<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number 000-30885
Retractable Technologies, Inc.
-----------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Texas 75-2599762
------------------------------ ----------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
511 Lobo Lane
Little Elm, Texas 75068-0009
---------------------------------------------------------------------------
(Address of Principal Executive Offices)
(972) 294-1010
----------------
(Issuer's Telephone Number, Including Area Code)
__________________________________________
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 14,579,500 Shares of Common
Stock, no par value, Outstanding on November 14, 2000.
Transitional Small Business Disclosure Format (check one): Yes X No
--- ---
1
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 11
PART II OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 20
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION> December 31, 1999 September 30, 2000
Unaudited
------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 646,005 $ 4,468,533
Accounts receivable 599,424 2,043,342
Inventories 677,962 938,517
Other current assets 47,800 379,329
------------- ------------
Total current assets 1,971,191 7,829,721
Property, plant and equipment, net 10,101,524 11,099,491
Restricted cash 600,000 -
Intangible assets and deferred charges, net 536,014 542,021
------------- ------------
Total assets $ 13,208,729 $ 19,471,233
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 844,165 $ 768,887
Current portion of long-term debt 463,329 953,078
Accrued compensation 118,038 208,382
Marketing fees payable 338,526 1,144,757
Other accrued liabilities 250,783 634,944
Total current liabilities 2,014,841 3,710,048
------------- ------------
Long-term debt, net of current maturities 2,506,335 5,301,963
------------- ------------
Stockholders' equity
Preferred Stock $1 par value
Class A 5,000,000 4,974,000
Series I, Class B 1,000,000 1,000,000
Series II, Class B 1,000,000 1,000,000
Series III, Class B 1,160,200 1,160,445
Series IV, Class B 1,133,800
Common stock 1,000 1,002
Additional paid-in capital 23,564,235 33,979,120
Unearned compensation (185,635) (229,156)
Dividends (2,968,542)
Accumulated deficit (22,852,247) (29,591,446)
------------- ------------
Total stockholders' equity 8,687,553 10,459,223
------------- ------------
Total liabilities and stockholders' equity $ 13,208,729 $ 19,471,233
============= ============
</TABLE>
See accompanying notes to the condensed financial statements.
3
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales, net $ 3,753,110 $ 1,233,721 $ 6,109,417 $ 1,965,944
Cost of sales 3,445,697 841,682 5,782,287 1,361,590
--------------------------------- ---------------------------------
Gross profit 307,413 392,039 327,129 604,354
--------------------------------- ---------------------------------
Operating expenses:
Preproduction manufacturing - 347,946 627,200 1,272,578
Sales and marketing 1,543,914 1,122,247 3,180,353 2,603,431
Research and development 207,186 186,010 467,786 613,215
General and administrative 1,221,776 652,900 2,825,925 2,094,944
--------------------------------- ---------------------------------
Total operating expenses 2,972,876 2,309,103 7,101,265 6,584,168
--------------------------------- ---------------------------------
Loss from operations (2,665,463) (1,917,064) (6,774,135) (5,979,814)
Interest income 75,087 39,450 150,413 109,917
Interest expense (72,580) (30,079) (115,477) (102,101)
--------------------------------- ---------------------------------
Net loss $(2,662,956) $(1,907,693) $ (6,739,199) $(5,971,998)
================================= =================================
</TABLE>
4
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,662,956) $(1,907,693) $(6,739,199) $(5,971,998)
Depreciation and amortization 217,067 242,708 716,094 694,498
Recognition of stock option compensation 51,441 (51,416) 144,211 138,377
Adjustments to reconcile net loss to
net cash
provided by operating activities:
(Increase) decrease in inventories 558,476 23,990 (260,555) 228,906
(Increase) decrease in accounts
and note receivable (1,086,796) (368,989) (1,443,918) (659,045)
(Increase) decrease in other
current assets (194,058) 147,649 (331,528) (35,355)
Increase (decrease) in accounts
payable 302,149 251,132 (92,278) 123,020
Increase (decrease) in other
accrued liabilities 968,712 360,633 1,147,736 539,201
---------------------------------------------------------------------
Net cash used by operating activities (1,845,965) (1,301,986) (6,859,437) (4,942,396)
---------------------------------------------------------------------
Cash flows from investing activities
Purchase of property, plant and
equipment (545,776) (405,036) (1,675,246) (1,695,514)
Acquisition of patents, trademarks
and licenses (2,140) (8,640) (44,823) (20,945)
Sale of restricted certificates of
deposit - - 600,000 -
---------------------------------------------------------------------
Net cash used by investing activities (547,916) (413,676) (1,120,069) (1,716,459)
---------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Cash flows from financing activities
<S> <C> <C> <C> <C>
Borrowings under long-term debt and
notes payable 3,000,000 4,431 5,079,851 29,149
Repayments of long-term debt and notes
payable (133,747) (111,293) (1,794,475) (387,949)
Proceeds from issuance of preferred
stock 2,450 663,695 11,335,200 8,072,407
Dividends paid (2,818,542) - (2,818,542) -
---------------------------------------------------------------------
Net cash provided by financing activities 50,161 556,833 11,802,034 7,713,607
---------------------------------------------------------------------
Net increase in cash (2,343,720) (1,158,829) 3,822,528 1,054,752
Cash and cash equivalents at:
Beginning of period 6,812,253 3,841,444 646,005 1,627,863
---------------------------------------------------------------------
End of period $ 4,468,533 $ 2,682,615 $ 4,468,533 $2,682,615
=====================================================================
</TABLE>
6
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS OF THE COMPANY, RECENT DEVELOPMENTS, AND BASIS OF PRESENTATION
Business
Retractable Technologies, Inc. (the "Company" or "RTI") was incorporated in
Texas on May 9, 1994, to design, develop, manufacture and market safety syringes
and other safety medical products for the healthcare profession. The Company
began operations in 1995. The Company's manufacturing and administrative
facilities are located in Little Elm, Texas. The Company's primary products are
the VanishPoint(R) syringe in the 3cc, 5cc and 10cc sizes and blood collection
tube holders. The Company has conducted preliminary clinical evaluations and
worked with national distributors to encourage healthcare facilities to
transition from the use of standard syringes to the VanishPoint(R) syringe.
Preliminary shipments, which commenced in February 1997, included syringes for
hospital product evaluations as well as for sale in clinics and other healthcare
settings.
Recent Developments
On May 4, 2000, the Company entered into four agreements with Abbott
Laboratories ("Abbott"): 1) National Marketing and Distribution Agreement; 2)
Registration Rights Agreement; 3) Credit Agreement and 4) Security Agreement.
The National Marketing and Distribution Agreement provides that Abbott will
purchase and market the Company's VanishPoint(R) automated retraction syringes
and blood collection devices to its U.S. acute care hospital customers. The
agreement is for a five-year term. The agreement also calls for the
establishment of a new product team comprised by key personnel from both
companies designed to concentrate on development of new safety products that
incorporate the Company's patented, proprietary technology.
The Credit Agreement provides that Abbott will extend to the Company a
credit line in the amount of $5 million. Disbursement amounts shall be in
multiples of $1 million. Interest accrues at a rate of prime rate plus 1% and is
payable quarterly beginning June 30, 2001. The Credit Agreement also provides
that Abbott may, at its option, convert the note balance into common stock at a
specified conversion price. The loan matures on June 30, 2005. In connection
with the Credit Agreement, the Security Agreement grants Abbott a continuing
security interest in certain of the Company's assets.
The Registration Rights Agreement gives Abbott certain registration rights
if the conversion privilege in the Credit Agreement is exercised.
Effective June 1, 2000, the Company entered into a Consulting Agreement
("Agreement") with a Board member and former Executive Vice President of Sales
and Marketing, who is also related to an employee of the Company. The Agreement
is for a one-year term, renewable with consent of both parties, whereby the
Board member has agreed to establish contacts with major European entities,
approved by the Company, to develop marketing and distribution channels as well
as licensing agreements. The Agreement calls for an annual payment of $200,000
payable in equal monthly installments and an expense allowance of up to $5,000
per month for expenses incurred on behalf of the Company.
7
<PAGE>
On October 26, 2000, the Company filed a Form 10-SBA with the Securities and
Exchange Commission.
Basis of Presentation
The accompanying condensed financial statements are unaudited and, in the
opinion of management, reflect all adjustments that are necessary for a fair
presentation of the financial position and results of operations for the periods
presented. All of such adjustments are of a normal and recurring nature. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the entire year. The condensed financial
statements should be read in conjunction with the financial statement
disclosures contained in the Company's audited financial statements for the year
ended December 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those
estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
unrestricted cash and investments with original maturities of three months or
less.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined using a standard cost method, which approximates average cost.
Provision is made for any excess or obsolete inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred. Cost includes
major expenditures for improvements, and replacements which extend useful lives
or increase capacity and interest cost associated with significant capital
additions. For the quarters ended September 30, 2000 and 1999, the Company
capitalized interest of $72,667 and $44,156, respectively. Gains or losses from
property disposals are included in income.
Depreciation and amortization is calculated using the straight-line method
over the following useful lives:
Production equipment 7 to 13 years
Office furniture and equipment 3 to 10 years
Building 39 years
Building improvements 15 years
Automobiles 7 years
8
<PAGE>
Long-lived Assets
When events or changes in circumstances indicate that the carrying amount
of long-lived assets may not be recoverable, the Company will review the net
realizable value of the long-lived assets through an assessment of the estimated
future cash flows related to such assets. In the event that assets are found to
be carried at amounts which are in excess of estimated gross future cash flows,
the assets will be adjusted for impairment to a level commensurate with a
discounted cash flow analysis of the underlying assets.
Intangible Assets and Deferred Charges
Intangible assets are stated at cost and consist primarily of patents, a
license agreement granting exclusive rights to use patented technology, and
trademarks which are amortized using the straight-line method over 17 years.
Other intangible assets consist of deferred charges for loan origination fees,
which are amortized over the life of the debt.
Financial Instruments
The fair market value of financial instruments is determined by reference
to various market data and other valuation techniques as appropriate. The
Company believes that the fair value of financial instruments approximate their
recorded values.
Concentrations of Credit Risk
The Company's financial instruments exposed to concentrations of credit
risk consist primarily of cash, cash equivalents and accounts receivable. Cash
balances, which may exceed the federally insured limits, are maintained in
financial institutions; however, management believes the institutions are of
high credit quality. The majority of accounts receivable are due from companies
which are well-established entities. As a consequence, management considers any
exposure from concentrations of credit risks to be limited.
Revenue Recognition
Revenue is recognized for sales to distributors when title and risk of
ownership passes to the distributor, generally upon shipment. Revenue is
recorded on the basis of sales price to distributors. Revenues on sales to
distributors for federal or GPO contracts are recorded net of contractual
pricing allowances to those end customers. Revenue for shipments directly to
end-users is recognized when title and risk of ownership passes from the
Company.
Income Taxes
The Company provides for deferred income taxes in accordance with Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires an asset and liability approach for financial
accounting and reporting for income taxes based on the tax effects of
differences between the financial statement and tax bases of assets and
liabilities, based on enacted rates expected to be in effect when such basis
differences reverse in future periods. Deferred tax assets are periodically
reviewed for reliability. Valuation allowances are recorded when realizability
of deferred tax assets is not likely.
9
<PAGE>
Research and Development Costs
Research and development costs are expensed as incurred.
Stock-Based Compensation
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123"), which establishes accounting and reporting standards
for stock-based employee compensation plans. As permitted by SFAS 123, the
Company has elected not to adopt the fair value based method of accounting for
stock-based employees compensation and will account for such arrangements under
Accounting Principles Board Opinion No. 25. Accordingly, compensation cost for
stock options issued to directors, officers, and employees is measured as the
excess, if any, of the fair market value of the Company's stock at the date of
grant over the amount the director, officer or employee must pay to acquire the
stock. Expense is recognized ratably from the date of grant over the vesting
period of the option. Unearned compensation reflected in the Stockholder's
Equity section of the balance sheet is the portion of such compensation that has
not been charged to operations.
3. LONG TERM DEBT
On February 18, 2000, the Company obtained two new loans from 1st
International Bank totaling $2,000,000. Land, building and improvements secured
$1,500,000, and the remaining $500,000 is secured by accounts receivable. The
proceeds, along with a release of $400,000 of restricted cash by Western Bank
subsequent to December 31, 1999, were used to pay off indebtedness to Western
Bank. Remaining proceeds provided funds for equipment and operating needs. The
building loan matures on February 18, 2005, and the note secured by accounts
receivable matures February 18, 2001.
On August 8, 2000, the Company borrowed $3,000,000 under its Credit
Agreement with Abbott.
4. STOCKHOLDERS EQUITY
On January 11, 2000, the Company issued a Private Placement Memorandum
offering up to 1,300,000 shares of its Series IV Class B Convertible Preferred
Stock ("Series IV, Class B Stock") at $10 per share.
As of May 22, 2000, subscriptions for 1,133,800 shares of the Series IV
Class B had been received.
Series IV Class B stock ranks senior to the Company's common stock with
respect to dividends and upon liquidation, dissolution or winding up, but
secondary to the Company's Class A Stock, and Series I Class B, Series II Class
B, and Series III Class B. Dividends of $1.00 per share are payable quarterly,
if declared by the board of directors.
Holders of Series IV Class B Stock generally have no voting rights. Series
IV Class B Stock is redeemable after three years from the date of issuance at
the option of the Company at a price of $11.00 per share plus all accrued and
unpaid dividends. Each share of Series IV Class B Stock may, at the option of
the stockholder any time subsequent to three years from date of issuance, be
converted into common stock at a conversion price of $10 per share, or in the
event the Company files an initial registration statement under the Securities
Act of 1933.
10
<PAGE>
In the event of voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of Series IV Class B Stock then outstanding
are entitled to receive liquidating distributions of $11.00 per share, plus
accrued and unpaid dividends.
Under the Certificate of Designation, Preferences, Rights and Limitations
of Series A Convertible Preferred Stock ("Series A Stock") the Board of
Directors approved the redemption of Series A Stock to be drawn by lot until the
draw exceeded 500,000 shares. The draw was held on September 19, 2000, where
541,500 shares were drawn for redemption.
As of September 30, 2000, 26,000 shares of Series A Stock had been
converted into Common Stock. Subsequent to September 30, 2000, 22,000 shares
have been redeemed and the remaining 493,500 shares have been converted into
Common Stock. Dividends attributable to the redemption in the amount of $3,435
have been paid as of the date of this filing.
In accordance with the appropriate Certificates of Designation, 40,000
shares of Class A Convertible Preferred Stock and 20,000 shares of Series I
Class B Convertible Preferred Stock were voluntarily converted to Common Stock
subsequent to September 30, 2000.
As a result of the redemption and conversions, the Series A outstanding
shares are 4,418,500; Series I Class B has 980,000 shares outstanding; and there
are 14,579,500 shares of Common Stock outstanding as of the date of this filing.
On September 1, 2000 the Board of Directors declared dividends for the Class A
Convertible Preferred shareholders.
On September 1, 2000 the Board of Directors declared the third quarter
dividend of $150,000 on the Series A Preferred Stock. These dividends were
accrued as of September 30, 2000. The dividends were paid on October 12, 2000.
ITEM 2. Management's Discussion and Analysis or Plan of
Operation
Certain statements included in this Form 10-QSB containing the words
"believes," "anticipates," "intends," "expects," and similar such words
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. Any forward-looking statements involve known
and unknown risks, uncertainties, and other factors that may cause actual
results, performance, or achievements of RTI to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the impact of
dramatic increases in demand, RTI's ability to quickly increase its capacity in
the event of a dramatic increase in demand, the ability of RTI to continue to
finance research and development as well as operations and expansion of
production through equity and debt financing, as well as sales, and the
increased interest of larger market players in providing safety needle devices.
Given these uncertainties, undue reliance should not be placed on forward-
looking statements.
EXTERNAL SOURCES OF FUNDS
RTI has funded operations primarily from proceeds from private placements
and bank loans. RTI has been capitalized with approximately $42,000,000 raised
from five separate Private Placement Offerings. As of September 30, 1995, RTI
sold 5,000,000 shares of Series A Convertible Preferred Stock at $1 per share,
for an aggregate of $5,000,000. As of October 31, 1996, RTI sold 1,000,000
shares of Series I Class B Convertible Preferred Stock at $5 per share for an
aggregate of $5,000,000. As of January 31, 1998, RTI sold 1,000,000 shares of
Series II Class B Convertible Stock at $10 per share for an aggregate of
$10,000,000. As of September 30, 1999, RTI sold 1,160,200 shares of Series III
Class B
11
<PAGE>
Convertible Preferred Stock at $10 per share for an aggregate of $11,602,000.
Finally, as of June 10, 2000, RTI sold 1,133,800 shares of Series IV Class B
Convertible Preferred Stock at $10 per share for an aggregate of $11,338,000.
RTI obtained $1,200,000, $710,000, and $2,000,000 in 1996, 1997, and 2000,
respectively, from bank loans. Additionally, RTI received a Small Business
Administration loan of $1,000,000 in 1996 to pay for portions of automated
assembly equipment, multi-cavity molds, and other equipment. Furthermore, RTI
borrowed $3,000,000 in August 2000 under its Credit Agreement with Abbott.
Comparison of Nine Months Ended
September 30, 2000 and Nine Months Ended September 30, 1999.
Net sales increased $4,143,473 or 211%, to $6,109,417 for the nine months
ended September 30, 2000 from $1,965,944 for the nine months ended September 30,
1999. Increases were principally due to the Abbott contract.
Cost of sales increased 325%. The increase was due to higher sales volume,
costs incurred to establish new production lines, and lower allocations to
preproduction expense. Coincident with the May 4, 2000 signing of the Abbott
contract, the Company ceased reporting as a development stage enterprise, and
the Company no longer classifies any manufacturing costs as preproduction.
Preproduction expenses decreased $645,378 to $627,200 for the nine months
ended September 30, 2000 compared to $1,272,578 for the nine months ended
September 30, 1999. The decrease was due to higher allocations of manufacturing
costs to cost of sales rather than to preproduction costs.
Research and development expense decreased $145,429 or 24%, to $467,786 for
the nine months ended September 30, 2000 compared to $613,215 for the nine
months ended September 30, 1999. The decrease is largely due to decreased
expenditures on the 3cc-syringe product line, partially offset by increases on
the 1cc product line and other new products.
Sales and marketing expense increased $576,922 to $3,180,353 for the nine
months ended September 30, 2000 compared to $2,603,431 for the nine months ended
September 30, 1999. Increases included marketing fees paid to distributors due
to the higher sales volumes. These increases were partially offset by decreases
in contract sales expenses. In 1999, the Company incurred contract sales
expenses in California and the contract ended in December 1999. Travel expenses
were lower than for the same period in the previous year.
General and administrative expenses increased $730,981 or 35%, to
$2,825,925 for the nine months ended September 30, 2000 compared to $2,094,944
for the nine months ended September 30, 1999. The increased expenses were due to
outside legal and accounting fees, and other financial services. Additionally,
increases were due to an increase in personnel as the company continues to
expand.
Interest income increased $40,497 or 37% for the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999 due to
higher invested cash balances.
Interest expense increased $13,376 or 13% for the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999 due to
higher debt. Increases in interest expense were partially offset by an increase
in capitalized interest over the same period in the previous year.
12
<PAGE>
Comparison of Three Months Ended
September 30, 2000 and Three Months Ended September 30, 1999.
Net revenues for the three months ended September 30, 2000 were $3,753,110.
This was an increase of $2,519,389 or 204% compared to the three months ended
September 30, 1999. The increase was principally due to sales to Abbott.
Cost of sales increased 309% due to increased sales and a discontinuation
of the allocation of certain manufacturing costs to preproduction expense as the
Company no longer reports as a development stage enterprise.
The company ceased reporting as a development stage enterprise in the
second quarter of 2000 and therefore did not record any preproduction expense in
the three months ended September 30, 2000. In the three months ended September
30, 1999, preproduction expense was $347,946.
Research and development expenses increased $21,176 to $207,186 for the
three months ended September 30, 2000 compared to $186,010 for the three months
ended September 30, 1999. The increase was due to an increase in the 1cc syringe
and other new product lines.
Sales and marketing increased to $1,543,914 for the three months ended
September 30, 2000 compared to $1,122,247 for the three months ended September
30, 1999. The increase is due to increased revenues and the resultant increase
in marketing fees paid to distributors.
General and administrative expense increased $568,876 or 87%, to $1,221,776
for the three months ended September 30, 2000 compared to the three months ended
September 30, 1999. The increased expenses were due to outside legal and
accounting fees, and other financial services. Personnel has also increased over
the previous year as the company continues to expand.
Interest income increased $35,637 or 90% for the three months ended
September 30, 2000 compared to the three months ended September 30, 1999 due to
higher invested cash balances.
Interest expense increased $42,501 or 141% for the three months ended
September 30, 2000 compared to the three months ended September 30, 1999 due to
higher debt. The increase in interest expense was partially offset by an
increase in capitalized interest.
LIQUIDITY AND FUTURE CAPITAL REQUIREMENTS
Based on anticipated sales in the second half of fiscal 2000, RTI believes
it will be able to sustain operations for its existing products without
additional financing. Management believes that RTI will achieve its breakeven
point in early 2001. RTI believes that the existing cash and cash equivalents
and cash flow from operations will be sufficient to meet RTI's presently
anticipated working capital needs through 2001. To the extent RTI uses all of
its cash resources, RTI will be required to obtain additional funds, if
available, through additional borrowing or equity financing. There can be no
assurance that such capital will be available on acceptable terms. If RTI is
unable to obtain sufficient financing, it may be unable to implement its long-
term plan of operation. RTI anticipates strengthening its capital structure over
the next four years by increasing capital through debt and equity offerings,
improving profitability, and participating in joint ventures or licensing
arrangements, where possible, to accelerate the manufacture and distribution of
its products.
RTI currently produces at a rate of 24 million 3cc syringes and 8 million
blood collection tube holders annually. In order to ramp up production to meet
the expected demand for safe needle devices, RTI has
13
<PAGE>
raised $18 million in debt and equity funds in 2000. Parts of those funds were
obtained as a result of an agreement with Abbott. On May 4, 2000, RTI entered
into a National Marketing and Distribution Agreement with Abbott for an initial
five-year term (the "Abbott Agreement"). Pursuant to the Abbott Agreement,
Abbott agreed to act as a non-exclusive marketer and distributor of RTI's 1cc,
3cc, 5cc, and 10cc syringes, blood collection tube holders, and small tube
adapters to acute care facilities. As part of the consideration for the Abbott
Agreement, Abbott agreed to make periodic loans to RTI prior to June 30, 2005,
in increments of $1,000,000 in an aggregate amount of up to $5,000,000 at an
interest rate of prime plus one percent with any and all amounts loaned to be
due and payable on June 30, 2005. Any loans made are secured by accounts
receivables and contracts where Abbott is the account debtor, payments due to
Abbott under the Abbott Agreement, and certain equipment already owned by RTI.
RTI has borrowed $3 million under the Abbott Agreement. Pursuant to the Abbott
Agreement, RTI gave Abbott the right, at its option, to convert any and all
principal amounts owed into common stock of RTI at a price of $10 per share.
Abbott also holds registration rights with respect to the shares of common stock
issued upon conversion of any principal amount loaned. As part of the
consideration paid to RTI under the Abbott Agreement, Abbott purchased $5
million of Series IV Class B Convertible Preferred Stock of RTI under the same
terms and conditions as all other investors in the Series IV Class B Convertible
Preferred Stock offering. RTI expects to fund future expansion through a
combination of debt, a public offering, and internally generated funds. Capital
needs are expected to require an additional $87 million over the next five years
for expansion of production.
Internal Sources of Liquidity and Anticipated Trends in Sales
-------------------------------------------------------------
The increase in sales is primarily attributable to the California
legislation requiring safety needles and similar legislation which had been
passed in additional states as well as by the federal government. Demand for
safety products is increasing in the United States and internationally. NIOSH
issued a safety alert calling on employers to adopt safer needles to reduce
needlestick injuries. OSHA issued a Compliance Directive which instructs OSHA
inspectors to cite employers who fail to evaluate and buy safety needle devices.
The SEIU has taken a proactive stance with regard to promoting the use of
automated retraction needle devices in member hospitals and by participating in
federal and state legislation protests. Due to recent legislation, Cal OSHA
mandates that healthcare employers provide their workers with safe needle
devices. In addition, 15 other states have adopted, and more than 20 states
have introduced, legislation containing language similar to that passed in
California. Federal legislation with support from OSHA and the Secretary of
Labor has been passed by both Houses and signed into law by the President on
November 6, 2000. The recognition for the urgency of safe needle devices in
parts of Europe and Africa has echoed the United States model. In France,
England, Germany, and Italy, organized healthcare worker unions have taken
action to force hospitals and government agencies to place safety as a priority.
France has led Western Europe in its recognition of safety and has implemented
VanishPoint(R) blood collection tube holders in several hospitals and clinical
laboratories.
Also, as a result of the Abbott Agreement, sales are expected to increase.
Demand could also dramatically increase in the event RTI is successful in its
antitrust suit against Becton Dickinson and Company et al, but RTI has not based
any of its financing plans on a positive result from that suit. RTI is also
ramping up its production and continuing to introduce new products. RTI
anticipates being able to sell all that it is able to produce.
External Sources of Liquidity
-----------------------------
RTI has obtained several loans over the past four years which have,
together with proceeds from sales of equities, enabled RTI to pursue development
and production of its products.
14
<PAGE>
In January 1996, RTI obtained two loans from Western Bank & Trust in the
principal amount of $1,200,000 for the purpose of financing construction
improvements and the purchase of manufacturing equipment, which matures on
October 24, 2001. One loan was in the amount of $800,000 and one loan in the
amount of $400,000. The larger note carried interest at a rate of prime as
defined by The Wall Street Journal plus 1 percent adjustable annually, while the
smaller loan carried interest at a rate of CD rate plus 2 percent. The loans
were secured by land, building, and equipment and by a certificate of deposit in
the amount of $400,000 to be released upon achievement of certain financial
ratios (with interest payable at the certificate of deposit rate plus 2
percent). These loans were guaranteed by Thomas J. Shaw, RTI's President and
Chief Executive Officer, and Suzanne M. August, his wife. The $800,000 loan was
paid off in February 2000 with funds provided by a loan from 1st International
Bank. The $400,000 loan was paid by the certificate of deposit which had been
held as collateral.
In July 1996, RTI obtained a United States Small Business Administration
note payable to Texas Bank in the principal amount of $1,000,000, which matures
on July 1, 2003. The note is payable monthly at an annual interest rate of
prime plus 1.5 percent adjustable quarterly. The loan is collateralized by
manufacturing equipment and guaranteed by Thomas J. Shaw, RTI's President and
Chief Executive Officer, and Suzanne M. August, his wife. This loan is in good
standing. RTI has agreed not to make any distribution upon its capital stock,
purchase any of its capital stock, or merge without prior written consent. Such
permission was obtained for the payment of dividends on the Series A Convertible
Preferred Stock and the redemption of such stock.
In April 1997, RTI obtained a loan from Legacy Bank of Texas (formerly
Plano Bank & Trust) in the principal amount of $710,000 at an interest rate of
prime plus 1 percent (adjustable daily) for reimbursement for the purchase of
equipment, which matures on July 10, 2004. The loan is collateralized by
certain machinery and equipment, a certificate of deposit in the amount of
$200,000, which was subsequently applied to the loan, and restrictions on the
transfer of certain patents. The loan is (continuously and without limit)
guaranteed by Thomas J. Shaw, the President and Chief Executive Officer. This
loan is in good standing.
In February 2000, RTI obtained loans of $2 million through the 1st
International Bank. The proceeds from these loans were used to pay off the
Western Bank loan and also for working capital purposes. $1,500,000 of the loan
is secured by a lien on the land, building, and building improvements and
matures on February 18, 2005. The remaining $500,000 is secured by RTI's
accounts receivable and matures on February 18, 2001. Both loans are guaranteed
by a continuing guaranty by Thomas J. Shaw, the President and Chief Executive
Officer. The interest rate on both loans is the prime rate as defined in The
Wall Street Journal plus 1 percent. This loan is in good standing.
In May 2000, RTI entered into an Agreement with Abbott. As part of the
consideration for the Agreement, Abbott agreed to make periodic loans prior to
June 30, 2005, to RTI in increments of $1,000,000 in an aggregate amount of up
to $5,000,000 at an interest rate of prime plus 1 percent with any and all
amounts loaned to be due and payable on June 30, 2005. In August, 2000, RTI
borrowed $3 million under the Abbott Agreement.
RTI anticipates capital expenditures in the amount of $87 million over the
next five years for the purpose of expanding capacity by adding equipment and
additional space (for 14 assembly lines for syringe production and 5 lines for
blood collection tube holder production), expanding the current building by an
additional 60,000 square feet, and constructing a second facility for additional
assembly, equipment, and warehousing needs in order to meet RTI's target
production of syringes and blood collection tube holders by 2005. RTI needs this
capital to fund equipment and facilities expansion for additional 1cc, 3cc, and
blood collection tube holders, as well as equipment to manufacture 5cc and 10cc
syringes. This production target equates to RTI's obtaining 6 percent of the
United States' 6.6 billion-
15
<PAGE>
unit syringe annual market and less than 1 percent of the world's 24 billion-
unit annual syringe market. RTI has obtained $18 million in 2000 in a
combination of debt and equity financing and expects to raise up to $60 million
through equity financing. RTI anticipates other funding requirements to be paid
from debt or operations.
RTI anticipates expenditures of $4,500,000 and $13,500,000 in fiscal 2000
and 2001, respectively, for building expansion and improvements. Management
anticipates $4,913,000; $25,447,000; and $16,897,000 in capital expenditures for
the manufacturing facility, equipment, and machinery in fiscal 2000, 2001, and
2002, respectively. RTI is planning to expand its manufacturing capacity by
expanding its existing facility in Little Elm, Texas, by 60,000 square feet in
2001 (to house near term production and administrative needs) and purchasing
additional assembly equipment. The equipment will include a 1cc printer, 1cc
packaging machine, 5cc/10cc-assembly equipment, blood collection tube holder
assembly equipment, and blood collection tube holder molds. RTI also anticipates
constructing a second facility for additional assembly equipment and warehousing
needs through 2003.
RTI has installed 1cc automated production equipment. RTI is in the process
of purchasing additional automated blood collection tube holder equipment. RTI
has increased capacity by outsourcing the molding of certain sub-components of
RTI's products. RTI has entered into an agreement with APEC for the provision
of additional molding capacity for both parts and warehousing space in
California. RTI is also pursuing licensing agreements and/or joint venture
agreements for the provision of manufacturing services.
PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Series I Class B Convertible Preferred Stock
As of the date of this filing, $2,065,292 in dividends is in arrears.
Series II Class B Convertible Preferred Stock
As of the date of this filing, $2,977,862 in dividends is in arrears.
Series III Class B Convertible Preferred Stock
As of the date of this filing, $1,812,494 in dividends is in arrears.
Series IV Class B Convertible Preferred Stock
As of the date of this filing, $459,268 in dividends is in arrears.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. A Special Meeting of the Shareholders was held on August 11, 2000. At the
meeting the Shareholders voted on and consented to the following actions and
adopted the following resolutions:
A. All Shareholders Approved Second Amended and Restated Articles of
Incorporation (the "Restated Articles").
Votes for: 14,000,000;
Votes against: 0; and
Absent: 0.
16
<PAGE>
B. All Shareholders Approved Amended and Restated Bylaws of the Corporation
(the "Amended Bylaws").
Votes for: 14,000,000;
Votes against: 0; and
Absent: 0.
C. All Shareholders Authorized and directed the Officers of the Corporation
to take any actions and to execute and deliver any documents that they may
deem necessary or advisable in order to carry out, effectuate and complete
the Restated Articles.
Votes for: 14,000,000;
Votes against: 0; and
Absent: 0.
2. The Annual Shareholders Meeting was held on August 24, 2000. At the meeting
the stockholders entitled to vote approved the following proposals as set forth
below:
A. All Shareholders voted all shares in favor of the following slate for
RTI's Board of Directors which slate constituted the entire continuing
Board of Directors after the meeting:
Class 1 Directors:
1. Lillian E. Salerno
2. Dr. Jimmie Shiu
3. Russell B. Kuhlman
4. Edith A. Zagona; and
Class 2 Directors:
1. Thomas J. Shaw
2. Steve R. Wisner
3. Douglas W. Cowan
4. Clarence Zierhut
5. Marwan Saker
The Class 1 Directors shall serve an initial 1-year term with their
successors serving 2-year terms. The Class 2 Directors shall serve 2-year
terms.
Votes for: 14,000,000;
Votes against: 0; and
Absent: 0.
B. PricewaterhouseCoopers LLP was confirmed by all Shareholders as the
Corporation's independent accountants for the next fiscal year.
Votes for: 14,000,000;
Votes against: 0; and
Absent: 0.
ITEM 5. OTHER INFORMATION
On October 26, 2000, Senate Bill 3067 (the "Needlestick Safety and Prevention
Act") passed and on November 6, 2000, President Clinton signed this bill into
law. The effect of the Needlestick Safety and Prevention Act, which becomes
effective in approximately nine months, is to require that healthcare facilities
with employees who are exposed to bloodborne pathogens use effective engineering
controls, including safer medical devices, to reduce the risk of needlestick and
other "sharps" injuries. It also gives
17
<PAGE>
frontline workers a voice in the selection of safety devices and makes employers
responsible for keeping a record of sharps injuries.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
------------ -----------
3.1 Second Amended and Restated Articles of Incorporation of RTI
filed August 14, 2000 *
3.2 Amended and Restated Bylaws of RTI dated as of the 11th day of
August 2000 *
4.1 Sample Common Stock certificate **
4.2 Exhibit A to Second Amended and Restated Articles of
Incorporation of RTI filed August 14, 2000 (Certificate of
Designation, Preferences, Rights and Limitations of Series A
Convertible Preferred Stock of RTI) **
4.3 Sample Series A Convertible Preferred Stock Certificate **
4.4 Exhibit B to Second Amended and Restated Articles of
Incorporation of RTI filed August 14, 2000 (Certificate of
Designation, Preferences, Rights, and Limitations of Class B
Convertible Preferred Stock of RTI) **
4.5 Sample Series I Class B Convertible Preferred Stock
Certificate **
4.6 Exhibit C to Second Amended and Restated Articles of
Incorporation of RTI filed August 14, 2000 (Certificate of
Designation, Preferences, Rights and Limitations of the Series
II Class B Convertible Preferred Stock of RTI) **
4.7 Sample Series II Class B Convertible Preferred Stock
Certificate **
4.8 Exhibit D to Second Amended and Restated Articles of
Incorporation of RTI filed August 14, 2000 (Certificate of
Designation, Preferences, Rights and Limitations of the Series
III Class B Convertible Preferred Stock of RTI) **
4.9 Sample Series III Class B Convertible Preferred Stock
Certificate **
4.10 Exhibit E to Second Amended and Restated Articles of
Incorporation of RTI filed August 14, 2000 (Certificate of
Designation, Preferences, Rights and Limitations of the Series
IV Class B Convertible Preferred Stock of RTI)* *
4.11 Sample Series IV Class B Convertible Preferred Stock
Certificate**
4.12 Pages 6 though 10 of the Second Amended and Restated Articles of
Incorporation of RTI filed August 14, 2000 *
18
<PAGE>
4.13 Pages 1 through 7, and 15 through 19 of the Amended and Restated
Bylaws of RTI dated as of the 11th day of August 2000. *
10.1 Lock Up Agreement by and between RTI and Thomas J. Shaw dated as
of November 3, 2000. ***
10.2 Lock Up Agreement by and between RTI and Lillian E. Salerno
dated as of November 4, 2000. ***
27 Financial Data Schedule ***
* Incorporated herein by reference to RTI's Registration Statement on
Form 10SB-A filed on October 25, 2000.
** Incorporated herein by reference to RTI's Registration Statement on
Form 10-SB filed on June 23, 2000.
*** Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
19
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATE: November 14, 2000 RETRACTABLE TECHNOLOGIES, INC.
----------------- (Registrant)
BY: /s/ DOUGLAS W. COWAN
----------------------------------
DOUGLAS W. COWAN
CHIEF FINANCIAL OFFICER
20
