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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

(Mark One)

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

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For the fiscal year ended December 31, 2022

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or

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

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For the transition period from               to               

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Commission file number 001-16465

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Retractable Technologies, Inc.

(Exact name of registrant as specified in its charter)

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972-294-1010

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the Act:

Preferred Stock

(Title of class)

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   ☐  No  ⌧

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ☐   No  ⌧

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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   ⌧   No   ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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   ⌧   No   ☐

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

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

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Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   ☐

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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ *

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ *

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*The registrant has included these items on the cover page but, in accordance with Release No. 33-11126, is not completing the relevant check boxes as it is not yet required to have a policy under an applicable exchange listing standard.

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

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The aggregate market value of the common equity held by non-affiliates as of June 30, 2022, was $62,977,835, assuming a closing price of $3.83 and outstanding shares held by non-affiliates of 16,443,299.

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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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  ☐   No   ☐

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of March 10, 2023, there were 29,937,159 shares of our Common Stock outstanding, excluding treasury shares.

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DOCUMENTS INCORPORATED BY REFERENCE

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Portions of the registrant’s Proxy Statement filed on March 30, 2023 for the Annual Meeting of Shareholders to be held May 9, 2023 are incorporated by reference into Part III hereof.

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RETRACTABLE TECHNOLOGIES, INC.

FORM 10-K

For the Fiscal Year Ended December 31, 2022

TABLE OF CONTENTS

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PART I

FORWARD-LOOKING STATEMENT WARNING

Certain statements included by reference in this filing containing the words “could,” “may,” “believes,” “anticipates,” “intends,” “expects,” and similar such words constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Any forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, supply chain disruptions, our ability to scale up production volumes in response to an increase in demand, potential tariffs, our ability to maintain liquidity, our maintenance of patent protection, our ability to maintain favorable third party manufacturing and supplier arrangements and relationships, foreign trade risk, our ability to access the market, production costs, the impact of larger market players in providing devices to the safety market, and other factors referenced in Item 1A. Risk Factors. Given these uncertainties, undue reliance should not be placed on forward-looking statements.

Item 1. Business.

DESCRIPTION OF BUSINESS

General Development of Business

Retractable Technologies, Inc. was incorporated in Texas in 1994. Our business is the manufacturing and marketing of safety medical products (predominately syringes) for the healthcare industry. We have manufacturing facilities in Little Elm, Texas and use manufacturers in China as well. Our syringes are well-suited for administering vaccinations and our revenues materially increased in 2020-2021 due to COVID-19 vaccination demand.  Our revenues decreased as sales to the U.S. government for vaccinations wound down in the first quarter of 2022, although international vaccination demand positively impacted sales throughout 2022.

We increased our manufacturing capacity in Little Elm, Texas, funded in part by the Technology Investment Agreement ("TIA") with the United States Government Department of Defense, U.S. Army Contracting Command-Aberdeen Proving Ground, Natick Contracting Division & Edgewood Contracting Division (ACC-APG, NCD & ECD) on behalf of the Biomedical Advanced Research and Development Authority (BARDA), as amended (“TIA”). The TIA funded the $81.0 million facilities expansion and purchase of new manufacturing equipment and related ancillary equipment.  At our own expense, we constructed a new warehouse onsite for housing finished goods and raw materials to be used in the manufacturing process as well as an expansion to our administrative offices.  

Description of Business

Our goal is to become a leading provider of safety medical products. Our principal products were designed to protect healthcare workers, patients, and others from needlestick injuries, cross-contamination through reuse, and reduce disposal costs.

Our dominant revenue-generating products are our injection devices (syringes and needles). Such products are marketed under the VanishPoint^®, Patient Safe^®, and EasyPoint^® brands. We have only one reporting segment. Most of our products incorporate a feature whereby our needles retract which is a safety feature designed to protect healthcare workers from needlestick injuries. Our VanishPoint^® 1mL syringes meet the criteria set by pharmaceutical manufacturers for low dead space, which results in a reduction of wasted medication caused by residual medication remaining in the syringe after a dose has been administered. In some instances, the low dead space allows for additional doses to be obtained from a medication vial.

VanishPoint^® syringe sales have historically comprised most of our sales. VanishPoint^® syringe sales were 91.5%; 93.6%; and 84.0% of our revenues in 2022, 2021, and 2020. EasyPoint^® products accounted for 4.9% of sales in 2022.

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From 2020 through the first quarter of 2022, the U.S. government was a significant customer due to efforts to vaccinate the U.S. population against COVID-19. Sales to the Department of Health and Human Services for safety syringes totaled $15.7 million in 2022 (concentrated in the first quarter), $113.7 million in 2021, and $31.6 million in 2020.  The orders from the Department of Health and Human Services included reimbursement of freight costs.  As such, comparability of 2022 revenue and expenses to revenues and expenses in recent years may be challenging.  Moreover, we believe domestic customers may have retained product provided for vaccination purposes in inventory through 2022, leading to a decrease in overall demand.  

We currently have under development additional safety products that add to or build upon our current product line offering.

Our products are sold to and used by healthcare providers.  Historically, an overwhelming majority of our products have been sold domestically.  However, in 2022, 44.9% of our sales were international sales.  The increase is attributable to higher international revenues from vaccination efforts which lagged domestic vaccination sales by a year or more.

In years not dominated by direct sales to the U.S. government, representatives of group purchasing organizations (“GPOs”) and purchasing representatives (rather than the end-users of the product) make the vast majority of decisions relating to the purchase of medical supplies. The GPOs and larger manufacturers often enter into contracts which can prohibit or limit entry in the marketplace by competitors.

We distribute our products throughout the U.S. through general line and specialty distributors. We also use international distributors. We have developed a national direct marketing network in order to market our products to health care customers and their purchaser representatives.

Sources and Availability of Raw Materials

Our product components, including needle adhesives and packaging materials, are purchased from various suppliers. There is no current scarcity of such materials or such suppliers.

Intellectual Property

Intellectual property rights, particularly patent rights, are material to our business. The patent rights are jointly owned by the Company and Thomas J. Shaw, our founder and CEO, and have varying expiration dates. Under the terms of an exclusive license agreement that has been in effect since 1995, the Company is exclusively licensed to use the patent rights held by Mr. Shaw, and Mr. Shaw generally receives a 5% royalty on gross sales of products subject to the license and he receives 50% of the royalties paid to the Company by certain sublicensees of the technology subject to the license.

Recent and expected modifications to our VanishPoint^® syringes will effectively cause the modified VanishPoint^® syringes products to have extended patent expiration dates. Following the expiration of patents related to the old design, competitors may attempt to copy aspects of such prior design, but not the current design. Patents related to recent modifications to the VanishPoint^® syringes and core technology of the VanishPoint^® syringes will expire during the years 2028 through 2032. Other patent applications covering inventions applicable to the VanishPoint^® syringes are pending.

The Company has unexpired patents which relate to the EasyPoint^® technology and other products as well.

The Company has registered the following trade names and trademarks for our products: VanishPoint^®, EasyPoint^®, Patient Safe^®, VanishPoint^® logos, RT and design, the VanishPoint^® and design, the spot design and the Company slogans “The New Standard for Safety” ^® and “We Make Safety Safe” ^®.

Seasonality

Historically, unit sales have increased during the flu season. Seasonal trends were less pronounced in 2020 and 2021 due to demand related to the COVID-19 vaccine. Trends in 2022 were difficult to categorize by revenue figures, as

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2022 demand was affected by a surplus of products remaining in our customers’ inventories following vaccination-related purchases and grants in 2020-2021.

Government Approval and Government Regulations

Compliance with government regulations represents an important part of our business.  As a manufacturer of medical devices and operating under the TIA, we are subject to stringent regulatory requirements.  In addition, we are also subject to maintain systems to monitor and report our findings to various regulatory bodies.  We are also subject to audit by those bodies and/or third parties acting as proxies to verify our compliance with such regulations. The cost of compliance can be significant in terms of financial and human resource commitments. These costs are ongoing and may become more significant if the regulatory landscape changes.

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The development, manufacture, marketing, sale, promotion, and distribution of our products are subject to government regulation by the U.S. Food and Drug Administration (FDA) and similar international regulatory agencies. Regulation by various international, federal and state agencies address the development and approval to market medical products, as well as approval and supervision of manufacturing, labeling, packaging, supply chains, distribution and record-keeping.

For all products manufactured for sale in the domestic market, we have given notice of intent to market to the FDA, and the devices were shown to be substantially equivalent to the predicate devices for the stated intended use. For all products manufactured for sale in the domestic market and foreign market, we hold a Quality Management System certification to ISO 13485:2016. Additionally, for all products manufactured for sale into the applicable countries, we hold a Quality Management System certification in compliance with the Medical Device Single Audit Program (MDSAP). We do not currently hold a CE mark but are pursuing certification to sell into the European Union.

Compliance with domestic and international laws and regulations may affect our business. Among other effects, health care regulations and significant changes thereto may substantially increase the time, difficulty, and costs incurred in developing, obtaining, and maintaining approval to market, and marketing newly developed and existing products. We expect this regulatory environment will continue to require effort and investment to ensure compliance. Failure to comply could delay the release of a new product or result in regulatory and enforcement actions, the seizure or recall of a product, the suspension or revocation of the authority necessary for a product’s production and sale, and other civil or criminal sanctions including fines and penalties.

The regulation of data privacy and security, and the protection of the confidentiality of certain personal information (including patient health information, financial information, and other sensitive personal information), is increasing. For example, the European Union, various other countries, and various U.S. states (e.g., California) have enacted stricter data protection laws that contain enhanced financial penalties for noncompliance. Similarly, the U.S. Department of Health and Human Services has issued rules governing the use, disclosure, and security of protected health information, and the FDA has issued further guidance concerning cybersecurity for medical devices. In addition, certain countries have issued or are considering “data localization” laws, which limit companies’ ability to transfer protected data across country borders. Failure to comply with data privacy and security laws and regulations can result in business disruption and enforcement actions, which could include civil or criminal penalties.

The sale of medical products is subject to laws and regulations pertaining to health care fraud and abuse, including state and federal anti-kickback, anti-self-referral, and false claims laws in the United States.

We will continue to comply with applicable regulations of all countries in which our products are registered for sale.

We believe that we do not incur material costs in connection with compliance with environmental laws.

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Competitive Conditions

Our competitive position remains much the same as before the COVID-19 pandemic.  We continue to face fierce competition from much larger and more established companies across the U.S. healthcare market.  While our products were widely used in the mass vaccination efforts during the CODID-19 pandemic, there is no assurance that we will be able to gain market share due to our relative size and presence in the overall U.S. healthcare market.

Becton. Dickinson and Company (“BD”), a global company which we had previously considered our primary competitor, spun off a portion of its syringe, needle, and injection product division as Embecta Corp. (“Embecta”) in April 2022.  Though newly formed, Embecta licenses existing BD intellectual property and has continued to use the BD branding on its products and is provided with certain other services by BD.  Embecta, which specializes in diabetes management, along with BD itself, are formidable competitors with greater market share and greater resources than us.

We compete primarily on the basis of healthcare worker and patient safety, product performance, and quality. We believe our competitive advantages include, but are not limited to, our leadership in quality and innovation. We believe our products continue to be the most effective safety devices in today’s market. Our VanishPoint^® 1mL syringes meet the criteria set by pharmaceutical manufacturers for low dead space, which results in a reduction of wasted medication caused by residual medication remaining in the syringe after a dose has been administered. In some instances, the low dead space allows for additional doses to be obtained from a medication vial. Our syringe products include passive safety activation, require less disposal space, and are activated while in the patient, reducing exposure to the contaminated needle. Our price per unit is competitive or even lower than the competition once all the costs incurred during the life cycle of a syringe are considered. Such life cycle costs include disposal costs, testing and treatment costs for needlestick injuries, and treatment for contracted illnesses resulting from needlestick injuries.

EasyPoint^® retractable needles offer unique safety benefits not found in other commercially available safety needles.  Manually activated safety needles that compete with EasyPoint^® must be removed from the patient, exposing the contaminated needle prior to activation of the manual safety mechanism.  EasyPoint^® needles allow for activation of the automated retraction mechanism while the needle is still in the patient, reducing exposure to the contaminated needle and effectively reducing the risk of needlestick injuries.  EasyPoint^® retractable needles are compatible with Luer-fitting syringes, including pre-filled syringes.  In addition, EasyPoint^® retractable needles may be activated with fluid in the syringe, making it applicable for aspiration procedures such as blood collection.

Employees

As of March 10, 2023, we had 198 employees. 190 of such employees were full time employees. We provide equal employment opportunities to all employees and applicants for employment without regard to race, color, religion, gender, national origin, age, disability, marital status, ancestry, veteran status, workers’ compensation status or any other characteristic protected by federal, state, or local law. We have adopted a policy of zero tolerance for any form of unlawful discrimination or retaliation. In 2021, we increased wages considerably, particularly for our entry-level employees, in order to compete for labor.  

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On March 22, 2023, we reduced our workforce by approximately 22% as a result of decreased need for domestic production.  The decrease in headcount will result in expected annualized savings in salaries and wage expense of approximately $1.7 million, or 13%.  We expect to incur approximately $154 thousand in separation costs as a result.

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Available Information

We make available, free of charge on our website (www.retractable.com), our Form 10-K Annual Report and Form 10-Q Quarterly Reports and Current Reports on Form 8-K (and any amendments to such reports) as soon as reasonably practical after such reports are filed.

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Item 1A. Risk Factors.

You should carefully consider the following material risks facing us. If any of these risks occur, our business, results of operations, or financial condition could be materially affected.

We Are Concerned that Our Stock May Be Manipulated

As previously disclosed, we are concerned there may be manipulation of our stock.   We engaged an independent, highly reputable economic consulting firm in 2021 at the expense of approximately $640 thousand which analyzed millions of trades in our stock in recent years.  The resulting in-depth analysis confirmed that there were statistically significant anomalies in the market’s reaction to our positive disclosures, meaning that our stock price would often react negatively or in a statistically insignificant way following positive earnings reports and press releases.  We presented evidence of the anomalies to the U.S. Securities and Exchange Commission.  In late November 2022, the SEC informed us that it would not pursue the matter further from an enforcement perspective.  As such, there is a risk that an investment in our stock will continue not to track our operational performance.  

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In our April 2022 press release describing the lack of correlation between the stock price and our economic performance, we noted that the then-current market capitalization was less our asset value at that time.  This remains true.  As of December 31, 2022, our market capitalization was $49.1 million (based on a $1.64 per share closing price) and total stockholders’ equity was $108 million.

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Our Customers Have Excess Product In Inventory and We Cannot Predict When It Will Be Depleted

We believe domestic customers have retained Retractable products purchased or provided for vaccination purposes in inventory, leading to a decrease in demand for our products.  It is unclear when the excess inventory surplus will clear.  Until the inventory is depleted, we expect domestic demand to continue to be depressed.

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We Are Challenged by Uncertainties in Obtaining and Enforcing Intellectual Property Rights

Our main competitive strength is our technology. We are dependent on patent rights, and if the patent rights are invalidated or circumvented, our business would be adversely affected. Patent protection is considered, in the aggregate, to be of material importance in the design, development, and marketing of our products.

VanishPoint^® syringes comprised 91.5% of sales in 2022. When the patents of the VanishPoint^® syringes and other products expire, we may experience a significant and rapid loss of sales, and our competitive position in the marketplace may weaken if other competitors use our technology. Such occurrences could have a material adverse effect on profitability.

We do not maintain patent or trademark protection in all foreign countries, but, where possible, have taken steps to protect our patents and trademarks in those countries where we market our products or where we believe other manufacturers are most likely to attempt to replicate our technology. Our lack of patent and trademark protection in certain foreign countries heightens the risk that our designs may be copied by a competitor in those countries.

We Are Vulnerable to New Technologies

Because we have a narrow focus on particular product lines and technology (currently, predominantly retractable needle products), we are vulnerable to the development of superior competing products and to changes in technology which could eliminate or reduce the need for our products. If a superior technology is created, the demand for our products could greatly diminish.

Our Competitors Have Greater Resources

Our competitors have greater financial resources, larger and more established sales and marketing and distribution organizations, and greater market influence, including long-term contracts. These competitors may be able to use these

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resources to improve their products through research and acquisitions or develop new products, which may compete more effectively with our products. If our competitors choose to use their resources to create products superior to ours, we may be unable to sell our products and our ability to continue operations would be weakened.

For instance, Becton. Dickinson and Company (“BD”), a global company which we had previously considered our primary competitor, spun off a portion of its syringe, needle, and injection product division as Embecta Corp. (“Embecta”) in April 2022.  Though newly formed, Embecta licenses existing BD intellectual property and has continued to use the BD branding on its products and is provided with certain other services by BD.  Embecta’s 2022 annual report indicated that the company had 1,900 employees, as compared to our workforce of less than 200 employees.  With resources greatly in excess of our own, we expect Embecta will be a formidable competitor.

Operations May Be Affected by Foreign Trade Policy

We are subject to risks associated with foreign trade policy. In 2022, we used Chinese manufacturers to produce 91.6% of our products.

In the event that we become unable to purchase product from our Chinese manufacturers, we may need to find an alternate manufacturer for the blood collection set, IV catheter, Patient Safe^® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes, and we would increase domestic production for the 1mL and 3mL syringes. Even with increased domestic production, we may not be able to avoid a disruption in supply.

Trade protection measures, including tariffs, and/or changes to import or export requirements could materially adversely impact our operations. We cannot predict the impact of potential changes to U.S. foreign trade policy. Additionally, we derived 44.9% of our revenues in 2022 from international sales. International sales, particularly in emerging market countries, are further subject to a variety of regulatory, economic, and political risks as well.

We Are Controlled by One Shareholder

Thomas J. Shaw, our President and Chief Executive Officer, has investment or voting power over a total of 51.4% of the outstanding Common Stock as of March 10, 2023. Mr. Shaw therefore has the ability to direct our operations and financial affairs and significant influence to elect members of our Board of Directors. His interests may not always coincide with the Company’s interests or the interests of other stockholders. This concentration of ownership, for example, may have the effect of delaying, deferring, or preventing a change in control, impeding a merger, consolidation, takeover, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could materially adversely affect the market price of our Common Stock. The concentration of ownership may likewise influence Mr. Shaw’s continued employment and position as President, CEO, and Chairman of the Board.  Mr. Shaw’s rights under the Technology License Agreement, as the owner of the technology we produce, present similar conflicts of interest.

Defensive Measures to Deter Hostile Takeovers

On November 16, 2021, we and Mr. Shaw entered into the Third Amendment to Technology License Agreement (the “Amendment”). The Amendment expands the scope of the Technology License Agreement and provides additional protection to the parties in the event of a Hostile Takeover, as defined by the Amendment. Under the Amendment, under certain conditions, Mr. Shaw is granted the unilateral right to terminate the Technology License Agreement or cancel or convert a license thereunder from exclusive to nonexclusive following a Hostile Takeover.

Additionally, as a public Texas corporation, we are generally prohibited from entering into a business combination with a person who acquires twenty percent or more of our stock for three years unless either: (1) the combination or acquisition is pre-approved by our Board; or (2) the combination is approved by affirmative vote of the shareholders of at least two-thirds of the outstanding voting shares entitled to vote, excluding the affiliated shareholder.  As such, independent of the rights granted to Mr. Shaw under the Amendment, as beneficial owner of 51.4% of our stock and Chairman of the Board, Mr. Shaw has considerable influence on all business combination decisions.  

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Supply Chain Disruptions Could Negatively Impact our Profitability

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Our operations are dependent upon timely delivery of finished goods from our Chinese manufacturers and timely delivery of sufficient quantities of components and raw materials for domestic manufacturing. Any disruption in our suppliers’ operations or timely availability of shipments from our third-party freight carriers, could disrupt our ability to provide product to our customers in a timely manner, which could materially and adversely affect our results of operations and cash flows.

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Inflationary Price Pressures and Uncertain Availability of Commodities, Raw Materials, Utilities, Labor or Other Inputs Used by us and our Suppliers, or Instability in Logistics and Related Costs, Could Negatively Impact our Profitability

Increases in the price of commodities, raw materials, utilities, labor or other inputs that we or our suppliers use in manufacturing and supplying products, components and parts, along with logistics and other related costs, may lead to higher production and shipping costs for our products, parts, and components. Further, increasing global demand for, and uncertain supply of, such materials could disrupt our or our suppliers’ ability to obtain such materials in a timely manner to meet our supply needs and/or could lead to increased costs. A material increase in the cost of inputs to our production could lead to higher costs for our products and could negatively impact our operating results.

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Our Stock Has Recently Experienced Significant Price Fluctuation

Our stock price experienced significant fluctuation during 2022 and may continue to be unpredictable.  Our stock price fluctuated in 2022 from a high in January of $7.37 per share to a low price in December of $1.61.  As of March 10, 2023, the stock price was $1.79 per share.  

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We entered into a private stock repurchase effective December 2022 for the purchase of three million shares of our Common Stock at $1.60 per share.  We purchased 558,976 shares of our common stock in 2022 at an average price of $5.01 per share pursuant to our stock repurchase plan established in June 2021 which plan was terminated in April 2022.

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We Face Inherent Product Liability Risks

As a manufacturer and provider of safety needle products, we face an inherent business risk of exposure to product liability claims. Additionally, our success depends on the quality, reliability, and safety of our products and defects in our products could damage our reputation. If a product liability claim is made and damages are in excess of our product liability coverage, our competitive position could be weakened by the amount of money we could be required to pay to compensate those injured by our products. In the event of a recall, we have recall insurance.

Our Business May Be Affected by Changes in the Health Care Regulatory Environment

In the U.S. and internationally, government authorities may enact changes in regulatory requirements, reform existing reimbursement programs, and/or make changes to patient access to health care, all of which could adversely affect the demand for our products and/or put downward pressure on our prices. Future healthcare rulemaking could affect our business. We cannot predict the timing or impact of any future rulemaking or changes in the law.

We May Experience Losses in Our Investment Account

Our investment portfolio is subject to market risk. As a result, the value and liquidity of our cash equivalents and marketable securities could fluctuate substantially. Likewise, our other income and expenses could vary materially depending on gains or losses realized on the sale or exchange of investments and other factors. Increased volatility in the financial markets and overall economic uncertainty could increase the risk that actual amounts realized on our investments may differ from the fair values currently assigned to them. Because 15.2% of our total assets are invested in the market, fluctuations in market values could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

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Health Crises Could Have an Adverse Effect on Our Business

In any future health crisis, we may elect or be required to close temporarily which would result in a disruption in our activities and operations. Our supply chain, including transportation channels, may be impacted by any such restrictions as well. Any such disruption could impact our sales and operating results.

Widespread health crises also negatively affect economies which could affect demand for our products. In the event of a resurgence of COVID-19 or in the case of any future pandemic, there is no guarantee that revenues from syringes needed for vaccines would offset the effects to our business of a global economic decline.

Travel and import restrictions may also disrupt our ability to manufacture or distribute our products. Any import or export or other cargo restrictions related to our products or the raw materials used to manufacture our products could restrict our ability to manufacture and ship products and harm our business, financial condition, and results of operations.

Our key personnel and other employees could be affected by COVID-19 or any future pandemic, which could affect our ability to operate efficiently.

Disruption of Critical Information Systems or Material Breaches in the Security of Our Systems Could Harm Our Business, Customer Relations, and Financial Condition

Information technology helps us operate efficiently, interface with customers and suppliers, maintain financial accuracy and efficiency, and accurately produce our financial statements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. If our data management systems do not effectively collect, store, process, and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows, and the timeliness with which we report our internal and external operating results. Third parties may attempt to fraudulently induce employees or customers into giving away sensitive information, which may in turn be used to access our information technology systems. In addition, unauthorized persons may attempt to hack into our systems to obtain our confidential or proprietary information or confidential information we hold on behalf of third parties. If the unauthorized persons successfully hack into or interfere with our system, we may experience a negative impact to our business and reputation. We have programs in place to detect, contain, and respond to data security incidents, and we make ongoing improvements to our systems in order to minimize vulnerabilities, in accordance with industry and regulatory standards. However, we may not be able to anticipate and prevent these intrusions or mitigate them when and if they occur. We also rely on external vendors to supply and/or support certain aspects of our information technology systems. The systems of these external vendors may contain defects in design or manufacture or other problems that could unexpectedly compromise information security of our own systems, and we are dependent on these third parties to deploy appropriate security programs to protect their systems. It is possible for such vulnerabilities to remain undetected for an extended period, including several years or longer. The costs to us to eliminate or alleviate network security problems, bugs, viruses, worms, ransomware and other malicious software programs, and security vulnerabilities could be significant. Our efforts to address these problems may not be successful and could result in unexpected interruptions, delays, cessation of service, and harm to our business operations. Depending on the type of breach, we could also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

Illegal Distribution and Sale by Third Parties of Counterfeit Versions of Our Products Could Have a Negative Impact

Third parties may illegally distribute and sell counterfeit versions of our products which do not meet our rigorous manufacturing and testing standards. Our reputation and business could suffer harm as a result. In addition, diversion of products into other channels may result in reduced revenues.

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General Risk Factors

We face risk factors common to other U.S. businesses. We could be subject to complex and costly regulation. Our business could suffer if we or our suppliers encounter manufacturing problems or disruptions to transportation channels. We could be subject to risks associated with doing business outside of the U.S, including risks associated with global economic, regulatory, or political changes, or health crises. Current or worsening economic conditions may adversely affect our business and financial condition.

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Item 1B. Unresolved Staff Comments.

Not applicable and none.

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Item 2. Properties.

Our headquarters are located at 511 Lobo Lane, on 35 acres, which we own, overlooking Lake Lewisville in Little Elm, Texas. The headquarters are in good condition and houses our administrative offices and manufacturing facility. The manufacturing facility produced approximately 8.4% of the units that were manufactured in 2022. As a result of recent expansions, we have significant additional domestic production capacity.

A loan in the original principal amount of approximately $4,210,000 is secured by our land and buildings. See Note 8 to our financial statements for more information.

In the opinion of Management, the property and equipment are suitable for their intended use and are adequately covered by an insurance policy.

Item 3. Legal Proceedings.

Please refer to Note 10 to the financial statements for a complete description of all legal proceedings.

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Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

MARKET INFORMATION

Our Common Stock has been listed on the NYSE American (or its predecessor entities) under the symbol “RVP” since May 4, 2001.  The closing market price on March 10, 2023 was $1.79 per share.

SHAREHOLDERS

As of March 10, 2023, there were 34,024,304 shares of Common Stock issued, of which 4,087,145 shares were held in treasury.  There were 149 shareholders of record, not including Cede & Co. participants or beneficial owners thereof.

DIVIDENDS

We have not ever declared or paid any dividends on the Common Stock. We have no current plans to pay any cash dividends on the Common Stock.

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information relating to our equity compensation plans as of December 31, 2022:

Equity Compensation Plan Information

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STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total return for our Common Stock (RVP) from December 31, 2017 to December 31, 2022, to the total returns for the Russell Microcap^® and the Dow Jones U.S. Select Medical Equipment Index (DJSMDQ).  We have selected the DJSMDQ Index this year following the spin off by Becton, Dickinson and Company (BDX) of its diabetes care business, Embecta Corp. (EMBC).  In accordance with the instructions to Item 201(e) of Regulation S-K, we have included five years of information for our former peer issuer, BDX, as well. The graph assumes an investment of $100 in the aforementioned equities as of December 31, 2017, and that all dividends are reinvested.

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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

ISSUER PURCHASES OF EQUITY SECURITIES

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These shares were purchased pursuant to a stock repurchase agreement with BML Investment Partners, L.P. effective December 27, 2022.

Item 6. Reserved.

Not required.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

FORWARD-LOOKING STATEMENT WARNING

Certain statements included by reference in this filing containing the words “could,” “may,” “believes,” “anticipates,” “intends,” “expects,” and similar such words constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Any forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, supply chain disruptions, our ability to scale up production volumes in response to an increase in demand, potential tariffs, our ability to maintain liquidity, our maintenance of patent protection, our ability to maintain favorable third party manufacturing and supplier arrangements and relationships, foreign trade risk, our ability to access the market, production costs, the impact of larger market players in providing devices to the safety market, and other factors referenced in Item 1A. Risk Factors. Given these uncertainties, undue reliance should not be placed on forward-looking statements.

Overview

We have been manufacturing and marketing our products since 1997. VanishPoint^® syringes comprised 91.5% of our sales in 2022. EasyPoint^® products accounted for 4.9% of sales in 2022. We also manufacture and market an IV safety catheter and blood collection products, including the blood collection tube holder and VanishPoint^® Blood Collection Set, which were 3.6% of our total product sales in 2022.

We believe domestic customers have retained products provided for vaccination purposes in inventory through 2022, leading to a decrease in our 2022 domestic sales.  Customers have reported that demand was diminished due to such remaining syringe inventory.

Our products have been and continue to be distributed nationally and internationally through numerous distributors. Some of our popular syringe products provide low dead-space.  Low dead-space syringes reduce residual medication remaining in the syringe after the dose has been administered.  In some instances, the low dead-space allows for additional doses of medication to be obtained from the vials.  Our 2022 marketing strategy included a focus on the advantages of our low dead-space products, including the potential to reduce the costs associated with wasted medication.  

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On May 1, 2020, we were awarded a delivery order under an existing contract by the Department of Health and Human Services of the United States to supply automated retraction safety syringes for COVID-19 vaccination efforts, which order was in the amount of $83.8 million plus $10 million in expedited freight costs.  The period of performance for this order ended in March 2022. The Department of Health and Human Services awarded us another contract on February 12, 2021 to supply low dead-space safety syringes for COVID-19 vaccination efforts.  The base price for the contract and purchase order was $54.2 million for the initial five-month base period of performance.  We received orders for an additional four option periods which extended through the end of December 2021. Freight reimbursement cost was included in total overall contract value and was approximately 25% of the overall price.

Our sales under both of the foregoing orders from the U.S. government were $15.7 million in 2022 (which sales were concentrated in the first quarter) as compared to $113.7 million in 2021. Both of the above-mentioned orders as well as the TIA from the U.S. government are material events particular to the COVID-19 pandemic and are not indicative of future operations.

Effective July 1, 2020, we entered into a TIA with the United States Government Department of Defense, U.S. Army Contracting Command-Aberdeen Proving Ground, Natick Contracting Division & Edgewood Contracting Division (ACC-APG, NCD & ECD) on behalf of the Biomedical Advanced Research and Development Authority (BARDA) for $53.7 million in government funding for expanding our domestic production of needles and syringes to meet ongoing and future U.S. COVID-19 medical countermeasures demands.  Effective May 12, 2021, we entered into an amendment to the TIA to include two additional assembly lines and additional controlled environment space.  We have received all equipment and have completed all property construction required by the TIA.  Recent additions of manufacturing equipment and facilities have increased our production capacity and our overhead costs.  Additionally, in 2022, we expanded our existing administrative offices at a total cost of $5.8 million.

Freight costs were materially higher in 2022 than in previous years.  The increase in freight costs significantly impacted our cost of manufactured product. These cost increases are not unique to our business, but the fact that a substantial percent of our prior period sales were related to orders from the U.S. government with reimbursed freight costs will affect comparability of 2022 costs and margins to prior periods.  In the first half of 2022, we had challenges sourcing transportation and closures in Shanghai delayed certain shipments.  To date, transportation delays have not had a material adverse effect on our customer base.

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In addition, in 2022, we experienced an increase in raw materials costs, principally the cost of petroleum-based plastics used in our molded components.  Although we experienced certain cost increases in raw materials, those costs primarily affected our domestic manufacturing because the finished goods we purchased from China (being 91.6% of our products) did not change in price during 2022. Other factors that could affect our unit costs include increases in tariffs, supplier cost increases, and changing production volumes.  Increases in costs may not be recoverable through price increases of our products.

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Historically, an overwhelming majority of our products have been sold domestically.  However, in 2022, 44.9% of our sales were international sales.  The increase is attributable to higher international revenues from vaccination efforts which lagged domestic vaccination sales by a year or more.

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As detailed in Note 4 to the financial statements, we held $29.7 million in debt and equity securities as of December 31, 2022, which represented 15.2% of our total assets. Such amount includes $14 million of additional cash investments made in 2022.  We realized a $328 thousand loss from investment sales in 2022, but recognized an unrealized gain of $2.3 million.  We continually monitor our invested balances.

In June 2022, we reduced our workforce by approximately 16% as a result of the substantial completion of our facility expansion efforts and the completion of U.S. government orders to provide products for COVID-19 vaccination efforts.  However, in past years, wages, including those of executive officers, were increased.  The annualized reduction in salary and wage expense was approximately $2.1 million, offset by roughly $200 thousand in separation costs.  On March 22, 2023, we reduced our workforce by approximately 22% as a result of decreased need for domestic production.  The decrease in headcount will result in expected annualized savings in salaries and wage expense of approximately $1.7

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million, or 13% as compared to 2022 expenses.  We expect to incur approximately $154 thousand in separation costs as a result.

In December 2022, the Board terminated all outstanding awards under the 2021 Stock Option Plan because they were underwater.  The termination caused an acceleration of recognition of future periods’ stock option expense in the fourth quarter of 2022.  A total of $10.1 million in stock option expense was recognized in 2022.  Of this amount, $5.5 million was due to the acceleration. These non-cash expenses are classified as General and administrative expenses.  Total stock option expense associated with the now-terminated options comprises approximately 42.1% of the total General and administrative expenses incurred in 2022.  For further information regarding the stock option expense acceleration, refer to Note 19.

Effective June 4, 2021, we entered into a repurchase plan (the “Plan”) for the purchase of up to $10 million of our Common Stock.  Under the Plan, open market purchases of our Common Stock commenced June 18, 2021 and 1,087,145 shares were purchased through the Plan’s termination on April 14, 2022 for an aggregate purchase price of approximately $8.1 million.

We terminated the repurchase plan because our stock price appeared not to be correlated with our economic performance.  This concern remains.  We engaged an independent highly reputable economic consulting firm in 2021 at an expense of approximately $640 thousand and presented the consulting firm’s evidence of anomalies in our trading to the U.S. Securities and Exchange Commission in March 2022.  In late November 2022, the SEC informed us that it would not pursue the matter further from an enforcement perspective.  

We were approached in late 2022 by an unaffiliated shareholder to engage in a private repurchase of a block of three million shares and we negotiated the repurchase at a price per share of $1.60 for a total transaction price of $4.8 million.

Historically, unit sales have increased during the flu season. Seasonal trends in 2020 and 2021 were less pronounced due to demand related to the COVID-19 vaccine.  Trends in 2022 were difficult to categorize by revenue figures.  A significant factor in depressed 2022 domestic demand was the retention of vaccination products by domestic customers in inventory.

Product purchases from our Chinese manufacturers have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost. In 2022, our Chinese manufacturers produced approximately 91.6% of our products. In the event that we become unable to purchase products from our Chinese manufacturers, we may need to find an alternate manufacturer for the blood collection set, IV catheter, Patient Safe^® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes, and we would increase domestic production for the 1mL and 3mL syringes and EasyPoint^® needles.

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

RESULTS OF OPERATIONS

The following discussion may contain trend information and other forward-looking statements that involve a number of risks and uncertainties. Our actual future results could differ materially from our historical results of operations and those discussed in any forward-looking statements. All period references are to our fiscal years ended December 2022 and 2021. Dollar amounts have been rounded for ease of reading.

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Comparison of Year Ended

December 31, 2022 and Year Ended December 31, 2021

Domestic sales, including sales to the U.S. government, accounted for 55.1% and 88.9% of the revenues in 2022 and 2021, respectively. Domestic revenues decreased 68.8% principally due to the cessation of orders from the U.S. government and an overall decrease in non-government domestic orders commensurate with declining demand for COVID-19 vaccinations.  Domestic unit sales decreased 69.5%. Domestic unit sales were 41.7% of total unit sales for 2022.  International revenues increased 105% predominantly due to international vaccination campaigns. Overall unit sales decreased 38.9% and our overall revenues decreased by 49.7%.  The significant decrease in domestic revenues, principally U.S. government sales, accounts for the predominant change in overall revenue.  We cannot predict whether any future U.S. government orders may occur.

There is uncertainty as to the timing of future international orders.  The revenues on a per-unit basis in the international market are significantly lower than in the U.S. market.  As a result, increases in international orders and unit sales have the potential to lower our overall revenues on a per-unit basis, as well as our profit margins.

Cost of manufactured product decreased 25.8% principally due to an overall decline in units sold of 38.9%. Royalty expense decreased 47.5% due to lower gross sales.

Operating expenses increased 27.9% from the prior year. This is substantially due to the acceleration of stock option expense related to the cancellation of stock options previously granted to executive officers, resulting in approximately $5.5 million in additional expenses.  Of the total $24.0 million in General and administrative expenses for 2022, stock option expense accounted for approximately $10.1 million, as compared to $3.7 million in 2021.

The loss from operations was $853 thousand as compared to income from operations of $72.6 million in 2021.  The decrease was principally due to the significant decline in sales to the U.S. government and sharply higher operating expenses.  Contributing to the decline was also the lower per-unit international revenues and higher than previous per-unit costs.

Other income – TIA recognized in 2022 increased by $3.4 million over 2021 as manufacturing assets were placed into service and began to replace original manufacturing equipment.  The income is recognized coincident with depreciation expense and reduces our other long-term liability attributable to the TIA.

The unrealized gain on debt and equity securities was $2.3 million due to the increased market values of those securities. Interest expense for 2022 decreased from the prior year due to less imputed interest associated with the stock exchanges discussed in Note 20 of the financial statements.  Interest and other income declined by $257 thousand primarily due to the loss of $289 thousand on the sale of investments.

The provision for income taxes was $84 thousand for 2022 in comparison to $18.9 million in 2021.  For a detailed description of the determination and components of calculating the provision, please refer to Note 11 of the financial statements.

A comparison of the results of operations for the years ended December 31, 2021 and December 31, 2020 is omitted from this discussion. Such comparison was included in our Annual Report on Form 10-K filed with the SEC on March 31, 2022 in Item 7 of Part II thereof.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations was $16.8 million in 2022, principally due to a $29.7 million reduction of accounts receivable but was offset by a $14.0 million decrease of accounts payable. Additionally, we have recorded $10.6 million in income taxes receivable and deferred taxes of $7.3 million which is material to the adjustments to total cash flow from operations. The recognition of $10.6 million in income taxes receivable is due to revised state tax estimates as the result of a state tax nexus study.  The deferred tax asset represents amounts available to reduce income taxes payable on taxable

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income in future years. The determination and calculation of state taxes and deferred taxes is further discussed in Note 11 of the financial statements.

Cash used by investing activities was $31.2 million for the year ended December 31, 2022 due primarily to the purchase of property, plant and equipment, building improvements, and the purchase of equity securities. The impact to cash from the purchase of fixed assets primarily reflects payments on orders for certain assets reimbursed by the U.S. government under the TIA.  We do not expect any significant future cash flows from the TIA, with the exception of collection of amounts due from the government at year end.

Cash provided by financing activities was $5.0 million for the year ended December 31, 2022. This was primarily due to proceeds from the government under the TIA for payments on our orders for fixed assets, but was offset by our repurchase of our own common stock in the amount of $7.6 million as well as our payment of $1.1 million in connection with the private stock exchange discussed in Note 20.  

We have historically funded operations primarily from the proceeds from revenues, private placements, litigation settlements, and loans. We expect to fund operations going forward from revenues, cash reserves, and investments available for sale if the need to access those funds arises. We do not, and historically have not, utilized lines of credit to fund operations.  We continue to assess our operational cash needs and potential sources of financing but can make no assurances to future sources of funding on acceptable terms.

Margins

The mix of domestic and international sales affects the average sales price of our products. Generally, the higher the ratio of domestic sales to international sales, the higher the average sales price will be. Some international sales of our products are shipped directly from China to the customer. The number of units produced by us versus manufactured in China can have a significant effect on the carrying costs of Inventory as well as Cost of sales. Generally, an overall increase in units sold can positively affect our margins.  The cost of raw materials used in manufacturing and transportation costs can also significantly affect our margins. We will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in China to achieve economic benefits as well as to maintain our domestic manufacturing capability.

Cash Requirements

We believe we will have adequate means to meet our short-term needs to fund operations for at least 12 months from the date of issuance of the financial statements. Besides cash reserves and expected income from operations, we also have access to our investments which may be liquidated in the event that we need to access the funds for operations.  Expected short-term uses of cash include payroll and benefits, royalty expense, inventory purchases, contractual obligations, capital expenditures, payment of income taxes, quarterly preferred stock dividends, and other operational priorities. Our year-end liabilities are detailed in our financial statements, including Notes 8 through 9 to the financial statements.   We believe we will have adequate means to meet our currently foreseeable long-term liquidity needs. In the event that our long-term cash requirements exceed our current reserves and our ability to generate cash from operations, management would reduce our operational cash requirements.

Capital Resources

Since the execution of the TIA on July 1, 2020, we have significantly expanded our facilities.  There are no remaining planned capital projects.

CRITICAL ACCOUNTING ESTIMATES

We are responsible for developing estimates for amounts reported as assets and liabilities, and revenues and expenses in conformity with U.S. generally accepted accounting principles (“GAAP”).  Those estimates require that we develop assumptions of future events based on past experience and expectations of economic factors.  Among the more critical estimates management makes is the estimate for customer rebates.  The amount reported as a contractual allowance

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for rebates involves examination of past historical trends related to our sales to customers and the related credits issued once contractual obligations of the customers have been met.  The establishment of a liability for future claims of rebates against sales in the current period requires that we have an understanding of the relevant sales with respect to product categories, sales distribution channels, and the likelihood of contractual obligations being satisfied.  We examine the results of estimates against actual results historically and use the determination to further develop our basis for assumptions in future periods, as well as the accuracy of past estimates.  While we believe that we have sufficient historical data, and a firm basis for establishing reserves for contractual obligations, there is an inherent risk that our estimates and the underlying assumptions may not reflect actual future results.  In the event that these estimates and/or assumptions are incorrect, adjustments to our reserves may have a material impact on future results.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable to smaller reporting companies.

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Item 8. Financial Statements and Supplementary Data.

RETRACTABLE TECHNOLOGIES, INC.

FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

DECEMBER 31, 2022 and 2021

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RETRACTABLE TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

Retractable Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Retractable Technologies, Inc. (the Company) as of December 31, 2022 and 2021, the related statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Rebates

As described in Note 2 to the financial statements, the Company’s estimated contractual pricing allowances for rebates at December 31, 2022 is $3.0 million. The Company recognizes revenue when it has satisfied all performance obligations to the customer. 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. Once rebates are issued they are applied against the customer’s receivable balance.

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We identified management’s estimates of contractual pricing allowances for rebates as a critical audit matter because our evaluation of the Company’s methods and assumptions used in estimating the contractual pricing allowances involved especially challenging auditor judgment and required a high degree of audit effort.

The primary procedures we performed to address this critical audit matter included:

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/s/ Moss Adams LLP

Dallas, Texas

March 30, 2023

We have served as the Company’s auditor since 2016.

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RETRACTABLE TECHNOLOGIES, INC.

BALANCE SHEETS

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See accompanying notes to financial statements

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RETRACTABLE TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

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See accompanying notes to financial statements

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RETRACTABLE TECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY