UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly report PURSUANT TO Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2020
or
¨ | Transition report PURSUANT TO Section 13 or 15(d) of the Exchange Act OF 1934 |
For the transition period from to
Commission file number: 001-16465
Retractable Technologies, Inc.
(Exact name of registrant as specified in its charter)
Texas | 75-2599762 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
511 Lobo Lane | |
Little Elm, Texas | 75068-5295 |
(Address of principal executive offices) | (Zip Code) |
(972) 294-1010
(Registrant’s telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | RVP | NYSE American |
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 þ No ¨
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 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 such files). Yes þ No ¨
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 ¨ | Accelerated filer ¨ |
Non-accelerated filer þ | Smaller reporting company þ |
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
APPLICABLE ONLY TO ISSUERS 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 Sections 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 ¨ No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 33,816,604 shares of Common Stock, no par value, issued and outstanding on November 2, 2020.
RETRACTABLE TECHNOLOGIES, INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2020
TABLE OF CONTENTS
Item 1. | Financial Statements. |
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(unaudited)
September 30, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 15,716,798 | $ | 5,934,749 | ||||
Accounts receivable, net | 15,860,937 | 6,564,371 | ||||||
Investments in debt and equity securities, at fair value | 6,703,449 | 7,771,660 | ||||||
Inventories, net | 7,752,543 | 7,450,592 | ||||||
Income taxes receivable | 100,785 | 50,392 | ||||||
Other current assets | 653,254 | 635,201 | ||||||
Total current assets | 46,787,766 | 28,406,965 | ||||||
Property, plant, and equipment, net | 19,485,242 | 10,632,057 | ||||||
Income taxes receivable | — | 50,393 | ||||||
Deferred tax asset | 804,357 | — | ||||||
Other assets | 78,190 | 88,315 | ||||||
Total assets | $ | 67,155,555 | $ | 39,177,730 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 7,279,907 | $ | 5,007,604 | ||||
Current portion of long-term debt | 1,101,864 | 260,939 | ||||||
Accrued compensation | 974,438 | 607,339 | ||||||
Dividends payable | 52,242 | 54,800 | ||||||
Accrued royalties to shareholder | 1,681,885 | 921,445 | ||||||
Other accrued liabilities | 3,032,030 | 1,387,149 | ||||||
Income taxes payable | 671,149 | 17,944 | ||||||
Total current liabilities | 14,793,515 | 8,257,220 | ||||||
Other long-term liabilities | 10,533,161 | — | ||||||
Long-term debt, net of current maturities | 2,705,865 | 2,378,055 | ||||||
Total liabilities | 28,032,541 | 10,635,275 | ||||||
Commitments and contingencies — see Note 8 | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $1 par value: | ||||||||
Series I, Class B | 96,000 | 96,000 | ||||||
Series II, Class B | 156,200 | 171,200 | ||||||
Series III, Class B | 126,745 | 129,245 | ||||||
Series IV, Class B | 35,000 | 342,500 | ||||||
Series V, Class B | 34,000 | 34,000 | ||||||
Common stock, no par value | — | — | ||||||
Additional paid-in capital | 59,851,666 | 61,660,744 | ||||||
Accumulated deficit | (21,176,597 | ) | (33,891,234 | ) | ||||
Total stockholders’ equity | 39,123,014 | 28,542,455 | ||||||
Total liabilities and stockholders’ equity | $ | 67,155,555 | $ | 39,177,730 |
See accompanying notes to condensed unaudited financial statements
1
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30, 2020 |
Three Months Ended September 30, 2019 |
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
|||||||||||||
Sales, net | $ | 27,091,064 | $ | 11,639,586 | $ | 49,867,126 | $ | 29,167,950 | ||||||||
Cost of sales | ||||||||||||||||
Cost of manufactured product | 11,580,674 | 6,935,269 | 25,331,916 | 17,450,038 | ||||||||||||
Royalty expense to shareholder | 1,681,885 | 936,458 | 3,502,525 | 2,528,377 | ||||||||||||
Total cost of sales | 13,262,559 | 7,871,727 | 28,834,441 | 19,978,415 | ||||||||||||
Gross profit | 13,828,505 | 3,767,859 | 21,032,685 | 9,189,535 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,160,412 | 1,007,831 | 3,148,290 | 2,862,991 | ||||||||||||
Research and development | 134,575 | 134,919 | 399,367 | 377,881 | ||||||||||||
General and administrative | 2,185,980 | 1,646,685 | 5,696,901 | 4,816,214 | ||||||||||||
Total operating expenses | 3,480,967 | 2,789,435 | 9,244,558 | 8,057,086 | ||||||||||||
Income from operations | 10,347,538 | 978,424 | 11,788,127 | 1,132,449 | ||||||||||||
Interest and other income (loss) | (87,483 | ) | 91,105 | 881,316 | 292,476 | |||||||||||
Interest expense | (36,124 | ) | (40,701 | ) | (105,959 | ) | (130,085 | ) | ||||||||
Income before income taxes | 10,223,931 | 1,028,828 | 12,563,484 | 1,294,840 | ||||||||||||
Provision (benefit) for income taxes | 1,598,180 | 4,394 | (151,153 | ) | 7,875 | |||||||||||
Net income | 8,625,751 | 1,024,434 | 12,714,637 | 1,286,965 | ||||||||||||
Preferred Stock dividend requirements | (145,535 | ) | (175,456 | ) | (493,826 | ) | (527,162 | ) | ||||||||
Deemed contribution on extinguishment of preferred stock | 2,525,848 | — | 2,519,124 | — | ||||||||||||
Income applicable to common shareholders | $ | 11,006,064 | $ | 848,978 | $ | 14,739,935 | $ | 759,803 | ||||||||
Basic earnings per share | $ | 0.33 | $ | 0.03 | $ | 0.45 | $ | 0.02 | ||||||||
Diluted earnings per share | $ | 0.33 | $ | 0.03 | $ | 0.45 | $ | 0.02 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 33,371,471 | 32,674,954 | 32,947,241 | 32,671,648 | ||||||||||||
Diluted | 33,984,934 | 32,674,954 | 33,071,652 | 32,671,648 |
See accompanying notes to condensed unaudited financial statements
2
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
||||
Cash flows from operating activities | |||||
Net income | $ | 12,714,637 | $ | 1,286,965 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||||
Depreciation and amortization | 624,998 | 641,224 | |||
Net unrealized gain on investments | (559,543 | ) | (129,728 | ) | |
Realized gains on investments | (162,595 | ) | (7,925 | ) | |
Allowance for doubtful accounts | 125,000 | — | |||
Deferred taxes | (804,357 | ) | — | ||
(Increase) decrease in operating assets: | |||||
Accounts receivable | (7,542,375 | ) | (1,384,383 | ) | |
Inventories | (301,951 | ) | 798,980 | ||
Other current assets | (18,053 | ) | (50,677 | ) | |
Other assets | 10,125 | 56,661 | |||
Increase (decrease) in operating liabilities: | |||||
Accounts payable | 2,272,302 | 317,084 | |||
Accrued liabilities | 1,803,433 | (54,904 | ) | ||
Income taxes payable | 670,531 | 7,919 | |||
Net cash provided by operating activities | 8,832,152 | 1,481,216 | |||
Cash flows from investing activities | |||||
Purchase of property, plant, and equipment | (9,478,182 | ) | (487,256 | ) | |
Purchase of debt and equity securities | (2,174,980 | ) | (6,969,552 | ) | |
Proceeds from the sales of investments | 3,965,329 | 2,362,134 | |||
Net cash used by investing activities | (7,687,833 | ) | (5,094,674 | ) | |
Cash flows from financing activities | |||||
Proceeds of long-term debt | 1,363,000 | — | |||
Repayments of long-term debt | (194,985 | ) | (313,949 | ) | |
Proceeds from TIA | 6,883,103 | — | |||
Repurchase of preferred stock | (100,000 | ) | — | ||
Proceeds from the exercise of stock options | 851,012 | — | |||
Payment of preferred stock dividends | (164,400 | ) | (165,026 | ) | |
Net cash provided (used) by financing activities | 8,637,730 | (478,975 | ) | ||
Net increase (decrease) in cash and cash equivalents | 9,782,049 | (4,092,433 | ) | ||
Cash and cash equivalents at: | |||||
Beginning of period | 5,934,749 | 9,647,292 | |||
End of period | $ | 15,716,798 | $ | 5,554,859 | |
Supplemental schedule of cash flow information: | |||||
Interest paid | $ | 105,959 | $ | 130,085 | |
Supplemental schedule of noncash investing and financing activities: | |||||
Preferred dividends declared, not paid | $ | 52,242 | $ | 54,800 | |
Conversion of preferred stock to common stock | $ | 15,000 | $ | 8,500 | |
Preferred stock repurchase payable | $ | 2,723,248 | $ | — |
See accompanying notes to condensed unaudited financial statements
3
RETRACTABLE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
The following shows the changes in stockholders’ equity for the three-month period ended September 30, 2020:
Common
Stock |
Series I
Class B Preferred Stock |
Series II
Class B Preferred Stock |
Series III
Class B Preferred Stock |
Series IV
Class B Preferred Stock |
Series V
Class B Preferred Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total | ||||||||||
Balance at June 30, 2020 | $ — | $ | 96,000 | $ | 171,200 | $ | 126,745 | $ | 335,000 | $ | 34,000 | $ | 62,087,831 | $ | (29,802,348 | ) | $ | 33,048,428 |
Exchange of Preferred Stock for Common Stock | — | — | — | — | (300,000 | ) | — | (2,423,248 | ) | — | (2,723,248) | |||||||
Conversion | — | — | (15,000 | ) | — | — | — | 15,000 | — | — | ||||||||
Stock Option Exercises | — | — | — | — | — | — | 224,325 | — | 224,325 | |||||||||
Dividends | — | — | — | — | — | — | (52,242 | ) | — | (52,242) | ||||||||
Net Income | — | — | — | — | — | — | — | 8,625,751 | 8,625,751 | |||||||||
Balance at September 30, 2020 | $ — | $ | 96,000 | $ | 156,200 | $ | 126,745 | $ | 35,000 | $ | 34,000 | $ | 59,851,666 | $ | (21,176,597 | ) | $ | 39,123,014 |
The following shows the changes in stockholders’ equity for the three-month period ended September 30, 2019:
Common
Stock |
Series I
Class B Preferred Stock |
Series II
Class B Preferred Stock |
Series III
Class B Preferred Stock |
Series IV
Class B Preferred Stock |
Series V
Class B Preferred Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total | |||||||||
Balance at June 30, 2019 | $ — | $ | 96,000 | $ | 171,200 | $ | 129,245 | $ | 342,500 | $ | 34,000 | $ | 61,770,344 | $ | (36,776,937 | ) $ | 25,766,352 |
Dividends | — | — | — | — | — | — | (54,800 | ) | — | (54,800) | |||||||
Net Income | — | — | — | — | — | — | — | 1,024,434 | 1,024,434 | ||||||||
Balance at September 30, 2019 | $ — | $ | 96,000 | $ | 171,200 | $ | 129,245 | $ | 342,500 | $ | 34,000 | $ | 61,715,544 | $ | (35,752,503 | ) $ | 26,735,986 |
The following shows the changes in stockholders’ equity for the nine-month period ended September 30, 2020:
Common
Stock |
Series I
Class B Preferred Stock |
Series II
Class B Preferred Stock |
Series III
Class B Preferred Stock |
Series IV
Class B Preferred Stock |
Series V
Class B Preferred Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total | ||||||||||
Balance at December 31, 2019 | $ — | $ | 96,000 | $ | 171,200 | $ | 129,245 | $ | 342,500 | $ | 34,000 | $ | 61,660,744 | $ | (33,891,234 | ) | $ | 28,542,455 |
Exchange of Preferred Stock for Common Stock | — | — | — | (2,500 | ) | (307,500 | ) | — | (2,513,248) | — | (2,823,248) | |||||||
Conversion | — | — | (15,000 | ) | — | — | — | 15,000 | — | — | ||||||||
Stock Option Exercises | — | — | — | — | — | — | 851,012 | — | 851,012 | |||||||||
Dividends | — | — | — | — | — | — | (161,842 | ) | — | (161,842) | ||||||||
Net Income | — | — | — | — | — | — | — | 12,714,637 | 12,714,637 | |||||||||
Balance at September 30, 2020 | $ — | $ | 96,000 | $ | 156,200 | $ | 126,745 | $ | 35,000 | $ | 34,000 | $ | 59,851,666 | $ | (21,176,597 | ) | $ | 39,123,014 |
4
The following shows the changes in stockholders’ equity for the nine-month period ended September 30, 2019:
Common
Stock |
Series I
Class B Preferred Stock |
Series II
Class B Preferred Stock |
Series III
Class B Preferred Stock |
Series IV
Class B Preferred Stock |
Series V
Class B Preferred Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total | |||||||||
Balance at December 31, 2018 | $ — | $ | 98,500 | $ | 171,200 | $ | 129,245 | $ | 342,500 | $ | 40,000 | $ | 61,871,756 | $ | (37,039,468 | ) $ | 25,613,733 |
Dividends | — | — | — | — | — | — | (164,712 | ) | — | (164,712) | |||||||
Conversion | — | (2,500 | ) | — | — | — | (6,000 | ) | 8,500 | — | — | ||||||
Net Income | — | — | — | — | — | — | — | 1,286,965 | 1,286,965 | ||||||||
Balance at September 30, 2019 | $ — | $ | 96,000 | $ | 171,200 | $ | 129,245 | $ | 342,500 | $ | 34,000 | $ | 61,715,544 | $ | (35,752,503 | ) $ | 26,735,986 |
See accompanying notes to condensed unaudited financial statements
5
RETRACTABLE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. | BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION |
Business of the Company
Retractable Technologies, Inc. (the “Company”) was incorporated in Texas on May 9, 1994, and designs, develops, manufactures, and markets safety syringes and other safety medical products for the healthcare profession. The Company began to develop its manufacturing operations in 1995. The Company’s manufacturing and administrative facilities are located in Little Elm, Texas. The Company’s products are the VanishPoint® 0.5mL insulin syringe; 1mL tuberculin, insulin, and allergy antigen syringes; 0.5mL, 1mL, 2mL, 3mL, 5mL, and 10mL syringes; the blood collection tube holder; the small diameter tube adapter; the allergy tray; the IV safety catheter; the Patient Safe® syringes; the Patient Safe® Luer Cap; the VanishPoint® Blood Collection Set; and the EasyPoint® needle as well as a standard 3mL syringe packaged with an EasyPoint® needle. The Company also sells VanishPoint® autodisable syringes in the international market in addition to the Company’s other products.
Basis of presentation
The accompanying condensed financial statements are unaudited and, in the opinion of Management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year. The unaudited condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company’s audited financial statements incorporated into its Form 10-K filed on March 30, 2020 for the year ended December 31, 2019.
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 cash, money market accounts, and investments with original maturities of three months or less.
Accounts receivable
The Company records trade receivables when revenue is recognized. No product has been consigned to customers. The Company’s allowance for doubtful accounts is primarily determined by review of specific trade receivables. Those accounts that are doubtful of collection are included in the allowance. This provision is 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. The Allowance for bad debt was $271 thousand and $147 thousand as of September 30, 2020 and December 31, 2019, respectively.
The Company requires certain customers to make a prepayment prior to beginning production or shipment of their order. Customers may apply such prepayments to their outstanding invoices or pay the invoice and
6
continue to carry forward the deposit for future orders. Such amounts are included in Other accrued liabilities on the Condensed Balance Sheets and are shown in Note 6, Other Accrued Liabilities.
The Company records an allowance for estimated returns as a reduction to Accounts receivable and Gross sales. Historically, returns have been insignificant.
Inventories
Inventories are valued at the lower of cost or net realizable value, with cost being determined using actual average cost. The Company compares the average cost to the net realizable value and records the lower value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time to sell such inventory, the shelf life of inventory, and current market conditions when determining excess or obsolete inventories. A reserve is established for any excess or obsolete inventories or they may be written off.
Investments in debt and equity securities
The Company holds high-grade exchange-traded and closed-end funds (ETFs), mutual funds, equity securities, and debt securities as investments. These assets are readily marketable and are carried at fair value as of the date of the Condensed Balance Sheets. Net unrealized and realized gains or losses on investments in debt and equity securities are reflected as a component of Interest and other income. Realized gains or losses on investments in debt and equity securities are recognized using the specific identification method.
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. Gains or losses from disposals are included in operations.
The Company's property, plant, and equipment primarily consist of buildings, land, assembly equipment, molding machines, molds, office equipment, furniture, and fixtures. Depreciation and amortization are calculated using the straight-line method over the following useful lives:
Production equipment | 3 to 13 years | |
Office furniture and equipment | 3 to 10 years | |
Buildings | 39 years | |
Building improvements | 15 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 fair value determined using a discounted cash flow analysis or appraised values of the underlying assets.
Fair value measurements
For assets and liabilities that are measured using quoted prices in active markets, total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or
7
liabilities in active markets. For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black-Scholes model.
Financial instruments
The Company estimates the fair value of financial instruments through the use of public market prices, quotes from financial institutions, and other available information. Judgment is required in interpreting data to develop estimates of fair value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange. Short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on Management's estimates, equals their recorded values. Investments in equity securities consist primarily of individual equity securities, exchange-traded and closed-end funds, and mutual funds and are reported at their fair value based upon quoted prices in active markets. Investments in U.S. Treasury Notes are reported at their fair value based upon quoted prices in active markets. Investments in certificates of deposit (CD) with original maturities of greater than three months are reported at their estimated fair value based upon the duration of the CD and the interest rate earned on the CD versus current interest rates of similar duration CDs. The fair value of long-term liabilities, based on Management’s estimates, approximates their reported values.
Concentration risks
The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents, certificates of deposit, U.S. Treasury Notes, exchange-traded and closed-end funds, mutual funds, equity securities, and accounts receivable. Cash balances, some of which exceed federally insured limits, are maintained in financial institutions; however, Management believes the institutions are of high credit quality. The Company assesses market risk in debt and equity securities through consultation with its outside investment advisors. Management is responsible for directing investment activity based on current economic conditions. The majority of accounts receivable are due from companies which are well-established entities. In the third quarter of 2020, a significant portion of the Company’s sales were to the U.S. government, which Management does not consider a credit risk. As a consequence, Management considers any exposure from concentrations of credit risks to be limited.
The following table reflects significant customers for the three- and nine-month periods ending September 30, 2020 and 2019, respectively:
Three Months ended
September 30, 2020 |
Three Months ended
September 30, 2019 |
Nine Months ended
September 30, 2020 |
Nine Months ended
September 30, 2019 |
|||||||||||||
Number of significant customers | 2 | 3 | 2 | 3 | ||||||||||||
Aggregate dollar amount of net sales to significant customers | $16.4 million | $5.0 million | $21.7 million | $12.6 million | ||||||||||||
Percentage of net sales to significant customers | 60.6% | 43.2% | 43.6% | 43.3% |
In the third quarter of 2020, approximately $12.9 million of the Company’s sales were to the Department of Health and Human Services of the United States in partial fulfillment of a recent $83.8 million delivery order to supply automated retraction safety syringes (the “HHS Order”). Management expects the U.S. government to remain a significant customer through the remainder of 2020, and sales under the HHS Order to increase quarterly through May 2021.
The Company manufactures some of its products in Little Elm, Texas as well as utilizing manufacturers in China. The Company obtained roughly 82.2% and 82.1% of its products in the first nine months of 2020 and 2019, respectively, from its Chinese manufacturers. Purchases from Chinese manufacturers aggregated 80.5% and 84.2% of products in the three-month periods ended September 30, 2020 and 2019, respectively. In the
8
event that the Company becomes unable to purchase products from its Chinese manufacturers, the Company would need to find an alternate manufacturer for its blood collection set, IV catheter, Patient Safe® syringe, 0.5mL insulin syringe, 0.5mL autodisable syringe, and 2mL, 5mL, and 10mL syringes, and would increase domestic production for the 1mL and 3mL syringes and EasyPoint® needles. Regardless of vendor availability, the Company expects to increase its domestic syringe production capacity at its facilities pursuant to the plans outlined in the TIA as hereinafter defined.
Revenue recognition
The Company recognizes revenue when it has satisfied all performance obligations to the customer, generally when title and risk of loss pass to the customer. Payments from customers with approved credit terms are typically due 30 days from the invoice date. Under certain contracts, revenue is recorded on the basis of sales price to distributors, less contractual pricing allowances. Contractual pricing allowances consist of: (i) rebates granted to distributors who provide tracking reports which show, among other things, the facility that purchased the products, and (ii) a provision for estimated contractual pricing allowances for products for which the Company has not received tracking reports. Rebates are recorded when issued and are applied against the customer’s receivable balance. Distributors receive a rebate for the difference between the Wholesale Acquisition Cost and the appropriate contract price as reflected on a tracking report provided by the distributor to the Company. If product is sold by a distributor to an entity that has no contract, there is a standard rebate (lower than a contracted rebate) given to the distributor. One of the purposes of the rebate is to encourage distributors to submit tracking reports to the Company. The provision for contractual pricing allowances is recognized in the period the related sales are recognized and is reviewed at the end of each quarter and adjusted for changes in levels of products for which there is no tracking report. Additionally, if it becomes clear that tracking reports will not be provided by individual distributors, the provision is further adjusted. The estimated contractual allowance is included in Accounts payable in the Condensed Balance Sheets and deducted from Revenues in the Condensed Statements of Operations. Accounts payable included estimated contractual allowances for $3,714,002 and $3,586,726 as of September 30, 2020 and December 31, 2019, respectively. The terms and conditions of contractual pricing allowances are governed by contracts between the Company and its distributors. Revenue for shipments directly to end-users is recognized when title and risk of ownership pass from the Company. End-users do not receive any contractual allowances on their purchases. Any product shipped or distributed for evaluation purposes is expensed.
The Company provides product warranties that: i) the products are fit for medical use as generally defined within the boundaries of United States FDA approval; ii) the products are not defective; and iii) the products will conform to the descriptions set forth in their respective labeling, provided that they are used in accordance with such labeling and the Company’s written directions for use. The Company has historically not incurred significant warranty claims.
The Company’s domestic return policy provides that a customer may return incorrect shipments within 10 days following arrival at the distributor’s facility. In all such cases, the distributor must obtain an authorization code from the Company and affix the code to the returned product. The Company’s domestic return policy also generally provides that a customer may return product that is overstocked. Overstocking returns are limited to two times in each 12-month period up to 1% of distributor’s total purchase of products for the prior 12-month period. All product overstocks and returns are subject to inspection and acceptance by the Company.
The Company’s international distribution agreements generally do not provide for any returns.
The Company requires certain customers to pay in advance of product shipment. Such prepayments from customers are recorded in Other accrued liabilities and are generally recognized as revenue within 30 to 60 days of shipment of the product.
The Company recognizes revenue from licensing agreements when collection of such amounts from third parties is reasonably assured. If the Company licenses its products for sale, the Company is obligated to pay Thomas J. Shaw, the owner of certain patented technology, a certain percentage of such revenue pursuant to the terms of the Technology License Agreement between the Company and Mr. Shaw.
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Disaggregated information of revenue recognized from contracts with customers and licensing fees recognized are as follows:
For the three months ended September 30, 2020 | ||||||||||||||||||||
Geographic Segment | Syringes |
Blood
Collection Products |
EasyPoint®
Needles |
Other
Products |
Total
Product Sales |
|||||||||||||||
U.S. sales (excluding HHS Order) | $ | 8,241,161 | $ | 791,961 | $ | 3,581,723 | $ | 9,210 | $ | 12,624,055 | ||||||||||
HHS Order sales to U.S. Government | 12,898,080 | — | — | — | 12,898,080 | |||||||||||||||
North and South America sales (excluding U.S.) | 1,295,080 | 450 | — | — | 1,295,530 | |||||||||||||||
Other international sales | 198,440 | 73,019 | 235 | 1,705 | 273,399 | |||||||||||||||
Total | $ | 22,632,761 | $ | 865,430 | $ | 3,581,958 | $ | 10,915 | $ | 27,091,064 |
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
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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. In prior periods, the Company established a valuation allowance for its net deferred tax asset as future taxable income which could not be reasonably assured. 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 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. The calculation of diluted EPS included 226,150 shares of Common Stock underlying issued and outstanding stock options for both the three and nine months ended September 30, 2020. Common Stock issuable upon the conversion of convertible preferred stock is excluded from the calculation of diluted EPS for the three months ended September 30, 2019 and for the nine months ended September 30, 2020 and 2019 as their effect was antidilutive for those periods. Common Stock issuable upon the conversion of convertible preferred stock is included in the calculation of diluted EPS for the three months ended September 30, 2020 as their effect was dilutive for the period. The potential dilution, if any, is shown on the following schedule:
Three Months Ended
September 30, 2020 |
Three Months Ended
September 30, 2019 |
Nine Months Ended
September 30, 2020 |
Nine Months Ended
September 30, 2019 |
|||||||||||||
Net income | $ | 8,625,751 | $ | 1,024,434 | $ | 12,714,637 | $ | 1,286,965 | ||||||||
Preferred stock dividend requirements | (145,535 | ) | (175,456 | ) | (493,826 | ) | (527,162 | ) | ||||||||
Deemed contribution on extinguishment of preferred stock | 2,525,848 | — | 2,519,124 | — | ||||||||||||
Income applicable to common shareholders | $ | 11,006,064 | $ | 848,978 | $ | 14,739,935 | $ | 759,803 | ||||||||
Average common shares outstanding | 33,371,471 | 32,674,954 | 32,947,241 | 32,671,648 | ||||||||||||
Average common and common equivalent shares outstanding – assuming dilution | 33,984,934 | 32,674,954 | 33,071,652 | 32,671,648 | ||||||||||||
Basic earnings per share | $ | 0.33 | $ | 0.03 | $ | 0.45 | $ | 0.02 | ||||||||
Diluted earnings per share | $ | 0.33 | $ | 0.03 | $ | 0.45 | $ | 0.02 |
The FASB Codification 260-10-S99-2, Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock, requires the gain or loss on extinguishment of equity-classified preferred stock to be included in the net income per common stockholder used to calculate earnings per share (similar to the treatment of dividends paid on preferred stock). The difference between (1) the fair value of the consideration transferred to the holders of the preferred stock and (2) the carrying amount of the preferred stock (net of issuance costs) is subtracted from (or added to) net income to arrive at income available to common stockholders in the calculation of earnings per share.
The Company has determined to apply this guidance to its accounting treatment of the preferred stock transactions described in Note 12.
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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) (“Government”) 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 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 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. 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 significant impact on the Company’s financial statements.
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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. 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 significant 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 is effective for annual periods beginning after December 15, 2019 and interim periods within the annual period. The adoption of ASU 2018-13 did not have a significant 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 Taxes: Simplifying the Accounting for Income 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 primarily be made prospectively, with some changes to be made retrospectively. The Company has determined that the adoption of ASU 2019-12 will not have a material impact on its financial statements.
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.
3. | INVENTORIES |
Inventories consist of the following:
September 30, 2020 | December 31, 2019 | |||||||
Raw materials | $ | 1,604,051 | $ | 1,254,313 | ||||
Finished goods | 6,445,700 | 6,493,487 | ||||||
8,049,751 | 7,747,800 | |||||||
Inventory reserve | (297,208 | ) | (297,208 | ) | ||||
$ | 7,752,543 | $ | 7,450,592 |
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4. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and requires additional disclosures regarding certain fair value measurements. ASC 820 establishes a three-tier hierarchy for measuring fair value, as follows:
· | Level 1 – quoted market prices in active markets for identical assets and liabilities |
· | Level 2 – inputs other than quoted prices that are directly or indirectly observable |
· | Level 3 - unobservable inputs where there is little or no market activity |
The following tables summarize the values of assets designated as Investments in debt and equity securities:
September 30, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity securities | $ | 2,723,410 | $ | — | $ | — | $ | 2,723,410 | ||||||||
Mutual funds and exchange traded funds | 3,902,118 | — | — | 3,902,118 | ||||||||||||
Certificates of deposit | — | 77,921 | — | 77,921 | ||||||||||||
$ | 6,625,528 | $ | 77,921 | $ | — | $ | 6,703,449 |
December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity securities | $ | — | $ | — | $ | — | $ | — | ||||||||
Mutual funds and exchange traded funds | 6,708,746 | — | — | 6,708,746 | ||||||||||||
Certificates of deposit | — | 1,062,914 | — | 1,062,914 | ||||||||||||
$ | 6,708,746 | $ | 1,062,914 | $ | — | $ | 7,771,660 |
The Company holds high-grade ETFs, mutual funds, individual equity stocks (predominately in the energy sector), and debt securities as investments. These assets are readily marketable and are carried at fair value as of the date of the Condensed 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:
September 30, 2020 | ||||||||||||||||
Gross Unrealized | Aggregate | |||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
Equity securities | $ | 2,068,405 | $ | 655,005 | $ | — | $ | 2,723,410 | ||||||||
Mutual funds and exchange traded funds | 3,871,186 | 30,932 | — | 3,902,118 | ||||||||||||
Certificates of deposit | 75,000 | 2,921 | — | 77,921 | ||||||||||||
$ | 6,014,591 | $ | 688,858 | — | $ | 6,703,449 |
December 31, 2019 | ||||||||||||||||
Gross Unrealized | Aggregate | |||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
Equity securities | $ | — | $ | — | $ | — | $ | — | ||||||||
Mutual funds and exchange traded funds | 6,592,345 | 116,401 | — | 6,708,746 | ||||||||||||
Certificates of deposit | 1,050,000 | 12,914 | — | 1,062,914 | ||||||||||||
$ | 7,642,345 | $ | 129,315 | — | $ | 7,771,660 |
Unrealized gains (losses) on investments in debt and equity securities were $559,543 and $129,728 for the nine months ended September 30, 2020 and 2019, respectively.
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5. | INCOME TAXES |
The Company’s effective tax rate on the net income before income taxes was 15.63% and (1.2)% for the three and nine months ended September 30, 2020, respectively, and 0.4% and 0.6% for each of the three- and nine-month periods ended September 30, 2019. For the three and nine months ended September 30, 2020 and 2019, the Company's effective tax rate was determined based on the estimated annual effective income tax rate.
The effective tax rate for the three and nine months ended September 30, 2020 was different from the federal statutory rate due primarily to the income tax benefit recorded in connection with the release of the valuation allowance on deferred tax assets.
6. | OTHER ACCRUED LIABILITIES |
Other accrued liabilities consist of the following:
September 30, 2020 | December 31, 2019 | |||||||
Prepayments from customers | $ | 1,387,491 | $ | 998,601 | ||||
Accrued property taxes | 351,000 | — | ||||||
Accrued professional fees | 202,979 | 263,757 | ||||||
Current portion - preferred stock repurchase | 952,381 | — | ||||||
Other accrued expenses | 138,179 | 124,791 | ||||||
$ | 3,032,030 | $ | 1,387,149 |
7. | OTHER LONG-TERM LIABILITIES |
Other long-term liabilities consist of the following:
September 30, 2020 | December 31, 2019 | |||||||
Long-term deferred liability - TIA | $ | 8,762,294 | $ | — | ||||
Long-term deferred liability - preferred stock repurchase | 1,770,867 | — | ||||||
$ | 10,533,161 | $ | — |
8. | COMMITMENTS AND CONTINGENCIES |
On November 7, 2019, the Company filed a lawsuit in the 44th 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. On October 6, 2020, the Court dismissed Defendants’ motion to dismiss, which order was appealed by the Defendants on October 9, 2020 to the Court of Appeals, Fifth District of Texas at Dallas.
9. | BUSINESS SEGMENT |
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:
Three Months Ended September 30, 2020 |
Three Months Ended September 30, 2019 |
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
|||||||||||||
U.S. sales (excluding HHS Order) | $ | 12,624,055 | $ | 9,039,208 | $ | 29,203,105 | $ | 23,031,222 | ||||||||
HHS Order sales to U.S. Government | 12,898,080 | — | 14,065,623 | — | ||||||||||||
North and South America sales (excluding U.S.) | 1,295,530 | 2,432,734 | 5,985,820 | 4,960,486 |
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Three Months Ended September 30, 2020 |
Three Months Ended September 30, 2019 |
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
|||||||||||||
Other international sales | 273,399 | 167,644 | 612,578 | 1,176,242 | ||||||||||||
Total sales | $ | 27,091,064 | $ | 11,639,586 | $ | 49,867,126 | $ | 29,167,950 |
Long-lived assets by geography are as follows:
September 30, 2020 | December 31, 2019 | |||||||
Long-lived assets | ||||||||
U.S. | $ | 19,413,966 | $ | 10,542,688 | ||||
International | 71,276 | 89,369 | ||||||
Total | $ | 19,485,242 | $ | 10,632,057 |
10. | DIVIDENDS |
The Board declared and the Company paid dividends to Series I and Series II Class B Preferred Shareholders in the following amounts: $12,313 and $42,800, respectively, on January 18, 2019 and April 22, 2019. The Board declared and the Company paid dividends to Series I and Series II Class B Preferred Shareholders in the following amounts: $12,000 and $42,800, respectively, on July 19, 2019, October 21, 2019, January 22, 2020, April 20, 2020, and July 20, 2020. The Board declared and the Company paid dividends on October 22, 2020 to Series I and Series II Class B Preferred Shareholders in the following amounts: $12,000 and $40,242.
In the third quarter of 2020, a shareholder converted 15,000 shares of Series II Class B Preferred Stock into the same number of shares of Common Stock.
11. | LEASES |
The Company has operating leases for a corporate office and warehouse space. The leases have a remaining lease term of less than one year. The Company currently has no finance leases. The right-of-use (“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 $69,689 for the nine-month period ended September 30, 2020. The cash paid for amounts included in the measurement of lease liabilities as a component of cash flows related to leases was $69,689 for the nine months ended September 30, 2020. The operating lease cost component of the lease expense was $60,175 for the nine months ended September 30, 2019. The cash paid for amounts included in the measurement of lease liabilities as a component of cash flows related to leases was $60,175 for the nine months ended September 30, 2019.
Assets and liabilities associated with these leases included in the Condensed Balance Sheets are as follows:
September 30, 2020 | December 31, 2019 | |||||||
OPERATING LEASES | ||||||||
Other assets | $ | 72,515 | $ | 82,359 | ||||
Other accrued liabilities | $ | 72,515 | $ | 82,359 | ||||
Other long-term liabilities | — | — | ||||||
Total operating lease liabilities | $ | 72,515 | $ | 82,359 |
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The weighted average remaining lease term is 9.4 months and the weighted average discount rate is 3.82%.
Future minimum payments under non-cancelable operating leases and financing leases consist of the following at September 30, 2020:
Year ending December 31, 2020 | $ | 73,709 | ||
Less imputed interest | (1,194) | |||
Total | $ | 72,515 |
12. | EXCHANGE OF COMMON STOCK FOR PREFERRED STOCK |
Effective January 13, 2020, the Company purchased outstanding Class B Convertible Preferred Stock (the “Preferred Stock”) from preferred shareholders for cash and Common Stock. Such preferred stockholders tendered to the Company 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.
Effective May 18, 2020, the Company purchased 2,500 shares of Series IV Preferred Stock from one shareholder for $25,000 and 2,500 shares of Common Stock. Such preferred stockholder agreed to waive all unpaid dividends in arrears associated with its Preferred Stock, which resulted in a waiver of a total of $50,370 in unpaid dividends in arrears.
On September 30, 2020, the Company purchased 300,000 shares of Series IV Preferred Stock from a shareholder for $3,000,000 in cash, with a net present value of $2,723,248, to be paid over a three-year period beginning February 2021 and 600,000 shares of Common Stock. Such preferred stockholder agreed to waive all unpaid dividends in arrears associated with its Preferred Stock, which resulted in a waiver of a total of $6,091,233 in unpaid dividends in arrears.
13. | STOCK OPTIONS |
Stock options were exercised by the Company’s employees and directors at various dates during the quarter ended September 30, 2020, and, consequently, a total of 121,800 shares of Common Stock were issued for an aggregate payment to the Company of $224,325 to exercise such options. For the nine months ended September 30, 2020, as a result of exercised stock options, a total of 406,650 shares of Common Stock were issued for an aggregate payment to the Company of $851,012.
14. | COVID-19 |
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. The Company continues to monitor the evolving situation and will work to further mitigate risks to staff and to customers. 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 its 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, 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.
15. | PAYCHECK PROTECTION PROGRAM LOAN |
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
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“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 on April 17, 2022 and bears 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 maturity with no prepayment penalties. The PPP Loan is unsecured and is a non-recourse obligation. PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, rent, utilities, and interest on debt. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt.
As of September 30, 2020, the Company believes it has incurred qualifying expenses equal to or greater than the principal amount of the PPP Loan; however, the Company is not able to determine the amount, if any, that might be forgiven.
On June 5, 2020, the PPP Flexibility Act was signed into law which, among other things, (i) extended the covered period from 8 weeks after the date of PPP funding to 24 weeks after the date of PPP funding, (ii) reduced the required amount of payroll expenditures from 75% to 60%, (iii) removed the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and (iv) extended the repayment deferral period to be the earlier of (a) the date forgiveness funds are received or (b) ten months from the end of the covered period. The Company is evaluating the impact of these changes on the PPP Loan, including the payment date and the amounts available for forgiveness.
Assuming the PPP Loan is not forgiven, the Company’s obligations thereunder are as follows as of September 30, 2020 for years ending December 31:
2020 | $ | 151,244 | ||||
2021 | 912,826 | |||||
2022 | 298,930 | |||||
$ | 1,363,000 |
16. | TECHNOLOGY INVESTMENT AGREEMENT |
Effective July 1, 2020, the Company entered into the TIA with the Government. The principle 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 Government award is an expenditure-type TIA, whereby the 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 early November 2020, the Company has negotiated contracts for the purchase of automated assembly equipment, molds, and molding equipment, as well as portions of auxiliary equipment, for approximately $38 million. The Company has engaged architects and general construction contractors for the completion of new controlled environment facilities and additional warehousing facilities. The expanded facilities consist of approximately 27,800 square feet of additional controlled environment within existing properties and new construction of approximately 55,000 square feet of new warehouse space in conjunction with the overall production capacity expansion. The estimated cost of the controlled environment within existing properties is $6 million, and construction of the new warehouse is estimated to be $5.8 million. The cost of the controlled environment will be funded by the Government under the TIA, while the cost of the new warehouse will be funded by the Company. Building permits were obtained for both buildings in October 2020. The scheduled completion dates for the construction are within the second quarter of 2021.
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17. | SUBSEQUENT EVENTS |
In October 2020, the Company purchased a total of 30,000 shares of Series IV Preferred Stock and 25,000 shares of Series V Preferred Stock from six shareholders in exchange for a total of $400,000 (of which $303,330 is to be paid over a three-year period beginning February 2021) and 110,000 shares of Common Stock. Such preferred shareholders agreed to waive all unpaid dividends in arrears associated with its Preferred Stock, which resulted in a waiver of a total of $757,759 in unpaid dividends in arrears.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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, 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 access the market, production costs, 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 82.3% of our sales in the first nine months of 2020. We also manufacture and market the EasyPoint® needle, 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 12.0% of revenues for the nine months ended September 30, 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.
Historically, unit sales have increased in the latter part of the year due, in part, to the demand for syringes during the flu season. Experts and industry professionals predicted that flu shots would be critical for the public in the 2020 flu season because of the continuing COVID-19 pandemic. Although our domestic sales outside of the HHS Order increased approximately 40% during the three months ended September 30, 2020, we cannot determine what percent of the increased sales were attributable to flu shots versus preparation for a COVID-19 vaccine.
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 (the “HHS Order”). The total fixed price under the delivery order is $83,788,440. The existing contract was executed in September 2018, but the order placed on May 1, 2020 is unusually significant. In the third quarter of 2020, our sales under this order were approximately $12.9 million and we expect such sales to increase each quarter through May 2021. We
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understand that the purpose of the HHS Order is to provide syringes for the COVID-19 vaccine, when available. Additionally, in October 2020, the contract value was increased by $10 million when the U.S. government agreed to expedite freight into our facilities by paying for airfreight costs from China.
Effective 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) (“Government”) for $53,664,286 in government 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 early November 2020, we have negotiated contracts for the purchase of automated assembly equipment, molds, and molding equipment, as well as portions of auxiliary equipment, for approximately $38 million. We have engaged architects and general construction contractors for the completion of new controlled environment facilities and additional warehousing facilities. The expanded facilities consist of approximately 27,800 square feet of additional controlled environment within existing properties and new construction of approximately 55,000 square feet of new warehouse space in conjunction with the overall production capacity expansion. The estimated cost of the controlled environment within existing properties is $6 million, and construction of the new warehouse is estimated to be $5.8 million. The cost of the controlled environment will be funded by the Government under the TIA, while the cost of the new warehouse will be our financial obligation. Building permits were obtained for both buildings in October 2020. The scheduled completion dates for the construction are within the second quarter of 2021.
On April 17, 2020, we 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, administered by the U.S. Small Business Administration (“SBA”). The PPP Loan matures on April 17, 2022 and bears interest at a rate of 1.0% per annum. Commencing November 17, 2020, we may be 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. PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. We have not yet applied for forgiveness and we cannot be certain of the amount, if any, which may be forgiven.
As detailed in Note 4 to the financial statements, we held $6.7 million in debt and equity securities as of September 30, 2020, which represents 14.3% of our current assets. During the third quarter of 2020, we liquidated a portion of our investment portfolio (approximately $4.0 million) for operational needs. We continually monitor our invested balances.
During the third quarter of 2020, we hired 15 new full-time employees, predominantly as production line workers, and terminated several back office employees. We also moderately increased non-executive pay. The net effect of these actions caused a net increase of approximately $150 thousand in our operating expenses for the quarter ended September 30, 2020.
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 nine months of 2020, our Chinese manufacturers produced approximately 82.2% 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. Regardless of vendor availability, we expect to increase our domestic syringe production capacity at our facilities pursuant to the plans outlined in the TIA.
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
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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 us by certain sublicensees of the technology subject to the license.
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. Decreases in costs of petroleum products during the first nine months of 2020 have reduced certain raw material costs.
RESULTS OF OPERATIONS
The following discussion may contain 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 any forward-looking statements. Dollar amounts have been rounded for ease of reading. All period references are to the periods ended September 30, 2020 or 2019.
Comparison of Three Months Ended September 30, 2020 and September 30, 2019
Domestic sales, including sales to the U.S. government, accounted for 94.2% and 77.7% of the revenues for the three months ended September 30, 2020 and 2019, respectively. Domestic revenues increased 182.3% principally due to the increase in units sold. Domestic unit sales increased 151.7%. Domestic unit sales were 90.6% of total unit sales for the three months ended September 30, 2020. Domestic sales excluding the HHS Order rose approximately 40%. International revenue and unit sales decreased 39.7% and 41.3%, representing a return to normal levels after the unusually high volumes in 2019. Our international orders may be subject to significant fluctuation over time and there is limited predictability with respect to the timing of international orders. Overall unit sales increased 92.2%. Other than the Department of Health and Human Services, our increased sales are predominantly attributable to existing customers as well as several new smaller customers who do not operate as distributors. Our sales under the HHS Order in the quarter ended September 30, 2020 were approximately $12.9 million and we expect such sales to increase each quarter through May 2021.
The Cost of manufactured product increased by 67.0% principally due to the increase in the volume of units sold. 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. Royalty expense increased 79.6% due to increased gross sales.
Gross profit increased 267.0% primarily due to the increase in net revenues.
Operating expenses increased 24.8%. The increase was due to employee expenses such as added payroll and related costs and consulting fees.
Our income from operations was $10.3 million compared to an operating income of $978 thousand for the same period last year due primarily to the increase in net revenues and resulting gross profit.
Interest and other income decreased $179 thousand for the quarter ended September 30, 2020 compared to the same period last year principally due to unrealized losses in investments.
Our effective tax rate on income before income taxes was 15.63% and 0.4% for the three months ended September 30, 2020 and September 30, 2019, respectively.
Comparison of Nine Months Ended September 30, 2020 and September 30, 2019
Domestic sales, including sales to the U.S. government, accounted for 86.8% and 79.4% of the revenues, excluding product licensing fees, for the nine months ended September 30, 2020 and 2019, respectively. Domestic revenues increased 87.9% principally due to the increase in units sold. Domestic unit sales increased 76.4%. Domestic unit sales were 81.6% of total unit sales for the nine months ended September 30, 2020. International
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revenue and unit sales increased 10.1% and 3.7%, respectively, due to increased orders and the timing of the same. Our international orders may be subject to significant fluctuation over time and there is limited predictability with respect to the timing of international orders. Overall unit sales increased 56.3%. As discussed above, our sales under the HHS Order contributed $14.3 million to our results for the nine months ended September 30, 2020.
The Cost of manufactured product increased by 45.2% principally due to the increase in the volume of units sold. 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. Royalty expense increased 38.5% due to increased gross sales.
Gross profit increased 128.9% primarily due to the increase in net revenues.
Operating expenses increased 14.7%. The increase was due to an increase in employee headcount and related costs as well as consulting fees and an increase in the allowance for doubtful accounts.
Our operating income was $11.8 million compared to an operating income for the same period last year of $1.1 million due primarily to increased net revenues and resulting gross profit.
Interest and other income for the first nine months of 2020 increased $589 thousand compared to the same period last year principally due to realized and unrealized gains on investments.
Our effective tax rate on income before income taxes was (1.2)% and 0.6% for the nine months ended September 30, 2020 and September 30, 2019, respectively. As of June 30, 2020, we released our valuation allowance for deferred tax assets based on evidence supporting the position that the potential benefit would be “more-likely-than-not” realized. As a result of the release of the valuation allowance, we recognized approximately $1.8 million in deferred tax assets and recognized the corresponding amount as a beneficial income tax provision. The recognition of the benefit and deferred tax asset is reflected in the second quarter of 2020.
Discussion of Balance Sheet and Statement of Cash Flow Items
Cash comprises 23% of total assets. Working capital was $32.0 million at September 30, 2020, an increase of $11.8 million from December 31, 2019.
Cash provided by operations was $8.8 million for the nine months ended September 30, 2020 due primarily to net income for the period, offset by a significant increase in accounts receivable.
Cash used by investing activities was $7.7 million for the nine months ended September 30, 2020 due primarily to the net sales of equity securities and the purchase of fixed assets. The $9.5 million impact to cash from the purchase of such fixed assets reflects down payments on orders for certain assets detailed in this report in connection with the TIA. In the third quarter of 2020, we liquidated approximately $4.0 million of our investment portfolio for operational needs.
Cash provided by financing activities was $8.6 million for the nine months ended September 30, 2020. This was primarily due to the proceeds from the PPP loan, proceeds from the exercise of stock options, and proceeds from the government under the TIA for down payments on our orders for fixed assets.
LIQUIDITY
Historical Sources of Liquidity
We have historically funded operations primarily from the proceeds from revenues, private placements, litigation settlements, and loans.
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Internal Sources of Liquidity
Margins
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. We cannot determine what percent of our recent increase in domestic sales (excluding the HHS Order) were attributable to flu shots versus preparation for a COVID-19 vaccine.
Cash Requirements
We have sufficient cash reserves, received a PPP loan, and have begun to realize income 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 the third quarter of 2020, our sales under this HHS Order were approximately $12.9 million and we expect such sales to increase each quarter through May 2021.
As discussed above, we entered into a TIA with United States government for approximately $53.7 million in Government funding for expanding our domestic production of needles and syringes. To date, we have received approximately $6.9 million for down payments on the purchase of certain fixed assets. 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. We have engaged architects and construction contractors for the completion of new controlled environment facilities and warehousing facilities which are expected to be completed in the second quarter of 2021.
Option Exercises
Stock options were exercised by our employees and directors at various dates during the quarter ended September 30, 2020, and, consequently, we received approximately $224 thousand to exercise such options.
External Sources of Liquidity
We recently received a PPP Loan, as described above, in the principal amount of $1,363,000. PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. We have not yet applied for forgiveness and we cannot be certain of the amount, if any, which may be forgiven.
We may obtain a construction loan for the construction of new facilities in connection with our expansion plans in connection with the TIA. While a portion of the planned construction will be funded by the Government, we expect to fund the construction of the new warehouse and expect the cost to be approximately $5.8 million.
It is unlikely we would choose to raise funds by the public sale of equity despite recent increases in the value of our stock. Our stock price increased materially during the first nine months of 2020. The closing price per share on January 1, 2020 was $1.53. On September 30, 2020, our stock price closed at $6.66 per share and it was $8.25 on November 10, 2020.
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We consider our investment portfolio a source of liquidity as well. For example, in the third quarter of 2020, we liquidated approximately $4.0 million from our investment portfolio for operational needs. As of September 30, 2020, $6.7 million was invested in third party securities.
CAPITAL RESOURCES
Since the execution of the TIA on July 1, 2020, we have been planning significant expansion to our facilities. We have engaged architects and general construction contractors for the completion of controlled environment facilities and additional warehousing facilities. The expanded facilities consist of approximately 27,800 square feet of additional controlled environment within existing properties and new construction of approximately 55,000 square feet of new warehouse space in conjunction with the overall production capacity expansion. We expect this construction to be completed in the second quarter of 2021. We have also contracted for additional automated assembly equipment, along with necessary auxiliary equipment, costing approximately $38 million in the aggregate.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
Item 4. | Controls and Procedures. |
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 September 30, 2020, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes during the third quarter of 2020 or subsequent to September 30, 2020 in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 1. | Legal Proceedings. |
Please refer to Note 8 to the financial statements for a complete description of all legal proceedings.
Item 1A. | Risk Factors. |
There were no material changes in our Risk Factors as set forth in our most recent annual and quarterly reports which are available on EDGAR.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
On September 30, 2020, the Company purchased 300,000 shares of Series IV Preferred Stock from a shareholder for $3,000,000 in cash over a three-year period beginning February 2021 and 600,000 shares of Common Stock. Such preferred stockholder agreed to waive all unpaid dividends in arrears associated with its Preferred Stock, which resulted in a waiver of a total of $6,091,233 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 this transaction from the registration requirements of the Securities Act.
Item 3. | Defaults Upon Senior Securities. |
Working Capital Restrictions and Limitations on the Payment of Dividends
We declared a dividend to the Series I Class B and Series II Class B Convertible Preferred Shareholders in the aggregate amount of $52,242. This dividend was paid on October 22, 2020.
The certificates of designation for each 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 junior 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.
Series I Class B Convertible Preferred Stock
For the nine months ended September 30, 2020, no dividends were in arrears.
Series II Class B Convertible Preferred Stock
For the nine months ended September 30, 2020, no dividends were in arrears.
Series III Class B Convertible Preferred Stock
For the nine months ended September 30, 2020, the amount of dividends in arrears was $95,209 and the total arrearage was $4,447,893 as of September 30, 2020.
Series IV Class B Convertible Preferred Stock
For the nine months ended September 30, 2020, the amount of dividends in arrears was $228,615 and the total arrearage was $814,747 as of September 30, 2020.
Series V Class B Convertible Preferred Stock
For the nine months ended September 30, 2020, the amount of dividends in arrears was $8,160 and the total arrearage was $1,028,356 as of September 30, 2020.
Item 6. | Exhibits. |
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101 | The following materials from Retractable Technologies, Inc.’s Form 10-Q for the quarter ended September 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Condensed Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, (iv) Condensed Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019; and (v) Notes to Condensed Financial Statements |
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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.
DATE: November 16, 2020 | RETRACTABLE TECHNOLOGIES, INC. | ||
(Registrant) | |||
By: | /s/ JOHN W. FORT III | ||
JOHN W. FORT III
VICE PRESIDENT, CHIEF FINANCIAL OFFICER, AND CHIEF ACCOUNTING OFFICER |
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Exhibit 10.1
AWARD/CONTRACT |
1. THIS CONTRACT IS A RATED ORDER
UNDER DPAS (15 CFR 700) |
RATING | PAGE OF PAGES | |||||||||||||||||||
1 | 30 | |||||||||||||||||||||
2. CONTRACT (Pros. Inst. Ident.) NO W911SR2030004 |
3. EFFECTIVE DATE 01 Jul 2020 |
4. REQUISITION/PURCHASE REQUEST/PROJECT NO. 0011506626-0001 |
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5. ISSUED BY | CODE | W911SR | 6. ADMINISTERED BY (If other than Item 5) | CODE | S4402A | |||||||||||||||||
US ARMY RDECOM CONTRACTING CMD APG, EDGEWOOD CONTRACTING DIVISION E4455 LEITZAN ROAD ABERDEEN PROVING GROUND MD 21010-5401
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DCMA DALLAS – S4402A 600 NORTH PEARL STREET SUITE 1630 DALLAS TX 75201-2843 |
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7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, county, state and zip code) RETRACTABLE TECHNOLOGIES, INC. 511 LOBO LN LITTLE ELM TX 75068-5295
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8. DELIVERY [ ] FOB ORIGIN [ ] OTHER (See below) |
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9. DISCOUNT FOR PROMPT PAYMENT Net 30 Days |
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10. SUBMIT INVOICES (4 copies unless otherwise specified) TO THE ADDRESS |
ITEM | |||||||||||||||||||||
CODE 1BFK3 | FACILITY CODE | SHOWN IN: | ||||||||||||||||||||
11. SHIP TO/MARK FOR: | CODE | W56XNH | 12. PAYMENT WILL BE MADE BY | CODE | HQ0339 | |||||||||||||||||
BIOMEDICAL ADVANCED RESEARCH DEVELOPMENT [JOSEPH FIGLIO] ROOM 23E07 O’NEILL HOUSE OFFICE BUILDING WASHINGTON DC 20515
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DFAS-COLUMBUS CENTER DFAS-COM/EST ENTITLEMENT OPERATIONS P.O. BOX 182381 COLUMBUS OH 43218-2381
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13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION: [ ] 10 U.S.C. 2304(c)( ) [ ] 41 U.S.C. 253(c)( ) |
14. ACCOUNTING AND APPROPRIATION DATA See Schedule |
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15A. ITEM NO. | 15B. SUPPLIES/SERVICES | 15C. QUANTITY | 15D. UNIT | 15E. UNIT PRICE | 15F. AMOUNT | |||||||||||||||||
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SEE SCHEDULE |
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15G. | TOTAL AMOUNT OF CONTRACT | $53,664,286.00 | ||||||||||||||||||||
16. TABLE OF CONTENTS | ||||||||||||||||||||||
(X) | SEC. | DESCRIPTION | PAGE(S) | (X) | SEC. | DESCRIPTION | PAGE(S) | |||||||||||||||
PART I – THE SCHEDULE | PART II – CONTRACT CLAUSES | |||||||||||||||||||||
X | A | SOLICITATION/CONTRACT FORM | 1 | X | 1 | CONTRACT CLAUSES | 15-30 | |||||||||||||||
X | B | SUPPLIES OR SERVICES AND PRICES/C0STS | 2 | PART III – LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH | ||||||||||||||||||
C | DESCRIPTION/SPECS/WORK STATEMENT | J | LIST OF ATTACHMENTS | |||||||||||||||||||
D | PACKAGING AND MARKING | PART IV – REPRESENTATIONS AND INSTRUCTIONS | ||||||||||||||||||||
X | E | INSPECTION AND ACCEPTANCE | 3 | K | REPRESENTATIONS, CERTIFICATIONS AND | |||||||||||||||||
X | F | DELIVERIES OR PERFORMANCE | 4-5 | OTHER STATEMENTS OF OFFERORS | ||||||||||||||||||
X | G | CONTRACT ADMINISTRATION DATA | 6 | L | INSTRS., CONDS., AND NOTICES TO OFFERORS | |||||||||||||||||
X | H | SPECIAL CONTRACT REQUIREMENTS | 7-14 | M | EVALUATION FACTORS FOR AWARD | |||||||||||||||||
CONTRACTING OFFICER WILL COMPLETE ITEM 17 (SEALED-BID OR NEGOTIATED PROCUREMENT) OR 18 (SEALED-BID PROCUREMENT) AS APPLICABLE | ||||||||||||||||||||||
17 [ ] CONTRACTOR’S NEGOTIATED AGREEMENT. Contractor is required to sign this document and return ______ copies to issuing office. Contractor agrees to furnish and deliver all items or perform all the services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications as are attached or incorporated by reference herein. (Attachments are listed herein.) |
18. [ ] SEALED-BID AWARD (Contractor is not required to sign this document.)
Your bid on Solicitation Number ____________________
Including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as to the terms listed above and on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government’s solicitation and our bid, and (b) this award contract. No further contractual document is necessary. (Block 18 should be checked only when awarding a sealed-bid contract.) |
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19A. NAME AND TITLE OF SIGNER (Type or print)
[THOMAS J. SHAW] |
20A. NAME OF CONTRACTING OFFICER[ [[John Conlin, Agreements Officer] TEL: [508-206-2064] EMAIL: [john.conlin3.civ@mail.mil] |
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19B. NAME OF CONTRACTOR
By:_[/s/Thomas J. Shaw]____________________ (Signature of person authorized to sign) |
19C. DATE SIGNED
7/1/2020 |
20B. UNITED STATES OF AMERICA
By: [/s/ JC]__________________________________ (Signature of Contracting Officer) |
20C. DATE SIGNED
1 July 2020 |
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Section B – Supplies or Services and Prices
Section E – Inspection and Acceptance
INSPECTION AND ACCEPTANCE OF TERMS
Supplies/services will be inspected/accepted at:
CLIN | INSPECT AT | INSPECT BY | ACCEPT AT | ACCEPT BY |
0001 | Destination | Government | Destination | Government |
Section F – Deliveries or Performance
F.1 Supply Chain Resiliency Plan
F.2 The contractor shall develop and submit at the time of agreement award, a comprehensive Supply Chain Resiliency Program that provides identification and reporting of critical components associated with the secure supply of drug substance, drug product, and work-in-process through to finished goods.
a) | A critical component is defined as any material that is essential to the product or the manufacturing process associated with that product. Included in the definition are consumables and disposables associated with manufacturing. NOT included in the definition are facility and capital equipment. |
F.3 Consideration of critical components includes the evaluation and potential impact of raw materials, excipients, active ingredients, substances, pieces, parts, software, firmware, labeling, assembly, testing, analytical and environmental componentry, reagents, or utility materials which are used in the manufacturing of a drug, cell banks, seed stocks, devices and key processing components and equipment. A clear example of a critical component is one where a sole supplier is utilized.
F.4 The contractor shall identify key equipment suppliers, their locations, local resources, and the associated control processes at the time of award. This document shall address planning and scheduling for active pharmaceutical ingredients, upstream, downstream, component assembly, finished drug product and delivery events as necessary for the delivery of product.
a) | Communication for these requirements shall be updated as part of an annual review, or as necessary, as part of regular contractual communications. |
b) | For upstream and downstream processing, both single-use and re-usable in-place processing equipment, and manufacturing disposables also shall be addressed. For finished goods, the inspection, labeling, packaging, and associated machinery shall be addressed taking into account capacity capabilities. |
c) | The focus on the aspects of resiliency shall be on critical components and aspects of complying with the contractual delivery schedule. Delivery methods shall be addressed, inclusive of items that are foreign-sourced, both high and low volume, which would significantly affect throughput and adherence to the contractually agreed deliveries. |
F.5 The contractor shall articulate in the plan, the methodology for inventory control, production planning, scheduling processes and ordering mechanisms, as part of those agreed deliveries.
a) | Production rates and lead times shall be understood and communicated to the HHS/ASPR/BARDA Agreements Officer (AO) or the Agreements Officer’s Representative (AOR) as necessary. |
b) | Production throughput critical constraints should be well understood by activity and by design, and communicated to contractual personnel. As necessary, communication should focus on identification, exploitation, elevation, and secondary constraints of throughput, as appropriate. |
F.6 Reports for critical items should include the following information:
a) | Critical Material |
b) | Vendor |
c) | Supplier, Manufacturing / Distribution Location |
d) | Supplier Lead Time |
e) | Shelf Life |
f) | Transportation / Shipping restrictions |
F.7 The AO and AOR reserve the right to request un-redacted copies of technical documents, during the period of performance, for distribution within the Government Documents shall be provided within ten (10) days after AO issues the request. The Contractor may arrange for additional time if deemed necessary, and agreed to by the AO.
DELIVERY INFORMATION
CLIN | DELIVERY DATE | QUANTITY | SHIP TO ADDRESS |
DODAAC/ CAGE |
|
0001 |
POP 01-JUL-2020 TO 30-JUN-2030 |
[N/A] |
[BIOMEDICAL ADVANCED RESEARCH DEVELOPMENT JOSEPH FIGLIO ROOM 23E07 O’NEILL HOUSE OFFICE BUILDING WASHINGTON DC 20515] FOB: Destination |
W56XNH | |
Section G – Contract Administration Data
ACCOUNTING AND APPROPRIATION DATA
AA: [0212020202120400000664643255 S.0074658.5.1 6100.9000021001]
COST CODE: [A5XAH]
AMOUNT: $53,664,286.00
ACRN | CLIN/SIN | CIN | AMOUNT |
AA | 0001 | [GFEBS001150662600001] | $53,664,286.00 |
Section H – Special Contract Requirements
H.1 Key Personnel
H.1.1 Pursuant to HHSAR 352.237-75 (Dec. 2015), Key Personnel, any key personnel specified in this agreement are considered to be essential to work performance. At least thirty (30) calendar days prior to the Contractor voluntarily diverting any of the specified individuals to other programs or agreements the Contractor shall notify the Agreements Office and shall submit a justification for the diversion or replacement and a request to replace the individual. The request must identify the proposed replacement and provide an explanation of how the replacement's skills, experience, and credentials meet or exceed the requirements of the agreement (including, when applicable, Human Subjects Testing requirements). If the employee of the Contractor is terminated for cause or separates from the Contractor voluntarily with less than thirty (30) calendar-day notice, the Contractor shall provide the maximum notice practicable under the circumstances. The Contractor shall not divert, replace. or announce any such change to key personnel without the written consent of the Agreements Officer. The agreement will be modified to add or delete key personnel as necessary to reflect the agreement of the parties. The following individuals are determined to be key personnel.
H.1.2 Substitution of Key Personnel
H.1.2.1 The Contractor agrees to assign to the agreement those persons whose resumes/CVs were submitted with the proposal who are necessary to fill the requirements of the agreement. No substitutions shall be made except in accordance with this clause.
H.1.2.2 All requests for substitution must provide a detailed explanation of the circumstance necessitating the proposed substitution, a complete resume for the proposed substitute and any other information requested by the Agreements Officer to approve or disapprove the proposed substitution. All proposed substitutes must have qualifications that are equal to or higher than the qualifications of the person to be replaced. The Agreements Officer or authorized representative will evaluate such requests and promptly notify the Contractor of his approval or disapproval thereof.
H.1.2.3 The Contractor further agrees to include the substance of this clause in any subcontract, which may be awarded under this agreement.
H.2 Disclosure of Information
H.2.1 Performance under this agreement may require the Contractor to access non-public data and information proprietary to a Government agency, another Government Contractor or of such nature that its dissemination or use other than as specified in the work statement would be adverse to the interests of the Government or others. Neither the Contractor, nor Contractor personnel, shall divulge nor release data nor information developed or obtained under performance of this agreement, except authorized by Government personnel or upon written approval of the CO. The Contractor shall not use, disclose, or reproduce proprietary data that bears a restrictive legend, other than as specified in this agreement or any information at all regarding this agency.
H.2.2 Consistent with HHS Directive 1139, the Contractor shall comply with HHS requirements for protection of non-public information. Unauthorized disclosure of nonpublic information is prohibited by the HHS’s rules. Unauthorized disclosure may result in termination of the agreement, replacement of a Contractor employee, or other appropriate redress. Neither the Contractor nor the Contractor’s employees shall disclose or cause to be disseminated, any information concerning the operations of the activity, which could result in, or increase the likelihood of, the possibility of a breach of the activity’s security or interrupt the continuity of its operations.
H.2.3 No information related to data obtained under this agreement shall be released or publicized without the prior written consent of the COR, whose approval shall not be unreasonably withheld, conditioned, or delayed, provided that no such consent is required to comply with any law, rule, regulation, court ruling or similar order; for submission to any government entity, for submission to any securities exchange on which the Contractor’s (or its parent corporation’s) securities may be listed for trading; or to third parties relating to securing, seeking, establishing or
maintaining regulatory or other legal approvals or compliance, financing and capital raising activities, or mergers, acquisitions, or other business transactions.
H.3 Confidentiality of Information
a. Confidential information, as used in this article, means information or data of a personal nature about an individual, or proprietary information or data submitted by or pertaining to an institution or organization.
b. The Agreements Officer and the Contractor may, by mutual consent, identify elsewhere in this agreement specific information and/or categories of information which the Government will furnish to the Contractor or that the Contractor is expected to generate which is confidential. Similarly, the Agreements Officer and the Contractor may, by mutual consent, identify such confidential information from time to time during the performance of the agreement. Failure to agree will be settled pursuant to the “Disputes” clause.
c. If it is established elsewhere in this agreement that information to be utilized under this agreement, or a portion thereof, is subject to the Privacy Act, the Contractor will follow the rules and procedures of disclosure set forth in the Privacy Act of 1974, 5 U.S.C. 552a, and implementing regulations and policies, with respect to systems of records determined to be subject to the Privacy Act.
d. Confidential information, as defined in paragraph (a) of this article, shall not be disclosed without the prior written consent of the individual, institution, or organization.
e. Whenever the Contractor is uncertain with regard to the proper handling of material under the agreement, or if the material in question is subject to the Privacy Act or is confidential information subject to the provisions of this article, the Contractor shall obtain a written determination from the Agreements Officer prior to any release, disclosure, dissemination, or publication.
f. Agreements Officer Determinations will reflect the result of internal coordination with appropriate program and legal officials.
g. The provision of paragraph (d) of this article shall not apply to conflicting or overlapping provisions in other Federal, State or local laws.
All above requirements MUST be passed to all sub-contractors.
H.4 Organizational Conflicts of Interest
H.4.1 Performance under this agreement may create an actual or potential organizational conflict of interest such as are contemplated by FAR Part 9.505-General Rules. The Contractor shall not engage in any other contractual or other activities which could create an organizational conflict of interest (OCI). This provision shall apply to the prime Contractor and all sub-Contractors. This provision shall have effect throughout the period of performance of this agreement, any extensions thereto by change order or supplemental agreement, and for two (2) years thereafter. The Government may pursue such remedies as may be permitted by law or this agreement, upon determination that an OCI has occurred.
H.4.2 The work performed under this agreement may create a significant potential for certain conflicts of interest, as set forth in FAR Parts 9.505-1, 9.505-2, 9.505-3, and 9.505-4. It is the intention of the parties hereto to prevent both the potential for bias in connection with the Contractor’s performance of this agreement, as well as the creation of any unfair competitive advantage as a result of knowledge gained through access to any non-public data or third party proprietary information.
H.4.3 The Contractor shall notify the Agreements Officer immediately whenever it becomes aware that such access or participation may result in any actual or potential OCI. Furthermore, the Contractor shall promptly submit a plan to the Agreements Officer to either avoid or mitigate any such OCI. The Agreements Officer will have sole discretion in accepting the Contractor’s mitigation plan. In the event the Agreements Officer unilaterally determines that any
such OCI cannot be satisfactorily avoided or mitigated, other remedies may be taken to prohibit the Contractor from participating in agreement requirements related to OCI.
H.4.4 Whenever performance of this agreement provides access to another Contractor’s proprietary information, the Contractor shall:
(1) enter into a written agreement with the other entities involved, as appropriate, in order to protect such proprietary information from unauthorized use or disclosure for as long as it remains proprietary; and refrain from using such proprietary information other than as agreed to, for example to provide assistance during technical evaluation of other Contractors’ offers or products under this agreement. An executed copy of all proprietary information agreements by individual personnel or on a corporate basis shall be furnished to the CO within fifteen (15) calendar days of execution.
H.5 Operations Security (OPSEC)
H.5.1 The Contractor shall develop and submit an OPSEC Standing Operating Procedure (SOP) Plan within thirty (30) calendar days of agreement award, to be reviewed and approved by the Government OPSEC lead for this effort. The final OPSEC plan must address the Government’s identified Critical Information List (CIL).
a) | All contractors supporting this effort must complete OPSEC Computer Based Training (CBT) that can be accessed via the (Insert applicable website here). |
H.6 Security
H.6.1 The Contractor shall develop a comprehensive security program that provides overall protection of personnel, information, data, and facilities associated with fulfilling the BARDA requirement. This plan shall establish security practices and procedures that demonstrate how the Contractor will meet and adhere to the security requirements outlined below prior to the commencement of product manufacturing, and shall be delivered to the Government within thirty (30) days of award. The Contractor shall also ensure all subcontractors, consultants, researchers, etc. performing work on behalf of this effort, comply with all BARDA security requirements and prime contractor security plans.
a) | ASPR will review in detail and submit comments within ten (10) business days to the Agreements Officer (CO) to be forwarded to the Contractor. The Contractor shall review the Draft Security Plan comments, and, submit a Final Security Plan to the U.S. Government within thirty (30) calendar days after receipt of the comments. |
b) | The Security Plan shall include a timeline for compliance of all the required security measures outlined by BARDA. |
c) | Upon completion of initiating all security measures, the Contractor shall supply to the Agreements Office a letter certifying compliance to the elements outlined in the Final Security Plan. |
H.6.2 At a minimum, the Final Security Plan shall address the following items:
BARDA SECURITY REQUIREMENTS
1. Facility Security Plan Description: As part of the partner facility’s overall security program, the Contractor shall submit a written security plan with their proposal to BARDA for review and approval by BARDA security subject matter experts. The performance of work under the BARDA agreement will be in accordance with the approved security plan. The security plan will include the following processes and procedures at a minimum. |
|
Security Administration |
● organization chart and responsibilities ● written security risk assessment for site ● threat levels with identification matrix (High, Medium, or Low) ● enhanced security procedures during elevated threats ● liaison procedures with law enforcement ● annual employee security education and training program |
Personnel Security |
● policies and procedures ● candidate recruitment process ● background investigations process
|
Network Protection | Employ intrusion prevention and detection technology with immediate analysis capabilities. |
9. Transportation Security Description: Adequate security controls must be implemented to protect materials while in transit from theft, destruction, manipulation, or damage. |
|
Drivers |
a) Drivers must be vetted in accordance with BARDA Personnel Security Requirements. b) Drivers must be trained on specific security and emergency procedures. c) Drivers must be equipped with backup communications. d) Driver identity must be 100 percent confirmed before the pick-up of any BARDA product. e) Drivers must never leave BARDA products unattended, and two drivers may be required for longer transport routes or critical products during times of emergency. f) Truck pickup and deliveries must be logged and kept on record for a minimum of 12 months. |
Transport Routes |
a) Transport routes should be pre-planned and never deviated from except when approved or in the event of an emergency. b) Transport routes should be continuously evaluated based upon new threats, significant planned events, weather, and other situations that may delay or disrupt transport. |
Product Security |
a) BARDA products must be secured with tamper resistant seals during transport, and the transport trailer must be locked and sealed. · Tamper resistant seals must be verified as “secure” after the product is placed in the transport vehicle. b) BARDA products should be continually monitored by GPS technology while in transport, and any deviations from planned routes should be investigated and documented. c) Contingency plans should be in place to keep the product secure during emergencies such as accidents and transport vehicle breakdowns. |
10. Security Reporting Requirements Description: The partner facility shall notify the BARDA Security Team within 24 hours of any activity or incident that is in violation of established security standards or indicates the loss or theft of government products. The facts and circumstances associated with these incidents will be documented in writing for government review. |
|
11. Security Audits Description: The partner facility agrees to formal security audits conducted at the discretion of the government. Security audits may include both prime and subcontractor. |
|
Section 1 – Contract Clauses
TERMS & CONDITIONS
TECHNOLOGY INVESTMENT AGREEMENT
between
Retractable Technologies, Inc.(RTI)
and
Department of Defense,
U.S. Army Contracting Command – Aberdeen Proving Ground,
Natick Contracting Division & Edgewood Contracting Division
(ACC-APG, NCD & ECD)
on behalf of
Biomedical Advanced Research and Development Authority (BARDA)
for
Expanding Domestic Production of Needles & Syringes
Agreement No.: W911SR2030004
Total Amount of Government Funding for the Agreement: $53,644,286
Total Cost Share for the Agreement: [$53,644,286]
Total Estimated Value of the Agreement: [$107,328,572]
Effective Date: 01 JUL 2020
TECHNOLOGY INVESTMENT AGREEMENT TERMS AND CONDITIONS
ARTICLES
1. | Scope of Agreement |
2. | Term of Agreement |
3. | Order of Precedence |
4. | Program/Administrative Management |
5. | Financial Management & Payment |
6. | Accounting & Audit |
7. | Purchasing & Title |
8. | Cost Sharing |
9. | Government Preference |
10. | Records Retention & Government Access |
11. | Intellectual Property & Patent Rights |
12. | Data Rights |
13. | FDA Regulatory Requirements |
14. | Termination |
15. | Disputes |
16. | Reports & Distribution |
17. | Modification |
18. | Miscellaneous |
[ATTACHMENTS
A. | Recipient’s Proposal (Final Project Plan dated 18 JUN 2020) |
B. | Collaboration Plan (Statement of Objectives [SOO] dated 22 JUN 2020) ] |
RECITALS
This Agreement is entered into between the United States of America, Department of Defense, represented by ACC-APG, NCD & ECD ("Government") and Retractable Technologies, Inc. (RTI), ("Recipient"), collectively referred to as the "Parties,'' pursuant to and under the statutory authority at 10 U.S.C. §2371 and/or 10 U.S.C. §2358.
The Recipient, a for-profit firm, submitted a basic, applied, or advanced research proposal to the Government in response to the publicly disseminated Medical Countermeasures System (MCS) Broad Agency Announcement (BAA) 17-01. The proposal was identified within the MCS BAA scope of: Advanced Development & Manufacturing Capabilities (ADMC), to develop a national capability and capacity to develop and produce medical countermeasures rapidly to counter known or unknown chemical, biological, radioactive, and nuclear (CBRN) threats, including novel and previously unrecognized, naturally-occurring emerging infectious diseases such as the COVID-19 virus. The specific MCS BAA Area of Interest is Mission Area I, Medical Biological Prophylaxis.
The Government awards this Technology Investment Agreement (TIA) to fund the Recipient proposal subject to the following terms and conditions and other statutory requirements. The Parties desire to enter into this Agreement to establish said terms and conditions under which they plan to carry out the research and other activities as described below.
THEREFORE, THE PARTIES AGREE:
1. | Scope of Agreement |
1.1 | Governing Authority |
This Technology Investment Agreement (TIA) is an assistance transaction other than a grant or cooperative agreement and is awarded pursuant to 10 USC §2371 and/or 10 USC §2358, as applicable, as implemented by 32 Code of Federal Regulations (CFR) Part 37, and Parts 22 and 34 where specifically referenced. The following are also incorporated in full: Definitions at Subpart J of 32 CFR Part 37; National Policies at Appendix B, 32 CFR Part 22; Audits at Appendix C of 32 CFR Part 37. This TIA is subject to good manufacturing practices (cGMPS) at 21 CFR 210 and 211, as applicable. The Federal Acquisition Regulation (FAR), Defense Federal Acquisition Regulation Supplement (DFARS), DoD Grant and Agreement Regulations (DoDGARs), or other regulatory and statutory requirements apply as specifically referenced herein. If this instrument is awarded under the authority at 10 USC §2358, the Bayh-Dole Act, 35 U.S.C. §§200-212 applies, as applicable.
1.2 | Principal Purpose |
The Government and the Recipient agree that the principal purpose of this Agreement is for Government investment into the development/expansion of Recipient's manufacturing capacity for hypodermic safety needles and corresponding syringes in response to the worldwide Coronavirus (COVID-19) global pandemic [as described in RTI's proposal entitled "Increasing U.S. Manufacturing Capacity of Essential Healthcare Supplies'', dated 18 JUNE 2020, hereinafter, the "Plan" or "Project". This effort shall be carried out as set forth in the Recipient's Plan and subsequent revisions, which are hereby incorporated in their entirety]. This Agreement is not intended to be, nor shall it be construed as, by implication or otherwise, a partnership, a corporation, or other business organization.
2. | Term of Agreement |
This Agreement shall commence upon the effective date listed on page 1, after execution of the Agreement by both parties, for a period of 10 years, the “term” of the Agreement or “Period of Performance.” Period of performance means the time during which a recipient or sub-recipient may incur new obligations to carry out the work authorized under an award or sub-award, respectively.
3. | Order of Precedence |
This Agreement is subject to the laws and regulations of the United States. In the event of a conflict or inconsistency in the terms and conditions or attachments specified in this Agreement, the conflict or inconsistency shall be resolved according to the following order of precedence: (a) the Federal statute authorizing this award, or any other Federal statutes directly affecting performance of this Agreement, including attachments where applicable; (b) Federal regulations specifically referenced;(c) the terms and conditions contained within the Agreement, including any documents incorporated; (d) programmatic requirements.
4. | Program/Administrative Management |
4.1 Program Management
The Recipient has full responsibility for the project/activity supported by this Agreement, in accordance with the Recipient's proposal and proposal revisions/appendices, and the terms and conditions specified in this Agreement. The Government will have continuous and/or substantial involvement with the Recipient pursuant to a Collaboration Plan as incorporated. The Recipient must consult the Program Office/Technical Representative through the Agreements Officer before deviating from the objectives or overall program of the research originally proposed. Non-compliance with any award provision of this clause may result in the withholding of funds and or the termination of the award.
4.2 Government Representatives:
Agreements Officer (AO)
[John Conlin
ACC-APG, NCD
1 General Greene Avenue
Natick, MA 01760
508-206-2064
john.conlin3.civ@usa.army.mil]
Agreements Specialist (AS)
[Mackenzie Martz]
ACC-APG, ECD
8456 Brigade Street
Building E4215
Aberdeen Proving Ground, MC 21010
[301-619-8518
mackenzie.t.martz.civ@mail.mil]
Administrative Grants Officer (AGO)
DCMA DALLAS -S4402A
4211 Cedar Springs Road
Dallas, TX 75219
[214-670-9201
dcma.lee.hq.list.s4402a-casd@mail.mil]
Biomedical Advanced Research and
Development Authority (BARDA) Program
Manager (PM)
[Joseph Figlio
Assistant Secretary for Preparedness and Response (ASPR)/BARDA
Room 23E07 – O’Neill House Office Building
Washington, DC 20515
202-480-0145
joseph.figlio@hhs.gov]
4.3 Recipient’s Representatives
[Kathryn Duesman
Registered Nurse (RN), Vice President of Clinical Affairs
RTI
511 Lobo Lane
Little Elm, TX 75068
972-294-1010
RTIclinical@vanishpoint.com
Larry Salerno
Director of Operations
RTI
511 Lobo Lane
Little Elm, TX 75068
972-294-1010
RTIops@vanishpoint.com]
5. | Financial Management & Payment |
5.1 Expenditure-Based.
This Agreement is an expenditure type TIA as described in 32 CFR §37.1285. Expenditure is defined in 32 CFR §37.1290. The charges may be reported on a cash or accrual basis, as long as the methodology is disclosed and is consistently applied. In accordance with 32 CFR 37.300(a): "For an expenditure-based TIA, the amounts of interim payments or the total amount ultimately paid to the Recipient are based on the amounts the Recipient expends on project costs. If a Recipient completes the project specified at the time of award before it expends all of the agreed-upon Federal funding and Recipient cost sharing, the Federal Government may recover its share of the unexpended balance or, by mutual agreement with the Recipient, amend the agreement to expand the scope of the research project. An expenditure-based TIA therefore is analogous to a cost-type procurement contract or grant.”
Payments shall be made on a monthly basis for expenditures incurred up to the agreed upon project ceiling & Government investment funding amount, for the duration of the Period of Performance.
5.2 Obligation
In no case shall the Government’s financial obligation exceed the amount obligated on this Agreement or by amendment to the Agreement. The Government is not obligated to reimburse the Recipient for expenditures in excess of the amount of obligated funds allotted by the Government.
5.3 Wide Area Workflow. The following guidance is provided for invoicing processed under this Agreement through WAWF:
5.3.1 Acceptance within the WAWF system shall be performed by the AGO upon receipt of a confirmation email, or other form of transmittal, from the BARDA PM.
5.3.2 The Recipient shall send an email notice to the BARDA PM and upload the BARDA PM approval as an attachment upon submission of an invoice in WAWF (this can be done from within WAWF).
5.3.3 Payments shall be made by the Defense Finance and Accounting services (DFAS) office indicated below within thirty (30) calendar days of an accepted invoice in WAWF.
5.3.4 WAWF Provision:
(a) Definitions. As used in this clause –
Department of Defense Activity Address Code (DoDAAC) is a six-position code that uniquely identified a unit, activity, or organization.
Document type means the type of payment request or receiving report available for creation in Wide Area WorkFlow (WAWF).
Local processing office (LPO) is the office responsible for payment certification when payment certification is done external to the entitlement system.
(b) Electronic invoicing. The WAWF system is the method to electronically process vendor payment requests and receiving reports, as authorized by DFARS 252.232-7003, Electronic Submission of Payment Requests and Receiving Reports.
(c) WAWF access. To access WAWF, the Recipient shall (i) have a designated electronic business point of contact in the System for Award Management at https://www.acquisition.gov; and (ii) be registered to use WAWF at https://wawf.eb.mil/ following the step-by-step procedures for self-registration available at this website.
(d) WAWF training. The Recipient should follow the training instructions of the WAWF Web-Based Training Course and use the Practice Training Site before submitting payment requests through WAWF. Both can be accessed by selecting the “Web Based Training” link on the WAWF home page at https://wawf.eb.mil/.
(e) WAWF methods of document submission. Document submissions may be via Web entry, Electronic Data Interchange, or File Transfer Protocol.
(f) WAWF payment instructions. The Recipient must use the following information when submitting payment requests and receiving reports in WAWF for this contract/order:
(1) Document type. The Recipient shall use the following document type: Invoice and Receiving Report (Combo).
(2) Inspection/acceptance location. The Recipient shall select the following inspection/acceptance location(s) in WAWF, as specified by the contracting officer.
(3) Document routing. The Recipient shall use the information in the Routing Data Table below only to fill in applicable fields in WAWF when creating payment requests and receiving reports in the system.
Routing Data Table*
Field Name in WAWF | Data to be entered in WA |
Pay Official DoDAAC | HQ0339 |
Issue by DoDAAC | W911SR |
Admin DoDAAC | S4402A |
Inspect by DodAAC | W56XNH |
Ship to Code | W56XNH |
Payee Information: As identified at the System for Award Management.
· | RTI |
· | Cage Code: 1BFK3 |
· | DUNS: 838024255 |
(4) Payment request and supporting documentation. The Recipient shall ensure a payment request includes appropriate contract line item and subline item descriptions of the work performed or supplies delivered, unit price/cost per unit, fee (if applicable), and all relevant back-up documentation in support of each payment request.
(5) WAWF email notifications. The Recipient shall enter the email address identified below in the "Send Additional Email Notifications" field of WAWF once a document is submitted in the system.
(g) WAWF point of contact.
(1) The Recipient may obtain clarification regarding invoicing in WAWF from the following contracting activity’s WAWF point of contact.
Administrative Grants Officer (AGO)
DCMA DALLAS -S4402A
4211 Cedar Springs Road
Dallas, TX 75219
214-670-9201
[dcma.lee.hq.list.s4402a-casd@mail.mil]
(2) For technical WAWF help, contact the WAWF helpdesk at 866-618-5988.
6. | Accounting & Audit |
6.1 Accounting System.
6.1.1. The Recipient's systems must demonstrate effective control of all funds. Control systems must be adequate to ensure that costs charged to Federal funds and those counted as the Recipient's cost share or match are consistent with requirements for cost reasonableness, allowability, and allocability as set forth in 32 CFR §37.625(b) and in the terms and conditions of the award. The Recipient must be able to provide accurate, current and complete records that document for work funded wholly or in part with Federal funds, the source and application of the Federal funds and the Recipient has required cost share or match.
6.1.2. The Recipient's cost accounting system shall be in compliance with Generally Accepted Accounting Principles (GAAP) in accordance with 32 CFR §37.615. The system must effectively control all Project funds, including Federal funds and any required cost share. The system must have complete, accurate, and current records that document the sources of funds and the purposes for which they are disbursed. It also must have procedures for ensuring that Project funds are used only for purposes permitted by the agreement (§37.625).
6.2 Annual Audit Requirement.
The Recipient shall have an annual audit performed by the Defense Contract Audit Agency (DCAA), or, an independent auditor, in accordance with 32 CFR §37.650. It is preferable that DCAA conduct the audit if the Recipient will grant DCAA access to information and records required to complete the audit. The Recipient shall provide a copy of the auditor's report to the AO within 60-days after audit.
6.3 Program Income. Program income derived during the initial Period of Performance from Government funding shall be allocated to finance the non-Federal share of the Project (including the amounts described in Section 8.1) in accordance with 32 CFR §34.14(d)(2). As contemplated by 32 CFR §34.14(b)(2), Recipient will have no obligation to the Government for program income generated after the end of the Period of Performance, and no recover of funds is contemplated under 32 CFR §37.580.
7. | Purchasing & Title |
7.1 Title to Property Acquired under Agreement. Title to real property, equipment, and supplies or intangible property that are acquired by the Recipient (whether by purchase, construction or fabrication, development, or otherwise) with Government funding vests in the Recipient conditionally as described at 32 CFR 37.685.
7.2 Disposition. Any Federal interest in the real property or equipment remaining after the term will be addressed at the time of property disposition. Disposition will be in accordance with 32 CFR 34.21.
7.3 Purchasing System. If the Recipient currently performs under DoD assistance instruments subject to the purchasing standards in 32 CFR 34.31, then that Part applies. Otherwise, the Recipient may use the existing purchasing systems, as long as applicable requirements are flowed down (37.705).
8. | Cost Sharing |
8.1 To the maximum extent practicable, the recipient must provide at least [half] of the costs of the project, in accordance with §37.215. Total value of the TIA means the total amount of costs that are currently expected to be charged to the award over its life, which includes amounts for the Federal share and any non-Federal cost sharing or matching required under the award; and any options, even if not yet exercised, for which the costs have been established in the award.
8.2 The Government funding is estimated to represent approximately [50%] of the overall amount necessary to accomplish the scope of work cited in the proposal (inclusive of all proposal revisions and appendices). The Recipient agrees to provide the resources in the manner shown in their proposal. Recipient's cost sharing contribution will occur within the term of the agreement but may not coincide with the Government's expenditure payments.
8.3 Failure of either Party to provide its respective total contribution may result in a unilateral modification to this Agreement by the AO to reflect proportional reduction in funding for the other Party.
9. | Government Preference |
[9.1 Pricing. For a period of three (3) years following construction, installation and startup of commercial production for VanishPoint 1 mL, VanishPoint 3 mL syringes and EasyPoint needles made by Recipient on machines funded by the U.S. Government ("Products") Recipient agrees not to knowingly offer or sell such Products to any other U.S. purchaser for a unit price less than that offered to the U.S. Government by Recipient with the exception of sales under contractual price agreements executed prior to the effective date of this Agreement. In the event that Recipient, without prior written agreement by the Agreements Officer, makes a material sale of Products to another U.S. purchaser at a unit price lower than that offered by Recipient to the U.S. Government, Recipient shall promptly notify the Agreements Officer of the lower unit price of Products sold. Recipient shall also promptly apply the difference in unit price against the unit price quoted to the U.S. Government for Products then on order or subsequently ordered from Recipient within the three-year period. For a period of 10 years following construction, installation and startup of commercial production for VanishPoint 1 mL, VanishPoint 3 mL syringes and EasyPoint needles should any other public health emergency be declared, the aforementioned preferred pricing shall be in effect for up to three (3) years upon declaration of public health emergency.]
9.2 Precedence. Recipient agrees that upon Presidential Declaration of a Public Health Emergency, that Government orders will be provided precedence for completion on machines funded by the U.S. Government over and above any other orders. This requirement applies regardless of a DO or DX rating under the Defense Production Act.
9.3 Maintenance of equipment and availability of capacity. Recipient agrees that for a period of 10 years following the commissioning of equipment funded by this Agreement, that it shall maintain the equipment in such a way as to ensure that, should the rights established under 9.1 and 9.2 be in effect, there is capacity equal to that which was available at time of commissioning. Further, the Recipient agrees that should the equipment funded by this agreement be unavailable during a period in which the rights under 9.l and 9.2 are in effect, the Recipient will make available to the Government equivalent capacity from equipment not funded under this agreement.
9.4. Inspection of equipment. The Recipient grants the Government the right to inspect at any time, upon provision of reasonable advance notice, the equipment funded by this agreement. This right shall be in effect for l 0 years following commissioning of the equipment.
10. | Records Retention & Government Access |
The DoD, Comptroller General of the United States, or any of their duly authorized representatives, have the right of timely and unrestricted access to any books, documents, papers, or other records of the Recipient that are pertinent solely to the Recipient's technical performance under this Agreement, in order to make examinations, excerpts, transcripts and copies of such documents. This right also includes timely and reasonable access to the Recipient's personnel for the purpose of interview and discussion related to such records. Such access shall be performed during business hours on business days upon written notice and shall be subject to the security requirements of the audited Party to the extent such security requirements do not conflict with the rights of access otherwise granted by this paragraph. The rights of access in this paragraph shall last as long as records are retained. The rights of access in this paragraph do not extend to the Recipient's financial records.
11. | Intellectual Property & Patent Rights |
11.1 Background IP and Materials. The Recipient and the Government each retain any intellectual property (IP) rights to their own materials, data, technology, information, documents, or know-how – or potential rights, such as issued patents, patent applications, invention disclosures, or other written documentation – that exist prior to execution of this Agreement or are developed outside the scope of this Agreement (Background IP).
11.2 Authorization and Consent for Non-commercial Products. The Government authorizes and consents to all use and manufacture, in performance of this Agreement, of any invention described in and covered by a United States patent, except for deliverables under this Agreement that are commercially available to the public by the Recipient.
11.3 Ownership. Ownership of any invention, regardless of whether it is not patentable, held as a trade secret or is patentable under U.S. patent law that is conceived or first reduced to practice under this Agreement will follow inventorship in accordance with U.S. patent law. The Parties represent and warrant that each inventor will assign his or her rights in any such inventions to his or her employing organization.
11.4 Patent Applications. Irrespective of any Disclosure of Information clauses in this Agreement the Parties will respectively have the option to file a patent application claiming any Invention made solely by their respective employees. The Parties will consult with each other regarding the options for filing a patent application claiming a joint Invention. Within two (2) months of being notified of the discovery of an invention or filing a patent application covering an Invention, each Party will provide notice of such discovery or filing to the other Party. The Parties will reasonably cooperate with each other in the preparation, filing, and prosecution of any patent application claiming an Invention. Any Party filing a patent application will bear expenses associated with filing and prosecuting the application, as well as maintaining any patents that issue from the application, unless otherwise agreed by the Parties.
11.5 Licenses. Upon the Recipient's request, the Government agrees to enter into good faith negotiations regarding a non-exclusive commercialization license covering the Government's interest in any Invention made in whole or in part by a Government employee. Any Invention made by a Recipient employee is subject to a nonexclusive, nontransferable, irrevocable, paid-up license for the Government to practice and have practiced the Invention.
11.6 Executive Order No. 9424 of 18 February 1944 requires all executive Departments and agencies of the Government to forward through appropriate channels to the Commissioner of Patents and Trademarks, for recording, all Government interests in patents or applications for patents. Should any of these provisions be inconsistent with the Bayh-Dole Act, the statute takes precedence.
12. | Data Rights |
12.1 All data generated in connection with the performance of the studies under this Agreement, or that arises out of the use of any materials or enabling technology provided or used by the Recipient in the performance of this Agreement, other materials or confidential information, whether conducted by the Government or the Recipient (collectively, the "Study Data"), shall be owned by the Recipient. The Government shall have the right to use, modify, reproduce, release, perform, display, or disclose data first produced in the performance of this Agreement within the Government and otherwise including use for Government procurement of the items covered by the data. The Government may, under a separate agreement or by modification to this agreement, obtain any rights to use or disclose the material or data to the extent that such material or data was produced outside the scope of the Agreement. Notwithstanding the above, as a result of this Agreement, the Government shall obtain “Unlimited rights,” as that term is defined in DFARS 252.227-7013(a)(16) in any data generated under this agreement.
12.2 Marking of Data: The Recipient is responsible for affixing appropriate markings indicating the rights of the Recipient on all data and technical data delivered under this Agreement. Any rights that the Awardee or the Government may have in data delivered under this Agreement, whether arising under this Agreement or otherwise, will not be affected by Awardee's failure to mark data pursuant to this Article. Any distribution markings shall be established by the GPM and incorporated prior to distribution.
12.3 Any Software (as that term is defined in DFARS 252.227-7014) developed under this agreement shall be owned by the Recipient subject to "Unlimited Rights" (as that term is defined in DFARS 252.227-7014) held by the Government. The Recipient shall deliver source and object code for each instance of Software developed under the agreement in accordance with the requirements of the other deliverables under this Agreement. Use of any open source code in any Software required to be delivered to the Government shall be subject to approval of the Government.
12.4 Any Technica1 Data and Software (each term as defined under DFARS 252.227-7013) which shall be delivered under this agreement with less than unlimited rights shall be identified in reasonable specificity and particular rights granted (Government Purpose, Limited or Restricted (all as defined in DFARS 252.227-7013)) prior to entering into the agreement. All other Technical Data and Software developed under funding of this agreement shall be delivered with unlimited rights as provided for within this Article.
13. | U.S. Food and Drug Administration (FDA) Regulatory Compliance |
13.1 Good Manufacturing Practices (GMP) Compliance. To the extent required under the Federal Food, Drug, and Cosmetic Act, the Recipient will ensure that the manufacturing capability established under this Agreement complies with current good manufacturing practices (cGMPs) under 21 CFR 210 and 211. The Recipient will notify the Government of any written cGMP inspection findings from the FDA pertinent to the manufacturing capability established under this Agreement.
13.2 FDA Communications. The Recipient will provide the Government with summaries of any Recipient formal meetings with the FDA and future correspondence between Recipient and the FDA regarding the manufacturing contemplated under this Agreement and ensure that Government representatives are invited to participate in any Recipient formal meetings with the FDA regarding topics that are material to Recipient's compliance with the terms of this Agreement.
14. | Termination |
Termination and Enforcement procedures are in accordance with 32 CFR §34.51 through §34.52.
15. | Disputes |
For any disagreement, claim, or dispute arising under this Agreement, the parties shall communicate with one another in good faith and in a timely and cooperative manner. Whenever disputes, disagreements, or misunderstandings arise, the parties shall attempt to resolve the issue by discussion and mutual agreement as soon as practicable. Failing resolution by mutual agreement, the aggrieved party shall request a resolution in writing from the AO. The AO will review the matter and render a decision in writing. Any such decision is final and binding. In the event of a decision, within 60-calendar days of the referral for review (or such other period as agreed upon by the parties), either party may pursue any right or remedy provided by law in a court of competent jurisdiction as authorized by 28 U.S.C. 1491. Alternately, the parties may agree to explore and establish any Alternate Disputes Resolution procedure to resolve this dispute
16. | Reports & Distributions |
16.1 Monthly Progress Reports. Submitted monthly no later than the 10th of the month. Recipient format acceptable. Electronic submission acceptable in MS Office or PDF format. Financial information shall be MS Excel format. Monthly reports shall NOT be marked proprietary and shall have Distribution Statement C (U.S. Government and their contractors). Each monthly report shall, at a minimum, contain the following:
a. | Summary of monthly progress for the Recipient’s facilities/capabilities associated with this effort; |
b. | Summary of progress towards established milestones for each facility/capability; |
c. | Identification of any milestone that is slipping or missed, and discussion of path forward to bring milestone back to schedule, and impact on other milestones; |
d. | Summary of risks, discussion of potential impacts and efforts to mitigate; |
e. | Summary of overall schedule and changes from previous month; |
f. | Financial summary of Recipient costs incurred by month to date, vouchers submitted, and Government payments made. |
16.2 Quarterly-In-Process Reviews. Scheduled as needed, generally not more frequently than quarterly, at the Recipient's facilities. Duration: eight (8) hours max. Face-to-face review of previous quarter’s activities. Informative in nature to keep BARDA apprised of project progress and to discuss issues that may require joint resolution, such as milestone changes, political impacts on objectives, schedule, funding.
16.3 Annual Financial Status Report. (37.880)
16.4 Final Report. Final Report shall not be marked proprietary, and shall have Distribution Statement C. Final report summarizing stated objectives and the progress that was achieved in meeting those objectives; summary of risks incurred, impacts and mitigation; quantitative discussion of needle & syringe production throughput improvements achieved; financial summary of project; schedule summary for project, comparing original schedule to final schedule; recommendations for path forward as applicable.
17. | Modification of the Agreement |
17.1 Limitation. In no event shall any understanding or agreement, modification, change order, or other matter in deviation from the terms of this agreement between the Recipient and a person other than the AO be effective or binding upon the Government. All such actions must be formalized by a proper contractual document executed by the AO. The only method by which this Agreement can be modified is by a formal, written modification signed by the AO. No other communications, whether oral or in writing, shall modify this Agreement.
17.2 Recommendation. Modifications to this Agreement may be proposed by either Party. Recipient recommendations for any modifications to this Agreement, including justifications to support any changes to the proposal (inclusive of proposal revisions, proposal appendices, and the collaboration plan), as incorporated by reference, shall be submitted in writing to the Government PM with a copy to the AO. The Recipient shall detail the technical, chronological, and financial impact of the proposed modification to the program. Changes are effective only after this Agreement has been modified. The AO is responsible for the review and verification of any recommendations.
17.3 Unilateral or Minor. The AO may unilaterally issue administrative Agreement modifications (e.g., changes in the paying office or appropriation data, or changes to Government personnel identified in this Agreement, etc.). All other modifications shall be the result of bilateral agreement of the Parties. The Government may make minor or administrative Agreement modifications unilaterally.
18. | Miscellaneous |
18.1 Security. The Recipient shall not develop and/or handle classified information in the performance of this Agreement. No DD254 is currently required for this Agreement.
18.2 Entire Agreement. This Agreement, inclusive of the proposal, proposal revision, proposal appendices, and collaboration plan(s), constitutes the entire Agreement between the Parties concerning the subject matter hereof and supersedes any prior understandings or written or oral Agreement relative to said matter. In the event of a conflict between the terms of this Agreement, the terms of this Agreement shall govern.
18.3 Waiver of Rights. Any waiver of any requirement contained in this Agreement shall be by mutual agreement of the Parties hereto. Any waiver shall be reduced to a signed writing and a copy of the waiver shall be provided to each Party. Failure to insist upon strict performance of any of the terms and conditions hereof, or failure or delay to exercise any rights provided herein or by law, shall not be deemed a waiver of any rights of any Party hereto.
18.4 Liability. No Party to this Agreement shall be liable to the other Party for any property consumed, damaged, or destroyed in the performance of this Agreement, unless it is due to the negligence or willful misconduct of the Party or an employee or agent of the Party. In no event shall either Party be liable for special, incidental, or consequential damages arising from or connected with this Agreement.
18.5 Non-Assignment. This Agreement may not be assigned by any Party except by operation of law resulting from the merger of a Party into or with another corporate entity.
18.6 Severability. If any clause, provision or section of this Agreement shall be held illegal or invalid by any court, the invalidity of such clause, provision, or section shall not affect any of the remaining clauses, provisions, or sections herein, and this Agreement shall be construed and enforced as if such illegal or invalid clause, provision, or section had not been contained herein.
18.7 Force Majeure. Neither Party shall be in breach of this Agreement for any failure of
performance caused by any event beyond its reasonable control and not caused by the fault or negligence of that Party. If such a force majeure event occurs, the Party unable to perform shall promptly notify the other Party and shall in good faith maintain such partial performance as is reasonably possible and shall resume full performance as soon as is reasonably possible.
18.8 | Foreign Access to Technology & Domestic Manufacturing. |
18.8.1 Activities Abroad. The Recipient shall assure that project activities carried on outside the United States are coordinated as necessary with appropriate Government authorities and that appropriate licenses, permits, or approvals are obtained prior to undertaking proposed activities. The awarding agency does not assume responsibility for Recipient compliance with the laws and regulations of the country in which the activities are to be conducted.
18.8.2 Export. The Parties understand that information and materials provided pursuant to or resulting from this Agreement may be export controlled, sensitive, for official use only, or otherwise protected by law, executive order, or regulation. The Recipient is responsible for compliance with all applicable laws and regulations. Nothing in this Agreement shall be construed to permit any disclosure in violation of those restrictions.
18.8.3 Exclusive right to use or sell the technology in the United States must, unless the Government grants a waiver, require that products embodying the technology or produced through the use of the technology will be manufactured substantially in the United States (37.875).
18.9 Publicity. During the term of this Agreement, each Party will obtain the consent of the other Parties and the Government Program Manager before making any press releases or public statement pertaining to the Program or to this Agreement. This consent will not be unreasonably withheld. In addition, each Party will provide the other Parties 60-days in which to review and comment on proposed scholarly publications or presentations. The publishing Party shall take into account any comments received, and shall remove any other Party's Confidential Information that appears in the publication.
IN WITNESS WHEREOF, each Party has executed this Agreement by signature of its authorized representative.
SIGNATURES:
Recipient | Government | |
[/s/ Thomas J. Shaw] | [/s/John Conlin] | |
Signature | Signature | |
[THOMAS J. SHAW] | [John Conlin] | |
Printed Name | Printed Name | |
[CEO] | Agreements Officer | |
Title | Title | |
7/1/2020 | ||
Date | Date |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER |
I, Thomas J. Shaw, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Retractable Technologies, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 16, 2020
/s/ THOMAS J. SHAW | |
THOMAS J. SHAW | |
PRESIDENT, CHAIRMAN, AND | |
CHIEF EXECUTIVE OFFICER |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER |
I, John W. Fort III, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Retractable Technologies, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 16, 2020
/s/ JOHN W. FORT III | |
JOHN W. FORT III | |
VICE PRESIDENT, | |
CHIEF FINANCIAL OFFICER, | |
AND CHIEF ACCOUNTING OFFICER |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Solely in connection with the filing of the Quarterly Report of Retractable Technologies, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Thomas J. Shaw, Chief Executive Officer, and John W. Fort III, Chief Financial Officer, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the issuer.
Date: | November 16, 2020 | /s/ THOMAS J. SHAW | |
Thomas
J. Shaw
President, Chairman, and Chief Executive Officer |
|||
/s/ JOHN W. FORT III | |||
JOHN
W. FORT III vice president, Chief Financial
Officer, AND CHIEF ACCOUNTING OFFICER |