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| VALUATION ANALYSIS OF |
| RETRACTABLE TECHNOLOGIES, INC. |
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| AS OF DECEMBER 8, 2000 |
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| PREPARED BY |
| BUSINESS VALUATION SERVICES |
| DECEMBER 19, 2000 |
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[LETTERHEAD OF BUSINESS VALUATION SERVICES]
December 19, 2000
Mr. Ralph S. Janvey
Krage & Janvey, L.L.P.
2600 San Jacinto Tower
2121 San Jacinto Street
Dallas, Texas 75201
Dear Mr. Janvey:
Pursuant to your authorization, Business Valuation Services has conducted a
valuation analysis of Retractable Technologies, Inc. ("RTI" or the "Company") as
of December 8, 2000. We prepared our analysis for the purpose of
determining the fair market value of the Company's common equity in conjunction
with a public offering. No other purpose for our analysis is intended or should
be inferred.
For purposes of this appraisal, fair market value is defined as the price at
which property would change hands between a willing buyer and a willing seller
when the former is not under any compulsion to buy and the latter is not under
any compulsion to sell, both parties having reasonable knowledge of relevant
facts.
We appraised the Company's common equity in accordance with generally accepted
appraisal standards and included such valuation tests and procedures as we
considered necessary under the circumstances.
Our valuation analysis included, but was not limited to, the following
procedures:
1) A review of the Company's audited financial statements for the years
ended December 31, 1995 through December 31, 1999 and unaudited
financial statements for the nine months ended September 30, 2000;
2) A tour of the Company's manufacturing facility in Little Elm, Texas;
3) Discussions with Thomas J. Shaw, chief executive officer; Douglas W.
Cowan, chief financial officer; Larry Salerno, director of operations;
and other RTI employees;
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Mr. Ralph S. Janvey
December 19, 2000
Page 2
4) Discussions with Ralph S. Janvey and other employees of Krage &
Janvey, L.L.P., the Company's legal counsel;
5) A review of financial statement forecasts through 2005;
6) A review of the Company's business plan dated November 1999;
7) A review of the National Marketing and Distribution Agreement between
RTI and Abbott Laboratories dated May 2, 2000;
8) A review of the Company's Form 10-SB filed with the U.S. Securities
and Exchange Commission on June 23, 2000;
9) A review of the Company's amended Form 10-SB filed with the U.S.
Securities and Exchange Commission on October 25, 2000;
10) A review of an August 1998 report on the disposable medical supplies
industry published by Theta Reports;
11) A review of a November 1995 report on the "dynamic medical disposable
markets" published by Theta Corporation;
12) A review of a 1996 report on the U.S. disposable needle, syringe and
related products markets published by Frost & Sullivan;
13) A review of various information regarding accidental needle sticks,
safety syringes, and safety syringe legislation and regulation;
14) A review of an October 1999 issue of Health Devices published by ECRI.
This issue contained an evaluation of needlestick-prevention devices;
15) A review of information relating to companies comparable to RTI that
were publicly traded as of September 2000;
16) A review of information relating to transactions (mergers and
acquisitions) that involved companies comparable to RTI effective
prior to September 2000; and
17) A review of various industry information and current economic
information.
We relied on information received regarding the Company's operations as a fair
reflection and made limited investigation as to the accuracy and completeness of
such information. Our analysis was based in part on this information as well as
on other data we developed.
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Mr. Ralph S. Janvey
December 19, 2000
Page 3
Based on the above procedures and the corresponding underlying analysis, it is
our opinion that the fair market value of the common equity of RTI on a
minority, marketable basis as of December 8, 2000, is reasonably stated as
$336,713,000 or:
$14.47 per share
FOURTEEN DOLLARS AND FORTY-SEVEN CENTS PER SHARE
We are independent of RTI and have no current or prospective interest in the
subject assets. Our fee for this appraisal service was in no way influenced by
the results of our analysis.
A valuation analysis that explains the scope, procedures and conclusions with
respect to this valuation in more detail accompanies this opinion letter. The
"Risk Factors," "Statement of Limiting Conditions" and the "Appraisal
Certification" are integral parts of this opinion letter and accompanying
report.
Respectfully submitted,
BUSINESS VALUATION SERVICES
By:
/s/ SCOTT D. HAKALA /s/ Z. ERIC STEPHENS
--------------------------- ------------------------------
Scott D. Hakala, Ph.D., CFA Z. Eric Stephens, CFA
Principal Director of Technical Services
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VALUATION ANALYSIS OF
RETRACTABLE TECHNOLOGIES, INC.
AS OF DECEMBER 8, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. ENGAGEMENT OVERVIEW.............................................. 1
DESCRIPTION OF THE ASSIGNMENT............................... 1
SCOPE....................................................... 1
PROCEDURES.................................................. 2
II. HISTORY AND DESCRIPTION OF THE BUSINESS......................... 3
RETRACTABLE TECHNOLOGIES, INC............................... 3
FINANCIAL REVIEW............................................ 4
Introduction............................................ 4
Balance Sheet........................................... 5
Income Statement........................................ 6
III. ECONOMIC AND INDUSTRY ANALYSIS................................. 7
ECONOMIC ANALYSIS........................................... 7
Introduction............................................ 7
National Economy........................................ 7
INDUSTRY ANALYSIS........................................... 10
Introduction............................................ 10
Disposable Medical Supplies............................. 10
Needles/Syringes........................................ 10
Blood Collection Tube Holders........................... 12
IV. VALUATION THEORY AND METHODOLOGY................................ 13
INTRODUCTION................................................ 13
APPROACHES.................................................. 13
Cost Approach........................................... 13
Market Approach......................................... 14
Income Approach......................................... 14
APPLICATION TO RTI's ASSETS................................. 14
V. VALUATION ANALYSIS............................................... 16
INCOME APPROACH ANALYSIS.................................... 16
Introduction............................................ 16
Cost of Capital......................................... 18
Residual Value.......................................... 20
Operating Forecasts..................................... 21
MARKET APPROACH............................................. 24
Introduction............................................ 24
Capital Market Technique................................ 25
Transaction Technique - Comparable Companies............ 29
Transaction Technique - RTI............................. 30
VI. VALUATION CONCLUSION............................................ 31
SYNTHESIS AND CONCLUSION.................................... 31
PROCEDURES.................................................. 31
VII. RISK FACTORS................................................... 33
VIII. STATEMENT OF LIMITING CONDITIONS.............................. 35
IX. APPRAISAL CERTIFICATION......................................... 37
X. QUALIFICATIONS OF PRINCIPAL APPRAISERS........................... 38
SCOTT D. HAKALA, Ph.D., CFA................................. 38
Z. ERIC STEPHENS, CFA....................................... 39
</TABLE>
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VALUATION ANALYSIS OF
RETRACTABLE TECHNOLOGIES, INC.
AS OF DECEMBER 8, 2000
TABLE OF EXHIBITS
EXHIBIT DESCRIPTION
------- -------------------------------
I HISTORICAL FINANCIAL STATEMENTS
II DISCOUNTED CASH FLOW ANALYSIS
III MARKET APPROACH: CAPITAL MARKET TECHNIQUE
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I. ENGAGEMENT OVERVIEW
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I. ENGAGEMENT OVERVIEW
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DESCRIPTION OF THE ASSIGNMENT
Pursuant to your authorization, Business Valuation Services ("BVS") has
conducted a valuation analysis of Retractable Technologies, Inc. ("RTI" or the
"Company") as of December 8, 2000 (the "valuation date"). Our analysis was
prepared for the purpose of determining the fair market value of the Company's
common equity in conjunction with a public offering. No other purpose for our
analysis is intended or should be inferred.
For purposes of this report, fair market value is defined as the price at which
property would change hands between a willing buyer and a willing seller when
the former is not under any compulsion to buy and the latter is not under any
compulsion to sell, both parties having reasonable knowledge of the relevant
facts.
SCOPE
To conduct a thorough valuation analysis, we used many different sources of
information. We reviewed the Company's audited financial statements for the
years ended December 31, 1995 through December 31, 1999 and unaudited financial
statements for the nine months ended September 30, 2000. We conducted
discussions with Company management concerning historical operating results and
the prospects for future results, as of the valuation date. We reviewed
national economic information and various information relating to the industry
in which the Company participates, including a review of information regarding
transactions involving companies operating in the subject industry and
information for publicly traded companies operating in the subject industry.
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PROCEDURES
This valuation analysis was conducted in accordance with generally accepted
valuation procedures, including such substantive valuation tests as we
considered necessary and appropriate under the circumstances. We relied on
information received regarding the Company as a fair reflection and made limited
investigation as to the accuracy and completeness of such information. Our
analysis was based in part on this information as well as on other data we
developed. A full discussion of the methodologies employed appears in the
following sections of this report.
BVS is independent of the Company and its owners and has no current or
prospective interest, directly or beneficially, in the properties considered in
this valuation.
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II. HISTORY AND DESCRIPTION OF THE BUSINESS
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II. HISTORY AND DESCRIPTION OF THE BUSINESS
-------------------------------------------
RETRACTABLE TECHNOLOGIES, INC.
The information in this section was taken from the Company's business plan, the
Series IV Class B Convertible Preferred Stock private placement memorandum dated
January 11, 2000, the Company's Form 10-SB filed with the U.S. Securities and
Exchange Commission on June 23, 2000 and the Company's amended Form 10-SB filed
on October 25, 2000.
The Company, located in Little Elm, Texas, was formed to design, manufacture and
sell safety syringes and blood collection tube holders ("BCTHs"). The Company
and/or Thomas J. Shaw ("Mr. Shaw"), the Company's president, holds a number of
patents on these products, which are sold as part of the VanishPoint(R) product
line. After using a standard syringe, a healthcare worker is exposed to a
contaminated needle and the risk of an accidental needle stick. A friction ring
in the VanishPoint(R) syringe allows the needle to retract directly from the
patient into the barrel of the syringe (the BCTHs work similarly). Thus, the
likelihood of an accidental needle stick is reduced.
The Company has paid Mr. Shaw a licensing fee of $500,000 for exclusive
licensing rights and has paid for all costs of patenting the licensed products,
which include all retractable syringes and retractable fluid devices and
components and all improvements thereto. In addition, Mr. Shaw receives a 5.0%
gross royalty on all licensed product sales.
As of the valuation date, the Company had 193 full-time employees.
Approximately five people were engaged in research and development activities,
102 people were engaged in manufacturing and manufacturing engineering, 40
people were engaged in quality assurance and regulatory affairs, 18 people were
engaged in sales and marketing,
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20 people were engaged in general and administrative functions and eight people
were engaged in facilities.
Mr. Shaw and Lillian Salerno, an outside director, own 57.9% and 14.5% of the
19,358,150 common shares outstanding, respectively. The Company also had
approximately 3,914,095 shares of convertible preferred stock (various classes
and securities) outstanding. In general, one preferred share is convertible to
one share of common three years after issuance or upon the Company's filing of
an initial registration statement (the Company filed a Form 10-SB on June 23,
2000 and an amended Form 10-SB October 25, 2000).
The Company was established in 1994 and operations commenced in 1995.
Commercial production of the Company's 3cc VanishPoint(R) syringe began in mid-
1997 and commercial production of BCTHs began in the fourth quarter of 1998. In
1999, sales topped $3 million. On May 4, 2000, the Company entered into a
National Marketing and Distribution Agreement with Abbott Laboratories
("Abbott") whereby Abbott will sell RTI products to the hospital market.
According to RTI and its independent accountant, the Company completed its
development stage coincident with the agreement. A financial review of RTI
follows.
FINANCIAL REVIEW
Introduction
------------
Our review of historical financial results focuses primarily on the Company's
results for the fiscal years ended December 31, 1995 through 1999 and the nine
months ended September 30, 2000.
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Balance Sheet
-------------
RTI's historical financial statements are presented in Exhibit I. Current
assets totaled $7.8 million (40.2% of total assets) as of September 30, 2000
compared to $2.0 million (14.9% of total assets) as of December 31, 1999. The
difference is due in large part to the cash proceeds of a preferred equity
offering and increased accounts receivable. As of September 30, 2000, the
Company had a cash balance of $4.5 million. Accounts receivable and inventories
comprised 10.5% and 4.8% of total assets, respectively, as of September 30,
2000.
Net property, plant and equipment grew from $5.2 million as of December 31, 1996
to $11.1 million as of September 30, 2000, representing a compound average
growth rate (CAGR) of approximately 22.2%.
As of September 30, 2000, the Company had $3.7 million in current liabilities
(19.1% of total assets). As of that date, current assets were comprised of the
current portion of marketing fees payable (5.9% of total assets), current
portion of long-term debt (4.9% of total assets), accounts payable (3.9% of
total assets), other accrued liabilities (3.3% of total assets) and accrued
compensation (1.1% of total assets).
The Company maintained an average debt-to-equity ratio of .41 throughout the
review period, excluding 1995 when the Company had no debt. As of September 30,
2000, RTI had a debt-to-equity ratio of 0.60. RTI's long-term debt (excluding
current maturities) as a percentage of total assets averaged 22.9% over the
review period, excluding 1995; that figure stood at 27.2% as of September 30,
2000. Shareholders' equity increased from approximately $4.5 million in 1995 to
$10.5 million as of September 30, 2000, which represents a CAGR of approximately
19.2%.
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Income Statement
----------------
Revenues grew from $0.3 million in 1997 to $0.8 million in 1998 to $3.4 million
in 1999 to $7.5 million during the 12 months ended September 30, 2000.
Historical income statements indicate that the Company began to achieve positive
gross profits in 1998. For the 12 months ended September 30, 2000, the Company
reported a gross margin of 10.2%; however, if preproduction manufacturing costs,
which are classified as operating expenses, are considered a part of the cost of
goods sold, the Company's gross profit margins would be reduced to negative
5.7%. Nonetheless, preproduction manufacturing costs declined rapidly as a
percentage of sales throughout the review period and were eliminated entirely
during the three months ended September 30, 2000.
Operating expenses, including preproduction costs, totaled $9.8 million during
the 12 months ended September 30, 2000, resulting in an operating loss of $9.0
million. Operating expenses are rapidly declining as a percentage of sales as
the Company begins to spread its fixed costs over a greater sales volume. For
the 12 months ended September 30, 2000, the Company experienced a net loss of
$9.0 million.
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III. ECONOMIC AND INDUSTRY ANALYSIS
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III. ECONOMIC AND INDUSTRY ANALYSIS
-----------------------------------
ECONOMIC ANALYSIS
Introduction
------------
When valuing a business, it is important to review the economic conditions that
existed as of the valuation date and to assess the impact they might have been
expected to have on the business. The impact of economic conditions on company
operations will vary from industry to industry, and in some cases, from company
to company within an industry. The cycles observed in the economy may have
little effect on some companies while dramatically affecting the operations of
others. The following economic analysis is intended to provide a brief
macroeconomic basis for our valuation analysis.
National Economy
----------------
The national economy has finally begun to slow down as the third quarter of 2000
ends. Preliminary real gross domestic product (GDP) numbers for the third
quarter indicate a growth rate of 2.4%. This represents a deceleration and a
possible move to a slower growth track. This economic slow-down follows a
succession of signals that incorrectly pointed to a much more moderate growth
rate than those of the first and second quarters of 2000. It appears that the
cumulative effect of higher mortgage rates and slower job growth are finally
affecting many consumer markets. The basic economic expansion, however, is
still on firm ground and probably sufficient to withstand GDP growth of 3.0% to
3.5% over the next 12 to 18 months. The national economy should stay on a
moderate growth course through 2001 with stable interest rates and subdued
inflation helping the overall economy. (1)
---------------------
(1) "The Quarterly Economic Review," The Value Line Investment Survey,
September 1, 2000.
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Real personal consumption expenditures (PCE) slowed dramatically in growth
during the second quarter with an annualized increase of 2.9% after an increase
of 7.6% in the first quarter.(2) Expenditures for durable goods decreased 5.0%
in the second quarter after jumping 23.6% in the first. Expenditures on non-
durable goods increased less than they did in the first quarter of 2000. The
slowdown in PCE occurred despite generally favorable developments in factors
frequently considered in analyses of consumer spending.(3)
Real disposable income increased an estimated 3.4% in the second quarter after a
1.9% increase in the first quarter. The personal savings rate remained at its
historic low of 0.2% during the second quarter of 2000.
Domestic corporate profits increased $27.7 billion, or 3.0%, in the second
quarter of 2000 over the prior quarter. This continued strong figure for the
latest quarter can be mostly attributed to increased profits from domestic
nonfinancial industries of $29.8 billion. This 4.7% increase can be attributed
to a bigger increase in unit prices than in unit costs. Domestic financial
industries saw a modest decrease in profits of $4.7 billion in the second
quarter of 2000. The greatest increases in profits came from the wholesale
trade and of the transportation and utilities groups as well as "other
nonmanufacturing" categories. Profits of manufacturing and of retail trade
increased less in the second quarter than they did in the first quarter.(4)
For now, the rate of price growth remains relatively stable. There is a greater
chance, however, that the price stability that exists may not last throughout
the next 12 months. The further upward spike in oil and electricity prices, the
continuing rise in medical care costs, the tightness of the labor market and the
dramatic gains in real estate values all
---------------------
(2) Ibid.
(3) Survey of Current Business, U.S. Department of Commerce, Bureau of
Economic Analysis, September 2000.
(4) Ibid.
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put price stability in jeopardy during this current business up cycle, the
outlook remains that inflation will be kept at bay. The actions taken by the Fed
to keep inflation in check coupled with gains being made in productivity should
be the drivers that keep inflation at relatively steady levels. Interest rates
are either below or at the levels of the first quarter and the expectation is
that they will stay at those levels. Interim deviations, both up and down, from
current interest rates are likely, however, as changes in GDP and inflation
could cause such movements.
After a string of productive years and a strong first quarter of 2000, the U.S.
equity markets cooled during the second quarter and were mixed during the third
quarter. The Dow Jones Industrial Average was up 9.8% (annualized) during the
third quarter and is up 4.6% for the year ending September 30, 2000. The S&P
500 was down an annualized 3.8% for the quarter, but is up 13.3% over the past
one year period. The Nasdaq was down 26.4% annualized for the quarter while it
is up 40.0% for the past year.(5) The proclamation of the end of a bull market
may be premature, but for the months ahead, caution would sum up most investment
sentiments.
Going forward, forecasts are for more moderate economic growth into the latter
part of the year with estimates of GDP growth falling to below 3.5%.(6)
Inflation will still have to be monitored carefully by the Fed with high-energy
prices and a tight labor market expected to continue. A more moderated economic
growth rate, may allow the Fed to somewhat relax its aggressive stance against
inflation. The uncertainty of the Fed's future monetary policies and the
unpredictability of the stock market make short-term forecasts murky at best.
------------------
(5) Ibid.
(6) "The Quarterly Economic Review," The Value Line Investment Survey,
September 1, 2000.
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INDUSTRY ANALYSIS
Introduction
------------
While all businesses are influenced to some extent by the economic environment
in which they operate, individual industries are often characterized by
distinguishing market and economic factors. Our review of the needles/syringes
and blood collection tubes segments of the disposable medical supplies industry
presents a more detailed discussion of the Company's operating environment as of
the valuation date.
Disposable Medical Supplies
---------------------------
According to Theta Reports, the disposable medical supplies industry reported
$4.0 billion in sales in 1997 and was expected to grow at an annual rate of 8.0%
through 2001. Disposable medical supplies include: needles/syringes, kits and
trays, gloves, IV disposables, synthetic wound dressings and blood collection
tubes.
The industry is dominated by a small number of manufacturers that are able to
maintain relationships with distributors and win long-term contracts with group
purchasing organizations ("GPOs"). Allegiance/Baxter and Becton Dickinson ("B-
D") are among the largest companies in the industry.
Needles/Syringes
-----------------
Needles/syringes is the largest of the above-listed six categories of disposable
medical supplies. In 1997, sales of needles/syringes were $1.0 billion (6.6
billion units). Needles/syringes also appears to be one of the most mature of
the six industry segments. Theta Reports estimated that the needles/syringes
market would grow at an annual rate of 6.0% from 1997 through 2001, compared to
the industry average of 8.0%. The hospital market is the largest
needles/syringes market, but the extended care, physician's
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office and consumer markets are growing faster than the hospital market. It is
projected that needles/syringes sales will equal $1.4 billion in 2001. Despite
the growth of the extended care, physician's office and consumer markets, the
hospital market is expected to remain dominant through 2001. In 1997, the
needles/syringes market was dominated by B-D with 71.0% of the market and
Sherwood - Davis & Geck Group ("Sherwood") with 22.0% of the market.
Precise national data are not available on the annual number of needlestick and
other such injuries among health care workers; however, estimates indicate that
600,000 to 800,000 such injuries occur annually.(7) Such information has sparked
a movement toward safety syringes. There are various safety syringes on the
market, each with its own design, but in a recent study by ECRI, a non-profit
health service research agency that evaluates medical products, the
VanishPoint(R) syringe was the sole recipient of the highest possible rating.(8)
The movement toward safety syringes is being accelerated by government
regulation and legislative acts requiring the use of safety syringes. Seventeen
states have passed safety needle legislation and federal legislation has now
been signed into law.
In 1997, safety syringes comprised 6.0% of the total syringe market. In 1999,
the figure was 10.0%. Theta Reports estimates that safety syringes will
constitute 75.0% of the total syringe market by 2001. Other estimates suggest
that safety syringes will comprise 91.0% of the total syringe market by 2003.
Still others believe the conversion from standard syringes to safety syringes
will take longer.
-------------------
(7) National Institute for Occupational Safety and Health Alert: Preventing
Needlestick Injuries in Health Care Settings, November 1999.
(8) RTI business plan.
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Blood Collection Tube Holders
-----------------------------
Evacuated blood collection tubes are used to collect blood samples for
laboratory tests. They consist of a stoppered tube at vacuum, which when
pierced by a needle located in a vein, will withdraw blood into the tube. RTI
makes tube holders. In 1997, 1.3 billion evacuation tubes were sold for a total
of $170.0 million. Theta Reports projects that sales will reach 1.5 billion
units and $240.0 million in 2001. Theta Reports suggests that this market
segment is growing at a rate of 9.0% per year.
There are many parallels between syringes/needles and blood collection tubes.
The same companies dominate, the same safety issues arise and the
pricing/commodity issues are similar. B-D owns 70.0% of the market, while
Sherwood and Terumo, a Japanese company, have 14.0% and 8.0% of the market,
respectively. Within this segment, safety products are growing at a 15.0% rate,
while standard products are growing at 4.0% per year.
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IV. VALUATION THEORY AND METHODOLOGY
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IV. VALUATION THEORY AND METHODOLOGY
------------------------------------
INTRODUCTION
The three generally accepted approaches used in determining the fair market
value of businesses or business interests are the cost, market and income
approaches. Depending on the facts and circumstance of a particular analysis,
application of one or more of these methods may be more appropriate. The
simultaneous application of at least two of these three approaches, or the use
of more than one approach in an integrated analysis, often allows an appraiser
to characterize and quantify various components of value and may improve
accuracy. The approach selected for a particular analysis will depend on the
appraiser's judgment and the type of assets in question, as well as the quantity
and quality of financial, operational and industry data. The following is a
brief description of the three general approaches to determining value.
APPROACHES
Cost Approach
-------------
The cost approach considers replacement cost as an indicator of value. The cost
approach is based on the assumption that a prudent investor would pay no more
for an asset than the amount for which he or she could replace or re-create it.
The cost approach is sometimes performed by estimating the replacement cost of
an asset similar to the subject. Often, historical cost data can be used to
indicate the current cost of reproduction or replacement. Adjustments are made
for any physical deterioration or functional and economic obsolescence of the
appraised asset. The cost approach is often effective in quantifying the fair
market value of an entity's tangible assets (i.e., personal property and
improvements).
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Market Approach
---------------
Under the market approach, recent sales of comparable companies or securities
are analyzed in order to determine the value for a particular asset under study.
Adjustments are made to the sales data to account for differences between the
subject asset and the comparables and for the timing and circumstances of the
comparable sales. The market approach is most applicable to assets that are
homogeneous in nature and are actively traded. Relative to other approaches to
value, the key strength of the market approach is that it provides objective
indications of value while requiring that relatively few assumptions be made.
Income Approach
---------------
The income approach measures the present worth of anticipated future net cash
flows generated by a business. The net cash flows are either capitalized in the
case of a single period model or forecast for an appropriate period and then
discounted to determine their present value using an appropriate discount rate
in the case of a multi-period model. In business valuations, net cash flow
forecasts require analysis of all variables influencing revenues, expenses and
capital investment. An income approach methodology is generally useful because
it accounts for the specific contribution of factors driving the value of the
firm.
APPLICATION TO RTI's ASSETS
While each of the three valuation methodologies discussed above can be used to
theoretically determine the value of any asset, certain of these techniques
better lend themselves to the analysis of assets in a particular category of
study. For example, fixed assets such as machinery and equipment are often
valued using either a cost or a market approach due to the often difficult task
of quantifying the portions of income attributable solely to the operation of a
particular tangible asset. Using a cost approach,
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the analyst is tasked with determining the cost of replacing the machine or
equipment with a similar asset possessing a similar level of utility. Using a
market approach, sales of similar types of machinery or equipment are analyzed
to draw conclusions as to the asset's value.
For intangible assets (such as assembled workforce, customer relationships or
name recognition), an income approach is often the most effective methodology to
value the asset. The income stream associated with a customer relationship may
be a better indicator of its value than the costs incurred in developing that
relationship, as would be suggested by the cost approach. The three
methodologies mentioned can often be used in an integrated manner to better
utilize the strength of one approach over another.
In the valuation of a going-concern business enterprise, such as a medical
instruments manufacturer, tangible assets are readily identifiable by examining
the balance sheet. The intangible assets, however, typically include the
goodwill associated with the enterprise, the trained and assembled workforce,
the value of distribution channels and customer relationships and, perhaps most
importantly for a medical instruments manufacturer, its patents. Some of these
intangible assets are shown on the balance sheet, but they are recorded at cost,
not fair market value. For this reason, we elected not to include the cost
approach as a method of valuation of the Company.
In our analysis of the fair market value of RTI, we used the income approach to
build a discounted cash flow model to determine the fair market value of RTI's
common equity on a minority interest basis. Additionally, we reviewed
information and data relating to publicly traded companies with similar
operations to that of RTI contemporaneous with the valuation date. We also
reviewed information and data relating to transactions involving companies with
similar operations to those of RTI, but that data was inconclusive and could not
be relied on.
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V. VALUATION ANALYSIS
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INCOME APPROACH ANALYSIS
Introduction
------------
The income approach measures the value of cash flows expected to be generated by
an entity over time. As each approach ultimately seeks to capture the value of
future cash flows to be generated by the assets of the business, the income
approach is the most direct method for determining a firm's fair market value.
One form of income approach, the discounted cash flow approach (DCF), is based
on the premise that the value of a business enterprise is the present value of
the future economic benefit to be derived by the owners of the business. The
discounted cash flow approach requires the following analyses: cost of capital
analysis, residual value analysis and operating forecast analysis.
The cost of capital analysis requires consideration of the following aspects of
the Company's operations: current capital structure, optimal capital structure,
cost of various capital components, weighted-average cost of capital, systematic
and nonsystematic risk factors and the marginal cost of capital.
The residual value analysis requires the determination of the value of the
prospective cash flow generated by the business after the conclusion of a
discrete forecast period. This residual value can be determined by various
methods including the development of a price-to-earnings multiple (P/E), a
price-to-book value multiple (P/B) or an annuity in perpetuity approach. In our
development of a cash flow model for RTI, we elected to use an annuity in
perpetuity approach.
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The operating forecast analysis includes revenue analysis, expense analysis and
consideration of all other factors affecting the forecast of cash flow,
including working capital, investment in fixed assets, depreciation and income
taxes. This analysis includes consideration of various industry characteristics
such as market dynamics, competitive pressures and regulatory changes.
Based on the results of the analyses discussed above, a forecast of net cash
flow from business operations is made for a reasonable and discrete forecast
period. The cash flow forecast is discounted at an appropriate discount rate,
also referred to as the cost of capital, to determine the present value. The
present value of the discrete net cash flow forecast is summed with the present
value of the residual value. This summation represents the value of the
business enterprise per the discounted cash flow approach.
Our discounted cash flow model is a debt-free model in that our forecast does
not include forward debt balances or interest expense. The resulting cash flows
are those available to both debt and equity holders. The balance of cash is
added and debt, accrued preferred dividends and the value of the outstanding
options as of the valuation date are subtracted from the value of the business
enterprise to arrive at the value of the Company's common equity. In addition,
because the cost of capital employed in our income approach model is derived
using equity return data from minority shares of publicly-traded companies and
the cash flow forecasts do not include adjustments for changes contemplated in a
control purchase, we do not apply a minority interest discount to the conclusion
of value. The indicated value represents the aggregate value of RTI's common
equity on a minority marketable basis.
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Cost of Capital
---------------
A firm's cost of equity capital, Ke, is the expected, or required, rate of
return on the firm's common stock. We used the capital asset pricing model
(CAPM) to determine Ke as follows:
Step 1. Determine the risk-free rate of return, Rf, defined as the 20-
year U.S. Treasury bond rate as of the valuation date.
Step 2. Determine the market risk premium, designated as [Rm - Rf] in the
CAPM equation.
Step 3. Determine the subject common stock's beta coefficient, B, and use
this as an index of the subject stock's systematic risk.
Step 4. Calculate the required rate of return on the subject firm's
common stock as follows:
Ke = Rf + B [Rm - Rf]
Determining Rf is the first step in estimating the cost of equity. In
estimating a security's expected return, we are typically seeking a cost to be
applied to cash flows projected for many years. The inflation premium
incorporated into a security's normal return is the rate of inflation expected
by the market over the life of the security. Thus, to estimate the normal
return that is expected over a long-term period, we used the long-term
government bond rate, which reflects the market's long-term inflation forecast.
The yield to maturity on 20-year Treasury securities was approximately 5.71% as
of the valuation date, according to information published by the Federal
Reserve. Thus, 5.71% is the risk-free rate of return.
Determining the market risk premium is the second step in estimating the cost of
equity. The risk premium is designated as [Rm - Rf] in the CAPM equation, with
Rm representing the expected return on the market portfolio. To estimate the
risk premium, we used historical data published in Stocks, Bonds, Bills and
Inflation by Ibbotson Associates.
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Based on this information, we concluded that the market risk premium equals
8.1%, the average annualized total return on equity investments, defined as the
S&P 500, in excess of the average annualized bond yield (income) return on long-
term government bonds over the period January 1926 to December 1999.
Determining the appropriate level of systematic risk is the third step in
estimating the cost of equity. Systematic risk is the risk associated with
those economic factors that threaten all businesses. Beta provides a measure of
the tendency of a security's return to move with the overall market's return.
For example, a security with a beta of 1.0 tends to rise and fall by the same
percentage as the market. Thus, "B = 1.0" indicates an average level of
systematic risk. Securities with a beta greater than 1.0 tend, on average, to
rise and fall by a greater percentage than the market. Likewise, a security
with a beta less than 1.0 has a low level of systematic risk and is therefore
less sensitive to changes in the market.
In our analysis of the Company, we used a beta of 0.74 based on our analysis of
the betas, adjusted for leverage, of the comparable companies considered in the
capital market approach (discussed below) and our review of the industrial
composite beta for smaller firms with SIC code 3841 as provided by the
Ibbotson's Cost of Capital Quarterly publication. We also added a 1.0%
unsystematic risk premium to capture the additional return required due to
higher transactions costs involving smaller capitalization companies. The
Company's cost of equity was then determined to be 12.67%.
Having derived the appropriate cost of equity, we then estimated the weighted-
average cost of capital based on the following formula:
Ko = We * Ke + Wd * Kd * (1-Tm)
where
Ko = the weighted-average cost of capital;
We = the proportion of equity in the capital structure;
Ke = the cost of equity;
Wd = the proportion of debt in the capital structure;
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Kd = the pretax cost of debt; and
Tm = the Company's marginal tax rate.
In determining RTI's weighted-average cost of capital, the proportion of equity
was approximately 88.2% and the proportion of debt was 11.8%, based on the
capital structure of the comparable companies considered in the capital market
approach. The cost of debt was approximately 9.75% based on RTI's expected
borrowing rate. The resulting cost of capital is 11.9% (rounded 12.0%). Our
discounted cash flow model is presented in Exhibit II.
Residual Value
--------------
The Company's residual value at the end of the ten-year discrete forecast period
was calculated using the formula for a growing, perpetual annuity. The formula
is as follows:
S D
t = t
-----
k-g
where
St = the present value of all future income streams as of the
end of year ten;
Dt = the income stream in the first year after the ten-year
forecast period;
k = the cost of capital; and
g = the growth rate of the income stream.
The residual income stream is equal to our year ten forecast. The growth rate
in the terminal year is 2.7%.
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Operating Forecasts
-------------------
In our development of forecasts for RTI, we primarily considered historical
operating results, trends in fundamental operating characteristics, national
economic and market factors, industry data, discussions with the Company's
management and a review of projections prepared in connection with the National
Marketing and Distribution Agreement (what Abbott is expected to do) and for
management purposes (what RTI is expected to do, including Abbott). A summary
of the assumptions used in our income approach methodology is outlined below:
Sales are made directly and through Abbott in the United States. Sales are
also made directly and potentially through third parties internationally.
Thus, we made three separate revenue forecasts: (i) Abbott sales, (ii) RTI
domestic sales and (iii) international sales. Our forecast for Abbott-related
sales is derived from the five-year forecast attached to the National
Marketing and Distribution Agreement, which provides a breakdown of expected
sales of 1cc, 3cc, 5cc and 10cc syringes as well as BCTHs. We assume that
unit sales grow at industry growth rates from years six through ten. With
respect to unit prices, we assume that they remain constant throughout the
forecast period.
Our forecast for RTI domestic sales is slightly more complex. First, we made
quarterly forecasts for the first three years. We began by forecasting unit
sales of syringes and BCTHs based on estimates provided by Theta Reports. We
then subtracted the unit sales expected to be made in the hospital market, the
market served by Abbott, to determine the total market directly available to
RTI. We estimated the safety market as a percentage of the total market based
on projections provided by Theta Reports, analyst reports and industry data.
Finally, we estimated RTI's share of the non-hospital safety market. Our
forecasted market share is constrained by the Company's manufacturing capacity
and by Abbott's market share (we assume that RTI will not obtain a greater
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share of the non-hospital market than Abbott will of the hospital market).
For RTI domestic sales, we assume a slight price decline toward the end of the
forecast period to reflect the influence of competition.
We forecast international sales as a percentage of domestic sales.
International sales in year one are projected to be zero. This is
conservative given that RTI has already recorded some international sales.
International sales are then set to increase from 2.0% of domestic sales in
year two to 10.0% in year ten of the forecast period.
Our price assumptions are conservative given that: (i) other safety products
appear to command a greater premium over standard products and (ii) the
Company believes that prices will not decrease and might in fact increase.
Furthermore, our discounted cash flow model reflects price erosion with
respect to RTI sales after year seven, but the Company's patents will be in
force for a much longer period of time.
Our sales forecast is also conservative in that it includes only a limited
amount of international sales. The Company is already selling
internationally, albeit on a limited basis. The Company has international
patents and certifications in place. It also has stationed in Europe a
consultant whose job is to develop the European market. If RTI is able to
fully exploit the international market, which is larger than the U.S. market,
actual sales will likely exceed our forecasted sales.
Expenses were forecast to reflect fixed and variable components. The
fixed/variable mix or operating leverage was forecast based on historical data
as well as projections provided by the Company. The Company is expected to
incur minimal sales and marketing expenses attributable to Abbott-related
sales (as selling costs are embedded in RTI's arrangement with Abbott).
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Depreciation was estimated using the assumption that the existing building and
building improvements would depreciate based on a 30-year life and existing
production equipment and new assets would depreciate based on a 13-year life.
We used a straight-line approach.
Working capital is a function of current asset and current liability
components. The year-to-year working capital requirement for the Company
averages 11.6% of revenues through year five of the forecast and 8.0% from
year six through year ten.
Capital expenditures are forecast as a function of the Company's net asset
utilization (sales/cost of goods sold). We assume that the Company's
efficiency increases gradually throughout the forecast period.
Operating margins are negative in year one of the forecast period. Operating
margins increase from year one through year seven of the forecast period.
Operating margins, which peak at 27.2% in year seven and decline to 23.8% in
year ten, are above the industry average. These margins are reasonable given
RTI's demonstrated ability to: (i) operate with lower overhead than some of its
larger competitors and (ii) spread its overhead over greater sales volume than
its smaller competitors. An example illustrates our point. RTI recorded sales
of $1,965,944 for the nine months ended September 30, 1999 and $6,109,417 for
the nine months ended September 30, 2000. That represents growth of more than
200.0%. During that same period, operating expenses increased less than 10.0%.
The calculated business enterprise value (BEV), or the value attributable to
both debt and equity holders, was approximately $365.6 million. We added cash
of $4.5 million to and deducted interest-bearing liabilities of $6.3 million,
accrued preferred dividends of $7.3 million and the present value of outstanding
options of $19.8 million from the
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BEV indicated by the results of our discounted cash flow model. According to the
income approach, the fair market value of the Company's common equity on a
minority, marketable basis as of December 8, 2000, can reasonably be stated as
$336,713,000 or:
$14.47 per share
fourteen DOLLARS AND FORTY-SEVEN CENTS PER SHARE
(based on 23,272,245 shares outstanding9)
MARKET APPROACH
Introduction
------------
We investigated the application of both the business transaction and capital
market techniques to determine a value for RTI under the market approach. In
this instance, we determined that the capital market technique provided a better
indication of value than did the business transaction technique. For the
business transaction technique, we were able to find information on six
transactions involving companies that make syringes. For the capital market
technique, we found 11 comparable, publicly traded companies. Tyco
International, Ltd. ("Tyco") was included as one of the 11 comparable companies
and its acquisition of Sherwood was included as one of the six transactions.
Some of the 11 companies are larger and more diversified than others. For
example, Tyco is quite large and operates in multiple business segments;
however, it was necessary to examine Tyco because Sherwood is a key player in
the syringe business. Other companies are quite small and their stocks are
thinly traded; however, because their businesses are similar to that of RTI, we
chose to include some companies that have stock traded on the OTC bulletin
board.
------------------
9 Assuming that all preferred shares convert to common.
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Capital Market Technique
-------------------------
Under the capital market technique, we investigated several relative pricing
measures for publicly traded comparable firms in the medical instruments
industry, many of which are involved in the manufacture and sale of syringes
and/or safety syringes. As stated earlier, the advantage of the capital market
technique lies in its ability to provide relative pricing without the use of
assumptions. This objectivity is strengthened with the choice of appropriate
guideline companies or transactions.
For the purposes of our analysis, we chose 11 comparable companies that engage
in similar lines of business to RTI. These guideline companies include Becton,
Dickinson and Company; Bioject Medical Technologies, Inc.; Bio-Plexus, Inc.;
Maxxon, Inc.; Med-Design Corporation; Medi-Ject Corporation; NMT Group, PLC;
Specialized Health Products International, Inc.; Terumo Corporation; Tyco
International Ltd.; and Univec, Inc. Each of these companies is involved in
some combination of developing, manufacturing, licensing, and/or selling medical
instruments to the health care industry. For the most part, they make syringes
or alternative drug-delivery systems. These operating characteristics make them
comparable to the Company. A brief description of each of the guideline
companies follows.
Becton, Dickinson and Company - B-D manufactures and sells a variety of
medical supplies and devices and diagnostic systems. B-D's products are
used by health care professionals, medical research institutions and the
general public. B-D's products are marketed worldwide. B-D has
approximately 71.0% of the U.S. syringe/needle market and 73.0% of the U.S.
blood collection tube market.
Bioject Medical Technologies, Inc. - "Bioject" develops, manufactures and
markets jet injection systems for needle-free drug delivery. The Biojector
2000(R) product allows healthcare professionals to inject medications
through skin without a needle. Bioject sells its products directly to
healthcare providers and licenses its technology to pharmaceutical and
biotechnology companies.
Bio-Plexus, Inc. - "Bio-Plexus" designs, develops and manufactures safety
medical products used by healthcare professionals. Bio-Plexus products
include
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safety blood collection needles and related accessory products that are
marketed under the Punctur-Guard and Drop-It trade names.
Maxxon, Inc. - "Maxxon" develops a patented, disposable safety syringe that
automatically retracts the needle into the plunger after use. Maxxon's
product eliminates the risk of accidental needle stick injuries.
Med-Design Corporation - "Med-Design" designs and develops safety medical
devices intended to reduce the incidence of accidental needlesticks. Med-
Design's devices incorporate a proprietary retraction technology that
enables a health care professional to permanently retract the needle of the
device into an isolation container that can be safely discarded.
Medi-Ject Corporation - "Medi-Ject" markets needle-free injectable drug
delivery systems. Medi-Ject manufactures hand-held injectors that deposit
pharmaceuticals, including insulin and growth hormone, under the skin
without a needle. Medi-Ject currently has alliances with various
pharmaceutical and medical equipment companies.
NMT Group PLC. - "NMT" is a development stage company in which its primary
product is the Zero-Stick(R) technology system, an automatic needle
retraction technology, which prevents needle-stick injuries. NMT, based in
Scotland, also develops other technologies to prevent various sharp
injuries.
Specialized Health Products International, Inc. - "Specialized Health
Products" develops disposable, proprietary health care products designed to
reduce the incidence of accidental injury in the health care industry.
Specialized Health Products develops its products using its Extre-Safe(R)
medical needle technology and other medical needle technologies.
Specialized Health Products provides sharps containers, safety syringes and
other products.
Terumo Corporation - "Terumo" is a supplier of medical equipment. Terumo
manufactures, imports and exports pharmaceuticals, transfusion and infusion
equipment, clinical testing systems, artificial organs and other medical
related supplies. The company, based in Tokyo, has 8.0% of the blood
collection tube market.
Tyco International Ltd. - Tyco is a diversified manufacturing and service
company with operations around the world. Tyco manufactures and installs
fire protection systems and provides electronic security services. Tyco
also manufactures flow control valves, disposable medical products,
prewired armor cable, flexible conduit and printed circuit boards. In
addition, Tyco owns Sherwood, which has 22.0% of the needle/syringe market
and 14.0% of the blood collection tube market.
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Univec, Inc. - "Univec" develops, manufactures, licenses and markets safety
auto-destruct hypodermic syringes. Univec's products are designed to
protect healthcare workers against needle stick injuries, as well as
patients against cross-infection resulting from reused needles and
syringes.
We performed a side-by-side historical analysis for these guideline companies to
determine the profitability, liquidity and activity of each. Constructing a
range of values as they relate to profitability, liquidity and activity allowed
us to better compare the performance of the guideline companies and apply the
resulting pricing measures to RTI. We investigated several pricing measures in
search of a market-based suggested value for the Company's equity. These
market-based multiples included: P/E, P/B, market value of capital10 to sales
(MVC/S), market value of capital to earnings before interest, taxes,
depreciation and amortization (EBITDA) (MVC/EBITDA), and market value of capital
to earnings before interest and taxes (EBIT) (MVC/EBIT). The results of our
market approach analysis (capital market technique) are illustrated in Exhibit
III.
Although the guideline companies have several similar industry characteristics,
there are clear differences with respect to sources of revenue (product sales
versus licensing and technology revenues) and size. Because RTI's primary
source of revenue is product sales, we focused on companies that had product
sales as their chief source of revenue. We also considered the size of the
guideline companies. Three of the guideline companies (B-D, Tyco and Terumo)
recorded more than $1.0 billion in sales for the most recent 12-month period.
Five companies (Bioplexus, Bioject, Med-Design, Medi-Ject and Univec) recorded
between $1.0 million and $6.0 million in sales. The three remaining companies
(Maxxon, NMT and Specialized Health Products) recorded less than $1.0 million in
sales. Maxxon reported no sales. RTI recorded $7.5 million in sales for the
most recent 12-month period.
--------------------
10 Market value of capital (MVC) equals the companies' market value of equity
plus all interest-bearing liabilities. In short, MVC represents all capital,
both debt and equity, invested in the companies.
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Because RTI is not yet profitable, we concentrated on MVC/S multiples. Bioject
stood out from the other comparable companies because it had a projected growth
rate of 100%, much higher than the other companies. RTI is growing twice as
fast as Bioject. Nonetheless, Bioject was seen as more comparable to RTI than
the others.
We multiplied Bioject's MVC/S multiple of 43.08 to RTI's historical (12 months
trailing September 30, 2000) revenue figure of $7.5 million to arrive at an
indication of the Company's operational MVC of $323.9 million, with a
corresponding common equity value of $290.6 million. By using a multiple based
on rapid growth and applying it to the Company's base revenue, we attempted to
capture the value of RTI's rapid growth. Thus, valuing RTI (which has greater
sales volume and is growing faster than Bioject) at $336.7 million as determined
by the income approach is reasonable.
Information regarding Med-Design is also relevant to the valuation of RTI.
According to William Gibson, an analyst with Montgomery Securities
International, Med-Design's market capitalization was $248.4 million as recently
as November 3, 2000. That price appears to reflect the market's expectation
that Med-Design would produce a saleable product in time to take advantage of
the aforementioned safety needle legislation. However, the legislation has been
signed into law and Med-Design has still not recorded any revenues (except for
an up-front licensing fee). Thus, the price of Med-Design's stock has fallen
32.58% since November 3, 2000. During that time, the market as a whole has
pulled back. The Nasdaq composite index declined 15.46% during that time. On
the other hand, the S&P Medical Products index fell only 3.64%. If Med-Design's
stock had fallen in line with the Nasdaq composite index, it would be priced at
$210.0 million ($248.4 million times (1-0.1546)) today; if Med-Design's stock
had fallen in line with the S&P Medical Products index, it would be priced at
$239.4 million ($248.4 million times (1-0.0364)) today. Our discounted cash
flow model indicates that RTI can reasonably be valued at $336.7 million. That
value is reasonable given that Med-Design does not have a saleable product and
RTI does and that product has been deemed superior by third parties.
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Med-Design analyst reports lend credence to the opportunity that has arisen in
the safety needle sector. Charles Olsziewski, an analyst with UBS Warburg,
indicated that the price of Med-Design's stock increased in November in
anticipation of the Needlestick Safety and Prevention Act being signed into law.
As discussed above, Med-Design has since shown an inability to cash in on the
law, but the opportunity for others, including RTI, still abounds.
Mr. Gibson stated in reference to Med-Design and the effects of the safety
needle legislation: "We think earnings could ramp up in hockey-stick fashion in
2002 in a market driven by government regulation." Mr. Gibson further stated:
"Although there was no indication on the introduction of its Med-Design-based
blood collection needle, B-D indicated its retractable syringe should be on the
market around mid-year 2001." These statements reiterate that the opportunity
is there and that Med-Design is still not ready to take advantage of it.
Finally, according to Mr. Gibson, "B-D also indicated it expects 100% conversion
to safety within three years." Our discounted cash flow model assumes that the
safety syringe and BCTH markets will not exceed 91.0% and 85.0%, respectively,
of the total syringe market. If B-D is correct, we have understated the value
of RTI.
Transaction Technique - Comparable Companies
--------------------------------------------
Our search of the Thomson Financial Securities Data mergers and acquisitions
database and other sources resulted in six transactions involving companies
similar to RTI. All six transactions involved companies that manufacture
surgical and medical instruments and apparatus (SIC 3841). All six transactions
were completed between January 1, 1995 and the valuation date.
The database provided transaction multiples such as P/S, P/E, P/EBIT, MVC/S,
MVC/E, MVC/EBIT and MVC/EBITDA. These transaction multiples differ from the
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multiples reviewed in connection with the capital market technique. Multiples
obtained through publicly traded securities are directly comparable to the
Company. The price of a publicly traded stock reflects a minority interest
value, which is comparable to a minority interest in the Company. Transaction
multiples, on the other hand, are generally derived from acquisitions of
controlling interests. Premiums are generally paid for controlling interests;
thus, one must be cognizant of the imbedded premiums in transaction data.
Again we focused on MVC/S multiples. The range of multiples was wide, similar
to the range observed in the capital market data; however, unlike our capital
market data, the transaction data did not contain information regarding growth
or other information necessary to interpret such multiples. Thus, we cannot
draw a conclusion from the transaction technique as it pertains to comparable
companies.
Transaction Technique - RTI
Transactions involving the stock of a subject company are also relevant, if not
more relevant than transactions involving comparable companies. In this case,
the Company's private placements provide valuable information. Most recently,
the Company raised money by issuing Class B Series IV convertible preferred
stock. Those non-marketable shares were issued at $10 per share in arms-length
transactions. Since that time, the Company has achieved greater revenues and is
closer to breaking even, it has entered into a distribution agreement with
Abbott (the Series IV private placement memorandum was dated January 2000 and
the Abbott agreement was reached in May 2000), national legislation has passed
and the Company is on the verge of going public (thus, the Company's shares are
about to become marketable). Thus, $10 per share can be considered a floor for
a company's common stock.
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VI. Valuation Conclusion
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VI. Valuation Conclusion
------------------------
SYNTHESIS AND CONCLUSION
BVS has completed a valuation analysis with respect to RTI. The objective of
this analysis was to determine the fair market value of the Company's common
equity as of December 8, 2000. Our study entailed an analysis to determine the
fair market value of 100.0% of RTI's common equity as of the valuation date.
Our analysis was prepared in conjunction with a public filing. No other use is
intended or should be inferred.
For purposes of this report, we define fair market value as the price at which
property would change hands between a willing buyer and a willing seller when
the former is not under any compulsion to buy and the latter is not under any
compulsion to sell, both parties having reasonable knowledge of all relevant
facts.
With respect to the subject appraisal, we formulated a valuation conclusion for
the common equity of the Company based primarily on the results of the income
approach and supported by the market approach to value. Based on our analysis,
it is our opinion that the fair market value of the common equity of RTI, on a
minority, marketable basis as of December 8, 2000, is reasonably stated as
$336,713,000 or:
$14.47 per share
FOURTEEN DOLLARS AND FORTY-SEVEN CENTS PER SHARE
PROCEDURES
We relied on various information received regarding the Company as a fair
reflection and made limited investigation as to the accuracy and completeness of
such information. Our analysis was based in part on this information as well as
on other data we developed.
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Our valuation was conducted in accordance with generally accepted valuation
standards and included those procedures we considered necessary under the
circumstances. We are independent of RTI and its owners and have no current or
prospective interest in the subject assets. Our fee for this appraisal service
was in no way influenced by the results of our analysis.
The "Risk Factors," "Statement of Limiting Conditions" and the "Appraisal
Certification" are integral parts of this valuation opinion.
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VII. RISK FACTORS
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VII. RISK FACTORS
-----------------
BVS is not an underwriter and has not agreed to underwrite or otherwise sponsor
any offering of common shares by RTI. Persons reading this appraisal should
understand that the cash flows and valuations derived by our analysis are
speculative in nature and may not be realized. The actual future performance of
the Company could differ materially from our projections. Our cash flows and
analyses are intended to represent a conservative average outcome derived from a
wide range of possible scenarios. Given this wide range of possible scenarios,
there is a substantial risk of loss associated with an investment in common
shares of RTI.
The risk factors disclosed in the form SB-2 filed by RTI should be read in their
entirety in connection with this appraisal. RTI has a limited operating history
with a history of operating losses. RTI's growth and ultimate success depend on
rapid increases in productive capacity, obtaining substantial additional
financing and widespread market adoption and acceptance of the Company's
products. The Company's historical revenues have been at levels substantially
below the revenue levels required in the future to realize the values suggested
in the appraisal analysis by BVS. The Company faces competition and potential
competition from a variety of companies that have substantially greater
financial resources, have existing production capacity and have existing
distribution and marketing relationships that the Company currently lacks.
Furthermore, RTI is heavily dependant on its asserted patents and proprietary
rights. There is no assurance that the patents and proprietary rights claimed
by the Company will remain valid or will protect the Company from existing and
potential future competition from infringing and/or non-infringing alternatives.
For these and other reasons, there is no assurance that the market will accept
the Company's products at the levels forecast in the BVS analysis, no assurance
that the costs and expenses determined in the BVS analysis will be consistent
with the actual costs and expenses that will be realized by the Company in the
future and no assurance that the common shares of the Company will prove to be
valuable in the future.
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The valuation analysis provided by BVS is based on the assumption that the
Company's common shares are freely and widely traded on a public exchange with
sufficient float and investor interest to offer liquidity to investors and to
offer reasonable bid-ask spreads. The actual share prices for common shares of
the Company may vary substantially from our analysis. The liquidity and trading
prices for the Company's shares may be adversely affected by the current lack of
an underwriter for the Company's common shares, the absence of any assurance
that a sufficient number of shares will be available in the public float to
attract a sufficient number of investors and market makers, the absence of any
assurance that sufficient market makers will actively follow the Company so as
to provide ready liquidity and reasonable bid-ask spreads and the absence of any
assurance of analyst coverage of the Company.
Our base analysis substantially discounts the possibility of substantial
revenues and earnings being realized by the Company from sales outside of the
United States. The Company has indicated that some limited sales of product
outside of the United States have been realized. Additionally, the Company has
obtained some preliminary expressions of interest in joint ventures, licensing
agreements or distribution agreements relating to the production or possible
sale of certain of the Company's products outside of the United States. At this
time, the value of opportunities outside of the United States should be viewed
as highly speculative in nature with no assurance that material levels of
revenues and earnings from foreign sales will be realized in the future.
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Business Valuation Services 34
<PAGE>
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VIII. STATEMENT OF LIMITING CONDITIONS
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<PAGE>
VIII. STATEMENT OF LIMITING CONDITIONS
--------------------------------------
This value opinion report has been prepared pursuant to the following general
assumptions and general limiting conditions:
1. We assume no responsibility for the legal description or matters including
legal or title considerations. Title to the subject assets, properties or
business interests is assumed to be good and marketable unless otherwise
stated.
2. The subject assets, properties or business interests are appraised free and
clear of any or all liens or encumbrances unless otherwise stated.
3. We assume responsible ownership and competent management with respect to
the subject assets, properties or business interests.
4. The information furnished by management is believed to be reliable;
however, we issue no warranty or other form of assurance regarding its
accuracy.
5. We assume that there is full compliance with applicable federal, state and
local regulations and laws unless noncompliance is stated, defined and
considered in the appraisal report.
6. We assume that all required licenses, certificates of occupancy, consents,
or legislative or administrative authority from any local, state or
national government, private entity or organization have been or can be
obtained or renewed for any use on which the valuation opinion contained in
this report is based.
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Business Valuation Services 35
<PAGE>
7. Possession of this valuation report, or a copy thereof, does not carry with
it the right of publication. It may not be used for any purpose by any
person other than the party to whom it is addressed without our written
consent and, in any event, only with proper written qualifications and only
in its entirety.
8. This valuation report has been prepared in conformity with, and is subject
to, the requirements of the code of professional ethics and standards of
professional conduct of the professional appraisal organizations of which
we are members.
9. Disclosure of the contents of this valuation report is governed by the
bylaws and regulations of the Association for Investment Management and
Research and the American Society of Appraisers.
10. We assume no responsibility for any financial reporting judgments that are
appropriately those of management. Management accepts the responsibility
for any related financial reporting with respect to the assets, properties
or business interests encompassed by this appraisal.
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Business Valuation Services 36
<PAGE>
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IX. APPRAISAL CERTIFICATION
-------------------------------------------------------------------------------
<PAGE>
IX. APPRAISAL CERTIFICATION
---------------------------
We hereby certify the following statements regarding this appraisal:
1. We have inspected the assets, properties or business interests encompassed
by this appraisal.
2. We have no present or contemplated future interest in the assets,
properties or business interests that are the subject of this appraisal
report.
3. We have no personal interest or bias with respect to the subject matter of
this report or the parties involved.
4. Our compensation for making the appraisal is in no way contingent upon the
value reported.
5. To the best of our knowledge and belief, the statements of facts contained
in this report, on which the analyses, conclusions and opinions expressed
herein are based, are true and correct.
6. No persons other than appraisers of Business Valuation Services have
prepared the analyses, conclusions and opinions concerning the assets,
properties or business interests set forth in this report.
/s/ Scott D. Hakala
_______________________
Scott D. Hakala, Ph.D., CFA
Principal
/s/ Z. Eric Stephens
_______________________
Z. Eric Stephens, CFA
Director of Technical Services
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Business Valuation Services 37
<PAGE>
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X. QUALIFICATIONS OF PRINCIPAL APPRAISERS
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<PAGE>
X. QUALIFICATIONS OF PRINCIPAL APPRAISERS
-----------------------------------------
SCOTT D. HAKALA, Ph.D., CFA
Principal
Dr. Hakala has been with Business Valuation Services since 1992. He brings to
the firm extensive practical knowledge of finance, economics and statistics and
is responsible for managing projects ranging from the valuation of a small
personal services business to valuing a large conglomerate or providing economic
analysis and forecasts of future demand. He has a wide range of areas of
experience and interest. Dr. Hakala has served as an expert and testified on a
number of occasions. He co-authored two articles on the valuation of distressed
companies and has extensive experience analyzing and advising companies in
financial distress, including companies in the health care industry. He has
managed a number of valuations involving long-term care and nursing home
facilities. Recent significant engagements have included: intercompany
transfer pricing, valuations in shareholder disputes, determinations of
materiality and damages in breach of fiduciary and public stock fraud cases,
valuations of options and derivative securities, fairness opinions and due
diligence assistance and valuations of companies for mergers and acquisitions.
Prior to joining Business Valuation Services, Dr. Hakala was an Assistant
Professor of Economics at Southern Methodist University. Dr. Hakala is a
graduate of the University of Minnesota with a Ph.D. in Economics, specializing
in monetary theory, international economics and financial economics. He
received an undergraduate degree (summa cum laude) from the University of
Minnesota with a major in economics (industrial organization and managerial
economics) and a minor in business administration. He is a Chartered Financial
Analyst (designation of CFA) and a member of the Association for Investment
Management and Research.
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Business Valuation Services 38
<PAGE>
Z. ERIC STEPHENS, CFA
Director of Technical Services
Mr. Stephens has valued closely held businesses and public companies in a number
of industries, including commercial printing, financial services, healthcare,
construction, tourism, mining, paper, software and professional sports. He has
valued businesses from various links in the supply chain, including designers,
developers, manufacturers, formulators, wholesalers, distributors and retailers.
He has also valued a variety of securities and derivative instruments, including
swaps and structured notes. In addition, Mr. Stephens has valued intangible
assets such as patents, trademarks and tradenames. He has written solvency
opinions and fairness opinions for various transactions, including acquisitions,
recapitalizations and restructurings. His other valuation work has been for
gift and estate tax purposes, C-corporation to S-corporation conversions, debt
financings, equity financings and a host of other transactions. Mr. Stephens
has also been engaged to determine economic damages in various litigation
matters.
Prior to joining Business Valuation Services, Mr. Stephens was employed by the
U.S. Securities and Exchange Commission (SEC) as a staff accountant. As such,
he conducted on-site examinations of investment advisory firms, investment
companies, and venture capital firms. He also performed risk analyses,
calculated performance, and analyzed private offerings and derivative
instruments. In addition, Mr. Stephens assisted attorneys in developing
enforcement cases relating to violations of the federal securities laws.
He is a Chartered Financial Analyst (designation of CFA) and a member of the
Association for Investment Management and Research. Mr. Stephens has earned a
Master of Business Administration degree from Texas A&M University and a
Bachelor of Arts degree in Economics and Finance from Southwestern Oklahoma
State University.
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Business Valuation Services 39
<PAGE>
--------------------------------------------------------------------------------
EXHIBITS
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT I
HISTORICAL FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Confidential treatment has been requested for portions
of this exhibit. The copy filed herewith omits the
information subject to the confidentiality request.
Omissions are designated as "XXXXX".
<PAGE>
Exhibit I-1
Retractable Technologies, Inc.
Historical Financial Statements
Balance Sheets
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 9/30/00
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $3,649,778 $2,959,021 $ 5,343,123 $ 1,627,863 $ 646,005 $ 4,468,533
Accounts receivable - 5,000 57,048 100,728 599,424 2,043,342
Note receivable from stockholder - - 50,000 - - -
Inventories - 172,462 480,650 653,958 677,962 938,517
Other - - 16,500 51,103 47,800 379,329
---------- ---------- ----------- ----------- ----------- -----------
Current assets 3,649,778 3,136,483 5,947,321 2,433,652 1,971,191 7,829,721
Property, plant and equipment, net 655,015 5,236,820 8,455,142 8,923,842 10,101,524 11,099,491
Restricted certificates of deposit - 400,000 600,000 600,000 600,000 -
Intangible assets and deferred charges, net 504,236 581,163 555,439 554,757 536,014 542,021
---------- ---------- ----------- ----------- ----------- -----------
Long-term assets 1,159,251 6,217,983 9,610,581 10,078,599 11,237,538 11,641,512
---------- ---------- ----------- ----------- ----------- -----------
Total assets $4,809,029 $9,354,466 $15,557,902 $12,512,251 $13,208,729 $19,471,233
========== ========== =========== =========== =========== ===========
Accounts payable $ - $ 240,976 $ 979,701 $ 332,241 $ 844,165 $ 768,887
Obligation under license agreement 259,500 - - - - -
Current portion of long-term debt - 56,175 392,845 431,743 463,329 953,078
Note payable to related party - 267,143 57,382 25,966 - -
Accrued compensation - 108,252 27,563 107,226 118,038 208,382
Marketing fees payable - - - - 338,526 1,144,757
Other accrued liabilities 5,237 30,912 61,343 52,491 250,783 634,944
---------- ---------- ----------- ----------- ----------- -----------
Current liabilities 264,737 703,458 1,518,834 949,667 2,014,841 3,710,048
Long-term debt, net of current maturities - 2,299,036 3,240,256 2,870,959 2,506,335 5,301,963
Class A preferred stock 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 4,974,000
Class B Series I preferred stock - 983,000 992,000 1,000,000 1,000,000 1,000,000
Class B Series II preferred stock - - 945,700 1,000,000 1,000,000 1,000,000
Class B Series III preferred stock - - - - 1,160,200 1,160,445
Class B Series IV preferred stock - - - - - 1,133,800
Common stock 1,000 1,000 1,000 1,000 1,000 1,002
Additional paid-in capital - 4,303,213 13,524,052 16,680,281 23,564,235 33,979,120
Unearned compensation - (287,290) (749,289) (370,917) (185,635) (229,157)
Dividends - - - - - (2,968,542)
Notes receivable from stockholders (107,500) (257,500) - - - -
Deficit accumulated during the development
stage (349,208) (3,390,451) (8,914,651) (14,618,739) (22,852,247) (29,591,446)
---------- ---------- ----------- ----------- ----------- -----------
Stockholders' equity 4,544,292 6,351,972 10,798,812 8,691,625 8,687,553 10,459,222
---------- ---------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity $4,809,029 $9,354,466 $15,557,902 $12,512,251 $13,208,729 $19,471,233
========== ========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT I-2
Historical Financial Statements
Balance Sheets
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 9/30/00
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents 75.9% 31.6% 34.3% 13.0% 4.9% 22.9%
Accounts receivable 0.0% 0.1% 0.4% 0.8% 4.5% 10.5%
Note receivable from stockholder 0.0% 0.0% 0.3% 0.0% 0.0% 0.0%
Inventories 0.0% 1.8% 3.1% 5.2% 5.1% 4.8%
Other 0.0% 0.0% 0.1% 0.4% 0.4% 1.9%
-------- -------- -------- -------- -------- -------
Current assets 75.9% 33.5% 38.2% 19.5% 14.9% 40.2%
Property, plant and equipment, net 13.6% 56.0% 54.3% 71.3% 76.5% 57.0%
Restricted certificates of deposit 0.0% 4.3% 3.9% 4.8% 4.5% 0.0%
Intangible assets and deferred charges, net 10.5% 6.2% 3.6% 4.4% 4.1% 2.8%
-------- -------- -------- -------- -------- -------
Long-term assets 24.1% 66.5% 61.8% 80.5% 85.1% 59.8%
-------- -------- -------- -------- -------- -------
Total assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ======== =======
Accounts payable 0.0% 2.6% 6.3% 2.7% 6.4% 3.9%
Obligation under license agreement 5.4% 0.0% 0.0% 0.0% 0.0% 0.0%
Current portion of long-term debt 0.0% 0.6% 2.5% 3.5% 3.5% 4.9%
Note payable to related party 0.0% 2.9% 0.4% 0.2% 0.0% 0.0%
Accrued compensation 0.0% 1.2% 0.2% 0.9% 0.9% 1.1%
Marketing fees payable 0.0% 0.0% 0.0% 0.0% 2.6% 5.9%
Other accrued liabilities 0.1% 0.3% 0.4% 0.4% 1.9% 3.3%
-------- -------- -------- -------- -------- -------
Current liabilities 5.5% 7.5% 9.8% 7.6% 15.3% 19.1%
Long-term debt, net of current maturities 0.0% 24.6% 20.8% 22.9% 19.0% 27.2%
Class A preferred stock 104.0% 53.5% 32.1% 40.0% 37.9% 25.5%
Class B Series I preferred stock 0.0% 10.5% 6.4% 8.0% 7.6% 5.1%
Class B Series II preferred stock 0.0% 0.0% 6.1% 8.0% 7.6% 5.1%
Class B Series III preferred stock 0.0% 0.0% 0.0% 0.0% 8.8% 6.0%
Class B Series IV preferred stock 0.0% 0.0% 0.0% 0.0% 0.0% 5.8%
Common stock 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Additional paid-in capital 0.0% 46.0% 86.9% 133.3% 178.4% 174.5%
Unearned compensation 0.0% (3.1)% (4.8)% (3.0)% (1.4)% (1.2)%
Dividends 0.0% 0.0% 0.0% 0.0% 0.0% (15.2)%
Notes receivable from stockholders (2.2)% (2.8)% 0.0% 0.0% 0.0% 0.0%
Deficit accumulated during the development stage (7.3)% (36.2)% (57.3)% (116.8)% (173.0)% (152.0)%
-------- -------- -------- -------- -------- -------
Stockholders' equity 94.5% 67.9% 69.4% 69.5% 65.8% 53.7%
-------- -------- -------- -------- -------- -------
Total liabilities and stockholders' equity 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ======== =======
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT I-3
Historical Financial Statements
Income Statements
<TABLE>
<CAPTION>
Twelve months ended, 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 9/30/00
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales $ - $ - $ 262,315 $ 845,559 $ 3,375,158 $ 7,518,631
Cost of Sales - - 474,147 765,448 2,331,070 6,751,768
--------- ----------- ----------- ----------- ----------- -----------
Gross income - - (211,832) 80,111 1,044,088 766,863
Preproduction manufacturing - 1,118,125 1,496,418 1,004,828 1,837,830 1,192,452
Sales and marketing 45,281 326,046 1,394,024 1,539,822 3,742,779 4,319,701
Research and development 54,588 399,758 266,029 763,690 842,062 696,633
General and administrative 318,997 1,252,564 1,952,561 2,419,821 2,863,989 3,594,970
--------- ----------- ----------- ----------- ----------- -----------
Operating expenses 418,866 3,096,493 5,109,032 5,728,161 9,286,660 9,803,756
--------- ----------- ----------- ----------- ----------- -----------
Loss from operations (418,866) (3,096,493) (5,320,864) (5,648,050) (8,242,572) (9,036,893)
Interest income 69,658 159,827 133,413 162,116 122,028 162,524
Interest expense - (104,577) (336,749) (218,154) (112,964) (126,340)
--------- ----------- ----------- ----------- ----------- -----------
Other income 69,658 55,250 (203,336) (56,038) 9,064 36,184
--------- ----------- ----------- ----------- ----------- -----------
Net loss $(349,208) $(3,041,243) $(5,524,200) $(5,704,088) $(8,233,508) $(9,000,709)
========= =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT I-4
Historical Financial Statements
Income Statements
<TABLE>
<CAPTION>
Twelve months ended, 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 9/30/00
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales #N/A #N/A 100.0% 100.0% 100.0% 100.0%
Cost of Sales #N/A #N/A 180.8% 90.5% 69.1% 89.8%
--------- ----------- ----------- ----------- ----------- -----------
Gross income #N/A #N/A (80.8)% 9.5% 30.9% 10.2%
Preproduction manufacturing #N/A #N/A 570.5% 118.8% 54.5% 15.9%
Sales and marketing #N/A #N/A 531.4% 182.1% 110.9% 57.5%
Research and development #N/A #N/A 101.4% 90.3% 24.9% 9.3%
General and administrative #N/A #N/A 744.4% 286.2% 84.9% 47.8%
--------- ----------- ----------- ----------- ----------- -----------
Operating expenses #N/A #N/A 1,947.7% 677.4% 275.1% 130.4%
--------- ----------- ----------- ----------- ----------- -----------
Loss from operations #N/A #N/A (2,028.4)% (668.0)% (244.2)% (120.2)%
Interest income #N/A #N/A 50.9% 19.2% 3.6% 2.2%
Interest expense #N/A #N/A (128.4)% (25.8)% (3.3)% (1.7)%
--------- ----------- ----------- ----------- ----------- -----------
Other income #N/A #N/A (77.5)% (6.6)% 0.3% 0.5%
--------- ----------- ----------- ----------- ----------- -----------
Net loss #N/A #N/A (2,105.9)% (674.6)% (243.9)% (119.7)%
========= =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT I-5
Historical Financials
Financial Analysis
<TABLE>
<CAPTION>
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 9/30/00
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Profitability
Gross profit margin #N/A #N/A (80.8)% 9.5% 30.9% 10.2%
Oper. (EBIT) margin #N/A #N/A (2,028.4)% (668.0)% (244.2)% (120.2)%
Net income margin #N/A #N/A (2,105.9)% (674.6)% (243.9)% (119.7)%
Interest burden 0.83 0.98 1.04 1.01 1.00 1.00
Tax burden 1.00 1.00 1.00 1.00 1.00 1.00
Asset turnover 0.00 0.00 0.02 0.07 0.26 0.39
Financial leverage 1.06 1.47 1.44 1.44 1.52 1.86
Return on assets #N/A #N/A #N/A #N/A #N/A #N/A
Return on equity (7.7)% (47.9)% (51.2)% (65.6)% (94.8)% (86.1)%
Liquidity
Current ratio 13.79 4.46 3.92 2.56 0.98 2.11
Quick ratio 13.79 4.21 3.56 1.82 0.62 1.76
Working capital $3,385,041 $ 2,433,025 $ 4,428,487 $ 1,483,985 $ (43,650) $ 4,119,673
Adj. working capital $ (264,737) $ (202,678) $ (464,409) $ 313,831 $ (226,326) $ 604,218
WC to sales #N/A #N/A 1,688.2% 175.5% (1.3)% 54.8%
AWC to sales #N/A #N/A (177.0)% 37.1% (6.7)% 8.0%
Asset efficiency
Receivables turnover #N/A #N/A 4.60 8.39 5.63 3.68
Days receivable #N/A #N/A 79.38 43.48 64.82 99.20
Payables turnover #N/A #N/A 0.48 2.30 2.76 8.78
Days payables #N/A #N/A 754.18 158.43 132.18 41.57
Inventory turnover #N/A #N/A 0.99 1.17 3.44 7.19
Days inventory #N/A #N/A 370.01 311.84 106.16 50.74
Trade cycle #N/A #N/A (304.79) 196.89 38.80 108.37
Sales/gross fx assets 0.00 0.00 0.03 0.08 0.27 0.52
Sales/net fixed assets 0.00 0.00 0.03 0.09 0.33 0.68
Sales/total assets 0.00 0.00 0.02 0.07 0.26 0.39
Leverage
Interest coverage #N/A (29.61) (15.80) (25.89) (72.97) (71.53)
Liabilities to assets 0.06 0.32 0.31 0.31 0.34 0.46
Debt to equity 0.00 0.41 0.34 0.38 0.34 0.60
Cash flow
EBITD $ (405,363) $(2,557,706) $(4,864,955) $(4,840,990) $(7,292,101) $(8,064,826)
Depreciation 13,503 538,787 455,909 807,060 950,471 972,067
EBIT (418,866) (3,096,493) (5,320,864) (5,648,050) (8,242,572) (9,036,893)
Interest expense 0 104,577 336,749 218,154 112,964 126,340
EBT (349,208) (3,041,243) (5,524,200) (5,704,088) (8,233,508) (9,000,709)
Capital expenditures $ 657,884 $ 4,395,022 $ 3,252,731 $ 1,179,547 $ 1,177,682 $ 1,157,414
Cap. expend to sales #N/A #N/A 1,240.0% 139.5% 34.9% 15.4%
Effective tax rate #N/A #N/A #N/A #N/A #N/A #N/A
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT II
DISCOUNTED CASH FLOW ANALYSIS
--------------------------------------------------------------------------------
<PAGE>
EXHIBIT II-1
Retractable Technologies, Inc.
Discounted Cash Flow Analysis
Income Statements, Assumptions (Non-Abbott Sales)
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q 1
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Inflation 0.7% 0.7% 0.7% 0.7%
Total market growth, syringe units 6.0%
Hospital market growth, syringe units 4.0%
Total market growth, tube holder units 3.0%
Total market
Syringe units 2,023,272,938 2,023,272,938 2,023,272,938 2,023,272,938 8,093,091,750
Tube holder units 370,000,000 370,000,000 370,000,000 370,000,000 1,480,000,000
Market served by Abbott
Syringe units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Market not served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Safety market
Syringe units (% total) 35.00% 40.00% 45.00% 50.00% N/A
Tube holder units (% total) 29.00% 34.00% 39.00% 44.00% N/A
Safety market not served by Abbott
Syringe units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XX,XXX,XXX XX,XXX,XXX XX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Retractable market share (% safety)
Syringe % 0.75% 1.25% 1.85% 2.50% N/A
Tube holder % 0.00% 0.00% 0.00% 1.30% N/A
Unit prices
Syringe $ X.XX X.XX X.XX X.XX N/A
Tube holders $ X.XX X.XX X.XX X.XX N/A
COGS (% sales) 68.4% 58.1% 52.6% 48.9% N/A
COGS (fixed portion) $ 599,174 $ 603,178 $ 607,209 $ 611,267 $ 2,420,828
COGS $ $ 1,807,046 $ 2,559,709 $ 3,554,642 $ 4,951,421 $ 12,872,818
Sales and marketing (% sales) 15.00% 15.00% 15.00% 15.00% N/A
Sales and marketing (fixed portion) $ 650,000 $ 803,561 $ 949,317 $ 1,106,889 $ 3,509,767
Sales and marketing $ $ 914,989 $ 1,308,302 $ 1,789,710 $ 2,437,181 $ 6,450,812
R&D (% sales) 0.15% 0.15% 0.15% 0.15% N/A
R&D (fixed portion) $ 150,000 $ 183,929 $ 214,507 $ 245,768 $ 794,203
R&D $ $ 152,650 $ 188,976 $ 222,911 $ 259,071 $ 823,607
G&A (% sales) 5.00% 5.00% 5.00% 5.00% N/A
G&A (fixed portion) $ 1,000,000 $ 1,226,190 $ 1,430,045 $ 1,638,452 $ 5,294,688
G&A $ $ 1,088.330 $ 1,394,437 $ 1,710,176 $ 2,081,883 $ 6,274,826
</TABLE>
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q 2
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Inflation 0.7% 0.7% 0.7% 0.7%
Total market growth, syringe units 6.0%
Hospital market growth, syringe units 4.0%
Total market growth, tube holder units 3.0%
Total market
Syringe units 2,144,669,314 2,144,669,314 2,144,669,314 2,144,669,314 8,578,677,256
Tube holder units 381,100,000 381,100,000 381,100,000 381,100,000 1,524,400,000
Market served by Abbott
Syringe units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Market not served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Safety market
Syringe units (% total) 56.25% 62.50% 68.75% 75.00% N/A
Tube holder units (% total) 50.25% 56.50% 62.75% 69.00% N/A
Safety market not served by Abbott
Syringe units
Tube holder units
Retractable market share (% safety)
Syringe % 3.00% 3.50% 4.00% 4.50% N/A
Tube holder % 2.00% 2.33% 2.67% 3.00% N/A
Unit prices
Syringe $ X.XX X.XX X.XX X.XX N/A
Tube holders $ X.XX X.XX X.XX X.XX N/A
COGS (% sales) 47.1% 45.7% 44.6% 43.6% N/A
COGS (fixed portion) $ 615,352 $ 619,464 $ 623,604 $ 627,771 $ 2,486,191
COGS $ $ 6,765,973 $ 8,355,120 $ 10,111,025 $ 12,031,236 $ 37,263,353
Sales and marketing (% sales) 15.00% 15.00% 15.00% 15.00% N/A
Sales and marketing (fixed portion) $ 1,042,431 $ 1,151,784 $ 1,267,283 $ 1,391,508 $ 4,853,006
Sales and marketing $ $ 2,999,210 $ 3,690,293 $ 4,460,551 $ 5,312,564 $ 16,462,617
R&D (% sales) 0.15% 0.15% 0.15% 0.15% N/A
R&D (fixed portion) $ 225,214 $ 241,953 $ 257,554 $ 272,229 $ 996,950
R&D $ $ 244,782 $ 267,338 $ 289,487 $ 311,440 $ 1,113,046
G&A (% sales) 5.00% 5.00% 5.00% 5.00% N/A
G&A (fixed portion) $ 1,831,355 $ 1,967,466 $ 2,094,333 $ 2,213,665 $ 8,106,819
G&A $ $ 2,483,615 $ 2,813,636 $ 3,158,756 $ 3,520,684 $ 11,976,690
</TABLE>
<TABLE>
<CAPTION>
1Q 2Q 3Q 4Q 3
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Inflation 0.7% 0.7% 0.7% 0.7%
Total market growth, syringe units 6.0%
Hospital market growth, syringe units 4.0%
Total market growth, tube holder units 3.0%
Total market
Syringe units 2,273,349,473 2,273,349,473 2,273,349,473 2,273,349,473 9,093,397,891
Tube holder units 392,533,000 392,533,000 392,533,000 392,533,000 1,570,132,000
Market served by Abbott
Syringe units
Tube holder units
Market not served by Abbott
Syringe units
Tube holder units
Safety market
Syringe units (% total) 78.20% 81.40% 84.60% 87.80% N/A
Tube holder units (% total) 72.20% 75.40% 78.60% 81.80% N/A
Safety market not served by Abbott
Syringe units 1,125,566,009 1,171,624,976 1,217,683,943 1,263,742,911 4,778,617,839
Tube holder units 179,436,746 187,389,621 195,342,496 203,295,371 765,464,234
Retractable market share (% safety)
Syringe % 4.75% 5.00% 5.25% 5.50% N/A
Tube holder % 3.17% 3.33% 3.50% 3.67% N/A
Unit prices
Syringe $ 0.54 $ 0.54 $ 0.54 $ 0.54 N/A
Tube holders $ 0.35 $ 0.35 $ 0.35 $ 0.35 N/A
COGS (% sales) 43.2% 42.8% 42.5% 42.1% N/A
COGS (fixed portion) $ 631,966 $ 636,190 $ 640,441 $ 644,721 $ 2,553,318
COGS $ $ 13,958,675 $ 15,113,386 $ 16,312,326 $ 17,555,249 $ 62,939,635
Sales and marketing (% sales) 15.00% 15.00% 15.00% 15.00% N/A
Sales and marketing (fixed portion) $ 1,246,808 $ 1,341,115 $ 1,448,249 $ 1,570,287 $ 5,606,459
Sales and marketing $ $ 5,875,737 $ 6,414,128 $ 6,985,392 $ 7,591,605 $ 26,866,862
R&D (% sales) 0.15% 0.15% 0.15% 0.15% N/A
R&D (fixed portion) $ 231,307 $ 1,020,861 $ 236,598 $ 1,043,178 $ 2,531,945
R&D $ $ 277,597 $ 1,071,592 $ 291,970 $ 1,103,391 $ 2,744,549
G&A (% sales) 5.00% 5.00% 5.00% 5.00% N/A
G&A (fixed portion) $ 2,313,574 $ 2,369,063 $ 2,423,249 $ 2,476,222 $ 9,582,109
G&A $ $ 3,856,550 $ 4,060,067 $ 4,268,964 $ 4,483,329 $ 16,668,910
</TABLE>
<PAGE>
Exhibit II-2
Retractable Technologies, Inc.
Discounted Cash Flow Analysis
Income Statements, Assumptions (Non-Abbott Sales)
<TABLE>
<CAPTION>
1 2 3 4 5
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Inflation 2.7% 2.7%
Total market growth, syringe units 6.0% 6.0%
Hospital market growth, syringe units 4.0% 4.0%
Total market growth, tube holder units 3.0% 3.0%
Total market
Syringe units 9,639,001,764 10,217,341,870
Tube holder units 1,617,235,960 1,665,753,039
Market served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX
Market not served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units X,XXX,XXX,XXX X,XXX,XXX,XXX
Safety market
Syringe units (% total) 91.00% 91.00%
Tube holder units (% total) 85.00% 85.00%
Safety market not served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX
Retractable market share (% safety)
Syringe % 6.00% 6.50%
Tube holder % 4.00% 5.00%
Unit prices
Syringe $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
Tube holders $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
COGS (% of sales) 65.7% 48.1% 44.4% 44.0% 43.6%
COGS $ $12,872,818 $37,263,353 $62,939,625 $ 85,662,346 $ 99,485,162
Sales and marketing (% sales) 15.00% 15.00% 15.00% 15.00% 15.00%
Sales and marketing (fixed portion) $ 3,509,767 $ 4,853,006 $ 5,606,459 $ 6,618,491 $ 7,152,484
Sales and marketing $ $ 6,450,182 $16,462,617 $26,866,862 $ 35,813,485 $ 41,361,727
Research and development (% sales) 0.15% 0.15% 0.15% 0.15% 0.15%
Research and development (fixed portion) $ 794,203 $ 996,950 $ 2,531,945 $ 3,004,418 $ 3,262,423
R&D $ $ 823,607 $ 1,113,046 $ 2,744,549 $ 3,296,368 $ 3,604,515
General and administrative (% sales) 5.00% 5.00% 5.00% 5.00% 5.00%
General and administrative (fixed portion) $ 5,294,688 $ 8,106,819 $ 9,582,109 $ 11,311,794 $ 12,224,452
G&A $ $ 6,274,826 $11,976,690 $16,668,910 $ 21,043,458 $ 23,627,532
6 7 8 9 10
---------- ----------- ----------- ----------- -----------
Inflation 2.7% 2.7% 2.7% 2.7% 2.7%
Total market growth, syringe units 6.0% 6.0% 6.0% 6.0% 6.0%
Hospital market growth, syringe units 4.0% 4.0% 4.0% 4.0% 4.0%
Total market growth, tube holder units 3.0% 3.0% 3.0% 3.0% 3.0%
Total market
Syringe units 10,830,382,382 11,480,205,325 12,169,017,645 12,899,158,704 13,673,108,226
Tube holder units 1,715,725,630 1,767,197,399 1,820,213,321 1,874,819,720 1,931,064,312
Market served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Market not served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX
Safety market
Syringe units (% total) 91.00% 91.00% 91.00% 91.00% 91.00%
Tube holder units (% total) 85.00% 85.00% 85.00% 85.00% 85.00%
Safety market not served by Abbott
Syringe units X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX
Tube holder units XXX,XXX,XXX XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX X,XXX,XXX,XXX
Retractable market share (% safety)
Syringe % 6.50% 6.50% 6.50% 6.50% 6.50%
Tube holder % 6.00% 6.00% 6.00% 6.00% 6.00%
Unit prices
Syringe $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
Tube holders $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
COGS (% of sales) 43.2% 42.9% 44.4% 46.1% 47.8%
COGS $ $106,734,339 $112,901,691 $118,705,759 $ 124,811,019 $ 131,233,057
Sales and marketing (% sales) 15.00% 15.00% 15.00% 15.00% 15.00%
Sales and marketing (fixed portion) $ 7,413,074 $ 7,627,246 $ 7,823,298 $ 8,024,481 $ 8,230,927
Sales and marketing $ $44,442,893 $47,146,220 $47,883,912 $ 48,628,179 $ 49,379,174
Research and development (% sales) 0.15% 0.15% 0.15% 0.15% 0.15%
Research and development (fixed portion) $ 3,396,917 $ 3,511,088 $ 3,535,150 $ 3,559,112 $ 3,582,978
R&D $ $ 3,767,216 $ 3,906,278 $ 3,935,756 $ 3,965,149 $ 3,994,460
General and administrative (% sales) 5.00% 5.00% 5.00% 5.00% 5.00%
General and administrative (fixed portion) $12,669,831 $13,035,876 $13,370,952 $ 13,714,798 $ 14,067,639
G&A $ $25,013,103 $26,208,868 $26,724,490 $ 27,249,364 $ 27,783,722
</TABLE>
<PAGE>
EXHIBIT II-3
Retractable Technologies, Inc.
Discounted Cash Flow Analysis
Income Statements, Assumptions (Abbott)
<TABLE>
<CAPTION>
1 2 3 4 5
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Hospital market growth, syringe units
Total market growth, tube holder units
Units
3 cc 29,149,500 36,646,500 42,976,500 49,423,000 55,514,500
5 cc 5,430,000 7,521,000 8,752,500 10,065,500 11,306,500
10 cc 5,242,500 7,112,500 8,277,000 9,518,500 10,692,000
1 cc 9,984,000 23,976,500 31,922,500 40,400,000 48,641,000
----------- ----------- ------------ ------------ ------------
Total, syringe 49,806,000 75,256,500 91,928,500 109,407,000 126,154,000
BCTH 17,512,500 21,862,500 25,639,000 29,485,000 33,907,500
----------- ----------- ------------ ------------ ------------
Total units 67,318,500 97,119,000 117,567,500 138,892,000 160,061,500
=========== =========== ============ ============ ============
Abbott net unit cost (pymt to RTI)
3 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
5 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
10 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
1 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
BCTH $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
RTI net sales
3 cc $13,117,275 $16,490,925 $ 19,339,425 $ 22,240,350 $ 24,981,525
5 cc $ 4,072,500 $ 5,640,750 $ 6,564,375 $ 7,549,125 $ 8,479,875
10 cc $ 4,456,125 $ 6,045,625 $ 7,035,450 $ 8,090,725 $ 9,088,200
1 cc $ 4,992,000 $11,988,250 $ 15,961,250 $ 20,200,000 $ 24,320,500
BCTH $ 6,129,375 $ 7,651,875 $ 8,973,650 $ 10,319,750 $ 11,867,625
----------- ----------- ------------ ------------ ------------
Total $32,767,275 $47,817,425 $ 57,874,150 $ 68,399,950 $ 78,737,725
=========== =========== ============ ============ ============
RTI Direct Costs per Unit
3 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
5 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
10 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
1 cc $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
BCTH $ X.XX $ X.XX $ X.XX $ X.XX $ X.XX
RTI Direct Costs per Unit
3 cc $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX
5 cc $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX
10 cc $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX
1 cc $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX
BCTH $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX $ X,XXX,XXX
----------- ----------- ------------ ------------ ------------
Total $XX,XXX,XXX $XX,XXX,XXX $ XX,XXX,XXX $ XX,XXX,XXX $ XX,XXX,XXX
COGS (% of sales) 51.3% 46.8% 46.5% 46.2% 46.0%
COGS $ $16,795,780 $22,398,255 $ 26,903,608 $ 31,613,160 $ 36,230,060
Sales and Marketing (% Sales) 20.5% 20.3% 20.3% 20.3% 20.3%
Sales and Marketing (fixed portion) $ 600,000 $ 700,069 $ 770,478 $ 837,915 $ 899,101
Sales and Marketing $ $ 7,331,850 $10,411,969 $ 12,527,228 $ 14,727,115 $ 16,905,251
R&D (% sales) 0.15% 0.15% 0.15% 0.15% 0.15%
R&D (fixed portion) $ 150,000 $ 175,017 $ 192,619 $ 209,479 $ 224,775
R&D $ $ 199,151 $ 246,743 $ 279,431 $ 312,079 $ 342,882
G&A (% sales) 1.00% 1.00% 1.00% 1.00% 1.00%
G&A (fixed portion) $ 600,000 $ 700,069 $ 770,478 $ 837,915 $ 899,101
G&A $ $ 927,673 $ 1,178,244 $ 1,349,219 $ 1,521,915 $ 1,686,478
6 7 8 9 10
----------- ----------- ------------ ------------ ------------
Hospital market growth, syringe units 4.0% 4.0% 4.0% 4.0% 4.0%
Total market growth, tube holder units 3.0% 3.0% 3.0% 3.0% 3.0%
Units
3 cc 57,735,080 60,044,483 62,446,263 64,944,113 67,541,878
5 cc 11,758,760 12,229,110 12,718,275 13,227,006 13,756,086
10 cc 11,119,680 11,564,467 12,027,046 12,508,128 13,008,453
1 cc 50,586,640 52,610,106 54,714,510 56,903,090 59,179,214
----------- ----------- ------------ ------------ ------------
Total, syringe 131,200,160 136,448,166 141,906,093 147,582,337 153,485,630
BCTH 34,924,725 35,972,467 37,051,641 38,163,190 39,308,086
----------- ----------- ------------ ------------ ------------
Total units 166,124,885 172,420,633 178,957,734 185,745,527 192,793,716
=========== =========== ============ ============ ============
Abbott net unit cost (pymt to RTI)
3 cc $ 0.45 $ 0.45 $ 0.45 $ 0.45 $ 0.45
5 cc $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.75
10 cc $ 0.85 $ 0.85 $ 0.85 $ 0.85 $ 0.85
1 cc $ 0.50 $ 0.50 $ 0.50 $ 0.50 $ 0.50
BCTH $ 0.35 $ 0.35 $ 0.35 $ 0.35 $ 0.35
RTI net sales
3 cc $25,980,786 $27,020,017 $ 28,100,818 $ 29,224,851 $ 30,393,845
5 cc $ 8,819,070 $ 9,171,833 $ 9,538,706 $ 9,920,254 $ 10,317,065
10 cc $ 9,451,728 $ 9,829,797 $ 10,222,989 $ 10,631,909 $ 11,057,185
1 cc $25,293,320 $26,305,053 $ 27,357,255 $ 28,451,545 $ 29,589,607
BCTH $12,223,654 $12,590,363 $ 12,968,074 $ 13,357,116 $ 13,757,830
----------- ----------- ------------ ------------ ------------
Total $81,768,558 $84,917,064 $ 88,187,842 $ 91,585,675 $ 95,115,531
=========== =========== ============ ============ ============
RTI Direct Costs per Unit
3 cc $ 0.18 $ 0.18 $ 0.17 $ 0.17 $ 0.17
5 cc $ 0.22 $ 0.21 $ 0.21 $ 0.21 $ 0.21
10 cc $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
1 cc $ 0.18 $ 0.18 $ 0.17 $ 0.17 $ 0.17
BCTH $ 0.18 $ 0.17 $ 0.17 $ 0.17 $ 0.17
RTI Direct Costs per Unit
3 cc $10,231,234 $10,534,078 $ 10,845,887 $ 11,166,925 $ 11,497,466
5 cc $ 2,537,776 $ 2,612,894 $ 2,690,235 $ 2,769,866 $ 2,851,854
10 cc $ 2,278,756 $ 2,346,207 $ 2,415,655 $ 2,487,158 $ 2,560,778
1 cc $ 8,964,458 $ 9,229,806 $ 9,503,009 $ 9,784,298 $ 10,073,913
BCTH $ 6,154,435 $ 6,275,677 $ 6,399,308 $ 6,525,375 $ 6,653,925
----------- ----------- ------------ ------------ ------------
Total $30,166,659 $30,998,663 $ 31,854,094 $ 32,733,622 $ 33,637,936
COGS (% of sales) 45.6% 45.2% 44.7% 44.3% 43.9%
COGS $ $37,271,752 $38,344,382 $ 39,448,896 $ 40,586,268 $ 41,757,506
Sales and Marketing (% Sales) 20.3% 20.3% 20.3% 20.3% 20.3%
Sales and Marketing (fixed portion) $ 912,027 $ 925,150 $ 938,475 $ 952,003 $ 965,740
Sales and Marketing $ $17,524,515 $18,167,213 $ 18,834,248 $ 19,526,556 $ 20,245,112
R&D (% sales) 0.15% 0.15% 0.15% 0.15% 0.15%
R&D (fixed portion) $ 228,007 $ 231,288 $ 234,619 $ 238,001 $ 241,435
R&D $ $ 350,660 $ 358,663 $ 366,900 $ 375,379 $ 384,108
G&A (% sales) 1.00% 1.00% 1.00% 1.00% 1.00%
G&A (fixed portion) $ 912,027 $ 925,150 $ 938,475 $ 952,003 $ 965,740
G&A $ $ 1,729,712 $ 1,774,321 $ 1,820,353 $ 1,867,860 $ 1,916,895
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT II-4
Discounted Cash Flow Analysis
Income Statements, Assumptions (International)
<TABLE>
<CAPTION>
1 2 3 4 5 6 7
----- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
RTI net sales,
international (% of U.S.) 2.0% 5.0% 8.0% 10.0% 10.0% 10.0%
RTI net sales,
international $ $ - $2,194,707 $8,563,148 $17,928,526 $26,118,702 $27,926,092 $29,568,492
COGS (% of sales) 51.3% 46.8% 46.5% 46.2% 46.0% 45.6% 45.2%
COGS $ $ - $1,028,027 $3,980,699 $ 8,286,225 $12,018,154 $12,729,274 $13,351,681
Sales and Marketing
(% sales) 20.5% 20.3% 20.3% 20.3% 20.3% 20.3% 20.3%
Sales and Marketing $ $ - $ 445,753 $1,739,547 $ 3,640,542 $ 5,309,524 $ 5,673,598 $ 6,003,762
G&A (% sales) 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
G&A $ $ - $ 43,894 $ 171,263 $ 358,571 $ 522,374 $ 558,522 $ 591,370
<CAPTION>
8 9 10
---------- ----------- -----------
<S> <C> <C> <C>
RTI net sales,
international (% of U.S.) 10.0% 10.0% 10.0%
RTI net sales,
international $ $30,184,445 $30,813,873 $31,457,285
COGS (% of sales) 44.7% 44.3% 43.9%
COGS $ $13,502,349 $13,655,194 $13,810,339
Sales and Marketing
(% sales) 20.3% 20.3% 20.3%
Sales and Marketing $ $ 6,125,266 $ 6,249,382 $ 6,376,211
G&A (% sales) 2.0% 2.0% 2.0%
G&A $ $ 603,689 $ 616,277 $ 629,146
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT II-5
Discounted Cash Flow Analysis
Income Statements, Annual
<TABLE>
<CAPTION>
1 2 3 4 5 6 7
----------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales, Abbott $XX,XXX,XXX $XX,XXX,XXX $XX,XXX,XXX $XX,XXX,XXX $XX,XXX,XXX $XX,XXX,XXX $XX,XXX,XXX
Sales, other U.S. XX,XXX,XXX XX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Sales, international - X,XXX,XXX X,XXX,XXX XX,XXX,XXX XX,XXX,XXX XX,XXX,XXX XX,XXX,XXX
----------- ----------- ----------- ----------- ----------- ----------- -----------
Sales 52,370,039 127,409,541 208,173,317 280,961,764 332,918,041 356,560,106 377,945,378
Cost of goods sold 29,668,598 60,689,635 93,823,942 125,561,731 147,733,376 156,735,366 164,597,755
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross income 22,701,440 66,719,906 114,349,375 155,400,034 185,184,665 199,824,740 213,347,623
Sales and marketing 13,782,032 27,320,340 41,133,636 54,181,142 63,576,502 67,641,005 71,317,195
Research and development 1,022,758 1,359,790 3,023,980 3,608,447 3,947,397 4,117,875 4,264,941
Depreciation 2,234,286 3,319,740 4,134,069 5,021,788 5,547,399 5,803,770 6,220,057
General and administrative 7,202,498 13,198,828 18,189,392 22,923,943 25,836,385 27,301,338 28,574,558
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses 24,241,574 45,198,698 66,481,077 85,735,320 98,907,683 104,863,988 110,376,752
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (1,540,134) 21,521,208 47,868,298 69,664,714 86,276,982 94,960,752 102,970,872
Taxes - - 11,632,443 25,184,649 31,602,503 35,223,439 38,588,989
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income $(1,540,134) $21,521,208 $36,235,855 $44,480,065 $54,674,479 $59,737,313 $64,381,882
=========== =========== =========== =========== =========== =========== ===========
Gross margin 43.3% 52.4% 54.9% 55.3% 55.6% 56.0% 56.4%
Operating margin (2.9)% 16.9% 23.0% 24.8% 25.9% 26.6% 27.2%
Net margin (2.9)% 16.9% 17.4% 15.8% 16.4% 16.8% 17.0%
<CAPTION>
8 9 10
----------- ---------- ----------
<S> <C> <C> <C>
Sales, Abbott $XX,XXX,XXX $XX,XXX,XXX $XX,XXX,XXX
Sales, other U.S. XXX,XXX,XXX XXX,XXX,XXX XXX,XXX,XXX
Sales, international XX,XXX,XXX XX,XXX,XXX XX,XXX,XXX
----------- ----------- -----------
Sales 385,443,048 393,090,871 400,894,458
Cost of goods sold 171,657,004 179,052,481 186,800,903
----------- ----------- -----------
Gross income 213,786,045 214,038,390 214,093,556
Sales and marketing 72,843,426 74,404,118 76,000,496
Research and development 4,302,656 4,340,528 4,378,569
Depreciation 6,722,070 7,337,107 8,071,234
General and administrative 29,148,532 29,733,502 30,329,763
----------- ----------- -----------
Operating expenses 113,016,684 115,815,255 118,780,061
----------- ----------- -----------
Operating income 100,769,361 98,223,134 95,313,494
Taxes 37,871,470 36,921,060 35,832,706
----------- ----------- -----------
Net income $62,897,891 $61,302,074 $59,480,789
=========== =========== ===========
Gross margin 55.5% 54.5% 53.4%
Operating margin 26.1% 25.0% 23.8%
Net margin 16.3% 15.6% 14.8%
</TABLE>
<PAGE>
Exhibit II-6
Retractable Technologies, Inc.
Discounted Cash Flow Analysis
Depreciation Schedule
<TABLE>
<CAPTION>
1 2 3 4 5
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net fixed asset utilization on COGS 1.00 1.50 2.00 2.35 2.70
Beginning net fixed assets 10,837,598 29,668,598 40,459,757 46,911,971 53,430,524
Required net fixed assets 29,668,598 40,459,757 46,911,971 53,430,524 54,716,065
Depreciation 2,234,286 3,319,740 4,134,069 5,021,788 5,547,399
Capital expenditures 21,065,287 14,110,899 10,586,284 11,540,341 6,832,940
Book depreciation:
Straight-line Life (30 yrs) $ 5,042,053 168,068 168,068 168,068 168,068 168,068
Straight-line Life (13 yrs) 5,795,545 445,811 445,811 445,811 445,811 445,811
------------ ----------- ----------- ----------- ----------- -----------
Existing assets, total $ 10,837,598 613,880 613,880 613,880 613,880 613,880
Straight-line Life (13 yrs)
Additions-1 $ 21,065,287 1,620,407 1,620,407 1,620,407 1,620,407 1,620,407
Additions-2 14,110,899 1,085,454 1,085,454 1,085,454 1,085,454
Additions-3 10,586,285 814,330 814,330 814,330
Additions-4 11,540,341 887,719 887,719
Additions-5 6,832,940 525,611
Additions-6 3,332,827
Additions-7 5,411,734
Additions-8 6,526,169
Additions-9 7,995,480
Additions-10 9,543,651
------------ ----------- ----------- ----------- ----------- -----------
Total $117,326,859 $ 2,234,286 $ 3,319,740 $ 4,134,069 $ 5,021,788 $ 5,547,399
============ =========== =========== =========== =========== ===========
6 7 8 9 10
---------- ----------- ----------- ----------- -----------
Net fixed asset utilization on COGS 3.00 3.20 3.35 3.45 3.50
Beginning net fixed assets 54,716,065 52,245,122 51,436,798 51,240,897 51,899,270
Required net fixed assets 52,245,122 51,436,798 51,240,897 51,899,270 53,371,686
Depreciation 5,803,770 6,220,057 6,722,070 7,337,107 8,071,234
Capital expenditures 3,332,827 5,411,734 6,526,169 7,995,480 9,543,651
Book depreciation:
Straight-line Life (30 yrs) 168,068 168,068 168,068 168,068 168,068
Straight-line Life (13 yrs) 445,811 445,811 445,811 445,811 445,811
----------- ----------- ----------- ----------- -----------
Existing assets, total 613,880 613,880 613,880 613,880 613,880
Straight-line Life (13 yrs)
Additions-1 1,620,407 1,620,407 1,620,407 1,620,407 1,620,407
Additions-2 1,085,454 1,085,454 1,085,454 1,085,454 1,085,454
Additions-3 814,330 814,330 814,330 814,330 814,330
Additions-4 887,719 887,719 887,719 887,719 887,719
Additions-5 525,611 525,611 525,611 525,611 525,611
Additions-6 256,371 257,371 256,371 256,371 256,371
Additions-7 416,287 416,287 416,287 416,287
Additions-8 502,013 502,013 502,013
Additions-9 615,037 615,037
Additions-10 734,127
----------- ----------- ----------- ----------- -----------
Total $ 5,803,770 $ 6,220,057 $ 6,722,070 $ 7,337,107 $ 8,071,234
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT II-7
Discounted Cash Flow Analysis
Balance Sheets, Annual, Assumptions
<TABLE>
<CAPTION>
Base 1 2 3 4 5 6 7 8 9 10
----- ---- ----- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts receivable (% sales) 27.2% 17.0% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3% 13.3%
Inventories (% COGS) 11.8% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1% 11.1%
Other current assets (% sales) 5.0% 3.0% 2.0% 1.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Accounts payable (% COGS) 9.7% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3%
Accrued compensation (% of G&A) 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8%
Other accrued liabilities (% sales) 23.7% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3%
</TABLE>
<PAGE>
Exhibit II-8
Retractable Technologies, Inc.
Discounted Cash Flow Analysis
Balance Sheets
<TABLE>
<CAPTION>
Base 1 2 3 4 5
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash $ 4,468,533 $ 4,468,533 $ 4,468,533 $ 4,468,533 $ 4,468,533 $ 4,468,533
Accounts receivable 2,043,342 8,902,907 16,987,939 27,756,442 37,461,569 44,389,072
Inventories 938,517 3,296,511 6,743,293 10,424,882 13,951,303 16,414,820
Other 379,329 1,571,101 2,548,191 3,122,600 2,809,618 3,329,180
----------- ----------- ----------- ----------- ------------ ------------
Current assets 7,829,721 18,239,052 30,747,955 45,772,458 58,691,023 68,601,605
Land 261,893 261,893 261,893 261,893 261,893 261,893
Property, plant and equipment, gross 14,087,242 35,152,529 49,263,427 59,849,711 71,390,051 78,222,992
Accumulated depreciation (3,249,644) (5,483,930) (8,803,670) (12,937,740) (17,959,528) (23,506,927)
----------- ----------- ----------- ----------- ------------ ------------
Property, plant and equipment, net 10,837,598 29,668,598 40,459,757 46,911,971 53,430,524 54,716,065
Intangible assets, deferred charges, net 542,021 542,021 542,021 542,021 542,021 542,021
----------- ----------- ----------- ----------- ------------ ------------
Total assets $19,471,233 $48,711,564 $72,011,626 $93,488,343 $112,925,460 $124,121,584
=========== =========== =========== =========== ============ ============
Accounts payable $ 768,887 $ 2,472,383 $ 5,057,470 $ 7,818,662 $ 10,463,478 $ 12,311,115
Accrued compensation 208,382 416,764 763,734 1,052,508 1,326,467 1,494,992
Other accrued liabilities 1,779,701 4,346,713 10,574,992 17,347,776 23,413,480 27,743,170
----------- ----------- ----------- ----------- ------------ ------------
Current liabilities 2,756,970 7,235,860 16,396,196 26,218,946 35,203,425 41,549,276
Capital, beginning balance 16,714,263 16,714,263 41,475,704 55,615,430 67,269,397 77,722,036
Net income -- (1,540,134) 21,521,208 36,235,855 44,480,065 54,674,479
Distributions -- 26,301,575 (7,381,481) (24,581,889) (34,027,426) (49,824,207)
----------- ----------- ----------- ----------- ------------ ------------
Capital 16,714,263 41,475,704 55,615,430 67,269,397 77,722,036 82,572,308
----------- ----------- ----------- ----------- ------------ ------------
Total liabilities and capital $19,471,233 $48,711,564 $72,011,626 $93,488,343 $112,925,460 $124,121,584
=========== =========== =========== =========== ============ ============
6 7 8 9 10
----------- ----------- ----------- ----------- -----------
Cash $ 4,468,533 $ 4,468,533 $ 4,468,533 $ 4,468,533 $ 4,468,533
Accounts receivable 47,541,347 50,392,717 51,392,406 52,412,116 53,452,594
Inventories 17,415,041 18,288,639 19,073,000 19,894,720 20,755,656
Other 3,565,601 3,779,454 3,854,430 3,930,909 4,008,945
------------ ------------ ------------ ------------ ------------
Current assets 72,990,522 76,929,343 78,788,370 80,706,278 82,685,728
Land 261,893 261,893 261,893 261,893 261,893
Property, plant and equipment, gross 81,555,818 86,967,552 93,493,721 101,489,201 111,032,852
Accumulated depreciation (29,310,697) (35,530,754) (42,252,824) (49,589,931) (57,661,166)
------------ ------------ ------------ ------------ ------------
Property, plant and equipment, net 52,245,122 51,436,798 51,240,897 51,899,270 53,371,686
Intangible assets, deferred charges, net 542,021 542,021 542,021 542,021 542,021
------------ ------------ ------------ ------------ ------------
Total assets $126,039,558 $129,170,056 $130,833,181 $133,409,462 $136,861,328
============ ============ ============ ============ ============
Accounts payable $ 13,061,280 $ 13,716,480 $ 14,304,750 $ 14,921.040 $ 15,566,742
Accrued compensation 1,579,759 1,653,433 1,686,645 1,720,494 1,754,996
Other accrued liabilities 29,713,342 31,495,448 32,120,254 32,757,573 33,407,872
----------- ----------- ----------- ------------ ------------
Current liabilities 44,354,382 46,865,361 48,111,649 49,399,106 50,729,609
Capital, beginning balance 82,572,308 81,685,176 82,304,695 82,721,532 84,010,355
Net income 59,737,313 64,381,882 62,897,891 61,302,074 59,480,789
Distributions (60,624,445) (63,762,363) (62,481,055) (60,013,250) (57,359,425)
----------- ----------- ----------- ------------ ------------
Capital 81,685,176 82,304,695 82,721,532 84,010,355 86,131,719
----------- ----------- ----------- ------------ ------------
Total liabilities and capital $126,039,558 $129,170,056 $130,833,181 $133,409,462 $136,861,328
============ ============ ============ ============= ============
</TABLE>
<PAGE>
EXHIBIT II-9
Retractable Technologies, Inc.
Discounted Cash Flow Analysis
Fair Market Value of Net Cash Flow
<TABLE>
<CAPTION>
1 2 3 4 5
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income $ (1,540,134) $21,521,208 $36,235,855 $44,480,065 $54,674,479
Add: Depreciation 2,234,286 3,319,740 4,134,069 5,021,788 5,547,399
Less: Capital expenditures 21,065,287 14,110,899 10,586,284 11,540,341 6,832,940
Less: Incremental working capital 5,930,440 3,348,568 5,201,752 3,934,086 3,564,731
------------ ----------- ----------- ----------- -----------
Net cash flow (26,301,575) 7,381,481 24,581,889 34,027,426 49,824,207
Discount related to future options 0.9886 0.9776 0.9671 0.9569 0.9469
------------ ----------- ----------- ----------- -----------
Adjusted net cash flow (26,000,950) 7,216,483 23,773,966 32,561,715 47,180,086
PV factor @ 12.00% 0.9449 0.8437 0.7533 0.6726 0.6005
------------ ----------- ----------- ----------- -----------
PV net cash flow $(24,568,589) $ 6,088,335 $17,908,392 $21,900,004 $28,332,026
------------ ----------- ----------- ----------- -----------
Sum of PVs $171,362,690
PV residual value 194,236,952
------------
Market value of invested capital 365,599,642
Add: Cash 4,468,533
Less: Interest-bearing liabilities 6,255,041
Less: Accrued preferred dividends 7,314,916
Less: PV of options outstanding 19,784,925
------------
FMV of common equity $336,713,293
============
Shares outstanding 23,272,245 (assuming conversion of all remaining preferred shares)
Price per share $ 14.47
6 7 8 9 10 Residual
------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income $ 59,737,313 $64,381,882 $62,897,891 $61,302,074 $59,480,789
Add: Depreciation 5,803,770 6,220,057 6,722,070 7,337,107 8,071,234
Less: Capital expenditures 3,332,827 5,411,734 6,526,169 7,995,480 9,543,651
Less: Incremental working capital 1,583,811 1,427,843 612,738 630,451 648,947
------------ ----------- ----------- ----------- -----------
Net cash flow 60,624,445 63,762,363 62,481,055 60,013,250 57,359,425
Discount related to future options 0.9371 0.9276 0.9182 0.9090 0.8999
------------ ----------- ----------- ----------- -----------
Adjusted net cash flow 56,813,776 59,143,120 57,367,719 54,549,445 51,619,712 53,013,444
PV factor @ 12.00% 0.5362 0.4787 0.4274 0.3816 0.3407
------------ ----------- ----------- ----------- -----------
PV net cash flow $ 30,461,728 $28,313,078 $24,520,675 $20,817,911 $17,589,130
------------ ----------- ----------- ----------- -----------
Residual Growth Rate: 2.7%
Residual Value Multiple: 10.75
Residual Value 570,037,033
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT II-10
Discounted Cash Flow Analysis
Discount Rate Calculation
<TABLE>
<CAPTION>
Unlevered
Comparable Firms Beta MVE Debt Preferred Capitalization D/E Beta
---- --------------- ------------- ---------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Becton 0.71 8,467,148,811 1,500,000,000 - 9,967,148,811 0.18 0.64
2. Bio-Plexus 0.99 21,946,293 16,944,000 - 38,890,293 0.77 0.67
3. Bioject 0.47 47,022,594 - 15,268,469 NASDAQ-S NASDAQ-S 0.39
4. Maxxon 0.43 2,032,363 4,425 - 2,036,788 0.00 0.43
5. Med-Design 1.39 157,226,505 23,369 - 157,249,874 0.00 1.39
6. Medi-Ject 0.31 6,074,147 2,960,307 1,100,000 10,134,454 0.67 0.22
7. NMT Group 1.75 34,544,500 3,560,000 - 38,104,500 0.10 1.64
8. Specialized 0.18 14,394,665 - - 14,394,665 - 0.18
9. Terumo 0.27 4,185,045,096 399,414,000 - 4,584,459,096 0.10 0.25
10. Tyco 1.26 96,042,306,408 12,584,800,000 - 108,627,106,408 0.13 1.17
11. Univec 1.25 1,563,937 824,460 3,115,205 5,503,602 2.52 0.49
---- --------------- ------------- ---------- --------------- -------- ----
108,979,305,318 14,508,530,561 19,483,674 123,445,028,490 0.13 0.68
Cost of debt
Cost of debt capital 9.75%
Marginal corporate tax rate 37.9 %
After tax cost of debt capital 6.05%
Cost of equity
Debt to capital ratio 11.8 %
Market premium 8.1 %
Relevered beta with target leverage 0.74
Total risk premium 5.96%
Risk free rate 5.71%
Unsystematic risk premium 1.0 %
Cost of equity capital 12.67%
Weighted average cost of capital 11.9 %
-----
Rounded 12.0 %
-----
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT III
MARKET APPROACH: CAPITAL MARKET TECHNIQUE
--------------------------------------------------------------------------------
<PAGE>
Retractable Technologies, Inc.
Market Approach: Capital Market Technique
Balance Sheet Comparison
Exhibit III-1
<TABLE>
<CAPTION>
Company Retractable Becton Bio-Plexus Bioject Maxxon
------- ----------- ------ ---------- ------- ------
<S> <C> <C> <C> <C> <C>
Cash & Equivalents $ 4,468,533 $ 49,196,000 $ 5,627,000 $ 4,470,288 $ 11,344
Accounts Receivable 2,043,342 751,720,000 692,000 367,162 --
Inventory 938,517 678,676,000 3,537,000 745,333 --
Other Current 379,329 181,085,000 106,000 9,481,174 82,097
--------------- --------------- --------------- --------------- ---------------
Total Current Assets 7,829,721 1,660,677,000 9,962,000 15,063,957 93,441
Net Property & Equipment 11,099,491 1,576,058,000 6,623,000 1,142,724 15,954
Goodwill & Intangibles 542,021 -- 415,000 -- 11,598
Other Assets -- 1,268,361,000 1,079,000 3,104,004 130,000
--------------- --------------- --------------- --------------- ---------------
Total Assets $ 19,471,233 $ 4,505,096,000 $ 18,079,000 $ 19,310,685 $ 250,993
=============== =============== =============== =============== ===============
Accounts Payable $ 768,887 N/A $ 745,000 $ 352,194 $ 29,867
Accrued Liabilities 843,326 N/A 427,000 653,386 --
Other Current 1,444,757 1,049,098,000 -- 238,837 --
Current Portion LTD & Leases 953,078 304,440,000 70,000 -- --
--------------- --------------- --------------- --------------- ---------------
Total Current Liabilities 3,710,048 1,353,538,000 1,242,000 1,244,417 29,867
Long-term Debt 5,301,963 1,195,560,000 16,874,000 -- 4,425
Other LT Liabilities -- N/A 149,000 -- --
Deferred Taxes -- N/A -- -- --
--------------- --------------- --------------- --------------- ---------------
Total Liabilities 9,012,011 2,549,098,000 18,265,000 1,244,471 34,292
Preferred Equity 9,268,245 N/A -- 15,268,469 --
Common Equity 1,190,977 N/A (186,000) 2,797,799 216,701
--------------- --------------- --------------- --------------- ---------------
Total Equity 10,459,222 1,955,998,000 (186,000) 18,066,268 216,701
Total Liabilities and Equity $ 19,471,233 $ 4,505,096,000 $ 18,079,000 $ 19,310,685 $ 250,993
=============== =============== =============== =============== ===============
Company Med-Design Medi-Ject NMT Group Specialized Terumo
------- ---------- --------- --------- ----------- ------
Cash & Equivalents $ 339,703 $ 229,792 (pound 1,797,000 $ 71,939 $ 302,859,000
Accounts Receivable -- 262,672 sterling) -- 45,412 492,047,000
Inventory -- 414,890 -- -- 256,321,000
Other Current 4,973,406 41,978 1,541,000 13,726 44,707,000
--------------- --------------- --------------- --------------- ---------------
Total Current Assets 5,313,111 949,332 3,338,000 131,077 1,095,934,000
Net Property & Equipment 553,409 796,069 8,177,000 532,939 1,101,764,000
Goodwill & Intangibles 1,611,642 279,394 -- -- 41,651,000
Other Assets -- -- -- 32,558 337,311,000
--------------- --------------- --------------- --------------- ---------------
Total Assets $ 7,478,162 $ 2,024,795 (pound 11,515,000 $ 696,574 $ 2,576,660,000
sterling)
=============== =============== =============== =============== ===============
Accounts Payable $ 206,403 $ 176,729 N/A $ 26,678 $ 193,453,000
Accrued Liabilities 193,831 481,144 N/A 156,706 132,727,000
Other Current -- -- N/A -- 120,566,000
Current Portion LTD & Leases 10,243 2,915,741 1,807,000 -- 210,735,000
--------------- --------------- --------------- --------------- ---------------
Total Current Liabilities 410,477 3,573,614 1,807,000 183,384 657,481,000
Long-term Debt 13,126 44,566 1,753,000 -- 1,888,679,000
Other LT Liabilities -- 250,000 N/A 1,351,996 195,528,000
Deferred Taxes -- -- N/A -- --
--------------- --------------- --------------- --------------- ---------------
Total Liabilities 423,603 3,868,180 3,560,000 1,535,382 1,041,688,000
Preferred Equity -- 11 -- -- --
Common Equity 7,054,559 (1,843,396) 7,955,000 (838,808) 1,534,972,000
--------------- --------------- --------------- --------------- ---------------
Total Equity 7,054,559 (1,843,385) 7,955,000 (838,808) 1,534,972,000
Total Liabilities and Equity $ 7,478,162 $ 2,024,795 (pound 11,515,000 $ 696,574 $ 2,576,660,000
sterling)
================ =============== =============== =============== ===============
Company Tyco Univec Average*
-------- ---- ------ --------
Cash & Equivalents $ 1,180,300,000 $ 57,064 $ 154,316,213
Accounts Receivable 5,273,000,000 351,905 651,848,615
Inventory 3,962,000,000 619,621 490,231,384
Other Current 1,434,800,000 237,131 167,552,751
--------------- --------------- ---------------
Total Current Assets 11,850,100,000 1,265,721 1,463,948,964
Net Property & Equipment 8,062,400,000 1,510,057 1,075,139,615
Goodwill & Intangibles -- -- 4,396,863
Other Assets 17,970,400,000 56,067 1,958,047,363
--------------- --------------- ---------------
Total Assets $37,882,900,000 $ 2,831,845 $ 4,501,532,805
=============== =============== ===============
Accounts Payable $ 2,709,500,000 $ 932,006 $ 322,824,653
Accrued Liabilities -- -- --
Other Current 5,229,300,000 439,027 639,964,186
Current Portion LTD & Leases 2,181,600,000 357,173 270,012,816
--------------- --------------- ---------------
Total Current Liabilities 10,120,400,000 1,728,206 1,213,983,097
Long-term Debt 10,403,200,000 467,287 1,180,484,240
Other LT Liabilities 1,977,600,000 -- 241,653,222
Deferred Taxes -- -- --
--------------- --------------- ---------------
Total Liabilities 22,501,200,000 2,195,493 2,611,955,237
Preferred Equity -- 5 1,696,498
Common Equity 15,381,700,000 636,347 1,880,501,022
--------------- --------------- ---------------
Total Equity 15,381,700,000 636,352 1,889,577,569
Total Liabilities and Equity $37,882,900,000 $ 2,831,845 $ 4,501,532,805
=============== =============== ===============
</TABLE>
* Excluding NMT Group, whose numbers are stated in terms of British pounds.
<PAGE>
Retractable Technologies, Inc.
Market Approach: Capital Market Technique
Common Size Balance Sheet Comparison
Exhibit III-2
<TABLE>
<CAPTION>
Company Retractable Becton Bio-Plexus Bioject Maxxon Med-Design Medi-Ject NMT Group
------- ----------- ------ ---------- ------- ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash & Equivalents 22.9% 1.1% 31.1% 23.1% 4.5% 4.5% 11.3% 15.6%
Accounts Receivable 10.5% 16.7% 3.8% 1.9% 0.0% 0.0% 13.0% 0.0%
Inventory 4.8% 15.1% 19.6% 3.9% 0.0% 0.0% 20.5% 0.0%
Other Current 1.9% 4.0% 0.6% 49.1% 32.7% 66.5% 2.1% 13.4%
----- ----- ----- ----- ----- ----- ----- -----
Total Current Assets 40.2% 36.9% 55.1% 78.0% 37.2% 71.0% 46.9% 29.0%
Net Property & Equipment 57.0% 35.0% 36.6% 5.9% 6.4% 7.4% 39.9% 71.0%
Goodwill & Intangibles 2.8% 0.0% 2.3% 0.0% 4.6% 21.6% 13.8% 0.0%
Other Assets 0.0% 28.2% 6.0% 16.1% 51.8% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
Total Assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== ===== =====
Accounts Payable 3.9% #N/A 4.1% 1.8% 11.9% 2.8% 8.7% #N/A
Accrued Liabilities 4.3% #N/A 2.4% 3.4% 0.0% 2.6% 23.8% #N/A
Other Current 5.9% 23.3% 0.0% 1.2% 0.0% 0.0% 0.0% #N/A
Current Portion LTD & Leases 4.9% 6.8% 0.4% 0.0% 0.0% 0.1% 144.0% 15.7%
----- ----- ----- ----- ----- ----- ----- -----
Total Current Liabilities 19.1% 30.0% 5.9% 6.4% 11.9% 5.5% 176.5% 15.7%
Long-term Debt 27.2% 26.5% 93.3% 0.0% 1.8% 0.2% 2.2% 15.2%
Deferred Taxes 0.0% #N/A 0.8% 0.0% 0.0% 0.0% 12.3% #N/A
Other LT Liabilities 0.0% #N/A 0.0% 0.0% 0.0% 0.0% 0.0% #N/A
----- ----- ----- ----- ----- ----- ----- -----
Total Liabilities 46.3% 56.6% 101.0% 6.4% 13.7% 5.7% 191.0% 30.9%
Preferred Equity 47.6% #N/A 0.0% 79.1% 0.0% 0.0% 0.0% 0.0%
Common Equity 6.1% #N/A -1.0% 14.5% 86.3% 94.3% -91.0% 69.1%
----- ----- ----- ----- ----- ----- ----- -----
Total Equity 53.7% 43.4% -1.0% 93.6% 86.3% 94.3% -91.0% 69.1%
----- ----- ----- ----- ----- ----- ----- -----
Total Liabilities and Equity 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== ===== =====
Company Specialized Terumo Tyco Univec Average
------- ----------- ------ ---- ------ -------
Cash & Equivalents 10.3% 11.8% 3.1% 2.0% 3.4%
Accounts Receivable 6.5% 19.1% 13.9% 12.4% 14.5%
Inventory 0.0% 9.9% 10.5% 21.9% 10.9%
Other Current 2.0% 1.7% 3.8% 8.4% 3.7%
----- ----- ----- ----- -----
Total Current Assets 18.8% 42.5% 31.3% 44.7% 32.5%
Net Property & Equipment 76.5% 42.8% 21.3% 53.3% 23.9%
Goodwill & Intangibles 0.0% 1.6% 0.0% 0.0% 0.1%
Other Assets 4.7% 13.1% 47.4% 2.0% 43.5%
----- ----- ----- ----- -----
Total Assets 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Accounts Payable 3.8% 7.5% 7.2% 32.9% 7.2%
Accrued Liabilities 22.5% 5.2% 0.0% #N/A 0.0%
Other Current 0.0% 4.7% 13.8% 15.5% 14.2%
Current Portion LTD & Leases 0.0% 8.2% 5.8% 12.6% 6.0%
----- ----- ----- ----- -----
Total Current Liabilities 26.3% 25.5% 26.7% 61.0% 27.0%
Long-term Debt 0.0% 7.3% 27.5% 16.5% 26.2%
Deferred Taxes 194.1% 7.6% 5.2% 0.0% 5.4%
Other LT Liabilities 0.0% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- -----
Total Liabilities 220.4% 40.4% 59.4% 77.5% 58.0%
Preferred Equity 0.0% 0.0% 0.0% 0.0% 0.0%
Common Equity -120.4% 59.6% 40.6% 22.5% 41.8%
----- ----- ----- ----- -----
Total Equity -120.4% 59.6% 40.6% 22.5% 42.0%
----- ----- ----- ----- -----
Total Liabilities and Equity 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
<PAGE>
Retractable Technologies, Inc.
Market Approach: Capital Market Technique
Income Statement Comparison
Exhibit III-3
<TABLE>
<CAPTION>
Company Retractable Becton Bio-Plexus Bioject Maxxon*
------- ----------- ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C>
LTM Ended 12/31/99 9/30/99 NASDAQ-S NASDAQ-S 9/30/99
Revenues $ 7,518,631 $ 3,618,334,000 $ 5,487,000 $ 1,445,788 $ --
Cost of Revenues 6,751,768 1,848,332,000 3,309,000 2,038,679 --
--------------- --------------- --------------- --------------- ---------------
Gross Margin 766,863 1,770,002,000 2,158,000 (592,891) --
SG&A 7,914,671 973,902,000 7,144,000 2,701,574 1,001,179
R&D 696,633 223,782,000 1,125,000 1,541,501 52,849
Other 1,192,452 57,514,000 -- -- 6,556
--------------- --------------- --------------- --------------- ---------------
EBIT (9,036,693) 514,804,000 (6,111,000) (4,835,966) (1,060,584)
Interest Income 162,524 76,213,000 -- 340,227 --
Interest Expense (126,340) (74,197,000) (5,050,000) -- (17,868)
Other Inc./(Expense) -- 3,114,000 (289,000) 120,614 --
--------------- --------------- --------------- --------------- ---------------
EBT $ (9,000,709) $ 519,934,000 $ (11,450,000) $ (4,375,125) $ (1,078,452)
Income Tax -- 127,037,000 -- -- --
--------------- --------------- --------------- --------------- ---------------
Net Income $ (9,000,709) $ 392,897,000 $ (11,450,000) $ (4,375,125) $ (1,078,452)
=============== =============== =============== =============== ===============
Deprec. & Amort. $ 972,067 $ 288,255,000 537,000 477,720 $ 6,555
EBITDA $ (8,064,826) $ 803,059,000 $ (5,574,000) $ (4,358,246) $ (1,054,029)
Capital Expenditures $ 1,940,341 $ 376,372,000 2,906,000 180,207 $ --
</TABLE>
<TABLE>
<CAPTION>
Company Med-Design Medi-Ject NMT Group Specialized Terumo
------- ---------- --------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
LTM Ended NASDAQ-S NASDAQ-S 6/30/00 9/30/00 3/31/00
Revenues $ 4,000,000 $ 2,509,722 (Pounds) 105,000 $ 617,742 $ 1,614,896,000
Cost of Revenues -- 1,781,351 3,772,000 343,829 790,396,000
--------------- --------------- --------------------- --------------- ---------------
Gross Margin 4,000,000 728,371 (3,667,000) 273,913 824,500,000
SG&A 3,764,017 3,102,460 5,951,000 2,395,068 549,491,000
R&D 1,237,791 1,538,173 -- 924,334 --
Other 2,182,851 -- 2,186,000 (6,268) --
--------------- --------------- --------------------- --------------- ---------------
EBIT (3,184,659) (3,912,262) (11,804,000) (3,039,221) 275,009,000
Interest Income -- 2,847 464,000 25,912 3,557,000
Interest Expense (62,542) (152,439) (238,000) -- (7,264,000)
Other Inc./(Expense) (160,483) -- -- 8,850 (164,717,000)
--------------- --------------- --------------------- --------------- ---------------
EBT (3,407,684) (4,061,854) (11,578,000) (3,004,459) 106,585,000
Income Tax -- -- -- -- 47,302,000
--------------- --------------- --------------------- --------------- ---------------
Net Income $ (3,407,684) $ (4,061,854) (Pounds) 11,578,000) $ (3,004,459) $ 59,283,000
=============== =============== ===================== =============== ===============
Deprec. & Amort. $ 352,865 $ 442,968 (Pounds) 1,832,000 $ 403,071 $ 125,094,000
EBITDA $ (2,831,794) $ (3,469,294) (Pounds) 9,972,000 $ (2,636,150) $ 400,103,000
Capital Expenditures $ 38,331 123,076 (Pounds) 2,575,000 $ 34,212 $ 186,906,000
</TABLE>
<TABLE>
<CAPTION>
Company Tyco Univec Average**
------- ---- ------ ---------
<S> <C> <C> <C>
LTM Ended 9/30/99 9/30/99
Revenues $28,931,900,000 $ 3,718,784 $ 3,416,288,904
Cost of Revenues -- 3,172,339 264,937,320
--------------- --------------- ---------------
Gross Margin 28,931,900,000 546,445 3,153,351,584
SG&A 22,650,500,000 1,486,092 2,419,548,739
R&D -- 71,319 23,027,297
Other -- (239,573) 5,945,757
--------------- --------------- ---------------
EBIT 6,281,400,000 (771,393) 704,829,792
Interest Income -- -- 8,013,899
Interest Expense (769,600,000) (78,691) (85,642,254)
Other Inc./(Expense) (550,400,000) (794,244) (71,111,726)
--------------- --------------- ---------------
EBT 4,961,400,000 (1,644,328) 555,889,710
Income Tax 1,235,000,000 -- 140,933,810
--------------- --------------- ---------------
Net Income $ 3,726,400,000 $ (1,644,328) $ 414,955,810
=============== =============== ===============
Deprec. & Amort. $ 1,102,700,000 $ 220,648 $ 151,848,983
EBITDA $ 7,384,100,000 $ (550,745) $ 856,678,774
Capital Expenditures $ 1,816,800,000 $ 29,065 $ 238,338,889
</TABLE>
* Maxxon income data for 9 months only
** Excluding NMT Group, whose numbers are stated in terms of British Pounds
<PAGE>
EXHIBIT III-4
Retractable Technologies, Inc.
Market Approach: Capital Market Technique
Common Size Income Statement Comparison
<TABLE>
<CAPTION>
Company: Retractable Becton Bio-Plexus Bioject Maxxon Med-Design
-------- ----------- ------- ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% #N/A 100.0%
Cost of Revenues 89.8% 51.1% 60.5% 141.0% #N/A 0.0%
------- ------ ------- ------- ---- -------
Gross Margin 10.2% 48.9% 39.5% (41.0)% #N/A 100.0%
SG&A 105.3% 26.9% 130.7% 186.9% #N/A 94.1%
R&D 9.3% 6.2% 20.6% 106.6% #N/A 30.9%
Other 15.9% 1.6% 0.0% 0.0% #N/A 54.6%
------- ------ ------- ------- ---- -------
EBIT (120.2)% 14.2% (111.8)% (334.5)% #N/A (79.6)%
Interest Income 2.2% 2.1% 0.0% 23.5% #N/A 0.0%
Interest Expense (1.7)% (2.1)% (92.4)% 0.0% #N/A (1.6)%
Other Income/(Expense) 0.0% 0.1% (5.3)% 8.3% #N/A (4.0)%
------- ------ ------- ------- ---- -------
EBT (119.7)% 14.4% (209.4)% (302.6)% #N/A (85.2)%
Income Tax 0.0% 3.5% 0.0% 0.0% #N/A 0.0%
------- ------ ------- ------- ---- -------
Net Income (119.7)% 10.9% (209.4)% (302.6)% #N/A (85.2)%
======= ====== ======= ======= ==== =======
Depreciation & Amortization 12.9% 8.0% 9.8% 33.0% #N/A 8.8%
EBITDA (107.3)% 22.2% (102.0)% (301.4)% #N/A (70.8)%
Capital Expenditures 25.8% 10.4% 53.2% 12.5% #N/A 1.0%
</TABLE>
<TABLE>
<CAPTION>
Company: Medi-Ject NMT Group Specialized Terumo Tyco Univec Average
-------- ----------- ---------- ----------- -------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Revenues 71.0% 3592.4% 55.7% 48.9% 0.0% 85.3% 7.8%
------- -------- ------- ------- ------ ------- ------
Gross Margin 29.0% (3492.4)% 44.3% 51.1% 100.0% 14.7% 92.2%
SG&A 123.6% 5667.6% 387.7% 34.0% 78.3% 40.0% 70.8%
R&D 61.3% 0.0% 149.6% 0.0% 0.0% 1.9% 0.7%
Other 0.0% 2081.9% (1.0)% 0.0% 0.0% (6.4)% 0.2%
------- -------- ------- ------- ------ ------- ------
EBIT (155.9)% (11241.9)% (492.0)% 17.0% 21.7% (20.7)% 20.6%
Interest Income 0.1% 441.9% 4.2% 0.2% 0.0% 0.0% 0.2%
Interest Expense (6.1)% (226.7)% 0.0% (0.4)% (2.7)% (2.1)% (2.5)%
Other Income/(Expense) 0.0% 0.0% 1.4% (10.2)% (1.9)% (21.4)% (2.1)%
------- -------- ------- ------- ------ ------- ------
EBT (161.8)% (11026.7)% (486.4)% 6.6% 17.1% (44.2)% 16.3%
Income Tax 0.0% 0.0% 0.0% 2.9% 4.3% 0.0% 4.1%
------- -------- ------- ------- ------ ------- ------
Net Income (161.8)% (11026.7)% (486.4)% 3.7% 12.9% (44.2)% 12.1%
======== ======== ======== ======= ====== ======= ======
Depreciation & Amortization 17.7% 1744.8% 65.2% 7.7% 3.8% 5.9% 4.4%
EBITDA (138.2)% (9497.1)% (426.7)% 24.8% 25.5% (14.8)% 25.1%
Capital Expenditures 4.9% 2452.4% 5.5% 11.6% 6.3% 0.8% 7.0%
</TABLE>
<PAGE>
EXHIBIT III-5
Retractable Technologies, Inc.
Market Approach: Capital Market Technique
Financial Ratio Analysis
<TABLE>
<CAPTION>
Company: Retractable Becton Bio-Plexus Bioject Maxxon Med-Design
-------- ----------- ------- ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Margin (120.2)% 14.2% (111.8)% (334.5)% #N/A (79.6)%
Interest Burden 1.00 1.01 1.87 0.90 1.02 1.07
Tax Burden 1.00 0.76 1.00 1.00 1.00 1.00
Asset Turnover 0.39 0.80 0.30 0.07 -- 0.53
Financial Leverage 1.86 2.30 (97.20) 1.07 1.16 1.06
Return on Assets (46.2)% 8.7% (63.3)% (22.7)% #N/A (45.6)%
Return on Equity (86.1)% 20.1% 6,155.9 % (24.2)% #N/A (48.3)%
Current Ratio 2.11 1.23 8.02 12.11 3.13 12.94
Quick Ratio 1.76 0.59 5.09 3.89 0.38 0.83
Net Working Capital (NWC) $4,119,673 $307,139,000 $8,720,000 $13,819,540 $63,574 $4,902,634
NWC/Release 54.8 % 8.5% 159.5 % 955.8 % #N/A 122.6%
Adj NWC $ 604,218 $562,383,000 $3,163,000 $ 9,349,252 $52,230 $4,573,174
Adj NWC/Revenue 8.0 % 15.5% 59.7 % 646.7 % #N/A 114.3%
Receivables Turnover 3.68 4.81 7.90 3.94 #N/A #N/A
Days Receivables 99 76 46 93 #N/A #N/A
Inventory Turnover 7.19 2.72 0.94 2.74 #N/A #N/A
Days Inventory 51 134 390 133 #N/A #N/A
Payables Turnover 8.78 #N/A 4.44 5.79 -- --
Days Payables 42 #N/A 82 63 #N/A #N/A
Trade Cycle 108 #N/A 354 163 #N/A #N/A
Revenues to Net PP&E 0.68 2.30 0.83 1.27 -- 7.23
Interest Coverage (71.53) 6.94 (1.21) #N/A (59.36) (50.92)
Total Liabilities to Total Assets 46.3 % 56.6% 101.1 % 6.4 % 13.7% 5.7%
Effective Tax Rate 0.0 % 24.4% 0.0 % 0.0 % 0.0% 0.0%
Expected LT Growth Rate #N/A 12.8% #N/A 100.0 % #N/A #N/A
Historical Sales Growth Rate* 258.7% 7.7% 18.0 % (20.2)% #N/A #N/A
</TABLE>
<TABLE>
<CAPTION>
Company: Medi-Ject NMT Group Specialized Terumo Tyco Univec
-------- ----------- ----------------- ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Margin (155.9)% (11,241.9)% (492.0)% 17.0% 21.7 (20.7)%
Interest Burden 1.04 0.98 0.99 0.39 0.79 2.13
Tax Burden 1.00 1.00 1.00 0.56 0.75 1.00
Asset Turnover 1.24 0.01 0.89 0.63 0.76 1.31
Financial Leverage (1.10) 1.45 (0.83) 1.68 2.46 4.45
Return on Assets (200.6)% (100.5)% (431.3)% 2.3% 9.8% (58.1)%
Return on Equity 220.3 % (145.5)% 358.2 % 3.9% 24.2% (258.4)%
Current Ratio 0.27 1.85 0.71 1.67 1.17 0.73
Quick Ratio 0.14 0.99 0.64 1.21 0.64 0.24
Net Working Capital (NWC) $(2,624,282) (pound) 1,531,000 $ (52,307) $438,453,000 $1,729,700,000 $(462,485)
NWC/Release (104.6)% 1458.1 % (8.5)% 27.2% 6.0% (12.4)%
Adj NWC $ 61,667 (pound) 1,541,000 $(124,246) $346,329,000 $2,731,000,000 $(162,376)
Adj NWC/Revenue 2.5 % 1,467.6 % (20.1)% 21.4% 9.4% (4.4)%
Receivables Turnover 9.55 #N/A 13.60 3.28 5.49 10.57
Days Receivables 38 #N/A 27 111 67 35
Inventory Turnover 4.29 #N/A #N/A 3.08 -- 5.12
Days Inventory 85 #N/A #N/A 118 #N/A 71
Payables Turnover 10.08 #N/A 12.89 4.09 -- 3.40
Days Payables 36 #N/A 28 89 #N/A 107
Trade Cycle 87 #N/A #N/A 140 #N/A (1)
Revenues to Net PP&E 3.15 0.01 1.16 1.47 3.59 2.46
Interest Coverage (25.66) (49.60) #N/A 37.86 8.16 (9.80)
Total Liabilities to Total Assets 191.0 % 30.9 % 220.4 % 40.4% 59.4% 77.5 %
Effective Tax Rate 0.0 % 0.0 % 0.0 % 44.4% 24.9% 0.0 %
Expected LT Growth Rate #N/A 30.0 % #N/A 33.4% 21.3% #N/A
Historical Sales Growth Rate* (3.3)% #N/A 235.8 % 7.1% 23.2% #N/A
</TABLE>
---------------
* Compound average growth rate for two most recent fiscal years
<PAGE>
Exhibit III-6
Retractable Technologies, Inc.
Market Approach: Capital Market Technique
Calculation of Market Value and Pricing Multiples
<TABLE>
<CAPTION>
Company Becton Bio-Plexus Bioject Maxxon Med-Design Medi-Ject
------- ------ ---------- ------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exchange NYSE NASDAQ-S NASDAQ-S OTC BB NASDAQ-S NASDAQ-S
Date 12/8/00 12/8/00 12/8/00 12/8/00 12/8/00 12/8/00
Price $ 33.4375 $ 1.4688 $ 6.0000 $ 0.1650 $ 15.0000 $ 4.2500
Shares Outstanding 253,223,142 14,942,157 7,837,099 12,317,349 10,481,767 1,429,211
Other Common -- -- -- -- -- --
MVE 8,467,148,811 21,946,293 47,022,594 2,032,363 157,226,505 6,074,147
Debt 1,500,000,000 16,944,000 -- 4,425 23,369 2,960,307
Preferred Warrants -- -- 15,268,469 -- -- 1,100,000
MVC 9,967,148,811 38,890,293 62,291,063 2,036,788 157,249,874 10,134,454
MVE/Revenue 2.34 4.01 32.52 NMF 39.31 2.42
MVE/Net Income 21.55 NMF NMF NMF NMF NMF
MVE/BVE 4.33 NMF 2.60 9.38 22.29 NMF
MVE/Assets 1.88 1.21 2.44 8.10 21.02 3.00
MVC/Revenue 2.75 7.11 43.08 NMF 39.31 4.04
MVC/EBITDA 12.41 NMF NMF NMF NMF NMF
MVC/EBIT 19.36 NMF NMF NMF NMF NMF
MVC/Assets 2.21 2.15 3.23 8.11 21.03 5.01
</TABLE>
<TABLE>
<CAPTION>
Company NMT Group Specialized Terumo Tyco Univec
------- --------- ----------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
Exchange UK OTC BB Tokyo NYSE OTC BB
Date 12/8/00 12/8/00 12/8/00 12/8/00 12/8/00
Price (pound) 0.1475 $ 1.1563 $ 19.8460 $ 57.0000 $ 0.25
Shares Outstanding 234,200,000 12,449,440 210,876,000 1,684,952,744 6,255,746
Other Common -- -- -- -- --
MVE 34,544,500 14,394,665 4,185,045,096 96,042,306,408 1,563,937
Debt 3,560,000 -- 399,414,000 12,584,800,000 824,460
Preferred Warrants -- -- -- -- 3,115,205
MVC 38,104,500 14,394,665 4,584,459,096 108,627,106,408 5,503,602
MVE/Revenue 329.00 23.30 2.59 3.32 0.42
MVE/Net Income NMF NMF 70.59 25.77 NMF
MVE/BVE 4.34 NMF 2.73 6.24 2.46
MVE/Assets 3.00 20.66 1.62 2.54 0.55
MVC/Revenue 362.90 23.30 2.84 3.75 1.48
MVC/EBITDA NMF NMF 11.46 14.71 NMF
MVC/EBIT NMF NMF 16.67 17.29 NMF
MVC/Assets 3.31 20.66 1.78 2.87 1.94
</TABLE>
<PAGE>
Retractable Technologies, Inc. EXHIBIT III-7
Market Approach: Capital Market Technique
Summary of Pricing Multiples
<TABLE>
<CAPTION>
Coef. of
Minimum Average Median Maximum Lower Q Upper Q Std. Dev. Variation
------- ------- ------ ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MVE/Revenue 0.42 43.92 3.67 329.00 2.46 30.22 101.18 2.30
MVE/Net Income 21.55 39.31 25.77 70.59 23.66 48.18 27.18 0.69
MVE/BVE 2.46 6.80 4.34 22.29 2.70 7.03 6.68 0.98
MVE/Assets 0.55 6.00 2.54 21.02 1.75 5.55 7.59 1.27
MVC/Revenue 1.48 49.06 5.58 362.90 3.07 35.31 111.39 2.27
MVC/EBITDA 11.46 12.86 12.41 14.71 11.93 13.56 1.67 0.13
MVC/EBIT 16.67 17.77 17.29 19.36 16.98 18.33 1.41 0.08
MVC/Assets 1.78 6.57 3.23 21.03 2.18 6.56 7.29 1.11
Selected multiple (based
on Bioject)
MVC/Revenue 43.08
Revenue (September 30,
2000) $ 7,518,631
MVC $323,936,509
Debt 6,255,041
Preferred dividends 7,314,916
PV of options
outstanding 19,784,925
------------
MVE $290,581,627
============
</TABLE>
