Summary of RETRACTABLE TECHNOLOGIES INC

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, our ability to maintain liquidity, our maintenance of patent protection, the impact of current litigation (as it affects our costs as well as market access and the viability of our patents), the ability to maintain favorable supplier arrangements and relationships, the ability to successfully complete a new license agreement with Baiyin Tonsun Medical Device Co., Ltd. ("BTMD") and the receipt of payments thereunder, the impact of dramatic increases in demand, our ability to quickly increase capacity in the event of a dramatic increase in demand, our ability to access the market, our ability to maintain or lower production costs, our ability to continue to finance research and development as well as operations and expansion of production, the increased interest of larger market players, specifically Becton Dickinson & 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.

OVERVIEW

We have been manufacturing and marketing our products into the marketplace since 1997. We currently provide other safety medical products in addition to safety syringe products. One such product, the Patient Safe™ syringe, which reduces the risk of infection resulting from IV contamination, entered the market in 2008. Safety syringes comprised 98.2% of our sales in the first six months of 2008.

Our products have been and continue to be distributed nationally through numerous distributors. However, we have been blocked from access to the market by exclusive marketing practices engaged in by BD, who dominates the market. We believe that its monopolistic business practices continue despite its paying $100 million in 2004 to settle a prior lawsuit with us for anticompetitive practices, business disparagement, and tortious interference. Although we have made limited progress in some areas, such as the alternate care and international markets, our volumes are not as high as they should be given the nature and quality of our product, the federal and state legislation requiring the use of safe needle devices, and various Senate Subcommittee hearings on Group Purchasing Organizations.

We continue to pursue various strategies to have better access to the hospital market, as well as other markets, including attempting to gain access to the market through our sales efforts, our innovative technology, introduction of new products, and, when necessary, litigation. We are also marketing more product internationally. Beginning in 2004, we were given an award (from PATH) to supply syringes to various African countries. Awards increased significantly from 2004 to 2007. However, currently funding is uncertain for this program. We continue to supply products under this program, but not as high as previous levels. Additionally, an Australian distributor was awarded a one-year contract in March 2007 to supply our VanishPoint® automated retraction syringes to all of Queensland Health's 202 acute care facilities. Queensland Health is a department within the government of Queensland, Australia. The contract was renewed for an additional two years. VanishPoint® products are distributed in Australia by Brisbane-based Scientific Educational Supplies Pty Ltd. International distributors continue to increase.

In the event we continue to have only limited market access and the cash provided by the litigation settlements and generated from operations becomes insufficient, we would take cost cutting measures to reduce cash requirements. Such measures could result in the reduction of units being produced, the reduction of workforce, the reduction of salaries of officers and other nonhourly employees, and the deferral of royalty payments.

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We are focusing on methods of upgrading our manufacturing capability and efficiency in order to reduce costs. We believe our current capitalization provides the resources necessary to implement some of these changes and improve our manufacturing capacity and efficiency, thereby reducing our unit cost.

Product purchases from Double Dove, a Chinese manufacturer, have enabled us to increase manufacturing capacity with little capital outlay and have provided a competitive manufactured cost. Double Dove manufactured, in the first six months of 2008, approximately 69.7% of the units produced by the Company. These purchases have improved profit margins in spite of limited revenues. The cost of production per unit has generally declined as volumes increased. Double Dove has increased the prices to us by $0.005 per unit due to increased labor and raw material costs and the declining value of the U.S. dollar. Cost reductions could be adversely affected by increased material and transportation costs. We believe we could make up any long-term disruption in these supplies by utilizing more of the capacity at the Little Elm facility, except for the 0.5 cc insulin syringe, the 5cc and 10cc syringes, and the autodisable syringe which comprised about 3.7% of our second quarter 2008 revenues.

We had a Licensing Agreement with BTMD which expired on May 13, 2008. As a result of the expiration of the contract, we recognized $100,000 of prepaid royalty income as other income. We are in the process of negotiating a new agreement. Royalties that were expected in 2007 were not received due to the time needed to build the factory, assembly equipment, and the related infrastructure as well as the need of BTMD to meet the requisite Chinese government requirements. The facility has been completed and BTMD is in the process of meeting Chinese government requirements. Although successful completion of this agreement cannot be assured, we still continue to expect royalty payments although we are unable to predict the date we will begin to receive such royalties. We should begin earning royalties once Chinese government requirements are met and BTMD is able to produce and sell products.

Historically, unit sales have increased in the latter part of the year due, in part, to the demand for syringes during the flu season.

With increased volumes, our manufacturing unit costs have tended to decline. Factors that could cause unit costs to increase include lower production volumes, increasing costs of petroleum products, increased transportation costs and increased unit costs of $0.005 from Double Dove.

We have begun the expansion of an existing warehouse. This expansion will increase our warehouse area, provide for additional office space, and add a second Clean Room.

LIQUIDITY AND FUTURE CAPITAL REQUIREMENTS

At the present time, Management does not intend to raise equity capital. Due to the funds received from prior litigation settlements, we have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing as the primary ongoing sources of cash.

Historical Sources of Liquidity

We have historically funded operations primarily from the proceeds from private placements, loans, and litigation settlements. We were capitalized with approximately $52,600,000 raised from six separate private placement offerings. We raised $47,375,600 in cash from the private sales of an aggregate of 11,710,221 shares of Convertible Preferred Stock. In addition, we obtained a cancellation of $3,679,284 in debt and $1,550,000 in Accounts payable in exchange for Series V Class B Convertible Preferred Stock.

We obtained $3,910,000 in 2000 from bank loans of which $3,435,000 has been repaid and $475,000 was refinanced with a new note with Lewisville State Bank, a division of 1st International Bank. Additionally, we received a Small Business Administration loan of $1,000,000 in 1996 to pay for portions of automated assembly equipment, multi-cavity molds, and other equipment. This loan has been repaid. Furthermore, we borrowed $5,000,000 in 2000 under our Credit Agreement with Abbott Laboratories ("Abbott"). In October 2002 we repaid the Abbott note with proceeds from a new note from Katie Petroleum, Inc. for $3,000,000 and a portion of the proceeds from a private placement.

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Internal Sources of Liquidity

Margins and Market Access

To achieve break even quarters, we need minimal access to hospital markets which has been difficult to obtain due to the monopolistic marketplace which was the subject of our initial lawsuit and now also included in our second lawsuit against BD. We will continue to attempt to gain access to the market through our sales efforts, innovative technology, the introduction of new products, and, when necessary, litigation. During the second quarter of 2008, our Net loss would have been less than $225,000 without litigation expenses.

Beginning in early 2004, we began to receive shipment of product from Double Dove which enabled us to lower our unit costs. Fluctuations in the cost and availability of raw materials and inventory and the ability to maintain favorable supplier arrangements and relationships could result in the need to manufacture all (as opposed to 30.3%) of the products in the U.S. This could temporarily increase unit costs as we ramp up domestic production.

The mix of domestic and international sales affects the average sales price of our products. Generally, the higher the ratio of domestic sales to international sales, the higher the average sales price will be. Typically international sales are shipped directly from China. Purchases of product manufactured in China, if available, usually decrease the average cost of manufacture for all units as domestic costs, such as indirect labor and overhead, remain relatively constant. Double Dove has increased their prices to us by $0.005 per unit due to increased labor and raw material costs and the declining value of the U.S. dollar. The number of units produced by the Company versus manufactured in China can have a significant effect on the carrying costs of inventory as well as Cost of sales. The Company 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. Currently, approximately 30.3% of our products are produced domestically.

The higher costs of oil (since our products are petroleum based), transportation, and units purchased from Double Dove may have a negative impact on the unit costs of our product. Such increased costs may not be recoverable through price increases of our products.

Seasonality

Historically, unit sales have increased in the latter part of the year due, in part, to the demand for syringes during the flu season.

Licensing Agreement

Cash Requirements

Due to funds received from prior litigation settlements, we have sufficient cash reserves and intend to rely on operations, cash reserves, and debt financing as the primary ongoing sources of cash. In the event we continue to have only limited market access and cash generated from operations becomes insufficient to support operations, we

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would take cost cutting measures to reduce cash requirements. Such measures could result in the reduction of units being produced, the reduction of workforce, the reduction of salaries of officers and other nonhourly employees, and the deferral of royalty payments.

External Sources of Liquidity

We have obtained several loans from our inception, which have, together with the proceeds from the sales of equities and litigation efforts, enabled us to pursue development and production of our products. Currently we believe we could obtain additional funds through loans if needed. Furthermore, the shareholders previously authorized an additional 5,000,000 shares of a Class C Preferred Stock that could, if necessary, be designated and used to raise funds through the sale of equity. We are in the process of finalizing a loan for approximately $4.2 million to fund an expansion of the warehouse.

CAPITAL RESOURCES

Trends in Capital Resources

Interest expense will increase due to the pending loan of approximately $4.2 million, but will be somewhat mitigated by lower borrowing rates if current conditions in the credit markets continue. Interest income may be negatively affected by lower interest rates and our prior movement of cash to U.S. Treasury bills and other U.S. government backed securities. Although we believe that we have granted credit to credit-worthy firms, current economic conditions may affect the timing and/or collectability of some accounts.

In 2006, we invested $500,000 in a limited liability company. We exercised our option to have that investment returned. The investment was returned in the second quarter of 2008.

Material Commitments for Expenditures

We have begun expansion of our warehouse (including additional warehouse space, additional office space, and a new Clean Room). We expect to fund this expansion with a loan from Lewisville State Bank, a division of 1st International Bank, for approximately $4.2 million, secured by a second lien deed on the land and existing buildings. In the event financing is not obtained on satisfactory terms, we believe we can fund such expansion out of cash reserves.

MATERIAL CHANGES IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements. Variances have been rounded for ease of reading. All period references are to the periods ended June 30, 2008, or 2007.

Comparison of Three Months Ended

June 30, 2008, and June 30, 2007

Domestic sales accounted for 80.7% and 87.9% of the revenues for the three months ended June 30, 2008 and 2007, respectively. International sales accounted for the remaining revenues. Domestic revenues increased 12.7% principally due to increased volumes and higher average selling prices and international revenues increased 95.8% due primarily to higher volumes because of the addition of new distributors. Overall, unit sales increased 29.9%. Domestic unit sales increased 10.1% and international unit sales increased 98.1%. Domestic unit sales were 65.7% of total unit sales for the three months ended June 30, 2008.

Gross profit increased primarily due to higher unit sales and lower cost per unit sold. Costs of manufactured product increased due to higher volumes mitigated by lower unit costs. The average cost of manufactured product sold per unit decreased by 14.4% principally due to higher volumes. Profit margins can fluctuate depending upon, among other things, the cost of product manufactured and the capitalized cost of product recorded in inventory, as well as product sales mix. Royalty expense increased 14.7% due to higher gross sales.

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Operating expenses decreased 1.8%. The decrease in expense for Sales and marketing was attributable primarily to lower trade show and travel and entertainment expense. The decrease was mitigated by increases of consulting costs. The increase in Research and development costs was due principally to higher compensation costs. Increases in compensation costs were attributable to merit increases and bonuses in the second quarter for non-executive employees. General and administrative costs decreased due to lower legal expense as well as recognizing $100,000 as other income under the expired BTMD license agreement. Bad debt expense increased.

Loss from operations decreased due principally to higher revenues, higher profit margins, and lower operating expenses.

Interest expense and interest income declined due to lower interest rates and lower debt and cash equivalents balances. In addition to generally declining interest rates, we shifted the bulk of our funds into U.S. Treasury bills and other U.S. government backed securities.

Our effective tax rate on the net loss before income taxes was 0.0% for the three months ended June 30, 2008 and June 30, 2007.

Excluding litigation expense, our Net loss would have been less than $225,000.

Comparison of Six Months Ended

June 30, 2008, and June 30, 2007

Domestic sales accounted for 83.3% and 78.7% of the revenues for the six months ended June 30, 2008 and 2007, respectively. International sales accounted for the remaining revenues. Domestic revenues increased 13.0% principally due to higher average selling prices and international revenues decreased 16.3% due primarily to lower volumes from PATH, but the decrease was mitigated by the adding of new distributors. Overall, unit sales were flat. Domestic unit sales increased 8.8% and international unit sales decreased 15.6%. Domestic unit sales were 69.7% of total unit sales for the six months ended June 30, 2008.

Gross profit increased primarily due to higher average prices and lower unit costs. Costs of manufactured product decreased due to lower manufacturing cost per unit. The average cost of manufactured product sold per unit decreased by 2.5% principally due to higher volumes. Profit margins can fluctuate depending upon, among other things, the cost of product manufactured and the capitalized cost of product recorded in inventory, as well as product sales mix. Royalty expense increased 6.2% due to higher gross sales.

Operating expenses increased 3.6%. The decrease in expense for Sales and marketing was attributable primarily to lower marketing costs and reduced travel and entertainment expenses. The increase in Research and development costs was due principally to increased compensation costs. General and administrative costs increased due to additional legal expense as well as compensation expense, bad debt expense, accounting fees, and property taxes. Increases in compensation costs were attributable to merit increases and bonuses in the second quarter for non-executive employees.

Loss from operations decreased due principally to higher profit margins mitigated by higher operating expenses.

The Company's effective tax rate on the net loss before income taxes was 0.0% for the six months ended June 30, 2008 and June 30, 2007.

Excluding litigation expense, our Net loss would have been less than $1.7 million.

Our balance sheet remains strong with cash making up 60.5% of total assets. Working capital was $39.2 million at June 30, 2008, a decrease of $4.0 million from December 31, 2007. The current ratio was 5.9 at

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December 31, 2007 and 6.8 at June 30, 2008. The quick ratio was 5.1 for December 31, 2007 and 5.7 at June 30, 2008. These indicators continue to demonstrate a strong financial position.

Approximately $4.4 million in cash flow was used by operating activities. The remaining uses of cash were for capital costs incurred for the acquisition of plant, property and equipment and intangible assets, and the repayment of long-term debt.