Retractable Technologies, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars.
Business context
The company designs, manufactures, and sells safety syringes and other medical products, including VanishPoint syringes and EasyPoint retractable needles. It operates as one reporting segment. VanishPoint syringes represented 84.9% of 2018 revenue; EasyPoint needles represented 10.3%. Products are sold primarily in the U.S., while Chinese manufacturers supplied approximately 85.3% of products in 2018.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Net sales | $33.275 million | $34.494 million |
| Gross profit / margin | $10.222 million / 30.7% | $9.972 million / 28.9% |
| Operating loss | $1.320 million | $3.779 million |
| Net loss | $1.340 million | $3.736 million |
| Loss applicable to common shareholders | $2.045 million; $0.06 per share | $4.441 million; $0.14 per share |
| Cash used by operating activities | $1.195 million | $2.923 million |
Revenue declined 3.5%. Domestic revenue rose 6.0%, with unit sales up 12.0%; international revenue fell from $7.5 million to $4.6 million, primarily on lower volumes. Overall unit sales declined 3.8%. Gross margin improved mainly because manufacturing costs and unit costs were lower. Operating expenses fell 14.2%, principally due to lower legal costs and no 2018 bonuses or stock-option expense, partly offset by severance.
Fourth-quarter 2018 sales were $8.264 million, gross margin was 30.2%, and net loss was $150,000. Loss applicable to common shareholders was $327,000.
At year-end, cash and cash equivalents were $9.647 million, current assets $23.847 million, and current liabilities $8.539 million. The company moved approximately $3.0 million from cash into held-to-maturity securities with one-to-three-year maturities; year-end securities totaled $2.986 million. Long-term debt, including current maturities, was $3.046 million, secured in part by company land and buildings. Operating cash flow remained negative. Contractual debt and lease payments totaled $3.212 million.
Preferred-stock dividend requirements were approximately $705,000 for the year, and $11.8 million of preferred dividends were in arrears at year-end. Common dividends have not been paid. Total assets were $36.792 million and stockholders’ equity was $25.614 million.
Material changes, outlook, and risks
- Management said reserves, operations, and debt financing when available were expected to fund ongoing needs; additional borrowing was uncertain, and management did not intend to raise equity publicly. The filing gives no quantified revenue or earnings guidance.
- The company reduced its workforce by 19 employees in November 2018; related severance costs were $244,000. It reported using about 15% of current U.S. productive capacity.
- The principal VanishPoint syringe patent, covering the product as currently made and marketed, expires in 2020. VanishPoint’s large revenue contribution makes future sales vulnerable; management expects EasyPoint demand may increase but gives no quantified forecast.
- Reliance on Chinese manufacturers exposes the company to supply disruption and potential trade-policy or tariff changes. International sales were 13.9% of revenue. A shift to alternative or domestic production could disrupt supply or raise unit costs.
- BD and other larger competitors have greater resources, market share, distribution reach, and customer-contract influence. The company says limited market access has hindered progress toward profitable operations.
- On March 26, 2019, after the fiscal year-end, the Fifth Circuit affirmed the take-nothing judgment in the company’s case against BD. The company was evaluating possible further action. A separate BD/MDC patent-infringement case remained stayed; plaintiffs seek injunctive relief and unspecified damages.
- The 2018 results included $261,000 of insurance proceeds recognized after storm-damage repairs were completed. The 2017 comparison included $672,000 of stock-based compensation and $500,000 in bonuses to two executives; 2018 had no stock-based compensation or bonuses.
- Thomas J. Shaw, CEO, had investment or voting power over 55.9% of common stock and receives a 5% royalty on gross sales under the technology license. The company’s key risks also include patent protection, product liability, regulation, customer concentration, and maintaining liquidity.
Most important facts for investors to verify
- Whether operating cash flow and cash reserves can support the continuing operating losses, debt payments, and product development.
- Revenue concentration in VanishPoint and the sales, patent, and competitive effects expected as the current product patent expires in 2020.
- Chinese manufacturing continuity, tariff exposure, and the cost and timing of any production transition.
- The status and potential financial consequences of the stayed patent case and any further action following the BD appeal ruling.
- The terms and accumulated arrears of preferred dividends, including their priority relative to common shareholders.