Litigation settlements | Hospira
Litigation Settlements
Quarterly option payments received	$ 8
Period for option to negotiate licensing agreement	1 year

XML

INVENTORIES (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
INVENTORIES
Raw materials	$ 1,441,584	$ 1,282,357
Finished goods	3,714,203	5,213,497
Inventory, gross	5,155,787	6,495,854
Inventory reserve	(209,753)	(258,435)
Inventory, net	$ 4,946,034	$ 6,237,419

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include unrestricted cash, 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.  These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible.  Trade receivables are considered delinquent when payment has not been made within contract terms.

The Company requires certain distributors to make a prepayment prior to beginning production or shipment of their order.  Distributors may apply such prepayments to their outstanding invoices or pay the invoice and continue to carry forward the deposit for future orders.  Such amounts are included in Other accrued liabilities on the Condensed Balance Sheets and are shown in Note 5, Other Accrued Liabilities.

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

Inventories

Inventories are valued at the lower of cost or market, with cost being determined using actual average cost.  The Company compares the average cost to the market price and records the lower value.  Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories.  A reserve is established for any excess or obsolete inventories or they may be written off.

Property, plant, and equipment

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

Depreciation and amortization are calculated using the straight-line method over the following useful lives:

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

Long-lived assets

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

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

Intangible assets

Intangible assets are stated at cost and consist primarily of patents, a license agreement granting exclusive rights to use patented technology, and trademarks which are amortized using the straight-line method over 17 years.

Financial instruments

The Company estimates the fair market value of financial instruments through the use of public market prices, quotes from financial institutions, and other available information.  Judgment is required in interpreting data to develop estimates of market value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange.  Short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on Management’s estimates, approximates their recorded values.  In addition, the Company believes that the fair value of the long-term debt instruments approximates their recorded values.

Concentration risks

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.  Cash balances, some of which exceed federally insured limits, are maintained in financial institutions; however, Management believes the institutions are of high credit quality.  The majority of accounts receivable are due from companies which are well-established entities.  As a consequence, Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers in 2012 and 2011:

	Nine Months ended September 30, 2012	Nine Months ended September 30, 2011	Three Months ended September 30, 2012	Three Months ended September 30, 2011
Number of significant customers	3	4	2	3
Aggregate dollar amount of net sales to significant customers	$10.6 million	$13.0 million	$3.4 million	$4.1 million
Percentage of net sales to significant customers	41.3%	50.1%	35.6%	49.6%

The Company manufactures syringes in Little Elm, Texas as well as utilizing manufacturers in China.  The Company purchases most of its product components from single suppliers, including needle adhesives and packaging materials.  There are multiple sources of these materials.  The Company obtained roughly 69.6% and 68.6% of its finished products in the first nine months of 2012 and 2011, respectively, from Double Dove, a Chinese manufacturer.  Purchases from Double Dove aggregated 71.9% and 62.8% of finished products in the three month periods ended September 30, 2012 and 2011, respectively.  In the event that the Company becomes unable to purchase such product from Double Dove, the Company would need to find an alternate supplier for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe and increase domestic production for 1mL and 3mL syringes to avoid a disruption in supply.

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances.  Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products that the Company has not received tracking reports.  Rebates are recorded when issued and are applied against the customer’s receivable balance.  Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company.  If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor.  One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report.  Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted.  The estimated contractual allowance is netted against the individual distributor’s accounts receivable balances for financial reporting purposes.  The resulting net balance is reflected in accounts receivable or accounts payable, as appropriate.  The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors.  Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company.  Any product shipped or distributed for evaluation purposes is expensed.

Certain distributors have taken rebates to which they are not entitled, such as utilizing a rebate for products not purchased directly from the Company.  The Company has been in discussions with the principal customers that claimed non-contractual rebates.  Major customers said they have ceased the practices resulting in claiming non-contractual rebates.  Rebates can only be claimed on purchases made directly from the Company. The Company has established a reserve for the collectability of these non-contractual rebate amounts.  The majority of expense for the reserve is recorded as a reduction of revenues and the remaining expense is recorded in Operating expense, General and administrative.  The reserve for such non-contractual deductions is a reduction of accounts receivable.

The Company’s domestic return policy is set forth in its standard Distribution Agreement.  This policy provides that a customer may return incorrect shipments within 10 days following arrival at the distributor’s facility.  In all such cases the distributor must obtain an authorization code from the Company and affix the code to the returned product.  The Company will not accept returned goods without a returned goods authorization number.  The Company may refund the customer’s money or replace the product.

The Company’s domestic return policy also provides that a customer may return product that is overstocked.  Overstocking returns are limited to two times in each 12-month period up to 1% of distributor’s total purchase of products for the prior 12-month period.  All product overstocks and returns are subject to inspection and acceptance by the Company.

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

Litigation settlements

Proceeds from litigation settlements are recognized when realizable.  Generally, realization is not reasonably assured and expected until proceeds are collected.  In 2010 and 2011, the Company received quarterly option payments, totaling $8 million, from Hospira, Inc. (“Hospira”) for a one-year option to negotiate a licensing agreement for certain uses of the Patient Safe® syringe.  This option expired unexercised in July 2011.  The Company recognizes proceeds from litigation settlements net of any associated royalty expense.

Income taxes

The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in the financial statements based on whether it is “more-likely-than-not” that a tax position will be sustained based upon the technical merits of the position.  Measurement of the tax position is based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The Company provides for deferred income taxes through utilizing an asset and liability approach for financial accounting and reporting based on the tax effects of differences between the financial statement and tax bases of assets and liabilities, based on enacted rates expected to be in effect when such differences reverse in future periods.  Deferred tax assets are periodically reviewed for realizability.  The Company utilized some of its net operating loss carry forwards in 2011 and paid Alternative Minimum Tax on its taxable income.  The Company has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest on uncertain tax positions are classified as income taxes in the Condensed Statements of Operations.

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period.  Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible preferred stock and convertible debt.  The potential dilution, if any, is shown on the following schedule:

		Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Net income (loss)	$	(272,961	)	$	1,828,444		$	(1,592,020	)	$	4,399,273
Preferred dividend requirements		(229,527	)		(342,217	)		(688,581	)		(1,026,651	)
Effect of dilutive securities:
Convertible debt interest and loan fees		—			2,259			—			(6,955	)
Earnings (loss) available to common shareholders	$	(502,488	)	$	1,488,486		$	(2,280,601	)	$	3,365,667
Average common shares outstanding		26,972,818			24,027,053			25,870,073			24,005,761
Dilutive stock equivalents from stock options		—			1,815,360			—			2,250,601
Shares issuable upon conversion of convertible debt		—			108,391			—			108,391
Average common and common equivalent shares outstanding - assuming dilution		26,972,818			25,950,804			25,870,073			26,364,753
Basic earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.14
Diluted earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.13

Shipping and handling costs

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

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

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

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CONDENSED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
CONDENSED BALANCE SHEETS
Preferred Stock, par value (in dollars per share)	$ 1	$ 1

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INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2012

INVENTORIES

Schedule of inventories

		September 30, 2012			December 31, 2011
Raw materials	$	1,441,584		$	1,282,357
Finished goods		3,714,203			5,213,497
		5,155,787			6,495,854
Inventory reserve		(209,753	)		(258,435	)
	$	4,946,034		$	6,237,419

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 05, 2012
Document and Entity Information
Entity Registrant Name	RETRACTABLE TECHNOLOGIES INC
Entity Central Index Key	0000946563
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		27,273,164
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

OTHER ACCRUED LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2012

OTHER ACCRUED LIABILITIES

Schedule of other accrued liabilities

		September 30, 2012		December 31, 2011
Prepayments from customers	$	917,039	$	869,334
Accrued property taxes		349,787		—
Accrued professional fees		120,339		134,790
Other accrued expenses		78,169		61,819
	$	1,465,334	$	1,065,943

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CONDENSED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Sales, net	$ 9,444,157	$ 8,270,608	$ 25,602,046	$ 25,994,211
Cost of sales
Cost of manufactured product	5,318,351	4,208,993	14,114,956	14,175,830
Royalty expense to shareholders	772,142	672,084	1,962,780	2,002,720
Total cost of sales	6,090,493	4,881,077	16,077,736	16,178,550
Gross profit	3,353,664	3,389,531	9,524,310	9,815,661
Operating expenses:
Sales and marketing	1,034,419	937,868	2,939,142	2,487,136
Research and development	244,015	169,279	601,008	539,161
General and administrative	2,286,614	2,308,759	7,372,663	7,903,586
Total operating expenses	3,565,048	3,415,906	10,912,813	10,929,883
Loss from operations	(211,384)	(26,375)	(1,388,503)	(1,114,222)
Interest and other income	11,286	15,322	34,199	48,920
Interest expense, net	(68,994)	(62,455)	(211,344)	(184,911)
Litigation settlements, net		1,900,000		5,700,000
Income (loss) before income taxes	(269,092)	1,826,492	(1,565,648)	4,449,787
Provision (benefit) for income taxes	3,869	(1,952)	26,372	50,514
Net income (loss)	(272,961)	1,828,444	(1,592,020)	4,399,273
Preferred stock dividend requirements	(229,527)	(342,217)	(688,581)	(1,026,651)
Earnings (loss) applicable to common shareholders	$ (502,488)	$ 1,486,227	$ (2,280,601)	$ 3,372,622
Basic earnings (loss) per share (in dollars per share)	$ (0.02)	$ 0.06	$ (0.09)	$ 0.14
Diluted earnings (loss) per share (in dollars per share)	$ (0.02)	$ 0.06	$ (0.09)	$ 0.13
Weighted average common shares outstanding:
Basic (in shares)	26,972,818	24,027,053	25,870,073	24,005,761
Diluted (in shares)	26,972,818	25,950,804	25,870,073	26,364,753

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BUSINESS SEGMENTS

9 Months Ended

Sep. 30, 2012

BUSINESS SEGMENTS

BUSINESS SEGMENTS

7.BUSINESS SEGMENTS

		Three MonthsEndedSeptember 30, 2012		Three MonthsEndedSeptember 30, 2011		Nine MonthsEndedSeptember 30, 2012		Nine MonthsEndedSeptember 30, 2011
U.S. sales	$	7,157,486	$	7,956,439	$	19,943,687	$	21,120,938
North and South America sales (excluding U.S.)		124,988		218,969		544,960		4,422,056
Other international sales		2,161,683		95,200		5,113,399		451,217
Total sales	$	9,444,157	$	8,270,608	$	25,602,046	$	25,994,211

	September 30, 2012		December 31, 2011
Long-lived assets
U.S.	$	11,754,977	$	12,412,502
International	$	225,380	$	241,354

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

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2012

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

6.COMMITMENTS AND CONTINGENCIES

In June 2010, Becton, Dickinson and Company (“BD”) filed an appeal in the U.S. Court of Appeals (the “Court”) for the Federal Circuit appealing a final judgment entered on May 19, 2010 for the Company and against BD’s counterclaims in patent litigation.  Such final judgment ordered that the Company recover $5,000,000 plus prejudgment interest, and ordered a permanent injunction for BD’s 1mL and 3mL Integra syringes until the expiration of certain patents.  The permanent injunction was stayed for the longer of the exhaustion of the appeal of the district court’s case or twelve months from May 19, 2010.  In July 2011, a three-judge panel of the Court reversed the district court’s judgment that BD’s 3mL Integra infringed the Company’s ‘224 patent and ‘077 patent.  The Court affirmed the district court’s judgment that the 1mL Integra infringes the Company’s ‘244 and ‘733 patents.  The Court also affirmed the district court’s judgment that the ‘077 patent is not invalid for anticipation or obviousness.  Out of eight principal issues that were contested in the appeal, the Company and an officer prevailed on six and BD prevailed on two.  The Company had petitioned for a rehearing by all the judges of the Federal Circuit as to whether the three-judge panel properly construed the Company’s patent claim language in finding that the 3mL Integra did not infringe.  The Company’s petition for rehearing by all of the judges of the Federal Circuit was denied with two dissents being issued. The Company filed a petition for certiorari asking the Supreme Court to review the matter.  That petition should be accepted or rejected by December 2012.

In May 2010, the Company and an officer’s suit against BD in the U.S. District Court for the Eastern District of Texas, Marshall Division alleging violations of antitrust acts, false advertising, product disparagement, tortious interference, and unfair competition was reopened.  The Company and an officer filed a Second Amended Complaint on July 23, 2010 setting forth additional detail regarding the allegations of BD’s illegal conduct.  BD filed a motion to dismiss and the Court denied that motion in part and granted it in part, granting the Company the right to re-plead certain allegations by May 13, 2011.  The Company and an officer filed a Third Amended Complaint in May 2011, setting forth additional detail regarding the alleged illegal conduct by BD.  Trial was initially set for February 2012.  However, in January 2012 the parties agreed to a continuance to allow the petition for certiorari to be considered.  As a result of retirement, a new judge will be assigned.  It is currently believed that trial will proceed in the spring of 2013.

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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings per share
Net income (loss)	$ (272,961)	$ 1,828,444	$ (1,592,020)	$ 4,399,273
Preferred dividend requirements	(229,527)	(342,217)	(688,581)	(1,026,651)
Effect of dilutive securities: Convertible debt interest and loan fees		2,259		(6,955)
Earnings (loss) available to common shareholders	$ (502,488)	$ 1,488,486	$ (2,280,601)	$ 3,365,667
Average common shares outstanding	26,972,818	24,027,053	25,870,073	24,005,761
Dilutive stock equivalents from stock options (in shares)		1,815,360		2,250,601
Shares issuable upon conversion of convertible debt		108,391		108,391
Average common and common equivalent shares outstanding - assuming dilution	26,972,818	25,950,804	25,870,073	26,364,753
Basic earnings (loss) per share (in dollars per share)	$ (0.02)	$ 0.06	$ (0.09)	$ 0.14
Diluted earnings (loss) per share (in dollars per share)	$ (0.02)	$ 0.06	$ (0.09)	$ 0.13

XML

BUSINESS SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2012

BUSINESS SEGMENTS

Schedule of sales and long-lived assets by geographical areas

		Three MonthsEndedSeptember 30, 2012		Three MonthsEndedSeptember 30, 2011		Nine MonthsEndedSeptember 30, 2012		Nine MonthsEndedSeptember 30, 2011
U.S. sales	$	7,157,486	$	7,956,439	$	19,943,687	$	21,120,938
North and South America sales (excluding U.S.)		124,988		218,969		544,960		4,422,056
Other international sales		2,161,683		95,200		5,113,399		451,217
Total sales	$	9,444,157	$	8,270,608	$	25,602,046	$	25,994,211

	September 30, 2012		December 31, 2011
Long-lived assets
U.S.	$	11,754,977	$	12,412,502
International	$	225,380	$	241,354

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting estimates

Accounting estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates.

Cash and cash equivalents

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include unrestricted cash, money market accounts, and investments with original maturities of three months or less.

Accounts receivable

Accounts receivable

The Company records trade receivables when revenue is recognized.  No product has been consigned to customers.  The Company’s allowance for doubtful accounts is primarily determined by review of specific trade receivables.  Those accounts that are doubtful of collection are included in the allowance.  These provisions are reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible.  Trade receivables are considered delinquent when payment has not been made within contract terms.

The Company requires certain distributors to make a prepayment prior to beginning production or shipment of their order.  Distributors may apply such prepayments to their outstanding invoices or pay the invoice and continue to carry forward the deposit for future orders.  Such amounts are included in Other accrued liabilities on the Condensed Balance Sheets and are shown in Note 5, Other Accrued Liabilities.

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

Inventories

Inventories

Inventories are valued at the lower of cost or market, with cost being determined using actual average cost.  The Company compares the average cost to the market price and records the lower value.  Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories.  A reserve is established for any excess or obsolete inventories or they may be written off.

Property, plant, and equipment

Property, plant, and equipment

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

Depreciation and amortization are calculated using the straight-line method over the following useful lives:

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

Long-lived assets

Long-lived assets

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

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

Intangible assets

Intangible assets

Intangible assets are stated at cost and consist primarily of patents, a license agreement granting exclusive rights to use patented technology, and trademarks which are amortized using the straight-line method over 17 years.

Financial instruments

Financial instruments

The Company estimates the fair market value of financial instruments through the use of public market prices, quotes from financial institutions, and other available information.  Judgment is required in interpreting data to develop estimates of market value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange.  Short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on Management’s estimates, approximates their recorded values.  In addition, the Company believes that the fair value of the long-term debt instruments approximates their recorded values.

Concentration risks

Concentration risks

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.  Cash balances, some of which exceed federally insured limits, are maintained in financial institutions; however, Management believes the institutions are of high credit quality.  The majority of accounts receivable are due from companies which are well-established entities.  As a consequence, Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers in 2012 and 2011:

	Nine Months ended September 30, 2012	Nine Months ended September 30, 2011	Three Months ended September 30, 2012	Three Months ended September 30, 2011
Number of significant customers	3	4	2	3
Aggregate dollar amount of net sales to significant customers	$10.6 million	$13.0 million	$3.4 million	$4.1 million
Percentage of net sales to significant customers	41.3%	50.1%	35.6%	49.6%

The Company manufactures syringes in Little Elm, Texas as well as utilizing manufacturers in China.  The Company purchases most of its product components from single suppliers, including needle adhesives and packaging materials.  There are multiple sources of these materials.  The Company obtained roughly 69.6% and 68.6% of its finished products in the first nine months of 2012 and 2011, respectively, from Double Dove, a Chinese manufacturer.  Purchases from Double Dove aggregated 71.9% and 62.8% of finished products in the three month periods ended September 30, 2012 and 2011, respectively.  In the event that the Company becomes unable to purchase such product from Double Dove, the Company would need to find an alternate supplier for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe and increase domestic production for 1mL and 3mL syringes to avoid a disruption in supply.

Revenue recognition

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances.  Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products that the Company has not received tracking reports.  Rebates are recorded when issued and are applied against the customer’s receivable balance.  Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company.  If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor.  One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report.  Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted.  The estimated contractual allowance is netted against the individual distributor’s accounts receivable balances for financial reporting purposes.  The resulting net balance is reflected in accounts receivable or accounts payable, as appropriate.  The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors.  Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company.  Any product shipped or distributed for evaluation purposes is expensed.

Certain distributors have taken rebates to which they are not entitled, such as utilizing a rebate for products not purchased directly from the Company.  The Company has been in discussions with the principal customers that claimed non-contractual rebates.  Major customers said they have ceased the practices resulting in claiming non-contractual rebates.  Rebates can only be claimed on purchases made directly from the Company. The Company has established a reserve for the collectability of these non-contractual rebate amounts.  The majority of expense for the reserve is recorded as a reduction of revenues and the remaining expense is recorded in Operating expense, General and administrative.  The reserve for such non-contractual deductions is a reduction of accounts receivable.

The Company’s domestic return policy is set forth in its standard Distribution Agreement.  This policy provides that a customer may return incorrect shipments within 10 days following arrival at the distributor’s facility.  In all such cases the distributor must obtain an authorization code from the Company and affix the code to the returned product.  The Company will not accept returned goods without a returned goods authorization number.  The Company may refund the customer’s money or replace the product.

The Company’s domestic return policy also provides that a customer may return product that is overstocked.  Overstocking returns are limited to two times in each 12-month period up to 1% of distributor’s total purchase of products for the prior 12-month period.  All product overstocks and returns are subject to inspection and acceptance by the Company.

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

Litigation settlements

Litigation settlements

Proceeds from litigation settlements are recognized when realizable.  Generally, realization is not reasonably assured and expected until proceeds are collected.  In 2010 and 2011, the Company received quarterly option payments, totaling $8 million, from Hospira, Inc. (“Hospira”) for a one-year option to negotiate a licensing agreement for certain uses of the Patient Safe® syringe.  This option expired unexercised in July 2011.  The Company recognizes proceeds from litigation settlements net of any associated royalty expense.

Income taxes

Income taxes

The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in the financial statements based on whether it is “more-likely-than-not” that a tax position will be sustained based upon the technical merits of the position.  Measurement of the tax position is based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The Company provides for deferred income taxes through utilizing an asset and liability approach for financial accounting and reporting based on the tax effects of differences between the financial statement and tax bases of assets and liabilities, based on enacted rates expected to be in effect when such differences reverse in future periods.  Deferred tax assets are periodically reviewed for realizability.  The Company utilized some of its net operating loss carry forwards in 2011 and paid Alternative Minimum Tax on its taxable income.  The Company has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest on uncertain tax positions are classified as income taxes in the Condensed Statements of Operations.

Earnings per share

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period.  Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible preferred stock and convertible debt.  The potential dilution, if any, is shown on the following schedule:

		Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Net income (loss)	$	(272,961	)	$	1,828,444		$	(1,592,020	)	$	4,399,273
Preferred dividend requirements		(229,527	)		(342,217	)		(688,581	)		(1,026,651	)
Effect of dilutive securities:
Convertible debt interest and loan fees		—			2,259			—			(6,955	)
Earnings (loss) available to common shareholders	$	(502,488	)	$	1,488,486		$	(2,280,601	)	$	3,365,667
Average common shares outstanding		26,972,818			24,027,053			25,870,073			24,005,761
Dilutive stock equivalents from stock options		—			1,815,360			—			2,250,601
Shares issuable upon conversion of convertible debt		—			108,391			—			108,391
Average common and common equivalent shares outstanding - assuming dilution		26,972,818			25,950,804			25,870,073			26,364,753
Basic earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.14
Diluted earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.13

Shipping and handling costs

Shipping and handling costs

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

Research and development costs

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

Share-based compensation

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

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STOCK REPURCHASE PROGRAM

9 Months Ended

Sep. 30, 2012

STOCK REPURCHASE PROGRAM

STOCK REPURCHASE PROGRAM

8.STOCK REPURCHASE PROGRAM

On July 10, 2012, the Company authorized a Common Stock repurchase plan structured to comply with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934.  Under the plan, the Company purchased 38,315 shares in the three months ended September 30, 2012.  Notwithstanding the terms of the plan, the exact number of shares which may be purchased in the future pursuant to the plan is difficult to predict given the current market in the Company’s Common Stock.  The plan will expire on August 1, 2014 at the latest.

Pursuant to the Certificates of Designation, Preferences, Rights And Limitations of the Series I Class B and Series II Class B Convertible Preferred Stock, the Company would be prohibited from purchasing its Common Stock while dividends are in arrears.  Therefore, in order to continue the Common Stock repurchase plan, the Company plans to continue to pay dividends on the Series I Class B and Series II Class B Preferred Stock if such payments can be made in accordance with state law and other contractual obligations.  The Company paid such dividends on July 31, 2012 to the Series I Class B and Series II Class B Convertible Preferred Stockholders in the amounts of $38,813 and $134,025, respectively.  On September 28, 2012, the Company declared dividends to holders of the Series I Class B and Series II Class B Convertible Preferred Stock in the amounts of $12,938 and $44,675, respectively.  The dividends were paid on October 22, 2012 to shareholders of record as of the close of business on October 10, 2012.

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STOCK OPTION EXERCISE

9 Months Ended

Sep. 30, 2012

STOCK OPTION EXERCISE

STOCK OPTION EXERCISE

9.STOCK OPTION EXERCISE

On July 10, 2012, the chief executive officer of the Company exercised a portion of his stock option.  The Company issued 2,000,000 shares of Common Stock to him at an exercise price of $0.81 (aggregate consideration of $1,620,000).

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of estimated useful lives of property, plant and equipment

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

Schedule of significant customers in 2012 and 2011

	Nine Months ended September 30, 2012	Nine Months ended September 30, 2011	Three Months ended September 30, 2012	Three Months ended September 30, 2011
Number of significant customers	3	4	2	3
Aggregate dollar amount of net sales to significant customers	$10.6 million	$13.0 million	$3.4 million	$4.1 million
Percentage of net sales to significant customers	41.3%	50.1%	35.6%	49.6%

Schedule of earnings per share

		Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Net income (loss)	$	(272,961	)	$	1,828,444		$	(1,592,020	)	$	4,399,273
Preferred dividend requirements		(229,527	)		(342,217	)		(688,581	)		(1,026,651	)
Effect of dilutive securities:
Convertible debt interest and loan fees		—			2,259			—			(6,955	)
Earnings (loss) available to common shareholders	$	(502,488	)	$	1,488,486		$	(2,280,601	)	$	3,365,667
Average common shares outstanding		26,972,818			24,027,053			25,870,073			24,005,761
Dilutive stock equivalents from stock options		—			1,815,360			—			2,250,601
Shares issuable upon conversion of convertible debt		—			108,391			—			108,391
Average common and common equivalent shares outstanding - assuming dilution		26,972,818			25,950,804			25,870,073			26,364,753
Basic earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.14
Diluted earnings (loss) per share	$	(0.02	)	$	0.06		$	(0.09	)	$	0.13

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012 customer	Sep. 30, 2011 customer	Sep. 30, 2012 customer count	Sep. 30, 2011 customer
Concentration risks
Number of significant customers	2	3	3	4
Concentration risk amount	$ 9,444,157	$ 8,270,608	$ 25,602,046	$ 25,994,211
Revenue recognition
Period for return of incorrect shipments			10 days
Number of times overstocking returns are limited			2
Period for return of product due to overstock			12 months
Maximum percentage of distributor's total purchase for the prior 12-month period			1.00%
Sales | Customer concentration risk
Concentration risks
Concentration risk amount	$ 3,400,000	$ 4,100,000	$ 10,600,000	$ 13,000,000
Concentration risk (as a percent)	35.60%	49.60%	41.30%	50.10%
Product components | Supplier concentration risk
Concentration risks
Concentration risk (as a percent)	71.90%	62.80%	69.60%	68.60%

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OTHER ACCRUED LIABILITIES (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
OTHER ACCRUED LIABILITIES
Prepayments from customers	$ 917,039	$ 869,334
Accrued property taxes	349,787
Accrued professional fees	120,339	134,790
Other accrued expenses	78,169	61,819
Other accrued liabilities	$ 1,465,334	$ 1,065,943

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CONDENSED STATEMENTS OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities
Net income (loss)	$ (1,592,020)	$ 4,399,273
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:
Depreciation and amortization	986,761	987,161
Provision for doubtful accounts	30,854	429,815
Provision for inventory valuation	90,000	52,835
Reserve for non-contractual deductions		471,072
Accreted interest	3,773	14,518
(Increase) decrease in assets:
Inventories	1,201,385	981,766
Accounts receivable	(1,675,218)	868,033
Income taxes receivable	(39,849)	(4,431)
Other current assets	(454,412)	560,141
Increase (decrease) in liabilities:
Accounts payable	(761,912)	(918,429)
Accrued liabilities, other	1,009,720	(2,740,123)
Income taxes payable	(1,174)	(106,254)
Net cash provided by (used by) operating activities	(1,202,092)	4,995,377
Cash flows from investing activities
Purchase of property, plant, and equipment	(282,560)	(653,873)
Net cash used by investing activities	(282,560)	(653,873)
Cash flows from financing activities
Repayments of long-term debt and notes payable	(543,293)	(444,552)
Proceeds from the exercise of stock options	1,620,000	44,001
Repurchase of Common Stock	(83,792)
Payment of Preferred Stock dividends	(172,838)	(291,700)
Net cash used by financing activities	820,077	(692,251)
Net increase (decrease) in cash and cash equivalents	(664,575)	3,649,253
Cash and cash equivalents at:
Beginning of period	25,673,263	23,266,039
End of period	25,008,688	26,915,292
Supplemental disclosures of cash flow information:
Interest paid	207,571	210,307
Income taxes paid	71,328	134,057
Supplemental disclosure of noncash investing and financing activities:
Preferred dividends declared	57,613	72,925
Debt assumed for the purchase of molding machines		$ 327,725

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OTHER ACCRUED LIABILITIES

9 Months Ended

Sep. 30, 2012

OTHER ACCRUED LIABILITIES

OTHER ACCRUED LIABILITIES

5.OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

		September 30, 2012		December 31, 2011
Prepayments from customers	$	917,039	$	869,334
Accrued property taxes		349,787		—
Accrued professional fees		120,339		134,790
Other accrued expenses		78,169		61,819
	$	1,465,334	$	1,065,943

Prepayments from customers are attributable primarily to purchases by South American customers.

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COMMITMENTS AND CONTINGENCIES (Details) (USD $)	1 Months Ended
	May 31, 2010 BD	Sep. 30, 2012 BD item	Jul. 31, 2011 BD item	Sep. 30, 2007 BD and MDC Investment Holdings, Inc. item
COMMITMENTS AND CONTINGENCIES
Recovery amount	$ 5,000,000
Period from specified date for permanent injunction to stay	12 months
Number of judges on panel			3
Number of issues that were contested in the appeal		8
Number of issues in which the entity and the officer prevailed under appeal		6
Number of issues in which the counterparty prevailed under appeal		2
Number of dissents being issued		2
Number of U.S. patents infringed upon				2

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	9 Months Ended
	Sep. 30, 2012
Intangible assets
Useful lives of patents and trademarks	17 years
Production equipment | Minimum
Property, plant, and equipment
Useful lives	3 years
Production equipment | Maximum
Property, plant, and equipment
Useful lives	13 years
Office furniture and equipment | Minimum
Property, plant, and equipment
Useful lives	3 years
Office furniture and equipment | Maximum
Property, plant, and equipment
Useful lives	10 years
Buildings
Property, plant, and equipment
Useful lives	39 years
Building improvements
Property, plant, and equipment
Useful lives	15 years
Automobiles
Property, plant, and equipment
Useful lives	7 years