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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10SB-A2
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
Retractable Technologies, Inc.
(Name of Small Business Issuer in Its Charter)
Texas 75-2599762
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Thomas J. Shaw
Chairman, President and Chief Executive Officer
511 Lobo Lane
Little Elm, Texas 75068-0009
(Address of Principal Executive Offices) (Zip Code)
(972) 294-1010
(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock
Preferred Stock
(Title of Class)
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TABLE OF CONTENTS
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Page No.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS................................................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................................. 10
ITEM 3. DESCRIPTION OF PROPERTY................................................................... 14
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................................................ 15
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS............................. 15
ITEM 6. EXECUTIVE COMPENSATION.................................................................... 19
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................ 23
ITEM 8. DESCRIPTION OF SECURITIES................................................................. 23
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON RTI's COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS............................................................. 34
ITEM 2. LEGAL PROCEEDINGS......................................................................... 35
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS............................................. 35
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES................................................... 35
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................. 36
PART F/S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998, AND
REPORT OF INDEPENDENT ACCOUNTANTS AND UNAUDITED FINANCIAL
STATEMENTS AS OF SEPTEMBER 30, 2000 AND 1999.............................................. 39
PART III
ITEM 1. INDEX TO EXHIBITS......................................................................... 65
ITEM 2. DESCRIPTION OF EXHIBITS................................................................... 66
Signature Page............................................................................................ 67
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PART I - FORM 10SB-A2
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
General Description
-------------------
Retractable Technologies, Inc. ("RTI") designs, develops, manufactures,
and markets patented safety needle devices for the healthcare industry. Our
VanishPoint(R) products utilize a unique friction ring mechanism patented by
Thomas J. Shaw, our Founder, President, and Chief Executive Officer.
VanishPoint(R) products are designed specifically to prevent needlestick
injuries and to prevent reuse. The friction ring mechanism permits the automated
retraction of the syringe needle into the barrel of the syringe, directly from
the patient, after delivery of the medication is completed. The VanishPoint(R)
blood collection tube holder utilizes the same mechanism to retract the needle
after blood has been drawn from the patient. Closure of an attached end cap of
the blood collection tube holder causes the needle to retract directly from the
patient into the closed tube holder. Advantages of our products include
protection from needlestick injuries, prevention of cross contamination through
reuse, and reduction of disposal and other associated costs. We have an
exclusive license from Thomas J. Shaw, our President and Chief Executive
Officer, for the patent rights for our safety needle products.
We and Thomas J. Shaw entered into a Technology License Agreement dated
effective as of the 23rd day of June 1995, whereby Mr. Shaw granted us a
worldwide exclusive license to manufacture, market, sell and distribute
'Licensed Products' and 'Improvements' without right to sublicense until the
expiration of the last to expire of the last 'Licensed Patents' unless sooner
terminated under certain conditions. 'Licensed Products', 'Improvements' and
'Licensed Patents' are all terms that are extensively defined in the Technology
License Agreement which is incorporated herein to this Form 10SB-A2 by reference
as indicated in the Exhibit Index. In exchange, we paid Mr. Shaw a $500,000
initial licensing fee and a 5 percent royalty on gross sales of 'Licensed
Products'. See "Patents and Proprietary Rights" for a more detailed discussion.
------------------------------
Our goal is to become a leading provider of automated retraction safety devices.
We began commercial production of our 3cc VanishPoint(R) syringe in
1997. Our additional patented VanishPoint(R) products include 1cc tuberculin,
insulin, and allergy antigen syringes; 5cc and 10cc syringes; a blood collection
tube holder, small tube adapter, a dental syringe, a self retracting IV catheter
introducer and a full displacement syringe. We manufacture 3cc syringes and
blood collection tube holders with automated assembly. We began commercial
production of the blood collection tube holder in the fourth quarter of 1998.
5cc and 10cc syringes are being manufactured in lesser quantities utilizing
semi-automated equipment. We submitted a pre-market notification and received
510(k) clearance from the FDA (which is granted automatically upon the filing of
the requisite paperwork) for the 1cc, 3cc, 5cc, and 10cc syringes and the blood
collection tube holder and small tube holder adapter. After submitting all
requisite documentation, the clearance to market products is granted. This
clearance allows us to put products into interstate commerce for commercial
distribution.
Development of RTI
------------------
While owning and operating Checkmate Engineering, a sole
proprietorship, Thomas J. Shaw, our President and Chief Executive Officer,
developed and patented the idea and early prototypes of the syringe that were to
become the VanishPoint(R) safety syringe. On May 9, 1994, RTI was incorporated
in Texas to design, develop, manufacture, and market medical safety devices for
the healthcare industry. In April 1995, Mr. Shaw, who owned all 1,000 of the
then issued and outstanding shares of the Common Stock, exchanged all 1,000
shares then outstanding for 14,000,000 shares of Common Stock. In May 1996, Mr.
Shaw transferred 2,800,000 shares of the 14,000,000 then issued and outstanding
Common Stock to Lillian E. Salerno, a Director.
In 1996, we purchased assets and hired personnel from Checkmate
Engineering. We had limited production and no sales in 1996, but focused our
attention on general and administrative activities including implementing
Quality System Regulation, developing a human resource department, and obtaining
an Order of Substantial Equivalence from the FDA allowing us to manufacture and
sell the blood collection tube holder, 5cc, 10cc, and 1cc VanishPoint(R)
syringes. In 1997, we began selling products to emergency medical service
centers, federal prison systems, homecare facilities, small hospitals, and
Veteran Administration ("VA") hospitals. During the second half of 1997, we took
delivery of our 3cc automated assembly equipment and began automated assembly.
Production molds for the 5cc and 10cc syringes and the blood collection tube
holder were ordered in 1997. A prototype mold for the 1cc syringe was ordered
and received in 1997. Automated assembly equipment for the blood collection tube
holder was ordered at the end of 1997 and installed in July 1998. We began
commercial production of the blood collection tube holder in 1998. In the fourth
quarter of 2000, we received our 1cc syringe assembly equipment.
We received our ISO 9001 Certificate in July 1998, and the
VanishPoint(R) syringe received its CE Mark Certificate on July 31, 1998. ISO
9001 standard is a model created by International Standard Organization ("ISO"),
an international agency consisting of almost 100 member countries that provides
guidance in the development and implementation of an effective quality
management system through a series of five international standards. This model
is used by organizations to certify their quality system from initial design and
development of a desired product or service through production, installation,
and servicing. The CE mark allows us to sell our products in Europe. In 1999, we
focused our development on improvement of manufacturing processes, continuation
of design and development of the manufacturing process for the 1cc syringe, and
conceptual design of additional safe needle products utilizing automated
retraction technology.
On May 4, 2000, we entered into a National Marketing and Distribution
Agreement (the "Abbott Agreement") with Abbott Laboratories ("Abbott") for an
initial five-year term. Furthermore, we have agreed to the formation of a New
Product Team, consisting of key personnel from both companies, which will
develop new safety products that incorporate our patented, proprietary
technology.
We have not been involved in any bankruptcy or similar proceedings and
have not merged or consolidated a significant amount of assets other than in the
ordinary course of business except as discussed above.
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BUSINESS OF ISSUER
Principal Products
------------------
Our products with pre-market notification to the FDA include 1cc
tuberculin, insulin, and allergy antigen VanishPoint(R) syringes; 3cc, 5cc, and
10cc VanishPoint(R) syringes; and the VanishPoint(R) blood collection tube
holder and small tube adapter. In October 1999, ECRI (formerly known as the
Emergency Care Research Institute), a recognized authority in evaluating medical
devices, awarded the VanishPoint(R) syringe and blood collection tube holder its
highest possible rating. The VanishPoint(R) blood collection tube holder
received Risk and Insurance magazine's 1997 "Top of the Line" Award for
excellence.
Our 1cc VanishPoint(R) tuberculin, insulin, and allergy antigen
syringes will be produced in various needle lengths and gauges and packaging
styles. They are expected to be available in commercial quantities in the first
half of 2001. The 3cc VanishPoint(R) syringe reached the market in the first
quarter of 1997. It is available in various needle lengths and gauges. The 5cc
and 10cc VanishPoint(R) syringes are being produced in various needle lengths
and gauges and are currently being sold in limited quantities. Sales of the
VanishPoint(R) blood collection tube holder and a small tube adapter for use
with small sample collection tubes began in the third quarter of 1998.
The manufacture and sale of medical devices entails an inherent risk of
liability in the event of product failure or claim of harm caused by the
product's operation. We believe that we have adequate product liability
insurance against any such claims. In March, 1998, the Journal of Healthcare
Safety, Compliance and Infection Control published a survey of 26 medical
facilities having used a total of 86,000 3cc syringes, during which no
needlestick injuries from using the VanishPoint(R) syringes were reported.
Industry Overview
-----------------
Based on the most recent (1998) report from Theta Corporation
("Theta"), a publisher of comprehensive market research reports on the medical
device, diagnostic, biotech, and pharmaceutical industries, the number of unit
sales of disposable hypodermic needles and syringes for 1997 was 6.6 billion in
the United States alone, with $1 billion in projected sales. According to Theta
estimates, 94 percent of the 1997 United States syringe market was made up of
standard syringes at an average price of $.11 per unit, and 6 percent was safety
syringes at an average price of $.30 per unit. Of the 6.6 billion syringes sold
in 1997, 4.3 billion were purchased by hospitals and 2.3 billion were purchased
by alternate care facilities. The alternate care market includes 1 billion units
for retail customers who use primarily 1cc allergy antigen and insulin syringes,
600 million units for physicians' offices--which use a mixture of all types of
syringes, and 700 million units for extended care facilities. According to
market leader Becton Dickinson and Company ("B-D"), approximately 20 percent of
the United States market has converted to safety-engineered products and,
according to their projections, 85 percent of the market will be converted
within the next few years. Theta projections at that time indicated that by
2001, 75 percent of syringes sold in the United States would be safety syringes
and 25 percent would be standard with estimated pricing resulting in revenues of
$1.35 billion.
Blood collection devices are used (most often by phlebotomists and
laboratory technicians) to collect samples of blood from patients for diagnostic
procedures. An evacuated vacuum tube used to contain the drawn blood is inserted
into the tube holder, which is a plastic device with a needle attached that is
designed for that purpose. Because the hollow-bore needles used for blood
collection are filled with patients' blood, and because insertion of the needle
into a patient's vein often requires several attempts, the ratio of needlestick
injuries to number of units used is higher for blood collection tube holders
than for syringes, and the risk of infection is greater. Consequently, some
blood collection tube holders now incorporate safety features similar to those
used in syringes. Industry resources indicate that annually there are 800
million medical procedures conducted to collect blood specimens. Based on
Theta's 1998 report, the number of unit sales of blood collection tubes for 1997
was 1.3 billion in the United States alone, with $170 million in projected
sales.
The syringe and needle device market is a market in transition. The
nature of the products comprising the market is changing from standard to safety
devices. The impetus for the change to safety devices is the risk that is
carried with each needlestick injury which includes the transmission of over 20
bloodborne pathogens, including the human immunodeficiency virus ("HIV," which
causes AIDS), hepatitis B, and hepatitis C. Because of the occupational and
public health hazards posed by conventional disposable syringes, public health
policy makers and the following domestic organizations and government agencies
are involved, or are becoming involved, in the current effort to get more
effective safety needle products to healthcare workers:
The National Institute for Occupational Safety and Health
("NIOSH") issued a safety alert calling on employers to adopt
safer needles to reduce needlestick injuries. The federal
agency is a division of the Centers for Disease Control and
Prevention ("CDC"). In its alert, "Preventing Needlestick
Injuries in Health Care Settings," NIOSH provides the latest
scientific information available about the risk of needlestick
injuries. This alert adds momentum to the growing safety
movement and supports the rules issued by the Federal
Occupational Safety and Health Administration ("OSHA"), on
November 5, 1999.
OSHA issued a Compliance Directive which instructs OSHA
inspectors to cite employers who fail to evaluate and buy the
safety needle devices available on the market. The directive
states that where engineering controls will reduce employee
exposure either by removing, eliminating, or isolating the
hazard, they must be used.
The Service Employees International Union ("SEIU") has taken a
proactive stance with regard to promoting the use of automated
retraction needle devices in member hospitals. Events,
including introduction of state and federal legislation
protests by SEIU members at San Francisco General Hospital,
attest to the type of support from the community that the
safety products and VanishPoint(R) product line, in
particular, attract. Members of the SEIU have specifically
requested VanishPoint(R) products in order to make their
members aware of the availability of VanishPoint(R) technology
and
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the need for it at other facilities with union membership.
Unionized healthcare workers provide healthcare staffing for
12.5 percent of United States hospital facilities.
Under California's groundbreaking legislation, the California
Occupational Safety and Health Administration ("Cal OSHA")
mandates healthcare employers to provide their workers with
safe needle devices. This action was taken in response to
events that transpired at San Francisco General Hospital and
pressure from the SEIU and various federal, state, and local
elected officials in California who demanded change. Our
representatives served on the Advisory Committee for
developing the amendments. California was the first state to
successfully pass legislation mandating the use of safety
needle products. The bill, signed into law by Governor Pete
Wilson on September 30, 1998, directed Cal OSHA to amend
California's bloodborne pathogens standard. Beginning July 1,
1999, this regulation requires the use of needle products that
effectively eliminate or reduce injury rates. Employers are
also required to create and maintain a log of all needlestick
injuries by the type of device and the manufacturer's brand.
Noncompliance with this Cal OSHA standard can result in
misdemeanor and/or felony charges that carry penalties of up
to three years in prison and fines up to $250,000.
Seventeen states have now enacted safety needle laws.
California, Tennessee, Maryland, Texas, New Jersey, Ohio, West
Virginia, Minnesota, Maine, Georgia, New Hampshire, Iowa,
Alaska, Connecticut, Oklahoma, Massachusetts, and New York
have all enacted safety needle laws. In addition, numerous
states have introduced legislation containing language similar
to that passed in California. Federal legislation was passed
by both Houses and then signed into law on November 6, 2000,
by President Clinton.
Marketing and Distribution
--------------------------
The vast majority of decisions relating to the purchase of medical
supplies are made by the purchaser representatives of the various healthcare
organizations rather than the end-users of the product (nurses, doctors, and
testing personnel). Furthermore, many of these organizations have entered into
agreements with group purchasing organizations ("GPOs") which contract for the
purchase of supplies on behalf of their member organizations in order to obtain
the lowest possible prices. The GPOs individually negotiate prices with
manufacturers of medical devices and supplies and thus their healthcare provider
members are only able to select their medical supplies and equipment from a list
of pre-negotiated suppliers. According to "The Role of Group Purchasing
Organizations in the US Health Care System," a report prepared by Muse &
Associates for the Health Industry Group Purchasing Association ("HIGPA"), the
potential hospital marketplace for medical/surgical equipment and supplies in
1998 and 1999 was $32.8 billion and $34.1 billion, respectively. HIGPA and other
industry representatives estimate that 80 percent of these hospital expenditures
were channeled through GPOs. There can be no assurance that future GPO contracts
will not continue to limit our share of the market and have a material adverse
effect on our long-term financial condition. The reluctance to purchase products
outside GPO contracts is due in part to the exclusivity of the contracts and the
hospital administrators' concern about losing manufacturers' rebates.
Accordingly, we attempt to market our products to the individual
end-users (nurses, doctors, and testing personnel) and their purchaser
representatives so that they request their GPOs add our products to their list
of available products and also market our products directly to the GPOs
themselves. Our products are available through contracts with the following:
Abbott, Scripps; McKessonHBOC; Health Services Corporation of America ("HSCA");
Premier Health Systems, Inc.; AmeriNet, Inc.; InSource Health Services; and
Managed Healthcare Associates ("MHA")/MedEcon. We also pursue General Services
Administration ("GSA"), Federal Supply Schedule (FSS), and other federal
government contracts for the purchase of VanishPoint(R) products.
We distribute our products in the United States and its territories
through 7 general line and 20 specialty distributors. We utilize 12
international distributors. We entered into an agreement with Abbott whereby
Abbott agreed to act as a nonexclusive marketer and distributor of our 1cc, 3cc,
5cc, and 10cc syringes, blood collection tube holders, and small tube adapters
to acute care facilities in the United States. The Abbott Agreement is for an
initial five year term. We will continue to utilize our current general line and
specialty distributors in other market segments, such as primary care and
alternate care facilities.
We have developed a national direct marketing network in order to
market our products to end-users and their purchaser representatives of
approximately 15 employees located across Texas, Georgia, California, Missouri,
Tennessee, New Jersey, and Arizona. We employ this marketing force of product
specialists and nurses who are strategically placed in order to take full
advantage of emerging legislation concerning safety products in healthcare. Our
marketers make calls on target markets and segments that are high volume users
of syringes and blood collection tube holders. Our marketers penetrate all of
the departments that affect the decision-making process for safety products,
including the purchasing agents. They also call on alternate care sites and talk
directly with the decision-makers of the facility. In addition to the marketers,
we employ a team of registered nurses who educate healthcare providers and
healthcare workers through accredited continuing education units for in-service
training, exhibits at related trade shows, and publications of relevant articles
in trade journals and magazines. These nurses provide clinical support to
customers. In addition to marketing our products, the network demonstrates the
safety and cost effectiveness of the VanishPoint(R) automated retraction
products to end-users. We provide to healthcare facilities, through our own
representatives and Abbott's representatives, cost analysis software developed
by Arthur Andersen LLP which, after entry of data for their particular facility,
provides healthcare professionals an analysis of the cost savings provided by
using VanishPoint(R) syringes compared to the costs of standard syringes. We
have also developed user-friendly product evaluation kits, which allow smaller
facilities to conduct on-site clinical evaluations with the aid of off-site
company nursing coordinators. These kits allow us to familiarize and educate a
facility's healthcare workers regarding VanishPoint(R) products.
We have nonexclusive distribution agreements with various organizations
for the distribution of our products in: Western Europe, Japan, Australia,
Canada, Ireland, France, Germany, Switzerland, Belgium, Netherlands, Luxembourg,
Korea, South Africa, Tanzania, Uganda,
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Zimbabwe, Botswana, Namibia, Mozambique, Angola, Zaire, Kenya, Nigeria,
Mauritius, and Madagascar. In addition, we have exclusive distribution
agreements for the distribution of our products in Puerto Rico, South Africa,
Mexico, Korea, United States Virgin Islands, British Virgin Islands, Antigua,
Barbados, St. Martin, Cuba, Ireland, the Dominican Republic, Saudi Arabia,
Syria, Iraq, Turkey, Iran, Pakistan, Kuwait, Morocco, Algeria, Tunisia, Egypt,
Sudan, Afghanistan, Oman, Yemen, and the United Arab Emirates. However, we
currently utilize only 12 of these international distributors. Sales to foreign
markets are limited at this time, as the marketing efforts are in their early
stages. The total population of Western Europe exceeds 310 million, and the
recognition for the urgency of safe needle devices in parts of Europe 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.
Key components of our strategy to increase our market share are to (a)
continue marketing emphasis in states that have implemented safe needle
legislation; (b) continue to add VA facilities, health departments, emergency
medical services, federal prisons, and home healthcare facilities as customers;
(c) educate healthcare providers, insurers, healthcare workers, government
agencies, government officials, and the general public on the reduction of risk
and the cost effectiveness afforded by our VanishPoint(R) products; (d) supply
product through GPOs and Integrated Delivery Networks ("IDNs"); (e) explore
possibilities for future licensing agreements and joint venture agreements for
the manufacture and distribution of safety products in the United States and
abroad; (f) offer a full product line on existing products; (g) introduce new
products; and (h) continue to increase international sales, particularly in
Europe, where safety legislation appears to be moving parallel to the United
States, with a one to two year lag time.
Several factors could materially affect the marketability of our products.
Demand could be dramatically increased by current legislation encouraging the
use of safety syringes. Demand could also be increased if we were successful in
the antitrust lawsuit we have filed against B-D. See "PART II-ITEM 2-LEGAL
PROCEEDINGS." Marketability of our products would depend, in part, on our
ability to meet a dramatic and sudden increase in demand and on our ability to
quickly find additional production capacity through licensing agreements and
joint ventures, the purchase of appropriate facilities, or manufacturing and
storage services. We are currently increasing shifts, improving machine
performance, and planning an expansion of our modular facility in order to
increase production. Additionally, the 1cc assembly equipment was delivered in
the fourth quarter of 2000.
Status of Publicly Announced New Products
-----------------------------------------
We have received FDA pre-market notification, which allows these
products to be put into interstate commerce, for the 1cc tuberculin, insulin,
and allergy antigens syringes and anticipate producing them in the earlier part
of 2001. We have received patents for the application of automated retraction to
dental syringes, winged IV's, and catheter introducers. We anticipate seeking
FDA premarket notification and introducing these products in the near future.
Competition
-----------
According to Theta's 1998 report, the leading manufacturers of
hypodermic syringes and blood collection products are B-D, with a market share
of approximately 71 percent; Sherwood/Davis & Geck Division of American Home
Products Company, which was acquired by Tyco International Ltd. ("Sherwood"),
with a market share of approximately 22 percent; and Terumo Medical Corporation
("Terumo"), with a market share of approximately 7 percent.
Founded in 1897, B-D is headquartered in New Jersey. B-D's medical
device division accounts for approximately 1.9 billion, or 56 percent, of B-D's
total fiscal 1999 sales. The injection systems segment accounts for 42 percent
of B-D's fiscal 1999 device division sales. B-D currently manufactures the
SafetyLok(TM), a syringe that utilizes a tubular plastic sheath that must be
manually slid over the needle after an injection, and the SafetyGlide(TM), a
syringe, which utilizes a hinged lever to cover the needle tip. B-D also
manufactures a safety blood collection tube holder that utilizes the
SafetyLok(TM) sheath. B-D's "Vacutainer(R)" blood collection tube holder is
commonly used as industry jargon to refer to blood collection tube holders in
general.
Sherwood was one of five major acquisitions by Tyco International Ltd.,
a company headquartered in Bermuda. Sherwood manufactures the Monoject(R), a
safety syringe that utilizes a sheath similar to the B-D SafetyLok(TM) syringe,
but currently does not manufacture a safety blood collection tube holder.
Founded in 1974, Terumo was the first company to sell disposable
syringes in Japan. Today Terumo manufacturers standard syringes and blood
collection tube holders, operates internationally, and has sales in some 120
countries.
Both B-D's and Sherwood's safety syringes require the use of two hands
and several extra steps to activate the tubular plastic shield which must be
slid and locked into place to protect the needle. In contrast, use of the
VanishPoint(R) syringe is identical to that of a standard syringe until the end
of an injection, when the automated retraction mechanism retracts the needle
directly from the patient safely into the barrel of the syringe. This allows the
second hand to remain safely out of harm's way.
B-D and Sherwood have greater financial resources, larger and more
established sales and marketing and distribution organizations, and greater
market influence, including the long-term contracts with GPOs described earlier.
These competitors may be able to use these resources to improve their products
through research or acquisitions or develop new products, which may compete more
effectively with our products. There can be no assurance that our competitors
will not succeed in developing or marketing products that are technologically
superior or more effective or commercially attractive than any that are being
developed by us. Based on the licensing agreement B-D has entered into with
Med-Design, it is possible that B-D may in the future attempt to manufacture
retractable needle products. Med-Design asserts patent rights to manufacture a
line of retractable needle products.
In addition to B-D and Sherwood, there are companies that manufacture
needlestick injury prevention products that our products will compete against
for market share. Among those companies are: Bio-Plexus, Inc. ("Bio-Plexus"),
Smiths Industries Medical Systems ("SIMS"),
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and New Medical Technologies, Inc. ("NMT"). Bio-Plexus utilizes a recessed
internal hollow blunt safety technology where the internal blunt is advanced and
locked into place beyond the sharp outer tip of the needle. SIMS utilizes a
patented sheath whereupon completion of the procedure, the healthcare worker
presses the sheath against a hard surface to lock the needle into the sheath.
NMT manufactures a syringe that utilizes automated retraction of the used needle
within the barrel of the syringe. NMT currently manufactures and makes
commercially available one syringe size in limited needle lengths.
Other events that are having an impact on our competitiveness include
class action lawsuits by healthcare workers and our decision to pursue our
claims for damages against B-D and Sherwood, among others. Class action suits on
behalf of healthcare workers have been filed in several states against B-D and
Sherwood, et al. The success of such lawsuits could, obviously, be materially
beneficial to any company that provides a safer alternative technology to the
standard needle products, which cause as many as 800,000 reported needlestick
injuries each year. We have filed a lawsuit against B-D; Tyco International
(U.S.), Inc.; Tyco Healthcare Group, L.P.; Novation, LLC; VHA, Inc.; Premier,
Inc.; Premier Purchasing Partners, L.P.; The Community Hospital of Brazosport;
and Sweeny Community Hospital to pursue claims for damages for
restraint-of-trade and anti-trust violations. See "PART II ITEM 2 LEGAL
PROCEEDINGS."
Our competitive strengths include that the VanishPoint(R) syringe is
the only safety syringe given the highest possible rating by ECRI. Our blood
collection tube holder is one of only two safety products given the highest
possible rating. Our products also have an advantage because minimal training
and changes to practitioners' normal routines are required. Use of our products
also prevents unfortunate and improper reuse. Our competitive position is
strengthened by our agreements with the following: Scripps; McKessonHBOC; HSCA;
Premier Health Systems, Inc.; AmeriNet, Inc.; InSource Health Services;
MHA/MedEcon; and Abbott.
Our competitive weaknesses include our current lack of market share
(less than one quarter of 1 percent) because three well-established companies
control most of the market. Our competitive position is also weakened by our
higher initial price per unit and the method that providers use for making
purchasing decisions. Our products are initially more expensive. However, the
price per unit is competitive or even lower than the competition once all the
costs incurred during the life cycle of a syringe are considered. Such life
cycle costs include disposal costs, testing and treatment costs for needlestick
injuries, and treatment for contracted illnesses through needlestick injuries.
Dependence Upon Key Suppliers
-----------------------------
We purchase most of our product components from single suppliers,
including needle adhesives, and packaging materials. There are multiple sources
of these materials, and we own the molds that are used to manufacture the
plastic components of our products. Changes in suppliers such as Magor Molds
(mold supplier), Sortimat Technology GmBHd Co. ("Sortimat") (assembly machine
supplier), Nissho Corporation (needle supplier), Multivac, Inc. (packaging
supplier), and/or Sterigenics (sterilization company) could disrupt production
schedules. In addition, shortages may occur from some suppliers, creating delays
or reductions in product shipments, which could have a material adverse effect
on our operating results. Further, delays in filling orders could cause problems
with customers, resulting in a permanent loss in sales.
Dependence on Certain Customers
-------------------------------
Sales from the first half of fiscal 1999 to the second half-increased
261 percent due to increased sales in California principally due to the safe
needle law, which went into effect July 1, 1999. Purchases made by California
customers during this period did not appreciably increase for locations outside
California. Abbott accounted for the majority of sales of our products to acute
care end-user facilities in the second half of 2000. We maintain distribution
agreements to serve our nonacute care end-user facilities.
Our current significant acute care and nonacute care end-user
facilities include: Scripps Healthcare System, Riverside Memorial Hospital,
Mississippi Department of Health, and California Department of Health.
Manufacturing
-------------
We currently manufacture our 3cc, 5cc, and 10cc VanishPoint(R) syringes
and the VanishPoint(R) blood collection tube holder and small tube adapter in a
controlled environment in Little Elm, Texas. We recently signed an agreement
with NYPRO Precision Assemblies, a California corporation, to provide
subassembly services for the 5cc and 10cc syringes. We have also outsourced
molding to Anura Plastics Engineering Corporation ("APEC"), also a California
company. The size of the facility in Little Elm, Texas, is 22,500 square feet,
with 18,000 square feet dedicated to production. The facility was designed to be
modular so that, as new product lines are added or duplicate production lines
are built, it can be expanded to house this new equipment without disrupting
production. Assembly of the 3cc syringe uses a fully automated process,
developed by Sortimat, a leading equipment manufacturer, with a manufacturing
capacity of approximately 3 1/2 million units per month. The automated blood
collection tube holder assembly has the manufacturing capacity of approximately
1 million units per month.
All components of our products, except needles, can be produced at our
Little Elm manufacturing facility. Currently, in order to increase production
capacity, we are outsourcing some of the molding and assembly processes.
Technologically advanced molding machines, using a combination of hot-runner and
cold-runner molds (depending primarily on the size of the part being molded)
produce the molded parts for VanishPoint(R) products. We own all of the molds we
use. Cold runner molds have a lower initial purchase price and require less
maintenance than hot runner molds. Furthermore, hot runner molds are not
suitable for all molded parts. These additional costs must be evaluated against
the cost of the scrap material to justify purchasing higher priced molds. Cold
runner molds receive the material directly from the heated barrel on the molding
machine. The molten plastic is injected into the back of the mold through a
sprue and flows through channels called runners through the mold to the cavities
that form the part. A sprue is the part of the scrap the runners are attached
to. The molten material runs through a central point and then continues through
small channels to fill the cavities of the mold. The material left in the
central entry point is called a sprue and the material left in the smaller
channels is called a runner. When the molten material is cooled, the runners are
attached to the sprue and both are discarded during the manufacturing process.
The finished molded component is sent to the assembly line. The sprue and
runners are discarded during the manufacturing process. The cold runner mold,
itself, is not scrapped. Because of the increased complexity of hot runner
molds, they tend to have a higher initial cost as well as higher maintenance
cost.
7
<PAGE>
When the cooling time is complete, the mold opens and the parts and
runner are ejected. Semi-hot runner molds receive the molten material similar to
cold runner molds. The difference is the mold has a manifold inside that the
material is injected into, then to individual hot tips that feed a smaller
runner system that feed the cavities. This type of system creates less scrap
than a conventional cold runner system. Hot runner molds are similar to semi-hot
molds with the exception that all the cavities are fed with the material through
individual hot tips which results in no scrap at all.
We purchase the needles used in VanishPoint(R) products from Nissho
Corporation, one of the world's larger suppliers. We wind the retraction springs
in-house using a high-grade stainless steel spring wire. All parts are tested
for biocompatibility and radiation tolerance. After automated assembly, products
are sealed in blister packages, boxed and sent out for sterilization at one of
two outside radiation facilities. Our packaging equipment was manufactured by
MultiVac, Inc., a leading packaging machine manufacturer. We also have an
automated assembly process for manufacturing our blood collection tube holders.
We have limited experience in manufacturing the VanishPoint(R) product
line in commercial quantities. Manufacturers often encounter difficulties in
scaling up production of new products, including problems involving production
yields, quality control and assurance, component supply and shortages of
qualified personnel, compliance with FDA regulations, and the need for further
FDA pre-market notification of new manufacturing processes. Difficulties
encountered by us in manufacturing scaleup could have a material adverse effect
on our business, financial condition, and results of operations. Our manufacture
of retractable medical devices relies on sophisticated and intricate processes.
While we devote substantial time and expense to continuous refinement of our
manufacturing processes and quality control and testing throughout the
manufacturing process, you should recognize that numerous factors, including
machinery calibration, product engineering, employee training, and training of
the end user will impact the usefulness and acceptance of the devices we make
and market. Earlier in the year we received isolated reports of needle
separation from end users; these incidences were limited to a small number of
3cc syringes with small gauge needles. RTI responded to these reports by
performing investigations on all relevant manufacturing processes and involved
components. In addition, we voluntarily removed affected lots of syringes from
the market. The FDA has reviewed our removal process and has classified it as a
Class II recall which requires no further action. A Class II recall is defined
as a, "temporary or medically reversible adverse health consequences," such that
the "probability of serious adverse health consequences is remote." The cost of
the recalled product was not material to us, and we expect no further activity
in this matter.
Production Capacity
-------------------
We are currently operating at a production rate of 24 million syringes
and 8 million blood collection tube holders annually. Currently, market demand
for safety needle devices outpaces our production capacity. We are working to
increase our production capacity in the 3cc syringe and blood collection tube
holders by increasing the number of operating shifts and improving machine
performance. We have increased production capacity for our 5cc and 10cc syringes
by outsourcing the subassembly for these products. We have outsourced molding to
provide better operating efficiencies. Other methods we are currently reviewing
to increase capacity include: joint ventures with manufacturers of medical
equipment, the expansion of our current manufacturing facility, short-term
mobile buildings to hold inventory, and the outsourcing of production and
subassembly of subcomponents. We have executed an agreement with NYPRO Precision
Assemblies, Inc., a California corporation, for the provision of subassembly
services for components of the 5cc and 10cc syringes, which will enable us to
increase our current manufacturing capacity. We are considering licensing and/or
sublicensing of our patent rights, as well as joint ventures to achieve
additional production. Our current facilities have been augmented by an
outsourcing agreement with APEC which provides us with additional molding
capacity for parts and warehousing space in California. Our long-term plans
include ordering additional assembly equipment and building an additional
manufacturing facility.
Patents and Proprietary Rights
------------------------------
Thomas J. Shaw and RTI entered into a Technology License Agreement
dated effective as of the 23rd day of June, 1995, whereby Mr. Shaw granted us
"... a worldwide exclusive license and right under the `Licensed Patents' and
`Information,' to manufacture, market, sell and distribute `Licensed Products'
and `Improvements' without right to sublicense and subject to such nonexclusive
rights as may be possessed by the Federal Government..." 'Licensed Patents',
'Information', 'Licensed Products', and 'Improvements' are all defined
extensively in the Technology License Agreement which is incorporated into this
Form 10SB-A2 by reference in the Exhibit Index. We may enter into licensing
arrangements with Mr. Shaw's written approval of the terms and conditions of the
licensing agreement. The 'Licensed Products' include all retractable syringes
and retractable fluid sampling devices and components thereof, assembled or
unassembled, which comprise an invention described in 'Licensed Patents', and
improvements thereof including any and all 'Products' which employ the inventive
concept disclosed or claimed in the 'Licensed Patents'.
In exchange, we paid Mr. Shaw a $500,000 initial licensing fee which
was fully paid in 1997. Furthermore, we agreed to pay a 5 percent royalty on
gross sales after returned inventory based on the price to the end-user or
intermediary as appropriate. The license terminates upon expiration of the last
licensed patents unless sooner terminated under certain circumstances. The
licensing fee and royalties have been paid in accordance with this agreement.
We have the right and obligation to obtain protection of the invention
and have full and complete control over prosecution of patent properties. The
license unilaterally changes to a nonexclusive license in the event of a hostile
takeover. Also, if Mr. Shaw involuntarily loses control of RTI, the license
becomes a nonexclusive license and a right to information.
We have sought foreign patent protection through the Patent Cooperation
Treaty, and have filed applications for regional and national patent protection
in selective countries. These regional patents include Western Europe and
Africa. In addition, we have made application for national patents in selective
countries where we believe the VanishPoint(R) syringe can be utilized most.
We hold 16 United States patents related to our automated retraction
technology, including patents for dental syringes, catheters, winged IV sets,
syringes, and blood collection tube holders. In addition, we have multiple
applications for patents currently pending.
8
<PAGE>
We have also registered the following trade names and trademarks:
VanishPoint(R), RT with a circle mark, and the Spiral Logo used in packaging our
products. We also have an application pending for trademark protection for the
color-coded spots on the ends of our syringes.
There are currently no patent infringement claims pending against the
VanishPoint(R) retraction technology. We have decided, on the advice of patent
counsel, not to purchase patent insurance because it would require inappropriate
disclosure of information that is currently proprietary and confidential.
Pursuant to the terms of a loan from Legacy Bank (formerly Plano Bank &
Trust) in the amount of $710,000, we have agreed to a negative pledge on (an
agreement not to engage in) the sale of patents without prior written
permission.
Reliance on Patents, Licenses, and Protection of Proprietary Technology
-----------------------------------------------------------------------
Our success will depend, in part, on our ability to protect our
intellectual property and maintain the proprietary nature of our technology
through a combination of patents and other intellectual property arrangements.
We believe these patents will be sufficient to protect the design of our current
and proposed products. Litigation, either to enforce our patent rights or defend
from patent infringement suits, would be expensive and would divert our
resources from other planned uses. Any adverse outcome in such litigation could
have an adverse effect on us. In addition, patent applications filed in foreign
countries and patents granted in such countries are subject to laws which differ
from those in the United States. Patent protection in such countries may be
different from patent protection provided by United States laws and may not be
favorable to us. There is no assurance that our program for patent protection,
confidentiality, and restricted access to our facilities and product
specifications will be sufficient to protect our proprietary technology from all
competitors.
Regulatory Status and Effect of Regulation
------------------------------------------
We and our products are regulated by the FDA. The syringe is a Class II
medical device which requires assurance by the manufacturer that the device is
safe and effective and that it meets certain performance standards. The FDA
issued its "Order of Substantial Equivalence" declaring the Vanishpoint(R)
syringe products to be substantially equivalent to a legally marketed predicate
device (i.e., granted us permission to market our safety syringes in interstate
commerce) for the 3cc VanishPoint(R) syringe in December 1995; for the 5cc and
10cc VanishPoint(R) syringes in May 1997; for the 1cc allergy and insulin
syringes in November 1997; for the 1cc VanishPoint(R) tuberculin syringe in
February 1998; and for the VanishPoint(R) blood collection tube holder and small
tube adapter in August 1997.
In addition to pre-market notification (which results in obtaining the
right to put products into interstate commerce), we must register with the FDA
on an annual basis and provide the FDA with a list of commercially distributed
products. Texas has similar registration requirements. The FDA is required to
inspect all medical device manufacturing facilities at least once every two
years to determine the extent to which they are complying with Quality System
Regulation. The most recent inspection occurred in April 2000, after which the
auditor determined "No Action Indicated."
TUV Essen, a subsidiary of RWTUV Germany certified for ISO 9001 our
quality system. The certification was deemed in compliance with ISO 9001, and
EN46001 and the Medical Device Directive 93/42/EEC. In addition, RWTUV certified
the VanishPoint(R) product line for the CE mark according to Annex II of the
council directive 93/42/EEC of 1993 relating to medical device design,
production, and final control. Since the original certification in 1997, we have
undergone annual surveillance audits with no major noncompliances noted. The CE
Mark authorizes us to sell in 18 different countries. We have engaged a European
regulatory affairs company to be our authorized representative in Europe
according to Medical Device Directive 93/42/EEC. We are currently pursuing
registration with the Ministries of Health in additional countries in order to
sell products in those countries.
Government Funding of Research and Right to License
---------------------------------------------------
Thomas J. Shaw developed his initial version of a safety syringe with
the aid of grants by the National Institute of Drug Abuse, a subsidiary of the
National Institutes of Health. As a result, the federal government has the
right, where the public interest justifies it, to disperse the technology to
multiple manufacturers so that the safety syringe can be made widely available
to the public. However, the funding was only used to develop and patent the
earlier syringe design as of 1991. That syringe was a bulkier, less effective,
and more expensive version of the current product. Accordingly and on the advice
of counsel, Management believes that the risk of the government demanding
manufacture of this alternative product is minimal.
Research and Development
------------------------
We spent $266,029, $763,690, and $842,062 in fiscal 1997, 1998, and
1999, respectively, on research and development, primarily on development of
prototype molds and manufacturing processes for the following products: 1cc
syringe, 5cc syringe, 10cc syringe, and a blood collection tube holder. Prior to
May, 2000, our ongoing research and development activities were performed by an
internal research and development staff. This team of engineers developed
automated line assembly for the syringe and blood collection tube holder and
established processes to meet regulatory requirements. Pursuant to the Abbott
Agreement entered into between us and Abbott, a New Product Team, made up of no
fewer than two representatives each from Abbott and RTI, has been established
for the purpose of developing new products utilizing the automated retraction
technology. Products currently in development include the winged butterfly IV,
the catheter introducer, and the dental syringe. Possible future products
include all needle medical devices to which the automated retraction mechanism
can be applied.
Environmental Compliance
------------------------
We believe that we do not incur material costs in connection with
compliance with environmental laws. Our manufacturing waste (predominantly made
up of hard plastic materials) is sold to Penn Tex Plastics, which recycles the
materials.
9
<PAGE>
Employees
---------
As of December 31, 2000, we had 195 full-time employees and two independently
contracted consultants. Of the 195 full-time employees, approximately five
persons were engaged in research and development activities, 109 persons were
engaged in manufacturing and engineering, 37 persons were engaged in quality
assurance and regulatory affairs, 18 persons were engaged in sales and
marketing, 21 persons were engaged in general and administrative functions, and
five persons in facilities. No employees are covered by collective bargaining
agreements, and we believe we maintain good relations with our employees. We are
dependent upon a number of key Management and technical personnel, and the loss
of services of one or more key employees could have a material adverse effect on
us. Our President and Chief Executive Officer, Thomas J. Shaw, has an employment
contract. In addition to Mr. Shaw's employment contract, we have a six month
employment contract with Phillip Zweig, Director of Communications. We have
entered into two consulting agreements with independent contractors. The
agreements are with companies that are controlled by Lillian E. Salerno and
Marwan Saker, two Directors. See PART I- ITEM 5- "EMPLOYMENT AGREEMENTS" and
"INDEPENDENT CONSULTING AGREEMENTS" for more details.
REPORTS TO SECURITY HOLDERS
As of August 22, 2000, RTI is a reporting company as defined under the
Securities Exchange Act of 1934, as amended. Accordingly, we have and will file
Forms 10K-SB, 10Q-SB, proxy statements, and any other periodic reports required
by the Securities Exchange Act of 1934, as amended.
The public may read and copy any materials filed with the United States
Securities and Exchange Commission ("SEC") at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is (http://www.sec.gov).
------------------
RTI's web page is currently under construction. The Internet address for RTI is
(http://www.vanishpoint.com/).
---------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements included by reference in this 10SB-A2 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, our ability to quickly increase production
capacity in the event of a dramatic increase in demand, our ability 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 LIQUIDITY
We have historically funded operations primarily from proceeds from
private placements and bank loans. We were capitalized with approximately
$42,000,000 raised from five separate Private Placement Offerings. As of
September 30, 1995, we sold 5,000,000 Shares of Series A Convertible Preferred
Stock ("Series A Stock") at $1 per share, for an aggregate of $5,000,000. As of
October 31, 1996, we sold 1,000,000 Shares of Series I Class B Convertible
Preferred Stock ("Series I Stock") at $5 per share for an aggregate of
$5,000,000. As of January 31, 1998, we sold 1,000,000 Shares of Series II Class
B Convertible Stock ("Series II Stock") at $10 per share for an aggregate of
$10,000,000. As of September 30, 1999, we sold 1,160,200 Shares of Series III
Class B Convertible Preferred Stock ("Series III Stock") at $10 per share for
an aggregate of $11,600,200. Finally, as of June 10, 2000, we sold 1,133,800
Shares of Series IV Class B Convertible Preferred Stock ("Series IV Stock") at
$10 per share for an aggregate of $11,338,000.
We obtained $1,200,000, $710,000, and $2,000,000 in 1996, 1997, and
2000, respectively, from bank loans. Additionally, we 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, we
borrowed $3,000,000 in August 2000 and $2,000,000 in December 2000 under our
Credit Agreement with Abbott.
SELECTED FINANCIAL DATA
The following selected financial data for fiscal years ended December
31, 1999 and 1998, is derived from financial statements, which were audited by
independent accountants. The following selected data for the nine months ended
September 30, 2000 and 1999, is derived from our unaudited financial statements.
The data should be read in conjunction with the audited financial statements and
selected notes and the following discussion of results of operations.
10
<PAGE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
Year Ended December 31 September 30, 2000 September 30, 1999
----------------------
1999 1998 (Unaudited) (Unaudited)
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
Sales, net $ 3,375,158 $ 845,559 $ 6,109,417 $ 1,965,944
Cost of sales 2,331,070 765,448 5,782,287 1,361,590
----------- ----------- ----------- -----------
Gross income (deficit) 1,044,088 80,111 327,130 604,354
----------- ----------- ----------- -----------
Operating Expenses
Preproduction manufacturing 1,837,830 1,004,828 627,200 1,272,578
Sales and marketing 3,742,779 1,539,822 3,180,353 2,603,431
Research and development 842,062 763,690 467,786 613,215
General and administrative 2,863,989 2,419,821 2,825,925 2,094,944
----------- ----------- ----------- -----------
Total operating expenses 9,286,660 5,728,161 7,101,264 6,584,168
----------- ----------- ----------- -----------
Loss from operations (8,242,572) (5,648,050) (6,774,134) (5,979,814)
Interest income (expense), net 9,064 (56,038) 34,938 7,816
----------- ----------- ----------- -----------
Net Loss $(8,233,508) $(5,704,088) (6,739,196) $ 5,971,998)
=========== =========== =========== ===========
Dividend requirement $ 2,999,848 $ 2,141,701 $ 2,905,323 $ 2,182,414
Basic earnings per share $ (.80) $ (.56) $ (.69) $ (.58)
</TABLE>
RESULTS OF OPERATIONS
The following discussion contains trend information and other
forward-looking statements that involve a number of risks and uncertainties. Our
actual future results could differ materially from our historical results of
operations and those discussed in the forward-looking statements. All period
references are to our fiscal year ended December 1999 or 1998 or periods ended
September 30, 2000 and 1999.
Comparison of Nine Months Ended
September 30, 2000 and Nine Months Ended September 30, 1999.
Net sales increased to $6,109,417 from $1,965,944, an increase of
$4,143,473 for the nine months ended September 30, 2000 from the nine months
ended September 30, 1999. This 211% increase was due principally to the Abbott
Agreement as almost one half of the revenues during the period were attributable
to sales to Abbott. The remaining revenue increase was attributable to increased
sales to other distributors. Syringe revenue increased almost $900,000 and blood
collection tube holder revenues increased approximately $150,000 due to sales to
other distributors.
Cost of sales increased to $5,782,287 from $1,361,590 or $4,420,697. Of
the variable costs, labor costs increased approximately $2,000,000, material
costs increased $1,400,000, and royalty costs were up $237,000. Depreciation
increased $207,000 and repairs and maintenance expense increased approximately
$250,000. Consulting costs increased about $84,000 and supplies increased by
$88,000. Coincident with the signing of the Abbott Agreement, we ceased
reporting as a development stage enterprise, and we no longer classify any
manufacturing costs as preproduction expenses.
Preproduction expenses decreased from $1,272,578 to $627,200, or
$645,378, for the nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999. The decrease was due to decreased production
time attributable to mold and piece part validation than for the same period in
the previous year. This resulted in a decrease in labor cost of approximately
$334,000. Depreciation costs declined $149,000, and supplies were $103,000 less
than for the same period in the previous year.
Research and development expense decreased from $613,215 to $467,786,
or $145,429. This 24% decrease is largely due to a $95,000 decrease in
consulting expenses on the 3cc-syringe product line.
Sales and marketing expense increased from $2,603,431 to $3,180,353, or
$576,922, for the nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999. An increase in marketing fees of $1,140,000 was
due to the higher sales volumes and the effect of the obligation of marketing
fees to the distributors, which began in June 1999. These increases were
partially offset by decreases in
11
<PAGE>
contract sales expense of $290,000 and travel expenses of $166,000. In 1999, the
contract sales expense was incurred to market our products in California in
conjunction with the safe needle legislation becoming effective in that
state.
General and administrative expenses increased from $2,094,944 to
$2,825,925, an increase of $730,981 or 35%. The increased expenses were due to
outside legal and accounting fees of $196,000. Additionally, increases in
staffing were $330,000.
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 of $106,933 over the same period in the previous year.
Comparison of Year Ended
December 31, 1999, and Year Ended December 31, 1998
Net sales were $3,375,158 and $845,559 for the years ended December 31,
1999, and December 31, 1998, respectively. The increase of $2,529,599, or 300%,
was principally due to increased sales of $1,879,599 to customers with
distribution in California. The increase was a result of the safe needle
legislation in California.
Cost of sales increased from $765,448 in 1998 to $2,331,070 in 1999, or
an increase of 205%. As a percentage of revenue, cost of sales decreased from
91% in 1998, to 69% in 1999. The improvement is due to achieving higher
production volumes while some costs remained relatively fixed. Material costs
increased $939,000, and labor costs increased $289,000 from 1998 to 1999 due
principally to increased sales volume.
Preproduction costs increased from $1,004,828 to $1,837,830. Increases
were due to validation of new equipment and piece parts to fulfill the need for
increased production volumes. Preproduction labor increased $585,000 and
material costs were up $93,000 from 1998 to 1999.
Sales and marketing expenses increased 143% to $3,742,779 in 1999 from
$1,539,822 in 1998 but decreased as a percentage of revenue from 182% to 111%.
The increase in expenses is principally due to the increased effort to market
VanishPoint(R) products in California, including retaining a marketing company
that provided contract sales representatives to supplement the marketing effort.
The expense in 1999 for contract sales representatives was $460,000.
Additionally, RTI began paying marketing fees in 1999. This represents $600,000
of the increase. There was no comparable expense in 1998 for outside contract
sales representatives or marketing fees in 1998. Additional staffing costs were
approximately $540,000. Travel and entertainment expense increased $215,000.
Research and development costs increased, primarily in staffing, as
more resources were committed to the 1cc syringe.
General and administrative costs increased 18% due to increases in
staffing and consulting services, offset somewhat by decreases in legal fees.
Interest income decreased due to lower average outstanding cash
balances.
Interest expense decreased due to lower outstanding debt and more
interest being capitalized.
Comparison of Year Ended
December 31, 1998, and Year Ended December 31, 1997
Net sales were $845,559 and $262,315 for the years ended December 31,
1998, and December 31, 1997, respectively. Shipments of the 3cc VanishPoint(R)
syringe began in February 1997, with 66% of the sales occurring during the last
four months of the year.
Cost of sales in 1998 increased 61% while sales volume increased 222%.
The percentage improvement is due to achieving higher production volumes with
automated equipment, while labor costs decreased $20,000. Depreciation increased
$317,000 year to year.
Preproduction manufacturing costs decreased $491,590 from 1997 to 1998,
because operations shifted more to a manufacturing environment from a
preproduction environment. Labor costs decreased $215,000 and materials used for
preproduction decreased $237,000 from 1997 to 1998.
Sales and marketing expense increased to $1,539,822 in 1998 from
$1,394,024 in 1997, an increase of 10%. The sales force was expanded in 1998,
resulting in additional salary expense of $171,000, a 12% increase over 1997.
Travel expense increased $95,000, or 7%. These costs were incurred in order to
increase sales and product awareness. These increases were partially offset by a
reduction of $105,000 in sales and marketing consulting expenses as we expanded
our own workforce and by a reduction in costs associated with developing
marketing and advertising materials.
Research and development costs increased from $266,029 in 1997 to
$763,690 in 1998, an increase of $497,661. This increase was due to the increase
in time spent in the manufacturing facility to further develop, refine, and
validate the production process using automated assembly equipment, so that our
products can be produced efficiently while maintaining our high standards for
quality.
12
<PAGE>
General and administrative expenses increased 24% in 1998, to
$2,419,821 from $1,952,561 in 1997. The increase was primarily an increase in
salaries of $208,000 and consulting services of $155,000 over 1997. These
increases were reduced by decreases in legal fees of $57,000.
Interest income increased due to higher average outstanding cash
balances.
Interest expense decreased $118,595 due to an increase in the
capitalization of interest expense on construction in progress expenditures for
production equipment that we are having manufactured.
LIQUIDITY AND FUTURE CAPITAL REQUIREMENTS
We believe we will be able to sustain operations for our existing
products without additional financing. We believe that we will achieve our
breakeven point in the year 2001. We believe that the existing cash and cash
equivalents and cash flow from operations will be sufficient to meet our
presently anticipated working capital needs through 2001. To the extent we use
all of our cash resources, we 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 we are
unable to obtain sufficient financing, we may be unable to implement our
long-term plan of operation. We anticipate strengthening our 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 our products.
We currently produce products 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, we have raised a little
over $18 million in debt and equity funds in 2000. We obtained these funds from:
(1) two loans given by 1st International Bank totaling $2,000,000, (2) a right
to borrow up to $5,000,000 from Abbott, and (3) the sale of $11,338,000 of our
Series IV Stock. We obtained $2,000,000 of the $18,000,000, from 1st
International Bank in the form of two loans. The loan for $1,500,000 matures on
February 18, 2005. Monthly payments are based on a twenty-year amortization and
the loan bears interest at prime plus 1%. The $500,000 loan matures on February
18, 2001 with only interest being paid monthly. Interest is prime plus 1%. We
obtained $5,000,000 of the $18,000,000 as a result of an agreement with Abbott.
On May 4, 2000, we entered into a National Marketing and Distribution Agreement
with Abbott for an initial five-year term. Pursuant to the Abbott Agreement,
Abbott agreed to act as a non-exclusive marketer and distributor of our 1cc,
3cc, 5cc, and 10cc syringes, blood collection tube holders, and small tube
adapters to acute care facilities in the United States. As part of the
consideration for the Abbott Agreement, Abbott agreed to make periodic loans to
us 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 lent to be due and payable on June 30, 2005. Accounts receivable and
contracts secure any loans made where Abbott is the account debtor, payments due
to Abbott under the Abbott Agreement, and certain equipment already owned by us.
We have borrowed $5 million under the Abbott Agreement. Pursuant to the Abbott
Agreement, we gave Abbott the right, at its option, to convert any and all
principal amounts owed into common stock 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 lent. As part of the consideration paid
to us under the Abbott Agreement, Abbott purchased $5 million of Series IV Stock
under the same terms and conditions as all other investors in the Series IV
Stock offering. We expect to fund future expansion through a combination of
debt, public offerings and internally generated funds. Capital needs are
expected to require an additional $87 million over the next five years for
expansion of production discussed in greater detail in PART I--ITEM 1--Material
--------
Commitments for Expenditures.
----------------------------
We obtained the remainder of the $18,000,000 from the sale of
$11,338,000 of our Series IV Stock.
Internal Sources of Liquidity and Anticipated Trends in Sales
-------------------------------------------------------------
The increase in sales is primarily due to legislation requiring safety
needles, which has been passed in seventeen states and Federal legislation has
been signed into law. Demand for safety products is increasing in the United
States and internationally. The National Institute for Occupational Safety and
Health ("NIOSH") issued a safety alert calling on employers to adopt safer
needles to reduce needlestick injuries. The Federal Occupational Safety and
Health Administration ("OSHA") issued a Compliance Directive which instructs
OSHA inspectors to cite employers who fail to evaluate and buy safety needle
devices. The Service Employees International Union ("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, the California Occupational
Safety and Health Administration ("Cal OSHA") mandates that healthcare employers
provide their workers with safe needle devices. In addition, 16 other states
have adopted, and more than 20 states have introduced, legislation containing
language similar to that passed in California, and federal legislation has
passed in the House and the Senate and was signed into law 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 we are successful
in our antitrust suit, but we have not based any of our financing plans on a
positive result from that suit. See "PART II- ITEM 2-LEGAL PROCEEDINGS." We are
also ramping up our production and continuing to introduce new products. We
anticipate being able to sell all the products that we are able to produce.
External Sources of Liquidity
-----------------------------
We have obtained several loans over the past four years, which have,
together with proceeds from sales of equities, enabled us to pursue development
and production of our products.
13
<PAGE>
In January 1996, we 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 mature 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). Thomas J. Shaw, our President and Chief Executive Officer, and Suzanne
M. August, his wife, guaranteed these loans. 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, we 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, our President and
Chief Executive Officer, and Suzanne M. August, his wife. This loan is in good
standing. We have agreed not to make any distribution upon our capital stock,
purchase any of our capital stock, or merge without prior written consent. Such
permission was obtained where necessary.
In April 1997, we 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, and
restrictions on the transfer of certain patents. This certificate of deposit has
been applied to the loan balance. The loan is (continuously and without limit)
guaranteed by Thomas J. Shaw, our President and Chief Executive Officer. This
loan is in good standing.
In February 2000, we 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 our accounts
receivable and matures on February 18, 2001. Both loans are guaranteed by a
continuing guaranty by Thomas J. Shaw, our 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, we entered into an Agreement with Abbott. As part of the
consideration for the Abbott Agreement, Abbott agreed to make periodic loans
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 1 percent with any and all
amounts lent to be due and payable on June 30, 2005. We borrowed $3 million in
August 2000 and $2 million in December 2000 under the Abbott Agreement. See PART
I-ITEM 2 "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION-LIQUIDITY
AND FUTURE CAPITAL REQUIREMENTS" for a more detailed description.
Material Commitments for Expenditures
-------------------------------------
We anticipate 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, constructing a 15,000 square foot warehouse,
and constructing another facility for additional assembly, equipment, and
warehousing needs in order to meet our target production of syringes and blood
collection tube holders by 2005. We need 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. 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. This production target equates to RTI's obtaining 6 percent of the United
States' 6.6 billion-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 a
combination of debt and equity financing in 2000 and expects to raise $60
million through equity financing over a period of time. We anticipate other
funding requirements to be paid from debt or operations.
Management anticipates $2,100,000, $25,447,000, and $16,897,000 in
capital expenditures for the manufacturing facility, equipment, and machinery in
fiscal 2000, 2001, and 2002, respectively.
We are in the process of purchasing additional automated blood
collection tube holder equipment. We have increased capacity by outsourcing the
molding of certain sub-components of our products. We have entered into an
agreement with Anura Plastic Engineering Corporation ("APEC") for the provision
of additional molding capacity for both parts and warehousing space in
California. We have also outsourced assembly of the sub-components of our 5cc
and 10cc syringes. We are also pursuing licensing agreements and/or joint
venture agreements for the provision of manufacturing services.
ITEM 3. DESCRIPTION OF PROPERTY
Our 22,500 square foot headquarters is located on 35 acres, which we
own, overlooking Lake Lewisville in Little Elm, Texas. The building is a modular
portion of a larger planned building for which the engineering design has been
finalized. The headquarters are in good condition and house our administrative
offices and manufacturing facility. Our current expansion plans do not include
going outside the 35 acres on which the headquarters is located. We anticipate
that any future development of facilities beyond that 35 acres will be in areas
closer to the East and West Coast customer base. The land and building on which
the headquarters is located are the subject of a lien by 1st International Bank
as collateral on payment of a loan in the amount of $1,500,000.
We also lease Suites 618, 620, and 622 S. Mill Street, Lewisville,
Texas, as well as storage stalls located at 102 E. Purnell, Lewisville, Texas,
from Mill Street Enterprises, a sole proprietorship owned by Lillian E. Salerno,
a Director. This lease is for 4,365 square feet of office space in good
condition. The storage facility is used to store office documents. The lease is
for five years commencing July 1, 1997, and ending June 30, 2002, at a monthly
rate of $1,900. An additional lease has been signed for 628 Mill Street for a
one-year period commencing April 1, 2000. The monthly rate is $1,000. This
property is used exclusively for general office and marketing purposes. We do
not hold any real estate or related securities for investment purposes.
14
<PAGE>
In the opinion of Management, all the properties and equipment are
suitable for their intended use and are adequately covered by an insurance
policy which lists Textron, Fleet Capital, Texas Bank, 1st International Bank,
and Legacy Bank as the loss payees.
We plan to expand the headquarters by 60,000 square feet in fiscal 2001
at an approximate cost of $6,000,000 for additional manufacturing space as well
as office space. This expanded facility will be capable of accommodating six
syringe assembly lines and two blood collection tube holder lines. In 2001, we
anticipate building a 100,000 square foot facility at an approximate cost of $12
million which will be utilized for manufacture of the projected eight syringe
assembly lines and three blood collection tube holder assembly lines. Management
plans to finance the expansion by raising up to $60 million through public
offerings and $10 million in debt.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the capital stock as of the date of this 10SB-A2
(excluding exercisable options) for (a) each person known by us to own
beneficially 5 percent or more of the capital stock, and (b) each Director and
executive officer (earning in excess of $100,000 annually) who owns capital
stock. Except pursuant to applicable community property laws and except as
otherwise indicated, each shareholder identified in the table possesses sole
voting and investment power with respect to his or her shares.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Owner Class/1/
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock
-----------------------------------------------------------------------------------------------------------------
As a Group Officers and Directors
511 Lobo Lane, P.O. Box 9
Little Elm, TX 75068-0009 14,062,500 72.6%
As Individuals Thomas J. Shaw 11,200,000 57.9%
Lillian E. Salerno 2,800,000 14.5%
Edith A. Zagona/2/ 50,000 Less than 1%
Jimmie Shiu 10,000 Less than 1%
Steve Wisner 2,500 Less than 1%
-----------------------------------------------------------------------------------------------------------------
Series A Stock
-----------------------------------------------------------------------------------------------------------------
As a Group Officers and Directors
511 Lobo Lane, P.O. Box 9
Little Elm, TX 75068-0009 150,000 8.2%
As Individuals Jimmie Shiu 150,000 8.2%
-----------------------------------------------------------------------------------------------------------------
Series I-IV Class B Stock
-----------------------------------------------------------------------------------------------------------------
As a Group Officers and Directors 40,000 1.9%
511 Lobo Lane, P.O. Box 9
Little Elm, TX 75068-0009
As Individuals Thomas J. Shaw 5,000 Less than 1%
Marwan Saker /3/ 30,000 1.4%
Edith A. Zagona/2/ 5,000 Less than 1%
</TABLE>
(1) The percentages of each class are based on 19,358,150 shares of Common
Stock, 1,826,500 shares of Series A Stock, and 2,087,595 shares of Series I
through IV Class B Stock outstanding as of the date of this filing.
(2) The 50,000 shares of Common Stock and the 5,000 shares of Class B Stock are
held in joint tenancy with Dr. Zagona's husband.
(3) The 30,000 Shares are beneficially held as follows: 14,500 Shares by My
Investments and 15,500 Shares by Saker Investments, which are companies
controlled by Mr. Saker.
There are no arrangements the operation of which would result in a
change in control of RTI.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The following table sets forth information concerning our Directors,
executive officers, and certain of our significant employees as of the date of
this filing. Our Board of Directors consists of a total of nine members, four
members of which are Class 1 Directors which serve for an initial one year term
and five of which are Class 2 Directors which serve for two year terms. Upon the
expiration of the Class 1 Directors' current term, the term of office of the
Class 1 Directors will be for two years.
15
<PAGE>
<TABLE>
<CAPTION>
Term as
Name Age Position Director Expires
---- --- -------- ----------------
<S> <C> <C> <C>
Executives
Thomas J. Shaw 50 Chairman, President, Chief Executive Officer, and Class 2 Director 2002
Steven R. Wisner 43 Executive Vice President, Engineering & Production and Class 2 2002
Director
Lawrence G. Salerno 41 Director of Operations N/A
James A. Hoover 52 Production Manager N/A
Russell B. Kuhlman 46 Vice President, New Markets and Class 1 Director 2001
Kathryn M. Duesman 37 Director of Clinical Services N/A
Douglas W. Cowan 57 Chief Financial Officer, Treasurer, and Class 2 Director 2002
Michele M. Larios 34 Director of Legal and Legislative Policy and Secretary N/A
Outside Directors
Lillian E. Salerno 40 Class 1 Director 2001
Jimmie Shiu, M.D. 66 Class 1 Director 2001
Clarence Zierhut 71 Class 2 Director 2002
Marwan Saker 44 Class 2 Director 2002
Edith A. Zagona 50 Class 1 Director 2001
Significant Employees
Phillip L. Zweig 54 Communications Director N/A
Peter B. Hegi 26 Product Development Manager N/A
Judy Ni Zhu 42 Senior Research Design Engineer N/A
S. Kristie Haddox 29 Quality Assurance Manager N/A
Shelley K. Walley 47 Manager of Regulatory Affairs N/A
Stephen C. Bezner 50 Director of Accounting N/A
Weldon Evans 59 Manager of Manufacturing Engineering N/A
</TABLE>
EXECUTIVES
Thomas J. Shaw, the Founder of RTI, has served as Chairman of the
--------------
Board, President, Chief Executive Officer, and as a Director since RTI's
inception. In addition to his duties overseeing the management of the company,
he continues to lead our design team in product development of other medical
safety devices that utilize his unique patented friction ring technology. Mr.
Shaw has 20 years of experience in industrial product design and has developed
several solutions to complicated mechanical engineering challenges. He has been
granted multiple patents and has additional patents pending. Mr. Shaw received a
Bachelor of Science in Civil Engineering from the University of Arizona and a
Master of Science in Accounting from the University of North Texas.
Steven R. Wisner joined us in October 1999 as Executive Vice President,
----------------
Engineering and Production and as a Director. Mr. Wisner's responsibilities
include the management of engineering, production, regulatory affairs, quality
assurance, and human resources. Mr. Wisner has 23 years of experience in product
design and development. Before joining us, Mr. Wisner was the Director of
Operations for Flextronics International in Richardson, Texas, an electronic
manufacturing services company, from May 1998 to October 1999, where he had
complete responsibility for taking product ideas from the concept stage through
full design and into the manufacturing process. Mr. Wisner worked as Design
Services Manager at Altatron Technologies, an electronic manufacturing service
company, from August 1997 to May 1998, and as Director of Engineering with
Responsive Terminal Systems, a medical reporting device manufacturing company,
from 1984 to 1997. While working at Texas Instruments, a leading electronics
manufacturing company, from 1982 to 1984, Mr. Wisner was the team leader of a
product development that successfully integrated several thousand personal
computers into the worldwide Texas Instruments data network. As a project leader
with Mostek Corporation, a semiconductor manufacturing company, from 1980 to
1982, he oversaw the development of automated manufacturing control systems for
semiconductor assembly. Mr. Wisner began his engineering career with
Rockwell-Collins, an avionics division of Rockwell International, in 1977, where
he was involved in the design of flight navigation equipment, including the
first GPS (Global Positioning System). Mr. Wisner holds a Bachelor of Science in
Computer Engineering from Iowa State University.
Lawrence G. Salerno has served as Director of Operations for us since
-------------------
1995 and is responsible for the manufacture of all VanishPoint(R) products, as
well as all product development and process development projects. Mr. Salerno is
our Management Representative, assuring that the Quality Systems are established
and implemented according to ISO 9001, MDD, and FDA mandated standards. In
addition, he supervised all aspects of the construction of our new facilities in
Little Elm, Texas. Prior to joining us, Mr. Salerno worked for Checkmate
Engineering, an engineering firm, from 1991 to 1995 and was responsible for
engineering site design and supervision of structural engineering products. Mr.
Salerno is the brother of Lillian E. Salerno.
James A. Hoover joined us in February 1996 and is our Production
---------------
Manager. He is responsible for supervision of the production of our products.
Mr. Hoover has also developed and implemented FDA required procedures and has
been involved in the FDA inspection process. Mr. Hoover joined us after working
for Sherwood for 26 years. During his tenure with Sherwood, a medical device
manufacturing company, he gained hands-on experience in all aspects of the
medical device manufacturing process. Mr. Hoover began his career with Sherwood
as a materials handler and worked his way up through a series of positions with
added responsibilities to his final position there as Production Manager of Off-
Line Molding, Operating Room/Critical Care. In this capacity, he managed several
departments, ran several product lines, and hired and supervised over 200
employees. While at Sherwood, he also gained experience with one of the
country's first safety syringes, the Monoject(R).
Russell B. Kuhlman joined us in February 1997 and is our Vice
------------------
President, New Markets and Director. Mr. Kuhlman is responsible for developing
new markets and product training for our sales organization, as well as
distribution. Mr. Kuhlman's efforts with us have resulted in bringing onboard
Specialty Distributors, influencing legislation, and educating influential
healthcare representatives about the benefits of the
16
<PAGE>
VanishPoint(R) product line. Mr. Kuhlman is respected throughout the industry
and is a main contributor to the safety effort in this country. He has a sales
background in the medical service industry that includes his most recent work
for Bio-Plexus, a medical device manufacturing company, from 1994 to 1997, where
he developed strategic marketing plans for new safety products. Prior to his
work there, Mr. Kuhlman worked as Director of Sales and Marketing for Winfield
Medical, Inc., a medical device manufacturing company, from 1989 to 1994, where
he launched several new products, developed strategic sales territories, and was
the trainer for Sales and Regional Managers. Mr. Kuhlman also worked for B-D
Vacutainer(R) Systems, a medical products company, in the Houston Territory from
1980 to 1989, where he was recognized as the National Sales Representative for
the year 1987. Mr. Kuhlman holds a Bachelor of Science in Finance from the
University of Tennessee.
Kathryn M. Duesman, joined us in 1996 as the Director of Clinical
------------------
Services and provides clinical expertise on existing VanishPoint(R) products as
well as those in development. She has assisted in the development of training
and marketing materials. Ms. Duesman has also contributed to the design of two
new products. Ms. Duesman is well recognized as one of the key authorities on
the prevention of needlestick injuries and has spoken and been published on this
issue. In 1996, Ms. Duesman served as a Registered Nurse ("RN") at Denton
Community Hospital. From 1995 to part of 1996, Ms. Duesman served as a RN at
Pilot Point Home Health, an agency for home healthcare. From 1992 to 1995, Ms.
Duesman served as a RN for Denton Community Hospital. Ms. Duesman is a 1985
graduate of Texas Woman's University with a Bachelor of Science in Nursing.
Douglas W. Cowan is our Chief Financial Officer, Treasurer, and a
----------------
Director. He is responsible for the financial, accounting, and forecasting
functions of RTI. Prior to joining us in 1999, Mr. Cowan served as a consultant
to us and other companies from 1996 to 1999 on various accounting and other
business matters. Before becoming a consultant, he served as the Chief Financial
Officer of Wedge-Dialog Company, an oil field services company, from 1995 to
1996. In addition, Mr. Cowan served in various capacities, including Vice
President and Controller at El Paso Natural Gas Company, an interstate pipeline
company. After leaving El Paso Natural Gas, Mr. Cowan formed a public accounting
practice that provided tax and accounting services, as well as litigation
support. Mr. Cowan has a Bachelor of Business Administration from Texas
Technological College. He is a CPA licensed in Texas.
Michele M. Larios joined us in February 1998 as an attorney, and now
-----------------
serves as the Director of Legal and Legislative Policy and as Secretary of RTI.
Ms. Larios is responsible for the legal and legislative functions of RTI. In
addition to working on legal matters and with outside counsel, Ms. Larios works
with legislators on pertinent issues and relevant legislation. Prior to joining
us, Ms. Larios served as the Legal Analyst for Applied Risk Management Inc., a
third party claims administration company, from 1995 through 1997. Ms. Larios
received a Bachelor of Arts in Political Science from Saint Mary's College in
Moraga, California, and a Juris Doctorate from Pepperdine University School of
Law in Malibu, California.
OUTSIDE DIRECTORS
Lillian E. Salerno has served on the Board of Directors since 1996. Ms.
------------------
Salerno began serving as a consultant to us effective June 1, 2000. Her
responsibilities include the development of foreign marketing, distribution, and
licensing agreements, principally in Europe. Previously, Ms. Salerno served us
since RTI's inception in a variety of positions. She most recently served as our
Executive Vice President, Sales and Marketing. Prior to RTI's incorporation, Ms.
Salerno was an attorney with a growing private law practice while she served as
a consultant, administrator of grants, and legal consultant to Checkmate
Engineering, an engineering firm. Ms. Salerno assisted with the start-up of RTI.
Ms. Salerno received a Bachelor of Arts from the University of Texas at Austin,
a Master of Arts from the University of North Texas, and a Juris Doctorate from
Southern Methodist University School of Law. Ms. Salerno is the sister of
Lawrence G. Salerno.
Jimmie Shiu, M.D. has served on our Board of Directors since 1996.
-----------------
Prior to retirement in 1998, Dr. Shiu was in private practice as a Board
Certified Otolaryngologist at Presbyterian Hospital in Dallas for 31 years.
Although retired from private practice, Dr. Shiu continues to serve as a
clinical professor for the Department of Otolaryngology at the University of
Texas Southwestern Medical Center at Dallas. He has served on the Board of
Trustees of Presbyterian Healthcare Foundation of Dallas since 1996 and the
Board of Directors of MOTO1, Inc. since 1999. Dr. Shiu completed his
undergraduate work at Abilene Christian University and received his medical
degree from University of Texas Southwestern Medical Center at Dallas, Texas.
Clarence Zierhut has served on our Board of Directors since April 1996.
----------------
Since 1955, Mr. Zierhut has operated an industrial design firm, Zierhut Design
now Origin Design, that develops new products from concept through final
prototypes. During his professional career, Mr. Zierhut has created over 3,000
product designs for more than 350 companies worldwide, in virtually every field
of manufacturing, and has won many international awards for design excellence.
His clients have included Johnson & Johnson, Abbott, Gould, and McDonnell
Douglas. He received a Bachelor of Arts from Art Center College of Design in Los
Angeles, California.
Marwan Saker joined our Board of Directors in June 2000. Since 1983,
------------
Mr. Saker has served as Chief Executive Officer of Sovana, Inc., an export
management company. As a representative for United States companies seeking
distribution, licensing, and franchising in the Middle East, Europe, and North
Africa, Mr. Saker was instrumental in developing successful partnerships in more
than 15 countries. He offices in Dallas, Texas.
Edith A. Zagona, Ph.D. joined our Board of Directors as a Director in
----------------------
August 2000. Dr. Zagona has conducted water resources research at the University
of Colorado's Center for Advanced Decision Support for Water and Environmental
Systems since 1988. She has led the development of RiverWare, a commercially
available water basin management software modeling tool that is widely used by
leading water management agencies. She received a Bachelor of Arts in Philosophy
and a Bachelor of Science in Civil Engineering at the University of Arizona, a
Master of Science in Civil Engineering, emphasis in hydraulics, from Colorado
State University, and a Ph.D. in Civil Engineering from the University of
Colorado at Boulder with an emphasis in automation in water resources
management.
17
<PAGE>
SIGNIFICANT EMPLOYEES
Phillip L. Zweig joined us in December 1999 as Communications Director.
----------------
Mr. Zweig is a prize winning financial journalist who has worked as a staff
reporter at The American Banker, The Wall Street Journal, and Bloomberg Business
News and other media organizations. From 1993 to 1998, he served as Corporate
Finance Editor at Business Week where he wrote a major article on RTI. Before
joining us, he worked as a freelance financial writer and editorial consultant.
His clients included Andersen Consulting and Boston Consulting Group. Mr. Zweig
received a Bachelor of Arts in Behavioral Psychology from Hamilton College and a
Master of Business Administration from the Baruch College Graduate School of
Business.
Peter B. Hegi joined us in August 1996 and is our Product Development
-------------
Manager. His responsibilities include development of new products from
conception through production implementation supporting production in the
manufacturing of products and managing continual production improvement efforts.
This process includes design input and control, manufacturing feasibility, and
FDA pre-market notification of the product. Product Development also assists in
continually improving existing devices. He has created product and component
specifications for the blood collection tube holder, 5cc syringe, and 10cc
syringe. Mr. Hegi is a 1996 Mechanical Engineering graduate of Stanford
University, where he was a member of Tau Beta Pi National Engineering Honor
Society. His new product development responsibilities include establishing
device design requirements and controls, determining product manufacturing
feasibility, and assisting in the preparation of device documentation for FDA
510(k) Submission. FDA 510(k) Submissions are summaries, submitted under section
513(i) of the Federal Food, Drug, and Cosmetic Act, of the safety and
effectiveness information contained in a pre-market notification submission
(document required to be filed by persons desiring to introduce into interstate
commerce a device intended for human use) upon which a determination of
substantial equivalence can be based ("510[k] Submission"). He has assisted in
the development of the VanishPoint(R) blood collection tube holder and the 1cc,
3cc, 5cc, and 10cc VanishPoint(R) syringe product lines.
Judy Ni Zhu has served as a Senior Research Design Engineer since
-----------
joining us in 1995. Her primary focus is on new product development and
improvement of current products. Prior to joining us, Ms. Zhu worked with
Checkmate Engineering, an engineering firm, as a design engineer on the original
3cc syringe and other SBIR grant projects. Ms. Zhu received her Bachelor of
Science from Northwest Polytechnic University in Xian, China, and her Master of
Engineering from University of Texas at Arlington. Ms. Zhu has assisted in
design modifications for the 3cc syringe, which have maximized both product
reliability and production efficiency. She also designed and developed a manual
needle assembly machine and an automatic lubricating and capping system for the
3cc syringe and developed and assisted in the design of automated blood
collection tube holder assembly equipment. Ms. Zhu has collaborated with Ms.
Duesman and Mr. Shaw in the filing of several patent applications. Prior to
joining Checkmate Engineering in 1991, Ms. Zhu worked for Shenyang Airplane
Corporation, an airplane design company, in Shenyang, China, where she was
responsible for airplane control system design and its stress computation and
analysis. Ms. Zhu also worked for Mactronix, Inc., an assembly equipment
manufacturing semiconductor company, in Dallas, Texas, where she was responsible
for the design, modification, and production drawing of an automatic wafer
transfer system.
S. Kristie Haddox joined us in July 1996, is our Quality Assurance
-----------------
("QA") Manager and is responsible for QA testing, document control, and
validation. She formerly worked as Quality Assurance Validation Scientist at
Alcon Laboratories, a pharmaceutical and medical device manufacturing company,
in Fort Worth, Texas, from 1995 to 1996. Ms. Haddox holds a Bachelor of Science
degree from Texas A&M University and is a member of the American Society for
Quality Control.
Shelley K. Walley joined us in April 1999 as our Manager of Regulatory
-----------------
Affairs and is responsible for our 510(k) Submissions, handling customer
complaints, internal/external audits, training, and the Corrective and
Preventive Action system. Ms. Walley served in several regulatory and quality
capacities prior to joining us. She was the Compliance Coordinator with Sandoz
Agro, Inc. (formerly Zoecon Corporation), an animal healthcare products
manufacturer, for 11 years from January 1985 to July 1995 and gained valuable
experience working with the EPA and the FDA to establish compliance with GMP and
GLP guidelines for us. Ms. Walley's experience as Senior Regulatory Specialist
for almost four years at Mentor (from July 1995 to April 1999), a Class III
implantable medical device company, furthered her regulatory knowledge in the
medical device arena. At Mentor, she provided regulatory guidance for
submissions, validations and audits, and worked closely with the FDA, the ISO,
and third party investigations. Ms. Walley majored in Business Management at
East Texas State University and is a Certified Quality Auditor.
Stephen C. Bezner joined us in March 2000 as the Director of
-----------------
Accounting. He is responsible for keeping personnel, systems, and procedures in
place to produce an orderly and timely accounting of all business activities.
Prior to his employment with us, Mr. Bezner served as Vice President Finance for
CBI Laboratories, a public subsidiary of Thermo Electron Corporation, an
electronic equipment manufacturing company, from 1992 to 2000. Mr. Bezner has 24
years' experience in accounting management and cost accounting, all of which
were for manufacturing operations of public companies. Previous employers
include Overhead Door Corporation and Texas Instruments. He has a Bachelor of
Science Degree from the University of Texas at Dallas.
Weldon G. Evans joined us in October, 2000 as Manager of Manufacturing
---------------
Engineering. His responsibilities include the support of new product development
and current production, as well as the creation of new and improved
manufacturing processes. Prior to joining us he served as a senior project
engineer with B-D, a medical technology company, since 1974. He received a
Bachelor of Science degree in Mechanical Engineering and a Master of Science
degree in Engineering Administration from Southern Methodist University. Mr.
Evans is a member of Pi Tau Sigma National Honorary Mechanical Engineering
Society and the American Society of Mechanical Engineering.
18
<PAGE>
COMMITTEES OF DIRECTORS
The Board of Directors has the following committees:
<TABLE>
<CAPTION>
Committee Members
--------- -------
<S> <C>
Executive Committee Thomas J. Shaw
Steven R. Wisner
Dr. Jimmie Shiu
Audit Committee Clarence Zierhut
Marwan Saker
Dr. Jimmie Shiu
Compensation and Benefits Thomas J. Shaw--Chairman
Lillian E. Salerno
Douglas W. Cowan
</TABLE>
The Executive Committee possesses and may exercise all the powers and
authority of the Board of Directors in the control and management of the
business and affairs of RTI during intervals between regular meetings of the
Board of Directors. These powers are limited as follows: the committee cannot
fill any of its vacancies, the committee does not have the power to declare
dividends, amend Bylaws, elect or remove any Officer or Director, to submit to
shareholders actions that require approval of shareholders, amend any resolution
of the Board of Directors, to act on matters assigned to other committees, to
create or fill any vacancies on the Board of Directors, to authorize
distributions or to issue shares.
The Audit Committee assists the Board of Directors in monitoring the
integrity of the financial statements, our compliance with securities
regulations and the independence and performance of our auditors.
The Compensation and Benefits Committee recommends to the Board of
Directors the compensation of Officers and significant employees and the
granting of stock options.
FAMILY RELATIONSHIPS
There are no family relationships among the above persons except as set
forth above.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of the above persons or any business in which such person was an
executive officer have been involved in a bankruptcy petition, been subject to a
criminal proceeding (excluding traffic violations and other minor offenses),
been subject to any order enjoining or suspending their involvement in any type
of business, or been found to have violated a securities law.
DIRECTORSHIPS IN OTHER COMPANIES
No Directors hold directorships in reporting companies other than as
set forth above.
ITEM 6. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total annual
compensation paid or accrued by us to or for the account of the Chief Executive
Officer and each other executive officer whose total cash compensation exceeded
$100,000 for any of the past three fiscal years:
19
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------- ----------------------
Awards Payout(s)
------------------------- --------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Compen- Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) ($) SARs (#) ($) sation ($)
-------------------------- ---- --------- -------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Shaw, 1998 125,000 0 0 0 0 0 0
President and CEO 1999 162,019 0 0 0 0 0 0
2000 198,084 0 0 0 0 0 0
---- ------- ------- --------- ------- ----- ------ -------
Lillian E. Salerno,
Former Executive 1998 90,000 0 0 0 0 0 0
Vice President, 1999 143,461 0 0 0 0 0 0
Sales & Marketing 2000 63,946 0 0 0 0 0 0
---- ------- ------- --------- ------- ----- ------ -------
Edward S. Aarons, 1998 0 0 0 0 0 0 0
Former Director 1999 108,598 0 0 0 0 0 0
of Sales 2000 0 0 0 0 0 0 0
---- ------- ------- --------- ------- ----- ------ -------
Douglas W. Cowan 1998 0 0 0 0 0 0 0
Chief Financial Officer 1999 78,768 0 0 0 0 0 0
& Treasurer 2000 130,818 0 0 0 0 0 0
---- ------- ------- --------- ------- ----- ------ -------
Russell B. Kuhlman 1998 85,577 0 0 0 0 0 0
Vice President, New 1999 94,327 1,000 0 0 0 0 0
Markets 2000 102,411 3,000 0 0 0 0 0
---- ------- ------- --------- ------- ----- ------ -------
Steven R. Wisher
Executive Vice 1998 0 0 0 0 0 0 0
President, Engineering 1999 20,944 0 0 0 0 0 0
and Production 2000 137,023 0 0 0 0 0 0
---- ------- ------- --------- ------- ----- ------ -------
</TABLE>
In 1998, Mr. Shaw should have received a raise under the terms of his
Employment Agreement. However, the 1998 portion of his raise in the amount of
$12,019 was paid in 1999. Officers, Directors, and significant employees hold
options exercisable for the purchase of 57,000; 110,000; 263,700; 172,075, and
169,375 shares of common stock in the years 1999, 2000, 2001, 2002, and 2003,
respectively. To date, no options or long-term incentive plan awards have been
issued to Mr. Shaw or Ms. Salerno, the controlling Common Stockholders. Former
Directors were granted options as follows: Allen Cheesman, 38,100; John H.
Wilson, III, 5,000; F. John Deuschle, III, 5,000; Bob Stathopulos, 5,000; and
Joe Reeder, 25,000. Options granted to Messrs. Wilson and Deuschle terminated as
a result of their departure from the Board of Directors. The Board of Directors
subsequently issued options for the purchase of 5,000 shares of Common Stock of
RTI to each. Mr. Stathopulos' options terminated as a result of his no longer
providing services to RTI.
20
<PAGE>
Officers, Directors, and significant employees hold stock options for
the purchase of Common Stock exercisable beginning in the year indicated below
and for three subsequent years:
Options Exercisable by Directors and Significant Employees
<TABLE>
<CAPTION>
1999 Plan Nonqualified Stock Options ("NQSOs") 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Steven R. Wisner 65,000 65,000 5,000
Lawrence G. Salerno 5,150 2,000
James A. Hoover 3,150
Kathryn M. Duesman 5,300 5,000
Douglas W. Cowan 2,500 2,500 15,000
Jimmie Shiu, M.D. 25,000
Clarence Zierhut 10,000
Edith Zagona 5,000
Michele M. Larios 7,700 15,000
Marwan Saker 5,000 30,500 30,500
Phillip L. Zweig 20,000 10,000
-------------------------------------------------------------------
0 20,000 143,800 98,000 72,500
===================================================================
<CAPTION>
1999 Plan Incentive Stock Options ("ISOs") 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Steven R. Wisner 10,000 10,000 10,000
Lawrence G. Salerno 2,500 7,650 10,000
James A. Hoover 2,500 5,650 8,000
Russell B. Kuhlman 7,800 7,800 10,000
Kathryn M. Duesman 2,500 7,800 10,000
Douglas W. Cowan 10,000 10,000 10,000
Michele M. Larios 7,700 10,000
Peter B. Hegi 3,800 3,800 8,100
Judy Ni Zhu 3,350 3,350 7,000
S. Kristie Haddox 3,950 3,950 6,600
Steven C. Bezner 3,875 3,875
Shelley K. Walley 2,500 2,500 3,300
-------------------------------------------------------------------
0 0 48,900 74,075 96,875
===================================================================
<CAPTION>
1996 Plan NQSOs 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Steven R. Wisner 2,500
Lawrence G. Salerno 5,000 15,000
James A. Hoover 5,000 14,000
Russell B. Kuhlman 7,500 10,000
Kathryn M. Duesman 1,500 10,000
Jimmie Shiu, M.D. 15,000 15,000 15,000
Clarence Zierhut 10,000 5,000 1,000
Peter B. Hegi 1,500 7,000
Judy Ni Zhu 7,500 10,000
S. Kristie Haddox 1,500 4,000
-------------------------------------------------------------------
57,000 90,000 16,000 0 0
===================================================================
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
1996 Plan ISOs 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Lawrence G. Salerno 7,500
James A. Hoover 7,500
Russell B. Kuhlman 7,500
Kathryn M. Duesman 7,500
Michele M. Larios 10,000
Peter B. Hegi 5,000
Judy Ni Zhu 5,000
S. Kristie Haddox 5,000
-------------------------------------------------------------------
0 0 55,000 0 0
===================================================================
</TABLE>
COMPENSATION OF DIRECTORS
We pay each non-employee Director a meeting fee of $250 for each Board
meeting attended and have granted each Director (except Mr. Shaw and Ms.
Salerno) stock options for Common Stock each year. We do not pay any additional
amounts for committee participation or special assignment.
EMPLOYMENT AGREEMENTS
There are no other employment agreements in place involving other
Officers or Directors, except as set forth below:
Thomas J. Shaw
--------------
We have a written employment agreement with Thomas J. Shaw, our
President and Chief Executive Officer, for an initial period of three years
ending September 2002 with an automatic and continuous renewal for consecutive
two-year periods. The agreement is terminable either by us or Thomas J. Shaw
upon 30 days' written notice. The agreement provides for an annual salary of at
least $150,000 with an annual salary increase equal to no less than the
percentage increase in the Consumer Price Index during the previous calendar
year. Thomas J. Shaw's salary shall be reviewed by the Board of Directors each
January, which shall make such increases as it considers appropriate. Thomas J.
Shaw is also entitled to participate in all executive bonuses as the Board of
Directors, in its sole discretion, shall determine.
Under the Employment Agreement, we will also provide certain fringe
benefits, including, but not limited to, participation in pension plans,
profit-sharing plans, employee stock ownership plans, stock appreciation rights,
hospitalization and health insurance, disability and life insurance, paid
vacation, and sick leave. We also reimburse him for any reasonable and necessary
business expenses, including travel and entertainment expenses, necessary to
carry on his duties. Pursuant to the employment agreement, we have agreed to
indemnify Thomas J. Shaw for all legal expenses and liabilities incurred with
any proceeding involving him by reason of his being an Officer or agent. We have
further agreed to pay reasonable attorney fees and expenses in the event that,
in Thomas J. Shaw's sole judgment, he needs to retain counsel or otherwise
expend his personal funds for his defense.
Thomas J. Shaw has agreed to a one-year non-compete, not to hire or
attempt to hire employees for one year and to not make known our customers or
accounts or to call on or solicit our accounts or customers in the event of
termination of his employment for one year, unless the termination is without
cause or pursuant to a change of control of RTI. Furthermore, Mr. Shaw has the
right to resign in the event that there is a change in control which is defined
as a change in the majority of Directors within any twelve month period without
2/3 approval of the shares outstanding and entitled to vote, or a merger where
less than 50 percent of the outstanding stock survives and a majority of the
Board of Directors remains, or the sale of substantially all of our assets, or
any other person acquires more than 50 percent of the voting capital. Mr. Shaw
retains the right to participate in other businesses as long as they do not
compete with us and so long as he devotes the necessary working time to the
company.
Phillip L. Zweig
----------------
We entered into an employment agreement with Phillip L. Zweig, our
Communications Director, on December 21, 2000, which expires on June 12,
2001. Mr. Zweig's duties include obtaining and authoring favorable coverage of
RTI and issues important to us in local and national media outlets throughout
the United States. Mr. Zweig may from time to time engage in writing for
publication articles unrelated to the business of RTI. Mr. Zweig also agreed not
to write articles about us for independent publications and shall not provide
any services relating to marketing strategy, healthcare policy, publicity or
media coverage, or any other services in the United States to any manufacturer
of needle products, healthcare group purchasing organizations, or any individual
or business entity that is in direct competition with our business during his
employment and for three years hereafter. In exchange, we agreed to pay Mr.
Zweig a bi-weekly salary of $4,615.38 and to grant Mr. Zweig options for the
purchase of 10,000 Shares of our Common Stock under the 1999 Stock Option Plan.
We also agreed to pay reasonable travel, entertainment, and related expenses as
well as to provide Mr. Zweig with standard benefits. Mr. Zweig shall be
considered for bonuses on the same terms as other management employees. This
contract may be terminated by either party with 30 days written notice.
22
<PAGE>
INDEPENDENT CONSULTING AGREEMENTS
Lillian E. Salerno, d/b/a MediTrade International
-------------------------------------------------
We entered into a consulting agreement with Lillian E. Salerno, d/b/a
MediTrade International, a sole proprietorship, on June 1, 2000. The contract
was amended on August 23, 2000 and now expires on May 31, 2001. Ms. Salerno has
agreed to establish contacts with major European entities to develop marketing
and distribution channels as well as licensing agreements. Ms. Salerno will be
paid $16,667 per month and reimbursed for business expenses incurred on behalf
of RTI, not to exceed $5,000 without prior approval for the term of the
contract.
International Export and Consulting
-----------------------------------
We entered into a Consulting Agreement on March 15, 2000, with
International Export and Consulting where International Export and Consulting
agreed to advise us with respect to selection of an international distribution
network, potential strategic partners, and future licensing for VanishPoint(R)
technology in the Middle East which terminates no later than June 1, 2001.
International Export and Consulting further agreed that during the term of this
agreement and for a period of two years thereafter, it would not perform any
services which would utilize any 'Confidential Information' of RTI nor perform
any services for any of RTI's competitors. In exchange, we agreed to pay a
consulting fee in the amount of $2,000 a month for ten months as well as issue
nonqualified stock options ("NQSOs") for 61,000 Shares of our Common Stock at an
exercise price of $10 per share upon successful completion of a distribution
agreement with Sovana, Inc. Marwan Saker, a principal in International Export
and Consulting, is a Director.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management believes that all of the transactions set forth below were
made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. There are no preset limits on payments to related
parties. Payments are made after services are provided.
Thomas J. Shaw, our President and Chief Executive Officer who
beneficially owns 57.9 percent of the Common Stock, was paid a licensing fee of
$500,000 (amortized over 17 years) by us for the exclusive worldwide licensing
rights to manufacture, market, sell, and distribute all the retractable medical
safety products. In addition, Mr. Shaw receives a 5 percent gross royalty on all
licensed products sold to customers over the life of the technology licensing
agreement. Mr. Shaw was paid a royalty of $110,197 and $42,571 for 1999 and
1998, respectively. Mr. Shaw was paid $429,077 in royalties from January 1,
2000, to the date of this filing. Mr. Shaw has been paid $539,274 as a royalty
for the two years ended January 16, 2001.
In September 1996, we purchased the 3cc prototype molds from Thomas J.
Shaw, d/b/a Checkmate Engineering, a sole proprietorship. The purchase was
financed by a note for the full purchase price of $108,252. The note provided
for no interest for the first 305 days and, subsequently, interest at a rate of
12 percent per annum. Interest expense related to this note was $1,400 and
$5,258 for the years ended December 31, 1999 and 1998, respectively. The note
was paid in full in 1999.
Lillian E. Salerno, a Director, d/b/a Mill Street Enterprises ("Mill
Street"), a sole proprietorship, leases offices at 618, 620, and 622 S. Mill
Street, in Lewisville, Texas, to us for our marketing and sales department. The
lease is for a five-year term commencing July 1, 1997, and ending June 30, 2002,
at an annual rental rate of $22,800. We also have a lease for additional office
space with Mill Street for one year commencing April 1, 2000, at a rate of
$1,000 per month. Lease payments for $33,400 and $2,900 have been paid in 2000
and 2001, respectively.
A former Director, Robert Stathopulos, was paid consulting fees by us
of $96,372 in 1999 and $129,817 in 2000 and through the date of this
filing.
Douglas W. Cowan, a Director and the Chief Financial Officer and
Treasurer, received $76,651 and $58,345 in 1998 and 1999, respectively, for
accounting and other consulting services prior to becoming a Director and
employee.
We paid $23,381 and $30,258 in 1999 and 1998, respectively, and $14,006
has been paid in 2000, to family members of our Chief Executive Officer for
various consulting services.
Pursuant to a Consulting Agreement between RTI and Lillian E. Salerno
d/b/a MediTrade International, Ms. Salerno, a Director, was advanced $37,500 in
September, 2000 for setting up operations in Europe. This advance will be
recouped over the remaining period of the contract. As of the date of this
filing, we have recouped approximately $28,000 of the advance.
ITEM 8. DESCRIPTION OF SECURITIES
As of the date of this filing, our authorized capital consists of
100,000,000 shares of Common Stock, no par value, 5,000,000 shares of Series A
Stock, par value of $1 per share, and 5,000,000 shares of Class B Convertible
Preferred Stock, par value of $1 per share. No capital stock carries preemptive
rights although owners of the preferred stock have the right to purchase
additional shares of Common Stock in the event we ever sell Common Stock for a
price below that which they paid for their preferred stock. Those prices ranged
from $1 per share to $10 per share. There are no provisions in the Second
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
that would delay, defer, or prevent a change in control of RTI other than
provisions in the Second Amended and Restated Articles of Incorporation that
prohibit cumulative voting by shareholders and provisions which provide that the
Board of Directors shall consist of two classes with each class elected every
two years (except the initial year 2000) in alternating years. We serve as our
own registrar and transfer agent but are in the process of retaining the
services of American Stock Transfer & Trust Company as registrar and transfer
agent.
COMMON STOCK
We are authorized to issue 100,000,000 shares of no par value common
stock (the "Common Stock"). As of the date of this filing, there are 19,358,150
shares of Common Stock issued and outstanding. Additionally, 1,000,000 shares
are set aside under both 1996 Stock Option Plans and 2,000,000 shares of Common
Stock have been set aside under the 1999 Stock Option Plan for employees,
Directors, and other qualified individuals. These shares are issuable upon the
exercise of options.
23
<PAGE>
Options for the purchase of 369,655 shares of Common Stock became exercisable by
December 31, 2000. Options for an additional 2,500 shares of Common Stock became
exercisable as of the date of this filing. No shares are held as treasury
stock.
Shares of our Common Stock have no conversion rights, no preemptive
rights, no restrictions on alienation and are fully paid and are not liable to
further call or assessment. Each share of our Common Stock is entitled to share
ratably in any asset available for distribution to holders of its equity
securities upon liquidation of RTI, subject to the preference of the holders of
each class and series of the preferred stock. Pursuant to the requirements of a
loan from Texas Bank, we have agreed not to return capital to the shareholders
or redeem outstanding shares without the bank's prior consent.
Voting Rights
-------------
All shares of our Common Stock have equal voting rights and, when
validly issued and outstanding, have one vote per share on all matters to be
voted upon by stockholders. The holders of the Common Stock elect the Directors
subject to certain limited voting rights of the holders of the Series A Stock
and Series II Stock where dividends are in arrears for 12 consecutive quarters.
See "Series A Convertible Preferred Stock" and "Series II Class B Convertible
Preferred Stock." Cumulative voting in the election of Directors is
prohibited.
Dividends
---------
Holders of our Common Stock are entitled to receive dividends when and
if declared by the Board of Directors out of funds available therefor. We have
not paid any dividends on the Common Stock since RTI's inception and presently
anticipate that all earnings, if any, will be retained for development of our
business and that no dividends on our Common Stock will be declared in the
foreseeable future. Any future dividends will be subject to the discretion of
the Board of Directors and will depend upon, among other things, future
earnings, full payment of dividends on the Series A Stock, and Series I, Series
II, Series III, and Series IV Stock, our operating and financial condition, our
capital requirements, and general business conditions.
SERIES A CONVERTIBLE PREFERRED STOCK
We are authorized to issue not more than 5,000,000 shares of Series A
Stock at $1.00 par value and have 1,826,500 shares issued and outstanding held
by 54 shareholders. The Board of Directors has the authority to divide the
Series A Stock into series and to set the relative rights and preferences among
the series, within the limitations provided by Article 2.13 of the Texas
Business Corporation Act. This summary is not intended to be complete and is
subject to, and qualified in its entirety by reference to, the Certificate of
Designation, Preferences, Rights, and Limitations of Series A Convertible
Preferred Stock of RTI, filed with the Secretary of the State of Texas, amending
RTI's Articles of Incorporation, and setting forth the rights, preferences, and
limitations of the Series A Convertible Preferred Stock.
Dividends
---------
Holders of shares of Series A Stock will be entitled to receive, if,
when, and as declared by the Board of Directors out of funds legally available
therefor, cumulative cash dividends of $.12 per share per annum, payable
quarterly, commencing September 1, 1995. If a dividend upon any shares of Series
A Stock is in arrears, no dividends may be paid or declared and set aside for
payment, or other distribution made upon the Common Stock or any other stock of
RTI ranking junior to the Series A Stock as to dividends. In addition, no Common
Stock or any other stock ranking junior to the Series A Stock as to dividends,
may be redeemed, purchased, or otherwise acquired for any consideration except
in certain circumstances. As of the date of this filing, $94,599 in dividends
were in arrears.
Voting Rights
-------------
Except as required by the laws of the State of Texas, the holders of
the Series A Stock are generally not entitled to vote. In the event dividends
payable on the Series A Stock shares shall be in arrears for 12 consecutive
quarterly dividend periods, the holders of the majority of the outstanding
Series A shares shall have the exclusive right (voting separately as a class
with one vote per Series A share) to elect one-third of the Board of Directors
which Directors shall serve until the next annual meeting or so long as such
arrearage shall continue. As of March 31, 1999, dividends to Series A
shareholders were in arrears for 12 consecutive dividend periods and
accordingly, on October 4, 1999, the Series A shareholders elected three
(one-third) of the Directors to the Board of Directors. The term of office of
these Directors terminated by payment of all dividends due.
So long as any shares of Series A Stock remain outstanding, we shall
not, without the affirmative vote or consent of the holders of at least 51
percent of the shares of the Series A Stock outstanding at the time: (a)
authorize, create, issue, or increase the authorized or issued amount of any
class or series of stock ranking equal to or senior to the Series A Stock with
respect to payment of dividends or the distribution of assets on liquidation,
dissolution, or winding up of RTI; or (b) amend, alter, or repeal the provisions
of the Articles of Incorporation, or of the rights of the Series A Stock, so as
to alter or change the powers, preferences, or special rights of the shares of
the Series A Stock so as to affect them adversely.
Conversion Rights
-----------------
Each share of Series A Stock will be convertible at any time subsequent
to three years after issuance, at the option of the holder thereof into Common
Stock at a conversion rate of one share of Common Stock for each share of Series
A Stock. The conversion price is subject to adjustment in certain events.
24
<PAGE>
Redemption Provisions
---------------------
RTI prior to three years from the date of issuance may not redeem the
Series A Stock. On and after such date, we may redeem the Series A Stock at our
option, in whole or in part, at any time and from time to time, on at least 30
days' and not more than 60 days' written notice at the redemption price of $1.70
per share, together with accrued and unpaid dividends to the date fixed for
redemption.
Liquidation Rights
------------------
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of RTI, the holders of outstanding shares of Series A Stock are
entitled to receive liquidating distributions equivalent to $1.50 per share,
plus accrued and unpaid dividends to the date of distribution, out of our assets
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any stock ranking junior to the Series A
Stock upon liquidation, dissolution, or winding up. If upon any liquidation,
dissolution, or winding up of RTI, the amounts available for distribution with
respect to the Series A Stock are not sufficient to satisfy the full liquidation
rights of the Series A Stock, the holders of the Series A Stock will share
ratably in any such distribution of assets.
Registration Rights
-------------------
Until six months after the last shares of the Series A Stock are
redeemed, retired, converted, or otherwise no longer outstanding, we will give
notice to the holders of the Series A Stock no less than 20 days before filing a
registration statement under the Securities Act (excluding registrations
pertaining to securities issuable pursuant to employee stock option or stock
purchase plans, or pursuant to the acquisition of a business). We will also
afford the holders of the Series A Stock the opportunity to have included in any
one, but not more than two registrations shares of Common Stock acquired upon
conversion of the Series A Stock. We are entitled to exclude the shares of any
holder from a maximum of one registration (on the advice of our investment
banking firm that inclusion would materially interfere with the orderly sale of
securities offered under such registration statement) so long as no other
holder's shares are included in the registration.
CLASS B CONVERTIBLE PREFERRED STOCK (SERIES I, II, III, AND IV)
We are authorized to issue 5,000,000 shares of Class B Convertible
Preferred Shares at $1 par value per share. The Board of Directors of RTI has
the authority to divide the Class B preferred shares into series and to set the
relative rights and preferences among the series, within the limitations
provided by Texas Business Corporation Act, Article 2.13. This summary is not
intended to be complete and is subject to, and qualified in its entirety by,
reference to the Certificates of Designation, Preferences, Rights, and
Limitations of Series I, II, III, and IV Class B Convertible Preferred Stock of
RTI, filed with the Secretary of the State of Texas, amending RTI's Articles of
Incorporation, and setting forth the rights, preferences, and limitations of the
Series I, II, III, and IV Class B Convertible Preferred Stock.
SERIES I CLASS B CONVERTIBLE PREFERRED STOCK
We are authorized to issue not more than 5,000,000 shares and have
366,600 shares outstanding held by 78 shareholders as of the date of this
filing. The Series I Stock ranks senior to the Common Stock with respect to
dividends and upon liquidation, dissolution, or winding up and RTI treats them
as junior to the 5,000,000 shares of Series A Stock.
Dividends
---------
Holders of shares of Series I Stock will be entitled to receive, if,
when, and as declared by the Board of Directors out of funds legally available
therefor, cumulative cash dividends of $.50 per share per annum, payable
quarterly, commencing December 31, 1996. If a dividend upon any shares of Series
I Stock is in arrears, no dividends may be paid or declared and set aside for
payment, or other distribution made upon the Common Stock or any other stock
ranking junior to the Series I Stock as to dividends. In addition, no Common
Stock, or any other stock ranking junior to the Series I Stock as to dividends,
may be redeemed, purchased, or otherwise acquired for any consideration except
in certain circumstances. As of the date of this filing, $2,151,898 in dividends
were in arrears.
Voting Rights
-------------
Except as required by the laws of the State of Texas, the holders of
the Series I Stock are not entitled to vote.
So long as any shares of Series I Stock remain outstanding, we shall
not, without the affirmative vote or consent of the holders of at least 51
percent of the shares of the Series I Stock outstanding at the time: (a)
authorize, create, issue, or increase the authorized or issued amount of any
class or series of stock ranking equal to or senior to the Series I Stock with
respect to payment of dividends or the distribution of assets on liquidation,
dissolution, or winding up of RTI; or (b) amend, alter, or repeal the provisions
of RTI's Articles of Incorporation, or of the rights of the Series I Stock so as
to alter or change the powers, preferences, or special rights of the shares of
the Series I Stock so as to affect them adversely.
Conversion Rights
-----------------
Each share of Series I Stock will be convertible at any time subsequent
to three years after issuance, at the option of the holder thereof into Common
Stock at a conversion rate of one share of Common Stock for each share of Series
I Stock. The conversion price is subject to adjustment in certain events.
25
<PAGE>
Redemption Provisions
---------------------
Prior to three years from the date of issuance, we may not redeem the
Series I Stock. On and after such date, we may redeem the Series I Stock at our
option, in whole or in part, at any time and from time to time, on at least 30
days' and not more than 60 days' written notice, at the redemption price of
$7.50 per share, together with accrued and unpaid dividends to the date fixed
for redemption.
Liquidation Rights
------------------
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of RTI, the holders of outstanding shares of Series I Stock are
entitled to receive liquidating distributions equivalent to $6.25 per share,
plus accrued and unpaid dividends to the date of distribution, out of our assets
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any stock ranking junior to the Series I
Stock upon liquidation, dissolution, or winding up. If, upon any liquidation,
dissolution, or winding up of RTI, the amounts available for distribution with
respect to the Series I Stock are not sufficient to satisfy the full liquidation
rights of the Series I Stock, the holders of the Series I Stock will share
ratably in any such distribution of assets in proportion to the full respective
preferential amounts to which they are entitled.
Registration Rights
-------------------
Until six months after the last shares of the Series I Stock are
redeemed, retired, converted, or otherwise no longer outstanding, we will give
notice to the holders of the Series I Stock no less than 20 days before filing a
registration statement under the Securities Act (excluding registrations
pertaining to securities issuable pursuant to employee stock option or stock
purchase plans, or pursuant to the acquisition of a business). We will also
afford the holders of the Series I Stock the opportunity to have included in any
one, but not more than two registrations shares of Common Stock acquired upon
conversion of the Series I Stock. We are entitled to exclude the shares of any
holder from a maximum of one registration (on the advice of our investment
banking firm that inclusion would materially interfere with the orderly sale of
securities offered under such registration statement) so long as no other
holder's shares are included in the registration.
SERIES II CLASS B CONVERTIBLE PREFERRED STOCK
We are authorized to issue not more than 5,000,000 shares and have
489,250 shares outstanding held by 88 shareholders as of the date of this
filing. The Series II Stock ranks senior to the Common Stock with respect to
dividends and upon liquidation, dissolution, or winding up, and RTI treats them
as junior to the 5,000,000 shares of Series A Stock and Series I Stock.
Dividends
---------
Holders of shares of Series II Stock will be entitled to receive, if,
when, and as declared by the Board of Directors out of funds legally available
therefor, cumulative cash dividends of $1 per share per annum, payable
quarterly, commencing December 31, 1997. If a dividend upon any shares of Series
II Stock is in arrears, no dividends may be paid or declared and set aside for
payment, or other distribution made upon the Common Stock or any other stock
ranking junior to the Series II Stock as to dividends. In addition, no Common
Stock, or any other stock ranking junior to the Series II Stock as to dividends,
may be redeemed, purchased, or otherwise acquired for any consideration except
in certain circumstances. As of the date of this filing, $3,165,943 in dividends
were in arrears.
Voting Rights
-------------
Except as required by the laws of the State of Texas, the holders of
the Series II Stock are generally not entitled to vote. In the event that
dividends payable on the Series II Stock shall be in arrears for 12 consecutive
quarterly dividend periods, the holders of a majority of the Series II Shares
shall have the exclusive right (voting separately as a class with one vote per
share of Series II Stock) to elect one-third of the Board of Directors to serve
until the next annual meeting or so long as such arrearage shall continue.
So long as any shares of Series II Stock remain outstanding, we shall
not, without the affirmative vote or consent of the holders of at least 51
percent of the shares of the Series II Stock outstanding at the time: (a)
authorize, create, issue, or increase the authorized or issued amount of any
class or series of stock ranking equal to or senior to the Series II Stock with
respect to payment of dividends or the distribution of assets on liquidation,
dissolution, or winding up of RTI; or (b) amend, alter, or repeal the provisions
of RTI's Articles of Incorporation, or of the rights of the Series II Stock so
as to alter or change the powers, preferences, or special rights of the shares
of the Series II Stock so as to affect them adversely.
Conversion Rights
-----------------
Each share of Series II Stock will be convertible at any time
subsequent to three years after issuance, at the option of the holder thereof
into Common Stock at a conversion rate of one share of Common Stock for each
share of Series II Stock. The conversion price is subject to adjustment in
certain events.
In the event we file a registration statement, the holders of the
Series II Stock will have the opportunity to convert their shares prior to the
three-year holding period.
Redemption Provisions
---------------------
Prior to three years from the date of issuance, we may not redeem the
Series II Stock. On and after such date, we may redeem the Series II Stock, in
whole or in part, at any time and from time to time, on at least 30 days' and
not more than 60 days' written notice at the redemption price of $15 per share,
together with accrued and unpaid dividends to the date fixed for
redemption.
26
<PAGE>
In the event we file a registration statement, we may, at our option,
accelerate our redemption rights.
Liquidation Rights
------------------
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of RTI, the holders of outstanding shares of Series II Stock are
entitled to receive liquidating distributions equivalent to $12.50 per share,
plus accrued and unpaid dividends to the date of distribution, out of our assets
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any stock ranking junior to the Series II
Stock upon liquidation, dissolution, or winding up. If upon any liquidation,
dissolution, or winding up of RTI, the amounts available for distribution with
respect to the Series II Stock are not sufficient to satisfy the full
liquidation rights of the Series II Stock, the holders of the Series II Stock
will share ratably in any such distribution of assets in proportion to the full
respective preferential amounts to which they are entitled.
Registration Rights
-------------------
Until six months after the last shares of the Series II Stock are
redeemed, retired, converted, or otherwise no longer outstanding, we will give
notice to the holders of the Series II Stock no less than 20 days before filing
a registration statement under the Securities Act (excluding registrations
pertaining to securities issuable pursuant to employee stock option or stock
purchase plans, or pursuant to the acquisition of a business). We will also
afford the holders of the Series II Stock the opportunity to have included in
any one, but not more than two registrations shares of Common Stock acquired
upon conversion of the Series II Stock. We are entitled to exclude the shares of
any holder from a maximum of one registration (on the advice of our investment
banking firm that inclusion would materially interfere with the orderly sale of
securities offered under such registration statement) so long as no other
holder's shares are included in the registration.
In the event we file a registration statement, the holders of the
Series II Stock will have the opportunity to convert their shares prior to the
three-year holding period, and we may, at our option, accelerate our redemption
rights.
SERIES III CLASS B CONVERTIBLE PREFERRED STOCK
We are authorized to issue not more than 2,000,000 shares and have
165,745 shares outstanding held by 45 shareholders as of the date of this
filing. The Series III Stock ranks senior to the Common Stock with respect to
dividends and upon liquidation, dissolution, or winding up, and we treat them as
junior to the 5,000,000 shares of Series A Stock and Series I and II Stock.
Dividends
---------
Holders of shares of Series III Stock will be entitled to receive, if,
when, and as declared by the Board of Directors out of funds legally available
therefor, cumulative cash dividends of $1 per share per annum, payable
quarterly, commencing December 31, 1998. If a dividend upon any shares of Series
III Stock is in arrears, no dividends may be paid or declared and set aside for
payment, or other distribution made upon the Common Stock or any other stock
ranking junior to the Series III Stock as to dividends. In addition, no Common
Stock or any other stock ranking junior to the Series III Stock as to dividends,
may be redeemed, purchased, or otherwise acquired for any consideration except
in certain circumstances. As of the date of this filing, $1,982,015 in dividends
were in arrears.
Voting Rights
-------------
Except as required by the laws of the State of Texas, the holders of
the Series III Stock are not entitled to vote.
So long as any shares of Series III Stock remain outstanding, we shall
not, without the affirmative vote or consent of the holders of at least 51
percent of the shares of the Series III Stock outstanding at the time: (a)
authorize, create, issue, or increase the authorized or issued amount of any
class or series of stock ranking equal to or senior to the Series III Stock with
respect to payment of dividends or the distribution of assets on liquidation,
dissolution, or winding up of RTI; or (b) amend, alter, or repeal the provisions
of RTI's Articles of Incorporation, or of the rights of the Series III Stock so
as to alter or change the powers, preferences, or special rights of the shares
of the Series III Stock so as to affect them adversely.
Conversion Rights
-----------------
Each share of Series III Stock will be convertible at any time
subsequent to three years after issuance, at the option of the holder thereof
into Common Stock at a conversion rate of one share of Common Stock for each
share of Series III Stock. The conversion price is subject to adjustment in
certain events.
In the event we file a registration statement, the holders of the
Series III Stock will have the opportunity to convert their shares prior to the
three-year holding period. We may, at our option at any time within 180 days
after the registration statement is deemed effective, demand the conversion of
the Series III Stock.
Redemption Provisions
---------------------
Prior to three years from the date of issuance, we may not redeem the
Series III Stock. On and after such date, we may redeem the Series III Stock at
our option, in whole or in part, at any time and from time to time, on at least
30 days' and not more than 60 days' written notice at the redemption price of
$15 per share, together with accrued and unpaid dividends to the date fixed for
redemption.
In the event we file a registration statement, we may, at our option at
any time within 180 days after the registration statement is deemed effective,
demand the conversion of the Series III Stock.
27
<PAGE>
Liquidation Rights
------------------
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of RTI, the holders of outstanding shares of Series III Stock are
entitled to receive liquidating distributions equivalent to $12.50 per share,
plus accrued and unpaid dividends to the date of distribution, out of our assets
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any stock ranking junior to the Series III
Stock upon liquidation, dissolution, or winding up. If upon any liquidation,
dissolution, or winding up of RTI, the amounts available for distribution with
respect to the Series III Stock are not sufficient to satisfy the full
liquidation rights of the Series III Stock, the holders of the Series III Stock
will share ratably in any such distribution of assets in proportion to the full
respective preferential amounts to which they are entitled.
Registration Rights
-------------------
Until six months after the last shares of the Series III Stock is
redeemed, retired, converted, or otherwise no longer outstanding, we will give
notice to the holders of the Series III Stock no less than 20 days before filing
a registration statement under the Securities Act (excluding registrations
pertaining to securities issuable pursuant to employee stock option or stock
purchase plans, or pursuant to the acquisition of a business). We will also
afford the holders of the Series III Stock the opportunity to have included in
any one, but not more than two registrations shares of Common Stock acquired
upon conversion of the Series III Stock. We are entitled to exclude the shares
of any holder from a maximum of one registration (if in our sole discretion we
decide that the inclusion of such shares will materially interfere with the
orderly sale of the securities being offered under such registration statement)
so long as no other holder's shares are included in the registration.
In the event we file an initial registration statement, the holders of
the Series III Stock will have the opportunity to convert their shares prior to
the three-year holding period. We may, at our option at any time within 180 days
after the registration statement is deemed effective, demand the conversion of
the Series III Stock.
SERIES IV CLASS B CONVERTIBLE PREFERRED STOCK
We are authorized to issue not more than 1,300,000 shares and have
1,066,000 shares outstanding held by 14 shareholders as of the date of this
filing. The Series IV Stock ranks senior to the Common Stock with respect to
dividends and upon liquidation, dissolution, or winding up, but we treat it as
junior to the 5,000,000 shares of Series A Stock and Series I, II, and III
Stock.
Dividends
---------
Holders of shares of Series IV Stock will be entitled to receive, if,
when, and as declared by the Board of Directors out of funds legally available
therefor, cumulative cash dividends of $1 per share per annum, payable
quarterly, commencing December 31, 2000. If a dividend upon any shares of Series
IV Stock is in arrears, no dividends may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or any other stock
ranking junior to the Series IV Stock as to dividends. In addition, no Common
Stock or any other stock ranking junior to the Series IV Stock as to dividends
may be redeemed, purchased, or otherwise acquired for any consideration except
in certain circumstances. As of the date of this filing, $734,498 in dividends
were in arrears.
Voting Rights
-------------
Except as required by the laws of the State of Texas, the holders of
the Series IV Stock are not entitled to vote.
So long as any shares of Series IV Stock remain outstanding, we shall
not, without the affirmative vote or consent of the holders of at least 51
percent of the shares of the Series IV Stock outstanding at the time: (a)
authorize, create, issue, or increase the authorized or issued amount of any
class or series of stock ranking equal to or senior to the Series IV Stock with
respect to payment of dividends or the distribution of assets on liquidation,
dissolution, or winding up of RTI; or (b) amend, alter, or repeal the provisions
of RTI's Articles of Incorporation, or of the rights of the Series IV Stock so
as to alter or change the powers, preferences, or special rights of the shares
of the Series IV Stock so as to affect them adversely.
Conversion Rights
-----------------
Each share of Series IV Stock will be convertible at any time
subsequent to three years after issuance, at the option of the holder thereof
into Common Stock at a conversion rate of one share of Common Stock for each
share of Series IV Stock. The conversion price is subject to adjustment in
certain events.
In the event that we file an initial registration statement, the
holders of Series IV Stock may convert their shares prior to the three-year
holding period. We may also, at our option any time within 180 days after the
registration statement is deemed effective, demand the conversion of the Series
IV Stock.
Redemption Provisions
---------------------
Prior to three years from the date of issuance, we may not redeem the
Series IV Stock. On and after such date, we may redeem the Series IV Stock at
our option, in whole or in part, at any time and from time to time, on at least
30 days' and not more than 60 days' written notice to convert or redeem the
shares, at the redemption price of $11 per share, together with accrued and
unpaid dividends to the date fixed for redemption.
In the event that we file an initial registration statement, we may, at
our option any time within 180 days after the registration statement is deemed
effective, demand the conversion of the Series IV Stock.
28
<PAGE>
Liquidation Rights
------------------
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of RTI, the holders of outstanding shares of Series IV Stock are
entitled to receive liquidating distributions equivalent to $11 per share, plus
accrued and unpaid dividends to the date of distribution, out of our assets
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any stock ranking junior to the Series IV
Stock upon liquidation, dissolution, or winding up. If upon any liquidation,
dissolution, or winding up of RTI, the amounts available for distribution with
respect to the Series IV Stock are not sufficient to satisfy the full
liquidation rights of the Series IV Stock, the holders of the Series IV Stock
will share ratably in any such distribution of assets in proportion to the full
respective preferential amounts to which they are entitled.
Registration Rights
-------------------
Until six months after the last shares of the Series IV Stock are
redeemed, retired, converted, or otherwise no longer outstanding, we will give
notice to the holders of the Series IV Stock no less than 20 days before filing
a registration statement under the Securities Act (excluding registrations
pertaining to securities issuable pursuant to employee stock option or stock
purchase plans, or pursuant to the acquisition of a business). We will also
afford the holders of the Series IV Stock the opportunity to have included in
any one, but not more than two registrations shares of Common Stock acquired
upon conversion of the Series IV Stock. We are entitled to exclude the shares of
any holder from a maximum of one registration (if in our sole discretion we
decide that inclusion would materially interfere with the orderly sale of
securities offered under such registration statement) so long as no other
holder's shares are included in the registration.
In the event that we file an initial registration statement, the
holders of Series IV Stock may convert their shares prior to the three-year
holding period. We may also, at our option any time within 180 days after the
initial registration statement is deemed effective, demand the conversion of the
Series IV Stock.
OVERVIEW OF RTI'S 1999 STOCK OPTION PLAN
On September 14, 1999, the Board of Directors adopted the 1999 Stock
Option Plan effective as of July 1, 1999 (the "Plan" for purposes of this
section only). In order to qualify options under the Plan as incentive stock
options ("ISOs"), the shareholders must approve the Plan on or before September
14, 2000. The shareholders approved the Plan on September 14, 1999. The Plan
provides for the granting of ISOs and Non Qualified Stock Options ("NQSOs") as
defined in the Plan and collectively referred to in this section only as
"Awards." The purpose of the Plan is to encourage stock ownership by key
employees, to provide an incentive for such employees to expand and improve the
profitability of RTI, and to assist RTI in attracting and retaining key
personnel through the grant of ISOs and NQSOs to purchase shares of common
stock. The following description is intended to be a summary of the Plan's
principal terms and is qualified in its entirety by reference to the complete
text which is incorporated herein in the Exhibit Index.
General
-------
The Plan authorizes the Compensation and Benefits Committee or, in the
absence of a committee, the Board of Directors to grant ISOs to key employees
and NQSOs to other employees, independent contractors, and non-employee
Directors. No Directors have options vesting within 60 days of this filing.
As of the date of this filing, we have granted ISOs to purchase 833,475
shares of Common Stock and NQSOs to purchase 271,550 shares to employees under
the 1999 Stock Option Plan. ISOs to purchase 130,175 shares and employee NQSOs
to purchase 5,300 shares were cancelled under the terms of the Plan. 53,500
employee NQSOs were exercisable at the filing date. No ISOs were exercisable as
of the date of this filing. The exercise price for the ISOs is $10. The NQSOs
have exercise prices from $1 to $10. We granted NQSOs to purchase 358,200 shares
to non-employees, 15,000 of which have been cancelled and 2,500 are exercisable
as of the date of this filing.
Exercisable options under the 1999 Stock Option Plan are shown below:
<TABLE>
<CAPTION>
All Options, Including Officers and
Significant Employees 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
ISOs -- -- 161,200 207,075 335,025
Employee NQSOs 26,000 27,500 101,250 67,500 44,000
Nonemployee Directors NQSOs -- -- 45,000 30,500 30,500
Nonemployee NQSOs -- 10,000 144,700 64,998 17,502
------- ------- ------- ------- -------
Total 26,000 37,500 452,150 370,073 427,027
======= ======= ======= ======= =======
Officers and significant employees 1999 2000 2001 2002 2003
ISOs 0 0 48,900 74,075 96,875
Nonemployee Directors NQSOs 0 0 45,000 30,500 30,500
Employee NQSOs 0 20,000 98,800 67,500 42,000
------- ------- ------- ------- -------
Total 0 20,000 192,700 172,075 169,375
======= ======= ======= ======= =======
</TABLE>
29
<PAGE>
A maximum of 2 million shares of Common Stock are reserved and
available for distribution pursuant to Awards granted under the Plan, subject to
adjustment to reflect a subdivision or consolidation of shares or any other
capital adjustment, payment of a stock dividend, or other increase or decrease
in such shares effected without consideration. Shares may be distributed under
the Plan, in whole or in part, from authorized and unissued shares or treasury
shares. The Compensation and Benefits Committee shall be responsible to the
Board of Directors for the operation of the Plan and shall make recommendations
to the Board of Directors with respect to participation in the Plan and with
respect to the terms, limitations, restrictions, conditions, and extent of that
participation. The interpretation and construction of a provision of the Plan by
the Compensation and Benefits Committee shall be final unless otherwise
determined by the Board of Directors. The Board of Directors, upon
recommendation by the Compensation and Benefits Committee or upon its own
action, may grant stock options. Options may not be exercised by tendering
outstanding shares except as permitted by the Compensation and Benefits
Committee, in its sole discretion.
Awards
------
Options granted under the Plan may be ISOs, as defined under and
subject to Section 422 of the Internal Revenue Code (the "Code"), or NQSOs.
The options will be exercisable at such times and subject to such terms
and conditions as the Board of Directors or the Compensation and Benefits
Committee may determine. All options must expire no later than ten years from
the date of grant in the case of ISOs held by a non-10 percent shareholder, no
later than five years from the date of grant in the case of a 10 percent
shareholder, and as determined by the Board of Directors/Compensation and
Benefits Committee at the date of grant in the case of NQSOs.
Generally, ISOs will terminate three months after termination of the
optionee's employment without cause and automatically upon termination for
cause, or one year following the termination of employment due to death or
permanent disability; provided, however, that options will expire prior to said
times if and at such time that the original option exercise term otherwise
expires. Generally, options may be exercised only to the extent exercisable on
the date of termination, death, or disability. Generally, NQSOs will terminate
automatically upon termination of the optionee's employment for cause and one
year following termination of employment due to death. Nonvested NQSOs are
forfeited upon termination of employment with or without cause, permanent
disability, or death; provided, however, that options will expire prior to said
times if and at such time that the original option exercise term otherwise
expires.
The option price for any ISO will not be less than 100 percent of the
fair market value of the Common Stock as of the date of grant. In the event the
optionee is a 10 percent shareholder, the price of the ISO shall be 110 percent
of the fair market value of the Common Stock as of the date of grant. In the
event the optionee is not a 10 percent shareholder, the price of the ISO shall
be 100 percent of the fair market value of the Common Stock as of the date of
grant. The Board of Directors has set $10 as the fair market value of RTI's
Common Stock for ISOs granted prior to December 22, 2000. The option price for
an NQSO will be determined by the Board of Directors or Compensation and
Benefits Committee on the date of grant. The holder of an NQSO must, prior to
issuance of a stock certificate, remit to us the amount, if any, of any taxes
required to be withheld upon exercise of the NQSO.
The ISOs are not transferable except by will or the laws of descent and
distribution. NQSOs may not be transferred for a period of one year from the
date of grant to a nonaffiliate and may not be transferred for a period of two
years from the date of grant to affiliates.
Miscellaneous
-------------
The Plan may be amended or discontinued by the Board of Directors or
the Compensation and Benefits Committee provided that the Board of Directors may
not, without the approval of the stockholders: (a) except as expressly provided
in the Plan, increase the total number of shares reserved for the purposes of
the Plan, (b) decrease the option price of an ISO to less than the amounts
provided for in the Plan, and (c) extend the duration of the Plan. No amendment,
alteration, or discontinuation may impair the rights of an optionee without his
consent.
Under the Plan, the Board of Directors and Compensation and Benefits
Committee has wide discretion and flexibility, enabling it to administer the
Plan in the manner it determines to be in the best interest of RTI. Thus, Awards
may be granted in various combinations and sequences and may be subject to
various conditions, restrictions, and limitations at grant or upon exercise or
payment not inconsistent with the terms of the Plan. The Board of Directors' and
Compensation and Benefits Committee's determinations with respect to which
employees will receive Awards, and the form, amount and frequency, and the terms
and conditions thereof, need not be uniform as to similarly situated persons.
The designation of an employee to receive one form of an Award under the Plan
does not require the Board of Directors or Compensation and Benefits Committee
to designate or entitle such employee to receive any other form of Award.
The Plan limits the number of ISOs that can be issued to key employees.
Other than limiting Awards to key employees, there are no restrictions on the
number of Officers or other employees eligible to receive Awards or the Awards
that may be granted to one person. In addition, the Plan does not limit the
aggregate number of Awards that may be granted except that the number of shares
reserved for distribution under the Plan cannot exceed 2 million shares.
OVERVIEW OF THE 1996 INCENTIVE STOCK OPTION PLAN OF RTI
On January 30, 1996, the Board of Directors adopted the 1996 Incentive
Stock Option Plan of RTI (the "Plan" for purposes of this section only). The
shareholders adopted the Plan on April 26, 1996. The Plan provides for the
granting of ISOs as defined in the Plan and collectively referred to in this
section only as "Awards." The purpose of the Plan is to encourage stock
ownership by certain Officers and key employees, in attracting qualified
personnel to RTI, and to provide additional incentives for such employees to
promote and contribute to our success. The following description is intended to
be a summary of the Plan's principal terms and is qualified in its entirety by
reference to the complete text incorporated herein by reference to the Exhibit
Index.
General
-------
30
<PAGE>
The Plan authorizes the Compensation and Benefits Committee to grant
ISOs to current, full-time employees. As of the date of this filing, ISOs for
the right to purchase 184,550 shares of Common Stock have been granted of which
73,800 have terminated under the provisions of the Plan. The exercise price for
the ISOs is $10. As of the date of this filing, options for the purchase of
17,500 shares granted to Directors have vested. Stock options, which were
granted under the Plan but which do not meet certain statutory requirements for
ISOs, are classified as NQSOs.
As of the date of this filing, we had granted NQSOs for the purchase of
344,205 shares to employees under the 1996 Incentive Stock Option Plan of which
178,800 have terminated under the provisions of the Plan. The NQSOs have
exercise prices from $1 to $10.
Exercisable Options under the 1996 Incentive Stock Option Plan are as follows:
All Options, Including Officers and
Significant Employees 1999 2000 2001
ISOs 0 1,750 109,000
NQSOs 41,105 124,300 0
------- ------- -------
41,105 126,050 109,000
======= ======= =======
Officers and significant employees
1999 2000 2001
ISOs 0 0 55,000
NQSOs 29,500 70,000 0
------- ------- -------
29,500 70,000 55,000
======= ======= =======
Under the 1996 Incentive Stock Option Plan, a maximum of 800,000 shares
of Common Stock are reserved and available for distribution pursuant to Awards
granted under the Plan, subject to adjustment to reflect a subdivision or
consolidation of shares, payment of a stock dividend on Common Stock or other
increase or decrease in such shares effected without consideration. If shares
subject to an Award granted under the Plan ceases to be subject to such Awards,
such shares will again be available for distribution under the Plan. Shares may
be distributed under the Plan, in whole or in part, from authorized and unissued
shares. The Compensation and Benefits Committee shall be responsible to the
Board of Directors for the operation of the Plan and shall make recommendations
to the Board of Directors with respect to participation in the Plan and with
respect to the terms, limitations, restrictions, conditions, and extent of that
participation. The interpretation and construction of a provision of the Plan by
the Compensation and Benefits Committee shall be final unless otherwise
determined by the Board of Directors.
Awards
------
Options granted under the Plan shall be ISOs as defined under and
subject to Section 422 of the Code.
The options will be exercisable at such times and subject to such terms
and conditions as the Compensation and Benefits Committee may determine. In no
event shall an option be exercisable prior to three years from the date of grant
or after the expiration of ten years from the date of grant.
Generally, ISOs will terminate three months after termination of the
optionee's employment if termination is for a reason other than death or
disability. If termination is by disability, the Compensation and Benefits
Committee has the right to extend the exercise period for up to one year from
termination. If the termination is a result of death, the option may be
exercised within three months after death. Generally, options may be exercised
only to the extent exercisable on the date of termination, death, or disability.
The option price for any ISO will not be less than 100 percent of the
fair market value of the Common Stock as of the date of grant. In the event the
optionee is a 10 percent shareholder, the price of the ISO shall be 110 percent
of the fair market value of the Common Stock as of the date of grant. In the
event the optionee is not a 10 percent shareholder, the price of the ISO shall
be 100 percent of the fair market value of the Common Stock as of the date of
grant.
The options are not transferable except by will or the laws of descent
and distribution. In the event an optionee exercises his option and we issue
shares as a result of that exercise, no disposition of the resulting shares by
the optionee may be made within three years from the date of the grant of the
option or within one year after transfer of such shares to the optionee. We
shall not be required upon exercise of an option to issue or deliver shares
prior to completion of registration or other qualification under any state or
federal law as we shall determine to be desirable. In the event the optionee
exercises his option and receives a bona fide offer for all or a portion of the
shares, he shall give us the exclusive right and option within 15 days of the
date of notice to us to purchase the shares on the same terms. In the event of a
dissolution of RTI or a merger where we are not the surviving entity, each
option shall terminate but not before we give 30 days' notice of the optionee's
right to exercise his option.
Miscellaneous
-------------
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The Plan may be amended or discontinued by the Board of Directors or
the Compensation and Benefits Committee provided that they may not modify an
outstanding option so as to specify a lower price or accept the surrender of
outstanding options and authorize the granting of new options in substitution
thereof specifying a lower price. The Plan may be modified or amended by
affirmative vote of the majority of the Common Stock plus the affirmative vote
of all the remaining stock. No amendment, alteration, or discontinuation may
impair the rights of an optionee without his consent.
Under the Plan, the Compensation and Benefits Committee has wide
discretion and flexibility, enabling it to administer the Plan in the manner it
determines to be in our best interest. Thus, Awards may be granted in various
combinations and sequences and may be subject to various conditions,
restrictions, and limitations at grant or upon exercise or payment not
inconsistent with the terms of the Plan. The Compensation and Benefits
Committee's determinations, with respect to which employees will receive Awards,
and the form, amount and frequency, and the terms and conditions thereof, are
subject to wide discretion. The designation of an employee to receive one form
of an Award under the Plan does not require the Board of Directors or
Compensation and Benefits Committee to designate or entitle such employee to
receive any other form of Award.
The Plan does limit the employees eligible to receive Awards to certain
Officers and key employees and contain limits on the number of shares which may
be subject to options which may be granted to any one person. However, the Plan
does not limit the aggregate number of Awards that may be granted except that
the number of shares reserved for distribution under the Plan cannot exceed
800,000 shares.
OVERVIEW OF RTI'S 1996 STOCK OPTION PLAN FOR DIRECTORS AND OTHER INDIVIDUALS
On April 23, 1996, the Board of Directors adopted RTI's 1996 Stock
Option Plan for Directors and Other Individuals (the "Plan" for purposes of this
section only). The Plan provides for the granting of NQSOs as defined in the
Plan and collectively referred to in this section only as "Awards." The purpose
of the Plan is to encourage stock ownership by certain Directors and other
individuals, in attracting qualified Directors to our Board of Directors and to
provide additional incentives for such Directors to promote and contribute to
our success. The following description is intended to be a summary of the Plan's
principal terms and is qualified in its entirety by reference to the complete
text.
General
-------
The Plan authorizes the Compensation and Benefits Committee to grant
NQSOs to members of our current Board of Directors and other individuals who
have made a contribution toward our success, who have served continuously as a
Director for not less than three years from grant, or who have continuously
provided services as a consultant, independent contractor, or otherwise for not
less than three years from grant and who before such option is not the holder of
more than 10 percent of the total combined voting power or value of all classes
of stock.
As of the date of this filing, we granted NQSOs for the purchase of
283,500 shares to non-employees and options for the purchase of 100,500 shares
have been cancelled. The prices ranged from $1 to $10. Exercisable Options under
the 1996 Stock Option Plan for Directors and Other Individuals are as follows:
<TABLE>
<CAPTION>
All Options, Including Officers and
Significant Employees 1999 2000 2001
<S> <C> <C> <C>
Nonemployee Directors NQSOs 25,000 20,000 16,000
Employee Directors NQSOs 2,500 0 0
Nonemployee NQSOs 46,500 45,000 28,000
------ ------ ------
Total 74,000 65,000 44,000
====== ====== ======
Officers and significant employees 1999 2000 2001
Employee Directors NQSOs 2,500 0 0
Nonemployee Directors NQSOs 25,000 20,000 16,000
------ ------ ------
Total 27,500 20,000 16,000
====== ====== ======
</TABLE>
A maximum of 200,000 shares of Common Stock are reserved and available
for distribution pursuant to Awards granted under the Plan, subject to
adjustment to reflect a subdivision or consolidation of shares payment of a
stock dividend on Common Stock or other increase or decrease in such shares
effected without consideration. If shares subject to an Award granted under the
Plan ceases to be subject to such Awards, such share will again be available for
distribution under the Plan. Shares may be distributed under the Plan, in whole
or in part, from authorized and unissued shares. The Compensation and Benefits
Committee shall be responsible to the Board of Directors for the operation of
the Plan and shall make recommendations to the Board of Directors with respect
to participation in the Plan and with respect to the terms, limitations,
restrictions, conditions, and extent of that participation. The interpretation
and construction of a provision of the Plan by the Compensation and Benefits
Committee shall be final unless otherwise determined by the Board of
Directors.
Awards
------
Options granted under the Plan shall be NQSOs.
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The options will be exercisable at such times and subject to such terms
and conditions as the Compensation and Benefits Committee may determine. In no
event shall an option be exercisable prior to three years from the date of grant
or after the expiration of ten years from the date of grant.
Generally, the options will terminate three months after termination of
the optionee's service if termination is for a reason other than death or
disability. If termination is by disability, the Compensation and Benefits
Committee has the right to extend the exercise period for one year from
termination. If the termination is a result of death, the option may be
exercised within three months after death. Generally, options may be exercised
only to the extent exercisable on the date of termination, death, or disability.
The option price for any option will not be less than 100 percent of
the fair market value of the Common Stock as of the date of grant. In the event
the optionee is a 10 percent shareholder, the price of the option shall be 110
percent of the fair market value of the Common Stock as of the date of grant. In
the event the optionee is not a 10 percent shareholder, the price of the option
shall be 100 percent of the fair market value of the Common Stock as of the date
of grant.
The NQSOs are not transferable except by will or the laws of descent
and distribution. In the event an optionee exercises his option and we issue
shares as a result of that exercise, no disposition of the resulting shares by
the optionee may be made within three years from the date of the grant of the
option. We are not required upon exercise of an option to issue or deliver
shares prior to completion of registration or other qualification under any
state or federal law as we shall determine to be desirable. In the event the
optionee exercises his option and receives a bona fide offer for all or a
portion of the shares, he shall give us the exclusive right and option within 15
days of the date of notice to us to purchase the shares on the same terms. In
the event of a dissolution of RTI or a merger where we are not the surviving
entity, each option shall terminate but not before we give 30 days' notice of
the optionee's right to exercise his option.
Miscellaneous
-------------
The Plan may be amended or discontinued by the Board of Directors or
the Compensation and Benefits Committee provided that it may not modify an
outstanding option so as to specify a lower price or accept the surrender of
outstanding options and authorize the granting of new options in substitution
thereof specifying a lower price. The Plan may be modified or amended by
affirmative vote of the majority of the Common Stock plus the affirmative vote
of all the remaining stock. No amendment, alteration, or discontinuation may
impair the rights of an optionee without his consent.
Under the Plan, the Compensation and Benefits Committee has wide
discretion and flexibility, enabling it to administer the Plan in the manner it
determines to be in our best interest. Thus, Awards may be granted in various
combinations and sequences and may be subject to various conditions,
restrictions, and limitations at grant or upon exercise or payment not
inconsistent with the terms of the Plan. The Compensation and Benefits
Committee's determinations with respect to which employees will receive Awards,
and the form, amount and frequency, and the terms and conditions thereof, are
subject to wide discretion. The designation of an employee to receive one form
of an Award under the Plan does not require the Board of Directors or
Compensation and Benefits Committee to designate or entitle such employee to
receive any other form of Award.
The Plan does not limit either the number of persons eligible to
receive Awards or the type or number of shares which may be subject to options
or other Awards which may be granted to any one person. In addition, the Plan
does not limit the aggregate number of Awards that may be granted except that
the number of shares reserved for distribution under the Plan cannot exceed
200,000 shares.
OPTION FOR CONVERSION OF LOAN PRINCIPAL INTO COMMON STOCK
Pursuant to the agreement between RTI and Abbott, Abbott agreed to make
periodic loans to us prior to June 30, 2005, in increments of $1,000,000 in an
aggregate amount of up to $5,000,000. Pursuant to the Abbott Agreement, we gave
Abbott the right, at its option, to convert any and all principal amounts owed
into Common Stock at a price of $10 per share (adjustable for events affecting
the number of outstanding shares of Common Stock). We have borrowed $5 million
under the Abbott Agreement. Abbott also holds registration rights with respect
to the shares of Common Stock issued upon conversion of any principal amount
lent pursuant to the Abbott Agreement. Subject to limitations contained in the
Abbott Agreement and related Registration Rights Agreement, these registration
rights include the following:
. Any time after we become eligible to file a registration statement on
Form S-3, Abbott may require that we use our best efforts to effect a
registration of Abbott Common Stock acquired by conversion of any
principal amounts owed (the "Registerable Securities") only where
Abbott agrees to abide by the terms of the underwriting as agreed upon
by the underwriters and us. The right to request registration may not
be exercised more than three times. This right is subject to the
ability of the underwriters to limit the number of shares included in
the offering in view of market conditions.
. If we register any Common Stock in a public offering for cash whether
as a primary or secondary offer or pursuant to registration rights
granted to other holders (not including a registration relating solely
to employee benefit plans on Form S-8 or registration on Form S-4
relating solely to a transaction subject to Rule 145), Abbott is
entitled to request and we must take reasonable efforts to include the
Registerable Securities in the registration. This right is subject to
the ability of the underwriters to limit the number of shares included
in the offering in view of market conditions.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
The following is a brief summary of our understanding of the principal
anticipated federal income tax consequences of Awards made under the Plans based
upon the applicable provisions of the Code in effect on the date hereof. This
summary is not intended to be exhaustive and does not describe foreign, state,
or local tax consequences.
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<PAGE>
Incentive Stock Options Generally
---------------------------------
An optionee will not realize taxable income at the time an ISO is
granted or exercised. Common Stock is issued to an optionee pursuant to the
exercise of an ISO, and if no disqualifying disposition of the shares is made by
the optionee within two years of the date of grant or within one year after
exercise of the option, then (a) any gain upon the subsequent sale of the shares
will be taxed to the optionee as a capital gain, and any loss sustained will be
a capital loss, and (b) no deduction will be allowed to us for federal income
tax purposes. The spread between the ISO price and the fair market value of the
shares at the time of exercise is a preference item for purposes of the
alternative minimum tax.
If an optionee disposes of shares acquired upon the exercise of an ISO
before the expiration of the holding periods described above, then generally (a)
the optionee will be taxed as if he had received compensation income in the year
of disposition in an amount equal to the excess, if any, of the fair market
value of the shares on the exercise date (or, if less, the amount realized on
value of the shares on the disposition of the shares) over the option price paid
for such shares, and (b) we will generally be entitled to a corresponding
deduction in that year. Any further gain or loss realized by the participant
will be taxed as short-term or long-term capital gain or loss, as the case may
be, and will not result in any deduction by us.
Exercise of an ISO may cause the optionee to incur alternative minimum
tax liability even if he has no taxable income from the exercise under general
income tax principles.
Stock acquired through exercise of an ISO must be held for more than 12
months to obtain long-term capital gains treatment.
All stock acquired pursuant to the exercise of an ISO is subject to the
holding period rules and disqualifying disposition rules described above.
Pursuant to the Plan, an ISO can only be exercised by payment of the
consideration in cash.
To the extent that the fair market value of the Common Stock
(determined as of the date of grant) subject to ISOs exercisable for the first
time by an optionee during any calendar year exceeds $100,000, those options
will not be considered ISOs.
Nonqualified Stock Options Generally
------------------------------------
An optionee will generally not recognize taxable income at the time an
NQSO is granted, but taxable income will be realized, and we will generally be
entitled to a deduction, at the time of exercise of the NQSO. The amount of
income and our deduction will be equal to the difference between the fair market
value of the shares on the date of exercise and the NQSO exercise price. The
income realized will be taxed to the optionee at the ordinary income tax rates
for federal income tax purposes. Withholding is required upon exercise of an
NQSO. On subsequent disposition of the shares acquired upon exercise of an NQSO,
capital gain or loss as determined under the normal capital asset holding period
rules will be realized in the amount of the difference between the proceeds of
sale and the fair market value of the shares on the date of exercise.
Withholding Generally
---------------------
Under the Plans, a participant must pay to us, no later than the date
on which an amount first becomes includable in the participant's gross income
for federal income tax purposes with respect to an Award, any taxes required to
be withheld with respect to such amount. Such withholding may generally not be
settled with shares that constitute part of the Award giving rise to the
withholding obligation unless the Compensation and Benefits Committee grants
special permission. Otherwise, withholding must be made in a manner that
provides cash to us. The amount of income recognized is not reduced by the
retention by us of shares issuable under an Award to satisfy withholding
obligations; the transaction is taxed as if the shares were sold.
PART II - FORM 10SB-A2
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON RTI'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
SHAREHOLDERS
Currently, there is no public trading market for our Common Stock. The
19,358,150 shares of outstanding Common Stock are currently held 57.9% by our
Chief Executive Officer, Thomas J. Shaw, and 14.5% by Lillian E. Salerno, a
Director. As of the date of this filing, 1,771,905 shares of Common Stock are
subject to outstanding options and 3,914,095 shares are reserved for issuance
upon conversion of both the Series A and Class B stock. 7,725 shares of Series
IV Stock (convertible into Common Stock on a one-for-one basis) are reserved for
issuance upon exercise of warrants. 500,000 shares of Class B stock are reserved
for issuance as a dividend.
DIVIDENDS
We have not ever declared or paid any dividends on the Common Stock. We
have no current plans to pay any cash dividends on the Common Stock. We intend
to retain all earnings, except those required to be paid to the holders of the
preferred stock, to support operations and future growth. As of the date of this
filing approximately $94,599 in dividends had accumulated on the Series A Stock
and $8,034,354 in dividends had accumulated on the Class B Preferred Stock. We
have the right to issue 500,000 Shares of Class B Shares as a dividend. Pursuant
to the requirements of a loan from Texas Bank, we have agreed not to return
capital to the shareholders or redeem outstanding Shares without the bank's
prior consent. We did have permission from the bank for the dividends and the
recent redemption of Series A Stock.
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<PAGE>
ITEM 2. LEGAL PROCEEDINGS
We filed a lawsuit on September 30, 1998, in the District Court of
Brazoria County in the 239/th/ Judicial District against B-D, Tyco International
(U.S.), Inc., VHA, Inc., The Community Hospital of Brazosport, Angleton-Danbury
General Hospital, and Sweeny Community Hospital. We are alleging an antitrust
conspiracy between the defendants whereby they contracted among themselves and
many other hospitals, doctors, and healthcare organizations in order to exclude
us from selling safety syringes and to maintain their own market share in
violation of Texas Free Enterprise and Antitrust Act ("TFEAA"). The case is
still in the discovery stage. We are not a party to any other legal proceeding.
As of the date of this filing, we have dropped Angleton-Danbury General Hospital
from the lawsuit. We have added TYCO Healthcare Group, L.P., Premier, Inc.,
Novation, LLC, and Premier Purchasing Partners L.P. to the lawsuit. We are
seeking all damages to which we are entitled, including actual damages,
exemplary damages, injunctive relief, attorneys' fees, costs of court and pre-
and post- judgment interest. The amount of damages incurred is being researched
and cannot be stated with certainty at this time.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in or disagreements with the principal
independent accountants during the two most recent fiscal years.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion outlines all securities sold by us for cash or
services rendered during the previous three years. Unless otherwise described,
all of the shares sold or granted were issued pursuant to the authority granted
by the private offering exemption outlined in Section 4(2) of the Securities
Act. None of the below mentioned "sales" were made to more than 35 nonaccredited
investors and none were made with a view toward distribution. All shares issued
were restricted and contained a Rule 144 legend.
In 1997, we issued ISOs for the purchase of 1,750 shares of Common
Stock and employee NQSOs for the purchase of 265,700 shares of Common Stock
under the 1996 Incentive Stock Option Plan. We issued NQSOs for the purchase of
100,500 shares under the 1996 Stock Option Plan for Directors and Other
Individuals.
From May 10, 1997, to November 15, 1997, we, with the assistance of
Southwest Merchant Group, offered and sold pursuant to Rule 506 of the
Securities Act to 131 accredited and 14 nonaccredited investors 1,000,000 shares
of Series II Stock at a price of $10 per share for a total payment of
$10,000,000. We entered into an agreement with Southwest Merchant Group
effective July 16, 1997, whereby Southwest Merchant agreed to provide best
efforts to sell up to 1,000,000 shares of Series II Stock. In return we agreed
to pay a combined financial advisory, investment banking, and selling commission
equal to 5 percent of the value of the shares sold with an option to take,
instead of cash, 2 1/2 percent of the gross funds in warrants. Southwest
Merchant Group was to receive two warrants for each dollar of compensation owed
to Southwest Merchant Group. Each warrant gave Southwest Merchant Group the
right to purchase 1/10 of a share of Series IV Stock. $37,500 in compensation
was paid to Southwest Merchant Group in the form of cash. Southwest Merchant
Group was issued 75,000 warrants for the purchase of a total of 7,500 shares of
Series IV Stock. No warrants have been exercised and none have expired.
In 1998, we issued ISOs for the purchase of 182,800 shares of Common
Stock under the 1996 Incentive Stock Option Plan and NQSOs for the purchase of
86,500 shares of Common Stock under the 1996 Stock Option Plan for Directors and
Other Individuals.
From July 10, 1998, to September 30, 1999, we, with the assistance of
Northstar Securities Corporation (and its Colorado affiliate, CCP Management),
Asset Allocations Securities Corp., and Ameriprop Inc. ("broker-dealers"),
offered and sold pursuant to Rule 506 of the Securities Act to 225 accredited
and 21 nonaccredited investors 1,160,200 Shares of Series III Stock at a price
of $10 per share for a total payment of $11,602,000. We entered into an
agreement with the broker-dealers that, in exchange for the best efforts of the
broker to sell the shares, the brokers would be entitled to a combined due
diligence fee and selling commission equal to 7 percent of the value of each
share sold by the brokers. Northstar Securities Corporation was paid $279,580,
Asset Allocations Securities Corp. was paid $247,450, and Ameriprop was paid
$25,550.
In 1999 and in connection with an employment agreement, we issued
NQSOs for the purchase of 20,000 shares of our Common Stock under the 1999 Stock
Option Plan to Phillip Zweig. Half of the options vest on the 180/th/ day of the
agreement (June 10, 2000) and the other half vested on December 11, 2000.
In 1999, we issued ISOs for the purchase of 451,900 shares and NQSOs
for the purchase of 347,550 shares of Common Stock under the 1999 Stock Option
Plan.
From January 11, 2000, to May 10, 2000, we, with the assistance of
Asset Allocations Securities Corp. and Northstar Securities Corporation (and its
affiliate), offered and sold 1,138,800 shares of Series IV Stock to 25
accredited and 3 nonaccredited investors pursuant to Rule 506 at a price of $10
per share for a total of $11,388,000. Pursuant to individual Selling Agreements
dated March 9, 2000, and March 1, 2000, respectively, warrants for the purchase
of 75 and 150 shares of Series IV Stock were issued to Asset Allocations
Securities Corp. and Northstar Securities Corporation as partial commissions.
Three warrants were issued for each 100 Shares sold. Asset Allocations Corp. and
Northstar Securities Corporation sold 2,500 and 5,000 Shares of Series IV Stock,
respectively. Each warrant entitles the holder to purchase one share of the
Series IV Stock at an exercise price of $10 per share. The warrants expire on
March 15, 2002. Asset Allocations Securities Corp. and Northstar Securities
Corporation received $1,750 and $3,500 in cash commissions, respectively.
From January 2000 through the date of this filing, we have issued ISOs
for the purchase of 381,575 shares and NQSOs for the purchase of 282,200 shares
of Common Stock under the 1999 Stock Option Plan.
In 2000 and in connection with an employment agreement, we issued NQSOs
for the purchase of 10,000 shares of our Common Stock under the 1999 Stock
Option Plan to Phillip Zweig. These options vest on November 1, 2001.
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<PAGE>
In connection with a consulting agreement, we issued NQSOs for the purchase
of 61,000 shares of the Common Stock at an exercise price of $10 per share to
Saker Investments.
In March 2000, we entered into a letter agreement with New Horizons
International ("NHI") and Colebrand Limited whereby NHI and Colebrand Limited
would provide consulting services regarding marketing advice. In the event they
provide us with a contact that resulted in a proposed investment in any amount
up to $60 million which terms are acceptable to us in our sole and absolute
discretion, NHI was entitled to receive 5 percent of the total amount of capital
invested in cash, and Colebrand Limited would receive the issuance of a number
and type of securities equal to 2 1/2 percent of the total number and type of
securities issued and a warrant for the right to purchase up to an amount of
securities equal to 2 1/2 percent of the total number and type of securities
sold. This relationship was terminated in early 2000. No shares were
issued.
In April 2000, we issued 245 shares of the Series III Stock to CCP
Management, the Colorado affiliate of Northstar Securities, in payment of
commissions owed in the amount of $2,450 for assistance in selling the Series
III Stock.
In May 2000, we entered into an agreement with Abbott. Pursuant to the
Abbott Agreement, Abbott agreed to lend to us, in increments of $1,000,000, an
aggregate of up to $5,000,000 at an interest rate of prime plus 1% per year up
to the maturity date of June 30, 2005. In consideration, we agreed that any and
all principal amounts borrowed could be converted into Common Stock at a price
of $10 per share. As of the date of this filing, RTI has borrowed $5,000,000 of
funds under this Agreement. No Common Stock has been issued.
In September 2000, we issued a mandatory redemption of 541,500 shares of
the Series A Stock pursuant to our rights under the appropriate certificate of
designation. According to the provisions of the appropriate certificate of
designation, we redeemed 22,000 shares of the Series A Stock for an aggregate
price of $37,624 which was equal to the redemption price of $1.70 per share plus
accrued and unpaid dividends through the redemption date. Pursuant to the
appropriate certificate of designation, shareholders owning any of the
certificates selected for redemption were entitled to convert their shares into
Common Stock on a one for one share basis and payment of accrued and unpaid
dividends in lieu of being paid the redemption price. Accordingly, 519,500
shares of Series A Stock were converted into 519,500 shares of Common Stock.
In October 2000, we issued an Important Notice of Registration of
Public Sale of Common Stock to all holders of the preferred stock in accordance
with the requirements of each of the certificates of designation. Pursuant to
the rights set forth in the various certificates of designation, the preferred
stockholders had the right to give us notice of their desire to have the shares
of Common Stock (attained through conversion of their preferred stock)
participate in the registration. Pursuant to these rights, 128 Series A
shareholders, 151 Series I shareholders, 119 Series II shareholders, 235 Series
III shareholders, and 21 Series IV shareholders converted their preferred shares
into shares of Common Stock on a one for one basis. The Series A shareholders
originally purchased their preferred stock for $1 per share. The Series I
shareholders originally purchased their shares for $5 per share. Series II
shareholders originally purchased their shares for $10 per share. Series III
shareholders originally purchased their shares for $10 per share. The Series IV
shareholders originally purchased their shares for $10 per share. In exchange
for each share of the preferred stock, the shareholders were entitled to one
share of Common Stock plus all dividends accrued through the dates of
conversion, which amounts to an aggregate amount of $4,504,995. These accrued
dividends will be paid if and when declared by the Board of Directors. An
aggregate of 4,838,650 shares of Common Stock was issued as a result of
converting preferred shareholders.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification Under the Amended and Restated Bylaws
-----------------------------------------------------
Our Amended and Restated Bylaws provide that we shall indemnify each of our
Directors and Officers to the maximum extent allowed by the Texas Business
Corporation Act ("TBCA") for expenses incurred in proceedings where the Officer
or Director is a party by reason of holding his position as an Officer or
Director subject to not being found liable for negligence or misconduct.
Expenses incurred in anticipation of litigation or in settlement of anticipated
litigation are also covered. The TBCA permits such indemnification, so long as
such person acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of RTI. Such indemnification may be
made only upon a determination by the Board of Directors that such
indemnification is proper in the circumstances because the person to be
indemnified has met the applicable standard of conduct to permit indemnification
under the law. We are also permitted to advance to such persons payment for
their expenses incurred in defending a proceeding to which indemnification might
apply, provided the recipient provides an undertaking agreeing to repay all such
advanced amounts if it is ultimately determined that he or she is not entitled
to be indemnified. However, please see below regarding limitations on
indemnification for liabilities arising under the Securities Act.
Indemnification by Contract
---------------------------
EMPLOYMENT PRACTICES LIABILITY INSURANCE
We obtained an Employment Practices Liability Insurance Policy ("Employment
Policy") from Executive Risk Indemnity Inc. (the "Underwriter" for purposes of
this section only) for the policy period August 22, 2000 to 2001. The Employment
Policy covers 100% of Losses (damage awards including punitive, interest amounts
and settlements but not including civil or criminal fines, most multiple damage
awards, costs of bringing RTI into compliance with the American Disabilities
Act, non-monetary awards, severance pay, payment of insurance plan benefits, or
amounts awarded pursuant to labor arbitration) and Defense Expenses (reasonable
legal fees incurred through counsel to the Underwriter). The Underwriter pays
for the amount of such liabilities in excess of RTI's retention ($50,000 per
claim). We have the option to extend the Employment Policy for an additional two
years for an additional premium.
Generally, the Underwriter has agreed to pay on behalf of the Insureds
(RTI, its Officers, Directors, and employees acting in the scope of their
duties) 100% of the Defense Expenses and Loss in excess of the retention of
$50,000 per claim due from RTI from claims first made against the Insureds
during the period from November 28, 1997 for Employment Practices Wrongful Acts
occurring subsequent to RTI's incorporation and before expiration of the
Employment Policy. No Insured may incur Defense Expenses or settle any Claim
without the
36
<PAGE>
Underwriter's consent. Furthermore, if the Insured refuses to agree to a
settlement negotiated by the Underwriter, the amount of coverage is materially
reduced.
Claims are defined to mean any written notice that a person intends to hold
an Insured liable for an Employment Practices Wrongful Act, a judicial or
administrative proceeding (including civil and criminal) for such an act or any
written request to toll or waive the statute of limitations relating to such
judicial or administrative proceeding excepting claims including labor or
grievance arbitration pursuant to a collective bargaining agreement. An
Employment Practices Wrongful Act is defined to mean any of the following
alleged actions (which are all defined in the Employment Policy): 1) Wrongful
Termination, 2) Discrimination, 3) Harassment, 4) Retaliation, 5) Workplace
Tort, 6) Third Party Discrimination, or 7) Third Party Sexual Harassment. Costs
for claims for liability regarding violations of Employee Retirement Income
Security Act of 1974 and liability arising out of violation of workers'
compensation or unemployment acts are not covered. Such exclusions do not apply
to claims based on retaliation for pursuing rights under those acts. The
Employment Policy also excludes from coverage costs for claims arising out of
bodily injury except the Employment Policy does cover claims for emotional
distress resulting from an Employment Practices Wrongful Act. The Employment
Policy does not cover claims for non-monetary relief. Furthermore, the
Employment Policy does not cover claims arising out of a claim, which was the
subject of notice under any prior policy regarding any act for which a
supervisor of RTI had knowledge prior to November 28, 1997. This Employment
Policy does not cover claims that Insureds are obligated to pay by assumption of
another's liability. Finally, the Employment Policy does not cover costs
associated with actions in connection with labor disputes or negotiations.
EXECUTIVE LIABILITY INSURANCE POLICY
We obtained an Executive Liability Insurance Policy from Executive Risk
Indemnity Inc. (the "Underwriter for purposes of this section only") for the
policy period August 22, 2000 to 2001 (the "Policy Period" for purposes of this
section only) (the "Executive Policy"). Coverage per claim begins after payment
of the retention amount for any given claim. We owe a retention amount of $0 per
Insured Person, $50,000 per Claim for Loss as to which indemnification by RTI is
permissible, and $125,000 per Claim for Losses arising out of Securities Claims.
No Defense Expenses can be incurred and no settlement of any Claim may be made
without the Underwriter's consent. The maximum aggregate liability may be
reinstated after exhaustion of all coverage but may only be reinstated once. The
reinstated amount shall be only for non-securities based claims. No retention
will be paid by RTI in the event Defense Expenses are incurred in connection
with a Securities Claim and such claim is dismissed or there is a final judgment
of no liability. In the event that we sell securities in a public Offering, the
Underwriter shall be entitled to impose such terms and limitations of coverage
and add such additional premium in its sole discretion that it may require.
The Executive Policy covers Insured Persons (any past, present, or future
Officer or Director and employee (employees are only covered for Securities
Claims) of RTI for Loss (Defense Expenses [reasonable legal fees] and judgments
and settlements including punitive awards against an Insured Person or that RTI
is obligated to pay as a result of any Securities Claim against an Insured
Person in excess of the retention amount owed by RTI and except wages, fines,
and multiplied portion of damage awards) from Claims (any civil proceedings
including appeals commenced by filing of a complaint, any criminal proceeding,
any administrative or regulatory proceeding, or any written demand to an Insured
describing circumstances likely to give rise to the commencement of any such
proceeding) first made during the Policy Period against the Insured Persons for
Wrongful Acts except for Loss which RTI pays to the Insured Person in
indemnification.
The Executive Policy provides coverage of RTI for Losses from Claims during
the Policy Period against the Insured Persons for Wrongful Acts (misstatement,
omission, or breach of duty by an Insured Person or any other matter asserted
against an Insured Person solely by reason of his or her status as an Insured
Person and any Securities Wrongful Act) which we pay to the Insured Person as
indemnification. Furthermore, the Executive Policy provides coverage of Loss
from Securities Claims (claims for Securities Activity Wrongful Acts [violation
of any securities laws, violation of any law asserted by a shareholder of RTI,
or claims arising as a result of any act in connection with the offer and sale
or purchase of securities issued by RTI]) made during the Policy Period against
us.
The Executive Policy does not cover Loss for Claims against an Insured
Person contributed to in fact by intentional, dishonest or fraudulent act or by
the gaining of an Insured of any profit to which they are not entitled. Defense
expenses associated with defending such actions, however, are covered. The
Executive Policy does not cover any Losses including Defense Expenses for Claims
for any alleged bodily sickness, libel, defamation or destruction of tangible
property or any threatened exposure, storage, discharge, treatment, removal and
related issues regarding smoke, vapors, toxic chemicals or other pollutants or
any related regulation. The Executive Policy does not cover: Losses, including
Defense Expenses, for Claims 1) based upon any situation or Wrongful Act alleged
prior (to November 28, 1997) litigation, 2) any fact which was the subject of
notice given under any other policy, 3) any alleged violation of Employee
Retirement Income Security Act of 1974 or any similar law, 4) any alleged
nuclear or radioactive substance, or 5) the service of an Insured Person as a
Director or Officer of any entity other than RTI or a charitable corporation.
The Executive Policy does not cover Losses, including Defense Expenses, for
Claims by or on behalf RTI excepting derivative actions brought by a security
holder and brought independent of solicitation of RTI or an Insured Person or
any Claim in the form of a cross-claim for contribution by an Insured Person or
any Claim for the alleged wrongful termination of an Insured Person. However,
please see below regarding limitations on indemnification for liabilities
arising under the Securities Act.
EMPLOYMENT AGREEMENT
Pursuant to a written employment agreement with Thomas J. Shaw, we have
agreed to indemnify Thomas J. Shaw for all legal expenses and liabilities
incurred with any proceeding involving him by reason of his being an Officer or
agent of RTI. We have further agreed to pay reasonable attorney fees and
expenses in the event that, in Thomas J. Shaw's sole judgment, he needs to
retain counsel or otherwise expend his personal funds for his defense. However,
please see below regarding limitations on indemnification for liabilities
arising under the Securities Act.
No Indemnification for Violations Regarding Capital Stock
---------------------------------------------------------
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, Officers, and Controlling Persons of RTI pursuant
to the foregoing provisions, or otherwise, RTI has been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such
37
<PAGE>
liabilities (other than the payment by RTI of expenses incurred or paid by a
Director or Officer of RTI in the successful defense of any action, suit, or
proceeding) is asserted by such Director or Officer in connection with the
securities being registered, RTI will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
38
<PAGE>
PART F/S FORM 10SB-A2
FINANCIAL STATEMENTS
RETRACTABLE TECHNOLOGIES, INC.
Texas
FINANCIAL STATEMENTS
AS OF
DECEMBER 31, 1999 AND 1998
AND
REPORT OF INDEPENDENT ACCOUNTANTS
AND
UNAUDITED FINANCIAL STATEMENTS
AS OF
SEPTEMBER 30, 2000 AND 1999
39
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
INDEX TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
Page
----
Report of Independent Accountants 41
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998 42
Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 and inception
(May 9, 1994) through December 31, 1999 43
Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 44
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 and inception
(May 9, 1994) through December 31, 1999 47
Notes to Financial Statements 48
40
<PAGE>
Report of Independent Accountants
To the Board of Directors and
the Stockholders of Retractable Technologies, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Retractable Technologies,
Inc. (a development stage enterprise) at December 31, 1999 and 1998, and the
results of its operations, its changes in stockholders' equity and its cash
flows for each of the three years in the period ended December 31, 1999 and the
period from inception (May 9, 1994) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Dallas, Texas
September 12, 2000
41
<PAGE>
<TABLE>
<CAPTION>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------------------------
December 31,
------------ ------------
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 646,005 $ 1,627,863
Accounts receivable, net of allowance for doubtful accounts of
$10,972 and $0, respectively 599,424 100,728
Inventories 677,962 653,958
Other current assets 47,800 51,103
------------ ------------
Total current assets 1,971,191 2,433,652
Property, plant and equipment, net 10,101,524 8,923,842
Restricted certificates of deposit 600,000 600,000
Intangible assets and deferred charges, net 536,014 554,757
------------ ------------
Total assets $ 13,208,729 $ 12,512,251
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 844,165 $ 332,241
Current portion of long-term debt 463,329 431,743
Note payable to related party -- 25,966
Accrued compensation 118,038 107,226
Marketing fees payable 338,526 --
Other accrued liabilities 250,783 52,491
------------ ------------
Total current liabilities 2,014,841 949,667
Long term debt, net of current maturities 2,506,335 2,870,959
Stockholders' equity:
Preferred stock $1 par value:
Class A; authorized, issued and outstanding: 5,000,000 shares
(liquidation preference of $7,500,000) 5,000,000 5,000,000
Class B; authorized: 5,000,000 shares
Series I Class B; issued and outstanding:
1,000,000 shares, (liquidation preference of $6,250,000) 1,000,000 1,000,000
Series II Class B; issued and outstanding:
1,000,000 shares, (liquidation preference of $12,500,000) 1,000,000 1,000,000
Series III Class B; issued and outstanding:
1,160,200 and 301,800 shares, respectively, (liquidation preference of
$14,502,500 and $3,772,500, respectively) 1,160,200 301,800
Common stock, no par value; authorized: 40,000,000 shares; issued and
outstanding: 14,000,000 shares -- --
Additional paid-in capital 23,565,235 16,379,481
Unearned compensation (185,635) (370,917)
Deficit accumulated during the development stage (22,852,247) (14,618,739)
------------ ------------
Total stockholders' equity 8,687,553 8,691,625
------------ ------------
Total liabilities and stockholders' equity $ 13,208,729 $ 12,512,251
============ ============
</TABLE>
See accompanying notes to the financial statements.
42
<PAGE>
<TABLE>
<CAPTION>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------------------------------------
Cumulative
From
Years ended December 31, Inception
----------------------------------------------------
1999 1998 1997 (May 9, 1994)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales, net $ 3,375,158 $ 845,559 $ 262,315 $ 4,483,032
Cost of sales 2,331,070 765,448 474,147 3,570,665
------------ ------------ ------------ ------------
Gross margin (deficit) 1,044,088 80,111 (211,832) 912,367
Operating expenses
Preproduction manufacturing 1,837,830 1,004,828 1,496,418 5,457,201
Sales and marketing 3,742,779 1,539,822 1,394,024 7,047,952
Research and development 842,062 763,690 266,029 2,326,127
General and administrative 2,863,989 2,419,821 1,952,561 8,807,932
------------ ------------ ------------ ------------
Total operating expenses 9,286,660 5,728,161 5,109,032 23,639,212
Loss from operations (8,242,572) (5,648,050) (5,320,864) (22,726,845)
Interest income 122,028 162,116 133,413 647,042
Interest expense, net (112,964) (218,154) (336,749) (772,444)
------------ ------------ ------------ ------------
Net loss incurred during development stage $ (8,233,508) (5,704,088) (5,524,200) (22,852,247)
============ ============ ============ ============
Net loss per share (basic and diluted) $ (0.80) $ (0.56) $ (0.49) $ (2.17)
============ ============ ============ ============
Weighted average common shares outstanding 14,000,000 14,000,000 14,000,000 14,000,000
============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
43
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------
Class A Series I Class B Series II Class B
---------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 5,000,000 $5,000,000 983,000 $ 983,000 $
Issued Preferred Series I Class B
9,000 shares, $1 par 9,000 9,000
Issued Preferred Series II Class B
945,700 shares, $1 par 945,700 945,700
Issuance of compensatory stock options
Recognition of stock option compensation
Collections of notes receivable
Reclassification of note receivable
to reflect collection
Net loss incurred during development
stage
---------------------------------------------------------------------------
Balance as of December 31, 1997 5,000,000 $5,000,000 992,000 $ 992,000 945,700 $ 945,700
---------------------------------------------------------------------------
Issued Preferred Series I Class B
8,000 shares, $1 par 8,000 8,000
Issued Preferred Series II Class B
54,300 shares, $1 par 54,300 54,300
Issued Preferred Series III Class B
301,800 shares, $1 par (net of
commissions and other expenses of
$290,221)
Issuance of compensatory stock options
Recognition of stock option compensation
Terminations of stock options
Net loss incurred during development stage
--------------------------------------------------------------------------
Balance as of December 31, 1998 5,000,000 $5,000,000 1,000,000 $1,000,000 1,000,000 $1,000,000
--------------------------------------------------------------------------
Issued Preferred Series III Class B
858,400 shares, $1 par
Issuance of compensatory stock options
Recognition of stock option compensation
Terminations of stock options
Net loss incurred during development
stage
--------------------------------------------------------------------------
Balance as of December 31, 1999 5,000,000 $5,000,000 1,000,000 $1,000,000 1,000,000 $1,000,000
--------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
44
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------
Series III Class B Common
-----------------------------------------------
Shares Amount Shares Amount
-----------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996 $ 14,000,000 $ -
Issued Preferred Series I Class B
9,000 shares, $1 par
Issued Preferred Series II Class B
945,700 shares, $1 par
Issuance of compensatory stock options
Recognition of stock option compensation
Collections of notes receivable
Reclassification of note receivable
to reflect collection
Net loss incurred during development stage
--------------------------------------------
Balance as of December 31, 1997 - $ - 14,000,000 $ -
--------------------------------------------
Issued Preferred Series I Class B
8,000 shares, $1 par
Issued Preferred Series II Class B
54,300 shares, $1 par
Issued Preferred Series III Class B
301,800 shares, $1 par (net of
commissions and other expenses
of $290,221) 301,800 301,800
Issuance of compensatory stock options
Recognition of stock option compensation
Terminations of stock options
Net loss incurred during development stage
----------------------------------------------
Balance as of December 31, 1998 301,800 $ 301,800 14,000,000 $ _
----------------------------------------------
Issued Preferred Series III Class B
858,400 shares, $1 par 858,400 858,400
Issuance of compensatory stock options
Recognition of stock option compensation
Terminations of stock options
Net loss incurred during development stage
----------------------------------------------
Balance as of December 31, 1999 1,160,200 $ 1,160,200 14,000,000 $ -
----------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
45
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Notes Accumulated
Receivable Additional During
from Paid-in Unearned Development
Stockholders Capital Compensation Stage Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 $ (257,500) $ 4,304,213 $ (287,290) $ (3,390,451) $ 6,351,972
Issued Preferred Series I Class B
9,000 shares, $1 par 36,000 45,000
Issued Preferred Series II Class B
945,700 shares, $1 par 8,436,300 9,382,000
Issuance of compensatory stock options 748,539 (748,539)
Recognition of stock option compensation 286,540 286,540
Collections of notes receivable 207,500 207,500
Reclassification of note receivable
to reflect collection 50,000 50,000
Net loss incurred during development stage (5,524,200) (5,524,200)
--------------------------------------------------------------------------------
Balance as of December 31, 1997 $ -- $ 13,525,052 $ (749,289) $ (8,914,651) $ 10,798,812
--------------------------------------------------------------------------------
Issued Preferred Series I Class B
8,000 shares, $1 par 32,000 40,000
Issued Preferred Series II Class B
54,300 shares, $1 par 488,700 543,000
Issued Preferred Series III Class B
301,800 shares, $1 par (net of
commissions and other expenses of $290,221) 2,425,979 2,727,779
Issuance of compensatory stock options 70,000 (70,000)
Recognition of stock option compensation 286,122 286,122
Terminations of stock options (162,250) 162,250
Net loss incurred during development stage (5,704,088) (5,704,088)
--------------------------------------------------------------------------------
Balance as of December 31, 1998 $ -- $ 16,379,481 $ (370,917) $(14,618,739) $ 8,691,625
--------------------------------------------------------------------------------
Issued Preferred Series III Class B
858,400 shares, $1 par 7,266,914 8,125,314
Issuance of compensatory stock options 214,354 (214,354)
Recognition of stock option compensation 104,122 104,122
Terminations of stock options (295,514) 295,514
Net loss incurred during development stage (8,233,508) (8,233,508)
-------------------------------------------------------------------------------
Balance as of December 31, 1999 $ -- $ 23,565,235 $ (185,635) $(22,852,247) $ 8,687,553
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
Cumulative from
Years Ended December 31 Inception
---------------------------------------------------
1999 1998 1997 (May 9, 1994)
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss incurred during development stage $ (8,233,508) $ (5,704,088) $ (5,524,200) $(22,852,247)
Depreciation and amortization 950,471 807,060 455,909 2,765,730
Provision for doubtful accounts 10,972 -- -- 10,972
Recognition of stock option compensation 104,122 286,122 286,540 760,707
Adjustments to reconcile net loss to net cash
used in operating activities:
Increase in inventories (24,004) (173,308) (308,188) (677,962)
(Increase) decrease in accounts and note
receivable (509,668) 6,320 (102,048) (610,396)
Increase in deferred charges -- -- -- (25,931)
(Increase) decrease in other current assets 3,303 (34,603) (16,500) (47,800)
Increase (decrease) in accounts payable
and note payable to related party 485,958 (647,460) 738,725 780,699
Increase in other accrued liabilities 547,630 70,811 57,994 707,347
------------ ------------ ------------ ------------
Net cash used by operating activities (6,664,724) (5,389,146) (4,411,768) (19,188,881)
------------ ------------ ------------ ------------
Cash flows from investing activities
Purchase of property, plant and equipment (1,960,609) (1,179,547) (3,252,731) (11,445,793)
Acquisition of patents, trademarks and licenses (39,077) (45,095) -- (182,595)
Purchase of restricted certificate of deposit -- -- (200,000) (600,000)
Organization costs paid -- -- (15,291) (20,851)
------------ ------------ ------------ ------------
Net cash used by investing activities (1,999,686) (1,224,642) (3,468,022) (12,249,239)
------------ ------------ ------------ ------------
Cash flows from financing activities
Borrowing under long-term debt and notes payable -- 25,749 986,242 3,065,362
Repayments of long-term debt and notes payable (442,762) (438,000) (350,675) (1,297,830)
Proceeds from issuance of preferred stock 8,584,000 3,601,000 9,427,000 31,307,000
Proceeds from issuance of common stock -- -- -- 1,000
Commissions and other expenses related to
preferred stock issuance (458,686) (290,221) -- (748,907)
Collections of notes receivable from stockholders -- -- 257,500 257,500
Obligation under license agreement -- -- (56,175) (500,000)
------------ ------------ ------------ ------------
Net cash provided by financing activities 7,682,552 2,898,528 10,263,892 32,084,125
------------ ------------ ------------ ------------
Net increase (decrease) in cash (981,858) (3,715,260) 2,384,102 646,005
Cash and cash equivalents at:
Beginning of period 1,627,863 5,343,123 2,959,021 --
------------ ------------ ------------ ------------
End of period $ 646,005 $ 1,627,863 $ 5,343,123 $ 646,005
============ ============ ============ ============
Supplemental disclosures of cash flow
Information:
Interest paid $ 281,905 $ 324,116 $ 321,887 $ 1,025,443
------------ ------------ ------------ ------------
Supplemental schedule of noncash financing
activities:
Preferred stock issued in exchange for notes
receivable $ -- $ -- $ -- $ 257,500
------------ ------------ ------------ ------------
Offering costs to be settled with warrants $ -- $ -- $ 37,500 $ 37,500
------------ ------------ ------------ ------------
Acquisition of equipment through capital lease $ 109,724 $ 50,435 $ 380,485 $ 1,228,097
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to the financial statements.
47
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. BUSINESS OF THE COMPANY
Retractable Technologies, Inc. (the "Company") was incorporated in Texas
on May 9, 1994, to design, develop, manufacture and market safety
syringes and other safety medical products for the health care
profession. The Company began to develop its manufacturing operations in
1995. The Company's manufacturing and administrative facilities are
located in Little Elm, Texas. The Company's primary products are the
VanishPoint(TM) 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(TM) Syringe. Preliminary shipments (the initial shipments of
products), which commenced in February 1997, included syringes for
hospital product evaluations as well as for sale in clinics and other
healthcare settings. The Company has been considered a development stage
enterprise for financial reporting purposes as significant efforts have
been devoted to financial planning, raising capital, research and
development, acquiring equipment, training personnel, developing markets
and starting up production. Coincident with the agreement with Abbott
Laboratories (see Note 11), effective May 4, 2000, the Company completed
its development stage.
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 years ended December 31, 1999
and 1998, the Company capitalized interest of approximately $169,000 and
$105,000, respectively, and none in fiscal year 1997. 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 10 years
Office furniture and equipment 3 to 10 years
Building 39 years
Building improvements 15 years
Automobiles 7 years
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.
Restricted certificates of deposit
Investments in certificates of deposit are restricted in accordance with
the terms of certain notes payable.
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 (seven
years).
48
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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. Any product shipped or distributed for
evaluation purposes is expensed.
Marketing Fees
The Company pays its distributors marketing fees for services provided by
distributors. These services include participation in promotional
activities, development of educational and promotional materials,
representation at trade shows, clinical demonstrations, inservicing and
training, and tracking reports detailing the placement of the Company's
products to end users. Marketing fees are accrued at the time of the sale
of product to the distributor. These fees are paid after the distributor
provides the Company a tracking report of product sales to end users.
These costs are included in Sales and marketing expense in the Statements
of Operations.
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.
Earnings per share
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share," that established standards for computing and
presenting earnings per share. Basic earnings per share is computed by
dividing net earnings for the period (adjusted for any cumulative
dividends for the period) by the weighted average number of common shares
outstanding during the period. The weighted average number of shares
outstanding for all periods presented was 14,000,000. The Company's
potentially dilutive common stock equivalents including warrants,
options, and convertible debt are all antidilutive as the Company is in a
loss position. Accordingly, basic loss per share is equal to diluted loss
per share and is presented on the same line for income statement
presentation. Cumulative preferred dividends of approximately $3,000,000,
$2,100,000, $1,300,000, and $7,500,000 have been added to net losses for
the periods ended December 31, 1999, 1998, 1997 and cumulative from
inception (May 9, 1994) to December 31, 1999, respectively, to arrive at
net loss per share.
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 employee 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
Stockholders' Equity section of the balance sheet is the portion of such
compensation that has not been charged to operations.
49
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1999 1998
--------------- ------------------
<S> <C> <C>
Raw materials $ 405,823 $ 348,053
Work in process 27,699 5,464
Finished goods 268,766 300,441
--------------- ------------------
702,288 653,958
Inventory reserve (24,326) -
--------------- ------------------
$ 677,962 $ 653,958
=============== ==================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Land $ 261,893 $ 261,893
Building and improvements 1,767,185 1,752,115
Production equipment 7,719,979 6,692,236
Office furniture and equipment 596,058 464,945
Construction in progress 2,306,916 1,410,509
Automobiles 21,858 21,858
------------ ------------
12,673,889 10,603,556
Accumulated depreciation and amortization (2,572,365) (1,679,714)
------------ ------------
$ 10,101,524 $ 8,923,842
------------ ------------
</TABLE>
Acquisition costs of production equipment financed through capital leases
were $1,118,556 and $1,008,832 at December 31, 1999, and 1998,
respectively. Accumulated amortization on these leases was $358,552 and
$255,852 at December 31, 1999 and 1998, respectively.
Depreciation expense and capital lease amortization expense for the years
ended December 31, 1999, 1998 and 1997 was $892,651, $761,282 and
$414,894, respectively.
5. INTANGIBLE ASSETS AND DEFERRED CHARGES
Intangible assets and deferred charges consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
License agreement $ 500,000 $ 500,000
Trademarks and patents 182,590 143,513
Loan origination fees 25,938 25,938
Organization costs - 20,851
--------------- --------------
708,528 690,302
Accumulated amortization (172,514) (135,545)
--------------- --------------
$ 536,014 $ 554,757
--------------- --------------
</TABLE>
In 1995, the Company entered into the license agreement with an officer
of the Company for the exclusive right to manufacture, market and
distribute products utilizing automated retraction technology. This
technology is the subject of various patents and patent applications
owned by the officer of the Company. The initial licensing fee of
$500,000 is being amortized over 17 years. The license agreement also
provides for quarterly payments of a 5% royalty fee to the officer on
gross sales. The royalty fee expense is recognized in the period in which
it is earned. Royalty fees of $194,247, $46,098 and $9,284 are included
in cost of sales for the years ended December 31, 1999, 1998 and 1997,
respectively.
Amortization expense for the years ended December 31, 1999, 1998 and 1997
was $57,820, $45,778 and $41,015, respectively.
50
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------ -----------------
1999 1998
------------------ -----------------
<S> <C> <C>
Small Business Administration note payable to Texas Bank for a maximum
of $1,000,000, all of which was drawn during 1997. Payable in monthly
principal and interest installments of approximately $16,000. Interest
at prime plus 1.5%; 10% on December 31, 1999; adjustable quarterly.
Matures on July 1, 2003. Collateralized by equipment. Guaranteed by
an officer. $ 569,630 $ 705,566
Notes payable to Western Bank and Trust. Interest adjustable annually on
October 24. Matures on October 24, 2001. Secured by land, building and
equipment, and by a certificate of deposit to be released upon
achievement of certain financial ratios. Guaranteed by an officer.
- Interest only payable until October 24, 1996; thereafter,
monthly principal and interest payments of approximately
$8,000. Interest at prime plus 1%; 9.5% on December 31, 750,789 767,960
1999.
- Interest payable monthly at Bank's certificate of deposit
rate plus 2%; 7% on December 31, 1999. 400,000 400,000
Notes payable to Legacy Bank of Texas. Payable in monthly installments of
approximately $8,000 plus interest. Interest at prime plus 1%; 9.5% on
December 31, 1999; adjustable daily. Matures on July 10, 2004.
Collateralized by certain machinery and equipment, a certificate of
deposit of $200,000 and restrictions on the transfer of certain patents.
Covenants require the company to achieve defined debt coverage ratios
or maintain a defined ratio of total liabilities to total net worth.
Guaranteed by an officer. 464,881 566,309
Note payable to First State Bank of Texas in monthly principal and
interest installments of approximately $400. Interest at 7.5%.
Matures on August 13, 2000. Collateralized by company vehicle. 3,333 8,119
Note payable to AFCO. Payable in monthly principal and interest
installments of approximately $2,000. Interest at 8.8%. Matures on
May 28, 2000. 7,491 24,403
Capital lease obligations payable in monthly installments ranging from
approximately $500 to $10,000 through October 2004. Interest at rates
from 9.98% to 14.18%. Collateralized by certain machinery and equipment.
Covenants require the Company to maintain a minimum net worth of
$3,750,000 and a defined ratio of total liabilities to total net worth.
Guaranteed by an officer. The Company is not in compliance with
obligations to deliver documents under this agreement. The lessor has
provided a waiver related to this noncompliance. 773,540 830,345
------------------ -----------------
2,969,664 3,302,702
Less current portion (463,329) (431,743)
------------------ -----------------
$ 2,506,335 $ 2,870,959
------------------ -----------------
<CAPTION>
The aggregate maturities of long-term debt as of December 31, 1999 are as
follows:
<S> <C>
2000 $ 463,329
2001 1,572,041
2002 467,577
2003 373,358
2004 93,359
Thereafter -
---------------
Total $ 2,969,664
---------------
</TABLE>
Subsequent to December 31, 1999, the Company obtained two new loans from
1st International Bank totaling $2,000,000. Land, building and
improvements secure $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.
51
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
December 31,
------------ ---------------
1999 1998
------------ ---------------
<S> <C> <C>
Current $ - $ _
Deferred benefit (2,932,189) (2,096,602)
Increase in valuation allowance 2,932,189 2,096,602
------------ ---------------
$ - $ -
------------ ---------------
</TABLE>
The Company has net operating loss carryforwards of approximately
$24,129,273, and $15,600,527 at December 31, 1999 and 1998, respectively,
which will begin to expire in 2010. The Company has established a
valuation allowance to the extent of its deferred tax assets since
presently it is more likely than not that a tax benefit will not be
realized prior to the expiration of related carry forward periods.
The provision for income taxes varies from the statutory income tax rate
as follows:
<TABLE>
<CAPTION>
December 31,
--------- -----------
1999 1998
--------- -----------
<S> <C> <C>
Income tax benefit at the U.S. federal statutory rate (35.0)% (35.0)%
Valuation allowance 35.6 36.8
Permanent differences 0.6 1.9
State income tax, net of federal benefits (2.7) (2.6)
Other 1.5 (1.1)
--------- -----------
Effective tax (benefit) provision rate _ -
--------- -----------
Temporary differences between the financial statement carrying amounts and the tax basis of assets and
liabilities that gave rise to significant portions of deferred tax amounts related to the following:
<CAPTION>
December 31,
-------------- ------------------
1999 1998
-------------- ------------------
<S> <C> <C>
Net operating loss carry forwards $ 9,084,478 $ 5,873,269
Property, plant, and equipment (1,007,274) (714,913)
Deferred charges 142,155 159,883
Accrued expenses and reserves 54,213 23,144
------------ - ------------------
Net noncurrent deferred tax asset before
valuation allowance 8,273,572 5,341,383
Valuation allowance (8,273,572) (5,341,383)
-------------- ------------------
Net deferred tax asset $ - $ -
-------------- ------------------
</TABLE>
8. STOCKHOLDERS' EQUITY
Preferred stock
The Company has two classes of preferred stock, Class A and Class B. The
Class B Preferred Stock has three series: Series I, Series II and Series
III. Subsequent to December 31, 1999, the Company began taking
subscriptions for a fourth series, Series IV Class B (see Note 11).
Class A
-------
The Company authorized 5,000,000 shares of $1 par value Class A
Convertible Preferred Stock ("Class A Stock") in April 1995. These shares
were outstanding at December 31, 1999 and 1998. Holders of Class A Stock
are entitled to receive a cumulative annual cash dividend of $.12 per
share, payable quarterly if declared by the board of directors. Holders
of Class A Stock generally have no voting rights until dividends are in
arrears and unpaid for twelve consecutive quarters. In such case, the
holders of Class A Stock have the right to elect one-third of the board
of directors of the Company At December 31, 1999 and 1998, approximately
$2,616,983 and $2,016,983, respectively, of dividends which have not been
declared were in arrears. Accordingly, Class A shareholders elected three
members to the Board during 1999.
Class A Stock is redeemable after three years from the date of issuance
at the option of the Company at a price of $1.70 per share, plus all
accrued and unpaid dividends. Each share of Class A Preferred Stock may
be converted to one share of common stock after three years from the date
of issuance at the option of the shareholder. In the event of voluntary
or involuntary dissolution, liquidation or winding up of the Company,
holders of Class A Stock then outstanding are entitled to $1.50 per share
plus all accrued and unpaid dividends, prior to any distributions to
holders of Class B preferred stock or of common stock.
52
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Class B
-------
The Company has authorized 5,000,000 shares of $1 par value Convertible
Preferred Stock which have been allocated among Series I, II, III and IV
in the amounts of 1,000,000, 1,000,000, 1,160,200 and 1,300,000 shares,
respectively. The remaining 539,800 authorized shares have not been
assigned a series.
Series I Class B
----------------
There were 1,000,000 shares of $1 par value Series I Class B Convertible
Preferred Stock ("Series I Class B Stock") issued and outstanding at
December 31, 1999 and 1998. Holders of Series I Class B Stock are
entitled to receive a cumulative annual dividend of $.50 per share,
payable quarterly if declared by the board of directors. At December 31,
1999 and 1998 approximately $1,689,949 and $1,185,552, respectively, of
dividends which have not been declared were in arrears.
Series I Class B Stock is redeemable after three years from the date of
issuance at the option of the Company at a price of $7.50 per share, plus
all accrued and unpaid dividends. Each share of Series I Class B Stock
may, at the option of the stockholder, be converted to one share of
common stock after three years from the date of issuance or in the event
the Company files an initial registration statement under the Securities
Act of 1933. In the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, holders of Series I Class B
Stock then outstanding are entitled to $6.25 per share, plus all accrued
and unpaid dividends, after distribution obligations to Class A Stock
have been satisfied and prior to any distributions to holders of Series
II Class B Convertible Preferred Stock ("Series II Class B Stock"),
Series III Class B Convertible Preferred Stock ("Series III Class B
Stock") or common stock.
Series II Class B
-----------------
There were 1,000,000 shares of $1 par value Series II Class B Stock
issued and outstanding at December 31, 1999 and 1998, respectively.
Holders of Series II Class B Stock are entitled to receive a cumulative
annual dividend of $1.00 per share, payable quarterly if declared by the
board of directors. Holders of Series II Class B Stock generally have no
voting rights until dividends are in arrears and unpaid for twelve
consecutive quarters. In such case, the holders of Series II Class B
Stock have the right to elect one-third of the board of directors of the
Company. At December 31, 1999 and 1998 approximately $2,227,177 and
$1,256,981, respectively, of dividends which have not been declared were
in arrears.
Series II Class B Stock is redeemable after three years from the date of
issuance at the option of the Company at a price of $15.00 per share plus
all accrued and unpaid dividends. Each share of Series II Class B Stock
may, at the option of the stockholder, be converted to one share of
common stock after three years from the date of issuance or in the event
the Company files an initial registration statement under the Securities
Act of 1933. In the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, holders of Series II Class B
Stock then outstanding are entitled to $12.50 per share, plus all accrued
and unpaid dividends, after distribution obligations to holders of Class
A Stock and Series I Class B Stock have been satisfied and prior to any
distributions to holders of Series III Class B Stock or common stock.
Series III Class B
------------------
There were 1,160,200 shares and 301,800 shares of $1 par value Series III
Class B Stock issued and outstanding at December 31, 1999 and 1998,
respectively. Holders of Series III Class B Stock are entitled to receive
a cumulative annual dividend of $1.00 per share, payable quarterly if
declared by the board of directors. At December 31, 1999 and 1998,
approximately $941,549 and $41,701, respectively, of dividends which have
not been declared were in arrears.
Series III Class B Stock is redeemable after three years from the date of
issuance at the option of the Company at a price of $15.00 per share,
plus all accrued and unpaid dividends. Each share of Series III Class B
Stock may, at the option of the stockholder, be converted to one share of
common stock after three years from the date of issuance or in the event
the Company files an initial registration statement under the Securities
Act of 1933. In the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, holders of Series III Class B
Stock then outstanding are entitled to $12.50 per share, plus all accrued
and unpaid dividends, after distribution obligations to Class A Stock,
Series I Class B Stock and Series II Class B Stock have been satisfied
and prior to any distributions to holders of common stock.
Series IV Class B
-----------------
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 Stock 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 Stock. Holders of Series IV Class B Stock will be entitled to
receive a cumulative annual dividend of $1.00 per share, payable
quarterly, if declared by the board of directors. Holders of Series IV
Class B Stock generally have no voting rights.
53
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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.
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.
Common stock
The Company is authorized to issue 40,000,000 shares of no par value
common stock, of which 14,000,000 shares are issued and outstanding at
December 31, 1999 and 1998. Subsequent to December 31, 1999, the board of
directors approved an increase in the number of authorized shares to
100,000,000.
9. RELATED PARTY TRANSACTIONS
In September 1996, the Company purchased the 3cc-prototype mold from
Checkmate Engineering, a sole proprietorship of an officer of the
Company. The purchase was financed by a note for the full purchase price
of $108,252. The note provided for no interest for the first 305 days
and, subsequently, for interest at a rate of 12% per annum. Interest
expense related to this note was $1,357, $5,258 and $4,092 for the years
ended December 31, 1999, 1998 and 1997, respectively. The balance of the
note was $25,966 as of December 31, 1998. The remaining balance on the
note was paid in full in 1999.
The Company has a lease with Mill Street Enterprises ("Mill Street"), a
sole proprietorship owned by a Board member, for sales and marketing
offices in Lewisville, Texas. During 1999, 1998 and 1997, the Company
paid $22,800 each year under this lease. The Company also has a lease
with Mill Street for additional office space for one year commencing
April 1, 2000, at a rate of $1,000 per month.
During 1999, 1998 and 1997, the Company paid $23,381, $30,258 and
$49,615, respectively, to family members of its chief executive officer
for various consulting services. During 1999, 1998 and 1997, the Company
paid $96,372, $127,921 and $77,430, respectively, to a former director
for various consulting services.
The Company has a license agreement with an officer of the Company. See
Note 5.
See Note 11 for related party subsequent event.
10. STOCK OPTIONS AND WARRANTS
Stock options
The Company has three stock option plans that provide for the granting of
stock options to officers, employees and other individuals. During 1999,
the Company approved the 1999 Stock Option Plan. The 1999 Plan is the
only plan with stock option awards available for grant and the Company
has reserved 2,000,000 shares of common stock for use upon the exercise
of options under this plan.
The Company also has shares outstanding under the 1996 Incentive Stock
Option Plan and the 1996 Stock Option Plan for Directors and Other
Individuals. All plans are administered and exercise prices at which
options are granted are determined by a committee appointed by the board
of directors. Shares exercised come from the Company's authorized but
unissued common stock. The options vest over periods up to three years
from the date of grant and generally expire ten years after the date of
grant. All options issued under the 1996 plans expire three months after
termination of employment or service to the Company. No options have been
exercised under these plans.
Director, officer and employee options
Pro forma information regarding net income is required by SFAS 123. This
information has been derived as if the Company had accounted for its
directors, officers and employee stock options under the fair value
method in accordance with SFAS 123. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in
1999, 1998 and 1997: no dividend yield; expected volatility of 0%;
risk-free interest rates of 5.9%, 5.4% and 6.4%, respectively; and
expected lives of 5.3 years. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the
option vesting periods. The Company's pro forma information follows:
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------- -- ------------- ------------- -- ------------- ------------- -- -------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net loss $(8,233,508) $(8,341,433) $(5,704,088) $(5,842,497) $(5,524,200) $(5,627,602)
</TABLE>
54
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------
The effects of applying FAS 123 in this pro forma disclosure are not indicative
of future amounts as FAS 123 does not consider additional awards anticipated in
the future.
A summary of director, officer and employee options granted and outstanding
under the Plans is presented below:
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------------------------
1999 1998 1997
------------------------ ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
------------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Outstanding at beginning of
period 566,855 $ 6.01 460,305 $ 4.28 130,105 $ 1.53
Granted at prices in excess
of fair market value 715,950 10.00 177,800 10.00 22,750 10.00
Granted at prices below fair
market value 8,500 4.53 - - 345,700 5.00
Exercised - - - - - -
Forfeited (294,700) (7.63) (71,250) (4.78) (38,250) (4.90)
------------------------ ----------------------- -----------------------
Outstanding at end of period 996,605 $ 8.38 566,855 $ 6.01 460,305 4.28
------------------------ ----------------------- -----------------------
Exercisable at end of period 117,105 3.41 - - - -
Weighted average fair value
of options granted during
period - $ .04 - - - $ 3.45
</TABLE>
The following table summarizes information about director, officer and
employee options outstanding under the Plans at December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Shares Remaining Shares
Prices Outstanding Contractual Exercisable
Life
------------------- -------------- --------------- -------------
<S> <C> <C> <C>
$ 1.00 77,780 6.32 77,780
$ 5.00 182,125 7.31 14,325
$ 10.00 736,700 9.42 25,000
</TABLE>
Compensation expense has been recognized for the years ended December 31,
1999, 1998 and 1997 in connection with options which were granted with
exercise prices less than the fair market value of the common stock of
the Company on the date of grant as determined by the board of directors.
Non-employee options
Options were granted to non-employees during the years ended December 31
as follows:
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------------------------
1999 1998 1997
------------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
------------------------- ----------------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period 152,500 $ 6.91 67,000 $ 2.97 34,000 $ 1.00
Granted 75,000 10.00 86,500 10.00 33,000 5.00
Exercised - - - - - -
Forfeited (42,000) (9.05) (1,000) (10.00) - -
------------------------- ----------------------- -----------------------
Outstanding at end of period 185,500 $ 7.54 152,500 $ 6.91 67,000 $ 2.97
------------------------- ----------------------- -----------------------
Exercisable at end of period 34,000 $ 1.00 - - - -
Weighted average fair value
of options granted during period - $ 1.79 - $ 1.71 - $ 3.88
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1999, 1998 and 1997: no dividend
yield; expected volatility of 30%, 30% and 60%, respectively; risk-free
interest rates of 5.9%, 5.4% and 6.3%, respectively; and expected lives
of 5.3 years, 5.3 years and 3 years, respectively. The expense related to
these grants is reflected in periods up to three years, in which services
must be completed, for these options to become exercisable. Unearned
compensation reflects the portion of the grant that has not yet been
charged to operations.
55
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
A Development Stage Enterprise
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------
Warrants
The Company has an obligation to issue warrants in connection with the
underwriting of the Series II Class B Stock sales. Ten warrants entitle
the holder to purchase one share of common stock at an exercise price of
$1.00 per warrant. The fair market value of the warrants was recorded as
part of the fees for the preferred stock offering.
11. SUBSEQUENT EVENTS
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 Vanish
Point(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.
On April 7, 2000, the Company entered into a manufacturing agreement with
an unrelated party to outsource the assembly of its 5cc and 10cc
syringes. The agreement calls for the Company to purchase and consign
machinery and equipment to the unrelated party and provide training for
its employees. The Company is obligated under the agreement to purchase a
minimum volume of product from the unrelated party at mutually agreed
upon prices. The volume and price for the initial contract year ended
April 30, 2001 resulted in a purchase commitment of $100,000 for the
Company.
Effective June 1, 2000, the Company entered into a Consulting Agreement
("Agreement") with a Board member, formerly 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 for expenses
incurred on behalf of the Company.
See footnotes 6 and 8 for subsequent event activity related to debt and
equity, respectively.
56
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
QUARTER ENDED SEPTEMBER 30, 2000
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Financial Statements:
Condensed Balance Sheets 58
Condensed Statements of Operations 59
Condensed Statements of Cash Flows 60
Notes to Condensed Financial Statements 61
</TABLE>
57
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
December 31, 1999 September 30, 2000
Unaudited
---------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 646,005 $ 4,468,533
Accounts receivable, net 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
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 5,301,959
------------------------ ----------------------
Stockholders' equity
Preferred Stock $1 par value
Series 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 - -
Additional paid-in capital 23,565,235 31,011,580
Unearned compensation (185,635) (229,156)
Accumulated deficit (22,852,247) (29,591,443)
------------------------ ----------------------
Total stockholders' equity 8,687,553 10,459,226
------------------------ ----------------------
Total liabilities and stockholders' equity $ 13,208,729 $ 19,471,233
======================== ======================
</TABLE>
See accompanying notes to the financial statements.
58
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
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 3,445,695 841,682 5,782,287 1,361,590
------------------------------- -------------------------------
Gross margin 307,415 392,039 327,130 604,354
------------------------------- -------------------------------
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 1,221,775 652,900 2,825,925 2,094,944
------------------------------- ------------------------------
Total operating expenses 2,972,875 2,309,103 7,101,264 6,584,168
------------------------------- ------------------------------
Loss from operations (2,665,460) (1,917,064) (6,774,134) (5,979,814)
Interest income 75,087 39,450 150,415 109,917
Interest expense (72,581) (30,079) (115,477) (102,101)
------------------------------- ------------------------------
Net loss $ (2,662,954) $ (1,907,693) $ (6,739,196) $ (5,971,998)
=============================== ==============================
Basic and diluted loss per share $ (0.27) $ (0.19) $ (0.69) $ (0.58)
=============================== ==============================
Weighted average shares outstanding 14,004,333 14,000,000 14,001,444 14,000,000
=============================== ==============================
</TABLE>
See accompanying notes to the financial statements.
59
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------------------------------------------------------------------------------------------------------------------
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 $ (2,662,954) $ (1,907,693) $ (6,739,196) $ (5,971,998)
Depreciation and amortization 217,067 242,708 716,094 694,498
Provision for doubtful accounts - - - -
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 558,473 23,990 (260,558) 228,906
(Increase) decrease in accounts and
note receivable (1,086,796) (368,989) (1,443,918) (659,045)
(Increase) decrease in deferred charges - - - -
(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 (1,845,966) (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 -
Stock subscriptions held in escrow - - - -
Organization costs paid - - - -
------------------------------------------------------------------
Net cash used by investing activities (547,916) (413,676) (1,120,069) (1,716,459)
------------------------------------------------------------------
Cash flows from financing activities
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 (133,746) (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 50,162 556,833 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>
See accompanying notes to the financial statements.
60
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
-------------------------------------------------------------------------------
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to fairly present the Company's financial
position and results of operations for the interim periods. All adjustments
contained herein are of a normal recurring nature.
1. BUSINESS OF THE COMPANY, RECENT DEVELOPMENTS, AND BASIS OF PRESENTATION
Business
--------
Retractable Technologies, Inc. (the "Company") 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 to develop its manufacturing operations
in 1995. The Company's manufacturing and administrative facilities are
located in Little Elm, Texas. The Company's primary products 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. Shipments commenced in February 1997 and
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 Company borrowed $ 3 million in
August 2000 and $2 million in December 2000.
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.
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.
61
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
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
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. Any products shipped or distributed
for evaluation purposes is expensed.
Marketing Fees
The Company pays its distributors marketing fees for services provided
by distributors. These services include participation in promotional
activities, development of educational and promotional materials,
representation at trade shows, clinical demonstrations, inservicing and
training, and tracking reports detailing the placement of the Company's
products to end users. Marketing fees are accrued at the time of the
sale of product to the distributor. These fees are paid after the
distributor provides the Company a tracking report of product sales to
end users. These costs are included in Sales and marketing expense in
the Statements of Operations.
62
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
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.
Earnings per share
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," that established standards for computing and
presenting earnings per share. Basic earnings per share is computed by
dividing net earnings for the period (adjusted for any cumulative
dividends for the period) by the weighted average number of common
shares outstanding during the period. The weighted average number of
shares outstanding for the nine-month periods ended September 30, 2000,
and 1999, is 14,001,444 and 14,000,000, respectively. The Company's
potentially dilutive common stock equivalents including warrants,
options, and convertible debt are all antidilutive as the Company is in
a loss position. Accordingly, basic loss per share is equal to diluted
loss per share and is presented on the same line for income statement
presentation. Cumulative preferred dividends of $2,905,323 and
$2,182,414 have been added to net losses for the nine-month periods
ended September 30, 2000, and 1999, respectively.
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 1/st/
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. The Company borrowed an additional $2,000,000 on
December 11, 2000 under the 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.
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.
63
<PAGE>
RETRACTABLE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------------------------------------------------
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 July 24, 2000 the Board of Directors declared a dividend covering
all dividend arrearages on the Series A Preferred Stock. The dividend
of $2,818,542 was paid on July 27, 2000.
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.
64
<PAGE>
PART III - FORM 10SB-A2
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description
---------- -----------
2.1 Second Amended and Restated Articles of Incorporation of RTI
filed August 14, 2000 *
2.2 Amended and Restated Bylaws of RTI dated as of the 11th day of
August 2000 *
3.1 Sample Common Stock certificate **
3.2 See 2.1 - 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) *
3.3 Sample Series A Convertible Preferred Stock Certificate **
3.4 See 2.1 - See 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) *
3.5 Sample Series I Class B Convertible Preferred Stock
Certificate **
3.6 See 2.1 - 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) *
3.7 Sample Series II Class B Convertible Preferred Stock
Certificate **
3.8 See 2.1 - 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) *
3.9 Sample Series III Class B Convertible Preferred Stock
Certificate **
3.10 See 2.1 - 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) *
3.11 Sample Series IV Class B Convertible Preferred Stock
Certificate **
3.12 RTI's 1999 Stock Option Plan **
3.13 1996 Incentive Stock Option Plan of RTI **
3.14 1996 Stock Option Plan for Directors and Other Individuals **
3.15 See 6.1 - National Marketing and Distribution Agreement
between RTI and Abbott Laboratories dated as of May 4, 2000
and Registration Rights Agreement between RTI and Abbott
Laboratories dated as of May 4, 2000 **
3.16 Form of Southwest Merchant Group Warrant to Purchase 7,500
shares of Series IV Class B Preferred Stock issued **
3.17 Selling Agreement between RTI and Northstar Securities
Corporation dated March 1, 2000 **
3.18 Selling Agreement between RTI and Asset Allocations Securities
Corp. dated March 9, 2000 **
6.1 National Marketing and Distribution Agreement between RTI and
Abbott Laboratories dated as of May 4, 2000 with exhibits **
6.2 Contract Manufacturing Agreement Between RTI and Nypro
Precision Assemblies, Inc. dated as of April 7, 2000 **
6.3 Sample United States Distribution Agreement **
6.4 Sample Foreign Distribution Agreement **
6.5 Amended Consulting Agreement between RTI and Lillian E.
Salerno dba/MediTrade International dated August 23, 2000 *
6.6 Employment Agreement between RTI and Thomas J. Shaw dated as
of September 28, 1999 **
6.7 Technology License Agreement between Thomas J. Shaw and RTI
dated the 23rd day of June 1995 **
6.8 Consulting Agreement by and between RTI and International
Export and Consulting dated March 15, 2000 **
65
<PAGE>
6.9 Lock Up Agreement by and between RTI and Thomas J. Shaw dated
as of December 3, 2000 ***
6.10 Lock Up Agreement by and between RTI and Lillian E. Salerno
dated as of December 4, 2000 ***
12.1 Consent of Independent Accountants dated January 16, 2001*****
12.2 Employment Agreement by and between RTI and Phillip L. Zweig
dated effective as of Dec. 13, 2000 ****
12.3 Audit Committee Charter *
* 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 10SB filed on June 23, 2000.
*** Incorporated herein by reference to RTI's Form 10Q-SB filed on
November 14, 2000.
**** Incorporated herein by reference to RTI's Form SB-2 filed on
December 22, 2000.
***** Filed herewith.
ITEM 2. DESCRIPTION OF EXHIBITS
Exhibits identified in the Index above were included in the filings indicated
or are attached hereto.
66
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
Retractable Technologies, Inc. caused this registration statement to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: January 16, 2001 RETRACTABLE TECHNOLOGIES, INC.
(Registrant)
BY: /s/ Thomas J. Shaw
-----------------------------------
THOMAS J. SHAW
CHAIRMAN, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER
67
