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

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patents), our ability to maintain favorable supplier arrangements and relationships, our ability to receive royalties from Baiyin Tonsun Medical Device Co., Ltd. ("BTMD"), our ability to quickly increase capacity in the event of a dramatic increase in demand (such as by increased orders due to swine flu vaccinations), 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 line contamination, entered the market in 2008. Safety syringes comprised 98.2% of our sales in the first six months of 2009.

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 products, 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.

In the event we continue to have only limited market access, the cash provided by the litigation settlements and generated from operations becomes insufficient, and royalties from BTMD are not forthcoming, we would take additional cost cutting measures to reduce cash requirements. Such measures could result in the reduction of units being produced, the reduction of workforce, reduction of salaries of officers and other nonhourly employees, and the deferral of royalty payments. We took such actions at the end of the second quarter.

At the end of the second quarter we announced that in the interest of the long-term survival of the Company we would reorganize some of the Company's functions and implement staff reductions, all in order to minimize our cash expenditures and conserve our resources. Our workforce was reduced by 16% on July 1, 2009. We expect the reduction in workforce to decrease our annual compensation costs, as well as related expenses, such as travel and entertainment, by $2.1 million annually. An anticipated reduction of inventory should result in a minimum of $1.0 million reduction in cash outlays over the next twelve months. Our President and CEO, Thomas J. Shaw, waived future royalty payments beginning July 1, 2009, which will save an additional $1.0 million over the next three quarters. Salaries for all personnel above a certain salary level were cut by 10%. Such reduction, along with discontinuing the 401(k) matching, should save $600,000 over the next twelve months. We expect to save an additional $1.6 million by the following actions: moving most, if not all, of the molding of piece parts back to Little Elm; reducing professional fees; and various other cost cutting measures. These measures will remain in place as long as Management deems them necessary.

We recorded a $200,000 charge in the second quarter for severance pay offered to the terminated employees. All severance payments were paid in the third quarter. We will incur a noncash expense of $2.8 million related to the issuance of stock options, most of which will be amortized over twelve months.

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.

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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 2009, approximately 73.0% of the units we produced. The cost of production per unit has generally declined as volumes increased. Double Dove increased the prices in the fourth quarter of 2008 to us by $0.005 per unit. Product 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 0.5cc insulin syringe, the 5cc and 10cc syringes and the autodisable syringe which altogether comprised about 5.2% of our revenues for the first six months of 2009.

We had a Licensing Agreement with BTMD which expired on May 13, 2008. Royalties that were expected 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. 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 we have an effective agreement, 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. It is unclear how the upcoming flu season may be affected by additional demand for utilization for the swine flu vaccinations. There is a possibility, if the U.S. does indeed receive H1N1 (swine flu) vaccine, that our sales could increase significantly during the flu season. Our understanding is that two injections are required for H1N1 as well as an injection for the "regular" flu. We are prepared to ramp up production during flu season if the need arises.

With increased volumes, our manufacturing unit costs have generally tended to decline. Factors that could affect our unit costs, in addition to Double Dove's increase in unit costs of $0.005, include changing production volumes, costs of petroleum products, and transportation costs. Increases in such costs may not be recoverable through price increases of our products.

We completed the expansion of an existing warehouse in the first quarter of 2009. This expansion increased our warehouse area, provided for additional office space, and added a second Controlled Environment. This will enable us to do more molding in-house.

LIQUIDITY

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

Historical Sources of Liquidity

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

In 2008, we received a construction line of credit for up to $4,210,000 to fund an expansion of our warehouse. We expect to replace this loan with a permanent financing arrangement during the third quarter of 2009.

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.

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Beginning in early 2004, we began to receive shipment of product from Double Dove which enabled us to lower our unit costs. Fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable supplier arrangements and relationships could result in the need to manufacture all (as opposed to approximately 26%) of our products in the U.S. This could temporarily increase unit costs as we ramp up domestic production.

The mix of domestic and international sales affects the average sales price of our products. Generally, the higher the ratio of domestic sales to international sales, the higher the average sales price will be. Typically international sales are shipped directly from China to the customer. Purchases of product manufactured in China, if available, usually decrease the average cost of manufacture for all units as domestic costs, such as indirect labor and overhead, remain relatively constant. Double Dove increased their prices to us by $0.005 per unit in the fourth quarter of 2008. The number of units produced by the Company versus manufactured in China can have a significant effect on the carrying costs of inventory as well as Cost of sales. We will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in China to achieve economic benefits as well as to maintain our domestic manufacturing capability. Currently, approximately 26% of our products are produced domestically.

Fluctuations in the cost of oil (since our products are petroleum based), transportation costs, and the volume of units purchased from Double Dove may have an impact on the unit costs of our products. Increases in such costs may not be recoverable through price increases of our products. Reductions in oil prices may not quickly affect petroleum product prices.

Seasonality

Licensing Agreement

We had a Licensing Agreement with BTMD which expired on May 13, 2008. Royalties that were expected 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. 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 we have an effective agreement, Chinese government requirements are met, and BTMD is able to produce and sell products.

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. However, working capital decreased $10 million since December 31, 2008. Litigation costs continue to be a significant expense but we expect this expense to be reduced after the Abbott Laboratories ("Abbott") trial in April 2010. In the event we continue to have only limited market access and cash generated from operations becomes insufficient to support operations, 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. We took such actions at the end of the second quarter. At the end of the second quarter we announced that in the interest of the long-term survival of the Company we would reorganize some of the

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Company's functions and implement staff reductions, all in order to minimize our cash expenditures and conserve our resources. Our workforce was reduced by 16% on July 1, 2009. We expect the reduction in workforce to decrease our annual compensation costs, as well as related expenses, such as travel and entertainment by $2.1 million annually. An anticipated reduction of inventory should result in a minimum of $1.0 million reduction in cash outlays over the next twelve months. Our President and CEO, Thomas J. Shaw, waived future royalty payments beginning July 1, 2009, which will save an additional $1.0 million over the next three quarters. Salaries for all personnel above a certain salary level were cut by 10%. Such reduction, along with discontinuing the 401(k) matching, should save $600,000 over the next twelve months. We expect to save an additional $1.6 million by the following actions: moving most, if not all, of the molding of piece parts back to Little Elm; reducing professional fees; and various other cost cutting measures. These measures will remain in place as long as Management deems them necessary. We expect these cost cutting measures to mitigate the reduction in our cash balance.

We recorded a $200,000 change in the second quarter for severance pay offered to the terminated employees. All severance payments were paid in the third quarter. We will incur a noncash expense of $2.8 million related to the issuance of stock options, most of which will be amortized over twelve months.

External Sources of Liquidity

We have obtained several loans since our inception, which have, together with the proceeds from the sales of equities and litigation efforts, enabled us to pursue development and production of our products. Given the current economic conditions, our ability to obtain additional funds through loans may be limited.

The shareholders previously authorized an additional 5,000,000 shares of a Class C Preferred Stock that could, if necessary, be designated and used to raise funds through the sale of equity. Due to the current market price of our Common Stock, it is unlikely we would choose to raise funds by the sale of equity.

CAPITAL RESOURCES

Trends in Capital Resources

Interest expense will increase due to the recent loan of approximately $4.2 million, but will be somewhat mitigated by lower borrowing rates if current conditions in the credit markets continue. Interest income will 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.

Material Commitments for Expenditures

We completed expansion of our warehouse (including additional warehouse space, additional office space, and a new Controlled Environment) in the first quarter of 2009. We funded most of this expansion with a construction line of credit 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. This will be replaced by permanent financing in the third quarter.

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, 2009, or 2008.

Comparison of Three Months Ended June 30, 2009 and June 30, 2008

Domestic sales accounted for 85.6% and 80.7% of the revenues for the three months ended June 30, 2009 and 2008, respectively. International sales accounted for the remaining revenues. Domestic revenues decreased 5.8% principally due to lower unit sales mitigated by higher average sales prices and international revenues

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decreased 33.6% due primarily to lower unit sales. Overall, unit sales decreased 17.9%. Domestic unit sales decreased 7.2% due to a one-time purchase last year. We also believe some purchasing practices have changed, resulting in lower inventory levels at some of our distributors. International unit sales decreased 38.4% primarily due to decreased funding for non-governmental organizations which provide product internationally as well as a one-time order for the same period last year. Domestic unit sales were 74.2% of total unit sales for the three months ended June 30, 2009.

Gross profit decreased primarily due to lower unit sales mitigated by somewhat higher prices. The average cost of manufactured product sold per unit increased by 19.7% due to higher capitalized unit costs in inventory in the same period last year. 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 decreased 7.4% due to lower gross sales revenues.

Operating expenses increased 27.1%. The increase in expense for Sales and marketing was attributable primarily to compensation expense related to severance costs, stock option expense, and travel and entertainment. The increase was mitigated by lower marketing and supplies. Research and development costs increased due to engineering and validation samples, severance costs, and consulting costs. General and administrative costs increased due primarily to litigation costs, and accounting fees related to tax services and Sarbanes-Oxley audit costs. Stock option expense also increased as the stock option grants in November 2008 are being amortized. Previously issued stock option grants were fully amortized. We expensed $200,000 for severance costs related to the reduction in force.

Loss from operations increased due principally to lower margins and higher expenses.

Interest expense decreased due to lower interest rates and lower volumes. Interest expense for the second quarter of 2009 was zero because capitalized interest exceeded interest expense.

The Company's effective tax rate on the net loss before income taxes was 0.0% for the three months ended June 30, 2009 and June 30, 2008, respectively.

Comparison of Six Months Ended June 30, 2009 and June 30, 2008

Domestic sales accounted for 82.4% and 83.3% of the revenues for the six months ended June 30, 2009 and 2008, respectively. International sales accounted for the remaining revenues. Domestic revenues decreased 7.6% principally due to lower unit sales mitigated by higher average selling prices and international revenues decreased 1.5% due primarily to lower unit sales mitigated by higher unit prices. Overall, unit sales decreased 10.2%. Domestic unit sales decreased 9.0% due to a one-time purchase last year as well as some distributors having financial difficulty this year. We also believe some purchasing practices have changed, resulting in lower inventory levels at some of our distributors. International unit sales decreased 13.1% primarily due to a one-time purchase last year. Domestic unit sales were 70.7% of total unit sales for the six months ended June 30, 2009.

Gross profit decreased primarily due to lower unit sales and lower profit margins. The average cost of manufactured product sold per unit increased by 10.5% due principally to higher capitalized unit costs in inventory in the same period last year. 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 decreased 3.7% due to lower gross sales.

Operating expenses increased 23.9%. The increase in expense for Sales and marketing was attributable primarily to stock option expense, severance costs, and travel and entertainment. The increase was mitigated by lower marketing costs, fees, and office supplies. Research and development costs increased due to testing, severance costs, and stock option expense. General and administrative costs increased due primarily to litigation, stock option expense, consulting, and accounting fees. Stock option expense also increased as the stock option grants in November 2008 are being amortized. Previously issued stock option grants were fully amortized. We expensed $200,000 for severance costs related to the reduction in force.

Loss from operations increased due principally to lower gross profit and higher expenses.

Interest expense decreased due to lower interest rates and balances. Interest expense for the second quarter of 2009 was zero because capitalized interest exceeded interest expense.

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The Company's effective tax rate on the net loss before income taxes was 1.6% and 0.0% for the six months ended June 30, 2009 and June 30, 2008, respectively.

The Company's balance sheet remains strong with cash making up 40.0% of total assets. Working capital was $23.4 million at June 30, 2009, a decrease of $10.0 million from December 31, 2008. The current ratio was 4.3 at December 31, 2008 and 3.1 at June 30, 2009. The quick ratio was 3.6 at December 31, 2008 and 2.2 at June 30, 2009. One reason for the decline in the current ratio as well as the quick ratio was the decline in our cash balances. However, these indicators continue to demonstrate a strong financial position. We expect the cost cutting measures described earlier will mitigate the reduction in our cash balance.

Raw materials inventory increased 64.0% due to the transition of molding activities to Little Elm. We expect to be moving the manufacturing of those piece parts to Little Elm as a cost saving measure. In the meantime, we increased inventory to ensure a smooth transition of the move of molding from California to the Little Elm facility. Finished goods inventory increased 49.3% because of expected demand for flu season and the transition of molding activities to Little Elm. We expect to reduce inventory levels over the next 12 months.

Approximately $10.2 million in cash flow was used by operating activities. The remaining uses of cash were primarily for purchases of fixed assets.