RETRACTABLE TECHNOLOGIES INC

1. BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

Business of the Company

Retractable Technologies, Inc. (the “Company”) was incorporated in Texas on May 9, 1994, and designs, develops, manufactures, and markets safety syringes and other safety medical products for the healthcare profession. The Company began to develop its manufacturing operations in 1995. The Company’s manufacturing and administrative facilities are located in Little Elm, Texas. The Company’s products are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; 0.5mL, 1mL, 2mL, 3mL, 5mL, and 10mL syringes; the small diameter tube adapter; the blood collection tube holder; the EasyPoint®blood collection tube holder with needle; the allergy tray; the IV safety catheter; the Patient Safe® syringes; the Patient Safe® Luer Cap; the VanishPoint® Blood Collection Set; and the EasyPoint® needle, as well as a standard 3mL syringe packaged with an EasyPoint® needle. The Company also sells VanishPoint® autodisable syringes in the international market in addition to the Company’s other products.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. The amount reported as a contractual allowance for rebates involves examination of past historical trends related to sales to customers and the related credits issued once contractual obligations of the customers have been met. The establishment of a liability for future claims of rebates against sales in the current period requires that the Company has an understanding of the relevant sales with respect to product categories, sales distribution channels, and the likelihood of contractual obligations being satisfied.

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and investments with original maturities of three months or less.

Accounts receivable

The Company records trade receivables when revenue is recognized. No product has been consigned to customers. The Company’s allowance for credit losses is primarily determined by review of specific trade receivables based on historical collection rates and specific knowledge regarding the current creditworthiness of the customers. Those accounts that are doubtful of collection are included in the allowance. The Company considers historical experience, the current economic environment, customer credit ratings or bankruptcies, legal disputes, collections on past due amounts, pricing discrepancies, and reasonable and supportable forecasts to develop its allowance for credit losses. Management reviews these factors quarterly to determine if any adjustments are needed to the allowance. Trade receivables are charged off when there is certainty as to their being uncollectible. Trade receivables are considered delinquent when payment has not been made within contract terms. The allowance for credit losses was $668,124 and $890,541 as of December 31, 2024 and 2023, respectively.

The Company requires certain customers to make a prepayment prior to beginning production or shipment of their order. Customers may apply such prepayments to their outstanding invoices or pay the invoice and continue to carry forward the deposit for future orders. Such amounts are included in Other accrued liabilities on the Balance Sheets and are shown in Note 7, Other Accrued Liabilities.

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

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost being determined using actual average cost. The Company compares the average cost to the net realizable value and records the lower value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For the years ended December 31, 2024 and 2023, respectively, the Company recorded $0 and $101 thousand lower of cost or net realizable value inventory adjustment associated with the VanishPoint® 3mL and EasyPoint® needle product segments.

Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories. Once inventory items are deemed to be either excess or obsolete, they are written down to their net realizable value.

Investments in debt and equity securities

The Company holds mutual funds, debt, and equity securities as investments. These assets are held as trading securities and are carried at fair value as of the date of the Balance Sheets. Net unrealized and realized gains or losses on these investments are reflected separately on the Statements of Operations. Realized gains or losses on investments are recognized using the specific identification method.

Property, plant, and equipment

Property, plant, and equipment are stated at cost less accumulated depreciation. 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 costs associated with significant capital additions. Gains or losses from disposals are included in Interest and other income.

The Company's property, plant, and equipment primarily consist of buildings, land, assembly equipment, molding machines, molds, office equipment, furniture, and fixtures. Depreciation and amortization are calculated using the straight-line method over the following useful lives:

Long-lived assets

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

Fair value measurements

For assets and liabilities that are measured using quoted prices in active markets, total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets.

For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black-Scholes model.

Financial instruments

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

Concentration risks

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, certificates of deposit, exchange-traded and closed-end funds, mutual funds, equity securities, and accounts receivable. Cash balances, some of which exceed federally insured limits, are maintained in financial institutions; however, Management believes the institutions are of high credit quality. The majority of accounts receivable are due from companies that are well-established entities. The Company assesses market risk in equity securities through consultation with its outside investment advisors. Management is responsible for directing investment activity based on current economic conditions. Management considers any exposure from concentrations of credit risks to be limited.

The following table reflects our significant customers in 2024, 2023, and 2022:

The Company manufactures some of its products in Little Elm, Texas, as well as utilizing manufacturers in China. The Company obtained roughly 83.9% of its products in 2024 from its Chinese manufacturers. Purchases from Chinese manufacturers aggregated 88.4% and 91.6% of products in 2023 and 2022, respectively. In the event that the Company becomes unable to purchase product from its Chinese manufacturers or produce those products domestically, it may need to find an alternate manufacturer for the blood collection set, IV catheter, Patient Safe® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes. Even with increased domestic production, the Company may not be able to avoid a disruption in supply.

On September 13, 2024, the Office of the U.S. Trade Representative (“USTR”) revealed final adjustments to increase tariffs on certain goods imported from China under Section 301 of the Trade Act of 1974. Among those products included were syringes and needles, at a rate of 100%. Additionally, effective February 4th and March 4th of 2025, tariffs on Chinese imports were increased by an aggregate total of 20%. The increase of 20% applied not only to syringes and needles, but to other products imported from China. Tariffs are expected to have a material impact to the Company’s results of operations and financial position. The Company is working to lessen the financial impact of the tariffs, including shifting a larger portion of manufacturing of 1mL, 3mL, and EasyPoint® needles to its domestic manufacturing facility.

Revenue recognition

The Company recognizes revenue when control of performance obligations passes to the customer, generally when the product ships. Payments from customers with approved credit terms are typically due 30 days from the invoice date. Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances. Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products for which the Company has not received tracking reports. When rebates are issued, they are applied against the customer’s receivable balance. Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company. If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor. One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is recognized in the period the related sales are recognized and is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report. Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted. The estimated contractual allowance is included in Accounts payable in the Balance Sheets and deducted from Revenues in the Statements of Operations. Accounts payable included estimated contractual allowances for $2.1 million as of December 31, 2024 and 2023. The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors. Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company. End-users do not receive any contractual allowances on their purchases. Any product shipped or distributed for evaluation purposes is expensed.

The Company provides product warranties that: i) the products are fit for medical use as generally defined within the boundaries of United States FDA approval; ii) the products are not defective; and iii) the products will conform to the descriptions set forth in their respective labeling, provided that they are used in accordance with such labeling and the Company’s written directions for use. The Company has historically not incurred significant warranty claims.

The Company’s domestic return policy provides that a customer may return incorrect shipments within 10 days following arrival at the distributor’s facility. In all such cases, the distributor must obtain an authorization code from the Company and affix the code to the returned product.

The Company’s domestic return policy also generally provides that a customer may return product that is overstocked. Overstocking returns are limited totwo times in each 12-month period up to 1% of distributor’s total purchase of products for the prior 12-month period. All product overstocks and returns are subject to inspection and acceptance by the Company. The Company has not historically incurred significant returns.

On February 5, 2024, the Company initiated a voluntary recall of its EasyPoint Needle lot number K220402 which was shipped within the U.S. between July 20, 2022 and September 20, 2023. The Company shipped 477,600 units of the products into the market and is working with customers and distributors to determine how many of the units remain unused and subject to the recall. The recall is due to the possible detachment of the needle cannula from the needle holder, which could result in serious injury. The Company has advised its customers and distributors to review their inventory for the affected products, segregate and quarantine the affected products, discontinue any distribution of the affected products, inform all personnel not to use the affected products, and report and return remaining inventory to the Company. The Company submitted a Removal Report with the U.S. Food and Drug Administration and has continued to provide monthly updates. The Company estimated that the potential expense related to the recall was approximately $116 thousand in 2023. The recall was concluded as of December 2024. Therefore, no amount is accrued for the recall as of December 31, 2024. Since the initiation of the voluntary recall, all reasonable efforts have been made to remove EasyPoint Needle lot K220402 from the market in accordance with the recall strategy. We believe the recall is complete and we have requested termination of the voluntary recall from the FDA. The Medical Devices and Radiological Health Risk Mitigation and Response Branch has: confirmed our request for termination, notified us that the division is currently experiencing a severe backlog of termination requests which are being processed in the order they are received and informed us that once the termination process begins, they will follow up with us concerning any additional questions they may have.

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

The Company periodically recognizes revenue from licensing agreements of its intellectual property. Such licensing agreements provide the licensee with right to use the Company’s intellectual property. The Company accounts for revenue generated under these licensing agreements in accordance with ASC 606. A license may be perpetual or time limited in its application. The Company has concluded that its licensing agreement is distinct as the customer can benefit from the license on their own. In accordance with ASC 606, the licensing agreement is considered functional as it is without professional services, updates and technical support. The Company has determined the current licensing agreement is sales-based or usage-based as defined in ASC 606. In accordance with ASC 606, the Company recognizes revenue from sales-based or usage-based license at the later of a) subsequent sale or usage occurrence or b) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied). The Company recognized $189 thousand and $778 thousand in licensing fees for years ended December 31, 2024 and 2023, respectively. No licensing fees were recognized for the year end December 31, 2022. If the Company licenses its products for sale and the customers of the sublicensee are not known to the Company, the Company is obligated to pay Thomas J. Shaw, the owner of certain patented technology, fifty percent (50%) of such revenue pursuant to the terms of the Technology License Agreement between the Company and Mr. Shaw.

Disaggregated information of revenue recognized from contracts with customers and licensing fees recognized are as follows:

Income taxes

The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in the financial statements based on whether it is “more-likely-than-not” that a tax position will be sustained based upon the technical merits of the position. Measurement of the tax position is based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The Company provides for deferred income taxes through utilizing an asset and liability approach for financial accounting and reporting based on the tax effects of differences between the financial statement and tax bases of assets and liabilities, based on enacted rates expected to be in effect when such differences reverse in future periods. Deferred tax assets are periodically reviewed for realizability.

As of December 31, 2024, Management concluded that a $9.1 million valuation allowance is needed on the net deferred tax asset.

Management concluded that a $283 thousand valuation allowance was needed for state net operating losses as of December 31, 2023 and 2022.

Earnings per share

The Company computes basic earnings per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options and/or common stock issuable upon the conversion of convertible preferred stock.

The calculation of diluted EPS under the treasury stock method included the following shares in 2024, 2023, and 2022:

Preferred stock was excluded from the calculation of diluted EPS because the effect was antidilutive.

The potential dilution, if any, is shown on the following schedule:

Shipping and handling costs

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

Share-based Compensation

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

Self-insured employee benefit costs

The Company self-insures certain health insurance benefits for its employees under certain policy limits. The Company has additional coverage provided by an insurance company for any individual with claims in excess of $100,000 and/or total plan claims in excess of $1.4 million for the plan year.

Research and development costs

Research and development costs are expensed as incurred.

Technology Investment Agreement (TIA)

Effective July 1, 2020, the Company entered into a Technology Investment Agreement (“TIA”) with the United States Government Department of Defense, U.S. Army Contracting Command-Aberdeen Proving Ground, Natick Contracting Division & Edgewood Contracting Division (ACC-APG, NCD & ECD) on behalf of the Biomedical Advanced Research and Development Authority (BARDA), as amended, for $81,029,518 in government funding for expanding the Company’s domestic production of needles and syringes. At the request of the US government, the TIA was transferred to a successor agreement, identified as Other Transaction Agreement in April 2023. Such agreement contains no additional requirements and, for the purposes of this report, the agreement shall continue to be referred to herein as the “TIA”. Under this agreement, the Company has made significant additions to its facilities which allows the Company to increase domestic production capacity. For further explanation, please refer to Note 9 – Technology Investment Agreement.

As reimbursements were received from the U.S. government for expenditures under the TIA, the Company recorded a deferred liability. In 2021, the deferred liability began to be systematically amortized as a gain over the life of the related property, plant, and equipment and is presented as Other income – TIA on the Statements of Operations. For any reimbursements received for expenditures not capitalized as property, plant, and equipment, Other income – TIA was recognized in the same period as the expense.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure." The amendments expand segment disclosures for public entities by requiring the disclosure of significant segment expenses regularly provided to the chief operating decision maker, along with other new and enhanced disclosures, including those for interim periods. Under ASU 2023-07, public entities with a single reportable segment must provide all disclosures required by this standard, as well as existing segment disclosures under Topic 280, on both an interim and annual basis. The standard is effective for annual periods beginning after December 15, 2023, and for interim periods starting after December 15, 2024, with retrospective application allowed and early adoption permitted. As of December 31, 2024, the Company has adopted ASU 2023-07. While the adoption has not affected the Company's financial statements, it has resulted in additional disclosures.

Refer to Note 18 - Segment Information for required disclosures.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, intended to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendment also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. ASU No. 2022-03 is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted.

For all other entities, it is effective for fiscal years, including interim periods within those fiscal years beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company adopted the ASU 2022-03 as of January 1, 2024 with no impact on the Company’s financial statements.

Recently Issued Pronouncements

In November 2024, the FASB issued ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses." This update enhances the requirements for public companies to provide more detailed and structured disclosures of their expenses, aiming to improve transparency in financial reporting. The new guidance is effective for fiscal reporting periods beginning after December 15, 2026, and for interim periods starting after December 15, 2027. Early adoption is permitted for fiscal financial statements that have not yet been issued or made available for issuance. Companies can choose to apply the amendment either prospectively to periods beginning after the effective date or retrospectively to prior periods presented in their financial statements. The Company is evaluating the adoption of the amendments and the potential impact it may have, if any, on its financial statements.

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements — Amendments to Remove References to the Concepts Statements”, which amends the Codification to remove references to various concepts statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. ASU 2024-02 is effective for public business entities for fiscal periods beginning after December 15, 2024. For all other entities, it is effective for fiscal years, including interim periods within those fiscal years beginning after December 15, 2025. Early adoption is permitted for all entities, for any fiscal year or interim period for which financial statements have not yet been issued or made available for issuance. The Company is evaluating the new guidance to determine the impact it may have, if any, on its financial statements.

In December of 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The updated accounting guidance improves transparency of income tax disclosures, including the disaggregation of existing disclosures related to the effective tax rate reconciliation and income taxes paid. ASU No. 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted. For all other entities, it is effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. Prospective application is required, with retrospective application permitted. The Company is evaluating the adoption of the amendments and the potential impact it may have, if any, on its financial statements.

3. INVENTORIES

Inventories consist of the following:

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820, “Fair Value Measurements”, defines fair value, establishes a framework for measuring fair value and requires additional disclosures regarding certain fair value measurements. ASC 820 establishes a three-tier hierarchy for measuring fair value, as follows:

The following tables summarize the values of assets designated as Investments in debt and equity securities:

The investment assets are held as trading securities and are carried at fair value as of the date of the Balance Sheets. The Company intends to hold these assets for possible future operating requirements.

The following table summarizes gross unrealized gains and losses from Investments in debt and equity securities:

Unrealized gains on investments were $10.81 million for the year ended December 31, 2024. Unrealized losses on investments were $10.52 million for the year ended December 31, 2023. Unrealized gains on investments were $2.34 million for the year ended December 31, 2022.

5. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following:

Depreciation expense for the years ended December 31, 2024, 2023, and 2022 was $7.6 million; $7.5 million; and $4.6 million, respectively.

6. LICENSE AGREEMENT

In 1995, the Company entered into a license agreement with the Chief Executive Officer of the Company, Thomas J. Shaw, for the exclusive right to manufacture, market, and distribute products utilizing automated retraction technology, which agreement has been amended. This technology is the subject of various patents and patent applications owned by Mr. Shaw. The license agreement provides for quarterly payments of a 5% royalty fee on gross sales. Additionally, if the Company sublicenses the technology and the sublicensee’s customers are not known to the Company, then Mr. Shaw shall be entitled to receive from the Company fifty percent (50)% of the royalties actually paid to the Company by such sublicensee. The royalty fee expense is recognized in the period in which it is earned. Royalty fees of $2,919,519; $3,594,130; and $5,937,107 are included in Cost of sales for the years ended December 31, 2024, 2023, and 2022, respectively. Royalties payable under this agreement aggregated $789,358 and $1,376,555 at December 31, 2024, and 2023, respectively. Gross sales upon which royalties are based were $57,019,782; $64,883,761; and $118,742,140 for 2024, 2023, and 2022, respectively.

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

7. OTHER ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

8. LONG-TERM DEBT

Long-term debt consists of the following:

The fair value of long-term liabilities, based on Management’s estimates, approximates their reported values.

The aggregate maturities of long-term debt as of December 31, 2024, are as follows:

9. TECHNOLOGY INVESTMENT AGREEMENT

Effective July 1, 2020, the Company entered into the Technology Investment Agreement (TIA) with the U.S. government to expand the Company’s manufacturing capacity for hypodermic safety needles in response to the worldwide COVID-19 global pandemic. The award is an expenditure-type TIA, whereby the U.S. government has made payments to the Company for the Company’s expenditures for equipment and supplies related to the expansion. The Company’s contributions under the terms of the TIA include providing facilities, technical expertise, labor and maintenance for the TIA-funded equipment for aten-year term. In May of 2021, the Company and the U.S. government amended the TIA agreement to includetwo additional assembly lines and additional controlled environment space.

The Company has received all equipment, has completed all property construction required by the TIA, and all reimbursement requests have been submitted. No further amounts for expansion under the TIA are expected to be submitted or collected.

At the request of the US government, the TIA was transferred to a successor agreement, identified as Other Transaction Agreement in April 2023. Such agreement contains no additional requirements, and, for the purposes of this report, the agreement shall continue to be referred to herein as the “TIA”. The successor agreement governs ongoing terms established by the TIA until June 30, 2030, which includes maintenance of equipment, availability of capacity, and US government preference in the event of a public health emergency.

Under the TIA, reimbursable amounts are reflected as Other long-term liabilities on the Balance Sheets until the time the deferred income can be systematically amortized over a period matching the useful life of the purchased assets. Other long-term liabilities from the TIA were $63,872,553 and $69,773,538 at December 31, 2024 and 2023, respectively.

10. COMMITMENTS AND CONTINGENCIES

On November 7, 2019, the Company filed a lawsuit in the 44 th District Court of Dallas County, Texas (No. DC-19-17946) against Locke Lord, LLP and Roy Hardin in connection with their legal representation of the Company in its previous litigation against Becton, Dickinson and Company ("BD"). The Company alleged that the defendants breached their fiduciary duties, committed malpractice, and were negligent in their representation of the Company. The Company seeks actual and exemplary damages, disgorgement, costs, and interest. On September 2, 2022, the Company filed a Second Amended Petition alleging legal malpractice and negligence. On February 20, 2024, the Defendants filed another Motion for Summary Judgment on the Company’s remaining claim of legal malpractice. A hearing on that Motion for Summary Judgment was held on April 18, 2024 and an order denying Defendants’ Motion was signed May 10, 2024. A new trial date has been set for June 2, 2025.** **

On September 26, 2024, the Company filed a lawsuit in the United States Court of International Trade against the United States of America, the Office of the United States Trade Representative, Trade Representative Katherine Tai, U.S. Customs & Border Protection, and U.S. Customs & Border Protection Acting Commissioner Troy Miller. Relief sought included preliminary injunctions on recently enacted tariffs and, ultimately, a decision that the tariffs be set aside, as well as certain costs, fees, and other relief. The Company withdrew its complaint, and the case was dismissed effective January 8, 2025.

11. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

The Company uses the recognition and measurement provisions of the FASB ASC Topic 740,Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. The Company reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets, to evaluate the need for a valuation allowance. As a result of this review, as of December 31, 2024, the Company concluded that a $9.1 million valuation is needed on the net deferred tax asset.

As of December 31, 2023, the Company had federal net operating losses of $20.8 million with no expiration date and state net operating losses of $4.9 million which will begin to expire in 2029.

Utilization of the federal net operating loss carry forwards and credits may be subject to a substantial annual limitation due to the ownership change limitations under Internal Revenue Code Section 382. State net operating losses and credits are subject to limitations under similar rules.

Deferred taxes are provided for those items reported in different periods for income tax and financial reporting purposes. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

*Certain totals may not reconcile due to rounding.

Deferred income tax calculations reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss carry forwards, and are stated at the U.S. tax rate of 21%. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

Deferred tax assets are periodically reviewed for realizability. The Company establishes a valuation allowance for its net deferred tax asset when future taxable income is not reasonably assured. As of December 31, 2023 and 2022, the Company determined that a $283 thousand valuation allowance was needed for the state net operating losses.

Under the Tax Cuts and Jobs Act, net operating losses incurred after December 31, 2017 can only offset 80% of taxable income. However, these net operating losses may be carried forward indefinitely instead of limited to twenty years under previous tax law. Carryback of these losses is no longer permitted.

The CARES Act temporarily removed the 80% of taxable income limitation to allow NOL carryforwards to fully offset income. For tax years beginning after 2021, the Company can take: (1) a 100% deduction of NOLs arising in tax years prior to 2018, and (2) a deduction limited to 80% of modified taxable income for NOLs arising in tax years after 2017.

A reconciliation of the federal statutory corporate tax rate to the Company’s effective tax rate is as follows:

During 2022, the Company engaged tax consultants to perform a nexus study in order to determine if its activities in certain states were subject to previously estimated tax liabilities. As a result of the study, the Company determined that its activities in those states are protected by P.L. 86-272 and revised its estimates for state taxes. The Company has further determined that it is more likely than not that the various state jurisdictions will agree that the Company’s activities are protected under P.L. 86-272 and the revised estimates for refund applications are appropriate.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. The Company’s federal income tax returns for all tax years ended on or after December 31, 2009, remain subject to examination by the Internal Revenue Service. The Company’s state and local income tax returns are subject to examination by the respective state and local authorities over various statutes of limitations, most ranging from three tofive years from the date of filing.

12. DIVIDENDS

In June 2021, the Board of Directors approved payments to its Series II, Series III, and former Series IV and Series V Class B Preferred Shareholders in the cumulative amount of $5,056,945 representing all current dividends, dividends in arrears, as well as dividends still owed to shareholders who converted their preferred stock in the past. The dividends were paid on July 22, 2021 to all shareholders who had been contacted and confirmed as the rightful owner entitled to payment. The Company has not yet established contact with all former shareholders, most of whom converted their shares prior to 2001. The Company is continuing its efforts to establish contact with approximately 90 former shareholders who are entitled to approximately $1.4 million. This, along with the current declared dividends, are reflected in Dividends payable on the Balance Sheets.

A payment of $39,050 was paid within one month of each quarter’s end in 2024, 2023, and 2022 to Series II preferred shareholders. As of the fourth quarter of 2023 and for all quarters of 2024, a payment of $18,561 was made to Series III shareholders within one month of each quarter’s end. Series III preferred shareholders were paid a cash dividend of $39,495 in January 2022 and $19,061 within one month of each remaining quarter’s end in 2022 as well as in the first three quarters of 2023.

13. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 5,000,000 shares of Preferred Stock Class A with a par value of One Dollar ($1.00) per share;5,000,000 shares of Preferred Stock Class B with a par value of One Dollar ($1.00) per share; and 5,000,000 shares of Preferred Stock Class C with a par value of One Dollar ($1.00) per share.

The Company hasone class of Preferred Stock outstanding: Class B Convertible Preferred Stock (“Class B Stock”). The Class B Stock hastwo series: Series II and Series III. Series I, Series IV, and Series V were cancelled by Board resolution effective March 16, 2021.

The Class B Series II and III stock had 156,200 and 74,245 shares outstanding, respectively, at December 31, 2024. The remaining 4,769,555 authorized shares have not been assigned a series.

Series II Class B Stock

There were 156,200 shares of $1 par value Series II Class B Stock outstanding at December 31, 2024 and 2023. 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 fortwelve consecutive quarters. In such case, the holders of Series II Class B Stock have the right to electone-third of the Board of Directors of the Company. The Company paid dividends of $156,200 in each of 2024 and 2023. At December 31, 2024, no dividends were in arrears.

Series II Class B Stock is redeemable at the option of the Company at a price of $15.00 per share plus all unpaid dividends. Each share of Series II Class B Stock may, at the option of the stockholder, be converted toone share of Common Stock. No shares were converted in 2024 or 2023. 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 unpaid dividends, prior to any distributions to holders of Series III Class B Stock or Common Stock.

Series III Class B Stock

There were 74,245 shares of $1 par value Series III Class B Stock outstanding at December 31, 2024 and 2023, 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. The Company paid dividends of $74,245 and $76,245 in 2024 and 2023, respectively. At December 31, 2024, no dividends were in arrears.

Series III Class B Stock is redeemable at the option of the Company at a price of $15.00 per share, plus all unpaid dividends. Each share of Series III Class B Stock may, at the option of the stockholder, be converted toone share of Common Stock.2,000 shares were redeemed in 2023. No shares were converted in 2024 or 2023. 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 unpaid dividends, after distribution obligations to Series II Class B Stock have been satisfied and prior to any distributions to holders of Common Stock.

Common stock

The Company is authorized to issue 100,000,000 shares ofno par value Common Stock, of which 29,937,159 shares were outstanding at December 31, 2024 and 2023. At December 31, 2024 and 2023,4,087,145 shares were held as treasury stock and were not deemed outstanding. Additionally, as of December 31, 2024, a total of 376,395 shares of Common Stock were issuable upon the conversion of Preferred Stock and the exercise of stock options.

14. TREASURY STOCK

The Company entered into a repurchase plan (the “Plan”) dated June 4, 2021 with an independent broker for the purchase of up to $10 million of the Company’s Common Stock. The Plan was terminated on April 14, 2022. A total of 1,087,145 shares were purchased under the Plan for a total purchase price of $8.1 million.

The Company entered into a private stock repurchase agreement effective December 2022 for the purchase of 3.0 million shares of Common Stock at $1.60 per share for an aggregate purchase price of $4.8 million.

The Company accounts for the purchased shares under the cost method as Common Stock Held in Treasury – at cost, which represents the cost of the shares and, if applicable, the cost of acquiring the shares through the Company’s broker.

15. RELATED PARTY TRANSACTIONS

The Company has a license agreement with the Chief Executive Officer of the Company. See Note 6.** **

On December 26, 2022, the Company approved the repurchase ofthree million shares of stock at $1.60 per share from BML Investment Partners, L.P., a 10% stockholder at the time of the transaction. BML Investment Partners, L.P. was a related party only by virtue of its stock ownership.

16. STOCK OPTIONS

Stock options

Options for the purchase of 3,649,508 shares of Common Stock have been issued under the 2008 Stock Option Plan. Options for the purchase of 145,950 shares under the 2008 Stock Option Plan were outstanding as of December 31, 2024. No shares are available for future issuance under the 2008 Stock Option Plan, which expired July 25, 2018.

In the year ended December 31, 2021, three officers were granted options for the purchase of a total of 1,350,000 shares under the 2021 Stock Option Plan. The options had aten-year term and were to vest in their entirety three years from the grant date. The fair value of the 2021 grant was $10.21 per share using the Black-Scholes option pricing model with a risk-free rate of 1.20%, an exercise price of $13.00 per share and a volatility factor of 92.66%. All such options were terminated on December 19, 2022. No options are currently outstanding under the 2021 Stock Option Plan, andnone were granted in 2023 or 2024. Options for the purchase of 2,000,000 shares of Common Stock are available for future issuance under the 2021 Stock Option Plan.

FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation (ASU 718), provides accounting guidance and treatment of share-based compensation. ASC 718-20-35-9 provides that a cancellation of an award that is not accompanied by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, any previously unrecognized compensation cost shall be recognized at the cancellation date. Under this guidance, the Company accelerated the recognition of all future stock option expense related to the terminated option grants. The impact to the financial statements for the year ended December 31, 2022 was the recognition of an additional $5.5 million in stock option expense.

The Compensation and Benefits Committee administers the Company’s stock option plans.

Stock option exercises

Stock options were exercised by the Company’s employees and directors during 2022, and, consequently, a total of 11,200 shares of Common Stock were issued for an aggregate payment to the Company of $13,800 to exercise such options. No stock options were exercised in 2023 or 2024.

Director, officer, and employee options

A summary of Director, officer, and employee options granted and outstanding under the 2008 Stock Option Plan is presented below:

The following table summarizes information about Director, officer, and employee options outstanding under the 2008 Stock Option Plan at December 31, 2024:

Non-employee options

There wereno non-director and non-employee options outstanding from 2022 - 2024.

Stock-based Compensation

No stock-based compensation expense was recorded in 2023 or 2024.

On December 19, 2022, the Company terminated all stock option awards issued under the 2021 Stock Option Plan, causing the acceleration of the recognition of future stock option expense in the amount of $5.5 million. The Company recorded a total of $10.1 million in stock-based compensation expense in 2022.

Options Pricing Models – Assumptions

The expected life is based on the Company’s historical experience with option exercise trends. The assumptions for expected volatility are based on a calculation of volatility over thefive years preceding the grant date. Risk-free interest rates are set using grant-date U.S. Treasury yield curves. In its calculations, the Company assumedno dividends. The Company elected a policy to account for forfeitures as they occur, rather than on an estimated basis.

17. 401(k) PLAN

The Company implemented an employee savings and retirement plan (the “401(k) Plan”) in 2005 that is intended to be a tax-qualified plan covering substantially all employees. The 401(k) Plan is available to all employees on the first day of the month after 90 days of service. Under the terms of the 401(k) Plan, employees may elect to contribute up to 88% of their compensation, or the statutory prescribed limit, if less. The Company may, at its discretion, match employee contributions. For 2022-2024, the Company matched each participant’s elective deferrals up to 2% of the participant’s compensation for the pay period. The total match was $239,569; $240,635; and $241,398 in 2024, 2023, and 2022, respectively.

18. BUSINESS SEGMENT

The Company operates in a single reportable segment, referred to as safety medical syringes and other safety medical devices. The business is managed by the chief executive officer who is the Chief Operating Decision Maker (CODM). The CODM evaluates segment performance based on operating income (loss) for purposes of allocating resources and evaluating financial performance. The accounting policies of our single reportable segment are the same as those for the Company as a whole.

The following are summaries of the Company’s sales and long-lived assets by geography:

Shipments to international customers generally require a prepayment either by wire transfer or an irrevocable confirmed letter of credit. The Company does extend credit to international customers on some occasions depending upon certain criteria, including, but not limited to, the credit worthiness of the customer, the stability of the country, banking restrictions, and the size of the order. All transactions are in U.S. currency.

19. PRIVATE EXCHANGES AND REDEMPTION

In 2020, the Company entered into several agreements with shareholders to purchase its outstanding Class B Convertible Preferred Stock. The consideration for these purchases consisted of both cash and Common Stock. In addition, in each such transaction, the preferred shareholder counterparty waived all rights to unpaid dividends in arrears. The aggregate cash consideration equaled $3,786,000, of which $482,670 was paid in 2020 with the rest payable over athree-year period. Equal installment payments were paid in February 2021, 2022, and 2023 in the amount of $1,101,110 each.

Effective November 2023, the Company entered into a privately negotiated transaction with a preferred shareholder to redeem 2,000 shares of Series III Class B Stock for a purchase price equal to approximately $6 thousand.