Income taxes

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

The Company provides for deferred income taxes through utilizing an asset and liability approach for financial accounting and reporting based on the tax effects of differences between the financial statement and tax bases of assets and liabilities, based on enacted rates expected to be in effect when such differences reverse in future periods. Deferred tax assets are periodically reviewed for realizability. TheIn prior periods, the Company has established a valuation allowance for its net deferred tax asset as future taxable income cannotwhich could not be reasonably assured. Penalties and interest related to income taxes are classified as General and administrative expense and Interest expense, respectively,During the quarter ended June 30, 2020, the Company released its valuation allowance based on available evidence supporting that its deferred tax assets will be realized in the Condensed Statements of Operations.full.

Earnings per share

The Company computes basic earnings or loss per share (“EPS”) by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible preferred stock. TheAt March 31, 2021, the calculation of diluted EPS excluded 382,800 and 1,357,803under the treasury stock method included 152,967 shares of commonCommon Stock underlying issued and outstanding stock option at March 31, 2020 and 2019, respectively, as their effect was antidilutive. All commonoptions. Common stock issuable upon the conversion of 257,945 convertible preferred shares is included in the calculation of diluted EPS for the three months ended March 31, 2021. Preferred stock iswas excluded from the calculation of of diluted EPS as theirfor the period ended March 31, 2020 because the effect was antidilutive for all periods presented.antidilutive. The potential dilution, if any, is shown on the following schedule:

Shipping and handling costs

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

Research and development costs

Research and development costs are expensed as incurred.

Leases

The Company determines if an arrangement is a lease at inception. Operating and finance leases are included in Other assets, Other accrued liabilities, and Other long-term liabilities on the Condensed Balance Sheets. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on information available at the commencement date was used in determining the present value of lease payments.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less are not recorded on the Condensed Balance Sheets; however, rent expense is recognized on a straight-line basis over the lease term.

Technology Investment Agreement (TIA)

Effective July 1, 2020, the Company entered into a Technology Investment Agreement (“TIA”) with the United States Government Department of Defense, U.S. Army Contracting Command-Aberdeen Proving Ground, Natick Contracting Division & Edgewood Contracting Division (ACC-APG, NCD & ECD) on behalf of the Biomedical Advanced Research and Development Authority (BARDA) for $53,664,286 in Government funding for expanding the Company’s domestic production of needles and syringes. Pursuant to the terms of the TIA, the Company is expected to make significant additions to its facilities which should allow the Company to increase domestic production. As reimbursements are received from the U.S. government for such expenditures, the Company records a deferred liability. The deferred liability will be systematically amortized as a gain over the life of the related property, plant, and equipment as to offset the related depreciation expense of the assets acquired. The amortization will be presented separately from the depreciation expense on the Condensed Statements of Operations.

Recently Adopted Pronouncements

The Company adopted ASUFinancial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as well as subsequent clarifying amendments on January 1, 2020 effective for the quarter ended March 31, 2020.  Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  Many of the loss estimation techniques applied previously will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.  The adoption of ASU 2016-13, as well as the Targeted Transition Relief as provided by ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326) – Targeted Transition Relief” did not have a materialsignificant impact on the Company’s financial statements.

The Company adopted ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):  Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (a Consensus of the FASB Emerging Issues Task Force)” on January 1, 2020 effective for the quarter ended March 31, 2020.  This amendment requires that implemented costs incurred in a hosting arrangement that is a service contract should

be accounted for in accordance with ASC 350-40 Internal-Use Software.  Accordingly, costs incurred during the preliminary project and post-implementation stages are expensed and costs associated with the application development phase are capitalized.  The amendment also requires that capitalized costs be amortized over the term of the hosting arrangement and that capitalized costs should be evaluated for impairment.  The adoption of this ASU did not have a materialsignificant impact on the Company’s financial statements or disclosures.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The amendment modifies, among other things, disclosure requirements on fair value measurements and eliminates certain disclosures related to transfers and valuation levels of Level 3 fair value measurements. Additionally, the amendment requires disclosure of changes in unrealized gains and losses in other comprehensive income for Level 3 fair value measurements and certain qualitative factors related to significant unobservable inputs used in Level 3 valuations. The amendment iswas effective for annual periods beginning after December 15, 2019 and interim periods within the annual period. The adoption of ASU 2018-13 doesdid not currently have a materialsignificant effect on the Company’s financial statements, as the Company does not currently have any investments classified as Level 3 fair value measurements.

Recently Issued Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income“Income Taxes: Simplifying the Accounting for Income Taxes.Taxes”. The new standard is intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within the annual period, with early adoption permitted. Adoption of the standard requires certain changes to primarily be made prospectively, with some changes to be made retrospectively. The Company is currently evaluatinghas determined that the impact adoption of ASU 2019-12 willdid not have a material impact on its financial statements.

Recently Issued Pronouncement

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients for contracts that reference LIBOR, if certain criteria are met, that can be applied through December 31, 2022. As reference rate reform is still an ongoing process, the Company will continue to evaluate the timing and potential impact of adoption for optional expedients when deemed necessary.

Inventories consist of the following:

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

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

The Company holds high-grade exchange-traded and closed-endETFs, mutual funds, (ETFs), mutual funds,individual equity stocks, and debt securities as investments. These assets are readily marketable and are carried at fair value as of the date of theCondensed Balance Sheets. The Company intends to hold these assets for possible future operating requirements.

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

Unrealized gains (losses) on investments in debt and equity securities was ($164,342)were $1,103,972 and $43,102$(164,342) for the three months ended March 31, 20202021 and 2019,2020, respectively.

The Company’s effective tax rate on the net income (loss) before income taxes was 26.9% and 0.2% for the three months ended March 31, 2021 and 0.0%March 31, 2020, respectively. For the three months ended March 31, 2021 and 2020, the Company’s effective tax rate was determined based on the estimated annual effective income tax rate.

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

The Company uses the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance at March 31, 2021 and 2020.

The effective tax rate for the three months ended March 31,2021 was different from the federal statutory rate due primarily to the apportionment of earnings across various state jurisdictions. The Company determined that no valuation allowance should be recorded at March 31, 2021.

The effective tax rate for the three months ended March 31, 2020 and March 31, 2019, respectively.was different from the federal statutory rate due primarily to the valuation allowance recorded on net operating losses.

Other accrued liabilities consist of the following:

Other long-term liabilities consists of the following:

The TIA provides for reimbursement to the Company for the purchase of equipment and supplies related to the expansion of the Company’s domestic production of needles and syringes. Under the TIA, reimbursable amounts will be reflected as a liability until the time its deferred income can be systematically amortized over a period matching the useful life of the purchased assets.

The stock repurchase liability represents the long-term portion, at net present value, of $2,057,823 gross payable by the Company to former preferred shareholders as a result of private stock purchases in 2020 of 320,333 shares of Class B Series IV preferred stock and 25,000 shares of Class B Series V preferred stock. The purchase price is payable in three annual installments of $1,101,110.

On November 7, 2019, the Company filed a lawsuit in the 44^th District Court of Dallas County, Texas (No. DC-19-17946) against Locke Lord, LLP and Roy Hardin in connection with their legal representation of the Company in its previous litigation against Becton, Dickinson and Company (“BD”). The Company alleges that the defendants breached their fiduciary duties, committed malpractice, and were negligent in their representation of the Company. The Company seeks actual and exemplary damages, disgorgement, costs, and interest. The defendants have filed aOn October 6, 2020, the Court dismissed BD’s motion to dismiss anddismiss. Such order was affirmed on April 20, 2021 by the Court has scheduled a hearing on such motion on June 3, 2020.of Appeals, Fifth District of Texas at Dallas.

The Company does not operate in separate reportable segments. 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.

Revenues by geography are as follows:

Long-lived assets by geography are as follows:

The Board declared and the Company paid cash dividends to Series I and Series II Class B Preferred Shareholders within one month of the end of each quarter in the following amounts: $12,3132020. Cumulatively, dividend payments of $48,000, and $42,800, respectively, on January 18, 2019 and April 22, 2019. The Board declared and the Company paid dividends$168,642 were made to Series I and Series II Class B Preferred Shareholderspreferred shareholders, respectively, in the following amounts: $12,000 and $42,800, respectively, on July 19, 2019, October 21, 2019, January 22, 2020 and one payment of $10,041, and $39,050 was made to Series I and Series II preferred shareholders, respectively, in January 2021. A cash dividend of $39,050 was paid in April 20, 2020.2021 to Series II preferred shareholders.

The Company has operating leases for a corporate officewarehouse and equipment.  The leases have a remaining lease term of less than one year. The Company currently has no finance leases.  The right-of-use (“ROU”)ROU asset is determined based on the lease liability adjusted for lease incentives received.  Lease expense is recognized on a straight-line basis over the lease term.  The leases may include various expenses incidental to the use of the property, such as common area maintenance, property taxes and insurance.  These costs are separate from the minimum rent payment and are not considered in the determination of the lease liability and ROU asset.  The Company has not noted any material instances in its leases where these costs were combined with the minimum rent payment and has therefore elected the policy to not separate lease from non-lease components if they are combined with the minimum rent payment.  The option periods are not included in the determination of the lease liability and right-of-use asset as the Company is not reasonably certain if it will extend at the time of lease commencement.

The operating lease cost component of the lease expense was $20,283$12,843 for the 3-monththree-month period ended March 31, 2021.  The cash paid for amounts included in the measurement of lease liabilities as a component of cash flows related to leases was $12,843 for the three months ended March 31, 2021.  The operating lease cost component of the lease expense was $20,283 at March 31, 2020. The cash paid for amounts included in the measurement of lease liabilities as a component of cash flows related to leases was $20,283 for the three months ended March 31, 2020. The operating lease cost component of the lease expense was $19,854 at March 31, 2019. The cash paid for amounts included in the measurement of lease liabilities as a component of cash flows related to leases was $19,854 for the three months ended March 31, 2019.

Assets and liabilities associated with these leases included in the Condensed Balance Sheets are as follows:

The weighted average remaining lease term is nine6 months and the weighted average discount rate is 4.0%3.75%.

Future minimum payments under non-cancelable operating leases and financing leases consist of the following at March 31, 2020:2021:

Effective January 13,In 2020, the Company agreedentered into several agreements with two preferred stockholdersshareholders to purchase its outstanding Class B Convertible Preferred Stock (the “Preferred Stock”)Stock. The consideration for these purchases consisted of both cash and Common Stock. SuchIn addition, in each such transaction, the preferred stockholders tenderedshareholder counterparty waived their rights to unpaid dividends in arrears. The aggregate cash consideration equaled $3,786,000, of which $482,670 was paid in 2020 with the Companyrest payable over a three-year period beginning February 2021.

Stock options were exercised by the Company’s employees and directors at various dates during the three months ended March 31, 2021, and, consequently, a total of 2,500 shares of Series III Preferred Stock and 5,000 shares of Series IV Preferred Stock. A total of $75,000 and 7,50020,400 shares of Common Stock were issued as consideration therefor. In accordance withfor an aggregate payment to the termsCompany of the agreements, the preferred stockholders agreed$43,350 to waive all unpaid dividends in arrears associated with their Preferred Stock, which resulted in a waiver of a total of $149,795 in unpaid dividends in arrears.exercise such options.

To date, the Company’s manufacturing facility in Little Elm, Texas has continued to operate due to its status as an essential business. As a result of the COVID-19 pandemic, the Company has implemented certain safety precautions at its facility to reduce the risk of the potential spread of the novel coronavirus. The Company has implemented arrangements to reduce the number of office staff employees working on-site at the production facility, as well as instituting personal distancing policies and monitoring of essential production staff to minimize the risk of infection. Such precautions have not reduced the Company’s ability or capacity to operate at normal manufacturing levels. The Company continues to monitor the evolving situation and will work to further mitigate risks to our staff and to our customers. At this time, the Company believes that it has sufficient inventory, manufacturing capacity, and the ability to source products to meet current demand. The Company is unable to predict with certainty the course of the pandemic and resulting potential effect on our ability to maintain current operational functionality. The Company is continuing to evaluate the ever-changing circumstances surrounding this pandemic as it relates to its ability to continue to source materials and products, maintain a workforce, and operate ourits business effectively and efficiently. Despite the global disruption of the coronavirus pandemic, the Company has not experienced a significant disruption to its supply chain. During 2020 and 2021, the Company has experienced an increase in demand for its products and has been able to meet such demand with increased volumes despite the pandemic. The Company is unable to predict with certainty its ability to maintain its current operational functionality.

Effective July 1, 2020, the Company entered into the TIA with the U.S. government. The principal purpose of the TIA is to fund the expansion of the Company’s manufacturing capacity for hypodermic safety needles and corresponding syringes in response to the worldwide COVID-19 global pandemic. The award is an expenditure-type TIA, whereby the U.S. government will make payments to the Company for the Company’s expenditures for equipment and supplies in carrying out the expansion of the Company’s domestic production. The Company’s contributions under the terms of the TIA to enhance domestic capacity of pandemic-essential technology include providing facilities, technical expertise, labor, and maintenance of the TIA-funded equipment for a ten-year term.

As of March 31, 2021, the Company had negotiated contracts for the purchase of automated assembly equipment, molds, and molding equipment, as well as portions of auxiliary equipment, for approximately $50.6 million. The Company has substantially completed construction of expanded facilities consisting of approximately 27,800 square feet of additional controlled environment within existing properties and is expected to complete approximately 55,000 square feet of new warehouse space within the second quarter of 2021. The estimated cost of the controlled environment within existing properties is $6.5 million. The new warehouse space is estimated to cost $5.8 million. The cost of the controlled environment will be funded by the U.S. government under the TIA, while the cost of the new warehouse will be funded by the Company.

On April 17, 2020, the Company entered into a promissory note in the principal amount of $1,363,000 (the “PPP Loan”) in favor of Independent Bank (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S. Small Business Administration (“SBA”). The PPP Loan matures onLoan’s original maturity date was April 17, 2022 and bearswith an interest at a rate of 1.0% per annum. Commencing November 17, 2020, the Company is required to pay the Lender equal monthly payments of principal and interest as necessary to fully amortize the principal amount outstanding by the maturity date. The PPP Loan may be prepaid by the Company at any time prior to maturityhad a prepayment option with no prepayment penalties. The PPP Loan iswas unsecured and iswas a non-recourse obligation. All or a portionOn May 13, 2021, the Company was informed that the SBA granted its request for loan forgiveness for the entire original principal amount of $1,363,000.

Prior to loan forgiveness and as of March 31, 2021, the Company’s obligations under the PPP Loan may be forgiven upon application to the Lender during the 8-week period beginning on the date of first disbursement for certain expenditure amounts, including payroll costs, in accordance with the requirements under the PPP. In the event all or any portion of the PPP Loan is forgiven, the amount forgiven is applied to outstanding principal.were as follows:

On May 1, 2020,

In April 2021, the Company was awardedreceived a delivery order under an existing contract bypreliminary notice from the U.S. Department of Health and Human Services, Office of the United StatesAssistant Secretary for Preparedness & Response (“DHHS/ASPR”) expressing its intent to supply automated retraction safety syringes. The total fixed priceexercise at least the first two one-month options under the delivery order is $83,788,440. The existingFebruary 2021 contract was executed in September 2018, but the order placed on May 1, 2020 is unusually significant tobetween DHHS/ASPR and the Company. Such option exercises would extend the July 14, 2021 base period expiration date to September 14, 2021. The Company expectstwo one-month option periods referenced by the preliminary notice would relate to increase both domestic and foreign production and add additional personnel in response to this material delivery order. The Company expects to perform under this delivery order during 2020 and a portionan overall purchase price of 2021.approximately $23.5 million, including freight costs.

As discussed in Note 16, on May 13, 2021, the Company was informed that the SBA granted its request for loan forgiveness for the PPP Loan for the entire original principal amount of $1,363,000.

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, global pandemics,the impact of COVID-19 on all facets of logistics and operations, as well as costs, our ability to complete capital improvements and ramp up domestic production in response to government agreements, potential tariffs, our ability to maintain liquidity, our maintenance of patent protection, our ability to maintain favorable third party manufacturing and supplier arrangements and relationships, foreign trade risk, 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 impact 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 in Part II. Given these uncertainties, undue reliance should not be placed on forward-looking statements.

MATERIAL CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We have been manufacturing and marketing our products since 1997. VanishPoint^® syringes comprised 81.6%95.0% of our sales in the first quarter of 2020.2021. EasyPoint^® products accounted for 3.5% of sales in the first quarter of 2021. We also manufacture and market the EasyPoint^®needle,a blood collection tube holder, IV safety catheter, and VanishPoint^®Blood Collection Set. We currently provide other safety medical products in addition to safety products utilizing retractable technology. One such product is the Patient Safe^® syringe, which is uniquely designed to reduce the risk of bloodstream infections associated with catheter hub contamination.

In the second quarter of 2016, we began selling the EasyPoint^® needle. EasyPoint^®needles made up 6.9% of revenues for the quarter ended March 31, 2020. The EasyPoint^® is a retractable needle that can be used with Luer lock syringes, Luer slip syringes, and prefilled syringes to give injections. The EasyPoint^® needle can also be used to aspirate fluids and collect blood.

Our products have been and continue to be distributed nationally and internationally through numerous distributors. Although we have made limited progress in some areas, such as the alternate care market, 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. The alternate care market is composed of facilities that provide long-term nursing and out-patient surgery, emergency care, physician services, health clinics, and retail pharmacies.

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.

Historically, unit sales have increased in the latter part of the year due, in part, to the demand for syringes during the flu season. As discussed below, we expect an increase in sales due to a recent order from the United States government. We can reasonably expect the order relates to the novel coronavirus pandemic. We cannot predict whether our sales trends will correspond with the usual flu season this year and we cannot estimate the consequences to our industry of stay-at-home orders and other precautions on sales to our customers other than the United States government.

On May 1, 2020, we were awarded a delivery order under an existing contract by the Department of Health and Human Services of the United States to supply automated retraction safety syringes. syringes for COVID-19 vaccination efforts, which order was in the amount of $83.8 million plus $10 million in expedited freight costs.

The totalDepartment of Health and Human Services awarded us another contract on February 12, 2021 to supply low dead space safety syringes for COVID-19 vaccination efforts. Low dead space syringes reduce residual medication remaining in the syringe after the dose has been administered. In some instances, the low dead space allows for additional doses of medication to be obtained from the vials. The base price for the contract and purchase order is $54,217,800 for the five-month base period of performance (February 15, 2021 to July 14, 2021). Such price includes both the fixed price underfor the delivery orderproducts as well

as cost reimbursement for freight. The terms of the contract allow for extensions at the option of the U.S. government for up to seven additional one-month periods. If all option periods are exercised, the value of the contract could increase by an additional $92,772,680, including the price of the products and freight reimbursement. For each period, the freight cost is $83,788,440.estimated at approximately 25% of the overall price. In April 2021, we were notified that the Department of Health and Human Services intends to exercise at least the first two one-month options which would extend the base period expiration date to September 14, 2021. The existing contract was executed inJuly 14 to September 2018, but the order placed on May 1, 2020 is unusually significant. We expect14 option periods would relate to increase both domestic and foreign production and addan overall purchase price of approximately $23.5 million, including freight costs.

additional personnel in responseOur sales under both of the foregoing orders from the U.S. government were $37.8 million during the first quarter, representing 75.5% of our total first quarter sales. Both of the abovementioned orders as well as the TIA (as defined below) from the U.S. government are material events particular to this material delivery order. We expect to perform under this delivery order during 2020the COVID-19 pandemic and a portionmay not be indicative of 2021.future operations. While the addition of manufacturing equipment and facilities will greatly increase our production capacity, we cannot be assured that there will be increased demand for our products once orders from the U.S. government have been filled. If future orders are not placed by the U.S. government and orders from new and existing customers do not materialize, we would have significant excess productive capabilities.

As discussedEffective July 1, 2020, we entered into a Technology Investment Agreement (“TIA”) with the United States Government Department of Defense, U.S. Army Contracting Command-Aberdeen Proving Ground, Natick Contracting Division & Edgewood Contracting Division (ACC-APG, NCD & ECD) on behalf of the Biomedical Advanced Research and Development Authority (BARDA) for $53,664,286 in Note 13government funding for expanding our domestic production of needles and syringes. Pursuant to the terms of the TIA, we are expecting to make significant additions to our facilities which should allow us to increase domestic production. Additionally, the TIA provides for reimbursement for equipment and supplies. As of May 2021, we have negotiated contracts for the purchase of automated assembly equipment, molds, and molding equipment, as well as portions of auxiliary equipment, for approximately $50.8 million. As of May 2021, we have substantially completed construction of expanded facilities consisting of approximately 27,800 square feet of additional controlled environment within existing properties and we expect to complete approximately 55,000 square feet of new warehouse space within the second quarter of 2021. The cost of the controlled environment is approximately $6.5 million and will be funded by the U.S. government under the TIA, while the cost of the new warehouse is approximately $5.8 million and will be our financial statements, onobligation.

On April 17, 2020, we entered into a promissory notethe PPP Loan in the principal amount of $1,363,000 (the “PPP Loan”) in favor of Independent Bank (the “Lender”) pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act, administered by the U.S. Small Business Administration (“SBA”). On May 13, 2021, we were informed that the SBA granted our request for loan forgiveness for the entire original principal amount of $1,363,000.

The Further Consolidated Appropriations Act signed into law on December 20, 2019, has permanently repealed the 2.3% medical device excise tax. PriorAs detailed in Note 4 to the repeal,financial statements, we held $13.8 million in debt and equity securities as of March 31, 2021, which represented 15.5% of our current assets. We continually monitor our invested balances. In late February 2021, we invested an additional $4.5 million in an individual transportation sector stock. The investment represented approximately 34% of our overall invested balance as of March 31, 2021. This additional investment, along with our existing equity investments, is highly liquid.

Subsequent to the taxfirst quarter of 2020, and in response to, among other factors, the global COVID-19 pandemic, our delivery orders from the U.S. government, and the TIA, employee headcount and related salary and benefits costs have increased significantly. As of March 31, 2021, the Company employed approximately 210 full-time, part-time, and temporary employees. This represents approximately a 40% increase in our workforce since March 2020.

On March 16, 2021, the Board approved the 2021 Stock Option Plan (the “Plan”) and set aside and reserved 2,000,000 shares of Common Stock for issuance pursuant to the Plan. The Plan was onapproved by the shareholders at the May 11, 2021 shareholder meeting. The Plan provides for the granting of incentive stock options and non-qualified stock options at a 4-year moratorium. As a resultprice equal to at least 100% of the repealfair market value of the Company’s Common Stock as of the date of grant. Participants in the Plan may include employees, consultants, and non-employee Directors. On March 16, 2021, the Compensation and Benefits Committee approved option grants to purchase 1,000,000, 250,000, and 100,000 shares of Common Stock to our chief executive officer, general counsel, and chief financial officer, respectively. These shares will vest in their entirety three years from the grant date.

On March 16, 2021, the Compensation and Benefits Committee modified the annual salaries of our chief executive officer, general counsel, and chief financial officer to $1,000,000, $400,000, and $300,000, respectively. Such salaries are retroactively effective as of January 1, 2021. On March 16, 2021, the Compensation and Benefits Committee also approved issuances of cash bonuses of $300,000, $100,000, and $100,000 to our chief executive officer, general counsel, and chief financial officer, respectively.

Historically, unit sales have increased during the flu season. Seasonal trends in 2020 and the prior moratorium, salesfirst quarter of taxable medical devices after December 31, 2015, are not subject2021 have been less pronounced due to demand related to the tax.COVID-19 vaccine.

Product purchases from our Chinese manufacturers have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufacturing cost. In the first quarter of 2020,2021, our Chinese manufacturers produced approximately 80.3%90.3% of our products. Despite the global disruption of the coronavirus pandemic, we have not experienced a significant disruption to our supply chain. In the event that we become unable to purchase products from our Chinese manufacturers, we would need to find an alternate manufacturer for the blood collection set, IV catheter, Patient Safe^® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes and we would increase domestic production for the 1mL and 3mL syringes and EasyPoint^®needles.

In 1995, we entered into a license agreement with Thomas J. Shaw for the exclusive right to manufacture, market, and distribute products utilizing his patented automated retraction technology and other patented technology. This technology is the subject of various patents and patent applications owned by Mr. Shaw. The license agreement generally provides for quarterly payments of a 5% royalty fee on gross sales of products subject to the license and he receives fifty percent (50%) of the royalties paid to the Company by certain sublicensees of the technology subject to the license.

Increases in costs of some raw materials have been largely offset by recent decreases in transportation costs. With increased volumes, our manufacturing unit costs have generally tended to decline. Factors that could affect our unit costs include possible tariffs, 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. Recently, decreases in costs of petroleum products have reduced certain costs.

RESULTS OF OPERATIONS

The following discussion may containcontains 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 anythe forward-looking statements. All period references are to periods ended March 31, 2021 or 2020. Dollar amounts have been rounded for ease of reading. All period references are to the periods ended March 31, 2020 or 2019.

Comparison of Three Months Ended March 31, 20202021 and March 31, 20192020

Domestic sales, including sales to the U.S. government, accounted for 97.3% and 74.4% and 77.4% of ourthe revenues for the three months ended March 31, 20202021 and 2019,2020, respectively. Domestic revenues increased 35.8%484.7% principally due to increased volumes.volumes primarily attributable to orders from the U.S. government. Domestic unit sales increased 31.4%460.8%. Domestic unit sales were 65.2%95.6% of total unit sales for the three months ended March 31, 2020. International2021. Domestic unit sales andexcluding the U.S. government rose approximately 43.6%. International revenues increased 56.8% and 59.9%, respectively, due to higher unit sales.decreased approximately $1.5 million. Our international orders may be subject to significant fluctuation over time.time and may not be reflective of the full year’s sales. Overall unit sales increased 39.2%282.6%. While we cannot predictOther than the effect of the novel coronavirus on future periods, weU.S. government, our increased sales are predominantly attributable to existing customers as well as several new smaller customers who do not believe that the virus had a material effect on sales in the first quarter of 2020.operate as distributors.

Gross profit increased 41.8% primarily due to higher unit sales volumes and average unit pricing.

The costCost of manufactured products soldproduct increased by 42.4%181.6% principally due to an increase in overall units sold and the composition of product mix. Profit margins can fluctuate depending upon, among other things, the cost of

manufactured product and the capitalized cost of product recorded in inventory, as well as product sales mix.sold. Royalty expense increased 30.6%236.2% due to increased gross sales.

Operating expenses increased 14.4% or $385 thousand. The increase was primarily50.0% from the prior year due substantially to increased headcount and other employee-related expenses and consulting expenses attributable to a larger volume of orders and the expansion activities required by the TIA. Included in the increased employee expenses were bonuses and retroactive salary increases for the named executive officers of approximately $650,000. Sales and marketing expenses, however, decreased due to payrollless travel and employee-related costs, including health insurance benefits.entertainment expense during the COVID-19 pandemic and some loss of sales personnel.

Our operating incomeIncome from operations was $481 thousand$23.4 million compared to an operating lossincome from operations of $175$481 thousand for the same period last year. The increase was due primarily to anthe increase in sales.net revenues and resulting gross profit.

Our effective tax rate on the net loss beforeInterest and other income taxes was 0.2% and 0.0%increased $1.3 million for the three monthsquarter ended March 31, 2020 and March 31, 2019, respectively.2021 compared to the same period last year principally due to unrealized gains from our investments.  Interest expense for the first quarter of 2021 increased by approximately $31,000 from the same period in the prior year. The increase is primarily attributable to imputed interest associated with amounts payable for the repurchase of preferred stock from former shareholders. See Note 7 to the financial statements for further discussion of the repurchase terms.

Discussion of Balance Sheet and Statement of Cash Flow Items

Cash comprises 19.9%22.3% of total assets. Working capital was $20.4 million at March 31, 2020, an increase of $177 thousandCash flow from December 31, 2019.

Cash provided by operations was $2.1$16.6 million for the three months ended March 31, 2021, principally due to our net income. The increase in cash was offset by an increase in accounts receivable. Additionally, we have recorded a deferred tax asset of $6.4 million which is material to the adjustments to total cash flow from operations. The deferred tax asset represents amounts available to reduce income taxes payable on taxable income in future years.

During 2020, we engaged in private purchase agreements to purchase shares of outstanding preferred stock in exchange for cash consideration and the issuance of new common stock. In addition to payment in Common Stock, we paid cash consideration equaling $3,786,000, of which $482,670 was paid in 2020 with the remainder payable over a three-year period beginning in February 2021. Amounts payable as the result of our purchase of preferred stock comprises a small portion of the long-term liabilities set forth on our Balance Sheets. Amounts related to reimbursements from the U.S. government in connection with the TIA make up most of the long-term liabilities of $32.4 million.

Cash used by investing activities was $17.2 million for the three months ended March 31, 2021 due primarily to a decreasethe purchase of both accounts receivableproperty, plant and inventories.equipment. The $12.6 million impact to cash from the purchase of such fixed assets reflects down payments on orders for certain assets as discussed in Note 15 to the financial statements.

Cash provided by financing activities was $14.0 million for the three months ended March 31, 2021. This was primarily due to proceeds from the government under the TIA for down payments on our orders for fixed assets but offset by payments under the preferred stock repurchase agreements from 2020.

LIQUIDITY

At the present time, Management does not intend to publicly raise equity capital. Our ability to obtain additional funds through traditional loans is uncertain. AND CAPITAL RESOURCES

Historical Sources of Liquidity

We have historically funded operations primarily from the proceeds from revenues, private placements, litigation settlements, and loans.

Internal Sources of Liquidity

Margins and Market Access

To achieve routinely positive or break-even quarters, we need increased access to hospital markets which has been difficult to obtain. 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 continue to focus on methods of upgrading our manufacturing capability and efficiency. In the second quarter of 2020, we plan to increase our workforce in response to a material order from the United States government. Additional equipment may also be necessary for foreign and/or domestic production.

Fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable manufacturing arrangements and relationships could result in the need to manufacture all (as opposed to 19.7%) of our products in the U.S. or find other manufacturers. 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. Some international sales of our products are shipped directly from China to the customer. The number of units produced by us versus manufactured in China can have a significant effect on the carrying costs of Inventory as well as Cost of sales. Additionally, the effect of an overall increase in units sold also has a positive effect on margins. We will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in China to achieve economic benefits as well as to maintain our domestic manufacturing capability.

Seasonality

Historically, unit sales have increased during the flu season. However, we expect an increase in sales due to a recent order from the United States government. We can reasonably expect the order relates to the novel coronavirus pandemic. We cannot predict whether our sales trends will correspond with the usual flu season this year and we cannot estimate the consequences to our industry of stay-at-home orders and other precautions on sales to our customers other than the United States government.

Cash Requirements

We have sufficient cash reserves, recently received a PPP loan,Loan, and have begun to realize profitsincome from operations. We also have access to our investments which may be liquidated in the event that we need to access the funds for operations.

Contracts with the U.S. Government

As discussed above, we were awarded a material delivery order by the Department of Health and Human Services of the United States in the total amount of approximately $83.8 million, plus certain expedited freight expenses. In February 2021, we received a new contract from the Department of Health and Human Services for additional safety syringes representing $54.2 million in expected revenues and reimbursable freight costs for a five-month base period of performance (February 15, 2021 to July 14, 2021) with additional renewal periods available at the option of the U.S. government. We have received a notice that at least two of the one-month renewal periods will likely be exercised.

As discussed above, we entered into a TIA with the U.S. government for approximately $53.7 million in government funding for expanding our domestic production of needles and syringes. As of May 4, 2021, we have received approximately $25.9 million for down payments on the purchase of certain fixed assets. Pursuant to the terms of the TIA, we have begun making significant additions to our facilities which should allow us to increase domestic production. We have substantially completed construction of new controlled environment facilities and we have begun construction of warehousing facilities which are expected to be completed in the second quarter of 2021. While a portion of the planned construction will be funded by the U.S. government, we expect to fund the construction of the new warehouse and expect the cost to be approximately $5.8 million. Through May 4, 2021, we have paid a total of approximately $3.5 million in progress payments for the new warehouse.

Option Exercises

Stock options were exercised by our employees and directors during the first quarter of 2021, and, consequently, we received approximately $43 thousand to exercise such options.

External Sources of Liquidity

Our ability to obtain additional funds through traditional loans is uncertain, but weWe recently received a PPP Loan, as described above, in the principal amount of $1,363,000. It is unlikelyOn May 13, 2021, we were informed that the entire original principal amount of $1,363,000 would choosebe forgiven.

We consider our investment portfolio a source of liquidity as well. As of March 31, 2021, $13.8 million was invested in third party securities.

Capital Resources

Since the execution of the TIA on July 1, 2020, we have begun construction for significant expansion to raise fundsour facilities. As of May 2021, we have substantially completed construction of expanded facilities consisting of approximately 27,800 square feet of additional controlled environment within existing properties and we expect to complete approximately 55,000 square feet of new warehouse space within the second quarter of 2021. As of May 2021, we have negotiated contracts for the purchase of automated assembly equipment, molds, and molding equipment, as well as portions of auxiliary equipment, for approximately $50.8 million. To fund the purchase of the automated assembly equipment, auxiliary equipment, and construction of the controlled environment, we are reimbursed by the public saleU.S. government according to the terms in the TIA. The TIA also allows us to request an advance of equity.funds for larger purchases when necessary. The expenditures which are not reimbursable from the U.S. government under the TIA are funded with cash from operations. The cost of the controlled environment is approximately $6.5 million and will be funded by the U.S. government under the TIA, while the cost of the new warehouse is approximately $5.8 million and will be our financial obligation.

CRITICAL ACCOUNTING ESTIMATES

CAPITAL RESOURCESWe are responsible for developing estimates for amounts reported as assets and liabilities, and revenues and expenses in conformity with U.S. generally accepted accounting principles (“GAAP”).  Those estimates require that we develop assumptions of future events based on past experience and expectations of economic factors.  Among the more critical estimates management makes is the estimate for customer rebates.  The amount reported as a contractual allowance for rebates involves examination of past historical trends related of our sales to customers and the related credits issued once contractual obligations of the customers have been met.  The establishment of a liability for future claims of rebates against sales in the current period requires that we have an understanding of the relevant sales with respect to product categories, sales distribution channels, and the likelihood of contractual obligations being satisfied.  We examine the results of estimates against actual results historically and use the determination to further develop our basis for assumptions in future periods, as well as the accuracy of past estimates.

There were no material commitments for capital expenditures in the first quarter of 2020.

Not applicable.

Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, 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, John W. Fort III (the “CFO”), acting in their capacities as our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. 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 Commission's 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 March 31, 2020,2021, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have been no changes during the first quarter of 20202021 or subsequent to March 31, 20202021 in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II—OTHER INFORMATION

Please refer to Note 78 to the financial statements for a complete description of all legal proceedings.

In addition to theThere were no material changes in our Risk Factors as set forth in our most recent annual report which is available on EDGAR, we note that the novel coronavirus has disrupted daily life in the United States and remains a significant risk to every aspect of our operations including the health and welfare of our workforce, our ability to secure transportation, and the maintenance of our supply chain. Additionally, our material $83.8 million delivery order from the United States government presents unusual challenges for our business. Our performance may not be realized if we cannot timely and adequately increase domestic and foreign production. Moreover, in light of such volume requirements, we may not be able to maintain our usual service levels to our existing customers.EDGAR.

Effective January 13, 2020, we agreed with two preferred stockholders to purchase outstanding Class B Convertible Preferred Stock (the “Preferred Stock”) for cash and Common Stock. Such preferred stockholders tendered to us a total of 2,500 shares of Series III Preferred Stock and 5,000 shares of Series IV Preferred Stock. A total of $75,000 and 7,500 shares of Common Stock were issued as consideration therefor. In accordance with the terms of the agreements, the preferred stockholders agreed to waive all unpaid dividends in arrears associated with their Preferred Stock, which resulted in a waiver of a total of $149,795 in unpaid dividends in arrears. We are relying on Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”) to exempt these transactions from the registration requirements of the Securities Act.None.

Working Capital Restrictions and Limitations on the Payment of Dividends

The CompanyWe declared a dividend to the Series I Class B and Series II Class B Convertible Preferred Shareholders in the aggregate amount of $54,800.$39,050. This dividend was paid on April 20, 2020.22, 2021.

The certificates of designation for eachboth of the outstanding series of Class B Convertible Preferred Stock each currently provide that, if a dividend upon any shares of Preferred Stock is in arrears, no dividends may be paid or declared upon any stock ranking junior to such stock and generally no juniorstock. If Series II Class B preferred stock may be redeemed. However, under certain conditions, and for certain Series of Class B Convertible Preferred Stock, we may purchase junior stock when dividends are in arrears.arrears, Common Stock may generally not be purchased by the Company. If Series III Class B preferred stock dividends are in arrears, the Company may generally purchase Common Stock if the funds used to purchase stock do not exceed 25% of the value of the prior period’s cash assets.

Series I Class B Convertible Preferred Stock

For the three months ended March 31, 2020, no dividends were in arrears.

Series II Class B Convertible Preferred Stock

For the three months ended March 31, 2020, no dividends were in arrears.

Series III Class B Convertible Preferred Stock

For the three months ended March 31, 2020,2021, the amount of dividends in arrears payable to Series III preferred shareholders was $30,587$25,888 and the total arrearage payable to Series III preferred shareholders was $4,383,270approximately $4,063,000 as of March 31, 2020.

Series IV Class B Convertible Preferred Stock

For the three months ended March 31, 2020, the amount of dividends in arrears was $86,036 and the2021. The total dividend arrearage was $6,813,771payable to former preferred shareholders as of March 31, 2020.

Series V Class B Convertible Preferred Stock

For the three months ended March 31, 2020, the amount of dividends in arrears2021 was $2,720 and the total arrearage was $1,022,916 as of March 31, 2020.$930,000.

*       Incorporated herein by reference to RTI’s Form 8-K filed on April

SIGNATURES

Pursuant to the requirements 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.