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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark
One)
x
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2009
or
o
TRANSITION
REPORT
PURSUANT
TO
SECTION
13
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT
OF
1934
For the transition period from to
Commission file number 000-30885
Retractable Technologies, Inc.
(Exact name of registrant as specified in its charter)
Texas
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|
75-2599762
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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511 Lobo Lane
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Little Elm, Texas
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75068-0009
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(Address of principal executive offices)
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(Zip Code)
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972-294-1010
Registrants telephone number, including area code
Securities registered
pursuant to Section 12(b) of the Act:
Title of
each class
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Name of
each exchange on which registered
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Common
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NYSE Amex LLC
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Securities registered
pursuant to Section 12(g) of the Act:
Preferred Stock
(Title of class)
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
x
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes
o
No
x
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
o
No
o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
x
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act:
Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
(Do not check
if a smaller reporting company)
|
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Smaller
reporting company
x
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
o
No
x
State the aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the registrants
most recently completed second fiscal quarter.
The aggregate market value of the common equity held by non-affiliates
as of June 30, 2009 was $11,059,334.10, assuming a closing price of $0.90
and outstanding shares held by non-affiliates of 12,288,149.
APPLICABLE ONLY TO
REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark
whether the registrant has filed all documents and reports required to be filed
by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court. Yes
o
No
o
(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of the
latest practicable date. As of
March 1, 2010, there were 23,825,149 shares of our Common Stock issued and
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
List hereunder the following
documents if incorporated by reference and the Part of the Form 10-K
(e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and
(3) Any prospectus filed pursuant to Rule 424(b) or (c) under
the Securities Act of 1933. The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1980).
None except exhibits.
Table of Contents
PART I
FORWARD-LOOKING
STATEMENT WARNING
Certain statements included by reference in this
filing containing the words could, may, believes, anticipates,
intends, expects, and similar such words constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act. Any forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may
cause our actual results, performance, or achievements to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements.
Such factors include, among others, our ability to maintain liquidity,
our maintenance of patent protection, the impact of current litigation (as it
affects our costs as well as market access), our ability to maintain favorable
supplier arrangements and relationships, our ability to receive royalties from
Baiyin Tonsun Medical Device Co., Ltd. (BTMD), our ability to quickly
increase capacity in response to an increase in demand, our ability to access
the market, our ability to maintain or lower production costs, our ability to
continue to finance research and development as well as operations and
expansion of production, the increased interest of larger market players,
specifically Becton Dickinson and Company (BD), in providing devices to the
safety market, and other factors referenced in
Item 1A. Risk Factors
.
Given these uncertainties, undue reliance should not be placed on
forward-looking statements.
Item 1. Business.
DESCRIPTION
OF BUSINESS
General
Development of Business
On May 9,
1994, our company was incorporated in Texas to design, develop, manufacture,
and market innovative patented safety medical products for the healthcare
industry.
Our
VanishPoint
®
safety products (consisting of 1mL tuberculin,
insulin, and allergy antigen VanishPoint
®
syringes; 0.5mL, 3mL, 5mL, and 10mL
VanishPoint
®
syringes; the VanishPoint
®
blood
collection tube holder; autodisable syringe; and the VanishPoint
®
IV safety
catheter) utilize a unique friction ring mechanism patented by Thomas J. Shaw,
our Founder, President, and Chief Executive Officer. VanishPoint
®
safety needle products are designed
specifically to prevent needlestick injuries and to prevent reuse. The friction ring mechanism permits the
automated retraction of the needle into the barrel of the syringe, directly from
the patient, after delivery of the medication is completed. The VanishPoint
®
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 blood collection tube holder. The IV catheter also operates with a friction
ring mechanism whereby the needle is retracted after insertion of the catheter
into the patient. We also have a Patient
Safe
®
syringe which is uniquely designed to reduce
the risk of bloodstream infections resulting from catheter hub
contamination. Patient Safe
®
s unique luer guard reduces the risk of luer tip
contact contamination and the risk of contamination of intravenous fluid.
Advantages
of our VanishPoint
®
safety products include protection from
needlestick injuries, prevention of cross contamination through reuse, and
reduction of disposal and other associated costs. Federal regulation now requires the use of
safe needle devices.
We and
Thomas J. Shaw, our Founder and CEO, 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 until the expiration of the
last Licensed Patents unless sooner terminated under certain conditions
without right to sublicense. Licensed
Products, Improvements, and Licensed Patents are all terms that are
extensively defined in the Technology License Agreement. In exchange, we paid a $500,000 initial
licensing fee and a 5% royalty on gross sales after returns of Licensed
Products. Mr. Shaw entered into an
agreement whereby Ms. Suzanne August, his former spouse, is entitled to
$100,000 per quarter payable out of any royalties. See
Patents, Trademarks, Licenses, and
Proprietary Rights
for a more detailed discussion. We and Mr. Shaw entered into the First
Amendment to Technology Agreement July 3, 2008, whereby we amended the
Technology License Agreement in order to include
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certain additional patent
applications (addressing non-syringe patents) owned by Mr. Shaw in the
definition of Patent Properties as set forth in the Technology License
Agreement so that such additional patent applications would be covered by the
license granted by Mr. Shaw to us.
Our
goal is to become a leading provider of safety medical products.
Our
products have been and continue to be distributed nationally through numerous
distributors. However, we have been
blocked from access to the market by exclusive marketing practices engaged in
by BD which dominates our market. We
initiated a lawsuit in 2007 against BD.
The suit was for patent infringement, antitrust practices, and false
advertising. The court severed the
patent claims from the other claims pending resolution of the patent
dispute. On November 9, 2009, the
jury returned a verdict finding that all three patents were valid and
infringed.
We
continue to attempt to gain access to the market through our sales efforts, our
innovative technology, introduction of new products, and, when necessary,
litigation. We are focusing on methods
of upgrading our manufacturing capability and efficiency in order to enable us
to offer our technology at a reduced price.
We believe our current capitalization provides the resources necessary
to implement these changes and improve our manufacturing capacity and
efficiency, thereby reducing our unit cost.
We
have developed and are developing new safety medical products, some of which do
not utilize our patented retraction technology.
The Patient Safe
®
syringe is one such product. This product is uniquely designed to reduce
the risk of bloodstream infections resulting from catheter hub
contamination. Patient Safe
®
s unique luer guard reduces the risk of luer tip
contact contamination and the risk of contamination of intravenous fluid.
Financial
Information
Please
see the financial statements in
Item 8
Financial Statements and Supplementary Data
for information about
our revenues, profits and losses for the last three years, and total assets for
the last two years.
Principal Products
Our
products with Notice of Substantial Equivalence to the U.S. Food and Drug
Administration (FDA) and which are currently sold include the 1mL tuberculin;
insulin; allergy antigen VanishPoint
®
syringes; 3mL, 5mL, and 10mL VanishPoint
®
syringes; the
VanishPoint
®
blood collection tube holder; the VanishPoint
®
IV safety
catheter; small diameter tube adapter and the Patient Safe
®
syringe, which
is uniquely designed to reduce the risk of bloodstream infections resulting
from catheter hub contamination. Patient
Safe
®
s
unique luer guard reduces the risk of luer tip contact contamination and
the risk of contamination of intravenous fluid.
We are also selling autodisable syringes in the international market.
In the
August 2007 issue of
Health Devices
,
ECRI listed two syringes with the highest possible rating: our VanishPoint
®
syringe and
BDs Integra syringe.
A jury returned a verdict in November 2009
finding that all three patents asserted by us against BD are valid and infringed
by BD (with regard to its Integra product).
Syringe
sales comprised 98.0%; 98.6%; and 98.9% of revenues in 2007, 2008, and 2009.
Principal Markets
Our
products are sold to and used by healthcare providers primarily in the U.S.
(with 11.6% of revenues in 2009 generated from sales outside the U.S.) which
include, but are not limited to, acute care hospitals, alternate care
facilities, doctors offices, clinics, emergency centers, surgical centers,
convalescent hospitals, Veterans Administration facilities, military
organizations, public health facilities, and prisons.
The
syringe and needle device market continues to be a market in transition. The nature of the products comprising the
market is slowly
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
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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, domestic organizations, and government agencies have been
involved in the effort to get more effective safety needle products to
healthcare workers. Federal legislation
was signed into law on November 6, 2000, by former President William
Jefferson Clinton. This legislation,
which became effective for most states on April 12, 2001, now requires
safety needle products be used for the vast majority of procedures. However, even with this requirement, many
hospitals are neglecting to follow the law intended to protect healthcare
workers.
Methods of
Marketing and Distribution
Under
the current supply chain system in the U.S. acute care market, the vast
majority of decisions relating to the contracting for and purchasing of medical
supplies are made by the representatives of group purchasing organizations
(GPOs) rather than the end-users of the product (nurses, doctors, and testing
personnel). The GPOs and large
manufacturers often enter into long-term exclusive contracts which can prohibit
or limit entry in the marketplace by competitors.
We distribute our products throughout the U.S. and its
territories through general line and specialty distributors. We also utilize international
distributors. We have developed a
national direct marketing network in order to market our products to health
care customers and their purchaser representatives. Our marketers make contact with all of the
departments that affect the decision-making process for safety products,
including the purchasing agents. They
call acute care and alternate care sites and speak directly with the
decision-makers of these facilities. We
employ trained clinicians, including registered nurses and/or medical
technologists that educate healthcare providers and healthcare workers on the
use of safety devices through exhibits at related tradeshows 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
®
automated retraction products to customers.
In the
needle and syringe market, the market share leader, BD, has utilized, among
other things, long-term exclusive contracts which have restricted our entry
into the market. Other needle related
products manufactured by us that are being denied market access as a result of
BDs anti-competitive actions include the Patient Safe
®
, catheters, and blood tube holders.
We
have numerous agreements with organizations for the distribution of our
products in foreign markets. The total
population of Western Europe is almost 400 million, and the recognition for the
urgency of safe needle devices in parts of Europe has followed the U.S.
model. The European Hospital and
Healthcare Employers Association (HOSPEEM) and the European Federation of
Public Services Union (EPSU) have entered into an agreement to help prevent
needlestick injuries among hospital staff.
The European Commission has issued a proposal for a council directive to
implement the agreement. Regions within
Asia, South America, and Africa are also recognizing the need for our
products. Beginning in 2004, we were
given an award (from PATH) to supply syringes to various African countries
under the Presidents Emergency Plan for AIDS relief (PEPFAR). Awards increased significantly from 2004 to
2007. The continuation of PEPFAR has
been reauthorized by Congress through 2013.
However, funding for the procurement of safety syringes in this program
has not occurred to date.
As a
result of the introduction of VanishPoint
®
syringes through the PEPFAR initiative,
African countries have begun to procure products outside of the U.S.-funded
program. In 2007, the Director General
of Nigerias National Agency for Food and Drug Administration and Control
(NAFDAC), endorsed automated retraction syringes for use throughout
Nigeria. We are currently selling
syringes to a Nigerian distributor for use in that country. At the end of 2008, the Deputy Prime Minister
of Namibia also publically endorsed automated retraction syringes as a public
intervention that would protect health workers and save their patients
lives.
Key
components of our strategy to increase our market share are to: (a) defeat
monopolistic practices through litigation; (b) focus on methods of
upgrading our manufacturing capability and efficiency in order to enable us to
reduce costs and improve profit margins; (c) continue marketing emphasis
in the U.S.; (d) continue to add Veterans Administration facilities,
health departments, emergency medical services, federal prisons, long-term
care, and home healthcare facilities as customers; (e) educate healthcare
providers, insurers, healthcare workers, government agencies, government
officials, and the general public on the reduction of risk and the cost
effectiveness
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afforded by our products;
(f) supply product through GPOs and Integrated Delivery Networks where
possible; (g) consider possibilities for future licensing agreements and
joint venture agreements for the manufacture and distribution of safety
products in the U.S. and abroad; (h) introduce new products; and (i) increase
international sales.
Status of Publicly
Announced New Products
We
have patented and are in the process of developing additional safety medical
products which have yet to be announced.
Sources and
Availability of Raw Materials
We
purchase most of our product components from single suppliers, including needle
adhesives and packaging materials. There
are multiple sources of these materials.
We own the molds that are used to manufacture the plastic components of
our products in the U.S. Our suppliers
include Magor Mold, Inc., Helix Medical (formerly APEC), Channel Prime
Alliance, Exacto Spring Corporation, Sterigenics, and ISPG.
Patents,
Trademarks, Licenses, and Proprietary Rights
We and
Mr. Shaw entered into a Technology License Agreement dated effective as of
the 23rd day of June, 1995 (the Technology License Agreement), 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. We may enter into
sublicensing arrangements with Mr. Shaws 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 thereto
including any and all Products which employ the inventive concept disclosed
or claimed in the Licensed Patents. We
and Mr. Shaw entered into the First Amendment to Technology Agreement July 3,
2008, whereby we amended the Technology License Agreement in order to include
certain additional patent applications (addressing non-syringe patents) owned
by Mr. Shaw to the definition of Patent Properties as set forth in the
Technology License Agreement so that such additional patent applications would
be covered by the license granted by Mr. Shaw to us.
In
exchange for the Technology License Agreement, we negotiated a licensing fee
and agreed to pay a 5% royalty on gross sales after returns. The license terminates upon expiration of the
last licensed patents unless sooner terminated under certain circumstances. The licensing fees have been paid in
accordance with this agreement with the exception of $1,500,000 in fees which
were waived in 2002 and $1,000,000 in fees which were waived in 2009.
We
have the right and obligation to obtain protection of the inventions, including
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 the Company, the license becomes a nonexclusive
license and a right to information.
We
seek foreign patent protection through the Patent Cooperation Treaty and have
filed applications for regional and national patent protection in selected
countries where we believe our products can be utilized most.
We
hold numerous U.S. patents related to our automated retraction technology,
including patents for IV safety catheters, winged IV sets, syringes, dental
syringes, and blood collection tube holders.
In addition, we have multiple applications for patents currently
pending. The principal syringe patent in
the U.S., as well as its foreign counterpart, will expire in May 2015. We have also registered the following trade
names and trademarks: VanishPoint, VanishPoint logos, RT with a circle mark,
the Spiral Logo used in packaging our products, and the color coded spots on
the ends of our syringes. We also have
trademark protection for the phrase The New Standard for Safety. We have applied for a trademark for the Port
Prep.
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We are
involved in patent litigation detailed in
Item
3. Legal Proceedings
. 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.
In
2009 we obtained roughly 67.5% of our finished products through Double Dove, a
Chinese manufacturer. We believe we
could make up any long-term disruption in these supplies by utilizing more of
the capacity at the Little Elm facility, except for 0.5mL, autodisable, 5mL,
and 10mL syringes which comprised about 3.8% of our 2009 revenues.
We
previously entered into a License Agreement with BTMD as of May 13,
2005. That license expired on May 13,
2008 (prior to the manufacture and delivery of any products). Nevertheless, BTMD continued to work toward
completing the facility and gaining the necessary approvals in order to
manufacture and sell products. The
facility has been completed and BTMD has met Chinese government
requirements. BTMD received a
Registration Certificate for Medical Device on August 24, 2009. Production efforts are currently underway and
are being tested. We entered into a new agreement (effective as of July 1,
2009) with BTMD along similar terms as the prior agreement. This agreement expires on July 1, 2010
which may automatically extend under certain conditions. Such terms include granting to BTMD a limited
exclusive license to manufacture and a limited exclusive right to sell syringes
in the Peoples Republic of China (PRC) having retractable needles that
incorporate our technology. This License
Agreement is subject to the Technology License Agreement dated June 23,
1995 between Mr. Thomas J. Shaw, our founder and CEO, as licensor, and the
Company, as licensee (as amended).
Accordingly, Mr. Shaw will receive 5% of the licensing proceeds we
receive. BTMD has agreed to manufacture
and sell these products in the PRC and to pay us a quarterly royalty of two and
one-half cents per unit on 3mL and 5mL syringes and a royalty of three and
one-half cents per unit on 0.5mL, 1mL, and 10mL syringes. The obligation to pay the royalties continues
even if any and all of our patent rights in the PRC are found to be invalid or
unenforceable for any reason. We still
continue to expect royalty payments although we are unable to predict the date
we will begin to receive such royalties.
Flu and Swine Flu
Impact
Historically, unit sales have increased in the latter
part of the year due, in part, to the demand for syringes during the flu
season. We expect the H1N1 virus (Swine Flu) to have a longer worldwide
immunization duration than the seasonal flu. In the third quarter of 2009, we were awarded a contract by
the Department of Health and Human Services (DHHS) to supply a portion of the
safety engineered syringes to be used in the U.S. efforts to vaccinate the U.S.
population against the Swine Flu. The
impact on us was material. Sales to the
DHHS comprised 52.0% and 24.4% of our revenues for the three months and twelve
months ended December 31, 2009, respectively. This program, which was estimated to run from
August 2009 through March 2010, ended in December 2009. Our revenue increased 142.1% in the fourth
quarter principally due to the DHHS contract.
We do not know if there will be a similar program in 2010.
Working Capital
Practices
Cash
and cash equivalents include unrestricted cash and investments with original
maturities of three months or less.
We
record trade receivables when revenue is recognized. No product has been consigned to
customers. Our allowance for doubtful
accounts is primarily determined by review of specific trade receivables. Those accounts that are doubtful of
collection are included in the allowance.
An additional allowance has been established based on a percentage of
receivables outstanding. These
provisions are reviewed to determine the adequacy of the allowance for doubtful
accounts. 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.
Inventories
are valued at the lower of cost or market, with cost being determined using
actual average cost. A reserve is
established for any excess or obsolete inventories.
Receivables
are established for federal and state taxes where we have determined we are
entitled to a refund for overpayments of estimated taxes or loss carrybacks.
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Accounts
payable and other short-term liabilities include amounts that we believe we
have an obligation for at the end of year.
These included charges for goods or services received in 2009 but not
billed to us at the end of the year. It
also included estimates of potential liabilities such as rebates and other
fees.
Our
domestic return policy is set forth in our standard Distribution Agreement, a copy
of which was attached as Exhibit no. 6.3 to our Form 10-SB filed on June 23,
2000. This policy provides that a
customer may return incorrect shipments within 10 days following arrival at the
distributors facility. In all such
cases the distributor must obtain an authorization code from us and affix the
code to the returned product. We will
not accept returned goods without a returned goods authorization number. We may refund the customers money or replace
the product minus a restocking fee of 10% and all applicable freight charges.
Our
international contracts do not provide for any returns.
Our
return policy also provides that a customer may return product that is
overstocked. Overstocking returns are
limited to two times in each 12 month period up to 1% of distributors total
purchase of products for the prior 12 month period upon the following terms: i)
an overstocked product is that portion of distributors inventory of the
product which exceeds distributors sales volume for the product during the
preceding four months; ii) distributor must not have taken delivery of the
product which is overstocked during the preceding four months; iii) overstocked
product held by distributor in excess of 12 months from the date of original
invoice will not be eligible for return; iv) the product must have an
expiration date of at least 24 months from the date of return; v) the
overstocked product must be returned to us in our saleable case cartons which
are unopened and untampered, with no broken or re-taped seals; vi) distributor
will be granted a credit which may be used only to purchase other products from
us, the credit to be in the amount of the invoice price of the returned product
less a 10% restocking fee which will be assessed against distributors
subsequent purchase of product; vii) distributor must obtain an authorization
code from our distribution department and affix the code to the returned
product; and viii) distributor shall bear the cost of shipping the returned
products to us. All product overstocks
and returns are subject to inspection and acceptance by manufacturer.
Dependence on
Major Customers
Two
customers, DHHS and McKesson, accounted for an aggregate of 38.4% of our
revenue in 2009. We have numerous other
customers and distributors that sell our products in the U.S. and
internationally. The DHHS program, which
was estimated to run from August 2009 through March 2010, ended in December 2009. We do not know if there will be a similar
program in 2010.
Two customers, DHHS and Cardinal Health, comprised
68.4% of our accounts receivable at December 31, 2009.
Backlog Orders
Order
backlog is not material to our business inasmuch as orders for our products
generally are received and filled on a current basis, except for items
temporarily out of stock.
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 this early version of
a safety syringe could be made widely available to the public. However, the earlier design of 1991 was a
bulkier, less effective, and more expensive version of the current VanishPoint
®
syringe
product. Accordingly, Management
believes that the risk of the government demanding manufacture of this
alternative product is minimal. The
VanishPoint
®
syringe design was only partly funded with
grant money and the product, as sold, incorporates technology for which the
government has no rights. Therefore the
government has no right to allow others to manufacture the VanishPoint
®
syringe.
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Government
Approval and Government Regulations
For
all products manufactured for sale in the domestic market we have given notice
of intent to market to the FDA and the devices were shown to be substantially
equivalent to the predicate devices for the stated intended use.
For
all products manufactured for sale in the foreign market, we hold a certificate
of Quality System compliance with ISO 13485.
We also have approval to label products for sale into European Union
countries with a CE Mark. We will comply
with the regulatory regulations of all countries in which our products are
registered for sale.
Competitive Conditions
Our
products are sold to and used by healthcare providers primarily in the U.S.
(with 11.6% of revenues in 2009 generated from sales outside the U.S.) which
include, but are not limited to, acute care hospitals, alternate care
facilities, doctors offices, clinics, emergency centers, surgical centers,
convalescent hospitals, Veterans Administration facilities, military
organizations, public health facilities, and prisons.
We
compete primarily on the basis of product performance and quality. We believe our competitive advantages
include, but are not limited to, our leadership in quality and innovation. We
believe our products continue to be the most effective safety devices in
todays market. Our syringe products
include passive safety activation, require less disposal space, and are
activated while in the patient. Our
price per unit is competitive or even lower than the competition once all the
costs incurred during the life cycle of a syringe are considered. Such life
cycle costs include disposal costs, testing and treatment costs for needlestick
injuries, and treatment for contracted illnesses through needlestick
injuries. We sued Occupational and
Medical Innovations Limited (OMI) in April 2008 and separately sued BD
in June 2007 for claims of patent infringement (See
Item 3.
Legal Proceedings
), and in December 2009 and November 2009,
respectively, such companies were found to infringe our patents. These judgments could increase demand for our
product. However, there is no assurance
when or if such increase will occur.
We
have three major competitors: BD, Covidien Ltd. (formerly known as Tyco
Healthcare which was spun off from Tyco International) (Covidien), and Terumo
Medical Corp. (Terumo).
Founded
in 1897, BD is headquartered in New Jersey.
BDs safety-engineered device sales accounted for approximately 23% of
BDs total 2009 sales. BD currently
manufactures the SafetyLok, a syringe that utilizes a tubular plastic sheath
that must be manually slid over the needle after an injection, and the
SafetyGlide, a needle which utilizes a hinged lever to cover the needle
tip. BD also manufactures a safety blood
collection and hypodermic needle that utilizes the Eclipse needle cover. BD also manufactured a 3mL and 1mL retracting
needle product based on a license agreement with Specialized Health Products
International, Inc. (formerly the Med-Design Corporation). The Integra, a retractable syringe offered
by BD, was the subject product in a patent infringement case in which a jury
found in our favor. A final judgment has
not been entered. See
Item 3. Legal Proceedings
.
The introduction of this syringe had
little impact on our sales due to BDs historic market dominance. BDs Vacutainer
®
blood collection products are commonly used as industry jargon to refer to
blood collection products in general.
Sherwood
Medical Co. (Sherwood) was acquired by Tyco International. Sherwood is now part of Covidien. Covidien manufactures various safety syringes
and needles.
Terumo
was the first company to sell disposable syringes in Japan. Today, Terumo manufactures standard syringes,
blood collection tube holders, safety syringes, and blood collection
devices. It operates internationally and
has sales in more than 150 countries.
Both
BDs SafetyLok and Covidiens Monoject
®
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. These products must be removed from the
patient in order for the safety mechanism to be activated. In contrast, use of the VanishPoint
®
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
7
Table of
Contents
both hands to remain
safely out of harms way. If the Integra
TM
is removed from
the market, VanishPoint
®
will be the only fully passive retractable
syringe being manufactured in commercial quantities in the U.S.
BD and
Covidien have controlling U.S. market share; greater financial resources;
larger and more established sales, marketing, and distribution organizations;
and greater market influence, including the long-term and/or exclusive
contracts. The current conditions have
restricted competition in the needle and syringe market. BD may be able to use its resources to
improve its products through research or acquisitions or develop new products,
which may compete more effectively with our products.
We
continue to attempt to gain access to the market through our sales efforts, our
innovative technology, introduction of new products, and, when necessary,
litigation. We are focusing on methods
of upgrading our manufacturing capability and efficiency in order to enable us
to compete by offering our technology at a reduced price. We believe our current capitalization provides
the resources necessary to implement these changes and improve our
manufacturing capacity and efficiency, thereby reducing our unit cost.
Our
products have consistently received high quality ratings. In the August 2007 issue of
Health Devices
, ECRI listed two syringes with the highest
possible rating: our VanishPoint
®
syringe and BDs Integra syringe. BDs Integra syringe has been found to
infringe on our patents. See
Item 3. Legal Proceedings
.
Our
safety needle products have an advantage over non-retracting safety needles
because minimal training and changes to practitioners normal routines are
required. Use of our products also
prohibits unfortunate and improper reuse.
Several factors could materially and beneficially affect the
marketability of our products. Demand
could be increased by existing legislation and other legislative and investigative
efforts.
Licensing agreements could provide entry into new markets and generate
additional revenue. Further, outsourcing
arrangements such as our purchases from Double Dove have increased our
manufacturing capacity with little or no capital outlay and provide a
competitive cost.
Our
competitive weaknesses include our current lack of market share because two
well-established companies control most of the U.S. market. Our competitive position is also weakened by
the method that providers use for making purchasing decisions and the fact that
our initial price per unit for our safety needle products may be higher. Demand for our products could decrease due to
the sale of the Integra, a retractable syringe manufactured by BD, which
dominates the market and has a wider range of product offerings and more
capital resources. However, a jury has
returned a verdict that the Integra infringes our patents.
Research and
Development
We spent
$1,071,143; $1,066,068; and $1,030,622 in fiscal 2007, 2008, and 2009,
respectively, on research and development.
Costs in 2009 were primarily for compensation and validation.
Our
ongoing research and development activities are performed by an internal
research and development staff. This
team of engineers is developing process improvements for current and future
automated machines. Our limited access
to the market has slowed the introduction of products. Possible future products include needle medical
devices to which the automated retraction mechanism can be applied as well as
other safety medical devices.
Environmental
Compliance
We
believe that we do not incur material costs in connection with compliance with
environmental laws. We are considered a
Conditionally Exempt Small Quantity Generator because we generate less than 100
kilograms (220 lbs.) of hazardous waste per month. Therefore, we are exempt from the reporting
requirements set forth by the Texas Commission on Environmental Quality. The waste that is generated at our facility is
primarily made up of flammable liquids and paint-related waste and is sent for
fuel blending by Safety Kleen. This fuel
blending process completely destroys our waste and satisfies our
cradle-to-grave responsibility.
Other
nonhazardous production waste includes clean polypropylene regrind that is
recycled. All other nonhazardous waste
produced is considered municipal solid waste and sent to a sanitary landfill by
Waste Management.
8
Table of
Contents
We
also produce small amounts of regulated biohazardous waste from contaminated
sharps and laboratory wastes. This waste
is sent for incineration by Stericycle.
Employees
As of March 1,
2010, we had 159 full-time employees, 5 part-time employees, and 3
independently contracted consultants. Of
the 159 full-time employees, 4 persons were engaged in research and development
activities, 86 persons were engaged in manufacturing and engineering, 16
persons were engaged in quality assurance and regulatory affairs, 22 persons
were engaged in sales and marketing, 29 persons were engaged in general and
administrative functions, and 2 persons in facilities. No employees are covered by collective
bargaining agreements. We are dependent
upon a number of management and technical personnel, and the loss of services
of one or more of such employees could have a material adverse effect on
us. Our President and Chief Executive
Officer, Thomas J. Shaw, has an employment contract that will end on December 31,
2010 which contains an automatic and continuous renewal provision for
consecutive two-year periods.
Financial
Information About Geographic Areas
We
have no long-lived assets in foreign countries.
Shipments to international customers generally require a prepayment
either by wire transfer or an irrevocable confirmed letter of credit. We do 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. We attribute sales to countries based on the
destination of shipment.
|
|
2009
|
|
2008
|
|
2007
|
|
Domestic
sales
|
|
$
|
34,466,797
|
|
$
|
23,244,370
|
|
$
|
21,461,717
|
|
International
sales
|
|
4,515,040
|
|
4,654,948
|
|
4,828,003
|
|
Total
sales
|
|
$
|
38,981,837
|
|
$
|
27,899,318
|
|
$
|
26,289,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
13,961,445
|
|
$
|
14,435,667
|
|
$
|
11,483,423
|
|
Foreign
|
|
$
|
272,736
|
|
$
|
|
|
$
|
|
|
We have no sales in any foreign country that exceeds
5% of revenue. Most international sales
are filled by production from Double Dove. In the event that we become
unable to purchase such product from Double Dove, we would need to find an
alternate supplier for the 0.5mL insulin syringe, the 0.5mL autodisable
syringe, and the 5mL and 10mL syringes. We would increase domestic
production for the 1mL and 3mL syringes to avoid a disruption in supply.
Available
Information
We
make available, free of charge on our website (www.vanishpoint.com), our Form 10-K
Annual Report and Form 10-Q Quarterly reports and current reports on Form 8-K
(and any amendments to such reports) as soon as reasonably practical after such
reports are filed.
Item 1A. Risk Factors.
You should carefully consider the following material
risks facing us. If any of these risks
occur, our business, results of operations, or financial condition could be
materially affected.
We
Compete in a Monopolistic Marketplace
We operate in an environment that is dominated by BD,
the major syringe manufacturer in the U.S.
We believe that its monopolistic business practices continue despite: (i) its
paying $100 million in 2004 to settle a prior lawsuit with us for
anticompetitive practices, business disparagement, and tortious interference
and (ii) the fact that a jury returned a verdict in November 2009
finding that all three patents asserted by us against BD are valid and
infringed by BD (with regard to its Integra
TM
product).
9
Table of
Contents
Although we have made limited progress in some areas,
such as the alternate care and international markets, our volumes are not as
high as they should be given the nature and quality of our products and the
federal and state legislation requiring the use of safe needle devices.
Our
Cash Position Is Decreasing and Legal Expenses Are Increasing
Due to our operating losses and increased legal fees,
our cash position declined $15.2 million as of December 31, 2009 as
compared to December 31, 2008. Our
litigation efforts will continue to require a significant amount of cash until
the issues are resolved.
In the event we continue to have only limited market
access, the cash provided by the prior litigation settlements and generated
from operations becomes insufficient, and royalties from BTMD are not
forthcoming, we would take additional cost cutting measures to reduce cash
requirements. Such measures could result
in reduction of units being produced, reduction of workforce, reduction of
salaries of officers and other nonhourly employees, and deferral of royalty
payments.
We
Have Generally Been Unable to Gain Sufficient Market Access to Achieve
Profitable Operations
We have a history of incurring net operating
losses. We may experience operating
losses in the future. If we are unable
to gain sufficient market access and market share, we may be unable to continue
to finance research and development as well as support operations and expansion
of production.
We
Are Dependent On Our Aging Patent Protection
Our main competitive strength is our technology. We are dependent on our patent rights, and if
our patent rights are invalidated or circumvented, our business would be
adversely affected. Patent protection is
considered, in the aggregate, to be of material importance in our marketing of
products in the U.S. and in most major foreign markets. Patents covering products that we have
introduced normally provide market exclusivity, which is important for the
successful marketing and sale of our products.
As our technology ages (and the associated patent life
expires), our competitive position in the marketplace will weaken. The initial patents protecting our
revolutionary spring action syringe will expire beginning in May 2015. Patent life may be extended, not through the
original patents, but through related improvements. Our ability to improve these patents is
uncertain. Eventually, however, our
patent protection may decrease and we will be vulnerable to other competitors
utilizing our technology.
Our
Patents Are Subject to Litigation
We were involved in two patent disputes both of which
the jury found in our favor. Further, we have been sued by BD for patent infringement. See
Item 3. Legal Proceedings
for
more information.
Patent litigation and challenges
involving our patents are costly and unpredictable and may deprive us of market
exclusivity for a patented product or, in some cases, third party patents may
prevent us from marketing and selling a product in a particular geographic
area.
We
Are Vulnerable to New Technologies
Because we have a narrow focus on particular product
lines and technology (currently predominantly retractable needle products), we
are vulnerable to the development of superior competing products and to changes
in technology which could eliminate or reduce the need for our products. If a superior technology is created, the
demand for our products could greatly diminish.
Our
Competitors Have Greater Resources
The three leading manufacturers of hypodermic syringes
and blood collection products are BD, Covidien, and Terumo. All three companies offer both standard
syringes and at least one safety syringe alternative.
10
Table
of Contents
BD
also offers a retractable syringe which was found by a jury to infringe on our
patents. See
Item 3.
Legal Proceedings
.
These competitors
have greater financial resources, larger and more established sales and
marketing and distribution organizations, and greater market influence,
including long-term contracts. These
competitors may be able to use these resources to improve their products
through research and acquisitions or develop new products, which may compete
more effectively with our products. If
our competitors choose to use their resources to create products superior to
ours, we may be unable to sell our products and our ability to continue
operations would be weakened.
The
Majority of Our International Sales Are Filled Using One Supplier
Most international sales are filled by production from
Double Dove. In the event that we become
unable to purchase such product from Double Dove, we would need to find an
alternate supplier for the 0.5mL insulin syringe, the 0.5mL autodisable
syringe, and the 5mL and 10mL syringes.
We would increase domestic production for the 1mL and 3mL syringes to
avoid a disruption in supply. As of December 31,
2009, approximately 67.5% of our production was provided by Double Dove. 11.6% of our sales in 2009 were
international.
Fluctuations
in Supplies of Inventory Could Temporarily Increase Costs
Fluctuations in the cost and availability of raw
materials and inventory and the ability to maintain favorable supplier
arrangements and relationships could result in the need to manufacture all (as
opposed to 32.0%) of the products in the U.S.
This could temporarily increase unit costs as we ramp up domestic
production.
We
Are Controlled by One Shareholder
Thomas
J. Shaw, our President and Chairman of the Board, and Ms. Suzanne August own
36.5% and 11.8%, respectively, of the outstanding Common Stock as of March 1,
2010. The shares held by Ms. August are
controlled by Mr. Shaw pursuant to a Voting Agreement, which terminates
upon sale of all the shares for value or if terminated by both parties in
writing. Mr. Shaw will, therefore,
have the ability to direct our operations and financial affairs and to
substantially influence the election of members of our Board of Directors. His interests may not always coincide with
our interests or the interests of other stockholders. This concentration of ownership, for example,
may have the effect of delaying, deferring, or preventing a change in control,
impeding a merger, consolidation, takeover, or other business combination
involving us, or discouraging a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could materially
adversely affect the market price of our Common Stock. Of the 23,825,149 shares of Common Stock
outstanding as of March 1, 2010, executive officers, affiliates, and
Directors own or control 11,537,000 (48.4%) of the shares of outstanding Common
Stock, not including Common Stock equivalents such as preferred shares and
options.
We
Have Limited Access to the Capital Markets
The volume of trading in our Common Stock on the NYSE
Amex LLC (NYSE Amex) (formerly the American Stock Exchange) is low. Accordingly, it is unclear if there is any
significant market for our shares. This
may reduce our ability to raise cash through public or private offerings in the
future.
Our
Stock Price Is Low
Our stock price may be deemed to have been selling
for a substantial period of time at a low price per share which may result in
our receipt of a notification from the NYSE Amex that a reverse split is
necessary. We have received no such
notification. When a company receives
such a notification, failure to effect a reverse stock split may result in
suspension or removal from trading on the NYSE Amex. The NYSE Amex may initiate delisting
procedures in its discretion. Delisting
of our shares would greatly affect the liquidity of our shares and would reduce
our ability to raise funds from the sale of equity in the future. However, we believe such delisting
application to be unlikely. Furthermore,
in the event that we receive a deficiency letter from the NYSE Amex, we will
have the right to appeal such determination.
In addition, entities that were given such notices under the American
Stock Exchange standards were generally given up to 18 months to execute a plan
to bring themselves into compliance with the listing standards.
11
Table of
Contents
Current
Economic Conditions May Decrease Collectability of Accounts
Although we believe that we have granted credit to
credit-worthy firms, current economic conditions may affect the timing and/or
collectability of some accounts. The
Provision for doubtful accounts increased by $182,000 for 2009 which brings the
balance to $681,966.
We
Face Inherent Product Liability Risks
As a manufacturer and provider of safety needle
products, we face an inherent business risk of exposure to product liability
claims in the event of product failure or claim of harm caused by product
operation. Product failure could result
in injury to the patient and could expose healthcare workers to the risk of
blood borne pathogens. If any of our
products prove to be defective, we may be required to recall those
products. We do not have recall
insurance.
If a product liability claim is made and damages are
in excess of our product liability coverage, our competitive position could be
weakened by the amount of money we could be required to pay to compensate those
injured by our products. We have product
liability coverage with St. Paul Insurance Company covering up to $11,000,000
per occurrence, with coverage up to $11,000,000 in the aggregate. Each claim is subject to a $25,000
deductible. We have not had any product
liability claims.
Item 1B. Unresolved Staff Comments.
Not applicable and none.
Item 2. Properties.
Our
22,500 square foot headquarters is located at 511 Lobo Lane, on 35 acres, which
we own, overlooking Lake Lewisville in Little Elm, Texas. The headquarters are in good condition and
house our administrative offices and manufacturing facility. The manufacturing facility produced
approximately 32.0% of the units that were sold in 2009. We placed a 47,250 square foot warehouse in
service in March 2005 and expanded it (by an additional 47,250 feet) in
2009. In the event of a disruption in service
of our outside supplier, Double Dove, we believe we could produce quantities
sufficient to meet demand under current circumstances except for demand for
0.5mL, 5mL, and 10mL syringes which are sold principally in the international
market. In that event, we would attempt
to engage another manufacturer. We are
currently utilizing approximately 51% of our current U.S. productive capacity.
We
obtained a loan from 1st International Bank (1st International) for
$2,500,000, secured by the land and existing buildings, which provided funding
for the construction of the 47,250 square foot warehouse placed in service in
2005. The proceeds from the loan were
used to pay off the remaining $475,000 of the revolving credit agreement with
1st International in addition to funding the warehouse and related
infrastructure. The payments for the
permanent funding are based on a twenty-year amortization with a five-year
maturity. Interest rates are based on
the amount of funds kept on deposit with the bank. Accordingly, interest will vary from the Wall
Street Journal Prime Rate (the WSJPR) to the WSJPR plus 1%, with floors that
may range from 4.25% to 6.50%.
Compensating balances at 1st International affecting the interest rate
will range from $0 to $500,000. This
loan had a maturity date in late March 2010.
We anticipate refinancing this loan.
On August 29,
2008, we obtained a $4,210,000 interim construction loan from Lewisville State
Bank, a division of 1st International Bank.
The purpose of the loan was to expand the warehouse, including
additional office space, and construct a new Controlled Environment. The interest rate was WSJPR plus 0.25%. The loan was renewed on December 10,
2009 with a 20 year amortization and 10 year maturity. The interest rate is 5.968%. The construction
project has been completed.
In the
opinion of Management, the property and equipment are suitable for their
intended use and are adequately covered by an insurance policy.
12
Table of Contents
Item 3. Legal Proceedings.
On August 12, 2005, we filed a lawsuit against
Abbott Laboratories (Abbott) in the U.S. District Court in the Eastern
District of Texas, Texarkana Division. We are alleging fraud and breach
of contract in connection with the National Marketing and Distribution
Agreement dated as of May 4, 2000, which was terminated on October 15,
2003. We are seeking damages which we estimate to be in millions of
dollars of lost profits, out of pocket expenses, and other damages. In
addition, we are seeking punitive damages, pre- and post-judgment interest, and
attorneys fees. Following Abbotts unsuccessful attempt to get the case
dismissed and ordered to arbitration, Abbott filed an answer and counterclaim
on July 15, 2008, alleging several breaches of contract, breach of implied
warranty of merchantability, and breach of express warranty, seeking in excess
of $6,000,000 in compensatory damages as well as seeking attorneys fees.
We deny the validity of Abbotts counterclaims. Discovery has already
taken place and is substantially completed. The District Court has issued
a revised scheduling order calling for trial in May 2010.
In April 2008, we sued OMI in the U.S. District
Court for the Eastern District of Texas, Tyler Division, alleging that OMI had
infringed two U.S. patents (6,572,584 and 7,351,224). We also alleged
theft of confidential information, intentional interference with contracts, and
engaging in false advertising that wrongfully disparaged and mischaracterized
our syringe products. We further alleged that OMI made false allegations
regarding the source of origin of its safety syringe products being offered in
the U.S. On December 18, 2009, the
jury delivered a verdict in our favor on our patent infringement and
misappropriation of trade secrets claims against OMI. On March 4, 2010, the Court entered a
final judgment and ordered that we recover damages and prejudgment interest
from OMI based on OMIs misappropriation of trade secrets in the amount of
$3,153,575. In addition, the Court
entered a permanent injunction enjoining OMI, its manufacturers, distributors
and service providers from infringing our patent no. 6,572,584, by making,
importing, selling, or using any of OMIs syringes in the U.S. and its
territories. OMI has entered into an
administrative proceeding in Australia which is the equivalent of bankruptcy
and has filed a similar proceeding in the Eastern District of Texas, which make
the actual recovery of the damages unlikely.
In June 2007, we sued BD in the U.S. District
Court for the Eastern District of Texas, Marshall Division, alleging
infringement of three patents (5,578,011; 5,632,733; and 6,090,077) and
violations by BD of the federal and state antitrust laws, and of the Lanham
Act. We subsequently dropped the 5,578,011 patent allegations from the
lawsuit. In January 2008, the Court severed the patent claims from
the other claims pending resolution of the patent dispute. In April 2008,
we and Thomas J. Shaw sued BD in the U.S. District Court for the Eastern
District of Texas, Marshall Division, alleging infringement of another recently
issued patent (7,351,224). BD counterclaimed for non-infringement and invalidity
of the asserted patent. The Court consolidated this case with the
above-stated case filed in June 2007. On November 9, 2009, the jury
returned a verdict finding that the patents asserted by us were valid and
infringed by BD and awarded $5,000,000 in damages. No final judgment has been entered in this
case. We are seeking injunctive relief.
In September 2007, BD and MDC Investment Holdings, Inc.
(MDC) sued us in the United States District Court for the Eastern District of
Texas, Texarkana Division, initially alleging that we are infringing two U.S.
patents of MDC (6,179,812 and 7,090,656) that are licensed to BD. BD and MDC
seek injunctive relief and unspecified damages. We counterclaimed for
declarations of non-infringement, invalidity, and unenforceability of the
asserted patents. The plaintiffs subsequently dropped allegations with
regard to patent no. 7,090,656 and we subsequently dropped our counterclaims
for unenforceability of the asserted patents.
The Court conducted a claims construction hearing on September 25,
2008 and issued its claims construction order on November 14, 2008. No trial date has been set.
In September 2008, we and Thomas J. Shaw sued
Safety Medical International (SMI) in the United States District Court for
the Eastern District of Texas, Tyler Division, alleging infringement of U.S.
patent nos. 6,572,584 and 7,351,224, and seeking injunctive relief, unspecified
monetary damages, and reimbursement of attorneys fees. SMI has
counterclaimed, seeking declaratory judgments of non-infringement and
invalidity of the asserted patents. SMI is not seeking monetary
damages. SMI has filed for bankruptcy, and this lawsuit, including all
claims and counterclaims, was dismissed as a result of those proceedings, which
have concluded.
13
Table of Contents
PART II
Item 5. Market for Registrants Common Equity,
Related Stockholder Matters, and Issuer Purchases of Equity Securities.
MARKET INFORMATION
Our
Common Stock has been listed on the NYSE Amex under the symbol RVP since May 4,
2001. Our closing price on March 1,
2010, was $1.48 per share. Shown below
are the high and low sales prices of our Common Stock as reported by the NYSE
Amex for each quarter of the last two fiscal years:
2009
|
|
High
|
|
Low
|
|
Fourth
Quarter
|
|
$2.13
|
|
$1.35
|
|
Third
Quarter
|
|
$2.95
|
|
$0.68
|
|
Second
Quarter
|
|
$0.98
|
|
$0.60
|
|
First
Quarter
|
|
$0.90
|
|
$0.43
|
|
|
|
|
|
|
|
2008
|
|
High
|
|
Low
|
|
Fourth
Quarter
|
|
$1.46
|
|
$0.45
|
|
Third
Quarter
|
|
$1.60
|
|
$1.20
|
|
Second
Quarter
|
|
$1.68
|
|
$1.22
|
|
First
Quarter
|
|
$2.00
|
|
$1.30
|
|
SHAREHOLDERS
As of March 1,
2010, there were 23,825,149 shares of Common Stock held by 262 shareholders of
record not including shareholders who beneficially own Common Stock held in
nominee or street name.
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 as resources allow, to support operations and future
growth. Dividends on Common Stock cannot
be paid so long as preferred dividends are unpaid. As of December 31, 2009, there was an aggregate
of $15.3 million in preferred dividends in arrears.
EQUITY
COMPENSATION PLAN INFORMATION
See
Item 12 Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters
for a chart describing compensation plans under which equity securities are
authorized.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total
return for our Common Stock from December 31, 2004 to December 31,
2009, to the total returns for the Russell Microcap
®
and Becton, Dickinson and Company (or BDX),
a peer issuer. The graph assumes an
investment of $100 in the aforementioned equities as of December 31, 2004,
and that all dividends are reinvested.
14
Table of
Contents
RECENT SALES OF
UNREGISTERED SECURITIES
None
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
No repurchases were made in the fourth quarter of
2009.
Item 6. Selected Financial Data.
The
following selected financial data is qualified by reference to, and should be
read in conjunction with, our audited financial statements and the notes to
those statements and
Managements Discussion
and Analysis of Financial Condition and Results of Operations
appearing elsewhere herein. The selected
Statements of Operations data presented below for the years ended December 31,
2006 and 2005 and the Balance Sheet data as of December 31, 2007, 2006,
and 2005 have been derived from our audited financial statements, which are not
included herein.
(In thousands except for earnings per share, shares,
and percentages)*
|
|
As of
and for the Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
net
|
|
$
|
38,982
|
|
$
|
27,899
|
|
$
|
26,290
|
|
$
|
20,897
|
|
$
|
21,157
|
|
Reimbursed
discounts
|
|
|
|
|
|
|
|
4,427
|
|
3,078
|
|
Total
sales
|
|
38,982
|
|
27,899
|
|
26,290
|
|
25,324
|
|
24,235
|
|
Cost
of sales
|
|
25,466
|
|
19,673
|
|
18,300
|
|
17,778
|
|
15,429
|
|
Gross
profit
|
|
13,516
|
|
8,226
|
|
7,990
|
|
7,546
|
|
8,806
|
|
Total
operating expenses
|
|
26,812
|
|
18,671
|
|
17,936
|
|
14,261
|
|
11,683
|
|
Loss
from operations
|
|
(13,296
|
)
|
(10,445
|
)
|
(9,946
|
)
|
(6,715
|
)
|
(2,877
|
)
|
Interest
income
|
|
58
|
|
855
|
|
1,870
|
|
1,976
|
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Table of Contents
|
|
As of
and for the Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Interest
expense, net
|
|
(22
|
)
|
(54
|
)
|
(326
|
)
|
(411
|
)
|
(340
|
)
|
Loss
before income taxes
|
|
(13,260
|
)
|
(9,644
|
)
|
(8,402
|
)
|
(5,150
|
)
|
(1,844
|
)
|
Benefit
for income taxes
|
|
(3,838
|
)
|
|
|
(1,454
|
)
|
(1,280
|
)
|
(606
|
)
|
Net loss
|
|
(9,422
|
)
|
(9,644
|
)
|
(6,948
|
)
|
(3,870
|
)
|
(1,238
|
)
|
Preferred
Stock dividend requirements
|
|
(1,371
|
)
|
(1,373
|
)
|
(1,399
|
)
|
(1,451
|
)
|
(1,503
|
)
|
Earnings
(loss) applicable to common shareholders
|
|
$
|
(10,793
|
)
|
$
|
(11,017
|
)
|
$
|
(8,347
|
)
|
$
|
(5,321
|
)
|
$
|
(2,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share basic and diluted
|
|
$
|
(0.45
|
)
|
$
|
(0.46
|
)
|
$
|
(0.35
|
)
|
$
|
(0.23
|
)
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
23,806,533
|
|
23,794,566
|
|
23,727,029
|
|
23,591,999
|
|
23,332,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
39,262
|
|
$
|
43,614
|
|
$
|
51,916
|
|
$
|
57,781
|
|
$
|
61,485
|
|
Current
liabilities
|
|
$
|
13,196
|
|
$
|
10,238
|
|
$
|
8,786
|
|
$
|
6,891
|
|
$
|
5,458
|
|
Property,
plant, and equipment, net
|
|
$
|
14,234
|
|
$
|
14,436
|
|
$
|
11,483
|
|
$
|
12,212
|
|
$
|
11,926
|
|
Total
assets
|
|
$
|
53,941
|
|
$
|
58,539
|
|
$
|
64,330
|
|
$
|
70,795
|
|
$
|
73,756
|
|
Long-term
debt, net of
current maturities
|
|
$
|
4,825
|
|
$
|
6,096
|
|
$
|
3,747
|
|
$
|
4,137
|
|
$
|
4,351
|
|
Stockholders
equity
|
|
$
|
35,920
|
|
$
|
42,206
|
|
$
|
51,761
|
|
$
|
59,710
|
|
$
|
63,235
|
|
Redeemable
Preferred Stock (in shares)
|
|
2,285,266
|
|
2,285,266
|
|
2,329,916
|
|
2,441,166
|
|
2,498,666
|
|
Cash
dividends per common share
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Gross
profit margin
|
|
34.7
|
%
|
29.5
|
%
|
30.4
|
%
|
29.8
|
%
|
36.3
|
%
|
* Events that could affect the trends indicated above
include receipt of royalties from BTMD, continued reductions in manufacturing
costs, continued increasing average sales prices, the gaining of market access,
and protection of our patents. We have
been successful in protecting our patents, most recently against BD and OMI.
(see
Item
3. Legal
Proceedings
). As our products
are made from petroleum products, the changing cost of oil and transportation
may have an impact on our costs to the extent increases may not be recoverable
through price increases of our products and reductions in oil prices may not
quickly affect petroleum product prices.
Sales to the DHHS comprised 52.0% and 24.4% of our revenues for the
three months and twelve months ended December 31, 2009, respectively. This
program, which was estimated to run from August 2009 through March 2010,
ended in December 2009. We do not
know if there will be a similar program in 2010.
Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operation.
FORWARD-LOOKING
STATEMENT WARNING
Certain statements included by reference in this
filing containing the words could, may, believes, anticipates,
intends, expects, and similar such words constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act. Any forward-looking statements involve known
and unknown risks, uncertainties, and other factors that may cause our actual
results, performance, or achievements to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors
include, among others, our ability to maintain liquidity, our maintenance of
patent protection, the impact of current litigation (as it affects our costs as
well as market access), our ability to maintain favorable supplier arrangements
and relationships, our ability to receive royalties from BTMD, our ability to
quickly
16
Table of
Contents
increase
capacity in response to an increase in demand, our ability to access the
market, our ability to maintain or lower production costs, our ability to
continue to finance research and development as well as operations and
expansion of production, the increased interest of larger market players,
specifically BD, in providing devices to the safety market, and other factors
referenced in
Item 1A. Risk Factors
. Given these uncertainties, undue reliance
should not be placed on forward-looking statements.
OVERVIEW
We have been manufacturing and marketing our products
into the marketplace since 1997. We
currently provide other safety medical products in addition to safety syringe
products. One such product is the
Patient Safe
®
syringe, which is uniquely designed to reduce
the risk of bloodstream infections resulting from catheter hub
contamination. Patient Safe
®
s unique luer guard reduces the risk of luer tip
contact contamination and the risk of contamination of intravenous fluid. Safety syringes comprised 98.9% of our sales
in 2009.
Historically, unit sales have increased in the latter
part of the year due, in part, to the demand for syringes during the flu season.
We expect the Swine Flu to have a longer worldwide immunization duration than
the seasonal flu. In the third
quarter of 2009, we were awarded a contract by the DHHS to supply a
portion of the safety engineered syringes to be used in the U.S. efforts to
vaccinate the U.S. population against the Swine Flu. The impact on us was
material. Sales to the DHHS comprised
52.0% and 24.4% of our revenues for the three months and twelve months ended December 31,
2009, respectively. This program, which was estimated to run from August 2009
through March 2010, ended in December 2009. Our revenue increased 142.1% in the fourth
quarter principally due to the DHHS contract.
We do not know if there will be a similar program in 2010.
Our products have been and continue to be distributed
nationally through numerous distributors.
However, we have been blocked from access to the market by exclusive
marketing practices engaged in by BD, which dominates the market. We believe that its monopolistic business
practices continue despite: (i) its paying $100 million in 2004 to settle
a prior lawsuit with us for anticompetitive practices, business disparagement,
and tortious interference and (ii) the fact that a jury returned a verdict
in November 2009 finding that all three patents asserted by us against BD
are valid and infringed by BD (with regard to its Integra
TM
product). Although we have made limited progress in
some areas, such as the alternate care and international markets, our volumes
are not as high as they should be given the nature and quality of our products
and the federal and state legislation requiring the use of safe needle devices.
We
continue to pursue various strategies to have better access to the hospital
market, as well as other markets, including attempting to gain access to the
market through our sales efforts, our innovative technology, introduction of
new products, and, when necessary, litigation.
We are also marketing more products internationally.
We
sued OMI in April 2008 and separately sued BD in June 2007 for claims
of patent infringement (see
Item 3. Legal Proceedings
),
and in December 2009 and November 2009, respectively, such companies
were found to infringe our patents.
These judgments could increase demand for our product. However, there is no assurance when or if
such increase will occur.
Beginning
in 2004, we were given an award (from PATH) to supply syringes to various
African countries under the Presidents Emergency Plan for AIDS relief
(PEPFAR). Awards increased significantly
from 2004 to 2007. The continuation of
PEPFAR has been reauthorized by Congress through 2013. However, funding for the procurement of
safety syringes in this program has not occurred to date.
As a
result of the introduction of VanishPoint
®
syringes through the PEPFAR initiative,
African countries have begun to procure products outside of the U.S.-funded
program. In 2007, the Director General
of Nigerias National Agency for Food and Drug Administration and Control (NAFDAC),
endorsed automated retraction syringes for use throughout Nigeria. We are currently selling syringes to a
Nigerian distributor for use in that country.
At the end of 2008, the Deputy Prime Minister of Namibia also publically
endorsed automated retraction syringes as a public intervention that would
protect health workers and save their patients lives.
17
Table of
Contents
The number of
international distributors continues to increase.
In the event we continue to have only limited market
access, the cash provided by the litigation settlements and generated from
operations becomes insufficient, and royalties from BTMD are not
forthcoming, we would take additional
cost cutting measures to reduce cash requirements. Such measures could result in the reduction
of units being produced, the reduction of workforce, the reduction of salaries
of officers and other nonhourly employees, and the deferral of royalty payments. We took such actions at the end of the second
quarter of 2009.
At the end of the second quarter of 2009, we announced
that in the interest of the long-term survival of the Company we would
reorganize some of the Companys functions and implement staff reductions, all
in order to minimize our cash expenditures and conserve our resources. Our workforce was reduced by 16% on July 1,
2009. However, due to the expected
increase in production from sales to DHHS, we increased the workforce at the
Little Elm facility beginning in the latter part of the third quarter of 2009. The rehiring only slightly affected our prior
estimate that annual compensation costs and related expenses would be reduced
by $2.1 million annually due to the layoffs.
An anticipated reduction of inventory was estimated (at the time of the
announcement) to result in a minimum of $1.0 million reduction in cash outlays
over the subsequent twelve months.
However, due to the orders from the DHHS, that particular initiative is
on hold. Our President and CEO, Thomas
J. Shaw, waived future royalty payments beginning July 1, 2009, for an
aggregate savings of $1.0 million which affected royalty payments (not
expenses) in the third and fourth quarter of 2009. Salaries for all personnel above a certain
salary level were cut by 10% in 2009 (subject to contract rights). Such reduction, along with discontinuing the 401(k)
matching, was estimated to save $600,000.
We expect to save an additional $1.6 million by the following actions:
moving most, if not all, of the molding of piece parts back to Little Elm;
reducing professional fees; and various other cost cutting measures. Professional fees have been reduced and we
have begun additional molding in Little Elm.
These measures will remain in place as long as Management deems them
necessary.
We recorded a $200,000 charge in the second quarter of
2009 for severance pay offered to the terminated employees. All severance payments were paid in the third
quarter of 2009. We incurred a noncash expense of $2.1 million related to the
issuance of stock options, most of which will be fully amortized by the third
quarter of 2010.
We
wrote off approximately $2.6 million in development costs related to the
catheters.
We are focusing on methods of upgrading our
manufacturing capability and efficiency in order to reduce costs. We believe our current capitalization
provides the resources necessary to implement some of these changes and improve
our manufacturing capacity and efficiency, thereby reducing our unit cost.
Product purchases from Double Dove, a Chinese
manufacturer, have enabled us to increase manufacturing capacity with little
capital outlay and have provided a competitive manufacturing cost. In 2009, Double Dove manufactured
approximately 67.5% of the units we produced.
The cost of production per unit has generally declined as volumes
increased. We believe we could make up
any long-term disruption in these supplies by utilizing more of the capacity at
the Little Elm facility, except for the 0.5mL insulin syringe, the 5mL and 10mL
syringes, and the autodisable syringe which altogether comprised about 3.8% of
our 2009 revenues.
We previously entered into a License Agreement with
BTMD as of May 13, 2005. That
license expired on May 13, 2008 (prior to the manufacture and delivery of
any products). Nevertheless, BTMD
continued to work toward completing the facility and gaining the necessary
approvals in order to manufacture and sell products. The facility has been completed and BTMD has
met Chinese Government requirements.
BTMD received a Registration Certificate for Medical Device on August 24,
2009. Production efforts are currently
underway and are being tested. We
entered into a new agreement (effective as of July 1, 2009) with BTMD
along similar terms as the prior agreement.
This agreement expires on July 1, 2010 which may automatically
extend under certain conditions. Such
terms include granting to BTMD a limited exclusive license to manufacture and a
limited exclusive right to sell syringes in the PRC having retractable needles
that incorporate our technology. This
License Agreement is subject to the Technology License Agreement dated June 23,
1995 between Mr. Thomas J. Shaw, our founder and CEO, as licensor, and the
Company, as licensee (as amended).
Accordingly, Mr. Shaw will receive 5% of the licensing proceeds we
receive. BTMD has agreed to manufacture
and sell these products in the PRC and to pay us a quarterly royalty of two and
one-half cents per unit on 3mL and 5mL syringes and a royalty of three and
one-half cents per unit on 0.5mL, 1mL, and 10mL syringes. The obligation to pay the royalties continues
even if
18
Table of
Contents
any
and all of our patent rights in the PRC are found to be invalid or
unenforceable for any reason. We still
continue to expect royalty payments although we are unable to predict the date
we will begin to receive such royalties.
With increased volumes, our manufacturing unit costs
have generally tended to decline.
Factors that could affect our unit costs include increases in costs by
third party manufacturers, changing production volumes, costs of petroleum
products, and transportation costs.
Increases in such costs may not be recoverable through price increases
of our products.
We completed the expansion of an existing warehouse in
the first quarter of 2009. This
expansion increased our warehouse area, provided for additional office space,
and added a second Controlled Environment.
The additional Controlled Environment will enable us to do more molding
in-house.
LIQUIDITY
At the present time, Management does not intend to
raise equity capital. Due to the funds
received from prior litigation settlements, we have sufficient cash reserves
and intend to rely on operations, cash reserves, and debt financing as the
primary ongoing sources of cash.
Historical
Sources of Liquidity
We have historically funded operations primarily from the
proceeds from revenues, private placements, loans, and litigation settlements.
Internal
Sources of Liquidity
Margins and Market Access
To achieve break even quarters, we need minimal access
to hospital markets which has been difficult to obtain due to the monopolistic
marketplace which was the subject of our initial lawsuit and now also included
in our second anti-trust lawsuit against BD.
We will continue to attempt to gain
access to the market through our sales efforts, innovative technology, the introduction
of new products, and, when necessary, litigation.
We are focusing on methods of upgrading our
manufacturing capability and efficiency in order to reduce costs.
We
believe our current capitalization provides the resources necessary to implement
some of these changes and improve our manufacturing capacity and efficiency,
thereby reducing our unit cost.
In the third quarter of
2009, w
e were awarded
a contract by the DHHS to supply a portion of the safety engineered syringes to
be used in the U.S. efforts to vaccinate the U.S. population against the Swine
Flu. The impact on us was material.
Sales to the DHHS comprised 52.0% and 24.4% of our revenues for the
three months and twelve months ended December 31, 2009,
respectively. This program, which was estimated to run from August 2009
through March 2010, ended in December 2009. Our revenue increased 142.1% in the fourth
quarter principally due to the DHHS contract.
We do not know if there will be a similar program in 2010.
Beginning in early 2004, we began to receive shipment
of product from Double Dove which enabled us to lower our unit costs. Fluctuations in the cost and availability of
raw materials and inventory and our ability to maintain favorable supplier
arrangements and relationships could result in the need to manufacture all (as
opposed to 32.0%) of our products in the U.S.
This could temporarily increase unit costs as we ramp up domestic
production.
The mix of domestic and international sales affects
the average sales price of our products.
Generally, the higher the ratio of domestic sales to international
sales, the higher the average sales price will be. Typically international sales are shipped
directly from China to the customer.
Purchases of product manufactured in China, if available, usually
decrease the average cost of manufacture for all units as domestic costs, such
as indirect labor and overhead, remain relatively constant. The number of units produced by the Company
versus manufactured in China can have a significant effect on the carrying
costs of inventory as well as Cost of sales.
We will continue to evaluate the appropriate mix of products
manufactured domestically and those manufactured in China to achieve economic
19
Table of
Contents
benefits
as well as to maintain our domestic manufacturing capability. Currently, approximately 32.0%
of our products are produced domestically.
Fluctuations in the cost of oil (since our products
are petroleum based) and transportation and the volume of units purchased from
Double Dove may have an impact on the unit costs of our product. Increases in such costs may not be
recoverable through price increases of our products. Reductions in oil prices may not quickly
affect petroleum product prices.
Seasonality
Historically, unit sales have increased in the latter
part of the year due, in part, to the demand for syringes during the flu
season. We expect the Swine Flu to have a longer worldwide immunization
duration than the seasonal flu.
Licensing Agreement
We
previously entered into a License Agreement with BTMD as of May 13,
2005. That license expired on May 13,
2008 (prior to the manufacture and delivery of any products). Nevertheless, BTMD continued to work toward
completing the facility and gaining the necessary approvals in order to
manufacture and sell products. The facility
has been completed and BTMD has met Chinese government requirements. BTMD received a Registration Certificate for
Medical Device on August 24, 2009.
Production efforts are currently underway and are being tested. We entered into a new agreement (effective as
of July 1, 2009) with BTMD along similar terms as the prior agreement. This agreement expires on July 1, 2010
which may automatically extend under certain conditions. Such terms include
granting to BTMD a limited exclusive license to manufacture and a limited
exclusive right to sell syringes in the PRC having retractable needles that
incorporate our technology. This License
Agreement is subject to the Technology License Agreement dated June 23,
1995 between Mr. Thomas J. Shaw, our founder and CEO, as licensor, and the
Company, as licensee (as amended).
Accordingly, Mr. Shaw will receive 5% of the licensing proceeds we
receive. BTMD has agreed to manufacture
and sell these products in the PRC and to pay us a quarterly royalty of two and
one-half cents per unit on 3mL and 5mL syringes and a royalty of three and
one-half cents per unit on 0.5mL, 1mL, and 10mL syringes. The obligation to pay the royalties continues
even if any and all of our patent rights in the PRC are found to be invalid or
unenforceable for any reason. We still
continue to expect royalty payments although we are unable to predict the date
we will begin to receive such royalties.
Cash Requirements
Due to funds received from prior litigation
settlements, we have sufficient cash reserves and intend to rely on operations,
cash reserves, and debt financing as the primary ongoing sources of cash. In the event we continue to have only limited
market access and cash generated from operations becomes insufficient to
support operations, we would take additional cost cutting measures to reduce
cash requirements. Such measures could
result in the reduction of units being produced, the reduction of workforce,
the reduction of salaries of officers and other nonhourly employees, and the
deferral of royalty payments.
External
Sources of Liquidity
We have obtained several loans from our inception,
which have, together with the proceeds from the sales of equities and
litigation efforts, enabled us to pursue development and production of our
products. Given the current economic
conditions, our ability to obtain additional funds through loans is
uncertain. Furthermore, the shareholders
previously authorized an additional 5,000,000 shares of a Class C
Preferred Stock that could, if necessary, be designated and used to raise funds
through the sale of equity. Due to the
current market price of our Common Stock, it is unlikely we would choose to
raise funds by the sale of equity. We
obtained a loan from 1st International for $2,500,000, secured by the land and
existing buildings, which provided funding for the construction of the 47,250
square foot warehouse placed in service in 2005. This loan had a maturity date in late March
2010. We anticipate refinancing this
loan.
20
Table of
Contents
CAPITAL
RESOURCES
Material
Commitments for Expenditures
On August 29, 2008, we obtained a $4,210,000
interim construction loan from Lewisville State Bank, a division of 1st
International Bank. The purpose of the
loan was to expand the warehouse, including additional office space, and
construct a new Controlled Environment.
The interest rate was WSJPR plus 0.25%.
The loan was renewed on December 10, 2009 with a 20 year
amortization and 10 year maturity. The interest
rate is 5.968%. The construction project has been completed.
Trends
in Capital Resources
Interest expense will increase due to the recent loan
of approximately $4.2 million, but will be
somewhat mitigated by lower borrowing rates if current conditions in the credit
markets continue. Interest income may be
negatively affected by lower interest rates and our prior movement of cash to
U.S. Treasury bills and other U.S. government backed securities.
Although
we believe that we have granted credit to credit-worthy firms, current economic
conditions may affect the timing and/or collectability of some accounts.
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 years ended December 2009, 2008, or
2007. Dollar amounts have been rounded
for ease of reading.
Comparison
of Year Ended
December 31,
2009, and Year Ended December 31, 2008
Revenues
increased 39.7%, due principally to sales under the DHHS contract. Domestic sales were 88.4% of revenues with
international sales comprising the remainder.
Without the DHHS contract, our revenues would have increased 5.6%, with
domestic revenues increasing 7.3% and international revenues declining
3.0%. Unit sales of the 1mL syringe
increased 17.1% and 3mL unit sales increased 54.3%. Unit sales of all products increased 27.3%. Domestic unit sales as well as average sales
prices increased. International unit
sales decreased slightly and average selling prices increased. Sales to two customers accounted for 38.4% of
our revenues in 2009. Only one of these
two customers was a customer in 2008, and such customer accounted for 17.1% of
our revenues in 2008.
Cost
of sales increased due to greater volumes.
Royalty expenses were higher due to higher gross sales.
As a
result, gross profit margins increased from 29.5% in 2008 to 34.7% in 2009.
Operating
expenses increased from the prior year due to litigation costs and stock option
expense mitigated by the cost cutting measures beginning in the third quarter
of 2009.
Sales
and marketing expenses decreased due primarily to lower compensation due to
staff reduction and reduction in pay, lower advertising expenses and reduced travel
costs. Stock option expense and
consulting costs increased.
Research
and development costs were lower. We had
decreases in engineering costs due principally to reduction in staff and pay as
well as lower consulting cost. Stock
option expense increased.
General
and administrative costs increased due principally to litigation costs and
stock option expense. Compensation costs decreased due to staff reductions and
reductions in pay.
Preferred
Stock dividend requirements decreased slightly due to conversion of preferred
stock in the first quarter of 2008. The
dividend arrearage at December 31, 2009, on all classes of Preferred Stock
was approximately $15.3 million.
21
Table of
Contents
Interest
income decreased due to lower interest rates and lower cash balances. Interest expense decreased due to capitalized
interest. Interest expense is expected
to increase in 2010 due to completion of significant capital projects in 2009
for which interest was being capitalized.
Cash
flow from operations was a negative $12.3 million for 2009 due principally to
operating losses and increases in receivables.
Most of the increase in receivables was related to billings in December
2009 to DHHS and collected in January 2010.
The increase in income taxes receivable is related to a refund for
carryback of our 2009 net operating loss.
We will file for this refund early in the second quarter of 2010. The effect of non-cash expenses and the
change in working capital was a negative $2.9 million. Investing activities utilized $2.4 million in
cash.
Comparison
of Year Ended
December 31,
2008, and Year Ended December 31, 2007
Revenues
increased 6.1%, due principally to higher average sales prices and greater
volumes. Domestic sales were 83.3% of revenues
with international sales comprising the remainder. Unit sales of the 1mL syringe increased 22.7%
and 3mL unit sales decreased 4.0%. Unit
sales of all products increased 3.1%.
Domestic unit sales as well as average sales prices increased. International unit sales and average selling
prices declined. Sales to one
distributor accounted for 17.1% and 13.7% of our revenues in 2008 and 2007,
respectively.
Cost
of sales increased due to higher manufacturing costs and higher volumes. Royalty expenses were higher due to an
increase in gross revenues.
As a
result, gross profit margins declined from 30.4% in 2007 to 29.5% in 2008.
Operating
expenses increased from the prior year due to higher general and administrative
expenses mitigated by lower Sales and marketing and Research and development
costs.
Sales
and marketing expenses decreased due primarily to reduced travel and
entertainment, trade shows and market expense, compensation and office
supplies. Consulting expense also
decreased.
Research
and development costs were flat. We had
decreases in engineering costs due principally to higher costs of validation
and engineering samples offset by higher compensation costs.
General
and administrative costs increased due principally to increased legal costs
(including a settlement of litigation whereby we obtained a patent
license/assignment), office expenses, compensation, property taxes and freight
costs. Travel and entertainment costs
and fees to distributors decreased.
Preferred
Stock dividend requirements decreased due to conversion of Preferred Stock to
Common Stock. The dividend arrearage at December 31,
2008, on all classes of Preferred Stock was approximately $13.9 million.
Interest
income decreased due to lower interest rates and cash balances. Interest expense decreased due to lower
interest rates mitigated by higher debt balances and capitalized interest,
principally due to the construction of the warehouse.
Other
accrued liabilities increased due to prepayments from international customers.
Cash
flow from operations was a negative $5.7 million for 2008 due principally to
our losses. The effect of non-cash
expenses and the change in working capital was a positive $4.0 million. Investing activities utilized $2.2 million in
cash.
OFF-BALANCE SHEET
ARRANGEMENTS
None.
22
Table of
Contents
CONTRACTUAL OBLIGATIONS
Contractual
Obligations and Commercial Commitments
The
following chart summarizes our material obligations and commitments to make
future payments under contracts for long-term debt as of December 31,
2009:
|
|
Payments
Due by Period
|
|
Contractual
Obligations
|
|
Total
|
|
Less
Than
1 Year
|
|
1-3
Years
|
|
3-5
Years
|
|
More
Than
5
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, including current maturities
|
|
$
|
7,505,789
|
|
$
|
2,659,573
|
|
$
|
988,749
|
|
$
|
273,366
|
|
$
|
3,584,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These amounts do not reflect
the effect of the beneficial conversion feature and therefore will be greater
than the amounts in the financial statements.
SIGNIFICANT
ACCOUNTING POLICIES
We consider the following to be our most significant
accounting policies. Careful
consideration and review is given to these and all accounting policies on a
routine basis to ensure that they are accurately and consistently applied.
Accounts
Receivable
We
record trade receivables when revenue is recognized. No product has been consigned to
customers. Our allowance for doubtful
accounts is primarily determined by review of specific trade receivables. Those accounts that are doubtful of
collection are included in the allowance.
An additional allowance has been established based on a percentage of
receivables outstanding. These
provisions are reviewed to determine the adequacy of the allowance for doubtful
accounts. 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.
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, 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 that we have not received tracking
reports. Rebates are recorded when
issued and are applied against the customers receivable balance. The provision for contractual pricing
allowances 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 netted against individual distributors accounts
receivable balances for financial reporting purposes. The resulting net balance is reflected in
accounts receivable or accounts payable, as appropriate. The terms and conditions of contractual
pricing allowances are governed by contracts between us and our
distributors. Revenue for shipments
directly to end-users is recognized when title and risk of ownership passes
from us. Any product shipped or
distributed for evaluation purposes is expensed.
Our
domestic return policy is set forth in our standard Distribution
Agreement. This policy provides that a
customer may return incorrect shipments within 10 days following arrival at the
distributors facility. In all such cases
the distributor must obtain an authorization code from us and affix the code to
the returned product. We will not accept
returned goods without a returned goods authorization number. We may refund the customers money or replace
the product minus a 10% restocking fee and all applicable freight charges.
Our
return policy also provides that a customer may return product that is
overstocked. Overstocking returns are
limited to two times in each 12 month period up to 1% of distributors total
purchase of products for the prior 12 month period. All product overstocks and returns are
subject to inspection and acceptance by manufacturer.
23
Table of
Contents
Our
international Distribution Agreements do not provide for any returns.
We
record an allowance for estimated returns as a reduction to accounts receivable
and gross sales. Historically, returns
have been less than 0.5% of net sales.
Inventories
Inventories
are valued at the lower of cost or market, with cost being determined using
actual average cost. A reserve is
established for any excess or obsolete inventories.
Marketing
Fees
Under
a sales and marketing agreement with Abbott, we paid marketing fees until we
terminated the contract for breach. The
contracted services were to 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 our products to end-users. Marketing fees were accrued at the time of
the sale of product to Abbott. These
fees were paid after Abbott provided us a tracking report of product sales to
end-users. These costs were included in
Sales and marketing expense in the Statements of Operations. No marketing fees have been accrued since October 15,
2003, the date the National Marketing and Distribution Agreement with Abbott
was terminated. We filed suit against
Abbott in August 2005 for breach of contract and trial is scheduled for May 2010. We do not expect the eventual liability for
marketing fees, if any, to exceed the amount accrued.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
We
believe that our market risk exposures regarding our cash and cash equivalents
are immaterial as we do not have instruments for trading purposes. We
shifted the bulk of our funds into U.S. Treasury bills and other U.S.
government backed securities in April 2008. Additionally, reasonable, possible near-term
changes in market rates or prices will not result in material changes in
near-term losses in earnings.
24
Item 8. Financial Statements and Supplementary
Data.
RETRACTABLE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DECEMBER 31, 2009 AND 2008
F-1
Table of Contents
Report of Independent Registered
Public Accounting Firm
To the Board of Directors
and Stockholders
of Retractable
Technologies, Inc.
We
have audited the accompanying balance sheets of Retractable Technologies, Inc.
as of December 31, 2009 and 2008, and the related statements of
operations, changes in stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2009. Our audits also included the financial
statement schedule of Retractable Technologies, Inc., listed in Item
15(a). These financial statements and
financial statement schedule are the responsibility of the Companys
management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Those standards 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. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Retractable Technologies, Inc.
as of December 31, 2009 and 2008, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2009 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedule when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We
were not engaged to examine managements assertion about the effectiveness of
the Companys internal control over financial reporting as of December 31,
2009 included in Item 9A of the Companys December 31, 2009 Form 10-K
and, accordingly, we do not express an opinion thereon.
|
/s/ CF &
Co., L.L.P.
|
|
|
CF &
Co., L.L.P.
|
|
Dallas, Texas
|
|
March 31,
2010
|
|
F-3
Table of Contents
RETRACTABLE TECHNOLOGIES, INC.
BALANCE SHEETS
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,126,084
|
|
$
|
33,283,740
|
|
Accounts receivable, net of allowance for doubtful
accounts of $681,966 and $499,966, respectively
|
|
9,948,210
|
|
3,288,942
|
|
Inventories, net
|
|
6,907,369
|
|
6,641,532
|
|
Income taxes receivable
|
|
3,655,637
|
|
|
|
Other current assets
|
|
624,393
|
|
400,113
|
|
Total current assets
|
|
39,261,693
|
|
43,614,327
|
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
14,234,181
|
|
14,435,667
|
|
Intangible assets, net
|
|
426,675
|
|
470,115
|
|
Other assets
|
|
18,750
|
|
18,750
|
|
Total assets
|
|
$
|
53,941,299
|
|
$
|
58,538,859
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,997,310
|
|
$
|
6,144,435
|
|
Current portion of long-term debt
|
|
2,628,652
|
|
451,865
|
|
Accrued compensation
|
|
561,484
|
|
650,704
|
|
Marketing fees payable
|
|
1,419,760
|
|
1,419,760
|
|
Accrued royalties to shareholders
|
|
843,327
|
|
620,987
|
|
Other accrued liabilities
|
|
745,460
|
|
949,770
|
|
Total current liabilities
|
|
13,195,993
|
|
10,237,521
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities
|
|
4,824,833
|
|
6,095,535
|
|
Total liabilities
|
|
18,020,826
|
|
16,333,056
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
Preferred Stock $1 par value:
|
|
|
|
|
|
Class B; authorized: 5,000,000 shares
|
|
|
|
|
|
Series I, Class B; issued: 1,000,000
shares; outstanding: 144,000 and 144,000 shares, respectively (liquidation
preference of $900,000 and $900,000 respectively)
|
|
144,000
|
|
144,000
|
|
Series II, Class B; issued: 1,000,000
shares; outstanding: 219,700 and 219,700, respectively (liquidation
preference of $2,746,250 and $2,746,250, respectively)
|
|
219,700
|
|
219,700
|
|
Series III, Class B; issued: 1,160,445
shares; outstanding: 130,245 and 130,245 shares, respectively (liquidation
preference of $1,628,063 and $1,628,063, respectively)
|
|
130,245
|
|
130,245
|
|
Series IV, Class B; issued: 1,133,800
shares; outstanding: 552,500 and 552,500 shares (liquidation preference of
$6,077,500 and $6,077,500, respectively)
|
|
552,500
|
|
552,500
|
|
Series V, Class B; issued 2,416,221 shares;
outstanding: 1,238,821 and 1,238,821 shares, respectively (liquidation
preference of $5,450,812 and $5,450,812, respectively)
|
|
1,238,821
|
|
1,238,821
|
|
Common Stock, no par value; authorized: 100,000,000
shares; issued and outstanding: 23,825,149 and 23,800,064 shares,
respectively
|
|
|
|
|
|
Additional paid-in capital
|
|
57,089,153
|
|
53,952,183
|
|
Retained deficit
|
|
(23,453,946
|
)
|
(14,031,646
|
)
|
Total stockholders equity
|
|
35,920,473
|
|
42,205,803
|
|
Total liabilities and stockholders equity
|
|
$
|
53,941,299
|
|
$
|
58,538,859
|
|
See accompanying notes to financial statements
F-4
Table of
Contents
RETRACTABLE
TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Sales, net
|
|
$
|
38,981,837
|
|
$
|
27,899,318
|
|
$
|
26,289,720
|
|
Cost of Sales
|
|
|
|
|
|
|
|
Costs of manufactured product
|
|
22,659,437
|
|
17,504,842
|
|
16,212,609
|
|
Royalty expense to shareholders
|
|
2,806,223
|
|
2,168,268
|
|
2,087,596
|
|
Total cost of sales
|
|
25,465,660
|
|
19,673,110
|
|
18,300,205
|
|
Gross profit
|
|
13,516,177
|
|
8,226,208
|
|
7,989,515
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Sales and marketing
|
|
4,372,163
|
|
4,835,272
|
|
5,299,157
|
|
Research and development
|
|
1,030,622
|
|
1,066,068
|
|
1,071,143
|
|
General and administrative
|
|
18,814,392
|
|
12,769,774
|
|
11,565,144
|
|
Impairment of assets
|
|
2,594,602
|
|
|
|
|
|
Total operating expenses
|
|
26,811,779
|
|
18,671,114
|
|
17,935,444
|
|
Loss from operations
|
|
(13,295,602
|
)
|
(10,444,906
|
)
|
(9,945,929
|
)
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
57,604
|
|
855,685
|
|
1,870,512
|
|
Interest expense, net
|
|
(21,892
|
)
|
(54,359
|
)
|
(326,304
|
)
|
Loss before income taxes
|
|
(13,259,890
|
)
|
(9,643,580
|
)
|
(8,401,721
|
)
|
Benefit for income taxes
|
|
(3,837,590
|
)
|
|
|
(1,453,617
|
)
|
Net loss
|
|
(9,422,300
|
)
|
(9,643,580
|
)
|
(6,948,104
|
)
|
Preferred Stock dividend requirements
|
|
(1,370,868
|
)
|
(1,373,019
|
)
|
(1,399,062
|
)
|
Net loss applicable to common shareholders
|
|
$
|
(10,793,168
|
)
|
$
|
(11,016,599
|
)
|
$
|
(8,347,166
|
)
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(0.45
|
)
|
$
|
(0.46
|
)
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
23,806,533
|
|
23,794,566
|
|
23,727,029
|
|
See accompanying notes to financial statements
F-5
Table of Contents
RETRACTABLE TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
|
|
Series I Class B
|
|
Series II Class B
|
|
Series III Class B
|
|
Series IV Class B
|
|
Series V Class B
|
|
Common
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance as of December 31, 2006
|
|
164,000
|
|
$164,000
|
|
224,700
|
|
$224,700
|
|
135,245
|
|
$135,245
|
|
553,500
|
|
$553,500
|
|
1,363,721
|
|
$ 1,363,721
|
|
23,644,164
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Preferred Stock into Common Stock
|
|
(20,000
|
)
|
(20,000
|
)
|
(5,000
|
)
|
(5,000
|
)
|
(5,000
|
)
|
(5,000
|
)
|
|
|
|
|
(81,250
|
)
|
(81,250
|
)
|
111,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of stock option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid on Series I
Class B Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid on Series II
Class B Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
144,000
|
|
144,000
|
|
219,700
|
|
219,700
|
|
130,245
|
|
130,245
|
|
553,500
|
|
553,500
|
|
1,282,471
|
|
1,282,471
|
|
23,755,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Preferred Stock into Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
(1,000
|
)
|
(43,650
|
)
|
(43,650
|
)
|
44,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of stock option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
144,000
|
|
144,000
|
|
219,700
|
|
219,700
|
|
130,245
|
|
130,245
|
|
552,500
|
|
552,500
|
|
1,238,821
|
|
1,238,821
|
|
23,800,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of stock option exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty waiver
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of stock option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
144,000
|
|
$144,000
|
|
219,700
|
|
$219,700
|
|
130,245
|
|
$130,245
|
|
552,500
|
|
$552,500
|
|
1,238,821
|
|
$ 1,238,821
|
|
23,825,149
|
|
$
|
|
See accompanying notes to financial statements
F-6
Table of Contents
RETRACTABLE
TECHNOLOGIES, INC.
STATEMENTS
OF CHANGES IN STOCKHOLDERS EQUITY
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
(Deficit)
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
54,709,108
|
|
$
|
2,560,038
|
|
$
|
59,710,312
|
|
|
|
|
|
|
|
|
|
Conversion of Preferred Stock into Common Stock
|
|
111,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of stock option compensation
|
|
52,173
|
|
|
|
52,173
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid on Series I
Class B Preferred Stock
|
|
(262,819
|
)
|
|
|
(262,819
|
)
|
|
|
|
|
|
|
|
|
Dividends declared and paid on Series II
Class B Preferred Stock
|
|
(790,725
|
)
|
|
|
(790,725
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
(6,948,104
|
)
|
(6,948,104
|
)
|
|
|
|
|
|
|
|
|
Balance as of
December 31, 2007
|
|
53,818,987
|
|
(4,388,066
|
)
|
51,760,837
|
|
|
|
|
|
|
|
|
|
Conversion of Preferred Stock into Common Stock
|
|
44,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of stock option compensation
|
|
88,546
|
|
|
|
88,546
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
(9,643,580
|
)
|
(9,643,580
|
)
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
53,952,183
|
|
(14,031,646
|
)
|
42,205,803
|
|
|
|
|
|
|
|
|
|
Recognition of stock option exercise
|
|
25,610
|
|
|
|
25,610
|
|
|
|
|
|
|
|
|
|
Royalty waiver
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
Recognition of stock option compensation
|
|
2,111,360
|
|
|
|
2,111,360
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
(9,422,300
|
)
|
(9,422,300
|
)
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
57,089,153
|
|
$
|
(23,453,946
|
)
|
$
|
35,920,473
|
|
See accompanying notes to financial statements
F-7
Table of
Contents
RETRACTABLE
TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,422,300
|
)
|
$
|
(9,643,580
|
)
|
$
|
(6,948,104
|
)
|
Adjustments to reconcile net loss to net cash used
by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
1,396,793
|
|
1,397,333
|
|
1,430,072
|
|
Stock option compensation
|
|
2,111,360
|
|
32,629
|
|
6,478
|
|
Provision for inventory valuation
|
|
|
|
|
|
155,600
|
|
Provision for doubtful accounts
|
|
182,000
|
|
224,633
|
|
169,223
|
|
Impairment of assets
|
|
2,594,602
|
|
|
|
|
|
Accreted interest
|
|
43,151
|
|
54,387
|
|
120,486
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
Inventories
|
|
(265,837
|
)
|
395,597
|
|
(806,949
|
)
|
Accounts receivable
|
|
(6,841,268
|
)
|
(1,845,939
|
)
|
119,897
|
|
Income taxes receivable
|
|
(3,655,637
|
)
|
2,345,041
|
|
10,691
|
|
Other current assets
|
|
(224,280
|
)
|
(41,306
|
)
|
(91,100
|
)
|
Other assets
|
|
|
|
(12,725
|
)
|
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
852,875
|
|
609,070
|
|
1,287,735
|
|
Other accrued liabilities
|
|
1,015,505
|
|
798,578
|
|
506,386
|
|
Increase (decrease) in income taxes payable
|
|
(86,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
(12,299,731
|
)
|
(5,686,282
|
)
|
(4,039,585
|
)
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
Purchase of property, plant, and equipment
|
|
(2,383,867
|
)
|
(2,580,516
|
)
|
(641,501
|
)
|
Investment in LLC
|
|
|
|
497,690
|
|
|
|
Acquisitions of patents, trademarks, licenses, and
intangibles
|
|
|
|
(89,152
|
)
|
(188,168
|
)
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
(2,383,867
|
)
|
(2,171,978
|
)
|
(829,669
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
Repayments of long-term debt and notes payable
|
|
(499,668
|
)
|
(489,160
|
)
|
(384,460
|
)
|
Proceeds from long-term debt
|
|
|
|
1,123,729
|
|
|
|
Proceeds from the exercise of stock options
|
|
25,610
|
|
|
|
|
|
Payment of Preferred Stock dividends
|
|
|
|
|
|
(1,053,544
|
)
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
(474,058
|
)
|
634,569
|
|
(1,438,004
|
)
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(15,157,656
|
)
|
(7,223,691
|
)
|
(6,307,258
|
)
|
Cash and cash equivalents at:
|
|
|
|
|
|
|
|
Beginning of period
|
|
33,283,740
|
|
40,507,431
|
|
46,814,689
|
|
End of period
|
|
$
|
18,126,084
|
|
$
|
33,283,740
|
|
$
|
40,507,431
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
184,018
|
|
$
|
236,932
|
|
$
|
382,901
|
|
Income taxes paid
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Supplemental schedule of noncash investing and
financing activities:
|
|
|
|
|
|
|
|
Debt assumed to construct a warehouse
|
|
$
|
1,362,602
|
|
$
|
1,723,277
|
|
$
|
|
|
Forgiveness of royalties by shareholder
|
|
$
|
1,000,000
|
|
$
|
|
|
$
|
|
|
See accompanying notes to financial statements
F-8
Table of
Contents
NOTES TO FINANCIAL STATEMENTS
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
Companys manufacturing and administrative facilities are located in Little
Elm, Texas. The Companys primary
products with Notice of Substantial Equivalence to the FDA are the VanishPoint
®
0.5mL insulin
syringe; 1mL tuberculin, insulin, and allergy antigen syringes; the 0.5mL, 3mL,
5mL, and 10mL syringes; the small diameter tube adapter; the blood collection
tube holder; the allergy tray; the IV safety catheter; and the Patient Safe
®
syringe.
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.
Cash and cash equivalents
For
purposes of reporting cash flows, cash and cash equivalents include
unrestricted 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 Companys allowance for
doubtful accounts is primarily determined by review of specific trade
receivables. Those accounts that are
doubtful of collection are included in the allowance. An additional allowance has been established
based on a percentage of receivables outstanding. These provisions are reviewed to determine
the adequacy of the allowance for doubtful accounts. 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.
Inventories
Inventories
are valued at the lower of cost or market, with cost being determined using
actual average cost. A reserve is
established 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,
2009, 2008, and 2007, the Company capitalized interest of approximately
$205,000; $237,000; and $177,000. Gains
or losses from property disposals are included in income.
Depreciation and amortization are calculated using the
straight-line method over the following useful lives:
F-9
Table of Contents
Production equipment
|
|
3 to 13 years
|
Office furniture and
equipment
|
|
3 to 10 years
|
Buildings
|
|
39 years
|
Building improvements
|
|
15 years
|
Automobiles
|
|
7 years
|
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 a
discounted cash flow analysis of the underlying assets.
Reclassifications
Certain prior year
amounts have been reclassified to conform with the current years presentation.
Intangible assets
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.
Financial instruments
The Company estimates the
fair market 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 market 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
Managements estimates, equals their recorded values.
Concentration risks
The
Companys financial instruments exposed to concentrations of credit risk
consist primarily of cash, cash equivalents, 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 which are well-established entities. As a consequence, Management considers any
exposure from concentrations of credit risks to be limited. Two customers, DHHS and Cardinal Health,
comprised 68.4% of the Companys accounts receivable at December 31, 2009. The Company had a high concentration of sales
with two significant customers. For the
year ended December 31, 2009, the aforementioned customers accounted for
$15.0 million, or 38.4% of net sales.
Sales to the DHHS comprised 52.0%
and 24.4% of the Companys revenues for the three months and twelve months
ended December 31, 2009, respectively. This program, which was estimated
to run from August 2009 through March 2010, ended in December 2009. The Company does not know if there will be a
similar program in 2010.
Considering
the current economic climate, the Company increased its Provision for doubtful
accounts by approximately $182,000 this year.
The
Company manufactures syringes in Little Elm, Texas as well as utilizing
manufacturers in China. The Company
purchases most of its product components from single suppliers, including
needle adhesives and packaging materials.
There are multiple sources of these materials. The Company obtained roughly 67.5% of its
finished products in 2009 through Double Dove, a Chinese manufacturer. In the event that the Company becomes unable
to purchase such product from Double Dove, the Company would need to find an alternate
F-10
Table of Contents
supplier
for its 0.5mL insulin syringe, its 5mL and 10mL syringes, and its autodisable
syringe and increase domestic production for 1mL and 3mL syringes to avoid a
disruption in supply.
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, 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 that the Company has not received
tracking reports. Rebates are recorded
when issued and are applied against the customers receivable balance. The provision for contractual pricing
allowances 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 netted against individual distributors accounts
receivable balances for financial reporting purposes. The resulting net balance is reflected in
accounts receivable or accounts payable, as appropriate. 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. Any product shipped or
distributed for evaluation purposes is expensed.
The
Companys domestic return policy is set forth in its standard Distribution
Agreement. This policy provides that a
customer may return incorrect shipments within 10 days following arrival at the
distributors 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 will not accept returned goods without a returned goods
authorization number. The Company may
refund the customers money or replace the product.
The
Companys return policy also provides that a customer may return product that
is overstocked. Overstocking returns are
limited to two times in each 12-month period up to 1% of distributors total purchase
of products for the prior 12-month period.
All product overstocks and returns are subject to inspection and
acceptance by manufacturer.
The
Companys international distribution agreements do not provide for any returns.
The
Company records an allowance for estimated returns as a reduction to Accounts
receivable and Gross sales.
Historically, returns have been less than 0.5% of net sales.
Marketing fees
Under
a sales and marketing agreement with Abbott Laboratories (Abbott), the
Company paid marketing fees until the Company terminated the contract for
breach. The contracted services were to
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
Companys products to end-users.
Marketing fees were accrued at the time of the sale of product to
Abbott. These fees were paid after
Abbott provided the Company a tracking report of product sales to
end-users. These costs were included in
Sales and marketing expense in the Statements of Operations. No marketing fees have been accrued since October 15,
2003, the date the National Marketing and Distribution Agreement with Abbott
was terminated. The Company filed suit
against Abbott in August 2005 for breach of contract. The District Court has issued a scheduling
order calling for trial in May 2010.
See Note 8
COMMITMENTS AND
CONTINGENCIES
for further discussion.
Litigation Proceeds
Proceeds from litigation, if any, are recognized
when realizable. Generally, realization is not reasonably assured and expected
until proceeds are collected.
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.
F-11
Table of Contents
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. The Company had sufficient taxable income
from prior carryback years to realize all of its taxable losses through December 31,
2006. Taxable losses for 2007 and
thereafter are subject to loss carryforwards.
The Company has established a valuation allowance for its net deferred
tax asset as future taxable income cannot be reasonably assured. Penalties and interest on uncertain tax
positions are classified as income taxes in the Statements of Operations. Under recent tax law changes, companies are
allowed to carry back taxable losses from either 2008 or 2009. The Company will file for a tax refund
utilizing its 2009 taxable losses which will result in a minimum of a $3.7
million refund.
Earnings per share
The
Company computes basic earnings per share 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 Companys potentially dilutive Common
Stock equivalents, consisting of options, convertible debt, and convertible
Preferred Stock, are all antidilutive for all periods presented. Accordingly, basic loss per share is equal to
diluted earnings per share. Annual
cumulative preferred dividends have been added to net losses for the years
ended December 31, 2009, 2008 and 2007 to arrive at net loss per share.
Shipping and handling costs
The
Company classifies shipping and handling costs as part of Cost of sales in the
Statements of Operations.
Research and development costs
Research
and development costs are expensed as incurred.
Share-based compensation
On September 26,
2008, the Companys shareholders approved the 2008 Stock Option Plan and also
approved an Offer to Exchange Stock Options (the Exchange Offer) whereby
employees, including executive officers, and Directors exchanged certain
outstanding underwater options for options issued under the 2008 Stock Option
Plan.
Pursuant
to the
Exchange Offer, eligible participants
(totaling 103) tendered, and the Company accepted for cancellation, eligible
options to purchase an aggregate of 1,925,365 shares of the Companys Common
Stock representing 99.4% of the total shares of Common Stock underlying options
eligible to exchange in the Exchange Offer.
The Company issued new options under the 2008 Stock Option Plan to
purchase an aggregate of 962,683 shares of Common Stock in exchange for the
cancellation of the tendered options.
Options issued to employees vested after one year. Options issued to non-employee Directors
vested immediately.
Prior
to 2008, the Company had issued options under three stock-based Director,
independent contractor and employee compensation plans as well as several
individual option agreements. Two of
these plans and one individual option agreement have terminated and the
unissued and unsold stock under these terminated plans has been deregistered
pursuant to Post-Effective Amendment No. 1 to Form S-8 Registration
Statement, filed December 2, 2008.
As earlier mentioned, in 2008, the 2008 Stock Option Plan was approved
and options have been issued under it pursuant to the Exchange Offer. In July 2009, the Company issued options
for the purchase of a total of 1,886,425 shares to Directors, Executive
Officers, employees, and consultants under the 2008 Stock Option Plan. Of this amount, incentive stock options for
the purchase of 269,956 shares of Common Stock and Non Qualified Stock Options
for the purchase of 229,494 shares of Common Stock were issued to Executive
Officers and Directors. Additionally, in
2009, an option to purchase Three Million (3,000,000) shares issued to Thomas
J. Shaw outside these plans was approved by shareholders.
F-12
Table of Contents
The
Companys share-based payments are accounted for using the fair value
method. The Company records share-based
compensation expense on a straight-line basis over the requisite service
period. The Company incurred the
following share-based compensation costs:
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
$
|
317,644
|
$
|
(1,797
|
)
|
$
|
6,648
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
242,509
|
|
(2,156
|
)
|
3,086
|
|
|
|
|
|
|
|
|
|
Research
and Development
|
|
47,168
|
|
(281
|
)
|
(7,863
|
)
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
1,504,039
|
|
36,863
|
|
4,607
|
|
|
|
|
|
|
|
|
|
|
$
|
2,111,360
|
$
|
32,629
|
$
|
6,478
|
|
|
|
|
|
|
|
|
|
|
Options
awarded to employees in 2009 and 2008 were amortized over twelve months. The Company amortized one months expense for
options granted in 2008 in the fourth quarter of 2008. The Company expensed five months of expense
for options issued in 2009. Non-employee
Directors option expense was all expensed in the third quarter of 2009.
Recent
Pronouncements
In June 2009, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 168,
The FASB Accounting
Standards Codification
TM
and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 162
(SFAS 168) (FASB ASC 105-10). SFAS 168 replaces all previously issued
accounting standards and establishes the
FASB Accounting Standards
Codification
TM
(FASB ASC or the Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity
with U.S. GAAP. SFAS 168 is effective
for all interim and annual periods ending after September 15, 2009. The FASB ASC is not intended to change
existing U.S. GAAP. The adoption of this
pronouncement only resulted in changes to the Companys financial statement
disclosure references. As such, the
adoption of this pronouncement had no effect on the Companys financial
position, results of operations, or cash flows.
In order to facilitate
the transition to the FASB ASC, the Company has elected to show all references
to FASB ASC within this report on Form 10-K along with a parenthetical
reference to the previous accounting standard.
In April 2008,
the FASB issued FASB Staff Position (FSP) FAS 142-3,
Determination of the Useful Life of Intangible Assets
included in the Codification under FASB ASC 350. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). The intent of this FSP is
to improve the consistency between the useful life of a recognized intangible
asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under the Business Combinations Topic of the
Codification and other GAAP. FSP FAS
142-3 was effective for the Company beginning January 1, 2009. The adoption of FSP FAS 142-3 did not have a
material impact on the Companys financial position, results of operations, or
cash flows.
In May 2009,
the FASB issued SFAS No. 165,
Subsequent Events
,
included in the Codification under FASB ASC 855, which establishes general
standards of accounting for and disclosure of events occurring after the
F-13
Table of Contents
balance
sheet date, but before the financial statements are issued or available to be
issued. In February 2010, FSAB ASC
855 was amended, removing certain disclosure requirements for public companies
that conflicted with certain SEC disclosure requirements. Adoption of this standard and its amendment
did not have a material impact on the Companys financial position, results of
operations, or cash flows.
3.
INVENTORIES
Inventories
consist of the following:
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
Raw
materials
|
|
$
|
2,424,818
|
|
$
|
1,885,158
|
|
Finished
goods
|
|
4,688,151
|
|
4,961,974
|
|
|
|
7,112,969
|
|
6,847,132
|
|
Inventory
reserve
|
|
(205,600
|
)
|
(205,600
|
)
|
|
|
$
|
6,907,369
|
|
$
|
6,641,532
|
|
4.
PROPERTY, PLANT, AND
EQUIPMENT
Property, plant, and
equipment consist of the following
:
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Land
|
|
$
|
261,893
|
|
$
|
261,893
|
|
Buildings
and building improvements
|
|
11,079,905
|
|
5,319,732
|
|
Production
equipment
|
|
14,428,077
|
|
14,270,577
|
|
Office
furniture and equipment
|
|
2,148,622
|
|
1,825,781
|
|
Construction
in progress
|
|
1,198,856
|
|
6,287,503
|
|
Automobiles
|
|
102,321
|
|
102,321
|
|
|
|
29,219,674
|
|
28,067,807
|
|
Accumulated
depreciation
|
|
(14,985,493
|
)
|
(13,632,140
|
)
|
|
|
$
|
14,234,181
|
|
$
|
14,435,667
|
|
Depreciation expense for
the years ended December 31, 2009, 2008, and 2007 was $1,353,353;
$1,351,547; and $1,370,228, respectively.
5.
INTANGIBLE ASSETS
Intangible assets consist
of the following:
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
License
agreement
|
|
$
|
500,000
|
|
$
|
500,000
|
|
Trademarks
and patents
|
|
508,743
|
|
508,743
|
|
|
|
1,008,743
|
|
1,008,743
|
|
Accumulated
amortization
|
|
(582,068
|
)
|
(538,628
|
)
|
|
|
$
|
426,675
|
|
$
|
470,115
|
|
In
1995, the Company entered into a license agreement with the Chief Executive
Officer of the Company for the exclusive right to manufacture, market, and
distribute products utilizing automated retraction technology. This license agreement was amended July 3,
2008 to include certain additional patent applications owned by such officer in
the definition of Patent Properties so that such additional patent
applications would be covered by the license.
This technology is the subject of various patents and patent
applications owned by
F-14
Table of Contents
such
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 on gross sales. The royalty fee expense is recognized in the
period in which it is earned. Royalty
fees of $2,806,223; $2,168,268; and $2,087,596 are included in Cost of sales
for the years ended December 31, 2009, 2008, and 2007, respectively. Royalties payable under this agreement
aggregated $843,327 and $620,987 at December 31, 2009 and 2008,
respectively. Gross sales upon which
royalties are based were $56,124,453; $43,365,361; and $41,751,897 for 2009,
2008, and 2007, respectively.
In the third quarter of 2009, the Company announced
several cost cutting and cash saving initiatives to conserve its cash. As a part of those initiatives, the Chief
Executive Officer waived payment to him of $1,000,000 in royalty fees. Therefore, the royalty fees of $2,806,223 for
2009 resulted in a cash outlay of $1,806,223.
Amortization expense for
the years ended December 31, 2009, 2008, and 2007, was $43,440; $43,597;
and $43,454, respectively. Future
amortization expense for the years 2010 through 2014 is estimated to be $43,000
per year.
6.
OTHER ASSETS
In
2006, the Company invested $500,000 in a limited liability company. The Company exercised its option to have that
investment returned. The investment was
returned in April 2008.
7.
LONG-TERM DEBT
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Long-term
debt consists of the following:
|
|
|
|
|
|
Note
payable to Katie Petroleum. Interest
accrues at prime plus 1%, which was 4.25% and 5.0%, at December 31, 2009
and 2008, respectively. Interest only
was payable monthly through February 1, 2004. The original amount of the note of
$3,000,000 was discounted for presentation purposes by $299,346 for stock
options issued in conjunction with the debt and $412,500 for the intrinsic
value of a beneficial conversion feature of the debt. Beginning March 1, 2004, the loan has
been payable in equal installments of principal and interest payments (except
for changes in the interest rate) of approximately $37,000 and matures on September 30,
2012. Guaranteed by an officer. Approximately $163,736 of the principal
payment was converted into 40,934 shares of Common Stock as of March 1,
2006. Not otherwise
collateralized. Convertible into
Common Stock at $4.00 per share at the option of the holder.
|
|
$
|
1,097,112
|
|
$
|
1,437,977
|
|
|
|
|
|
|
|
Note
payable to 1st International Bank for $2,500,000. The proceeds from the loan paid off the
remaining $475,000 of a revolving credit agreement and funded a warehouse and
related infrastructure. Payments were
interest only during the first 12 months.
After 12 months, payments are based on a 20-year amortization with a
five-year maturity on March 29, 2010.
The interest rate at December 31, 2009 and 2008 was 4.25% and
4.25%, respectively, and is based on the amount of funds kept on deposit with
the bank. Accordingly, interest will
vary from the Wall Street Journal Prime Rate (the WSJPR) to the WSJPR plus
1%, with floors that may range from 4.25% to 6.50%.
Compensating balances at 1st
International affecting the interest rate will range from $0 to
$500,000. The Company had in excess of
$500,000 on deposit with 1st International Bank throughout the year. The note is secured by the Companys land
and buildings.
|
|
2,141,998
|
|
2,241,145
|
|
|
|
|
|
|
|
Note
payable to DaimlerChrysler Services North America LLC. Sixty (60) monthly payments at $1,009.
Interest is 5.49%. Collateralized by a
2005 Freightliner truck.
|
|
1,005
|
|
12,711
|
|
|
|
|
|
|
|
Note
payable to GMAC. Sixty (60) monthly
payments at $427. Interest is zero
percent. Collateralized by a 2005
Chevrolet van.
|
|
3,762
|
|
8,561
|
|
|
|
|
|
|
|
|
|
F-15
Table of Contents
|
|
2009
|
|
2008
|
|
Interim construction loan from Lewisville State
Bank, a division of 1st International Bank, for a maximum of $4,210,000,
which provided funding for the expansion of the warehouse, additional office
space, and a new Controlled Environment.
The note bore interest at WSJPR plus 0.25%. The loan was renewed on December 10,
2009 with a 20 year amortization and 10 year maturity. The loan is secured by the Companys land
and buildings. The interest rate is 5.968%.
|
|
4,209,608
|
|
2,847,006
|
|
|
|
7,453,485
|
|
6,547,400
|
|
|
|
|
|
|
|
Less:
current portion
|
|
(2,628,652
|
)
|
(451,865
|
)
|
|
|
$
|
4,824,833
|
|
$
|
6,095,535
|
|
|
|
|
|
|
|
|
|
The aggregate maturities of long-term debt as of December 31,
2009, are as follows:
|
|
|
|
2010
|
$
|
2,628,652
|
|
2011
|
|
519,611
|
|
2012
|
|
447,755
|
|
2013
|
|
132,504
|
|
2014
|
|
140,862
|
|
Thereafter
|
|
3,584,101
|
|
|
$
|
|
7,453,485
|
|
|
|
|
|
|
8.
COMMITMENTS AND
CONTINGENCIES
On August 12, 2005,
the Company filed a lawsuit against Abbott in the U.S. District Court in the
Eastern District of Texas, Texarkana Division.
The Company is alleging fraud and breach of contract in connection with
the National Marketing and Distribution Agreement dated as of May 4, 2000,
which was terminated on October 15, 2003.
It is seeking damages which it estimates to be in millions of dollars of
lost profits, out of pocket expenses, and other damages. In addition, it is seeking punitive damages,
pre- and post-judgment interest, and attorneys fees. Following Abbotts unsuccessful attempt to
get the case dismissed and ordered to arbitration, Abbott filed an answer and
counterclaim on July 15, 2008, alleging several breaches of contract,
breach of implied warranty of merchantability, and breach of express warranty,
seeking in excess of $6,000,000 in compensatory damages as well as seeking
attorneys fees. The Company denies the
validity of Abbotts counterclaims.
Discovery has already taken place and is substantially completed. The District Court has issued a revised
scheduling order calling for trial in May 2010.
In April 2008, the
Company sued Occupational and Medical Innovations Limited (OMI) in the U.S.
District Court for the Eastern District of Texas, Tyler Division, alleging that
OMI had infringed two U.S. patents (6,572,584 and 7,351,224). The Company also alleged theft of
confidential information, intentional interference with contracts, and engaging
in false advertising that wrongfully disparaged and mischaracterized the
syringe products. The Company further
alleged that OMI made false allegations regarding the source of origin of its
safety syringe products being offered in the U.S. On December 18, 2009,
the jury delivered a verdict in the Companys favor on the patent infringement
and misappropriation of trade secrets claims against OMI. On March 4,
2010, the Court entered a final judgment and ordered that the Company recover
damages and prejudgment interest from OMI based on OMIs misappropriation of
trade secrets in the amount of $3,153,575.
In addition, the Court entered a permanent injunction enjoining OMI, its
manufacturers, distributors and service providers from infringing patent no.
6,572,584, by making, importing, selling or using any of OMIs syringes in the
U.S. and its territories. OMI has entered
into an administrative proceeding in Australia which is the equivalent of
bankruptcy and has filed a similar proceeding in the Eastern District of Texas,
which make the actual recovery of the damages unlikely.
In June 2007, the
Company sued Becton Dickinson and Company (BD) in the U.S. District Court for
the Eastern District of Texas, Marshall Division, alleging infringement of
three patents (5,578,011; 5,632,733; and 6,090,077) and violations by BD of the
federal and state antitrust laws, and of the Lanham Act. The Company subsequently dropped the
5,578,011 patent allegations from the lawsuit.
In January 2008, the Court
F-16
Table of Contents
severed the patent claims
from the other claims pending resolution of the patent dispute. In April 2008, the Company and the
officer sued BD in the U.S. District Court for the Eastern District of Texas,
Marshall Division, alleging infringement of another recently issued patent
(7,351,224). BD counterclaimed for
non-infringement and invalidity of the asserted patent. The Court consolidated this case with the
above-stated case filed in June 2007.
On November 9, 2009, the jury returned a verdict finding that the
patents asserted by the Company were valid and infringed by BD and awarded $5,000,000
in damages. No final judgment has been
entered in this case. The Company is
seeking injunctive relief.
In September 2007,
BD and MDC Investment Holdings, Inc. (MDC) sued the Company in the
United States District Court for the Eastern District of Texas, Texarkana
Division, initially alleging that the Company is infringing two U.S. patents of
MDC (6,179,812 and 7,090,656) that are licensed to BD. BD and MDC seek
injunctive relief and unspecified damages.
The Company counterclaimed for declarations of non-infringement,
invalidity, and unenforceability of the asserted patents. The plaintiffs subsequently dropped
allegations with regard to patent no. 7,090,656 and the Company subsequently
dropped its counterclaims for unenforceability of the asserted patents. The Court conducted a claims construction
hearing on September 25, 2008 and issued its claims construction order on November 14,
2008. No trial date has been set.
In September 2008,
the Company and an officer sued Safety Medical International (SMI) in the
United States District Court for the Eastern District of Texas, Tyler Division,
alleging infringement of U.S. patent nos. 6,572,584 and 7,351,224, and seeking
injunctive relief, unspecified monetary damages, and reimbursement of
attorneys fees. SMI has counterclaimed,
seeking declaratory judgments of non-infringement and invalidity of the
asserted patents. SMI is not seeking
monetary damages. SMI has filed for
bankruptcy, and this lawsuit, including all claims and counterclaims, was
dismissed as a result of those proceedings, which have concluded.
The provision for income
taxes consists of the following:
|
|
For
the Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Current
tax provision (benefit)
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,655,637
|
)
|
$
|
|
|
$
|
(143,459
|
)
|
State
|
|
|
(181,953
|
)
|
|
|
(1,310,158
|
)
|
Total
current provision (benefit)
|
|
(3,837,590
|
)
|
|
|
(1,453,617
|
)
|
|
|
|
|
|
|
|
|
Deferred
tax provision (benefit)
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
Total
deferred tax provision (benefit)
|
|
|
|
|
|
|
|
Total
income tax provision (benefit)
|
|
$
|
(3,837,590
|
)
|
$
|
|
|
$
|
(1,453,617
|
)
|
The Company recognized a
tax benefit in 2007 primarily due to the net effect of a state tax refund for
prior years that had not been previously recognized.
The Company recognized a
tax benefit in 2009 primarily due to a federal tax carryback related to 2009.
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:
The Company has $14,277,070
in tax benefits attributable to carryback losses for federal tax purposes. The loss carryforwards will begin to expire
in 2027 for federal tax purposes and will begin to expire for state tax
purposes in 2012.
F-17
Table of Contents
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss
carryforwards
|
$
|
5,414,579
|
$
|
|
5,285,164
|
|
|
Accrued expenses and reserves
|
|
1,045,120
|
|
1,240,050
|
|
|
Employee stock option expense
|
|
422,476
|
|
31,669
|
|
|
Inventory
|
|
242,807
|
|
435,578
|
|
|
Non-employee stock option expense
|
|
183,570
|
|
198,425
|
|
|
Charitable contribution carryforwards
|
|
26,164
|
|
21,118
|
|
|
Deferred tax assets
|
|
7,334,716
|
|
7,212,004
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
Property and equipment
|
|
(687,512
|
)
|
(1,178,618
|
)
|
|
Deferred tax liabilities
|
|
(687,512
|
)
|
(1,178,618
|
)
|
|
Net deferred assets
|
|
6,647,204
|
|
6,033,386
|
|
|
Valuation allowance
|
|
(6,647,204
|
)
|
(6,033,386
|
)
|
|
Net deferred tax liabilities
|
$
|
|
$
|
|
|
|
|
A reconciliation
of income taxes based on the federal statutory rate and the provision (benefit)
for income taxes is summarized as follows:
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Income tax (benefit) at the federal statutory rate
|
|
(35.0
|
)%
|
(35.0
|
)%
|
(35.0
|
)%
|
State tax (benefit), net of federal (benefit)
|
|
(2.9
|
)
|
(2.9
|
)
|
(2.9
|
)
|
Increase (decrease) in valuation allowance
|
|
4.6
|
|
32.1
|
|
27.2
|
|
Permanent differences
|
|
3.0
|
|
0.4
|
|
1.0
|
|
Cancellation of options under Exchange Offer
|
|
|
|
5.4
|
|
|
|
State tax refund and accruals
|
|
(0.8
|
)
|
|
|
(12.0
|
)
|
Return to accrual adjustments
|
|
0.5
|
|
|
|
3.2
|
|
Other
|
|
1.6
|
|
|
|
1.2
|
|
Effective tax (benefit) rate
|
|
(29.0
|
)
|
|
%
|
(17.3
|
)%
|
The
Company files income tax returns in the U.S. federal jurisdiction and in
various state and local jurisdictions.
The Companys federal income tax returns for all tax years ended on or
after December 31, 2006, remain subject to examination by the Internal
Revenue Service. The Companys 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
to five years from the date of filing.
Preferred
Stock
The
Company has one class of Preferred Stock outstanding: Class B Convertible Preferred Stock (Class B
Stock). The Class B Stock has five
series: Series I, Series II, Series III,
Series IV, and Series V.
Class B
The
Company has authorized 5,000,000 shares of $1 par value Class B Stock
which have been allocated among Series I, II, III, IV, and V in
the amounts of 144,000; 219,700; 130,245; 552,500; and 1,238,821 shares,
respectively. The remaining 2,714,734
authorized shares have not been assigned a series.
F-18
Table of Contents
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 144,000
outstanding at December 31, 2009 and 2008.
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. In 2004, the
Company paid $2,550,000 in dividends. In
2007, the Company paid $262,819 in dividends.
At December 31, 2009 and 2008 approximately $180,000 and $108,000,
respectively, of dividends which had 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. Pursuant to these terms, no
shares of Series I Class B Stock were converted into Common Stock in 2009. 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 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), Series IV Class B Convertible Preferred Stock (Series IV
Class B Stock), Series V Class B Convertible Preferred Stock (Series V
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 there were 219,700
shares
outstanding at December 31, 2009 and 2008.
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. In 2004, the Company paid $4.6
million in dividends. In 2007, the
Company paid $790,725 in dividends.
At December 31, 2009 and
2008, approximately $551,000 and $331,000 respectively, of dividends which had
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. Pursuant to these terms, no shares
of Series II Class B Stock were converted into Common Stock in
2009. 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 Series I
Class B Stock have been satisfied and prior to any distributions to
holders of Series III Class B Stock, Series IV Class B
Stock, Series V Class B Stock, or Common Stock.
Series III
Class B
There
were 1,160,445 shares of $1 par value Series III Class B Stock issued
and 130,245 shares outstanding at December 31, 2009 and 2008. 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, 2009 and 2008,
approximately $3,246,000 and $3,117,000, 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. Pursuant to these terms, no
shares of Series III Class B Stock were converted
into Common Stock in
F-19
Table of Contents
2009.
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 Series I Class B
Stock and Series II Class B Stock have been satisfied and prior to
any distributions to holders of Series IV Class B Stock, Series V
Class B Stock, or Common Stock.
Series IV
Class B
There
were 1,133,800 shares issued and 552,500 shares outstanding at December 31,
2009 and 2008. Holders of Series IV 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 IV Class B Stock generally have no voting
rights. At December 31, 2009 and
2008, approximately $7,583,000 and $7,030,000, respectively, of dividends which
have not been declared were in arrears.
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 one share of Common Stock,
or in the event the Company files an initial registration statement under the
Securities Act of 1933. Pursuant to
these terms, no
shares of Series IV Class B
Stock were converted into Common Stock in 2009. 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 after
distribution obligations to Series I Class B Stock, Series II Class B
Stock, and Series III Class B Stock have been satisfied and prior to
any distribution to holders of Series V Class B Stock, or Common
Stock.
Series V
Class B
There
were 2,416,221 shares issued and 1,238,821 outstanding at December 31,
2009 and 2008. Holders of Series V Class B
Stock are entitled to receive a cumulative annual dividend of $0.32 per share,
payable quarterly, if declared by the Board of Directors. Holders of Series V Class B Stock
generally have no voting rights. At December 31,
2009 and 2008, approximately $3,693,000 and $3,297,000, respectively, of
dividends which have not been declared were in arrears.
Series V
Class B Stock is redeemable after two years from the date of issuance at
the option of the Company at a price of $4.40 per share plus all accrued and
unpaid dividends. Each share of Series V
Class B Stock may, at the option of the stockholder any time subsequent to
the date of issuance, be converted into Common Stock. Pursuant to the terms of the certificate of
designation, no shares of Series V Class B Stock were converted into
Common Stock in 2009. In the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
Company, holders of Series V Class B Stock then outstanding are
entitled to receive liquidating distributions of $4.40 per share, plus accrued
and unpaid dividends after distribution obligations to Series I Class B
Stock, Series II Class B Stock, Series III Class B Stock, and
Series IV Class B Stock have been satisfied and prior to any
distribution to the holders of the Common Stock.
Common stock
The
Company is authorized to issue 100,000,000 shares of no par value Common Stock,
of which 23,825,149 and 23,800,064 shares were issued and outstanding at December 31,
2009 and 2008, respectively.
11.
|
RELATED PARTY TRANSACTIONS
|
The
Company had a lease with Mill Street Enterprises (Mill Street), a sole
proprietorship owned by a person, who ceased to be a 10% shareholder in 2008,
for offices and storage in Lewisville, Texas.
During the year ended December 31, 2007, the Company paid $14,500
under this lease. This lease term
expired in June 2007.
F-20
Table of Contents
The
Company paid MediTrade International Corporation, a company controlled by a
person, who ceased to be a 10% shareholder in 2008 on a month-to-month
consulting agreement whereby MediTrade is paid $7,500 per month plus expenses.
Total amounts paid
to MediTrade for the years ending December 31, 2009, 2008, and 2007
totaled $111,883.57; $98,401; and $129,618, respectively.
The
Company has a license agreement with the Chief Executive Officer of the
Company. See Note 5.
During
the years ended December 31, 2009, 2008, and 2007, the Company paid
$50,793; $40,191; and $30,397, respectively, to family members of its Chief
Executive Officer for various consulting services.
Stock options
Prior to 2008, the Company had three stock option
plans that provided for the granting of stock options to officers, employees,
and other individuals. Two of those
plans have terminated. A 2008 Stock
Option Plan was approved for the granting of stock options to employees,
Directors, and consultants. During 1999,
the Company approved the 1999 Stock Option Plan. Options for the purchase of 131,880 shares of
Common Stock granted under the 1999 Stock Option Plan are outstanding. The 1999 Stock Option Plan terminated
pursuant to its terms in 2009. The 2008
Plan is the only plan with stock options currently being awarded. The Company has reserved an aggregate 3,000,000
shares of Common Stock for issuance upon the exercise of options under the 2008
Stock Option Plan.
On September 26, 2008, the Companys shareholders
approved an Exchange Offer whereby employees, including executive officers, and
Directors could exchange certain outstanding underwater options for options
issued under the 2008 Stock Option Plan.
Pursuant to the
Exchange Offer, eligible participants (totaling 103)
tendered, and the Company accepted for cancellation, eligible options to
purchase an aggregate of 1,925,365 shares of the Companys Common Stock
representing 99.4% of the total shares of Common Stock underlying options
eligible to exchange in the Exchange Offer.
The Company issued new options under the 2008 Stock Option Plan to
purchase an aggregate of 962,683 shares of Common Stock in exchange for the
cancellation of the tendered options.
Options issued to employees vest in mid 2010. Options issued to non-employee Directors
vested in 2009.
In July 2009, the Company issued options for the
purchase of a total of 1,886,425 shares to Directors, Executive Officers,
employees, and consultants under the 2008 Stock Option Plan. Of this amount, incentive stock options for
the purchase of 269,956 shares of Common Stock and Non Qualified Stock Options
for the purchase of 229,494 shares of Common Stock were issued to Executive Officers
and Directors. Additionally, in 2009, an
option to purchase Three Million (3,000,000) shares issued to Thomas J. Shaw
outside these plans was approved by shareholders.
The Company also had
options for common shares outstanding under
the 1996 Incentive Stock Option Plan and the 1996 Stock Option Plan for
Directors and Other Individuals through November 2008. The two 1996 plans and all options issued
thereunder have terminated or have been exchanged for options granted under the
2008 Plan.
The Compensation
and Benefits Committee administers all plans and determines and/or recommends
to the Board exercise prices at which options are granted. All executive compensation, including the
granting of stock options, is determined by the Compensation and Benefits
Committee. Shares issued upon exercise
of options come from the Companys 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. Unvested options issued under the
2008 Stock Option Plan expire immediately after termination of employment.
Employee options
A summary of Director, officer, and employee options
granted and outstanding under the Plans is presented below:
F-21
Table of Contents
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
1,057,263
|
|
$
|
1.99
|
|
2,187,455
|
|
$
|
8.80
|
|
2,417,295
|
|
$
|
8.58
|
|
Granted
|
|
4,796,425
|
|
0.81
|
|
962,683
|
|
1.30
|
|
|
|
|
|
Exercised
|
|
(5,085
|
)
|
(1.30
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(127,075
|
)
|
(4.99
|
)
|
(2,092,875
|
)
|
(8.79
|
)
|
(229,840
|
)
|
(6.50)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
5,721,528
|
|
$
|
0.94
|
|
1,057,263
|
|
$
|
1.99
|
|
2,187,455
|
|
$
|
8.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
1,137,403
|
|
$
|
1.44
|
|
147,580
|
|
$
|
6.25
|
|
2,187,455
|
|
$
|
8.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
during period
|
|
|
|
$
|
0.59
|
|
|
|
$
|
0.76
|
|
|
|
$
|
|
|
The
fair value of each 2008 option grant is estimated on the date of grant using
the binomial option pricing model with the following weighted average assumptions
used for grants in 2008: no dividend
yield; expected volatility of 67.53%; risk free interest rate of 2.83%; and an
expected life of 8.61 to 8.69 years. The
options were issued under the 2008 Stock Option Plan. No options were issued in 2007.
The
fair value of each 2009 grant is estimated on the date of the grant using the
Black-Scholes pricing model with the following weighted average assumptions
used for grants in 2009: expected volatility of 67.53%, risk free interest rate
of 3.35%, and an expected life of 8.61 to 8.69 years. Other than the options
issued to the Chief Executive Officer, the options were issued under the 2008
Stock Option Plan.
The
following table summarizes information about Director, officer, and employee
options outstanding under the aforementioned plans at December 31, 2009:
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Exercise
|
|
Shares
|
|
Contractual
|
|
Shares
|
|
Prices
|
|
Outstanding
|
|
Life
|
|
Exercisable
|
|
$
|
10.00
|
|
17,100
|
|
0.84
|
|
17,100
|
|
$
|
6.90
|
|
15,080
|
|
2.75
|
|
15,080
|
|
$
|
8.65
|
|
2,400
|
|
3.48
|
|
2,400
|
|
$
|
8.87
|
|
700
|
|
4.36
|
|
700
|
|
$
|
1.30
|
|
902,123
|
|
8.89
|
|
902,123
|
|
$
|
0.81
|
|
4,784,125
|
|
9.54
|
|
200,000
|
|
F-22
Table of Contents
Non-employee
options
A
summary of options outstanding during the years ended December 31 and held
by non-employees is as follows:
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period
|
|
454,700
|
|
$
|
8.41
|
|
549,700
|
|
$
|
8.69
|
|
579,700
|
|
$
|
8.50
|
|
Granted
|
|
90,000
|
|
0.84
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(20,000
|
)
|
(0.95
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(133,100
|
)
|
(10.00
|
)
|
(95,000
|
)
|
(10.00
|
)
|
(30,000
|
)
|
(5.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
391,600
|
|
$
|
6.52
|
|
454,700
|
|
$
|
8.41
|
|
549,700
|
|
$
|
8.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
391,600
|
|
$
|
6.52
|
|
454,700
|
|
$
|
8.41
|
|
549,700
|
|
$
|
8.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
during period
|
|
|
|
$
|
0.61
|
|
|
|
$
|
|
|
|
|
$
|
|
|
The fair value of each 2009 grant is estimated on the
date of the grant using the Black Scholes pricing model with the following
assumptions: expected volatility of 67.53%, risk free interest rate of 3.35%,
and an expected life of 8.61 years. These options were issued under the 2008
Stock Option Plan. No options were issued in 2008 or 2007.
The
following table summarizes information about non-employee options outstanding
under the aforementioned plans at December 31, 2009:
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Exercise
|
|
Shares
|
|
Contractual
|
|
Shares
|
|
Prices
|
|
Outstanding
|
|
Life
|
|
Exercisable
|
|
$
|
10.00
|
|
89,100
|
|
0.58
|
|
89,100
|
|
$
|
6.90
|
|
232,500
|
|
2.75
|
|
232,500
|
|
$
|
0.81
|
|
70,000
|
|
9.55
|
|
70,000
|
|
The
Company recorded $2,111,360; $98,473
(offset by a credit of $65,844 for surrendered stock options); and $6,478 as
stock-based compensation expense in 2009, 2008, and 2007, respectively. The total intrinsic value of options
exercised was $16,388; $0; and $0 in 2009, 2008, and 2007, respectively. The aggregate intrinsic value of options
outstanding and of options exercisable at December 31, 2009 was
approximately $4.3 million and $531,000, respectively. The total compensation cost related to
non-vested stock options to be recognized in the future was $1,346,587 at December 31,
2009.
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. 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. The Company made matching
F-23
Table of Contents
contributions
of approximately $76,643, $122,000, and $111,000 in 2009, 2008 and 2007,
respectively. In the third quarter of
2009, the Company discontinued contributions until further notice.
|
|
2009
|
|
2008
|
|
2007
|
|
Domestic sales
|
|
$
|
34,466,797
|
|
$
|
23,244,370
|
|
$
|
21,461,717
|
|
International sales
|
|
4,515,040
|
|
4,654,948
|
|
4,828,003
|
|
Total sales
|
|
$
|
38,981,837
|
|
$
|
27,899,318
|
|
$
|
26,289,720
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
13,961,445
|
|
$
|
14,435,667
|
|
$
|
11,483,423
|
|
Foreign
|
|
$
|
272,736
|
|
$
|
|
|
$
|
|
|
The
Company does not operate in separate reportable segments. The Company has no long-lived assets in
foreign countries. 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.
|
SELECTED QUARTERLY FINANCIAL DATA -
UNAUDITED
|
The selected quarterly financial data for the periods
ended December 31, 2009 and 2008, have been derived from the Companys
unaudited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of the interim periods.
|
|
(In thousands, except for per share
and outstanding stock amounts)
|
|
|
|
2009
|
|
|
|
Quarter
1
|
|
Quarter 2
|
|
Quarter 3
|
|
Quarter 4
|
|
Sales, net
|
|
$
|
5,258
|
|
$
|
5,753
|
|
$
|
10,752
|
|
$
|
17,219
|
|
Cost of sales
|
|
4,029
|
|
3,413
|
|
7,817
|
|
10,207
|
|
Gross profit
|
|
1,229
|
|
2,340
|
|
2,935
|
|
7,012
|
|
Total operating expenses
|
|
5,271
|
|
5,121
|
|
6,484
|
|
9,936
|
|
Loss from operations
|
|
(4,042
|
)
|
(2,781
|
)
|
(3,549
|
)
|
(2,924
|
)
|
Interest and other income
|
|
29
|
|
11
|
|
14
|
|
4
|
|
Interest expense, net
|
|
|
|
|
|
|
|
(22
|
)
|
Benefit for income taxes
|
|
105
|
|
|
|
100
|
|
3,633
|
|
Net income (loss)
|
|
(3,908
|
)
|
(2,770
|
)
|
(3,435
|
)
|
691
|
|
Preferred stock dividend requirements
|
|
(343
|
)
|
(343
|
)
|
(343
|
)
|
(342
|
)
|
Earnings (loss) applicable to common shareholders
|
|
$
|
(4,251
|
)
|
$
|
(3,113
|
)
|
$
|
(3,778
|
)
|
$
|
349
|
|
Net earnings (loss) per share basic and diluted
|
|
$
|
(0.18
|
)
|
$
|
(0.13
|
)
|
$
|
(0.16
|
)
|
$
|
0.01
|
|
Weighted average shares outstanding
|
|
23,800,064
|
|
23,800,064
|
|
23,803,397
|
|
23,822,607
|
|
Profit margin
|
|
23.4%
|
|
40.7%
|
|
27.3%
|
|
40.7%
|
|
F-24
Table of Contents
|
|
(In thousands, except for per share
and outstanding stock amounts)
|
|
|
|
2008
|
|
|
|
Quarter
1
|
|
Quarter 2
|
|
Quarter 3
|
|
Quarter 4
|
|
Sales, net
|
|
$
|
5,315
|
|
$
|
6,474
|
|
$
|
8,997
|
|
$
|
7,113
|
|
Cost of sales
|
|
4,029
|
|
3,498
|
|
6,871
|
|
5,275
|
|
Gross profit
|
|
1,286
|
|
2,976
|
|
2,126
|
|
1,838
|
|
Total operating expenses
|
|
4,362
|
|
4,028
|
|
4,306
|
|
5,975
|
|
Loss from operations
|
|
(3,076
|
)
|
(1,052
|
)
|
(2,180
|
)
|
(4,137
|
)
|
Interest and other income
|
|
254
|
|
241
|
|
159
|
|
202
|
|
Interest expense, net
|
|
(41
|
)
|
(22
|
)
|
(14
|
)
|
23
|
|
Net loss
|
|
(2,863
|
)
|
(833
|
)
|
(2,035
|
)
|
(3,912
|
)
|
Preferred stock dividend requirements
|
|
(345
|
)
|
(343
|
)
|
(343
|
)
|
(342
|
)
|
Loss applicable to common shareholders
|
|
$
|
(3,208
|
)
|
$
|
(1,176
|
)
|
$
|
(2,378
|
)
|
$
|
(4,254
|
)
|
Net loss per share basic and diluted
|
|
$
|
(0.13
|
)
|
$
|
(0.05
|
)
|
$
|
(0.10
|
)
|
$
|
(0.18
|
)
|
Weighted average shares outstanding
|
|
23,778,072
|
|
23,800,064
|
|
23,800,064
|
|
23,800,064
|
|
Profit margin
|
|
24.2%
|
|
46.0%
|
|
23.6%
|
|
25.8%
|
|
Major variances in the third quarter results for
2009 compared to 2008 are due to higher revenues due to the DHHS contract and
higher litigation costs in 2009.
Fourth quarter results for 2009, when compared to
2008, were affected by a dramatic increase in revenues due to the DHHS contract. Operating expenses increased primarily due to
the recognition of an impairment cost of $2.6 million and additional litigation
costs of $2.1 million. Net income was
positively affected in 2009 for a tax benefit of $3.6 million related to the
carryback of the 2009 net operating loss for federal taxes.
F-25
Table of Contents
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Disclosure
Controls and Procedures
Pursuant to Rule 13a-15(b) under the
Securities Exchange Act of 1934 (the Exchange Act), Management, with the
participation of our President, Chairman, and Chief Executive Officer, Thomas
J. Shaw (the CEO), and our Vice President and Chief Financial Officer,
Douglas W. Cowan (the CFO), acting in their capacities as our principal
executive and financial officers, evaluated the effectiveness of our disclosure
controls and procedures, as defined in Rule 13a-15(e) under the
Exchange Act. The term disclosure
controls and procedures means controls and other procedures that are designed
to ensure that information required to be disclosed by us in our periodic
reports is: i) recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions (the SEC) rules and
forms; and ii) accumulated and communicated to our Management, including our
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.
Based upon this evaluation, the CEO and CFO concluded that, as of December 31,
2009, our disclosure controls and procedures were effective.
Managements
Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and
maintaining adequate internal control over our financial reporting as defined
in Rule 13a-15(f) under the Exchange Act. The term internal control
over financial reporting means a process designed by, or under the supervision
of, our principal executive and principal financial officers and effected by
our Board of Directors, Management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect our transactions and dispositions of assets; (ii) provide
reasonable assurance that our transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only
in accordance with authorizations of Management and Directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on our financial statements. Management
used the
Internal Control - Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission to evaluate the effectiveness of our internal control over
financial reporting as required by paragraph (c) of Rule 13a-15 under
the Exchange Act. Management, with the
participation of our CEO and CFO, concluded that our internal control over
financial reporting as of December 31, 2009, was effective. No material weaknesses in our internal
control over financial reporting were identified by Management.
This annual report does not include an attestation
report of our registered public accounting firm regarding internal control over
financial reporting. Managements report
was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only
Managements report in this annual report.
Our management, including the CEO and CFO, does not
expect that our disclosure controls and procedures or our internal control over
financial reporting will prevent or detect all errors and all instances of
fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute,
assurance that the control systems objectives will be met.
Changes
in Internal Control Over Financial Reporting
There have been no changes during the fourth quarter
of 2009 or subsequent to December 31, 2009 in our internal control over
financial reporting or in any other factor that has materially affected or is
reasonably likely to materially affect our internal control over financial
reporting.
25
Table of Contents
Item 9B. Other Information.
Effective December 20,
2009, the Board of Directors approved changes to the Charters for the Audit
Committee, Compensation and Benefits Committee, and Nominating Committee as
well as changes to our Code of Business Conduct and Ethics, all of which are
posted on our website at www.vanishpoint.com.
A summary of the material changes is set forth below.
The Audit Committee Charter
was amended primarily to reflect the new name change for the NYSE Amex LLC as
well as to change reference to various accounting standards as required by
changing rules. It was also amended to
disclose our current process for receipt, retention, and treatment of
complaints regarding accounting, internal accounting controls, or auditing
matters and the confidential submission by employees of such concerns. A copy of the charter is attached hereto as Exhibit No. 99.1.
The Compensation and
Benefits Committee Charter was amended primarily to reflect the new name for
the NYSE Amex LLC and also to clarify that the CEOs compensation is set solely
by the Committee. A copy of the charter is attached hereto as Exhibit No. 99.2.
The Nominating Committee
Charter was amended to reflect the new name change for the NYSE Amex LLC. A
copy of the charter is attached hereto as Exhibit No. 99.3.
The Code of Business Conduct
and Ethics was amended to reflect the new name change for the NYSE Amex LLC and
also primarily to add our Insider Trading Policy as it currently stands. Other minor changes were also made. A copy of the amended code is incorporated
herein as Exhibit No. 14.
On
January 22, 2010, we held the rescheduled meeting of preferred
shareholders for those series that did not obtain quorum at the initial Special
Meeting (Series I IV Class B Convertible Preferred Stock). The Series II and III Class B
Convertible Preferred Shareholders obtained quorum at this rescheduled
meeting. The proposals
submitted for their approval were those
relating to an amendment of the applicable certificates of designation. Previously, the various certificates of
designation provided that, if dividends were in arrears on the preferred stock,
there were certain prohibitions on acquisitions for consideration by the
Company of stock ranking junior to such stock except on certain terms.
One of the limitations was that no acquisitions for consideration could be made
unless the acquisition involved the acquisition of all of the preferred stock
(upon a 50% vote) or unless the preferred stock was converted into or exchanged
into stock of the Company ranking junior to the preferred stock as to dividends
and upon liquidation. The proposed amendments deleted these requirements and
specifically provided that the Company can purchase any of its shares ranking
junior to the preferred stock (including
Common shares) on any terms it fixes, even where a dividend upon shares of the
preferred stock is in arrears, so long
as: (A) the cash assets of the Company as of its latest reporting
period equal or exceed $40,000,000 or (B) if the cash assets of the
Company as of its latest reporting period were less than $40,000,000, the
amount of funds utilized to purchase such shares within the next quarter do not
exceed 25% of the value of the cash assets as of the previous reporting period. The Series II Class B Convertible
Preferred Shareholders rejected this proposal.
The Series III Class B Convertible Preferred Shareholders
approved this proposal. The Series V
Class B Convertible Preferred Shareholders approved a similar proposal at
the prior Special Meeting. The meeting
of the Series I Class B Convertible Preferred Shareholders has been
permanently adjourned. The meeting of
the Series IV Class B Convertible Preferred Shareholders has been
adjourned until June 11, 2010 at 10:00 a.m. Central time.
Articles of Amendment were
filed on October 16, 2009 with the Texas Secretary of State amending the
Articles of Incorporation to reflect the prior approval of the proposal by the Series V
Class B Convertible Preferred Stock.
PART III
Item 10. Directors, Executive
Officers and Corporate Governance.
The following table sets forth information concerning
our Directors, executives, and certain of our significant employees as of the
date of this report. Our Board of
Directors consists of a total of seven (7) members, two (2) members
of which are Class 1 Directors and five (5) of which are Class 2
Directors which serve for two-year
26
Table of Contents
terms. At our 2010 Annual Meeting, we will be
soliciting the election of four Class 2 Directors and one Class 1
Director so that the Board will be more evenly split with four Class 2
Directors and three Class 1 Directors.
Name
|
|
Age
|
|
Position
|
|
Term as
Director
Expires
|
EXECUTIVES
|
|
|
|
|
|
|
Thomas J. Shaw
|
|
59
|
|
Chairman,
President, Chief Executive Officer, and Class 2 Director
|
|
2010
|
Douglas W. Cowan
|
|
66
|
|
Vice President,
Chief Financial Officer, Treasurer, and Class 2 Director
|
|
2010
|
Kathryn M. Duesman
|
|
47
|
|
Executive
Director, Global Health
|
|
N/A
|
Russell B.
Kuhlman
|
|
56
|
|
Vice President,
Sales
|
|
N/A
|
Michele M.
Larios
|
|
43
|
|
Vice President,
General Counsel, and Secretary
|
|
N/A
|
Lawrence G.
Salerno
|
|
49
|
|
Director of
Operations
|
|
N/A
|
Steven R. Wisner
|
|
52
|
|
Executive Vice
President, Engineering & Production and Class 2 Director
|
|
2010
|
|
|
|
|
|
|
|
INDEPENDENT DIRECTORS
|
|
|
Marco Laterza
|
|
62
|
|
Class 1
Director
|
|
2011
|
Amy Mack
|
|
42
|
|
Class 1
Director
|
|
2011
|
Marwan Saker
|
|
54
|
|
Class 2
Director
|
|
2010
|
Clarence Zierhut
|
|
81
|
|
Class 2
Director
|
|
2010
|
|
|
|
|
|
|
|
SIGNIFICANT EMPLOYEES
|
|
|
Shayne Blythe
|
|
41
|
|
Director of
Sales and Marketing Logistics
|
|
N/A
|
John W. Fort III
|
|
41
|
|
Director of
Accounting
|
|
N/A
|
James A. Hoover
|
|
62
|
|
Director of
Quality Assurance
|
|
N/A
|
R. John Maday
|
|
49
|
|
Production
Manager
|
|
N/A
|
Judy Ni Zhu
|
|
51
|
|
Research and
Development Manager
|
|
N/A
|
Executives
Thomas J. Shaw, our Founder, has served as Chairman of
the Board, President, Chief Executive Officer, and Director since our
inception. We believe it is appropriate
for Mr. Shaw to continue to serve as a Director and as the Chairman of the
Board because of his deep knowledge of the strengths and weaknesses of our
products (as their primary inventor) and of the Company (as its Founder). Further, his strategic knowledge of the
Company and its competitive environment arising from his ongoing services as
its CEO is vital to the successful supervision of the Company by the Board of
Directors. Finally, Mr. Shaws
educational background in both Engineering and Accounting is helpful to Board
deliberations. In addition to his duties
overseeing our Management, he continues to lead our design team in product
development of other medical safety devices that utilize, among other things,
his unique patented friction ring technology.
Mr. Shaw has over 25 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.
Douglas W. Cowan is a Vice President and our Chief
Financial Officer, Treasurer, and a Director.
Mr. Cowan joined us as Chief Financial Officer and was elected to
the Board of Directors in 1999. We
believe it is appropriate Mr. Cowan continue to serve as a Director due to
his level of involvement in the financial state of the Company (as its CFO) as
well as his lead role in supervising all internal control and disclosure
control procedures and statements. He
also serves as the primary contact for investors which enables him to bring
their concerns to the Board on appropriate topics as they arise. His expertise as a CPA and experience as the
Companys CFO allow him to guide the Board, upon request. with regard to
financial matters. He is responsible for
our financial, accounting, risk management, and forecasting functions. Mr. Cowan also serves as a Director of Cowan
Technologies, Inc., a private computer consulting company. Mr. Cowan has a Bachelor of Business
Administration from Texas Technological College. He is a CPA licensed in Texas.
27
Table of Contents
Kathryn M. Duesman, RN, joined us in 1996 and
currently serves as the Executive Director, Global Health. She provides clinical expertise on existing
products as well as those in development.
She has been instrumental in developing training and marketing materials
and has spoken and been published on safety issues. Ms. Duesman works with international
agencies to promote the use of safe technologies in developing countries. Ms. Duesman is a 1985 graduate of Texas
Womans University with a Bachelor of Science in Nursing. Ms. Duesmans clinical background as a
registered nurse includes diagnostic, acute, and home healthcare nursing.
Russell B. Kuhlman joined us in February 1997 and
is our Vice President, Sales. Mr. Kuhlman
is responsible for management of the sales force and liaison with GPOs and
product training for our sales organization, as well as distribution. Mr. Kuhlmans efforts with us have
resulted in bringing onboard Specialty Distributors, influencing legislation,
and educating influential healthcare representatives about the benefits of our
product line. Mr. Kuhlman is
respected throughout the industry and is a main contributor to the safety
effort in this country. Mr. Kuhlman
is also Vice President of Kuhlman & Kuhlman, Inc., a private real
estate management company. He has a
sales background in the medical service industry that includes his most recent
work for ICU Medical (formerly 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 Ryan
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 BD
Vacutainer
®
Systems, a medical products company, in
several territories 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.
Michele M. Larios joined us in February 1998 and
currently serves as our Vice President, General Counsel, and Secretary. Ms. Larios is responsible for our legal
and legislative, quality assurance, human resource, and regulatory
functions. In addition to working on
legal matters and with outside counsel, Ms. Larios works with legislators
on pertinent issues and relevant legislation.
Ms. Larios received a Bachelor of Arts in Political Science from
Saint Marys College in Moraga, California, and a Juris Doctorate from
Pepperdine University School of Law in Malibu, California.
Lawrence G. Salerno has been employed with us since
1995 and has served as Director of Operations for us since 1998. He is responsible for the manufacture of all
our products, as well as all product development and process development
projects. In addition, he supervises all
aspects of the construction and expansion of our facilities in Little Elm,
Texas. Mr. Salerno is the brother
of a 5% shareholder (and consultant to the Company) who ceased to be a 10%
shareholder in 2008.
Mr. Salerno received his
Bachelor of Science in Economics 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. We believe it is appropriate that Mr. Wisner
continue to serve as a Director due to his extensive experience in operational
management and his comprehensive overview of all of the Companys
operations. His role in overseeing all
engineering, production, and foreign sales allows him to provide timely and
insightful guidance regarding the effect of Board decisions on the Companys
abilities to meet its goals. Mr. Wisners responsibilities include the
management of engineering, production, Chinese operations, and international
sales. Mr. Wisner has over 30 years
of experience in product design, development, and manufacturing. Mr. Wisner holds a Bachelor of Science
in Computer Engineering from Iowa State University.
Independent
Directors
Marco Laterza joined us as a Director effective as of March 22,
2005. We believe it is appropriate Mr. Laterza
continue to serve as a Director because of his skills as a CPA in active
practice as well as his decades of experience in advising individuals and
entities with regard to corporate planning and financial issues. Such skills and experience provide a valuable
contribution in his role as the designated financial expert on the Audit
Committee as well as provide valuable independent accounting advice to the
Board. Since 1988, Mr. Laterza has
owned and operated a public accounting practice. His practice includes corporate, partnership
and individual taxation, compilation/review of financial statements, financial
planning, business consulting, and trusts and estates. From 2004 to the present Mr. Laterza has
also served as the Treasurer for EZ Blue Software Corporation, a private
28
Table of Contents
development
stage, software company. Formerly, Mr. Laterza
was employed in a number of positions from 1977 to 1985 with El Paso Natural
Gas Company eventually serving as its Director of Accounting. Mr. Laterza received his Bachelors of
Business Administration in Accounting from Pace University in 1972. He is a CPA and has received a Certificate of
Educational Achievement in Personal Financial Planning from the American
Institute of CPAs.
Amy Mack joined us as a Director on November 19,
2007. We believe it is appropriate that Ms. Mack
continue as a Board member due both to her over ten years of experience as a
nurse (the primary retail user of our products) as well as her experience in
running her own company. Further, she
contributes to the diversity of experience on our Board. Since 2003, she has owned and operated SPA
02, a medical spa. Since April of
2000, she has owned and operated (and served as Chief Nursing Officer for)
EmergiStaff & Associates, a nursing staffing company, in Dallas,
Texas. She served as a registered nurse
from August 1997 to the date she began EmergiStaff &
Associates. She obtained her Bachelor of
Science degree from Texas A&M University in College Station, Texas in 1991
and an Associate degree in Nursing from El Centro College in Dallas, Texas in
1994. She is a registered nurse in Texas.
Marwan Saker joined our Board of Directors in June 2000. We believe it is appropriate that Mr. Saker
continue to serve as a Director due to over a decade of experience in
international business as well as his specific expertise in issues relating to
international distribution. Mr. Sakers
experience as a business owner competing internationally provides additional
necessary insight to our Board. Since
1983, Mr. Saker has served as Chief Executive Officer of Sovana, Inc.,
a private export management company that supplies agricultural equipment and
supplies to overseas markets. Since
2000, he has served as Director of Consolidated Food Concepts Inc., a private
company. Since 1986, he has served as President of International Exports &
Consulting Inc., a private export management, consulting, and distribution
company. Since 2000, he has served as
Vice President of Hanneke Corp., a private overseas sourcing company. From 1998 to 2001, he served as a Member of
My Investments, LLC, a private equity investment company. Since 1999, he has served as President of
Saker Investments Inc., a private company that manages an investment
portfolio. Since 1998, he has served as
a General Partner of Maya Investments, Ltd., a private investment management
limited partnership. He also serves as a
Member of MMDA, LLC, a private real estate development company. He is also involved with Fig Land
Development, a private company. Mr. Saker
has acted as a representative for U.S. 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 Irving, Texas.
Clarence Zierhut has served on our Board of Directors
since April 1996. We believe it is
appropriate for Mr. Zierhut to continue to serve as a Director primarily
due to his lifetime of experience in conception and development of innovative
products as well as his experience in adapting such products to address mass
production issues. Finally, Mr. Zierhut
has valuable experience and insight arising out of the successful running of
his own small company. Mr. Zierhut founded an industrial design firm in
1955, Zierhut Design, now Origin Design, that develops new products from concept
through final prototypes. He ceased
management of the company for a period of time but has since resumed his
executive duties. 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.
Significant
Employees
Shayne Blythe has been with us for over ten years and
is our Director of Sales and Marketing Logistics. She is responsible for developing and
implementing strategic directions, objectives, comprehensive sales and
marketing plans, and programs. In
addition, she directs and oversees all aspects of the distribution process and
customer service policies in order to monitor and maintain customer
satisfaction. Prior to joining us, Ms. Blythe
assisted Mr. Shaw with the original 3mL syringe and other SBIR grant
projects. Ms. Blythe has a
Bachelors of Business Administration in management from the American
Intercontinental University.
John W. Fort III is our Director of Accounting. Mr. Fort joined us in March of 2000
as a Financial Analyst and has served as our Director of Accounting since October of
2002. His primary responsibilities
include managing the day-to-day operations of the Accounting and Finance
Department and coordination of the annual audits, and
29
Table of Contents
interim
reviews by our independent accountants, as well as our cost accounting and
forecasting functions. Prior to joining
us, he served as the Manager of Financial Planning for the product-marketing
department of Excel Communications. Mr. Fort
also served as the Manager of Budgeting and Projections for Snelling and
Snelling, Inc., an international personnel services firm. Mr. Fort holds a Bachelor of Business
Administration in Accounting from Tarleton State University.
James A. Hoover joined us in February 1996 and is
our Director of Quality Assurance. Prior
to his becoming Director of Quality Assurance he was Production Manager. He is responsible for our quality assurance
functions. 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 countrys first safety
syringes, the Monoject
®
.
R. John Maday joined us in July 1999 and is our
Production Manager. He is responsible
for supervision of the production of our products. Prior to becoming Production Manager on January 1,
2005, he served as our Production General Supervisor. Mr. Maday has over 27 years of
manufacturing experience in both class II and III medical devices. He spent three years with Mentor Corp.
supervising two production departments and 13 years with Sherwood in which he
gained hands-on experience in all aspects of medical device manufacturing
including managing the Kit and Packaging department with over 225 employees. Mr. Madays formal training includes FDA
and Total Quality Management Systems and he is certified as a Black Belt of Six
Sigma Methodology.
Judy Ni Zhu joined us in 1995 and is our Research and
Development Manager. Her primary focus
is on new product development and improvement of current products. Prior to joining us, Ms. Zhu worked as a
design engineer with Mr. Shaw on the original 3mL 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 the University of Texas at Arlington. Ms. Zhu has assisted in design
modifications for the 3mL 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 3mL 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.
FAMILY
RELATIONSHIPS
There are no family relationships among the above
persons except as set forth above.
DIRECTORSHIPS
IN OTHER COMPANIES
No Directors hold directorships in reporting
companies.
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 party to an alleged
violation of a securities law, commodities law, law or regulation respecting
financial institutions or insurance companies, law or regulation prohibiting
mail or wire fraud, or rules of any organization that has disciplinary
authority over its members.
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act requires our
Directors, executive officers, and persons who own more than 10% of a
registered class of our equity securities to file with the SEC initial reports
of beneficial ownership (Form 3)
30
Table of Contents
and
reports of changes in beneficial ownership (Forms 4 and 5) of our Common Stock
and our other equity securities.
Officers, Directors, and greater than 10% shareholders are required by
the SECs regulations to furnish us with copies of all Section 16
(a) reports they file.
All of our Directors, executive officers, and 10% shareholders filed all
reports timely.
CODE
OF ETHICS
Effective as of March 9, 2004, we adopted a code
of ethics that applies to all employees, including, but not limited to, our
principal executive and financial officers.
Our Code of Business Conduct and Ethics is designed to deter wrongdoing
and to promote:
1.
|
Honest and
ethical conduct, including the ethical handling of actual or apparent conflicts
of interests between personal and professional relationships;
|
|
|
2.
|
Full, fair,
accurate, timely, and understandable disclosure in reports and documents that
we file with, or submit to, the SEC and in our other public communications;
|
|
|
3.
|
Compliance with
applicable governmental laws, rules, and regulations;
|
|
|
4.
|
The prompt,
internal reporting of violations of the code to an appropriate person or
persons identified in the code; and
|
|
|
5.
|
Accountability
for adherence to the code.
|
The Code of Business Conduct
and Ethics was amended in 2009 to reflect the new name change for the NYSE Amex
and also primarily to add our Insider Trading Policy as it currently
stands. Other minor changes were also
made. A copy of the amended code is
incorporated herein as Exhibit No. 14.
We have posted a copy of the code on our website at
www.vanishpoint.com/investor.asp. Please
follow the link to Governance then follow the link to Charters, then click
on RVP Corporate Code of Conduct. Any
amendment to this code or waiver of its application to the principal executive
officer, principal financial officer, principal accounting officer, or
controller or similar person shall be disclosed to investors by means of a Form 8-K
filing with the SEC. We will provide to
any person without charge, upon request, a copy of such code of ethics. Such requests should be submitted in writing
to Mr. Douglas W. Cowan at 511 Lobo Lane, P.O. Box 9, Little Elm,
Texas 75068-0009.
AUDIT
COMMITTEE
We have a separately-designated standing Audit
Committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act consisting of Messrs. Clarence Zierhut, Marco Laterza, and
Marwan Saker. Each of the members of the
Audit Committee is independent as determined by the NYSE Amex rules.
Audit
Committee Financial Expert
The Board of Directors has determined that we have at
least one financial expert serving on the Audit Committee. Mr. Marco Laterza serves as our
designated Audit Committee Financial Expert.
Mr. Laterza is independent as it is defined for Audit Committee
members by the listing standards of the NYSE Amex.
Item 11. Executive Compensation.
COMPENSATION
DISCUSSION AND ANALYSIS
The
Objectives of Our Compensation Plan
Our executive officer compensation program (the Compensation
Program) is based on the belief that competitive compensation is essential to
attract, retain, motivate, and reward highly qualified and industrious
executive officers. Our Compensation
Program is intended to accomplish the following:
31
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attract
and retain highly talented and productive executive officers;
provide incentives and rewards for superior performance
by the executive officers; and
align the interests of executive officers with the
interests of our stockholders.
What
the Compensation Program Is Designed to Award
Our Compensation Program is designed to award both
superior long-term performance by our executive officers and their loyalty.
Summary
of Each Element of Compensation
To achieve these objectives, the Compensation and
Benefits Committee has approved an executive officer compensation program that
consists of three basic components:
base salary;
periodic long-term incentive compensation in the form
of stock options; and
medical, life, and benefit programs (which are
generally available on the same terms to all employees).
Why
We Choose to Pay Each Element of Our Compensation Program
Base
Salary
We choose to pay a significant component of our
compensation in base salary due to the fact that our financial performance is
constrained by the monopolistic activities of BD. We have been blocked from access to the
market by exclusive marketing practices engaged in by BD who dominates the
market. We believe that its monopolistic
business practices continue despite: (i) its paying $100 million to settle
a prior lawsuit with us in 2004 for anticompetitive practices, business
disparagement, and tortious interference and (ii) the fact that a jury
returned a verdict in November 2009 finding that all three patents
asserted by us against BD are valid and infringed by BD. Until such time as we believe that we have
access to the market, we believe that it is appropriate to weigh our
Compensation Program heavily in favor of base salaries rather than in incentive
compensation.
Long-Term
Incentives: Stock Options
Long-term incentives are provided through grants of
stock options. The grants are designed
to align the interests of executive officers with those of stockholders and to
provide each executive officer with a significant incentive to manage from the
perspective of an owner with an equity stake in the Company.
How
We Determine the Amount or Formula for Payment in Light of Our Objectives
Executive compensation remains the same until there is
a review of such compensation by the Compensation and Benefits Committee. Compensation, other than that of the Chief
Executive Officer, has generally not been reviewed annually. Under the terms of Mr. Shaws employment
agreement, his compensation is reviewed annually. In the past, when there is a review of
executive compensation, we have retained an outside consulting firm, Trinity
Executive Recruiters, Inc., to provide benchmarks for similar compensation
given the multiple and varied positions each executive fulfills as well as our
size and the hostile environment in which we operate.
Base
Salary
The base salary for each of our executive officers is
subjectively determined primarily on the basis of the following factors:
experience, individual performance, contribution to our performance, level of
responsibility, duties and functions, salary levels in effect for comparable
positions within and without our industry, and internal base salary
comparability considerations. However,
salaries can also be affected by our long-term needs.
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These
base salaries are reviewed periodically and may be adjusted based upon the
factors discussed in the previous sentence, as well as upon individual
performance during the previous fiscal year, changes in the duties,
responsibilities and functions of the executive officer, and general changes in
the compensation peer group in which we compete for executive talent. The relative weight given to each of these
factors in the Compensation and Benefits Committees recommendation differs
from individual to individual, as the Compensation and Benefits Committee deems
appropriate.
Beginning
August 1, 2009, all employees above a certain salary level had their
salaries reduced by 10%. This included
all Executive Officers. However, Mr. Shaws
Employment Agreement provides salary is automatically increased by the
percentage increase in the consumer price index (CPI) from the previous
year. The Compensation and Benefits Committee
decided to increase Mr. Shaws salary (which had also been previously cut
by 10%) by $11,254.04 for 2010.
Long-Term
Incentive: Stock Options
We
have issued stock options to our employees from time to time and may do so in
the future. We did not issue any stock
options in 2007. We issued new options
under the 2008 Stock Option Plan to purchase an aggregate of 962,683 shares of
Common Stock in exchange for the cancellation of tendered options pursuant to an
Exchange Offer in 2008. We issued incentive
stock options (ISOs) for the purchase of 269,956 shares of Common Stock and
Non Qualified Stock Options (NQSOs) for the purchase of 229,494 shares of
Common Stock to Executive Officers and Directors under the 2008 Stock Option
Plan in July 2009. Options are
generally granted to regular full-time employees and officers except to our
CEO.
In 2009, the Compensation and Benefits Committee
granted the first option to Thomas J. Shaw, our CEO, which option grant was
approved by the shareholders later that year.
The option was granted outside of any plan and was for the purchase of
3,000,000 shares of Common Stock. The
committee took into consideration, among other things, the following benefits
received and to be received by the Company in consideration for the grant of
the option:
Mr. Shaw has been
the primary developer of all of the Companys products and is crucial to the
recent development of a number of new products that are capable of expanding
the Companys product line both inside and (eventually) outside of the syringe
market;
Mr. Shaws active
participation and continuation with the Company is crucial for the success of
the Company in breaking into the market through its several ongoing
lawsuits. Mr. Shaws participation was crucial in obtaining the
Companys prior litigation settlements for tens of millions of dollars;
Mr. Shaw had his
salary reduced by 10% beginning on August 1, 2009;
Mr. Shaw only had a
substantive pay raise three times since the Companys incorporation in 1994;
Mr. Shaw has never
before been granted options despite the fact it is a standard compensation
practice for a person in his position; and
Mr. Shaw has never
before been granted a bonus despite the fact it is a standard compensation
practice for a person in his position.
If
stock options are to be issued, Management prepares a proposal to the
Compensation and Benefits Committee.
Considerations by Management in its initial proposal in determining a
suitable aggregate fair market value of options to be granted include our
financial condition, the number of options already outstanding, and the benefit
to the non-executive officer employees.
The proposal includes information relating to the expected expense of
such grants to be recognized by us, the approximate number of options to be
issued, the number of options
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currently outstanding,
the employees to be included, the amount of stock currently outstanding, and
the method under which the options would be awarded.
Once
the dollar amount of options to be granted is approved by the Compensation and
Benefits Committee, Management begins determining the aggregate number of
shares underlying options that can be granted under such approval (based on the
fair value of an option for the purchase of one underlying share). Factors included in the determination of the
value of an option grant for the purchase of one share include current market
price of the Companys stock, the proposed exercise price, the proposed
expiration date, the volatility of the Companys stock, and the risk free
rate. We may retain an independent
outside consultant to determine such value.
In the past we have utilized the Black-Scholes model as well as the
binomial model, but we may use other methods in the future as more appropriate
methods are developed.
Management
provides the Compensation and Benefits Committee with a proposal regarding
option grants to executive officers. If
the recommendation is acceptable, the committee grants the options. If the committee feels changes are merited,
it grants options on its own terms.
With
regard to many past grants, after the aggregate number of shares underlying the
options to be granted was determined, we allocated the options to our various
departments using a factor based on their annual compensation times their
performance rating. The individual
employees allocation factor was the numerator of a fraction. The denominator was the departments sum of
all factors (annual compensation times performance ratings of all the eligible
employees). The resulting fraction was
multiplied by the stock options to be awarded to determine the employees
individual portion of the aggregate approved options. Future grants may be based on the value of
contributions to the Company and not necessarily pursuant to any formula.
The
allocation was, from time to time, further reviewed by each departments
management if they believed certain employees were not awarded an appropriate
number of options, which Management would consider.
Each
stock option grant to employees allows the employee to acquire shares of Common
Stock at a fixed price per share (never less than the closing stock price of
the Common Stock on the date of grant) for a fixed period (usually ten
years). With regard to grants prior to
2009, each option generally became exercisable after three years, contingent
upon the employees continued employment with us. The exceptions include options issued to
Officers and Directors pursuant to the Exchange Offer, which vested immediately
for non-employee Directors and after one year for employees (including employee
Directors) and options granted in 2009 which vested in one year for executive
officers and immediately for non-employee Directors. Accordingly, generally stock option grants
will provide a return to the employee only if the employee remains employed by
us during the vesting period, and then only if the market price of the
underlying Common Stock appreciates.
Future grants may vest over a shorter or longer period.
How
Each Compensation Element and Decision Fits Into Overall Compensation
Objectives
Our
Compensation Program is intended to accomplish the following objectives: 1)
attract and retain highly talented and productive executive officers; 2)
provide incentives and rewards for superior performance by the executive
officers; and 3) align the interests of executive officers with the interests
of our stockholders.
We ensure, through periodic retention of
compensation consulting experts to provide a benchmark analysis of industry
compensation, that overall compensation is sufficient to attract and retain
highly talented and productive executive officers. We pay the bulk of our compensation in the
form of cash compensation due to the fact that competing in an anti-competitive
environment means that results will not always be commensurate with
performance. We believe that the
performance of our executives has been outstanding. We believe this is especially true given the
anti-competitive environment in which we operate. Bonuses are granted from time to time (the
last time in 2003) to recognize extraordinary performance and/or extraordinary
job requirements. We believe this
approach and weighting of compensation elements is necessary to retain our
executive talent due to the environment in which we operate.
Periodically, we grant stock options with the intent
to provide both an incentive and reward to executive officers for long-term
performance and to align the interests of our employees with that of the
shareholders.
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Allocation
Between Long-Term/Current and Between Cash/Non-Cash Compensation
All of
our long-term compensation consists of non-cash compensation in the form of
stock options. We believe that the
granting of stock options incentivizes executives to maximize our long-term
strengths as well as our stock price.
However, because we are operating in a monopolistic environment and our
stock price has little relationship with our performance, the most significant
component of compensation is base salary and not stock options. Management is incented to maximize
shareholder value and will be rewarded if they do so. However, a significant base salary enables us
to retain this competent Management despite the current inability to provide
valuable equity incentives.
How
Determinations Are Made as to When Awards Are Granted
Generally,
option awards to executive officers are granted by the Compensation and
Benefits Committee and for others are granted at the discretion of the Board
after recommendation of the Compensation and Benefits Committee or on the
committees own initiative. No awards
are granted if the Compensation and Benefits Committee does not support a
recommendation.
Unfortunately,
our stock price does not always react as expected to our achievements. Accordingly, at times options have been
granted to aid in retaining competent and experienced executives without regard
to the then current stock price.
However, such options always have exercise prices that are at or above
fair market value on the date of grant.
In
addition, there is no relationship between the date of grant of options and our
possession of material non-public information (i.e. we grant options without
regard to whether or not we are in possession of material non-public
information as we usually are in possession of such information). Furthermore, it is our policy with regard to
options that (although the options could be exercised) the underlying shares
could not be sold into the market while the executive was in possession of
material non-public information under our insider trading policy. Accordingly, we believe that there is minimal
risk of the executive profiting from such material nonpublic information.
What
Specific Items of Corporate Performance Are Taken Into Account in Setting
Compensation Policies and Making Compensation Decisions
Cash
reserves as well as trends in sales and costs are taken into account when
considering the advisability of increasing base salaries or granting cash
bonuses. However, no specific items of
corporate performance are taken into account in setting executive compensation
due to the fact that we compete in a monopolistic environment and, therefore,
significant achievement or performance is not always correlated with corporate
results. At such times that any of these
factors make it inadvisable to increase salaries or grant bonuses as advisable,
then consideration is given to increasing option awards taking into account the
value of prior option awards.
Awards
are granted on the basis of historical performance. Accordingly, there is no discretion to change
the awards once granted.
How
Compensation Reflects Individual Performance
Executive compensation is not based on the
individuals contribution to specific, quantitative corporate objectives due to
the fact that we compete in a monopolistic environment. However, individuals contribution to the
Companys performance is determined pursuant to qualitative factors as
discussed above under
How We Determine the
Amount or Formula for Payment in Light of Our Objectives.
Factors
We Consider in Determining to Change Compensation Materially
We
consider our cash position, current liquidity trends, and the short-term and
long-term needs for cash reserves (especially in light of the hostile
environment in which we operate) when evaluating whether we can change
compensation materially at a given time.
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On an
individual-by-individual basis, we also consider the value of past option
compensation, the competitiveness of that individuals base salary, and that
individuals contribution to our goals.
The
Impact of the Accounting and Tax Treatments of Our Types of Compensation
Stock
options granted to executives and other employees are expensed for accounting
purposes under the Stock Compensation Topic of the Codification. We expense all of our option costs as we do
the costs of salaries and any periodic bonuses.
Accordingly, the impact of tax treatment of various compensation forms
does not impact our compensation decisions.
Stock option expense is not recognized for tax purposes, except in the
case of non-qualified stock options. For
non-qualified stock options, the intrinsic value of the option is recognized
when the option is exercised.
Our
Policy Regarding Stock Ownership and Hedging
We do
not have a policy regarding stock ownership by executive officers. We prohibit certain stock transactions by
employees and Directors, including:
1. Purchases and sales of stock within
a six month period;
2. Short sales; and
3. Transactions in puts, calls, or
other derivative securities.
Furthermore,
employees and Directors are required to pre-clear any hedging transactions.
Benchmarking
of Our Compensation Program
In
2003, we hired Trinity Executive Recruiters, Inc. to assist us in
providing benchmarks for the salary component of executive compensation by
similarly sized companies in similar industries for persons that hold positions
which are currently fulfilled by various members of our executive team. These benchmarks support existing executive
compensation.
The
Role of Our Executives and Directors in Determining Compensation
Management
establishes the initial recommendations regarding compensation for all
employees, including themselves. Such
proposal is then submitted to the Compensation and Benefits Committee for its
approval.
Compensation
Pursuant to Employment Agreement
We
have an Employment Agreement with Mr. Thomas J. Shaw which was modified
effective January 1, 2008 to avoid adverse tax consequences to Mr. Shaw
created by the passage of the American Jobs Creation Act of 2004. No other executives or Directors are
compensated pursuant to employment agreements.
Our
Employment Agreement with Mr. Shaw (the Employment Agreement) provides
for an initial period of three years which ends December 31, 2010 that
automatically and continuously renews for consecutive two-year periods. The Employment Agreement is terminable either
by us or Mr. Shaw upon 30 days written notice or upon Mr. Shaws death.
The
Employment Agreement provides for an annual salary of at least $416,399.88 with
an annual salary increase equal to no less than the percentage increase in the
CPI over the prior year. The Employment
Agreement requires that Mr. Shaws salary be reviewed by the Compensation
and Benefits Committee annually, which shall make such increases as it
considers appropriate. Mr. Shaw
took a 10% salary cut in August of 2009, along with all other executive
officers and other employees earning over a certain salary. In 2010, the Compensation and Benefits
Committee increased his salary by $11,254.04.
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Under
the Employment Agreement, we are obligated to provide certain benefits,
including, but not limited to, participation in qualified pension plan and
profit-sharing plans, participation in the Companys Cafeteria Plan and other
such insurance benefits provided to other executives, paid vacation, and sick
leave. We are also obligated to furnish
him with a cellular telephone and suitable office space as well as reimburse
him for any reasonable and necessary out of pocket travel and entertainment
expenses incurred by him in carrying out his duties and responsibilities,
membership dues to professional organizations, and any business-related
seminars and conferences.
Pursuant
to the Employment Agreement, we are obligated to indemnify Mr. Shaw for
all legal expenses, court costs, and all liabilities incurred in connection
with any proceeding involving him by reason of his being an officer, employee,
or agent of the Company. We are further
obligated to pay reasonable attorney fees and expenses and court and other
costs associated with his defense in the event that, in Mr. Shaws sole
judgment, he needs to retain counsel or otherwise expend his personal funds for
his defense.
Upon
his death, Mr. Shaws estate shall be entitled to his salary through the
date of death, applicable benefits, and reimbursement of expenses.
We
have the right to terminate the Employment Agreement if Mr. Shaw incurs a
permanent disability during the term of his employment. A permanent disability means that Mr. Shaw
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months or is, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected
to last for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than 3 months under an accident
and health plan covering employees of the Company. Mr. Shaw shall also be deemed to be
disabled if he is determined to be totally disabled by the Social Security
Administration. In such event, Mr. Shaw
is entitled to his salary through the date of termination, reimbursement of
expenses, and salary for a period of 24 months as well as applicable benefits.
Mr. Shaws
employment may be terminated for cause which is defined to be conviction of a
felony which is materially detrimental to the Company, proof, as determined
finally by a court of competent jurisdiction of the gross negligence or willful
misconduct which is materially detrimental to the company or proof, as
determined finally by a court of competent jurisdiction, of a breach of a
fiduciary duty which is materially detrimental to the Company. In such event, he shall be entitled to his
salary through the date of termination plus reimbursement of expenses.
If Mr. Shaw
is terminated without cause and not at his implicit request, Mr. Shaw
shall be entitled to his salary through the date of termination, reimbursement
of expenses, his salary for 24 months, as well as applicable benefits.
If Mr. Shaw
resigns (other than because of a change in control), he is entitled to his
salary through the date of termination, reimbursement of expenses, salary for
90 days, and applicable benefits.
Mr. Shaw
has the right under this agreement to resign in the event that there is a
change in control. A Change of Control
shall be deemed to have occurred on either of the following dates: (i) the
date any one person (other than Mr. Shaw), or more than one person acting
as a group, acquires (or has acquired during the 12-month period ending on the
date of the most recent acquisition by such person or persons) ownership of
stock of the Company possessing 30% or more of the total possible voting power
of the stock of the Company (assuming the immediate conversion of all then
outstanding convertible preferred stock) or (ii) the date a majority of
members of the Board of Directors is replaced during any 12-month period by
Directors whose appointment or election is not endorsed by a majority of the
members of the Companys Board of Directors before the date of the appointment
or election. Mr. Shaw further has
the right to resign if there is a change in ownership. A change in ownership is defined to have
occurred on the date that any one person (other than Mr. Shaw) or more
than one person acting as a group acquires ownership of the Companys stock
that, together with the stock previously held by such person or group
constitutes more than 50% of the total fair market value or total voting power
(assuming the immediate conversion of all then outstanding convertible
preferred stock) of the Company. In such
event Mr. Shaw is entitled to salary through the date of termination,
salary for 24 months, reimbursement of expenses and applicable benefits.
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Mr. Shaws
commitment to the Company may not be construed as preventing him from
participating in other businesses or from investing his personal assets as may
require occasional or incidental time in the management, conservation, and
protection of such investments provided such investments or businesses cannot
be construed as being competitive or in conflict with the business of the
Company.
Mr. 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 or ownership.
Compensation Committee Report
The
Compensation and Benefits Committee has reviewed and discussed the COMPENSATION
DISCUSSION AND ANALYSIS required by Item 402(b) with Management, and,
based on the review and discussions referred to in paragraph (e)(5)(i)(A) of
Item 407, has recommended to the Board of Directors that the COMPENSATION
DISCUSSION AND ANALYSIS be included in this report on Form 10-K.
CLARENCE ZIERHUT
MARCO LATERZA
AMY MACK
SUMMARY OF TOTAL
COMPENSATION
The
following Summary Compensation Table sets forth the total compensation paid or
accrued by us over the prior three years to or for the account of the principal
executive officer, the principal financial officer, and the three highest paid
additional executive officers:
SUMMARY
COMPENSATION TABLE FOR 2007-2009
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Option
Awards
(1)
($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
Thomas
J. Shaw
|
|
2007
|
|
400,000
|
|
|
|
4,200
|
(2)
|
404,200
|
|
President
and CEO
|
|
2008
|
|
416,548
|
|
|
|
4,600
|
(2)
|
421,148
|
|
(principal
executive officer)
|
|
2009
|
|
399,887
|
|
1,762,500
|
|
4,808
|
(2)
|
2,167,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
W. Cowan
|
|
2007
|
|
290,109
|
|
778
|
|
4,200
|
(2)
|
295,087
|
|
Vice
President, CFO
|
|
2008
|
|
290,000
|
|
6,460
|
|
4,600
|
(2)
|
301,060
|
|
(principal
financial officer)
|
|
2009
|
|
278,289
|
|
57,575
|
|
3,346
|
(2)
|
339,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
R. Wisner
|
|
2007
|
|
290,000
|
|
758
|
|
4,200
|
(2)
|
294,958
|
|
Executive
Vice President,
|
|
2008
|
|
290,020
|
|
6,694
|
|
4,600
|
(2)
|
301,314
|
|
Engineering
and Production
|
|
2009
|
|
278,289
|
|
13,806
|
|
3,123
|
(2)
|
295,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michele
M. Larios
|
|
2007
|
|
350,000
|
|
797
|
|
4,200
|
(2)
|
354,997
|
|
Vice
President,
|
|
2008
|
|
350,540
|
|
6,843
|
|
4,600
|
(2)
|
361,983
|
|
General
Counsel
|
|
2009
|
|
336,676
|
|
89,858
|
|
4,047
|
(2)
|
430,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell
B. Kuhlman
|
|
2007
|
|
134,779
|
|
369
|
|
2,695
|
(2)
|
137,843
|
|
Vice
President, Sales
|
|
2008
|
|
140,000
|
|
4,019
|
|
2,800
|
(2)
|
146,819
|
|
|
|
2009
|
|
133,769
|
|
14,688
|
|
1,606
|
(2)
|
150,063
|
|
(1) Except for the
option granted to Mr. Shaw, all options issued during or after 2008 were
granted under the 2008 Stock Option Plan, a copy of which is incorporated
herein as
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Exhibit No. 10.9. Options issued prior to 2008 were issued
under either the 1996 Incentive Stock Option Plan, the 1996 Stock Option Plan
for Directors and Other Individuals, or under the 1999 Stock Option Plan. The
employees who had such options were permitted to exchange them for options
granted under the 2008 Stock Option Plan pursuant to an Exchange Offer in 2008.
The
fair value of each option grant prior to 2008 was estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 2004: no dividend yield; expected
volatility of 37%; risk free interest rate of 4.89%; and an expected life of
9.0 years. No options were issued in
2006 or 2007.
Options
granted before 2008 were issued under the 1999 Stock Option Plan, a copy of
which Plan and amendment were filed as exhibits to our Form 10-SB filed on
June 23, 2000 and our Form 10-KSB filed on March 31, 2003,
respectively. Option award expense for
grants issued before 2008 were fully amortized by the first quarter of 2007.
Option
award expense for 2008 is that portion of the fair value of the options issued
under the Exchange Offer in 2008. The
expense for the options issued under the Exchange Offer was fully amortized in
2009. The fair value of each 2008 option
grant was estimated on the date of grant using the binomial option pricing
model with the following weighted average assumptions used for grants in 2008:
no dividend yield; expected volatility of 67.53%; risk free interest rate of
2.83%; and an expected life of 8.61 to 8.69 years. The options were issued under the 2008 Stock
Option Plan, a copy of which Plan was filed as Appendix B to our definitive
Schedule 14A filed on August 19, 2008.
The
fair value of each 2009 grant is estimated on the date of the grant using the
Black-Scholes pricing model with the following weighted average assumptions
used for grants in 2009: expected volatility of 67.53%, risk free interest rate
of 3.35%, and an expected life of 8.61 to 8.69 years. Other than the options
issued to Mr. Shaw, the options were issued under the 2008 Stock Option Plan.
(2) This amount was compensation pursuant
to our matching contributions to the 401(k) plan.
GRANTS OF PLAN-BASED
AWARDS
The
following Grants of Plan-Based Awards for 2009 Table sets forth information
regarding grants of awards made under any plan to each named executive officer
in the last completed fiscal year.
Grants of
Plan-Based Awards for 2009
Name
|
|
Grant
Date
|
|
Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards
Target
#
|
|
All Other
Option
Awards:
Number of
Shares of
Stocks or
Units
#
|
|
Exercise
or base
price of
option
awards
$/share
|
|
Grant
date
fair value
of stock
and option
awards
|
|
Thomas
J. Shaw
|
|
7/15/09
|
|
|
|
3,000,000
|
|
$0.81
|
|
$ 1,762,500
|
|
President
and CEO
|
|
|
|
|
|
|
|
|
|
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
W. Cowan
|
|
7/15/09
|
|
98,000
|
|
|
|
$0.81
|
|
$ 57,575
|
|
Vice
President, CFO
|
|
|
|
|
|
|
|
|
|
|
|
(principal
financial officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
R. Wisner
|
|
7/15/09
|
|
23,500
|
|
|
|
$0.81
|
|
$ 13,806
|
|
Executive
Vice President,
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
and Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michele
M. Larios
|
|
7/15/09
|
|
123,456
|
|
29,494
|
|
$0.81
|
|
$ 89,858
|
|
Vice
President,
|
|
|
|
|
|
|
|
|
|
|
|
General
Counsel
|
|
|
|
|
|
|
|
|
|
|
|
39
Table of Contents
Name
|
|
Grant
Date
|
|
Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards
Target
#
|
|
All
Other
Option
Awards:
Number of
Shares of
Stocks or
Units
#
|
|
Exercise
or base
price of
option
awards
$/share
|
|
Grant
date
fair value
of stock
and option
awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell
B. Kuhlman
|
|
7/15/09
|
|
25,000
|
|
|
|
$0.81
|
|
$ 14,688
|
|
Vice
President, Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narrative
Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Please
see
Compensation Pursuant to Employment Agreement
and POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL below for terms of
our only employment agreement in effect.
The
material terms of awards reported in the Grants of Plan-Based Awards Table
include that such options vest on July 15, 2010 (assuming the recipient is
still employed by us) and expire on July 15, 2019. All options granted to Named Executive
Officers in 2009 have an exercise price per share equal to the close of
business stock price on July 15, 2009 ($0.81). The Compensation and Benefits Committee
approved the grant of these stock options on July 15, 2009. All options (except to Mr. Shaw) were
granted under the 2008 Stock Option Plan, a copy of which Plan was filed as
Appendix B to our definitive Schedule 14A filed on August 19, 2008. Mr. Shaws stock option was granted
outside of any plan under similar terms and conditions as those set forth under
the 2008 Stock Option Plan, with the exception that Mr. Shaws option
terminates after 10 years and not five years from the date of grant.
(See Exhibit No. 10.10)
Mr. Shaws stock option was approved by shareholders
at the annual meeting in 2009.
The
ratios of salary and bonus to total compensation for 2009, for each Named
Executive Officer is as follows:
Thomas J. Shaw
|
|
18.5
|
%
|
Steven R. Wisner
|
|
94.3
|
%
|
Douglas W. Cowan
|
|
82.0
|
%
|
Michele M. Larios
|
|
78.2
|
%
|
Russell Kuhlman
|
|
89.1
|
%
|
OUTSTANDING EQUITY AWARDS
AT FISCAL YEAR-END
The
following Outstanding Equity Awards at Fiscal Year-End Table sets forth
information regarding unexercised options held by the principal executive
officer, the principal financial officer, and the three highest paid additional
executive officers as of December 31, 2009.
40
Table of
Contents
Outstanding
Equity Awards at 2009 Fiscal Year End
|
|
|
Option
Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
Unexercisable
(1)
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options
(#)
(2)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
J. Shaw
|
|
|
|
3,000,000
|
|
|
|
0.81
|
|
7-15-19
|
|
President,
CEO
|
|
|
|
|
|
|
|
|
|
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
W. Cowan
|
|
102,000
|
|
|
|
|
|
1.30
|
|
11-18-18
|
|
Vice
President, CFO
|
|
|
|
|
|
98,000
|
|
0.81
|
|
7-15-19
|
|
(principal
financial officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
R. Wisner
|
|
100,700
|
|
|
|
|
|
1.30
|
|
11-18-18
|
|
Executive
Vice President,
|
|
|
|
|
|
23,500
|
|
0.81
|
|
7-15-19
|
|
Engineering
and Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michele
M. Larios
|
|
97,050
|
|
|
|
|
|
1.30
|
|
11-18-18
|
|
Vice
President,
|
|
|
|
|
|
123,456
|
|
0.81
|
|
7-15-19
|
|
General
Counsel
|
|
|
|
29,494
|
|
|
|
0.81
|
|
7-15-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell
B. Kuhlman
|
|
63,450
|
|
|
|
|
|
1.30
|
|
11-18-18
|
|
Vice
President, Sales
|
|
|
|
|
|
25,000
|
|
0.81
|
|
7-15-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
These options will vest on July 15, 2010,
assuming the recipient is still employed by us.
(2)
These options will vest on July 15, 2010,
assuming the recipient is still employed by us.
PENSION BENEFITS
We do
not have a pension plan other than the 401(k) plan which is available to
all employees the first of the month after 90 days of service.
401(k) Plan
We
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. 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. We
may, at our discretion, match employee contributions. We made matching contributions of
approximately $76,643 and $122,000 in 2009 and 2008, respectively. $16,930 and $21,095 of these matching
contributions were to executive officers in 2009 and 2008, respectively. We suspended matching contributions beginning
August 1, 2009 until further notice.
POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE IN CONTROL
The
following table identifies the types and amounts of payments that shall be made
to Mr. Thomas Shaw, our CEO, in the event of a termination of his
employment or a change in control per his Employment Agreement. Such payments shall be made by us and shall
be one-time, lump sum payments except as indicated below.
41
Table of
Contents
SUMMARY
OF PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
ASSUMING
OCCURRENCE AS OF DECEMBER 31, 2009
(1)
Payment
Triggering Event
|
|
Salary
Through
Trigger
Event
Date
|
|
Amounts
Owed
Under
Benefit
Plans
(2)
|
|
Reimbursement
of Expenses
|
|
Undiscounted
Salary
For a Period of 24
Months
|
|
Payment
Equal to
90 Days
Salary
|
|
Value
of
Payments
(3)
|
|
Death
|
|
x
|
|
x
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability
|
|
x
|
|
x
|
|
x
|
|
750,270
|
|
|
|
750,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination With Cause
|
|
x
|
|
|
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause
|
|
x
|
|
x
|
|
x
|
|
750,270
|
|
|
|
750,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resignation (Other Than After a Change in Control)
|
|
x
|
|
x
|
|
x
|
|
|
|
92,499
|
|
92,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resignation (After a Change in Control)
|
|
x
|
|
x
|
|
x
|
|
750,270
|
|
|
|
750,270
|
|
(1)
The above payments would be paid under Mr. Shaws
agreement at certain times. Any payments
arising as a result of disability or resignation would be paid not sooner than
six months and one day from the termination date but not later than seven
months from the termination date. Any
payments arising as a result of death would be paid no later than the 90
th
day following
the death. Payments arising as a result
of termination with cause or termination without cause would be paid not later
than the 30
th
day following the date of termination except
that any amount due in excess of an amount equal to the lesser of two times
annual compensation or two times the limit on compensation under section
401(17) of the Internal Revenue Code of 1986 such amount in excess shall be
paid no earlier than six months and one day after the date of termination but
in no event later than seven months after the date of termination. Under Mr. Shaws agreement, Mr. 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. However, it is not clear that
the above payments are conditioned on the performance of these contractual
obligations.
(2)
Mr. Shaw participates in our benefit
plans which do not discriminate in scope, terms, or operation in favor of
executive officers. Such plans are
generally available to all salaried employees.
Accordingly, the value of such payments is not included in the Value of
Payments column.
(3)
This value does not include payments
under our benefit plans for reasons set forth in footnote 2 above. In addition, this value assumes that the
triggering event occurred on December 31, 2009. Authorized payments under the Employment
Agreement are also capped to one dollar less than the amount that would cause Mr. Shaw
to be the recipient of a parachute payment under Section 280G(b) of
the Internal Revenue Code.
COMPENSATION OF DIRECTORS
The
following table identifies the types and amounts of compensation earned by our
Directors (with the exception of those that are named Executive Officers as
described in footnote 1 to the table) in the last Fiscal Year:
42
Table of
Contents
DIRECTOR
COMPENSATION TABLE FOR 2009
Name
(1)
|
|
Fees
Earned
or
Paid in
Cash
($)
|
|
Option
Awards
($)
(2)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
Marco
Laterza
|
|
$
|
3,000
|
|
$
|
29,280
|
|
$
|
|
|
$
|
32,280
|
|
Amy
Mack
|
|
$
|
2,500
|
|
$
|
29,280
|
|
$
|
9,940
|
(3)
|
$
|
41,720
|
|
Marwan
Saker
|
|
$
|
3,000
|
|
$
|
29,280
|
|
$
|
|
|
$
|
32,280
|
|
Clarence
Zierhut
|
|
$
|
3,000
|
|
$
|
29,280
|
|
$
|
|
|
$
|
32,280
|
|
(1)
Messrs. Thomas J. Shaw, Douglas W.
Cowan, and Steven Wisner are Named Executive Officers who are also
Directors. Their compensation is
reflected in the Summary Compensation and other tables presented earlier.
(2)
Aggregate shares underlying options
granted to each Director are as follows:
Thomas J. Shaw
|
|
3,000,000
|
Steven R. Wisner
|
|
124,200
|
Douglas W. Cowan
|
|
200,000
|
Marco Laterza
|
|
50,000
|
Clarence Zierhut
|
|
62,500
|
Marwan Saker
|
|
90,500
|
Amy Mack
|
|
50,000
|
The fair value of each 2009 grant is estimated on
the date of the grant using the Black Scholes pricing model with the following
assumptions: expected volatility of 67.53%, risk free interest rate of 3.35%,
and an expected life of 8.61 years. These options were issued under the 2008 Stock
Option Plan.
(3)
Ms. Macks company was paid these
funds for participating in clinical trials in 2009.
Narrative
Explanation of Director Compensation Table for 2009
In
2009 we paid each non-employee Director a fee of $500 per meeting and
reimbursed travel expenses. We have
granted to each Director stock options for Common Stock. We do not pay any additional amounts for
committee participation or special assignment.
Generally,
employee Directors are compensated on an at-will basis as discussed in the
COMPENSATION DISCUSSION AND ANALYSIS.
However, one employee, Mr. Thomas J. Shaw, our President and CEO,
is compensated pursuant to an employment agreement. Please see
Compensation
Pursuant to Employment Agreement
, set forth above for an in depth
summary of the terms of such agreement.
Compensation
Committee Interlocks and Insider Participation
The
Compensation and Benefits Committee is currently composed of Messrs. Clarence
Zierhut and Marco Laterza and Ms. Amy Mack. Each of these members of this committee is an
independent Board member and none have ever been employees.
There
are no interlocking Directors or executive officers between us and any other
company. Accordingly, none of our
executive officers or Directors served as a Director or executive officer for
another entity one of whose executives or Directors served on our Board of
Directors.
COMPENSATION POLICIES AND
PRACTICES AS THEY RELATE TO RISK MANAGEMENT
We do
not believe that risk-taking incentives are created by our compensation
policies. We do not have business
units. We believe that our compensation
expense is a reasonable percentage of revenues overall. We have not set specific performance criteria
for the award of bonuses. Salaries are
awarded based on skill, experience, and our overall revenues. Non-cash awards to employees are made
periodically in the form of stock options, which we believe align the
employees interests with those of stockholders. We review our compensation policies and
practices as they relate to risk management objectives if compensation amounts
are materially amended or if our risk
43
Table of
Contents
profile changes. No changes to our compensation policies and
practices have been implemented as a result of changes to our risk profile.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters.
EQUITY COMPENSATION PLAN
INFORMATION
The
following table sets forth information relating to our equity compensation plans
as of December 31, 2009:
Equity
Compensation Plan Information
|
|
|
|
|
|
Number
of securities
|
|
|
|
|
|
|
|
remaining
available
for
|
|
|
|
|
|
|
|
future
issuance under
|
|
|
|
Number
of securities to
|
|
Weighted
average
|
|
equity
compensation
|
|
|
|
be
issued upon exercise
|
|
exercise
price of
|
|
plans
(excluding
|
|
|
|
of
outstanding options,
|
|
outstanding
options,
|
|
securities
reflected
|
|
|
|
warrants
and rights
|
|
warrants
and rights
|
|
in
column(a))
|
|
Plan category
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
5,888,128
|
|
$
|
1.08
|
|
150,892
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders*
|
|
225,000
|
|
$
|
6.90
|
|
0
|
|
|
|
|
|
|
|
|
|
Total
|
|
6,113,128
|
|
$
|
1.29
|
|
150,892
|
|
*
We authorized the issuance of an
individual option plan for the purchase of 200,000 shares of Common Stock to
Jimmie Shiu, M.D., for his past services in introducing us to purchasers of
various series of Preferred Stock as well as for introducing us to Mr. Jack
Jackson, who controlled Katie Petroleum.
The option is exercisable at $6.90 per share and will terminate in 2012.
We
authorized the issuance of an individual option plan for the purchase of 25,000
shares of Common Stock to Mr. Harry Watson for his past services in
assisting us in protecting our intellectual property. The option is exercisable at $6.90 per share
and will terminate in 2012.
The
Compensation and Benefits Committee authorized (and the shareholders approved)
a grant of an option for the purchase of 3,000,000 shares of Common Stock to
our CEO, Thomas J. Shaw. The option is
exercisable at a price of $0.81 per share, the market price on the date of
grant. The option will terminate in
2019.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information
regarding the beneficial ownership of our capital stock as of March 1,
2010, for each person known by us to own beneficially 5% or more of the voting
capital stock. Except pursuant to applicable community property laws,
each shareholder identified in the table possesses sole voting and investment
power with respect to his or her shares, except as noted below.
44
Table of
Contents
Title of Class
|
|
Name
and Address of
Beneficial Owner
|
|
Amount
and
Nature of
Beneficial
Ownership
|
|
Percent
of
Class
(1)
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Thomas J. Shaw
(2)
511 Lobo Lane
P.O. Box 9
Little Elm, TX
75068-0009
|
|
14,580,000
|
|
54.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Suzanne M. August
(3)
5793 Lois Lane
Plano, TX 75024
|
|
2,800,000
|
|
11.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Lillian E. Salerno
(4)
432 Edwards
Lewisville, TX 75067
|
|
1,968,500
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Lloyd I.
Miller, III
(5)
4550 Gordon Drive
Naples, FL 34102
|
|
1,224,075
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
Class B
Stock
|
|
|
|
|
|
|
|
|
|
Thomas J. Shaw
|
|
80,000
|
|
3.5
|
%
|
|
|
Lillian E. Salerno
|
|
12,500
|
|
<1
|
%
|
(1)
The Percent of Class is calculated
for the Common Stock class by dividing each beneficial owners Amount of
Beneficial Ownership, as shown in the table above, by the sum of the total
outstanding Common Stock (23,825,149 shares) plus that beneficial owners stock
equivalents (options and/or preferred stock), if any. The Percent of Class is calculated for
the Class B stock by dividing each beneficial owners Amount of Beneficial
Ownership, as shown in the table above, by the total outstanding Class B
shares (2,285,266 shares).
(2)
3,000,000 of the shares identified as
Common Stock are shares acquirable through the exercise of a stock option
beginning on July 15, 2010. 80,000
of the shares identified as Common Stock are preferred shares which are
eligible for conversion into Common Stock. 2,800,000 of the shares are
owned by Ms. Suzanne August (see footnote 3) but are controlled by Mr. Shaw
pursuant to a Voting Agreement. These shares are permanently controlled
by Mr. Shaw until such time as they are sold by Ms. August.
These shares are included in calculating Mr. Shaws percentages in the
above table.
(3)
Ms. Augusts 2,800,000 shares are
controlled by Mr. Thomas J. Shaw pursuant to a Voting Agreement.
Accordingly, they are also included in the Common Stock equivalents and
percentages for Mr. Shaw in the above table.
(4)
12,500 of the shares identified as Common
Stock are preferred shares which are eligible for conversion into Common Stock
and 25,000 shares identified as Common Stock are shares which are obtainable by
the exercise of options.
(5)
The number of shares held by this person
was obtained from a Schedule 13G/A filed on February 8, 2010.
Pursuant to the Schedule 13G/A, Lloyd I. Miller has sole voting and dispositive
power for 303,300 of the shares, and shared voting and dispositive power for
920,775 shares.
45
Table of
Contents
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets
forth certain information regarding the beneficial ownership of our capital
stock as of March 1, 2010, for each Named Executive Officer specified by
Item 402 of Regulation S-K (i.e., our CEO, CFO, and three other highest paid
officers) and Director of the Company. Except pursuant to applicable
community property laws or as otherwise discussed below, each shareholder
identified in the table possesses sole voting and investment power with respect
to his or her shares.
Title
of Class
|
|
Name
of
Beneficial Owner
|
|
Amount
and
Nature of
Beneficial
Ownership
|
|
Percent
of
Class
(1)
|
|
Common Stock
|
|
|
|
|
|
|
|
As a Group
|
|
Named Executive
Officers and Directors
|
|
15,887,650
|
|
59.6
|
%
|
As Individuals
|
|
Thomas J. Shaw
(2)
|
|
14,580,000
|
|
54.2
|
%
|
|
|
Marwan Saker
(3)
|
|
445,500
|
|
1.8
|
%
|
|
|
Clarence Zierhut
(4)
|
|
72,500
|
|
<1
|
%
|
|
|
Douglas W. Cowan
(5)
|
|
200,000
|
|
<1
|
%
|
|
|
Steven R. Wisner
(6)
|
|
129,200
|
|
<1
|
%
|
|
|
Russell B. Kuhlman
(7)
|
|
89,450
|
|
<1
|
%
|
|
|
Michele M. Larios
(8)
|
|
261,000
|
|
1.1
|
%
|
|
|
Marco Laterza
(9)
|
|
60,000
|
|
<1
|
%
|
|
|
Amy Mack
(10)
|
|
50,000
|
|
<1
|
%
|
Class B Stock
|
|
|
|
|
|
|
|
As a Group
|
|
Named Executive
Officers and Directors
|
|
435,000
|
|
19.0
|
%
|
As Individuals
|
|
Thomas J. Shaw
|
|
80,000
|
|
3.5
|
%
|
|
|
Marwan Saker
|
|
355,000
|
|
15.5
|
%
|
(1)
The Percent of Class is calculated
for the individuals holding Common Stock by dividing each beneficial owners
Amount of Beneficial Ownership, as shown in the table above, by the sum of the
total outstanding Common Stock (23,825,149 shares) plus that beneficial owners
stock equivalents (options and/or preferred stock), if any. The Percent of Class is calculated for
the As a Group rows by totaling all of the Percent of Class percentages
appearing in the chart for individuals for each relevant class. The Percent of Class is calculated for
the Class B stock by dividing each beneficial owners Amount of Beneficial
Ownership, as shown in the table above, by the total outstanding Class B
shares (2,285,266 shares).
(2)
3,000,000 of the shares identified as
Common Stock are shares acquirable through the exercise of a stock option
beginning on July 15, 2010. 80,000 of the shares identified as Common
Stock are preferred shares which are eligible for conversion into Common
Stock. 2,800,000 of the shares are owned by Ms. Suzanne August
but are controlled by Mr. Shaw pursuant to a Voting Agreement. These
shares are permanently controlled by Mr. Shaw until such time as they are
sold by Ms. August. These shares are included in calculating Mr. Shaws
percentages in the above table.
(3)
355,000 shares identified as Common Stock
are preferred shares which are eligible for conversion into Common Stock. The
shares are held as follows: Saker Investments holds 15,500 shares of Series IV
Class B Convertible Preferred Stock and 25,000 shares of Series V Class B
Convertible Preferred Stock, Sovana Cayman Islands, Inc. holds 300,000
shares of Series IV Class B Convertible Preferred Stock, and My
Investments Co. LLC holds 14,500 shares of Series IV Class B
Convertible Preferred Stock. Mr. Saker is an Officer or Director and
shareholder for each of these companies. The remaining 90,500 shares identified
as Common Stock are shares currently obtainable through the exercise of options
held by Mr. Saker.
(4)
62,500 of these shares identified as
Common Stock are shares acquirable by the exercise of stock options.
46
Table of
Contents
(5)
102,000 of these shares identified as
Common Stock are shares acquirable by the exercise of stock options and the
remainder vest in July 2010.
(6)
100,700 of these shares identified as Common
Stock are shares acquirable by the exercise of stock options and options for
the purchase of 23,500 shares vest in July 2010.
(7)
63,450 of these shares identified as
Common Stock are shares acquirable by the exercise of stock options and options
for the purchase of 25,000 vest in July 2010.
(8)
97,050 of these shares identified as
Common Stock are shares acquirable by the exercise of stock options and options
for the purchase of 152,950 shares vest in July 2010.
(9)
50,000 of these shares identified as
Common Stock are shares acquirable by the exercise of stock options.
(10)
These shares identified as Common Stock
are shares acquirable by the exercise of stock options.
There are no arrangements, the operation of which
would result in a change in control of the Company, other than:
1. Ms. Augusts shares shall cease to be
controlled by Mr. Shaw under their Voting Agreement upon their sale to a
third party; and
2. Mr. Shaw was granted an option for the
purchase of 3,000,000 shares of Common Stock.
Mr. Shaw is able to control
54.2% of the currently outstanding shares of the Common Stock and would control
44.6% of the Common Stock assuming the exercise of all outstanding options and
conversion of all outstanding preferred shares and convertible loans.
Item
13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions
We believe 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. In
accordance with our Audit Committee Charter, the Audit Committee has reviewed
and approved all related party transactions.
In particular, the Audit Committee
reviews all proposed transactions where the amount involved meets or exceeds
$120,000.
Thomas J. Shaw, our President and Chief Executive
Officer, beneficially owned 36.5% of the outstanding Common Stock (and
controlled another 11.8% pursuant to a Voting Agreement with Ms. Suzanne
August) as of March 1, 2010. In
1995, Mr. Shaw 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 retractable medical safety products. A royalty of 5% of gross sales of all
licensed products sold to customers over the life of the Technology Licensing
Agreement is paid. Of this royalty, Ms. Suzanne
August, the former spouse of Mr. Shaw, is entitled to $100,000 per
quarter. Mr. Shaw receives the
remainder of this royalty. A royalty of
$1,183,883 and $1,766,585 was paid to Thomas J. Shaw in 2009 and 2008,
respectively. Ms. August received
$400,000 in 2009 and 2008. Royalties of
$843,327 were paid to Mr. Shaw and Ms. August from January 1, 2010 through March 1,
2010. In the third quarter of 2009, the Company announced several cost cutting
initiatives to conserve its cash. As part of those initiatives, Mr. Shaw waived
$1,000,000 in royalty payments, most of which affect cash outlays in 2009.
Director Independence
The Board of Directors has the responsibility for
establishing corporate policies and for our overall performance, although it is
not involved in day-to-day operations.
Currently, a majority (four of seven) of the Directors serving on our
Board of Directors are independent Directors as defined in Section 121(A) of
the listing standards of the NYSE Amex.
Our current independent Directors are Messrs. Clarence Zierhut,
Marwan Saker, and Marco Laterza, and Ms. Amy Mack. Each of our committees is constituted solely
by independent Directors.
The Board of Directors, in reviewing the independence
of its members, further considered the fact that we paid Ms. Macks
company $9,940 in 2009 and $20,875 in 2008 for conducting clinical trials. The Board of Directors determined that her
independence was not compromised by such transactions.
47
Table of Contents
Item 14.
Principal Accounting Fees and Services.
AUDIT FEES
The aggregate fees billed by CF & Co., L.L.P. for
professional services rendered for the audit of our annual financial statements
for 2009 and 2008 and the reviews of the financial statements included in our
Forms 10-Q or services normally provided by the accountant in connection with
statutory and regulatory filings for those fiscal years were $257,085 and
$195,700, respectively.
AUDIT RELATED FEES
The aggregate fees billed by CF & Co., L.L.P.
for professional services rendered for the audit of our 401(k) plan for
2009 and 2008 were $11,500 and $11,500, respectively.
TAX FEES
The aggregate fees billed by CF & Co., L.L.P.
for preparation of federal and state income tax returns and tax consulting
costs related to notices from taxing authorities for 2009 and 2008 were $64,929
and $91,520, respectively.
PRE-APPROVAL POLICIES AND PROCEDURES
The engagement of CF & Co., L.L.P. was
entered into pursuant to the approval policies and procedures of the Audit
Committee. Before CF & Co.,
L.L.P. was engaged to render services the engagement was approved by the Audit
Committee. The engagement is for audit
and tax services which were detailed separately. The Audit Committee implemented its approval
procedures, i.e., they were not delegated to any other party. All of the services provided were
pre-approved by the Audit Committee.
PART IV
Item 15.
Exhibits, Financial Statement Schedules.
(a)
|
(1)
|
All financial
statements: See Retractable
Technologies, Inc. Index to Financial Statements on Page F-2.
|
|
|
|
|
(2)
|
Those financial
statement schedules required to be filed by Item 8 of this form, and by
paragraph (b) below. Schedule
II-Schedule of Valuation and Qualifying Accounts for the years ended December 31,
2009, 2008, and 2007:
|
|
|
Balance at
beginning
of
period
|
|
Additions
|
|
Deductions
|
|
Balance
at
end
of period
|
|
Provision
for Inventories
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended 2007
|
|
$
|
50,000
|
|
$
|
155,600
|
|
$
|
|
|
$
|
205,600
|
|
Fiscal
year ended 2008
|
|
$
|
205,600
|
|
$
|
|
|
$
|
|
|
$
|
205,600
|
|
Fiscal
year ended 2009
|
|
$
|
205,600
|
|
$
|
|
|
$
|
|
|
$
|
205,600
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Accounts Receivables
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended 2007
|
|
$
|
87,030
|
|
$
|
166,978
|
|
$
|
|
|
$
|
254,008
|
|
Fiscal
year ended 2008
|
|
$
|
254,008
|
|
$
|
245,958
|
|
$
|
|
|
$
|
499,966
|
|
Fiscal
year ended 2009
|
|
$
|
499,966
|
|
$
|
182,000
|
|
$
|
|
|
$
|
681,966
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Valuation
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended 2007
|
|
$
|
640,423
|
|
$
|
3,026,509
|
|
$
|
|
|
$
|
3,666,932
|
|
Fiscal
year ended 2008
|
|
$
|
3,666,932
|
|
$
|
2,366,454
|
|
$
|
|
|
$
|
6,033,386
|
|
48
Table of Contents
|
|
Balance at
beginning
of
period
|
|
Additions
|
|
Deductions
|
|
Balance
at
end
of period
|
|
Fiscal
year ended 2009
|
|
$
|
6,033,386
|
|
$
|
613,818
|
|
$
|
|
|
$
|
6,647,204
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Rebates
|
|
|
|
(A)
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended 2007
|
|
$
|
2,712,750
|
|
$
|
15,329,840
|
|
$
|
13,404,097
|
|
$
|
4,638,493
|
|
Fiscal
year ended 2008
|
|
$
|
4,638,493
|
|
$
|
13,625,257
|
|
$
|
14,395,904
|
|
$
|
3,867,846
|
|
Fiscal
year ended 2009
|
|
$
|
3,867,846
|
|
$
|
16,554,163
|
|
$
|
14,365,035
|
|
$
|
6,056,974
|
|
(A)
Represents estimated rebates deducted
from gross revenues
(B)
Represents rebates credited to the
distributor
(3)
Exhibits:
The following exhibits are filed herewith or
incorporated herein by reference to exhibits previously filed with the SEC.
(b)
Exhibits
Exhibit
No.
|
|
Description of Document
|
3(i)
|
|
Third Amended and
Restated Articles of Incorporation of RTI filed on November 1, 2004* as
amended by that Statement of Change of Registered Office/Agent** and by that
certain Articles of Amendment Pursuant to Article 4.04 of the Texas
Business Corporation Act filed on October 16, 2009
o
. See Exhibit no. 4.
|
|
|
|
3(ii)
|
|
Third Amended and
Restated Bylaws of RTI***
|
|
|
|
4
|
|
Third Amended and
Restated Articles of Incorporation of RTI filed on November 1, 2004* as
amended by that Statement of Change of Registered Office/Agent** and by that
certain Articles of Amendment Pursuant to Article 4.04 of the Texas
Business Corporation Act filed on October 16, 2009
o
. See Exhibit no. 3(i).
|
|
|
|
10.1
|
|
Sample United States
Distribution Agreement****
|
|
|
|
10.2
|
|
Sample Foreign
Distribution Agreement****
|
|
|
|
10.3
|
|
Employment Agreement
between RTI and Thomas J. Shaw dated as of January 1, 2008 (This is a
management compensation contract.) ***
|
|
|
|
10.4
|
|
Technology License
Agreement between Thomas J. Shaw and RTI dated the 23
rd
day of June 1995****
|
|
|
|
10.5
|
|
First Amendment to
Technology License Agreement between Thomas J. Shaw and RTI dated the 3rd day
of July, 2008
|
|
|
|
10.6
|
|
Loan Agreement among
RTI, Katie Petroleum and Thomas J. Shaw as of the 30
th
day of
September, 2002 and Promissory Note
|
|
|
|
10.7
|
|
RTIs 1999 Stock Option
Plan****
|
|
|
|
10.8
|
|
First Amendment to 1999
Stock Option Plan
|
|
|
|
10.9
|
|
Retractable Technologies, Inc.
2008 Stock Option Plan
|
49
Table of Contents
Exhibit
No.
|
|
Description of Document
|
|
|
|
10.10
|
|
Thomas J. Shaw Nonqualified
Stock Option Agreement Issued Outside of Any Plan
oo
|
|
|
|
10.11
|
|
Voting Agreement
Between Thomas J. Shaw and Suzanne August dated November 8, 2006
ooo
|
|
|
|
14
|
|
Retractable
Technologies, Inc. Code of Business Conduct and Ethics
oooo
|
|
|
|
23
|
|
Consent of Independent
Registered Public Accounting Firm
oo
|
|
|
|
31.1
|
|
Certification of
Principal Executive Officer
oo
|
|
|
|
31.2
|
|
Certification of
Principal Financial Officer
oo
|
|
|
|
32
|
|
Section 1350
Certifications
oo
|
|
|
|
99.1
|
|
Retractable
Technologies, Inc. Audit Committee Charter
oo
|
|
|
|
99.2
|
|
Retractable
Technologies, Inc. Compensation and Benefits Committee Charter
oo
|
|
|
|
99.3
|
|
Retractable
Technologies, Inc. Nominating Committee Charter
oo
|
|
|
|
|
|
|
*
|
|
Incorporated herein by
reference to RTIs Form 10-Q filed on November 14, 2005
|
|
|
|
**
|
|
Incorporated herein by
reference to RTIs Form 10-K filed on March 31, 2008
|
|
|
|
***
|
|
Incorporated herein by
reference to RTIs Form 10-Q filed on November 14, 2008
|
|
|
|
****
|
|
Incorporated herein by
reference to RTIs Registration Statement on Form 10-SB filed on June 23,
2000
|
|
|
|
|
|
Incorporated herein by
reference to RTIs Form 10-K filed on March 31, 2009
|
|
|
|
|
|
Incorporated herein by
reference to RTIs Form 8-K filed on October 10, 2002
|
|
|
|
|
|
Incorporated herein by
reference to RTIs Form 10-KSB filed on March 31, 2003
|
|
|
|
|
|
Incorporated herein by
reference to RTIs definitive Schedule 14A filed on August 19, 2008
|
|
|
|
o
|
|
Incorporated herein by
reference to RTIs Form 10-Q filed on November 16, 2009
|
|
|
|
|
|
oo
|
|
Filed herewith
|
|
|
|
|
ooo
|
|
Incorporated herein by
reference to RTIs Schedule TO filed on October 17, 2008
|
|
|
|
|
oooo
|
|
Incorporated herein by
reference to RTIs Form 8-K filed on February 19, 2010
|
|
|
|
|
|
|
(c)
|
|
Excluded Financial
Statement Schedules: None
|
|
|
|
|
|
50
Table of Contents
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
RETRACTABLE TECHNOLOGIES, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
By:
|
/s/ Thomas J. Shaw
|
|
|
THOMAS J. SHAW
|
|
|
CHAIRMAN, PRESIDENT,
AND
|
|
|
CHIEF EXECUTIVE OFFICER
|
|
|
|
|
Date:
|
March 31, 2010
|
|
|
|
|
|
|
|
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
/s/ Steven R. Wisner
|
|
|
Steven R. Wisner
|
|
|
Executive Vice
President, Engineering &
|
|
|
Production and Director
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Douglas W. Cowan
|
|
|
Douglas W. Cowan
|
|
|
Vice President, Chief
Financial Officer, Treasurer,
and Director
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Clarence Zierhut
|
|
|
Clarence Zierhut
|
|
|
Director
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Amy Mack
|
|
|
Amy Mack
|
|
|
Director
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Marco Laterza
|
|
|
Marco Laterza
|
|
|
Director
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
/s/ Marwan Saker
|
|
|
Marwan Saker
|
|
|
Director
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
51
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