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 June 30, 2016

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	75068-5295
(Address of principal executive offices)	(Zip Code)

(972) 294-1010

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 29,649,874 shares of Common Stock, no par value, outstanding as of August 1, 2016.

RETRACTABLE TECHNOLOGIES, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2016

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	17
	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 5.	Other Information	18
Item 6.	Exhibits	18
SIGNATURES		19

PART I—FINANCIAL INFORMATION

Item 1.       Financial Statements.

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

		June 30, 2016
		(unaudited)		December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	17,213,810	$	18,045,044
Accounts receivable, net		4,908,225		4,900,997
Inventories, net		6,278,622		6,296,625
Other current assets		581,594		1,568,032
Total current assets		28,982,251		30,810,698
Property, plant, and equipment, net		11,952,500		11,468,061
Intangible and other assets, net		259,799		262,105
Total assets	$	41,194,550	$	42,540,864
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,019,672	$	5,697,518
Current portion of long-term debt		255,961		249,349
Accrued compensation		770,060		763,576
Dividends payable		55,113		55,414
Accrued royalties to shareholder		682,402		631,145
Other accrued liabilities		953,364		690,535
Income taxes payable		10,413		8,176
Total current liabilities		7,746,985		8,095,713
Long-term debt, net of current maturities		3,286,695		3,417,471
Total liabilities		11,033,680		11,513,184
Commitments and contingencies — see Note 6
Stockholders’ equity:
Preferred stock $1 par value:
Series I, Class B		98,500		98,500
Series II, Class B		171,200		171,200
Series III, Class B		129,245		129,245
Series IV, Class B		342,500		342,500
Series V, Class B		40,000		40,000
Common stock, no par value		—		—
Additional paid-in capital		58,997,011		58,268,036
Retained deficit		(29,617,586	)	(28,021,801	)
Total stockholders’ equity		30,160,870		31,027,680
Total liabilities and stockholders’ equity	$	41,194,550	$	42,540,864

See accompanying notes to condensed financial statements

1

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

		Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Sales, net	$	7,575,053		$	6,715,470		$	13,497,035		$	12,894,046
Cost of sales
Cost of manufactured product		4,274,010			3,556,282			7,500,607			6,818,289
Royalty expense to shareholders		682,402			557,959			1,187,777			1,076,241
Total cost of sales		4,956,412			4,114,241			8,688,384			7,894,530
Gross profit		2,618,641			2,601,229			4,808,651			4,999,516
Operating expenses:
Sales and marketing		986,172			1,012,105			1,895,744			1,871,269
Research and development		146,854			167,678			271,773			283,984
General and administrative		2,091,151			2,661,768			4,140,839			4,979,682
Total operating expenses		3,224,177			3,841,551			6,308,356			7,134,935
Loss from operations		(605,536	)		(1,240,322	)		(1,499,705	)		(2,135,419	)
Litigation proceeds		—			7,724,826			—			7,724,826
Interest and other income		6,032			9,314			11,213			15,920
Interest expense, net		(56,710	)		(53,143	)		(106,333	)		(106,953	)
Net income (loss) before income taxes		(656,214	)		6,440,675			(1,594,825	)		5,498,374
Provision for income taxes		480			2,045			960			4,089
Net income (loss)		(656,694	)		6,438,630			(1,595,785	)		5,494,285
Preferred stock dividend requirements		(176,249	)		(227,554	)		(352,498	)		(455,303	)
Earnings (loss) applicable to common shareholders	$	(832,943	)	$	6,211,076		$	(1,948,283	)	$	5,038,982
Basic earnings (loss) per share	$	(0.03	)	$	0.22		$	(0.07	)	$	0.18
Diluted earnings (loss) per share	$	(0.03	)	$	0.21		$	(0.07	)	$	0.17
Weighted average common shares outstanding:
Basic		29,483,207			27,741,052			29,054,041			27,702,276
Diluted		29,483,207			29,432,468			29,054,041			29,411,606

See accompanying notes to condensed financial statements

2

RETRACTABLE TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

		Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Cash flows from operating activities
Net income (loss)	$	(1,595,785	)	$	5,494,285
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Provision for doubtful accounts		77,000			125,000
Depreciation and amortization		446,798			433,894
(Increase) decrease in assets:
Inventories		18,003			(1,437,216	)
Accounts receivable		(84,228	)		1,696,410
Other current assets		986,438			165,234
Other assets		(750	)		—
Increase (decrease) in liabilities:
Accounts payable		(677,846	)		(835,299	)
Litigation proceeds subject to stipulation		—			(7,724,826	)
Other accrued liabilities		320,570			341,033
Income taxes payable		2,237			2,107
Net cash used by operating activities		(507,563	)		(1,739,378	)
Cash flows from investing activities
Purchase of property, plant, and equipment		(928,180	)		(693,211	)
Change in restricted cash		—			(595	)
Net cash used by investing activities		(928,180	)		(693,806	)
Cash flows from financing activities
Repayments of long-term debt and notes payable		(124,163	)		(74,795	)
Proceeds from the exercise of stock options		839,200			264,953
Payment of Preferred Stock dividends		(110,528	)		(170,817	)
Net cash provided (used) by financing activities		604,509			19,341
Net decrease in cash and cash equivalents		(831,234	)		(2,413,843	)
Cash and cash equivalents at:
Beginning of period		18,045,044			22,128,977
End of period	$	17,213,810		$	19,715,134
Supplemental schedule of cash flow information:
Interest paid	$	106,332		$	106,953
Income taxes paid	$	2,000		$	1,981
Supplemental schedule of noncash investing and financing activities:
Preferred dividends declared, not paid	$	55,113		$	56,363

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 products are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; 0.5mL, 1mL, 2mL, 3mL, 5mL, and 10mL syringes; the small diameter tube adapter; the blood collection tube holder; the allergy tray; the IV safety catheter; the Patient Safe® syringes; the Patient Safe® Luer Cap; the VanishPoint® Blood Collection Set; and the EasyPointTM needle.  The Company also sells VanishPoint® autodisable syringes in the international market in addition to the Company’s other products.

Basis of presentation

The accompanying condensed financial statements are unaudited and, in the opinion of Management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented.  All such adjustments are of a normal and recurring nature.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year.  The 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, 2016 for the year ended December 31, 2015.

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.  This provision is reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms.

4

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

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

Inventories

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

Property, plant, and equipment

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

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

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

Long-lived assets

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

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

Intangible assets

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

Financial instruments

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

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 for the first three and six months of 2016 and 2015:

	Six Months ended June 30, 2016	Six Months ended June 30, 2015	Three Months ended June 30, 2016	Three Months ended June 30, 2015
Number of significant customers	2	2	1	2
Aggregate dollar amount of net sales to significant customers	$6.1 million	$5.7 million	$2.8 million	$3.0 million
Percentage of net sales to significant customers	44.9%	43.9%	37.3%	44.8%

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 78.2% and 74.9% of its VanishPoint® syringes in the first six months of 2016 and 2015, respectively, from its primary Chinese manufacturer.  Purchases from this Chinese manufacturer aggregated 91.8% and 75.8% of VanishPoint® syringes in the three month periods ended June 30, 2016 and 2015, respectively. In the event that the Company becomes unable to purchase products from its primary Chinese manufacturer, the Company would need to find an alternate manufacturer for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe, and increase domestic production for 1mL and 3mL syringes.

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances.  Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products for which the Company has not received tracking reports.  Rebates are recorded when issued and are applied against the customer’s receivable balance.  Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company. If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor.  One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report.  Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted.  The estimated contractual allowance is included in Accounts payable in the Balance Sheets and deducted from revenues in the Statements of Operations.  Accounts payable included estimated contractual allowances for $4,304,737 and $3,733,199 as of June 30, 2016 and December 31, 2015, respectively.  The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors.  Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company.  Any product shipped or distributed for evaluation purposes is expensed.

6

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

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

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

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

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 has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest related to income tax are classified as General and administrative expense and Interest expense, respectively, in the Condensed Statements of Operations.

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period.  Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible preferred stock.  The calculation of diluted EPS excluded 678,349 of Common Stock underlying issued and outstanding stock options at June 30, 2016, as their effect was antidilutive.  The potential dilution, if any, is shown on the following schedule:

		Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Net income (loss)	$	(656,694	)	$	6,438,630		$	(1,595,785	)	$	5,494,285
Preferred dividend requirements		(176,249	)		(227,554	)		(352,498	)		(455,303	)
Earnings (loss) applicable to common shareholders after assumed conversions	$	(832,943	)	$	6,211,076		$	(1,948,283	)	$	5,038,982
Average common shares outstanding		29,483,207			27,741,052			29,054,041			27,702,276
Average common and common equivalent shares outstanding - assuming dilution		29,483,207			29,432,468			29,054,041			29,411,606
Basic earnings (loss) per share	$	(0.03	)	$	0.22		$	(0.07	)	$	0.18
Diluted earnings (loss) per share	$	(0.03	)	$	0.21		$	(0.07	)	$	0.17

7

Shipping and handling costs

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

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

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

Recent Pronouncements

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

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”.  This ASU addresses several aspects of the accounting for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b) classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an estimated basis and (d) classification of excess tax impacts on the statement of cash flows.  The updated guidance is effective for the Company’s quarter ending March 31, 2017, with early adoption permitted.  The Company is currently assessing the impact that adoption of this guidance will have on its financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (topic 842). Under the new ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance lessor accounting is largely unchanged. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this standard.

8

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU amends Topic 740, Income Taxes, requiring deferred tax assets and liabilities to be classified as non-current in the statement of financial position. As required by ASU No. 2015-17, all deferred tax assets and liabilities will be classified as non-current in the Company’s consolidated balance sheets. Effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  The Company is currently evaluating the impact of this standard.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330) Simplifying the Measurement of Inventory,” which is part of the FASB’s Simplification Initiative.  Inventory, including inventory measured at average cost, would be valued at the lower of cost or net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  ASU 2015-11 is effective for the Company’s annual periods and interim periods within those annual periods beginning January 1, 2017.  Amendments in this ASU should be applied prospectively with earlier application permitted at the beginning of an interim or annual reporting period.  The Company is currently assessing the potential impact of this ASU on its financial statements.

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition.  This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services.  This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract.  ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption.  In July 2015, the FASB voted to delay the effective date of this ASU by one year.  The ASU will now be effective commencing with the Company’s quarter ending March 31, 2018.  Early adoption of this ASU is allowed no sooner than the original effective date.  The Company is currently assessing the potential impact of this ASU on its financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about and Entity’s Ability to Continue as a Going Concern”.  Currently there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern. This ASU requires management to assess the entity’s ability to continue as a going concern.  This guidance is effective for the Company’s annual reporting period ending December 31, 2016, and for subsequent interim periods.  Early adoption is permitted.  The Company expects to adopt this guidance when effective, and upon adoption, will evaluate going concern based on this guidance.

3.INVENTORIES

Inventories consist of the following:

		June 30, 2016			December 31, 2015
Raw materials	$	1,732,002		$	1,664,241
Finished goods		5,228,014			5,313,778
		6,960,016			6,978,019
Inventory reserve		(681,394	)		(681,394	)
	$	6,278,622		$	6,296,625

9

4.INCOME TAXES

The Company’s effective tax rate on the net earnings (loss) before income taxes was (0.1)% and 0.1% for the six months ended June 30, 2016 and June 30, 2015, respectively.  For the three months ended June 30, 2016 and June 30, 2015, the Company’s effective tax rate on the net earnings (loss) before income taxes was (0.1)% and negligible, respectively.

5.OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

		June 30, 2016		December 31, 2015
Prepayments from customers	$	260,910	$	395,396
Accrued property taxes		218,402		—
Accrued professional fees		451,778		274,252
Other accrued expenses		22,274		20,887
	$	953,364	$	690,535

6.COMMITMENTS AND CONTINGENCIES

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 trial commenced on September 9, 2013, in the U.S. District Court for the Eastern District of Texas, Tyler Division, and the jury found that BD illegally engaged in anticompetitive conduct with the intent to acquire or maintain monopoly power in the safety syringe market and engaged in false advertising under the Lanham Act.  The jury awarded the Company $113,508,014 in damages, which was trebled pursuant to statute.  The Court granted injunctive relief to take effect January 15, 2015.  In doing so, the Court found that BD’s business practices limited innovation, including false advertisements that suppressed sales of the VanishPoint®.  The specific injunctive relief includes: (1) enjoining BD’s use of “World’s Sharpest Needle” or any similar assertion of superior sharpness; (2) requiring notification to all customers who purchased BD syringe products from July 2, 2004 to date that BD wrongfully claimed that its syringe needles were sharper and that its statement that it had “data on file” was false and misleading; (3) requiring notification to employees, customers, distributors, GPOs, and government agencies that the deadspace of the VanishPoint® has been within ISO standards since 2004 and that BD overstated the deadspace of the VanishPoint® to represent that it was higher than some of BD’s syringes when it was actually less, and that BD’s statement that it had “data on file” was false and misleading, and, in addition, posting this notice on its website for a period of three years; (4) enjoining BD from advertising that its syringe products save medication as compared to VanishPoint® products for a period of three years; (5) requiring notification to all employees, customers, distributors, GPOs, and government agencies that BD’s website, cost calculator, printed materials, and oral representations alleging BD’s syringes save medication as compared to the VanishPoint® were based on false and inaccurate measurement of the VanishPoint®, and, in addition, posting this notice on its website for a period of three years; and (6) requiring the implementation of a comprehensive training program for BD employees and distributors that specifically instructs them not to use old marketing materials and not to make false representations regarding VanishPoint® syringes.  Final judgment was entered on January 15, 2015, awarding the Company $340,524,042 in damages and $11,722,823 in attorneys’ fees, as well as granting injunctive relief consistent with the orders as indicated above.  The parties stipulated that the amount of litigation costs recoverable by the Company is $295,000.  On January 14, 2015, the District Court stayed the portion of the injunctive relief that requires BD to notify end-user customers but also ordered BD to comply with internal correction activities as well as mandatory disclosures as set out above to its employees, customers, distributors and Group Purchasing Organizations.  BD filed an appeal of that ruling with the 5th Circuit Court of Appeals and that appeal was denied on February 3, 2015.  On February 12, 2015, BD filed a motion to amend the judgment directed most specifically to the issue of award of prejudgment interest.  On April 23, 2015, the Court entered an Amended Final Judgment that removed prejudgment interest but kept all other monetary and injunctive relief the same as was granted in the original Final Judgment.  BD filed its brief in the appeal on July 20, 2015. The Company filed its responsive brief on September 18, 2015, and BD filed its brief in reply on October 19, 2015, to complete the briefing.  Oral argument occurred on Monday, February 29, 2016.  There is no set time limit for the 5th Circuit Court of Appeals to issue its decision.

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In September 2007, BD and MDC Investment Holdings, Inc. (“MDC”) sued the Company in the United States District Court for the Eastern District of Texas, Texarkana Division, initially alleging that the Company is infringing two U.S. patents of MDC (6,179,812 and 7,090,656) that are licensed to BD.  BD and MDC seek injunctive relief and unspecified damages.  The Company counterclaimed for declarations of non-infringement, invalidity, and unenforceability of the asserted patents.  The plaintiffs subsequently dropped allegations with regard to patent no. 7,090,656 and the Company subsequently dropped its counterclaims for unenforceability of the asserted patents.  On June 30, 2015, the Court ordered that further proceedings in this matter be stayed and that this case remain administratively closed until resolution of all appeals in the case detailed in the first paragraph of this Note 6.

7.BUSINESS SEGMENTS

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
U.S. sales	$	6,944,479	$	5,435,925	$	12,447,489	$	11,270,515
North and South America sales (excluding U.S.)	304,210		1,146,734		651,874		1,279,537
Other international sales	326,364		132,811		397,672		343,994
Total sales, net	$	7,575,053	$	6,715,470	$	13,497,035	$	12,894,046

	June 30, 2016		December 31, 2015
Long-lived assets
U.S.	$	11,778,693	$	11,282,192
International	$	173,807	$	185,869

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.DIVIDENDS

The Company declared dividends in 2015 in the amounts of $12,313 and $43,101 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on February 1, 2016.  The Company declared dividends in the first quarter of 2016 in the amounts of $12,313 and $42,800 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on April 21, 2016.  The Company declared dividends in the second quarter of 2016 in the amounts of $12,313 and $42,800 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on July 28, 2016.

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. 

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Such factors include, among others, our ability to maintain liquidity, our maintenance of patent protection, the impact of current and future Court decisions regarding current litigation, our ability to maintain favorable third party manufacturing and supplier arrangements and relationships, our ability to quickly increase capacity in response to an increase in demand, our ability to access the market, our ability to maintain or lower production costs, our ability to continue to finance research and development as well as operations and expansion of production, the impact of larger market players, specifically BD, in providing devices to the safety market, and other factors referenced in Item 1A. Risk Factors in Part II.  Given these uncertainties, undue reliance should not be placed on forward-looking statements.

MATERIAL CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We have been manufacturing and marketing our products since 1997.  Safety syringes comprised 93.7% of our sales in the first six months of 2016.  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.

In the second quarter of 2016, we began selling a new product, the EasyPoint™ needle.  The EasyPoint™  is a retractable needle that can be used with Luer lock syringes, Luer slip syringes, and prefill syringes to give injections.  The EasyPoint™  needle can also be used to aspirate fluids and blood collection.  A March 2016 article published in Medical Design Technology details the benefits of the EasyPoint™  needle as well as the existing VanishPoint® syringe.  The article states that when the EasyPoint™ needle becomes available, “for the first time, clinicians will be able to change needles and have the safety of automated needle retraction.”  The article is available on the Article Archives tab of our website at www.vanishpoint.com.

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, physician services, health clinics, and retail pharmacies.

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

We have reported in the past that our progress is limited principally due to the marketing practices engaged in by BD, the dominant maker and seller of disposable syringes.  In our litigation against BD alleging anticompetitive conduct and false advertising, a final judgment for $352 million plus post-judgment interest and costs as well as some injunctive relief has been granted by the District Court.  We have not received any of the amounts indicated by the District Court in its final judgment.  BD is currently under court order to make certain disclosures regarding its exclusionary conduct to a specified class of distributors and customers.  BD has appealed to the United States Court of Appeals for the Fifth Circuit.  Oral argument was heard on February 29, 2016, and no order has been issued.

In 2014, the Company took steps to decrease non-litigation legal costs by approximately $1.1 million.  In 2014 and 2015, the Company reduced its workforce to cut costs.  In the future, if such cost cutting measures prove insufficient, we may reduce other operating expenses, further reduce the workforce, further reduce the salaries of officers as well as other employees, and/or defer royalty payments.

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The Consolidated Appropriations Act, 2016 (Pub. L. 114-113), signed into law on December 18, 2015, includes a two year moratorium on the medical device excise tax imposed by Internal Revenue Code section 4191.  Thus, the medical device excise tax was suspended beginning on January 1, 2016 and ending on December 31, 2017.  The impact of this tax was $360,000 in 2015.

We exchanged 728 thousand shares of our Common Stock for 200 thousand shares of our Series IV Class B Convertible Preferred Stock as of November 30, 2015 pursuant to an agreement with a shareholder.  Such shareholder agreed to waive all unpaid dividends in arrears associated with the tendered preferred stock, equaling $3.1 million.  Future dividend requirements of $200 thousand per year are avoided as a result of this transaction.

Product purchases from our primary Chinese manufacturer have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost.  In the first six months of 2016, our primary Chinese manufacturer produced approximately 69.8% of our VanishPoint® syringes.  In the event that we become unable to purchase products from our primary Chinese manufacturer, we would need to find an alternate manufacturer for the 0.5mL insulin syringe, the 0.5mL autodisable syringe, and the 2mL, 5mL, and 10mL syringes and we would increase domestic production for the 1mL and 3mL syringes.

In 1995, we entered into a license agreement with Thomas J. Shaw for the exclusive right to manufacture, market, and distribute products utilizing automated retraction technology.  This technology is the subject of various patents and patent applications owned by Mr. Shaw.  The license agreement generally provides for quarterly payments of a 5% royalty fee on gross sales.

On April 5, 2016, Thomas J. Shaw exercised the remaining portion of his stock option.  The Company issued 1,000,000 shares of Common Stock to him at an exercise price of $0.81 per share (aggregate consideration of $810,000).

With increased volumes of units manufactured, our manufacturing unit costs have generally tended to decline.  During this period of manufacturing, unit production decreased, resulting in a higher unit cost due to fixed costs spread over fewer units.  Factors that could affect our unit costs include increases in costs by third party manufacturers, changing production volumes, costs of petroleum products, and transportation costs.  Increases in such costs may not be recoverable through price increases of our products.

The following discussion may contain trend information and other forward-looking statements that involve a number of risks and uncertainties.  Our actual future results could differ materially from our historical results of 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 June 30, 2016 or 2015.

RESULTS OF OPERATIONS

Comparison of Three Months Ended June 30, 2016 and June 30, 2015

Sales

Domestic sales accounted for 91.7% and 80.9% of the revenues for the three months ended June 30, 2016 and 2015, respectively.  Domestic revenues increased 27.8% principally due to increased syringe sales and initial sales of our EasyPoint™  needle and a slightly higher average price.  Domestic unit sales increased 40.5%.  Domestic unit sales were 89.7% of total unit sales for the three months ended June 30, 2016.  International revenue and unit sales decreased 50.7% and 62.0%, respectively, due to timing of purchases by a major international customer.  Our international orders may be subject to significant fluctuation over time.  Overall unit sales increased 10.0%.

Gross Profit and Cost of Sales

Gross profit increased 0.7% primarily due to higher revenues reduced by higher manufacturing costs.

The Cost of manufactured product increased by 20.2% due to increased sales volumes and increased unit cost of manufacture due to fewer units manufactured.  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 22.3% due to higher gross sales.

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Operating Expenses

Operating expenses decreased 16.1% or $617 thousand.  The decrease was due to lower costs of compensation, donations of product, various professional fees, suspension of the Medical Device Excise Tax, and travel and entertainment.  These decreases were somewhat offset by higher fees paid to distributors and Group Purchasing Organizations.

Litigation Proceeds

A non-recurring recognition of $7,724,826 received from BD had a significant impact on second quarter 2015 income.

Loss from Operations

Our operating loss was $605 thousand compared to an operating loss for the same period last year of $1.2 million due primarily to reduced operating expenses.

Income Taxes

Our effective tax rate on the net earnings (loss) before income taxes was (0.1)% and negligible for the three months ended June 30, 2016 and June 30, 2015, respectively.

Comparison of Six Months Ended June 30, 2016 and June 30, 2015

Sales

Domestic sales accounted for 92.2% and 87.4% of the revenues for the six months ended June 30, 2016 and 2015, respectively.  Domestic revenues increased 10.4% principally due to increased syringe sales and initial sales of our EasyPoint™  needle. Average selling price was slightly lower.  Domestic unit sales increased 19.5%.  Domestic unit sales were 90.1% of total unit sales for the six months ended June 30, 2016.  International revenue and unit sales decreased 35.4% and 48.5%, respectively, due to timing of purchases by a major international customer.  Our international orders may be subject to significant fluctuation over time.  Overall unit sales increased 5.7%.

Gross Profit and Cost of Sales

Gross profit decreased 3.8% primarily due to higher cost of manufacture.

The Cost of manufactured product increased 10.0% due to higher sales volumes and increased unit cost due to fewer units manufactured.  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 10.4% due to higher gross sales.

Operating Expenses

Operating expenses decreased 11.6% or $827 thousand.  The decrease was due to lower costs of compensation, donations of product, various professional fees, suspension of the Medical Device Excise Tax, and travel and entertainment.  These decreases were somewhat offset by higher fees paid to distributors and Group Purchasing Organizations.

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Litigation Proceeds

A non-recurring recognition of $7,724,826 received from BD pursuant to the patent infringement portion of a case discussed above had a significant impact on income for the six months ended June 30, 2015.

Loss from Operations

Our operating loss was $1.5 million compared to an operating loss for the same period last year of $2.1 million due primarily to lower operating expenses reduced by a decrease in gross profit.

Income Taxes

Our effective tax rate on the net earnings (loss) before income taxes was (0.1)% and 0.1% for the six months ended June 30, 2016 and June 30, 2015, respectively.

Discussion of Balance Sheet and Statement of Cash Flow Items

Our balance sheet remains strong with cash making up 41.8% of total assets.  Working capital was $21.2 million at June 30, 2016, a decrease of $1.5 million from December 31, 2015.

Approximately $507 thousand in cash flow in the six months ended June 30, 2016 was used by operating activities. Cash provided by working capital items was $564 thousand.

LIQUIDITY

At the present time, Management does not intend to raise equity capital.  Due to the funds received from prior litigation, we have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing, when available, as the primary ongoing sources of cash.  Our ability to obtain additional funds through loans is uncertain.  Our financial statements do not reflect a 2015 judgment in our favor for $352 million plus post-judgment interest.

Historical Sources of Liquidity

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

Internal Sources of Liquidity

Margins and Market Access

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

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

Fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable manufacturing arrangements and relationships could result in the need to manufacture all (as opposed to 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, large international sales of VanishPoint® syringes are shipped directly from China to the customer.  Purchases of product manufactured in China usually decrease the average cost of manufacture for all units.  The number of units produced by us versus manufactured in China can have a significant effect on the carrying costs of inventory as well as Cost of sales.  We 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.

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

Seasonality

Historically, unit sales have increased during the flu season.

Cash Requirements

Due to funds received from prior litigation, we have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing, when available, as the primary ongoing sources of cash.  We have taken steps to decrease our non-litigation legal costs and we continue to evaluate these costs.  Additionally, since the beginning of 2014, we have reduced our workforce.  In the future, if such cost cutting measures prove insufficient, we may reduce the number of units being produced, further reduce the workforce, further reduce the salaries of officers and other employees, and/or defer royalty payments.

External Sources of Liquidity

We have obtained several loans from our inception, which have, together with the proceeds from the sales of equities and litigation efforts, enabled us to pursue development and production of our products.  Our ability to obtain additional funds through loans is uncertain.  Due to the current market price of our Common Stock, it is unlikely we would choose to raise funds by the sale of equity.

In our litigation against BD alleging anticompetitive conduct and false advertising, a final judgment for $352 million plus post-judgment interest and costs as well as some injunctive relief has been granted by the District Court.  We have not received any of the amounts indicated by the District Court in its final judgment.  BD is currently under court order to make certain disclosures regarding its exclusionary conduct to a specified class of distributors and customers.  BD has appealed to the United States Court of Appeals for the Fifth Circuit.  Oral argument was heard on February 29, 2016, and no order has been issued.

CAPITAL RESOURCES

In the second quarter of 2016, we placed orders for additional injection molding machines and additional molds for use in the manufacture of the EasyPoint™  needle.  The expenditure for this equipment was approximately $1.4 million.

CONTRACTUAL OBLIGATIONS

We have purchased manufacturing equipment and molds in the amount of $1.4 million.  We have obtained a lease from Deutsche Leasing USA, Inc. for the financing of certain molding machines in the amount of approximately $530 thousand.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

No update.

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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 June 30, 2016, our disclosure controls and procedures were not effective, as discussed below.

We reported a material weakness in our Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 30, 2016, in connection with the accounting for raw materials.  As disclosed in the Annual Report, we plan to remedy this weakness by transitioning to an Oracle inventory accounting system.  As such system is not yet in place, we cannot yet state that our disclosure controls and procedures are effective.  We expect to have the Oracle system fully implemented in the first half of 2017 after testing.  During the third quarter of 2016, we will be running the Oracle system parallel to our existing systems.

Changes in Internal Control Over Financial Reporting

There have been no changes during the second quarter of 2016 or subsequent to June 30, 2016 in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.Legal Proceedings.

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

Item 1A.Risk Factors.

There were no material changes in the Risk Factors applicable to the Company as set forth in our Form 10-K annual report for 2015 which was filed on March 30, 2016, and which is available on EDGAR.

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

Working Capital Restrictions and Limitations on the Payment of Dividends

The Company declared a dividend to the Series I Class B and Series II Class B Convertible Preferred Shareholders in the aggregate amount of $55,113.  This dividend was paid on July 28, 2016.

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 six months ended June 30, 2016, no dividends were in arrears.

Series II Class B Convertible Preferred Stock

For the six months ended June 30, 2016, no dividends were in arrears.

Series III Class B Convertible Preferred Stock

For the six months ended June 30, 2016, the amount of dividends in arrears was $64,623 and the total arrearage was $3,951,000 as of June 30, 2016.

Series IV Class B Convertible Preferred Stock

For the six months ended June 30, 2016, the amount of dividends in arrears was $171,250 and the total arrearage was $5,627,000 as of June 30, 2016.

Series V Class B Convertible Preferred Stock

For the six months ended June 30, 2016, the amount of dividends in arrears was $6,400 and the total arrearage was $977,000 as of June 30, 2016.

Item 5.Other Information.

Our annual meeting of shareholders will be held on September 9, 2016 at 10:00 a.m. Central time and we are soliciting the vote of shareholders of Common Stock with regard to the election of Class 2 Directors.  We are also soliciting an advisory vote to approve executive compensation.  The Proxy Statement has been delivered via the notice and access method, meaning most Common Stockholders will generally only receive a short notice notifying them of where they can download copies of the proxy materials.  Shareholders desiring paper copies of the proxy materials may request them.

Item 6.Exhibits.

Exhibit No.	Description of Document
31.1	Certification of Principal Executive Officer
31.2	Certification of Principal Financial Officer
32	Certification Pursuant to 18 U.S.C. Section 1350
101	The following materials from Retractable Technologies, Inc.’s Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of June 30, 2016 and December 31, 2015, (ii) Condensed Statements of Operations for the six months and three months ended June 30, 2016 and 2015, (iii) Condensed Statements of Cash Flows for the six months ended June 30, 2016 and 2015, and (iv) Notes to Condensed Financial Statements

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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:    August 15, 2016	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-31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Exhibit 31.1

I, Thomas J. Shaw, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:August 15, 2016

/s/ THOMAS J. SHAW                    

THOMAS J. SHAW

PRESIDENT, CHAIRMAN, AND

CHIEF EXECUTIVE OFFICER

EX-31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Exhibit 31.2

I, Douglas W. Cowan, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:August 15, 2016

/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 June 30, 2016, 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:      August 15, 2016

/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

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 01, 2016
Document and Entity Information
Entity Registrant Name	RETRACTABLE TECHNOLOGIES INC
Entity Central Index Key	0000946563
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
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		29,649,874
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

XML

CONDENSED BALANCE SHEETS - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 17,213,810	$ 18,045,044
Accounts receivable, net	4,908,225	4,900,997
Inventories, net	6,278,622	6,296,625
Other current assets	581,594	1,568,032
Total current assets	28,982,251	30,810,698
Property, plant, and equipment, net	11,952,500	11,468,061
Intangible and other assets, net	259,799	262,105
Total assets	41,194,550	42,540,864
Current liabilities:
Accounts payable	5,019,672	5,697,518
Current portion of long-term debt	255,961	249,349
Accrued compensation	770,060	763,576
Dividends payable	55,113	55,414
Accrued royalties to shareholder	682,402	631,145
Other accrued liabilities	953,364	690,535
Income taxes payable	10,413	8,176
Total current liabilities	7,746,985	8,095,713
Long-term debt, net of current maturities	3,286,695	3,417,471
Total liabilities	11,033,680	11,513,184
Commitments and contingencies - see Note 6
Preferred stock $1 par value:
Common Stock, no par value
Additional paid-in capital	58,997,011	58,268,036
Retained deficit	(29,617,586)	(28,021,801)
Total stockholders' equity	30,160,870	31,027,680
Total liabilities and stockholders' equity	41,194,550	42,540,864
Series I, Class B
Preferred stock $1 par value:
Preferred stock	98,500	98,500
Series II, Class B
Preferred stock $1 par value:
Preferred stock	171,200	171,200
Series III, Class B
Preferred stock $1 par value:
Preferred stock	129,245	129,245
Series IV, Class B
Preferred stock $1 par value:
Preferred stock	342,500	342,500
Series V, Class B
Preferred stock $1 par value:
Preferred stock	$ 40,000	$ 40,000

XML

CONDENSED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
CONDENSED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Common stock, par value (in dollars per share)	$ 0	$ 0

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CONDENSED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
CONDENSED STATEMENTS OF OPERATIONS
Sales, net	$ 7,575,053	$ 6,715,470	$ 13,497,035	$ 12,894,046
Cost of sales
Cost of manufactured product	4,274,010	3,556,282	7,500,607	6,818,289
Royalty expense to shareholders	682,402	557,959	1,187,777	1,076,241
Total cost of sales	4,956,412	4,114,241	8,688,384	7,894,530
Gross profit	2,618,641	2,601,229	4,808,651	4,999,516
Operating expenses:
Sales and marketing	986,172	1,012,105	1,895,744	1,871,269
Research and development	146,854	167,678	271,773	283,984
General and administrative	2,091,151	2,661,768	4,140,839	4,979,682
Total operating expenses	3,224,177	3,841,551	6,308,356	7,134,935
Loss from operations	(605,536)	(1,240,322)	(1,499,705)	(2,135,419)
Litigation proceeds		7,724,826		7,724,826
Interest and other income	6,032	9,314	11,213	15,920
Interest expense, net	(56,710)	(53,143)	(106,333)	(106,953)
Net income (loss) before income taxes	(656,214)	6,440,675	(1,594,825)	5,498,374
Provision for income taxes	480	2,045	960	4,089
Net income (loss)	(656,694)	6,438,630	(1,595,785)	5,494,285
Preferred stock dividend requirements	(176,249)	(227,554)	(352,498)	(455,303)
Earnings (loss) applicable to common shareholders	$ (832,943)	$ 6,211,076	$ (1,948,283)	$ 5,038,982
Basic earnings (loss) per share (in dollars per share)	$ (0.03)	$ 0.22	$ (0.07)	$ 0.18
Diluted earnings (loss) per share (in dollars per share)	$ (0.03)	$ 0.21	$ (0.07)	$ 0.17
Weighted average common shares outstanding:
Basic (in shares)	29,483,207	27,741,052	29,054,041	27,702,276
Diluted (in shares)	29,483,207	29,432,468	29,054,041	29,411,606

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CONDENSED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities
Net income (loss)	$ (1,595,785)	$ 5,494,285
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Provision for doubtful accounts	77,000	125,000
Depreciation and amortization	446,798	433,894
(Increase) decrease in assets:
Inventories	18,003	(1,437,216)
Accounts receivable	(84,228)	1,696,410
Other current assets	986,438	165,234
Other assets	(750)
Increase (decrease) in liabilities:
Accounts payable	(677,846)	(835,299)
Litigation proceeds subject to stipulation		(7,724,826)
Other accrued liabilities	320,570	341,033
Income taxes payable	2,237	2,107
Net cash used by operating activities	(507,563)	(1,739,378)
Cash flows from investing activities
Purchase of property, plant, and equipment	(928,180)	(693,211)
Change in restricted cash		(595)
Net cash used by investing activities	(928,180)	(693,806)
Cash flows from financing activities
Repayments of long-term debt and notes payable	(124,163)	(74,795)
Proceeds from the exercise of stock options	839,200	264,953
Payment of Preferred Stock dividends	(110,528)	(170,817)
Net cash provided (used) by financing activities	604,509	19,341
Net decrease in cash and cash equivalents	(831,234)	(2,413,843)
Cash and cash equivalents at:
Beginning of period	18,045,044	22,128,977
End of period	17,213,810	19,715,134
Supplemental schedule of cash flow information:
Interest paid	106,332	106,953
Income taxes paid	2,000	1,981
Supplemental schedule of noncash investing and financing activities:
Preferred dividends declared, not paid	$ 55,113	$ 56,363

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BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2016

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 products are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; 0.5mL, 1mL, 2mL, 3mL, 5mL, and 10mL syringes; the small diameter tube adapter; the blood collection tube holder; the allergy tray; the IV safety catheter; the Patient Safe® syringes; the Patient Safe® Luer Cap; the VanishPoint®  Blood Collection Set; and the EasyPointTM needle.  The Company also sells VanishPoint®  autodisable syringes in the international market in addition to the Company’s other products.

Basis of presentation

The accompanying condensed financial statements are unaudited and, in the opinion of Management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented.  All such adjustments are of a normal and recurring nature.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year.  The 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, 2016 for the year ended December 31, 2015.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2016

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.  This provision is reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms.

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

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

Inventories

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

Property, plant, and equipment

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

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

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

Long-lived assets

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

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

Intangible assets

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

Financial instruments

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

Concentration risks

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

The following table reflects our significant customers for the first three and six months of 2016 and 2015:

	Six Months ended June 30, 2016	Six Months ended June 30, 2015	Three Months ended June 30, 2016	Three Months ended June 30, 2015
Number of significant customers	2	2	1	2
Aggregate dollar amount of net sales to significant customers	$6.1 million	$5.7 million	$2.8 million	$3.0 million
Percentage of net sales to significant customers	44.9%	43.9%	37.3%	44.8%

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 78.2% and 74.9% of its VanishPoint®  syringes in the first six months of 2016 and 2015, respectively, from its primary Chinese manufacturer.  Purchases from this Chinese manufacturer aggregated 91.8% and 75.8% of VanishPoint®  syringes in the three month periods ended June 30, 2016 and 2015, respectively. In the event that the Company becomes unable to purchase products from its primary Chinese manufacturer, the Company would need to find an alternate manufacturer for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe, and increase domestic production for 1mL and 3mL syringes.

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances.  Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products for which the Company has not received tracking reports.  Rebates are recorded when issued and are applied against the customer’s receivable balance.  Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company. If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor.  One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report.  Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted.  The estimated contractual allowance is included in Accounts payable in the Balance Sheets and deducted from revenues in the Statements of Operations.  Accounts payable included estimated contractual allowances for $4,304,737 and $3,733,199 as of June 30, 2016 and December 31, 2015, respectively.  The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors.  Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company.  Any product shipped or distributed for evaluation purposes is expensed.

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

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

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

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

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 has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest related to income tax are classified as General and administrative expense and Interest expense, respectively, in the Condensed Statements of Operations.

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period.  Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible preferred stock.  The calculation of diluted EPS excluded 678,349 of Common Stock underlying issued and outstanding stock options at June 30, 2016, as their effect was antidilutive.  The potential dilution, if any, is shown on the following schedule:

		Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Net income (loss)	$	(656,694	)	$	6,438,630		$	(1,595,785	)	$	5,494,285
Preferred dividend requirements		(176,249	)		(227,554	)		(352,498	)		(455,303	)
Earnings (loss) applicable to common shareholders after assumed conversions	$	(832,943	)	$	6,211,076		$	(1,948,283	)	$	5,038,982
Average common shares outstanding		29,483,207			27,741,052			29,054,041			27,702,276
Average common and common equivalent shares outstanding - assuming dilution		29,483,207			29,432,468			29,054,041			29,411,606
Basic earnings (loss) per share	$	(0.03	)	$	0.22		$	(0.07	)	$	0.18
Diluted earnings (loss) per share	$	(0.03	)	$	0.21		$	(0.07	)	$	0.17

Shipping and handling costs

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

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

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

Recent Pronouncements

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

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”.  This ASU addresses several aspects of the accounting for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b) classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an estimated basis and (d) classification of excess tax impacts on the statement of cash flows.  The updated guidance is effective for the Company’s quarter ending March 31, 2017, with early adoption permitted.  The Company is currently assessing the impact that adoption of this guidance will have on its financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (topic 842). Under the new ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance lessor accounting is largely unchanged. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this standard.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU amends Topic 740, Income Taxes, requiring deferred tax assets and liabilities to be classified as non-current in the statement of financial position. As required by ASU No. 2015-17, all deferred tax assets and liabilities will be classified as non-current in the Company’s consolidated balance sheets. Effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  The Company is currently evaluating the impact of this standard.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330) Simplifying the Measurement of Inventory,” which is part of the FASB’s Simplification Initiative.  Inventory, including inventory measured at average cost, would be valued at the lower of cost or net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  ASU 2015-11 is effective for the Company’s annual periods and interim periods within those annual periods beginning January 1, 2017.  Amendments in this ASU should be applied prospectively with earlier application permitted at the beginning of an interim or annual reporting period.  The Company is currently assessing the potential impact of this ASU on its financial statements.

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition.  This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services.  This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract.  ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption.  In July 2015, the FASB voted to delay the effective date of this ASU by one year.  The ASU will now be effective commencing with the Company’s quarter ending March 31, 2018.  Early adoption of this ASU is allowed no sooner than the original effective date.  The Company is currently assessing the potential impact of this ASU on its financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about and Entity’s Ability to Continue as a Going Concern”.  Currently there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern. This ASU requires management to assess the entity’s ability to continue as a going concern.  This guidance is effective for the Company’s annual reporting period ending December 31, 2016, and for subsequent interim periods.  Early adoption is permitted.  The Company expects to adopt this guidance when effective, and upon adoption, will evaluate going concern based on this guidance.

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INVENTORIES

6 Months Ended

Jun. 30, 2016

INVENTORIES

INVENTORIES

3.INVENTORIES

Inventories consist of the following:

		June 30, 2016			December 31, 2015
Raw materials	$	1,732,002		$	1,664,241
Finished goods		5,228,014			5,313,778
		6,960,016			6,978,019
Inventory reserve		(681,394	)		(681,394	)
	$	6,278,622		$	6,296,625

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INCOME TAXES

6 Months Ended

Jun. 30, 2016

INCOME TAXES

INCOME TAXES

4.INCOME TAXES

The Company’s effective tax rate on the net earnings (loss) before income taxes was (0.1)% and 0.1% for the six months ended June 30, 2016 and June 30, 2015, respectively.  For the three months ended June 30, 2016 and June 30, 2015, the Company’s effective tax rate on the net earnings (loss) before income taxes was (0.1)% and negligible, respectively.

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OTHER ACCRUED LIABILITIES

6 Months Ended

Jun. 30, 2016

OTHER ACCRUED LIABILITIES

OTHER ACCRUED LIABILITIES

5.OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

		June 30, 2016		December 31, 2015
Prepayments from customers	$	260,910	$	395,396
Accrued property taxes		218,402		—
Accrued professional fees		451,778		274,252
Other accrued expenses		22,274		20,887
	$	953,364	$	690,535

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2016

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

6.COMMITMENTS AND CONTINGENCIES

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 trial commenced on September 9, 2013, in the U.S. District Court for the Eastern District of Texas, Tyler Division, and the jury found that BD illegally engaged in anticompetitive conduct with the intent to acquire or maintain monopoly power in the safety syringe market and engaged in false advertising under the Lanham Act.  The jury awarded the Company $113,508,014 in damages, which was trebled pursuant to statute.  The Court granted injunctive relief to take effect January 15, 2015.  In doing so, the Court found that BD’s business practices limited innovation, including false advertisements that suppressed sales of the VanishPoint®.  The specific injunctive relief includes: (1) enjoining BD’s use of “World’s Sharpest Needle” or any similar assertion of superior sharpness; (2) requiring notification to all customers who purchased BD syringe products from July 2, 2004 to date that BD wrongfully claimed that its syringe needles were sharper and that its statement that it had “data on file” was false and misleading; (3) requiring notification to employees, customers, distributors, GPOs, and government agencies that the deadspace of the VanishPoint® has been within ISO standards since 2004 and that BD overstated the deadspace of the VanishPoint® to represent that it was higher than some of BD’s syringes when it was actually less, and that BD’s statement that it had “data on file” was false and misleading, and, in addition, posting this notice on its website for a period of three years; (4) enjoining BD from advertising that its syringe products save medication as compared to VanishPoint® products for a period of three years; (5) requiring notification to all employees, customers, distributors, GPOs, and government agencies that BD’s website, cost calculator, printed materials, and oral representations alleging BD’s syringes save medication as compared to the VanishPoint® were based on false and inaccurate measurement of the VanishPoint®, and, in addition, posting this notice on its website for a period of three years; and (6) requiring the implementation of a comprehensive training program for BD employees and distributors that specifically instructs them not to use old marketing materials and not to make false representations regarding VanishPoint® syringes.  Final judgment was entered on January 15, 2015, awarding the Company $340,524,042 in damages and $11,722,823 in attorneys’ fees, as well as granting injunctive relief consistent with the orders as indicated above.  The parties stipulated that the amount of litigation costs recoverable by the Company is $295,000.  On January 14, 2015, the District Court stayed the portion of the injunctive relief that requires BD to notify end-user customers but also ordered BD to comply with internal correction activities as well as mandatory disclosures as set out above to its employees, customers, distributors and Group Purchasing Organizations.  BD filed an appeal of that ruling with the 5th Circuit Court of Appeals and that appeal was denied on February 3, 2015.  On February 12, 2015, BD filed a motion to amend the judgment directed most specifically to the issue of award of prejudgment interest.  On April 23, 2015, the Court entered an Amended Final Judgment that removed prejudgment interest but kept all other monetary and injunctive relief the same as was granted in the original Final Judgment.  BD filed its brief in the appeal on July 20, 2015. The Company filed its responsive brief on September 18, 2015, and BD filed its brief in reply on October 19, 2015, to complete the briefing.  Oral argument occurred on Monday, February 29, 2016.  There is no set time limit for the 5th Circuit Court of Appeals to issue its decision.

In September 2007, BD and MDC Investment Holdings, Inc. (“MDC”) sued the Company in the United States District Court for the Eastern District of Texas, Texarkana Division, initially alleging that the Company is infringing two U.S. patents of MDC (6,179,812 and 7,090,656) that are licensed to BD.  BD and MDC seek injunctive relief and unspecified damages.  The Company counterclaimed for declarations of non-infringement, invalidity, and unenforceability of the asserted patents.  The plaintiffs subsequently dropped allegations with regard to patent no. 7,090,656 and the Company subsequently dropped its counterclaims for unenforceability of the asserted patents.  On June 30, 2015, the Court ordered that further proceedings in this matter be stayed and that this case remain administratively closed until resolution of all appeals in the case detailed in the first paragraph of this Note 6.

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BUSINESS SEGMENTS

6 Months Ended

Jun. 30, 2016

BUSINESS SEGMENTS

BUSINESS SEGMENTS

7.BUSINESS SEGMENTS

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
U.S. sales	$	6,944,479	$	5,435,925	$	12,447,489	$	11,270,515
North and South America sales (excluding U.S.)	304,210		1,146,734		651,874		1,279,537
Other international sales	326,364		132,811		397,672		343,994
Total sales, net	$	7,575,053	$	6,715,470	$	13,497,035	$	12,894,046

	June 30, 2016		December 31, 2015
Long-lived assets
U.S.	$	11,778,693	$	11,282,192
International	$	173,807	$	185,869

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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DIVIDENDS

6 Months Ended

Jun. 30, 2016

DIVIDENDS

DIVIDENDS

8.DIVIDENDS

The Company declared dividends in 2015 in the amounts of $12,313 and $43,101 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on February 1, 2016.  The Company declared dividends in the first quarter of 2016 in the amounts of $12,313 and $42,800 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on April 21, 2016.  The Company declared dividends in the second quarter of 2016 in the amounts of $12,313 and $42,800 paid to Series I Class B and Series II Class B Preferred Stockholders, respectively, on July 28, 2016.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2016

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.  This provision is reviewed to determine the adequacy of the allowance for doubtful accounts.  Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms.

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

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

Inventories

Inventories

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

Property, plant, and equipment

Property, plant, and equipment

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

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

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

Long-lived assets

Long-lived assets

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

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

Intangible assets

Intangible assets

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

Financial instruments

Financial instruments

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

Concentration risks

Concentration risks

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

The following table reflects our significant customers for the first three and six months of 2016 and 2015:

	Six Months ended June 30, 2016	Six Months ended June 30, 2015	Three Months ended June 30, 2016	Three Months ended June 30, 2015
Number of significant customers	2	2	1	2
Aggregate dollar amount of net sales to significant customers	$6.1 million	$5.7 million	$2.8 million	$3.0 million
Percentage of net sales to significant customers	44.9%	43.9%	37.3%	44.8%

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 78.2% and 74.9% of its VanishPoint®  syringes in the first six months of 2016 and 2015, respectively, from its primary Chinese manufacturer.  Purchases from this Chinese manufacturer aggregated 91.8% and 75.8% of VanishPoint®  syringes in the three month periods ended June 30, 2016 and 2015, respectively. In the event that the Company becomes unable to purchase products from its primary Chinese manufacturer, the Company would need to find an alternate manufacturer for its 0.5mL insulin syringe, its 2mL, 5mL, and 10mL syringes and its autodisable syringe, and increase domestic production for 1mL and 3mL syringes.

Revenue recognition

Revenue recognition

Revenue is recognized for sales when title and risk of ownership passes to the customer, generally upon shipment.  Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances.  Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products for which the Company has not received tracking reports.  Rebates are recorded when issued and are applied against the customer’s receivable balance.  Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company. If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor.  One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report.  Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted.  The estimated contractual allowance is included in Accounts payable in the Balance Sheets and deducted from revenues in the Statements of Operations.  Accounts payable included estimated contractual allowances for $4,304,737 and $3,733,199 as of June 30, 2016 and December 31, 2015, respectively.  The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors.  Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company.  Any product shipped or distributed for evaluation purposes is expensed.

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

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

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

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

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 has established a valuation allowance for its net deferred tax asset as future taxable income cannot be reasonably assured.  Penalties and interest related to income tax are classified as General and administrative expense and Interest expense, respectively, in the Condensed Statements of Operations.

Earnings per share

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period.  Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible preferred stock.  The calculation of diluted EPS excluded 678,349 of Common Stock underlying issued and outstanding stock options at June 30, 2016, as their effect was antidilutive.  The potential dilution, if any, is shown on the following schedule:

		Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Net income (loss)	$	(656,694	)	$	6,438,630		$	(1,595,785	)	$	5,494,285
Preferred dividend requirements		(176,249	)		(227,554	)		(352,498	)		(455,303	)
Earnings (loss) applicable to common shareholders after assumed conversions	$	(832,943	)	$	6,211,076		$	(1,948,283	)	$	5,038,982
Average common shares outstanding		29,483,207			27,741,052			29,054,041			27,702,276
Average common and common equivalent shares outstanding - assuming dilution		29,483,207			29,432,468			29,054,041			29,411,606
Basic earnings (loss) per share	$	(0.03	)	$	0.22		$	(0.07	)	$	0.18
Diluted earnings (loss) per share	$	(0.03	)	$	0.21		$	(0.07	)	$	0.17

Shipping and handling costs

Shipping and handling costs

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

Research and development costs

Research and development costs

Research and development costs are expensed as incurred.

Share-based compensation

Share-based compensation

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

Recent Pronouncements

Recent Pronouncements

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

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”.  This ASU addresses several aspects of the accounting for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b) classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an estimated basis and (d) classification of excess tax impacts on the statement of cash flows.  The updated guidance is effective for the Company’s quarter ending March 31, 2017, with early adoption permitted.  The Company is currently assessing the impact that adoption of this guidance will have on its financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (topic 842). Under the new ASU, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance lessor accounting is largely unchanged. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this standard.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU amends Topic 740, Income Taxes, requiring deferred tax assets and liabilities to be classified as non-current in the statement of financial position. As required by ASU No. 2015-17, all deferred tax assets and liabilities will be classified as non-current in the Company’s consolidated balance sheets. Effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  The Company is currently evaluating the impact of this standard.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330) Simplifying the Measurement of Inventory,” which is part of the FASB’s Simplification Initiative.  Inventory, including inventory measured at average cost, would be valued at the lower of cost or net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  ASU 2015-11 is effective for the Company’s annual periods and interim periods within those annual periods beginning January 1, 2017.  Amendments in this ASU should be applied prospectively with earlier application permitted at the beginning of an interim or annual reporting period.  The Company is currently assessing the potential impact of this ASU on its financial statements.

In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition.  This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects consideration to which the company expects to be entitled in exchange for those goods or services.  This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract.  ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption.  In July 2015, the FASB voted to delay the effective date of this ASU by one year.  The ASU will now be effective commencing with the Company’s quarter ending March 31, 2018.  Early adoption of this ASU is allowed no sooner than the original effective date.  The Company is currently assessing the potential impact of this ASU on its financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about and Entity’s Ability to Continue as a Going Concern”.  Currently there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern. This ASU requires management to assess the entity’s ability to continue as a going concern.  This guidance is effective for the Company’s annual reporting period ending December 31, 2016, and for subsequent interim periods.  Early adoption is permitted.  The Company expects to adopt this guidance when effective, and upon adoption, will evaluate going concern based on this guidance.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2016

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

	Six Months ended June 30, 2016	Six Months ended June 30, 2015	Three Months ended June 30, 2016	Three Months ended June 30, 2015
Number of significant customers	2	2	1	2
Aggregate dollar amount of net sales to significant customers	$6.1 million	$5.7 million	$2.8 million	$3.0 million
Percentage of net sales to significant customers	44.9%	43.9%	37.3%	44.8%

Schedule of earnings per share

		Three Months Ended June 30, 2016			Three Months Ended June 30, 2015			Six Months Ended June 30, 2016			Six Months Ended June 30, 2015
Net income (loss)	$	(656,694	)	$	6,438,630		$	(1,595,785	)	$	5,494,285
Preferred dividend requirements		(176,249	)		(227,554	)		(352,498	)		(455,303	)
Earnings (loss) applicable to common shareholders after assumed conversions	$	(832,943	)	$	6,211,076		$	(1,948,283	)	$	5,038,982
Average common shares outstanding		29,483,207			27,741,052			29,054,041			27,702,276
Average common and common equivalent shares outstanding - assuming dilution		29,483,207			29,432,468			29,054,041			29,411,606
Basic earnings (loss) per share	$	(0.03	)	$	0.22		$	(0.07	)	$	0.18
Diluted earnings (loss) per share	$	(0.03	)	$	0.21		$	(0.07	)	$	0.17

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INVENTORIES (Tables)

6 Months Ended

Jun. 30, 2016

INVENTORIES

Schedule of inventories

		June 30, 2016			December 31, 2015
Raw materials	$	1,732,002		$	1,664,241
Finished goods		5,228,014			5,313,778
		6,960,016			6,978,019
Inventory reserve		(681,394	)		(681,394	)
	$	6,278,622		$	6,296,625

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OTHER ACCRUED LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2016

OTHER ACCRUED LIABILITIES

Schedule of other accrued liabilities

		June 30, 2016		December 31, 2015
Prepayments from customers	$	260,910	$	395,396
Accrued property taxes		218,402		—
Accrued professional fees		451,778		274,252
Other accrued expenses		22,274		20,887
	$	953,364	$	690,535

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BUSINESS SEGMENTS (Tables)

6 Months Ended

Jun. 30, 2016

BUSINESS SEGMENTS

Schedule of sales and long-lived assets by geographical areas

	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Six Months Ended June 30, 2016		Six Months Ended June 30, 2015
U.S. sales	$	6,944,479	$	5,435,925	$	12,447,489	$	11,270,515
North and South America sales (excluding U.S.)	304,210		1,146,734		651,874		1,279,537
Other international sales	326,364		132,811		397,672		343,994
Total sales, net	$	7,575,053	$	6,715,470	$	13,497,035	$	12,894,046

	June 30, 2016		December 31, 2015
Long-lived assets
U.S.	$	11,778,693	$	11,282,192
International	$	173,807	$	185,869

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property, Plant and Equipment (Details)	6 Months Ended
	Jun. 30, 2016 item
Accounts receivable
Number of products consigned to customers	0
Maximum
Intangible assets
Useful lives of intellectual property	17 years
Production equipment | Minimum
Property, plant, and equipment
Useful lives	3 years
Production equipment | Maximum
Property, plant, and equipment
Useful lives	13 years
Office furniture and equipment | Minimum
Property, plant, and equipment
Useful lives	3 years
Office furniture and equipment | Maximum
Property, plant, and equipment
Useful lives	10 years
Building
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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Risk (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) customer	Jun. 30, 2015 USD ($) customer	Jun. 30, 2016 USD ($) customer item	Jun. 30, 2015 USD ($) customer	Dec. 31, 2015 USD ($)
Concentration risks
Number of significant customers | customer	1	2	2	2
Aggregate dollar amount of net sales to significant customers	$ 7,575,053	$ 6,715,470	$ 13,497,035	$ 12,894,046
Revenue recognition
Estimated contractual allowance	4,304,737		4,304,737		$ 3,733,199
Change to reserve regarding non-contractual rebates			$ 0
Period for return of incorrect shipments			10 days
Number of times overstocking returns are limited | item			2
Period for return of product due to overstock			12 months
Maximum percentage of distributor's total purchase for the prior 12-month period			1.00%
Sales | Customer Concentration Risk
Concentration risks
Aggregate dollar amount of net sales to significant customers	$ 2,800,000	$ 3,000,000	$ 6,100,000	$ 5,700,000
Percentage of net sales to significant customers (as a percent)	37.30%	44.80%	44.90%	43.90%
Syringes | Supplier Concentration Risk
Concentration risks
Percentage of net sales to significant customers (as a percent)	91.80%	75.80%	78.20%	74.90%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Earnings Per Share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Earnings per share
Stock options excluded from calculation of diluted EPS			678,349
Net income (loss)	$ (656,694)	$ 6,438,630	$ (1,595,785)	$ 5,494,285
Preferred dividend requirements	(176,249)	(227,554)	(352,498)	(455,303)
Earnings (loss) applicable to common shareholders	$ (832,943)	$ 6,211,076	$ (1,948,283)	$ 5,038,982
Average common shares outstanding	29,483,207	27,741,052	29,054,041	27,702,276
Average common and common equivalent shares outstanding - assuming dilution	29,483,207	29,432,468	29,054,041	29,411,606
Basic earnings (loss) per share (in dollars per share)	$ (0.03)	$ 0.22	$ (0.07)	$ 0.18
Diluted earnings (loss) per share (in dollars per share)	$ (0.03)	$ 0.21	$ (0.07)	$ 0.17

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INVENTORIES (Details) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
INVENTORIES
Raw materials	$ 1,732,002	$ 1,664,241
Finished goods	5,228,014	5,313,778
Inventory, gross	6,960,016	6,978,019
Inventory reserve	(681,394)	(681,394)
Inventory, net	$ 6,278,622	$ 6,296,625

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INCOME TAXES (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015
INCOME TAXES
Effective tax rate (as a percent)	(0.10%)	(0.10%)	0.10%

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OTHER ACCRUED LIABILITIES (Details) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
OTHER ACCRUED LIABILITIES
Prepayments from customers	$ 260,910	$ 395,396
Accrued property taxes	218,402
Accrued professional fees	451,778	274,252
Other accrued expenses	22,274	20,887
Other accrued liabilities	$ 953,364	$ 690,535

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COMMITMENTS AND CONTINGENCIES (Details)			6 Months Ended
	Jan. 15, 2015 USD ($)	Sep. 09, 2013 USD ($)	Jun. 30, 2016	Sep. 30, 2007 item
Becton Dickinson and Company Case
COMMITMENTS AND CONTINGENCIES
Value of damages awarded	$ 340,524,042	$ 113,508,014
Length of time required to post corrected product information on its website			3 years
Length of time required to modify its advertising messages			3 years
Attorney fees	11,722,823
Litigation costs recoverable	$ 295,000
BD and MDC Investment Holdings Inc Case
COMMITMENTS AND CONTINGENCIES
Number of U.S. patents infringed upon | item				2

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BUSINESS SEGMENTS (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Sales by geographical areas
Total sales, net	$ 7,575,053	$ 6,715,470	$ 13,497,035	$ 12,894,046
U.S.
Sales by geographical areas
Total sales, net	6,944,479	5,435,925	12,447,489	11,270,515
Long-lived assets
Long-Lived assets	11,778,693		11,778,693		$ 11,282,192
North and South America sales (excluding U.S.)
Sales by geographical areas
Total sales, net	304,210	1,146,734	651,874	1,279,537
Other international sales
Sales by geographical areas
Total sales, net	326,364	$ 132,811	397,672	$ 343,994
International
Long-lived assets
Long-Lived assets	$ 173,807		$ 173,807		$ 185,869

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DIVIDENDS (Details) - USD ($)				6 Months Ended
	Jul. 28, 2016	Apr. 21, 2016	Feb. 01, 2016	Jun. 30, 2016	Jun. 30, 2015
Dividends
Preferred dividends declared				$ 55,113	$ 56,363
Series I, Class B
Dividends
Preferred dividends declared	$ 12,313	$ 12,313	$ 12,313
Series II, Class B
Dividends
Preferred dividends declared	$ 42,800	$ 42,800	$ 43,101