3 Billion Syringes. 200 million pounds of drugs. One Solution.
2 0 0 9 A N N UA L R E P O R T
S H A R P S C O M P L I A N C E C O R P. / / N A S D A Q ( S M E D )
...millions protected.
Headquartered in Houston, Texas, Sharps Compliance is a leading provider of
cost-eff ective disposal solutions for medical and pharmaceutical waste gener-
ated outside the hospital setting. The Company’s fl agship product, the Sharps
Disposal by Mail System®, is a cost-eff ective and easy-to-use solution to dispose
of medical waste such as hypodermic needles, lancets and any other medical
device or objects used to puncture or lacerate the skin (referred to as “sharps”).
The Sharps®MWMS™, a Medical Waste Management System™, is a comprehen-
sive medical waste solution which includes an array of services and products
necessary to eff ectively collect, store and dispose of medical waste outside of
the hospital or large healthcare facility setting. The System addresses federal,
state, municipal and corporate requirements for emergency preparedness so
they are ready in the event of a health pandemic, natural or manmade disaster.
It features the Sharps Disposal By Mail System® and many other products for
medical and pharmaceutical waste combined with warehousing, inventory
management, training, data and other services necessary to provide a compre-
hensive solution.
The Company also off ers a variety of products specifi cally designed for the home
2009 // BILLINGS BY MARKET
[FY09 BILLINGS: $20.7 MILLION]
healthcare market and products for the safe disposal of unused pharmaceuticals,
RxTakeAway™. Sharps Compliance focuses on targeted growth markets such as
Healthcare - 36.1%
the government, pharmaceutical, retail, and professional markets, as well as serv-
ing a variety of additional markets. Sharps is a leading proponent and participant
Government - 30.3%
in the development of public awareness and solutions for the safe disposal of
needles, syringes and other sharps as well as unused pharmaceuticals in the
community setting.
Retail - 9.4%
Pharmaceutical - 7.5%
As a fully integrated manufacturer providing customer solutions and services,
Sharps Compliance’s solid business model, with strong margins and signifi cant
operating leverage, and early penetration into emerging markets, uniquely
positions the company for strong future growth.
More information on Sharps Compliance can be found on its website at:
www.sharpsinc.com
Professional - 5.1%
Hospitality - 4.4%
Agriculture - 1.7%
Commercial - 2.3%
Others- 3.2%
T H E S H A R P S S O L U T I O N
Disposal by Mail
The fi rst complete system
that safeguards communities
through the proper disposal
of used needles, syringes, and
RxTakeAway™
Protects communities and the
environment from the hazards
of unused prescriptions by
providing a convenient and
Warehousing
Services include
vendor- managed inventory
programs including virtual
access systems providing
other small quantities of bio-hazardous waste.
confi dential way for patients to dispose of unused medication.
clients the confi dence of being well-stocked without the
complexities of maintaning an additional warehouse facility.
(in thousands, except employee and per share data)
2009*
2008
2007
2006
2005
2 0 0 9 F I N A N C I A L H I G H L I G H T S
P E R F O R M A N C E
Revenue
Revenue Growth
Gross Profi t
Gross Margin
Selling, General and Administrative
Operating Income (Loss)
Operating Margin
Net Income (Loss)
Diluted Earnings (Loss) Per Share
Weighted Average Shares Outstanding–Diluted
Y E A R – E N D F I N A N C I A L P O S I T I O N
Cash and Cash Equivalents
Total Assets
Long-term Debt
Shareholders’ Equity (Defi cit)
O T H E R Y E A R – E N D D AT A
$ 20,297
$
12,841
$ 11,956
$ 10,563
$
9,001
58.1 %
7.4 %
13.2 %
17.4 %
4.4 %
$ 10,456
$
5,070
$
5,013
$
4,494
$
3,502
$
$
$
$
51.5 %
6,092
3,464
17.1 %
4,197
0.30
13,996
$
4,792
$ 15,188
$
$
-
9,570
39.5 %
4,783
(1 )
0.0 %
82
0.01
13,540
2,035
5,676
-
2,886
$
$
$
$
$
$
$
$
41.9 %
3,946
727
6.1 %
785
0.06
12,338
2,134
4,691
-
2,169
$
$
$
$
$
$
$
$
42.5 %
3,958
382
3.6 %
382
0.03
10,954
297
2,190
-
252
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
38.9 %
3,520
(176 )
(1.9 )%
(193 )
(0.02 )
10,539
258
2,130
-
(144)
157
30
Depreciation and Amortization
$
392
$
266
$
203
$
154
Number of Employees
43
33
33
28
* 2009 operating income includes $512,372 special charge related to the departure of a former offi cer of the Company
REVENUE
$20,297
$12,841
$11,956
$10,563
$9,001
OPERATING INCOME
DILUTED EPS
SHAREHOLDERS’ EQUITY
$3,464
$0.30
$727
$382
$(1)
$(176)
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
$0.06
$0.03
$0.01
$(0.02)
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
$9,570
$2,886
$2,169
$252
$(144)
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
Inventory
Management
Fulfi llment services and
compliance programs assure
that Sharps’ customers are
Training
Sharps provides not only
the tools but the knowledge.
A full range of training
programs for systems use
Information
Management
Sharps’ services are wrapped
into secure data warehousing
systems which are uniquely
properly stocked to meet future needs and relevant
applications, along with an entire training program for
designed for our customers needs. These systems provide
regulations.
Compliance and Regulatory requirements.
easy access to critical information that enhance business
improvement.
1
/ / / L E T T E R T O S T O C K H O L D E R S / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Dear Stockholders:
Fiscal Year 2009 was a defi ning year for Sharps Compliance. We made a success-
event of a health pandemic, natural or manmade disaster. It features the Sharps
ful strategic shift from a products company to becoming a medical and pharmaceutical
Disposal By Mail System® and many other products for medical and pharmaceutical
waste solutions provider for customers outside of hospital and large healthcare
waste combined with warehousing, inventory management, training, data and other
facilities. In addition, we successfully closed and began execution of a major
services necessary to provide a comprehensive solution.
$40 million U.S. Government contract for our Sharps Medical Waste Management
We realized $6.0 million in revenue in the second half of Fiscal Year 2009 from the
System (Sharps®MWMS™) and made key investments in the Company for future
contract and will recognize approximately $22.6 million in the fi rst half of Fiscal Year
expansion.
2010. The product build-out portion of the contract is expected to be complete by
Revenue grew almost 60% to $20.3 million over the $12.8 million reported in the
the end of calendar year 2009, at which time the current contract will move into a
prior year. We recognized revenue of $6.0 million in the second half of Fiscal Year 2009
maintenance phase.
that was related to the U.S. Government contract for the Sharps®MWMS™. Notably,
our core business had solid 11%
growth, driven by an early start of
the fl u shot season which boosted
retail sales to our national pharmacy
and retail clinic customers, while we
also launched two new patient sup-
port programs for pharmaceutical
manufacturers.
We made a successful strategic shift
from a products company to becoming
a medical and pharmaceutical waste
solutions provider for customers outside
of hospital and large healthcare facilities.
We added our fi fth and sixth patient
support and compliance programs
for pharmaceutical manufacturers in
Fiscal Year 2009 as well as renewed the
Company’s fi rst patient
support
program which was originally awarded
in March of 2006.
We launched RxTakeAway™, a new
line of products specifi cally designed
Margins expanded appreciably as we
realized
the signifi cant operating
to safely dispose of unused pharmaceuticals and medications, other than controlled
leverage
inherent
in our business model on
increasing sales. Gross
substances. It is estimated that over 200 million pounds per year of unused pharma-
and operating margins for fiscal year 2009 were 51.5% and 17.1%,
ceuticals could potentially be polluting our environment and placing children and
respectively, compared with 40% and 0%, respectively for the prior year.
teenagers at risk for accidental poisoning.
Operating profi t expansion was somewhat off set by some unusual charges which we
The RxTakeAway™ is designed for retail or mail-order pharmacies, alternate care
do not expect to repeat.
facilities, community programs and individual consumers. It consists of a variety of
Net income was a record $4.2 million, or $0.30 per diluted share, an outstanding
sizes of containers and return packaging with pre-paid postage to our incineration
improvement over Fiscal 2008’s net income of $82 thousand, or $0.01 per diluted
facility. Interest in our disposal solution for unused medications is very high, and
share. In addition, the Company’s balance sheet has never been stronger with cash of
we expect to recognize notable sales of the RxTakeAway™ products during fi scal
$4.8 million, total assets of $15.2 million, equity of $9.6 million and zero debt.
year 2010.
Leadership Position from Innovation
During the year, we developed and launched some of the most innovative and unique
Bulletin Board. Our strong balance sheet and fi nancial growth enabled us to attain
the required fi nancial and liquidity benchmarks for listing. Our new ticker symbol
products and services in our history as we further established our leadership position
is “SMED”. We believe achieving a NASDAQ Capital Market listing provides greater
In May 2009, we graduated to the NASDAQ Capital Market from the Over-The-Counter
in medical waste management in nonhospital settings.
visibility and liquidity for our stock.
In February 2009, Sharps was awarded a $40 million contract to provide our Sharps
Medical Waste Management System (“Sharps®MWMS™”) to an agency of the United
States Government. The Sharps®MWMS™ is a comprehensive medical waste solu-
Growth Well Beyond Our First Major Contract
As we head into a new fi scal year, we believe that we have only just scratched
tion which includes an array of services and products necessary to eff ectively collect,
the surface with what we accomplished in Fiscal Year 2009. We believe
store and dispose of medical waste outside of the hospital or large healthcare facility
Sharps Compliance is uniquely positioned to secure additional major contracts for
setting.
our medical and pharmaceutical waste solutions and create even greater fi rst mover
The Sharps®MWMS™ addresses federal, state, municipal and corporate require-
advantage in the markets we are developing.
ments for emergency preparedness and rapid deployment so they are ready in the
2
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / /
We have excellent momentum and expect a very
strong start to the year as sales are projected to increase
signifi cantly in the fi rst half of Fiscal Year 2010, driven
by the government contract and an expanded and
heavily emphasized fl u shot season. We believe revenue
should continue to increase at a greater rate than fi xed costs allowing gross margins to
exceed 50% and provide even stronger operating margins.
This year’s fl u shot season, given the concerns of the H1N1 virus, is expected to
be exceptionally strong for our retail market, as the overall number of fl u shots
S H A R P S C O M P L I A N C E
C O R P. G R A D U AT E S TO
T H E N A S DAQ C A P I TA L
M A R K E T A N D R I N G S
T H E O P E N I N G B E L L
On May 6, 2009,
Sharps Compliance Corp. graduated
to the NASDAQ Capital Market from the
Over-The-Counter Bulletin Board (OTCBB)
and changed its ticker symbol to “SMED.”
Sharps’ strong and consistent growth and solid
fundamentals led to attaining the required
fi nancial and liquidity benchmarks for listing.
The Company believes achieving a NASDAQ Capital
Market listing provides greater visibility and liquidity for its stock. Over
the past year, the Company has realigned its business, focusing more
on providing services and solutions for the disposal of medical and
administered this year should be signifi cantly higher than last year, and early
pharmaceutical waste. The new ticker symbol “SMED” better refl ects
indications are that the season may last into the early part of 2010, where
that focus and business.
historically our fl u shot business was concentrated in our fi scal year second quarter.
Additionally, it is believed that a greater percentage of the fl u shots will be admin-
istered in alternate healthcare settings such as retail clinics, pharmacies and
community centers or schools, consistent with our market focus.
We are actively marketing the Sharps®MWMS™ to federal, state and local
government agencies as well commercial organizations that have emergency
preparedness programs. We are also pursuing opportunities with pharmaceutical
manufacturers to expand the participation in our patient support and compliance
program. We customize a unique solution for each pharmaceutical company designed
for their particular treatment and its targeted patients. We expect the growth of
the Company will be lead by opportunities in the government, pharmaceutical and
retail markets.
Nonetheless, we are also developing focused, aggressive marketing programs,
including outbound telemarketing, to address the large numbers of smaller consump-
tion environments such as doctors’ offi ces, dentists, veterinarians and assisted living
facilities. We’ve managed to grow in these areas without marketing and believe our
cost advantage and convenient systems will enable us to develop these markets at an
even greater rate.
We are excited about and confi dent in our future. It is evident that we are fi lling a
need in the market place for cost-eff ective and comprehensive solutions for medical
and pharmaceutical waste disposal outside of the hospital and large healthcare facili-
ties environment. Thank you for your interest and investment in Sharps Compliance.
We hope you share our excitement!
Sincerely,
Dr. Burton J. Kunik
Chairman of the Board and Chief Executive Offi cer
October 5, 2009
Dr. Burton J. Kunik , Chairman of the Board and Chief Executive Offi cer ringing the
opening bell at the NASDAQ MarketSite in Times Square on June 24, 2009.
Board of Directors (L to R): John W. Dalton, Parris H. Holmes, Dr. Burton J. Kunik
F. Gardner Parker, Ramsay H. Gillman, Philip C. Zerrillo
3
A C LO S E R LO O K / / S H A R P S ’ L AT E S T S O LU T I O N S
R X T A K E A W A Y ™
RxTakeAway™ is
specifi cally designed
to safely dispose of unused pharmaceuticals and medications. An estimated 200 million
or more pounds of unused pharmaceuticals could be potentially polluting our environ-
ment and placing children and teenagers at risk for accidental poisoning.
The product line was developed for individual consumers and community facilities,
such as assisted living, long-term care, hospice and correctional operations, to dispose of
unused medications, other than controlled substances, and consists of a variety of sizes
of containers and return packaging with pre-paid postage to the Company’s incinera-
tion facility. The product line is also being off ered to national pharmacy chains as a part
of “take back” programs to provide their customers with an alternative to disposing of
unused medications by fl ushing or placing in the trash.
M E D I C A L W A S T E M A N A G E M E N T S Y S T E M ™
The Sharps®MWMS™, a Medical Waste Management System™, is a comprehensive medical and
pharmaceutical waste solution which includes an array of services and products necessary to
eff ectively collect, store and dispose of medical and pharmaceutical waste outside of the hospital
setting . The System, which is designed for rapid deployment, features the Sharps Disposal By Mail
System® and the RxTakeAway™ products combined with warehousing, inventory management,
training, data and other services necessary to provide a comprehensive solution.
Also available with the Sharps®MWMS™ is the Sharps® Rx Recovery and Reporting System.
This System delivers a turn-key approach to the collection, storage, audit, treatment and
documentation of unused medications.
The Sharps®MWMS™ is designed to be an integral part of governmental
and commercial emergency preparedness programs.
The System can be used in virtually any location where patients may be treated or shots administered.
In the event of a health pandemic, natural or manmade emergency, vaccines would be administered
in many locations outside of the hospital setting such as school gymnasiums, community centers,
retail settings and clinics. The Medical Waste Management System was designed to be portable,
allowing medical waste to be collected where it is generated, properly stored, and transported
with no special pickup arrangements.
4
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(cid:58)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(cid:134)(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2009
COMMISSION FILE NUMBER 001-34269
SHARPS COMPLIANCE CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
9220 Kirby Drive, Suite 500, Houston, Texas
(Address of principal executive offices)
74-2657168
(I.R.S. Employer
Identification No.)
77054
(Zip Code)
Registrant’s telephone number, including area code (713) 432-0300
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Shares, $1.00 Par Value
The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes (cid:3)(cid:134) No (cid:3)(cid:59)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes (cid:3)(cid:134) No (cid:3)(cid:59)
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 (cid:3)(cid:59) No (cid:3)(cid:134)
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 and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the Registrant was required to submit and post such files). Yes (cid:3)(cid:134) No (cid:3)(cid:134)(cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)(cid:134)
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. (Check one):
Large accelerated filer (cid:134)(cid:3) Accelerated filer (cid:134)(cid:3) Non-accelerated filer (cid:134)(cid:3) Smaller reporting company (cid:59)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes (cid:3)(cid:134) No (cid:3)(cid:59)(cid:3)
As of December 31, 2008 and September 17, 2009, the aggregate market value of the Registrant’s Common Stock held by
non-affiliates was approximately $9,213,328 million (based on the closing price of $1.60 on December 31, 2008 as reported by
The NASDAQ Capital Market) and approximately $ 61,556,789 million (based upon the closing price of $9.72 on September 17,
2009, as reported by THE NASDAQ Capital Market).
The number of common shares outstanding of the Registrant was 13,445,105 as of September 17, 2009.
DOCUMENTS INCORPORATED BY REFERENCE:
(1)
Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A for the Annual Meeting of Shareholders to be held on November 19, 2009 are incorporated
by reference into Part III.
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS *
ANNUAL REPORT ON FORM 10-K
________________________________________________________________________________
PART I
Page
Item 1 Description of Business ......................................................................................... 2
Item 1A Risk Factors ........................................................................................................... 6
Item 1B Unresolved Staff Comments .................................................................................. 8
Item 2 Description of Property ......................................................................................... 8
Item 3 Legal Proceedings ................................................................................................. 8
Item 4 Submission of Matters to a Vote of Security Holders ........................................... 9
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities .......................................................... 10
Item 6 Selected Financial Data .......................................................................................... 11
Item 7 Management’s Discussion and Analysis of Financial Condition and
Results of Operations ......................................................................................... 11
Item 7A Quantitative and Qualitative Disclosures About Market Risk ............................... 19
Item 8 Financial Statements .............................................................................................. 19
Item 9 Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................................................... 19
Item 9A Controls and Procedures ........................................................................................ 19
Item 9B Other Information .................................................................................................. 21
PART III
Item 10 Directors, Executive Officers and Corporate Governance ..................................... 21
Item 11 Executive Compensation ....................................................................................... 2
2
Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters .............................................................................. 22
Item 13 Certain Relationships and Related Transactions and Director
Independence ..................................................................................................... 22
Item 14 Principal Accountant Fees and Services ................................................................ 22
PART IV
Item 15 Exhibits and Financial Statement Schedules ......................................................... 22
Signatures .............................................................................................................. 25
____________
* This Table of Contents is inserted for convenience of reference only and is not
a part of this Report as filed.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain forward-looking statements and information relating to the Company
and its subsidiaries that are based on the beliefs of the Company’s management as well as assumptions made by and
information currently available to the Company’s management. When used in this report, the words “anticipate”,
“believe”, “expect”, “estimate”, “project” and “intend” and words or phrases of similar import, as they relate to the
Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to certain factors, including without limitations,
competitive factors, general economic conditions, customer relations, relationships with vendors, governmental regulation
and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes
in industry practices, onetime events and other factors described herein. Based upon changing conditions, should any one
or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company
does not intend to update these forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
PART I
Sharps Compliance Corp. was formed in November 1992 as a Delaware corporation. The information presented herein is
for Sharps Compliance Corp. and its wholly owned subsidiaries, Sharps Compliance, Inc. of Texas (dba Sharps
Compliance, Inc.), Sharps e-Tools.com, Inc. (“Sharps e-Tools”), Sharps Manufacturing, Inc., Sharps Environmental
Services, Inc. (dba Sharps Environmental Services of Texas, Inc.) and Sharps Safety, Inc. (collectively, “Sharps” or the
“Company”). Unless the context otherwise requires, “Company”, “we”, “us”, and “our” refer to Sharps Compliance Corp.
and its subsidiaries. Sharps’ principal office is located at 9220 Kirby Drive, Suite 500, Houston, Texas 77054. Sharps’
treatment facility is located at 1544 NE Loop Carthage, Texas 75633. Sharps’ has additional operation and warehouse
space in Houston, Texas and College Park, Georgia.
The Company provides access to all of its filings with the Securities and Exchange Commission (“SEC”) through its
website www.sharpsinc.com, as soon as reasonably practicable after the reports are filed with the SEC. The filings are also
available via the SEC’s website at www.sec.gov/edgar/searchedgar/companysearch.html.
PRODUCTS AND SERVICES
Sharps is a leading provider of cost-effective disposal solutions for medical and pharmaceutical waste generated outside the
hospital and large healthcare setting. These solutions include Sharps Disposal by Mail System®, RxTakeAway™,
Sharps®MWMS™, Pitch-It™ IV Poles, Trip LesSystem®, Sharps Pump Return Box, Sharps Enteral Pump Return Box,
Sharps Secure®, Sharps SureTemp Tote®, IsoWash® Linen Recovery System, Biohazard Spill Clean-Up Kit and Disposal
System, Sharps e-Tools, Sharps Environmental Services and Sharps Consulting. Some products and services facilitate
compliance with state and federal regulations by tracking, incinerating and documenting the disposal of medical waste.
Additionally, some products and services facilitate compliance with educational and training requirements required by
federal, state, and local regulatory agencies.
The Sharps Disposal by Mail System® is a comprehensive solution for the containment, transportation, destruction and
tracking of medical waste generated outside the hospital and large healthcare setting. The Sharps Disposal by Mail
System® contains a securely sealed, leak and puncture resistant sharps container in several sizes ranging from one quart to
eighteen gallons; United States Postal Service (“USPS”) approved shipping carton with priority mail (pre-paid) postage;
absorbent material inside the container that can safely hold up to 150 milliliters of fluids; a red bag for additional
containment and complete documentation and tracking manifest. The Sharps Disposal by Mail System® is transported to
the Company’s treatment facility for disposal (i.e. Sharps Environmental Services) in a pre-paid USPS approved shipping
carton. Upon destruction, Sharps provides electronic proof of destruction documentation to the customer through its
proprietary Sharps Tracer™ system.
Demand for the Company’s flagship Sharps Disposal by Mail System®, which facilitates the proper and cost-effective
disposal of medical waste including hypodermic needles, lancets and other devices or objects used to puncture or lacerate
the skin (referred to as “sharps”), has been growing rapidly because of its cost-effective and convenient mail-back
2
component and unique data tracking feature. In addition, targeted opportunities continue to expand as a result of, (i)
legislation mandating the proper disposal of sharps, (ii) the growing awareness of the need to properly handle sharps
medical waste for safety and environmental concerns, (iii) the significant increase in self-injectable medications and (iv) the
changing paradigm in the healthcare industry.
The RxTakeAway™ line of products, introduced in fiscal year 2009, facilitates the proper disposal of unused
pharmaceuticals and medications. The product line is designed for individual consumers and community facilities, such as
assisted living, long-term care, mail-order pharmacy and correctional operations, to dispose of unused medications other
than controlled substances and consists of a variety of sizes of containers and return packaging with pre-paid postage to the
Company’s treatment facility. Approximately four billion prescriptions are filled in the United States annually, and it has
been estimated that as much as 40% of the dispensed medication goes unused, resulting in over 200 million pounds of
pharmaceuticals which can adversely affect the environment if disposed of improperly. Improperly disposed or diverted
unused medications have also been shown to increase the risk of accidental poisoning of citizens including children and
teenagers. The Company also introduced its proprietary tracking system, DrugTracer™, designed for the unused patient
medications products in fiscal year 2009.
The Sharps®MWMS™, a Medical Waste Management System, is a comprehensive medical and pharmaceutical waste
solution which includes an array of services and products necessary to effectively collect, store and dispose of medical and
pharmaceutical waste outside the hospital setting. Sharps®MWMS™, which is designed for rapid deployment, features the
Sharps Disposal By Mail System® and RxTakeAway™ products combined with warehousing, inventory management,
training, data and other services necessary to provide a comprehensive solution. The Sharps®MWMS™ is designed to be
an integral part of governmental and commercial emergency preparedness programs.
Also available with the Sharps®MWMS™ is the Sharps® Rx Recovery and Reporting System ("System"). This System
delivers a turn-key approach to the collection, storage, audit, treatment and documentation of unused medications. The
following Sharps® RxTakeAway™ products are an integral component of this System:
• RxTakeAway™ Envelopes (8" x 11")
• RxTakeAway™ 10 Gallon Box System (14.125" x 14.0625" x 12.50")
• RxTakeAway™ 20 Gallon Box System (14.125" x 14.0625" x 24")
• RxTakeAway™ Rx 100 Recovery System (27" x 26" x 24")
• RxTakeAway™ Rx 200 Recovery System (34" x 18" x 24")
• RxTakeAway™ Rx 300 Recovery System (48" x 42" x 48") – Facilitates Pallet Sized Disposal Needs
The Pitch-It™ IV Poles are designed as a cost effective, portable, lightweight and disposable alternative to traditional IV
poles used for gravity-fed or pump-administered infusions. The innovative pole design provides opportunities for the home
healthcare industry to improve logistical efficiencies by eliminating the costs and inconvenience of retrieving, cleaning,
bagging, tagging and storing of traditional IV poles. The Pitch-It™ IV Poles are available in three models: (i) tabletop, (ii)
floor and (iii) full-size with wheels.
The Trip LesSystem® is a solution for the commercial home healthcare industry that eliminates costly trips by healthcare
providers to the patient’s home after therapy has been completed. The Trip LesSystem® has combined three complete
programs for return and/or disposal. All systems contain the Sharps Disposal by Mail System® along with either (i) a
prepaid pump return box or (ii) a Pitch-It™ IV Pole, depending on the patient’s therapy.
Sharps’ asset return boxes (i.e., the Sharps Pump Return Box and Sharps Enteral Pump Return Box) are marketed to home
healthcare providers, primarily for use with home infusion patients. These products provide for the delivery and retrieval of
expensive equipment, such as infusion and enteral pumps, phototherapy and TENS units, between the healthcare provider
and the patient.
The Sharps Secure® Needle Disposal System is the first commercially available wall mounted needle collection and
disposal by mail system specifically designed for the retail and industrial markets. The system is mounted on the wall inside
3
of public restrooms to provide a visible collection point for self-injectors to safely and privately dispose of used needles,
which are often discarded in the public waste at commercial and office buildings. The system consists of a Sharps Disposal
by Mail System® needle collection container, housed in the newly designed (patent pending) Sharps Secure® metal
collection cabinet. The wall-mounted cabinet, which is manufactured from heavy gauge metal, has been designed with
numerous safety features to ensure that needles properly disposed of will not present a hazard.
The Sharps SureTemp Tote® is a disposable cooler that maintains a safe range for temperature-sensitive materials. Sharps
primarily markets the product to home healthcare providers to protect IV medications used in home infusion. Its disposable
nature relieves the home healthcare provider of tracking, cleaning and maintaining reusable coolers.
The IsoWash® Linen Recovery System is designed to address the safe handling of linens contaminated with blood, bodily
fluids and other biohazards in the hospitality market. Historically, contaminated linens are discarded at most domestic
hotels. IsoWash®, however, provides an alternative for safely handling and de-contaminating at a significant cost savings to
linen replacement. Contaminated linens are isolated from human contact by being placed into the IsoWash® water-soluble
bag, which is clear to reveal the bag’s contents and is marked with a biohazard warning. The isolated linens are placed in
industrial laundry equipment for recovery. Once the wash cycle begins, the bag dissolves within two minutes allowing
chemicals in the wash to safely clean the contaminated laundry with minimal handling. Sharps is the exclusive distributor
for the patented product.
The Biohazard Spill Clean-Up Kit and Disposal System is a complete solution for both cleanup and disposal by mail of bio-
hazardous spill waste and materials. This convenient system comes complete with everything necessary for the clean up of
potentially bio-hazardous materials such as blood and bodily fluids. The Sharps system provides a means to safely, easily
and legally remove these materials from your location and transport them to a destruction facility via the USPS. Sharps
Bio-Hazard Clean-Up Kit has the capacity to contain spills of up to one liter of contaminant. Spill clean-up equipment,
transportation and proper disposal are all included in the price of the system.
The Sharps e-Tools online services include SharpsTracer™ and AssetTracer™. SharpsTracer™ is a manifest imaging and
tracking program for registered customers for the purpose of tracking and certifying the transportation and disposal of
regulated medical waste. SharpsTracer™ eliminates the need for traditional paper-based methods of manifest tracking and
is designed to enhance customer efficiencies with an automatic evidence of proof of destruction, market data collection
abilities and return to store programs capabilities. AssetTracer™ allows its registered subscribers to effectively manage all
types of capital assets through a single, organized database. The program can be used in conjunction with other Company
products or independently and includes management reporting for regulatory compliance, preventative maintenance and
asset status and/or location.
Sharps Environmental Services provides environmental solutions for customers with a wide variety of waste disposal needs.
Primary services include the destruction and disposal of (i) medical sharps waste, (ii) legal/confidential documents, (iii)
pharmaceutical products and (iv) non-hazardous industrial waste. This service allows the Company to directly oversee the
proper disposal of its Sharps Disposal by Mail Systems® and RxTakeAway™ products.
Sharps Consulting provides a broad range of services including (i) analysis of legal and regulatory implications of present
waste handling practices, (ii) communicating new legislation and industry best practices minimizing employee exposure and
liability, (iii) serving as intermediary with regulatory agencies and (iv) educating employees on infection control practices
and the dangers of improperly handled medical waste.
MARKETS
The Company’s key markets for its products and services are as follows:
- Healthcare
- Government
- Retail
-
-
- Hospitality
Pharmaceutical Manufacturer
Professional
4
- Commercial / Industrial
- Agriculture
Healthcare: The Company markets its Sharps Disposal by Mail System®, Pitch-It™ IV Poles, Trip LesSystem®, Sharps
Pump Return Box, Sharps Enteral Pump Return Box and Sharps SureTemp Tote® products to the Healthcare segment. This
market consists primarily of home healthcare companies and generated 36% of the Company’s billings for the fiscal year
ended June 30, 2009.
Government: The Company markets its Sharps®MWMS™, Sharps Disposal by Mail System®, and RxTakeAway™
systems to the Government segment. This market consists of government agencies (federal, state and local) that purchase
products and services for (i) emergency preparedness and public and environmental safety and (ii) proper disposal of patient
syringes and unused pharmaceuticals. The Government market generated 30% of the Company’s billings for the fiscal year
ended June 30, 2009.
Retail: The Company markets its Sharps Disposal by Mail System® products to the Retail segment. This market consists of,
(i) companies that purchase products to properly dispose of syringes utilized to administer year-round as well as seasonal flu
shots, and (ii) non-emergency clinics located in the retail setting. The Retail market generated 9.4% of the Company’s
billings for the fiscal year ended June 30, 2009.
Pharmaceutical Manufacturer: The Company markets its Sharps Disposal by Mail System® products to pharmaceutical
manufacturers who purchase the Sharps Disposal By Mail Systems® for their self-injecting patients and as an integral
component to their patient support programs. The Pharmaceutical segment generated 7.5% of the Company’s billings for
the fiscal year ended June 30, 2009.
Professional: The Company markets its Sharps Disposal by Mail System® products to the Professional segment. This
market includes physician, dental, veterinarian and other service-related entities. The Professional segment generated 5.1%
of the Company’s billings for the fiscal year ended June 30, 2009.
Hospitality: The Company markets its Sharps Disposal by Mail System®, IsoWash® Linen Recovery System, Biohazard
Spill Clean-Up Kit and Disposal System products to the Hospitality segment. This market includes hotel, retirement and
assisted living and contract food service provider companies. The Hospitality segment generated 4.4% of the Company’s
billings for the fiscal year ended June 30, 2009.
Commercial: The Company markets its Sharps Disposal by Mail System®, Sharps Secure®,and Biohazard Spill Clean-Up
Kit products to the Commercial / Industrial market. This market includes a wide variety of customers including those with
safety, industrial and other facilities. The Commercial / Industrial segment generated 2.3% of the Company’s billings for the
fiscal year ended June 30, 2009.
Agriculture: The Company markets its Sharps Disposal by Mail System® products to the Agriculture segment. This market
consists of companies that purchase the products to properly dispose of syringes used to inject farm animals (for example,
dairy cattle) and generated 2% of the Company’s billings for the fiscal year ended June 30, 2009.
RESEARCH AND DEVELOPMENT
The Company continues to develop new applications for the Sharps Disposal by Mail System® and RxTAkeAway™
products and services in many different markets throughout the country to address the proper disposal of the estimated two
to three billion syringes generated outside the hospital and healthcare setting and the estimated 200 million pounds of
unused dispensed medications.
MARKET RISKS
Although Sharps has experienced growth in revenues over the past few years, there is an inherent concentration of credit
risk associated with accounts receivable arising from sales to its major customers. For the fiscal year ended June 30, 2009,
four customers represented approximately 48% of revenues. Those same four customers represented approximately 28%, or
$503,735 of the total accounts receivable balance at June 30, 2009. For the fiscal year ended June 30, 2008, four customers
5
represented approximately 38% of revenues. Those same four customers represented approximately 34%, or $402,723 of
the total accounts receivable balance at June 30, 2008. The Company may be adversely affected by its dependence on a
limited number of high volume customers. Management believes that the risks are mitigated by, (i) the contractual
relationships with key customers, (ii) the reputation of the Company and its high quality products and (iii) the continued
diversification of the Company’s products and services into additional markets outside of its traditional Healthcare customer
base.
Currently, the majority of Sharps transportation is sourced with the United States Postal Service (“USPS”), which consists
of delivering the Sharps Disposal by Mail System® from the end user to the Company’s incineration facility. The
Company also has an arrangement with United Parcel Service Inc. (“UPS”) whereby UPS transports the Company’s Sharps
Disposal by Mail System® products from the non-healthcare facility end user to the Company’s incineration facility. The
Company began selling a UPS product to select customers in fiscal year 2007. Management believes the risk of dependence
on the USPS is mitigated by (i) the arrangement with UPS and (ii) the long-standing business relationship with and
successful performance by USPS.
INTELLECTUAL PROPERTY
Although Sharps has applied in the United States for registration of a number of trademarks and patents, many of which
have been registered and granted, it can give no assurance that the Company will obtain and maintain registrations for
existing and other trademarks and patents for which it has applied.
COMPETITION
There are several competitors who offer similar or identical products and services that facilitate the disposal of medical
waste outside the hospital and large healthcare setting. There are also a number of companies that focus specifically on the
marketing of products and services which facilitate disposal through transport by the USPS (similar to the Company’s
products). These companies are typically smaller organizations or divisions of larger medical or solid waste companies.
While Sharps does not believe it currently faces significant competition in the sharps disposal by mail business, it is likely
that this could change as the Company continues its success and the country becomes more aware of the need for the proper
disposal of medical and pharmaceutical waste. The Company believes its first mover advantages and excellent industry
reputation, quality solutions and products, as well as its capabilities as a vertically integrated producer of products and
services, differentiates it from most competition. It is possible that future competition may also arise from companies that
are larger and better capitalized than the Company.
EMPLOYEES
As of June 30, 2009 Sharps employed 43 individuals, of which 42 were full-time employees.
ITEM 1A. RISK FACTORS
Aggressive pricing by existing competitors and the entrance of new competitors could drive down the Company’s profits
and slow its growth.
Although the Company currently has limited competition in its core Sharps Disposal By Mail Systems® business, it is
possible that other companies may enter into or expand into the business. Potential competitors could include large medical
waste organizations, solid waste companies or reverse distributors. These potential competitors could have greater levels of
capital, broader infrastructure and significantly more personnel.
The loss of the Company’s senior executives could affect the Company’s ability to manage the business profitability.
Sharps’ growth and development to date has been largely dependent on the active participation and leadership of its senior
management team consisting of the Company’s Chairman and CEO, Executive VP & CFO, Sr. VP of Sales and Sr. VP of
Operations. The Company believes that the continued success of the business is largely dependent upon the continued
employment of the senior management team and has, therefore, (i) entered into individual employment agreements with key
personnel and (ii) granted equity-based stock compensation to senior management members in order to provide incentive for
6
their continued employment with the Company. The unplanned loss of one or more of the senior management team could
disrupt and adversely impact the Company’s ability to execute its business plan.
The lack of customer long-term volume commitments could adversely affect the Company’s profits and future growth.
Although the Company does enter into exclusive contracts with the majority of its enterprise customers and including
volume purchase incentives, these contracts do not have provisions for firm long-term volume commitments. In general,
customer purchase orders may be canceled and order volume levels can be changed or delayed with limited or no penalties.
Sharps cannot assure the replacement of canceled, delayed or reduced purchase orders which could significantly affect the
financial performance of the Company.
The Company is subject to federal, state and local laws regarding the operation of its incinerator and autoclaving facility
and existing or future regulations may restrict the Company’s operations, increase its costs of operations or require the
Company to make additional capital expenditures.
The Company’s business utilizes an incinerator facility for the proper disposal of sharps and pharmaceutical waste. The
Company’s owned treatment facility is located in Carthage, Texas (Panola County). Prior to the purchase of the facility in
January 2008, the Company operated the treatment facility since 1999. The Company believes it operates and maintains the
facility in compliance with all federal, state and local laws and/or any other regulatory agency involving solid waste
disposal. The cost of such compliance for the year ended June 30, 2009 was $9,225. Although the Company has an
agreement with a secondary burn facility to provide services in the event the incinerator is unavailable, any disruption in the
availability of a disposal facility or increased governmental regulation could have an adverse impact on the Company. The
Company can make no assurances that no such disruption or burdensome regulation will occur in the future.
The Company believes the facility is in compliance with all applicable federal, state, local and/or regulatory agency
requirements, air pollution and TCEQ (“Texas Commission on Environmental Quality”) regulations. See Change in
Government Regulation below which discusses the future requirement to install additional equipment to the Company’s
incinerator (estimated to range from $1.0 to $2.5 million) and the Company’s installation of autoclave technology during
fiscal year 2009 which is not impacted by the change in Government regulations.
In February 2009, the Company installed a state-of-the-art autoclave system and technology capable of treating up to seven
tons per day of medical waste at the same facility. Autoclaving is a process that treats medical waste with steam at high
temperature and pressure to kill pathogens. An autoclave is environmentally cleaner and is a less costly method of treating
most medical waste versus traditional incineration. The addition of the autoclave is not impacted by the amended EPA
Clean Air Act.
The Company is subject to federal, state and local laws and existing or future regulations may restrict the Company’s
operations, and increase its costs of operations in connection with handling and transportation of mailed sharps.
Sharps is required to operate within guidelines established by federal, state, and/or local regulatory agencies. Such
guidelines have been established to promote occupational safety and health standards and certain standards have been
established in connection with the handling, transportation and disposal of certain types of medical and solid wastes,
including mailed sharps. Sharps believes that it is currently in compliance in all material respects with all applicable laws
and regulations governing its business. However, in the event additional guidelines are established to more specifically
control the business of Sharps, including the environmental services subsidiary, additional expenditures may be required in
order for Sharps to be in compliance with such changing regulations. Furthermore, any material relaxation of any existing
regulatory requirements governing the transportation and disposal of medical sharps products could result in a reduced
demand for Sharps’ products and services and could have a material adverse effect on Sharps’ revenues and financial
condition. The scope and duration of existing and future regulations affecting the medical and solid waste disposal industry
cannot be anticipated and are subject to change due to political and economic pressures.
In November of 2005 and September of 2009, the EPA amended the Clean Air Act which will affect the operations of the
incineration facility located in Carthage, Texas. The regulation modifies the emission limits and monitoring procedures
required to operate an incineration facility. The new rules will necessitate changes to the Company’s owned incinerator and
pollution control equipment at the facility or require installation of an alternative treatment method to ensure compliance.
Such change would require the Company to incur significant capital expenditures in order to meet the requirements of the
7
regulations. The regulation allows a minimum period of three years and a maximum of five years to comply after the date
the final rule was published. The Company has studied the current amended EPA Clean Air Act and its options, and
decided in the interim to move forward with the process of adding alternative technology, autoclaving, which meets the
EPA Clean Air Act requirements (see above), for medical waste disposal which became fully operational in February 2009
at its current facility in Carthage, Texas. Autoclaving is a process that treats regulated waste with steam at high temperature
and pressure to kill pathogens. Combining the autoclaving with a shredding or grinder process allows the waste to be
disposed in a landfill operation. The Company believes autoclaving is environmentally cleaner and a less costly method of
treating medical waste than incineration. Due to its continued growth, the Company has decided that it will incur additional
capital expenditures needed in order to meet the new regulations. The additional capital expenditures are estimated to range
from approximately $1.0 to approximately $2.5 million and would increase its permitted incineration capacity from eleven
tons per day to forty tons per day (limited to four tons per day, or 10% of permitted capacity, of medical waste treatment).
The possibility of postal work interruptions would adversely affect the disposal element of the Company’s business.
Sharps currently transports (from the patient or user to the Company’s treatment facility) the majority of its disposal
products using the USPS, therefore, any long-term interruption in USPS delivery services would disrupt the disposal
element of the Company’s business. Postal delivery interruptions are rare. Additionally, since USPS employees are federal
employees, such employees may be prohibited from engaging in or continuing a postal work stoppage, although there can
be no assurance that such work stoppage can be avoided. As noted above, the Company entered into an arrangement with
UPS whereby UPS transports the Company’s Sharps Disposal by Mail System® products from the non-healthcare facility
end user to the Company’s owned treatment facility. The Company began selling a UPS product to select markets in fiscal
year 2007. Additionally, the Company is studying the feasibility of the use of a consolidator to transport the Sharps Disposal
By Mail System® products from the patient or user to the Company’s treatment facility.
The Company’s stock has experienced, and may continue to experience, price volatility and low trading volume.
The Company’s common stock has been listed on the The NASDAQ Capital Market (“NASDAQ”) under the symbol
“SMED” since May 6, 2009. The daily trading volumes for the Company’s common stock are, and may continue to be
relatively small compared to many other publicly traded securities. Since trading on the NASDAQ, the Company’s average
daily trading volume has been approximately 70,000 shares. It may be difficult for you to sell your shares in the public
market at any given time at prevailing prices, and the price of the Company’s common stock may, therefore, be volatile.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the date of this report, the Company did not have any unresolved staff comments.
ITEM 2. DESCRIPTION OF PROPERTY
Sharps currently leases 196,018 square feet of rentable (office and warehouse) space in Houston, Texas and College Park,
Georgia. The leases expiration dates range from February 2012 to January 2015.
The Company owns a disposal facility in Carthage, Texas for medical and pharmaceutical waste disposal. The facility
includes an incinerator with a maximum capacity of thirty tons per day (currently permitted to treat eleven tons per day of
medical waste), an autoclave capable of treating up to seven tons per day, an estimated 12,000 square foot building and 4.5
acres of land.
ITEM 3. LEGAL PROCEEDINGS
Ronald E. Pierce Matter
On June 14, 2004, the Company provided Mr. Ronald E. Pierce (“Mr. Pierce”), its then Chief Operating Officer, with notice
of non-renewal of his employment agreement. As such, July 14, 2004 was Mr. Pierce’s last day of employment. The
Company advised Mr. Pierce that under the terms of the employment contract no further compensation (including services)
was due. On July 15, 2008, the Company received a demand for arbitration from Mr. Pierce. The claim amount under the
demand for arbitration is $300,001. The Company has also received various letters from Mr. Pierce’s attorney advising that
Mr. Pierce is taking the position that the non-renewal of his employment agreement was not timely and, therefore, Mr.
8
Pierce was terminated without cause. Additionally, Mr. Pierce claims that the Company had no right to terminate him on the
anniversary date of his agreement without the obligation of paying Mr. Pierce as if he were terminated without cause. The
Company believes that notice of such non-renewal was timely, and that in accordance with Mr. Pierce’s employment
agreement, the Company was entitled to provide notice thirty days prior to the anniversary of its intent to terminate the
agreement, and no severance would therefore be due to Mr. Pierce.
The claim is currently in arbitration with a decision expected in the quarter ended March 31, 2010.
The Company believes it has meritorious defenses against Mr. Pierce’s claims (including among others, the Company’s
belief that the claim to arbitrate is time barred) and believes that a material loss is remote and therefore has not recorded a
liability related to this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended June 30, 2009, no matter was submitted by the Company to a vote of its stockholders
through the solicitation of proxies or otherwise.
9
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information: Beginning May 6, 2009, the Company’s common stock has been quoted on NASDAQ under the
symbol “SMED”. Previously, the Company’s common stock was quoted on the over-the-counter (“OTC”) Bulletin Board
under the symbol “SCOM”. The Company’s common stock had an average trading volume of approximately 267,000
shares traded per month during fiscal year 2009. Since trading on NASDAQ (May 6, 2009), the Company’s common stock
had an average trading volume of approximately 1,171,009 shares traded per month. The table below sets forth the high and
low closing prices of the Company’s common stock on the OTC Bulletin Board (July 1, 2008 through May 5, 2009) and
NASDAQ (May 6, 2009 through September 17, 2009) for each quarter within the last two fiscal years.
Fiscal Year Ended June 30, 2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended June 30, 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ending June 30, 2010
First Quarter (September 17, 2009)
Common Stock
High
Low
$
$
$
$
3.65
3.10
2.85
2.80
$
$
$
$
3.07
2.80
3.80
6.36
$
$
$
$
2.50
2.30
2.20
2.30
$
$
$
$
2.35
1.50
1.60
3.21
$
10.00
$
6.21
Stockholders: At September 17, 2009 there were 13,445,105 shares of common stock held by approximately 191 holders of
record with approximately 2,000 held in street name. The last reported sale of the common stock on September 17, 2009,
was $9.72 per share.
Dividend Policy: The Company has never declared nor paid any cash dividends on its common stock. The Company
currently intends to retain its cash generated from operations for working capital purposes and to fund the continued
expansion of its business and does not anticipate paying any dividends on our common stock in the foreseeable future.
Issuer Purchases of Equity Securities: The Company has no reportable purchases of equity securities.
10
Securities Authorized for Issuance under Equity Compensation Plans:
The following equity plan information is provided as of June 30, 2009:
Equity Compensation Plan Information
Plan Category
Equity compensation plans
approved by stockholders (1)(3)
Equity compensation plans not
approved by stockholders (2)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights (4)
(b)
1,254,960
$
1.28
215,000
$
0.90
Total
1,469,960
$
1.23
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
536,006
N/A
536,006
Notes:
(1) Represents stock options issued under the 1993 Sharps Compliance Corp. Stock Plan.
(2) Represents Board of Director approved options to purchase unregistered common stock of the Company.
(3) Includes the effect of 71,960 shares of Restricted Stock issued to Directors (i.e. vested and unvested).
(4) Weighted Average exercise price excludes the effect of 71,960 shares of Restricted Stock issued to Directors.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) the Company is not required to provide the information required by this Item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion and analysis presented below should be read in conjunction with the consolidated financial statements and
related notes appearing elsewhere in this Annual Report on Form 10-K. See “Information Regarding Forward Looking
Statements.”
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from the Company’s Consolidated Statements of
Income, expressed as a percentage of revenue:
11
Net revenues
Costs and expenses
Cost of revenues
Selling, general and administrative
Depreciation and amortization
Total costs and expenses
Income from operations
Total other income
Income tax expense (benefit)
Net income
Year Ended June 30,
2009
2008
100%
(48%)
(33%)
(2%)
(83%)
17%
0%
(4%)
21%
100%
(60%)
(37%)
(3%)
(100%)
0%
1%
0%
1%
YEAR ENDED JUNE 30, 2009 COMPARED TO YEAR ENDED JUNE 30, 2008
Total revenues for the fiscal year ended June 30, 2009 of $20,297,207 increased by $7,456,296, or 58%, over the total
revenues for the fiscal year ended June 30, 2008, of $12,840,911. Billings by market are as follows:
2009
(Unaudited)
Year Ended June 30,
2008
(Unaudited)
Variance
(Unaudited)
$
$
$
BILLINGS BY MARKET:
Health Care
Government
Retail
Pharmaceutical
Professional
Hospitality
Non-Mailable
Commercial
Agriculture
Other
Subtotal
7,454,100
6,254,346
1,932,951
1,558,211
1,058,759
916,850
517,227
479,255
360,115
143,300
20,675,114
(377,907)
20,297,207
7,293,267
204,403
1,124,040
889,766
748,919
1,202,330
457,788
617,390
502,878
144,120
13,184,901
(343,990)
12,840,911
160,833
6,049,943
808,911
668,445
309,840
(285,480)
59,439
(138,135)
(142,763)
(820)
7,490,213
(33,917)
7,456,296
GAAP Adjustment *
Revenue Reported
$
$
$
*Represents the net impact of the revenue recognition adjustment required to arrive at reported GAAP revenue. Customer billings include
all invoiced amounts associated with products shipped during the period reported. GAAP revenue includes customer billings as well as
numerous adjustments necessary to reflect, (i) the deferral of a portion of current period sales and (ii) recognition of certain revenue
associated with products returned for treatment and destruction. The difference between customer billings and GAAP revenue is reflected
in the Company’s balance sheet as deferred revenue. See Note 2 “Revenue Recognition” in “Notes to Consolidated Financial
Statements”.
The increase in revenues is primarily attributable to increased billings in the Government ($6,049,943), Retail ($808,911),
Pharmaceutical ($668,445), Professional ($309,840), Health Care ($160,833) and Non-Mailable ($59,439) markets. These
increases were partially offset by decreased billings in the Hospitality ($285,480), Agriculture ($142,763) and Commercial
($138,135) markets. The increase in the Government market is a result of $6.0 million in billings recorded in the third and
fourth quarters of fiscal year 2009 related to the sale of the Company’s Sharps®MWMS™ to an agency of the United States
Government under the contract announced in February 2009. The increase in the billings in the Retail market is a result of,
(i) increased market and customer penetration, (ii) a strong and early start to the 2009 flu shot season (i.e., purchases of the
12
Sharps Disposal By Mail Systems® by retail clinics who use the products to collect, store and properly dispose of syringes
used to administer flu and year-round shots) and (iii) increased purchases of the Sharps Disposal By Mail Systems® by
community support programs, primarily in California. The increase in Pharmaceutical market billings is due to the
continued sale of the Company’s Sharps Disposal By Mail System® products to pharmaceutical manufacturers for use in
their patient support and compliance programs. The increase in the Health Care market billings is related to the growing
number of patients in the healthcare industry and the success of the Company’s recent expansion of its distributor network
in the home infusion market. The increase in the Professional market billings is being driven by higher demand for the
Company’s products as professional offices (doctors, dentists, veterinarians, etc.) are made aware of the Company’s Sharps
Disposal By Mail System® products as cost-effective and convenient alternatives to the traditional medical waste pick up
service. The decrease in the Hospitality market billings is a result of a large order of Biohazard Spill Clean-Up Kits fulfilled
during the first and second quarters of fiscal year 2008. The decrease in the Agriculture market is primarily attributable to
decreased demand of the Sharps Disposal by Mail System by a customer who provides the product to facilitate the disposal
of syringes used to inject dairy cattle due to growing public concern over the use of hormones. The decrease in the
Commercial market is a result of several large orders in fiscal year 2008.
Cost of revenues for the year ended June 30, 2009 of $9,840,965 was 48.5% of revenues. Cost of revenues for the year
ended June 30, 2008 of $7,770,366 was 60% of revenues. The higher gross margin for the fiscal year ended June 30, 2009
of 51.5% (versus 39.5% for the prior fiscal year) was a result of (i) the higher revenue (i.e. higher coverage of fixed cost
components in cost of goods sold, or operating leverage) and (ii) the mix of products and services sold in fiscal year 2009
versus fiscal year 2008.
Selling, general and administrative (“S, G & A”) expenses for the twelve months ended June 30, 2009 of $6,092,308,
increased by $1,309,776, or 27%, over the S, G & A expenses for the twelve months ended June 30, 2008. The increase in
S, G & A expense is primarily due to higher, (i) non-cash 123(R) stock based compensation expense of $332,073, (ii)
accrual for management incentive compensation of $329,000, (iii) compensation and benefit expense of $285,971, (iv)
professional fees of $162,988, (v) investor relations expenses of $59,378, (vi) expenses related to the offsite server hosted
facility which facilitates security and disaster recovery, server backup services and enhanced internet service of $59,806,
(vii) NASDAQ listing-related expenses of $55,000, (viii) housing-related costs for the Company’s former President and
Chief Opearting Officer (“COO”) of $50,860, (ix) payroll taxes of $33,591, (x) costs related to software post-
implementation support of $27,300, (xi) property and casualty insurance expenses of $19,801, (xii) facility expenses of
$18,209 and (xiii) general office expenses of $17,734. The increase in non-cash 123(R) stock-based award expense was
primarily due to the expense associated with the award of restricted stock in October 2008 to the Company’s former
President and COO and the award of options in November 2008 to the Chief Financial Officer and the Senior Vice
President of Sales. The increase in compensation expense is due primarily to the hiring of the former President and COO in
October 2008 (departed in April 2009), increased headcount to support the growth experienced by the Company and
increased sales and marketing-related activities. The increase in professional fees was a result of expenses associated with,
(i) various regulatory filings, (ii) outside consultation related to the recent U.S. Government contract award, (iii) Form S-8
(Sharps Compliance Corp. 1993 Stock Plan) preparation and related filing expenses, and (iv) legal fees associated with the
Ronald Pierce arbitration and general corporate matters. Payroll taxes increased resulting from (i) increased compensation
expense and corresponding Company paid portion of payroll tax, (ii) the Company portion of payroll taxes generated from
the imputed income related to the October 2008 restricted stock award to the Company’s former President and COO (83(b)
election) and (iii) the Company portion of payroll taxes generated by the imputed income related to the exercise of
employee stock options.
During the fourth quarter of fiscal year 2009, the Company recorded a special charge of $512,372, or $0.02 per diluted
share, which represents expenses incurred with the resignation and corresponding termination of employment of the
Company’s former President and COO. The special charge consists of (i) non-cash 123(R) expense of $300,909 (resulting
from accelerated vesting of restricted stock awards), (ii) severance-related items totaling $143,720 (including severance pay
and insurance coverage) and (iii) a cash payment of $67,743. During the fiscal year ended June 30, 2008, the Company
recorded a special charge of $67,541, $0.00 per diluted share, for severance related costs incurred in conjunction with the
termination of a sales person (former Senior Vice President of Sales and Marketing).
The Company generated operating income of $3,464,007 for the year ended June 30, 2009 compared to an operating loss of
$696 for the year ended June 30, 2008. The operating margin was 17.1% for the year ended June 30, 2009 compared to
0.0% for the year ended June 30, 2008. The increase in operating income and operating margin is a result of the above
mentioned increase in revenue and operating leverage inherent in the Company’s business model.
13
The Company generated income before tax of $3,497,239 (17.2% of revenue) for the year ended June 30, 2009 versus a
pre-tax income of $85,019 (1% of revenue) for the year ended June 30, 2008. The increase in pre-tax income is a result of
higher operating income (discussed above).
The Company generated net income of $4,197,090 for the year ended June 30, 2009 compared to net income of $81,573 for
the year ended June 30, 2008. The increase in net income is a result of higher operating income (discussed above) and the
reduction in the deferred tax valuation allowance of $1,806,292 and corresponding credit to tax expense recorded in the
quarter ending December 31, 2008 which was a result of the Company’s evaluation of the future realization of deferred tax
assets and related valuation allowance.
The Company reported diluted earnings per share of $0.30 for the year ended June 30, 2009 versus diluted earnings per
share of $0.01 for the year ended June 30, 2008. The increase in diluted earnings per share is a result of higher net income
(discussed above).
PROSPECTS FOR THE FUTURE
its
the
new
issued
proper
disposal
(“EPA”)
guidelines
The Company continues to take advantage of the many opportunities in the markets served as communities, consumers,
government and industries become more aware of the proper disposal of medical sharps (syringes, lancets, etc.) and unused
dispensed medications. This education process was enhanced in March 2004 when the U. S. Environmental Protection
Agency
(see
for
www.epa.gov/epaoswer/other/medical/sharps.htm). Additionally, in July 2006 both the states of California and
Massachusetts passed legislation designed to mandate appropriate disposal of sharps waste necessary to protect the general
public and workers from potential exposure to contagious diseases and health and safety risks. Currently there are a total of
seven states with legislation banning the disposal of used syringes in the trash, five states considering similar legislation,
while the remaining states operate under the EPA guidance noted above. In August 2008, the U.S. House of
Representatives and U.S. Senate introduced bills 3251 and 1909, respectively, which would provide for Medicare
reimbursement, under part D, for the safe and effective disposal of used needles and syringes. Among the methods of
disposal recommended as part of the above noted regulatory actions are mail-back programs such as those marketed by the
Company. The Company estimates that there are an estimated two to three billion used syringes disposed of in the United
States outside of the hospital setting. Additionally, the Company estimates that it would require 30 to 40 million Sharps
Disposal by Mail System® products to properly dispose of all such syringes, which would equate to a $1 billion small
quantity generator market opportunity. Based upon the current level of sales, the Company estimates that this $1 billion
market has only been penetrated by approximately 1% or less.
of medical
sharps
The Company continues to develop new products and services including the Sharps® MWMS™, the RxTakeAway™ line
of products and 18 gallon Medical Professional Sharps Disposal by Mail System®. The Company continues to develop
products and services designed to facilitate the proper and cost effective disposal of medical waste generated outside the
hospital and large healthcare facilities and of unused dispensed medications. The Company believes its future growth will
be driven by, among other items, (i) the positive impact and awareness created by the existing and above noted regulatory
actions as well as additional potential future legislation, (ii) the effects of the Company’s extensive direct marketing efforts
and (iii) the Company’s leadership position in the development and sale of products and services designed to properly and
cost effectively dispose of medical waste generated outside the hospital and large healthcare setting and unused dispensed
medications..
Demand for the Company’s primary product, the Sharps Disposal by Mail System®, which facilitates the proper and cost-
effective disposal of medical waste including hypodermic needles, lancets and other devices or objects used to puncture or
lacerate the skin (referred to as “sharps”), has been growing rapidly because of its cost-effective and convenient mail-back
component and unique data tracking feature. In addition, targeted opportunities continue to expand as a result of, (i)
legislation mandating the proper disposal of sharps, (ii) the growing awareness of the need to properly handle sharps
medical waste for safety and environmental concerns, (iii) the significant increase in self-injectable medications and (iv) the
changing paradigm in the healthcare industry.
The Company anticipates a strong flu shot business (included in the Retail market billings) in light of the global concern
over the H1N1 flu virus. While the flu shot business traditionally positively impacts the quarter ended September 30, the
Company believes that both the September 30, 2009 and December 31, 2009 quarters could be positively impacted by the
flu shot season. Additionally, the Company recorded higher flu shot related billings in the quarter ended June 30, 2009 in
conjunction with the early start of the flu shot season related orders.
14
The Company is actively marketing its Sharps®MWMS™ to federal, state and local agencies as well as to large
corporations. On February 2, 2009, the Company announced a $40 million contract award (the “U.S. Government
Contract”) award to provide its Sharps®MWMS™ to an agency of the United States Government. The total contract is
valued at approximately $40 million and is expected to be executed over a five year period. The Company has received a
purchase order for $28.5 million which represents products and services to be provided during the first contract year of
which $3.0 million was billed in the quarter ended March 31, 2009 and $3 million in the quarter ended June 30, 2009. The
following four option years represent payment for program maintenance (see description of Services below).
The Sharps®MWMS™, a Medical Waste Management System, is a comprehensive medical waste solution which includes
an array of products and services necessary to effectively collect, store and dispose of medical waste in the alternate site
market (i.e., outside of the hospital or large healthcare facility setting) . The System, which is designed for rapid
deployment, features the Sharps Disposal By Mail System® products (the “Products”) combined with warehousing,
inventory management, training, data and other services (the “Services”) necessary to provide a comprehensive solution.
The Sharps®MWMS™ is designed to be an integral part of governmental and commercial emergency preparedness
programs.
The Company recognizes revenue for the Product portion of the contract in accordance with the revenue recognition policy
for the Sharps Disposal By Mail System® products. The Services portion of the contract, described above, is recognized as
revenue as services are performed.
The Company recognized $3 million from the above mentioned contract in the quarter ended March 31, 2009 and $3
million in the quarter ended June 30, 2009. Based upon the current production schedule, the Company expects to recognize
revenue of about $11.1 million in the first fiscal year 2010 quarter ending September 30, 2009 and an additional $11.5
million of revenue in the second fiscal year 2010 quarter ending December 31, 2009. The remaining $11.5 million is
expected to be earned over the fiscal years 2011 through 2014.
The Company serves many markets including, but not limited to, Healthcare, Government, Professional, Pharmaceutical,
Industrial, Agriculture and Hospitality. As shown in the results for the fiscal year ended June 30, 2009, the Company has
not experienced any downturn in its overall business, rather an increase in the majority of markets in which it serves. Order
activity and purchase trends remain positive. Additionally, the Company (i) expects a very strong flu shot business for the
2009 flu season as a result of the recent concerns regarding the H1N1 virus (as discussed above) and (ii) believes it will
experience significant growth over the next two quarters (ending September 30, 2009 and December 31, 2009) as it
continues to execute on its recently announced $40 million U.S. Government project. While the Company’s current
earnings, cash flows and liquidity are strong, they are expected to increase significantly over the next two quarters. The
Company currently has no debt, an undrawn $2.5 million line of credit and does not expect to raise funds (debt or equity)
for the foreseeable future.
The above amounts are estimates only and are subject to change. Although the Company believes the amounts above to be
reasonable based upon its current project plan, it makes no assurances regarding the actual recognition of revenue by fiscal
year, which could vary significantly from that noted above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $2,756,651 to $4,791,870 at June 30, 2009 from $2,035,219 at June 30, 2008. The
increase in cash is due to cash generated by operating activities of $4,795,918 plus proceeds from the exercise of stock
options of $451,470 and excess tax benefits from stock-based award activity of $15,036 partially offset by additions to
property and equipment (i.e. capital expenditures) and intangible assets of $2,505,773.
Accounts receivable increased by $422,440 to $1,606,415 at June 30, 2009 from $1,183,975 at June 30, 2008. The increase
is primarily due to a $426,000 billing in the fourth quarter of the 2009 fiscal year related to the launch of the Company’s
latest patient support and compliance program for a major pharmaceutical manufacturer.
Inventory increased by $1,701,643 to $2,282,504 at June 30, 2009 from $580,861 at June 30, 2008. The increase in
inventory is attributable to (i) the production of products in conjunction with the U.S. Government Contract (ii) the build up
15
of inventory in advance of the anticipated growth in the 2009 flu season and (iii) bulk purchases of Sharps Secure® and
Pitch-It™ IV Poles which are manufactured overseas (six to eight weeks of product sales ordered at a time).
Deferred income tax benefits of $3,123,742 were recorded in the quarter ended December 31, 2008 due to the Company’s
decision to reduce the deferred tax valuation allowance to zero. The decision was made after evaluation of the following
circumstances (i) recent $40 million U.S. Government contract award to the Company and the corresponding anticipated
taxable income, (ii) the anticipated taxable income for third and fourth quarters of fiscal 2009 and the full fiscal year 2010
and (iii) the expected utilization in fiscal 2009 and 2010 of the remaining net operating loss carry forward. At the fiscal
year ended June 30, 2009 the deferred income tax benefit balance was $2,138,007.
Property and equipment increased by $2,069,396 to $3,445,053 at June 30, 2009 from $1,375,657 at June 30, 2008 due to
capital expenditures of $2,461,085 partially offset by depreciation expense of $391,689. The capital expenditures are
attributable primarily to, (i) warehouse racking, warehouse equipment and assembly equipment of $973,668 related to the
expansion of the Company’s warehouse facilities and corresponding growth, (ii) autoclave installation of $494,085, (iii)
new operating and accounting system software implementation and enhancement fees of $389,945, (iv) treatment facility
improvements of $371,873, (v) molds, dies and printing plates for production of $98,231, (vi) computer and phone
equipment of $51,533, (vii) office furniture and equipment of $44,352 and (viii) other capital expenditures of $37,398.
Accounts payable increased by $1,720,723 to $2,499,146 at June 30, 2009 from $778,423 at June 30, 2008. The increase is
a result of additional raw materials purchases and equipment needed to facilitate growth in the Company’s fourth quarter of
fiscal year 2009.
Accrued liabilities increased by $755,618 to $1,188,589 at June 30, 2009 from $432,971 at June 30, 2008. The increase is a
result of (i) accrual for management incentive compensation of $329,000 recorded in June 2009, (ii) accrual for customer
rebates of approximately $140,000, (iii) accrual for special charge related costs of $78,000, (iv) accrued federal (AMT) and
Georgia state income taxes of $58,143, (v) increase in year-end payroll accrual of $41,034 and (vi) accrued sales-related
commissions of $36,894.
Stockholder’s equity increased by $6,684,852 from $2,885,536 to $9,570,388. This increase is attributable to, (i) net
income for the year ended June 30, 2009 of $4,197,090, (ii) the increase in additional paid-in capital of $1,317,450
resulting from the reduction of the deferred tax valuation allowance from tax benefits of stock compensation was recorded
in the quarter ended December 31, 2008 (iii) the effect of the exercise of stock options to purchase 435,100 common stock
with proceeds of $451,470 (average exercise price of $1.04) to the Company, (iv) the effect on equity of SFAS 123R non-
cash stock-based compensation expense of $703,806 and (v) the excess tax benefits from stock-based award activity of
$15,036.
Management believes that the Company’s current cash resources (cash on hand and cash generated from operations) along
with its $2.5 million line of credit with JPMorgan Chase Bank, N.A. will be sufficient to fund operations for the twelve
months ending June 30, 2010. Terms of the line of credit are expected to be renewed in March 2010 under similar terms
currently in place.
Disposal Facility
In January 2008, the Company purchased its previously leased disposal facility in Carthage, Texas. The purchase included
an incinerator with a maximum capacity of thirty tons per day, a 12,000 square foot building and 4.5 acres of land. The
Company incinerator is currently permitted at a capacity of eleven tons per day.
In February 2009, the Company installed an autoclave system and technology capable of treating up to seven tons per day
of medical waste at the same facility. Autoclaving is a process that treats medical waste with steam at high temperature and
pressure to kill pathogens. The autoclave is a technology that is a cost-effective alternative to traditional incineration. It
also supplements the disposal treatment capacity of the Company and is an integral part of the disposal operations as the
Company utilizes both incineration and autoclave technology in its day-to-day operations. The autoclave system is not
impacted by the EPA amended Clean Air Act (discussed below).
With the addition of the autoclave, the Company believes it owns one of only approximately ten permitted commercial
disposal facilities in the country capable of treating all types of medical waste.
16
In November of 2005 and September of 2009, the EPA amended the Clean Air Act which will affect the operations of the
incineration facility located in Carthage, Texas. The regulation modifies the emission limits and monitoring procedures
required to operate an incineration facility. The new rules will necessitate changes to the Company’s owned incinerator and
pollution control equipment at the facility or require installation of an alternative treatment method to ensure compliance.
Such change would require the Company to incur significant capital expenditures in order to meet the requirements of the
regulations. The regulation allows a minimum period of three years and a maximum of five years to comply after the date
the final rule was published. The Company has studied the current amended EPA Clean Air Act and its options, and
decided in the interim to move forward with the process of adding alternative technology, autoclaving, which meets the
EPA Clean Air Act requirements (see above), for medical waste disposal which became fully operational in February 2009
at its current facility in Carthage, Texas. Autoclaving is a process that treats regulated waste with steam at high temperature
and pressure to kill pathogens. Combining the autoclaving with a shredding or grinder process allows the waste to be
disposed in a landfill operation. The Company believes autoclaving is environmentally cleaner and a less costly method of
treating medical waste than incineration. Due to its continued growth, the Company has decided that it will incur additional
capital expenditures needed in order to meet the new regulations. The additional capital expenditures are estimated to range
from approximately $1.0 to approximately $2.5 million and would increase its permitted incineration capacity from eleven
tons per day to forty tons per day (limited to four tons per day, or 10% of permitted capacity, of medical waste treatment).
INFLATION
The Company does not believe that inflation has had a material effect on the results of operations during the past three
years. However, there can be no assurance that the Company’s business will not be affected by inflation in fiscal year 2010
and beyond.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables set forth selected quarterly information for fiscal years 2009 and 2008. We believe that all necessary
adjustments have been included in the amounts below to present fairly the results of such periods.
Total revenues
Cost of revenues
Operating income (loss)
Net income (loss)
Net income (loss) per share - diluted
Weighted average shares-diluted
Quarter Ended
September 30,
2007
3,391,112
1,966,318
220,299
241,604
0.02
13,535,520
$
$
$
$
$
December 31,
2007
3,750,802
2,154,672
354,368
379,904
0.03
13,494,251
$
$
$
$
$
March 31, 2008
$
$
$
$
$
2,927,700
1,799,514
(103,325)
(83,589)
(0.01)
12,478,315
June 30, 2008
$
2,771,297
$
1,849,862
$
(472,038)
$
(456,346)
(0.04)
$
12,561,337
Total revenues
Cost of revenues
Operating income (loss)
Net income
Net income per share - diluted
Weighted average shares-diluted
Quarter Ended
September 30,
2008
4,269,536
2,420,360
609,842
605,341
0.04
13,703,683
$
$
$
$
$
December 31,
2008
3,369,646
2,081,422
(232,646)
1,584,872
0.11
13,839,779
$
$
$
$
$
March 31, 2009
$
$
$
$
$
5,970,534
2,436,131
1,984,260
1,330,349
0.09
14,083,630
June 30, 2009
$
6,687,491
$
2,903,052
$
1,102,551
$
676,528
0.05
$
14,355,354
17
The quarter ended December 31, 2008 includes a $1.8 million benefit from the reduction in the deferred tax valuation
allowance and corresponding credit to tax expense. See Note 5 of the Notes to Consolidated Financial Statements for further
information regarding this item.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition: The Company complies with the Securities and Exchange Commission’s (“SEC”) Staff Accounting
Bulletin (“SAB”) No. 101, “Revenue Recognition”, which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. Under SAB No. 101, certain products offered by the Company have
revenue producing components that are recognized over multiple delivery points (Sharps Disposal by Mail Systems®,
referred to as “Mailback” and Sharps Pump Return Boxes, referred to as “Pump Returns”) and can consist of up to three
separate elements as follows: (1) the sale of the container system, (2) the transportation of the container system and (3) the
treatment and disposal (incineration) of the container system. The individual fair value of the transportation and
incineration services are determined by the sales price of the service offered by third parties, with the fair value of the
container being the residual value. Revenue for the sale of the container is recognized upon delivery to the customer, at
which time the customer takes title and assumes risk of ownership. Transportation revenue on Mailbacks is recognized
when the customer returns the mailback container system and the container has been received at the Company’s treatment
facility. The Mailback container system is mailed to the incineration facility using the USPS. Incineration revenue is
recognized upon the destruction and certification of destruction having been prepared on the container. Since the
transportation element and the incineration elements are undelivered services at the point of initial sale of the container, the
Mailback and incinerator revenue is deferred until the services are performed. The current and long-term portions of
deferred revenues are determined through regression analysis and historical trends. Furthermore, through regression
analysis of historical data, the Company has determined that a certain percentage of all container systems sold may not be
returned. Accordingly, a portion of the transportation and incineration elements are recognized at the point of sale.
Uncertain Tax Positions: The Company adopted the provisions of FASB issued Interpretation No. 48 ("FIN 48"),
Accounting for Uncertainty in Income Taxes, - an interpretation of FASB Statement No. 109, effective July 1, 2007. The
adoption of FIN 48 did not have a material effect on the Company’s consolidated financial statements. The Company
classifies interest and penalties associated with the payment of income taxes in the Other Income (Expense) section of its
consolidated statements of income. At June 30, 2009 and 2008, the Company did not have any FIN48 liability or gross
recognized tax benefit. Tax return filings which are subject to review by local tax authorities by major jurisdiction are as
follows:
• United States – fiscal years ended June 30, 2006 , 2007, 2008 and 2009
• State of Texas – fiscal years ended June 30, 2005, 2006, 2007, 2008 and 2009
Stock-Based Compensation: The Company accounts for share-based compensation under the provisions of Statement of
Financial Accounting Standards No. 123R, (“SFAS 123R”) Share-Based Payment, which establishes accounting for equity
instruments exchanged for employee services. Under the provisions of SFAS 123R, share-based compensation cost is
measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the
employee’s requisite service period (generally the vesting period of the equity grant). Share-based compensation expense,
included in general and administrative expenses in the Company’s consolidated statement of operations for the fiscal years
ended June 30, 2009 and June 30, 2008, was $703,806 and $70,823, respectively. SFAS 123R requires any reduction in
taxes payable resulting from tax deductions that exceed the recognized tax benefit associated with compensation expense
(excess tax benefits) to be classified as financing cash flows. The Company included $15,036 and $9,626 of excess tax
benefits in our cash flows from financing activities for the fiscal years ended June 30, 2009 and June 30, 2008, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 (“SFAS 157”), Fair Value
Measurements, which defines fair value, establishes a framework for measuring fair value and expands the related
disclosure requirements; SFAS 157 is effective for fiscal years beginning after November 15, 2007 and for interim periods
within those years. In February, 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2. This FSP defers the
effective date of SFAS 157 for non-financial assets and liabilities on a recurring basis (at least annually) to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP.
18
The Company adopted SFAS 157 effective July 1, 2008, except for non financial assets and liabilities as permitted by FSP
SFAS 157-2, and the adoption of such statement did not have a significant impact on our consolidated results of operations
or financial position.
In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and
Financial Liabilities — Including an Amendment of FASB Statement No. 115.” This statement permits entities to choose to
measure many financial instruments and certain other items at fair value that are not currently required to be measured at
fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. The Company adopted SFAS 159 effective July 1, 2008.
The Company elected to not fair value any additional financial instruments and thus the adoption of the standard did not
have a material impact on its consolidated financial position and consolidated results of operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”), which establishes principles and
requirements for subsequent events. This statement defines the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, and the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements. SFAS 165 also sets forth the disclosures that an entity
should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for the interim or
annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have an impact on the Company’s
consolidated financial position, results of operations or cash flows. We evaluate events and transactions that occur after the
balance date but before the financial statements are issued. We evaluated such events and transactions through September
22, 2009, when the consolidated financial statements were electronically filed with the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide the
information required by the Item.
ITEM 8. FINANCIAL STATEMENTS
The financial statements of the Company and the notes thereto, and the related report of the Company’s independent
registered public accounting firm thereon are referenced as pages F-1 to F-17 and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the
Exchange Act, that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information
is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. The Company conducted an
evaluation (the "Evaluation"), under the supervision and with the participation of the CEO and CFO, of the effectiveness of
the design and operation of our disclosure controls and procedures ("Disclosure Controls") as June 30, 2009 pursuant to
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on this Evaluation, the CEO and CFO concluded that our
Disclosure Controls were effective as of June 30, 2009.
Changes in Internal Controls
During the quarter ended June 30, 2009, there were no changes in the Company’s internal controls over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act), that have materially affected, or are reasonably likely to
materially affect the Company’s internal control over financial reporting.
19
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that the Disclosure Controls and internal
controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of
a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management or board override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
CEO and CFO Certifications
Appearing immediately following the Signatures section of this report are certifications of the CEO and the CFO. The
Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302
Certifications). This Item of this Annual Report on Form 10-K, which you are currently reading is the information
concerning the Evaluation referred to in the Section 302 Certifications and this information, should be read in conjunction
with the Section 302 Certifications for a more complete understanding of the topics presented.
Management's Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's internal control over
financial reporting is a process designed to provide reasonable assurance to our management and board of directors
regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in
accordance with accounting principles generally accepted in the United States.
The internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All
internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error
and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can
provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the internal control over financial reporting as of June 30, 2009.
In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on the assessment, the Company’s management
concluded that, as of June 30, 2009, the Company's internal control over financial reporting was effective based on those
criteria.
20
This annual report does not include an attestation report of our independent registered public accounting firm regarding
internal control over financial reporting. Management's report was not subject to attestation by our independent registered
public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide
only management's report in this annual report.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item is incorporated herein by reference to the information under the caption
“Management” of the Registrant’s definitive Proxy Statement to be filed pursuant to Regulation 14A with the SEC relating
to its Annual Meeting of Stockholders to be held on November 19, 2009.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, as amended, requires the Company’s executive officers and directors, and persons who
beneficially own more than 10% of the Company’s equity securities, to file reports of security ownership and changes in
such ownership with the SEC. Officers, directors and greater than 10% beneficial owners also are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, during the
fiscal year ended June 30, 2009, all Section 16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
The Audit Committee
The Audit Committee is comprised of certain directors of the Company who are not employees of the Company or any of its
subsidiaries. Messrs. Parker (Chairman), Zerrillo and Holmes are the current members of the Audit Committee. The Audit
Committee, among other things, meets with the independent auditors and management representatives, recommends to the
Board of Directors appointment of independent auditors, approves the scope of audits, interim reviews and other services to
be performed by the independent auditors, approves in advance all permissible non-audit services, considers whether the
performance of any professional services by the auditors other than services provided in connection with the audit function
could impair the independence of the auditors and reviews the results of audits and interim reviews and the accounting
principles applied in financial reporting and financial and operational controls. The independent auditors have unrestricted
access to the Audit Committee and vice versa.
The Board of Directors
The Company’s Board of Directors has determined that Mr. Parker is an independent director who qualifies as an audit
committee accounting expert, as that term is defined in Item 401(h) of Regulation S-K under the Securities Act of 1933, as
amended.
The Company’s Board of Directors adopted a Code of Ethics for all of our directors, officers and employees, as defined in
Item 406 under the Securities Act of 1933, as amended. The Company’s Code of Ethics was previously an exhibit to the
Annual Report on Form 10-K. Individuals may also request a free copy of the Company’s Code of Ethics from the
Company’s investor relations department. Additionally, the Company posted its Code of Ethics on its website
(www.sharpsinc.com). The Company intends to disclose any amendments to, or waivers from, the provisions of its Code of
Ethics within four business days of the amendment or waiver within Form 8-K.
21
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the information under the captions
“Management” and “Executive Compensation” of the Registrant’s definitive Proxy Statement to be filed pursuant to
Regulation 14A with the SEC, relating to its Annual Meeting of Stockholders to be held on November 19, 2009.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to the information under the captions “Security
Ownership of Management” and “Certain Beneficial Owners” of the Registrant’s definitive Proxy Statement to be filed
pursuant to Regulation 14A with the SEC, relating to its Annual Meeting of Stockholders to be held on November 19, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to the information under the caption “Certain
Relationships and Related Transactions” of the Registrant’s definitive Proxy Statement to be filed pursuant to Regulation
14A with the SEC, relating to its Annual Meeting of Stockholders to be held on November 19, 2009.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the Registrant’s definitive Proxy Statement to
be filed pursuant to Regulation 14A with the SEC relating to its Annual Meeting of Stockholders to be held on November
19, 2009.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number
2.1
3.1
3.2
Description of Exhibit
Agreement and Plan of Reorganization between U.S. Medical Systems, Inc., Sharps Compliance,
Inc. and its Stockholders, dated February 27, 1998 (incorporated by reference to Exhibit 2.1 to the
Registrant’s Current Report on Form 8-K, filed March 5, 1998).
Bylaws of Company (incorporated by reference from Exhibit 3.4 to Form 10-KSB, dated June 30,
1994).
Amended and Restated Certificate of Incorporation of U.S. Medical Systems, Inc. (incorporated
by reference from Exhibit 3.5 to the Registrant’s Transition Report on Form 10KSB40 filed on
September 29, 1998).
3.3
Certificate of Elimination of the Series A 10% Voting Convertible Preferred Stock of Sharps
4.1
4.2
10.1
Compliance Corp. (incorporated by reference from Exhibit 3.6 to Form 10-KSB, filed September
29, 1998).
Specimen Stock Certificate (incorporated by reference from Exhibit 4.4 to Form-10-KSB, filed
September 29, 1998).
See Exhibits 3.1, 3.2 and 3.3 for provisions of the Bylaws of the Company, the Articles of
Incorporation of the Company and the Certificate of Elimination defining the rights of holders of
common shares.
Employment Agreement by and between Sharps Compliance Corp. and Dr. Burt Kunik effective
January 1, 2003 (incorporated by reference from Exhibit 10.35 to Form 10-QSB, filed February
13, 2003).*
10.2
Executive Employment Agreement by and between Sharps Compliance Corp. and Ronald E.
Pierce dated July 14, 2003 (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual
Report on Form 10-KSB, filed September 26, 2003).*
22
10.3
Executive Employment Agreement by and between Sharps Compliance Corp. and David P. Tusa
dated July 14, 2003 (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report
on Form 10-KSB, filed September 26, 2003).*
10.4
Executive Employment Agreement by and between Sharps Compliance Corp. and Michael D.
10.5
10.6
Archer dated July 14, 2003 (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual
Report on Form 10-KSB, filed September 26, 2003).*
Exclusive Distributorship Agreement between Pro-Tec Containers, Inc. and Sharps Compliance,
Inc., dated April 1, 1998 (incorporated by reference from Exhibit 10.31 to Form 10-KSB, filed
September 29, 1998).
Purchase Agreement between Ivy Green Corporation and Sharps Compliance, Inc., dated June 19,
1998 (incorporated by reference from Exhibit 10.32 to Form 10-KSB, filed September 29, 1998).
10.7
Lease Agreement between Lakes Technology Center, Ltd. and Sharps Compliance, Inc., dated
10.8
10.9
August 1, 1998 (incorporated by reference from Exhibit 10.33 to Form 10-KSB, filed September
29, 1998).
Severance Agreement between C. Lee Cooke, Jr. and Sharps Compliance Corp. (formerly known
as U.S. Medical Systems, Inc.), dated September 2, 1998 (incorporated by reference from Exhibit
10.34 to Form 10-KSB, filed September 29, 1998).
Employment Agreement Amendment by and between Sharps Compliance Corp. and David P.
Tusa dated June 21, 2004 (incorporated by reference from Exhibit 991 to Form 10-QSB, filed
November 12, 2004).*
10.10
Employment Agreement Amendment by and between Sharps Compliance Corp. and David P.
10.11
Tusa dated August 19, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K, filed August 24, 2005).*
Credit Agreement dated March 27,2006, by and between Sharps Compliance Corp. and JPMorgan
Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed March 28, 2006).
10.12
Line of Credit Note dated March 27, 2006, by and between Sharps Compliance Corp. and
JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, filed March 28, 2006).
10.13
Security Agreement dated March 27, 2006, by and between Sharps Compliance Corp. and
JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K, filed March 28, 2006).
10.14
Lease Agreement dated as of July 13, 2006, between Sharps Compliance, Inc. and Warehouse
Associates Corporate Centre Kirby II, Ltd. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed July 14, 2006).
10.15
Lease Termination Agreement dated as of July 13, 2006, between Sharps Compliance, Inc.,
Warehouse Associates Corporate Centre Kirby, Ltd. and Warehouse Associates Corporate Centre
Kirby II, Ltd. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed July 14, 2006).
10.16
Amendment to Credit Agreement dated February 5, 2007, by and between Sharps Compliance
10.17
10.18
Corp. and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed February 5, 2007).
Note Modification Agreement dated February 5, 2007, by and between Sharps Compliance Corp.
and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K, filed February 5, 2007).
Restricted Stock Award Agreement dated July 2, 2007, by and between Sharps Compliance Corp.
and Ramsay Gillman (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K, filed July 2, 2007).
10.19
Letter Agreement by and between Sharps Compliance Corp. and David C. Mayfield dated April
10, 2007 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K, filed April 10, 2007).*
10.20
Letter Agreement by and between Sharps Compliance Corp. and Claude A. Dance dated
December 26, 2007 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report
on Form 8-K, filed December 26, 2007).*
23
10.21
Letter Agreement by and between Sharps Compliance Corp. and Al Aladwani dated March 24,
2008 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K,
filed March 12, 2008).*
10.22
Form of Restricted Stock Award Agreement dated June 9, 2008 (incorporated by reference to
10.23
10.24
10.25
10.26
10.27
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed June 9, 2008).
Employment Agreement by and between Sharps Compliance Corp. and John Grow dated October
27, 2008 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-
K, filed October 31, 2008).*
Lease Agreement dated as of January 30, 2009, between Sharps Compliance, Inc. and Investors,
LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,
filed February 3, 2009).
Lease Agreement dated as of January 30, 2009, between Sharps Compliance, Inc. and Park 288
Industrial, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed February 3, 2009).
Separation Agreement and Mutual Release of all Claims dated as of April 27, 2009 between
Sharps Compliance, Inc. and John Grow (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed May 1, 2009).*
Amended Lease Agreement dated as of May 27, 2009, between Sharps Compliance, Inc. and Park
288 Industrial, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K, filed June 2, 2009).
10.28
Sharps Compliance Corp. 1993 Stock Plan, as amended (incorporated by reference from Annex A
of the Registrant’s Proxy Statement on Schedule 14A, filed October 21, 2008).
14.10
Sharps Compliance Corp. Code of Ethics (incorporated by reference to Exhibit 14.1 to the
Registrant’s Current report on Form 10-KSB, filed September 20, 2004.
21.1
23.10
31.10
Subsidiaries of Sharps Compliance Corp. (filed herewith).
Consent of UHY LLP (filed herewith).
Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley
Act (filed herewith).
31.20
Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act
(filed herewith).
32.10
Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley
Act (filed herewith).
32.20
Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act
(filed herewith).
* This exhibit is a management contract or a compensatory plan or arrangement.
24
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: September 22, 2009
SHARPS COMPLIANCE CORP.
By: /s/ BURTON J. KUNIK
Dr. Burton J. Kunik
Chairman of the Board,
Chief Executive Officer and President
By: /s/ DAVID P. TUSA
David P. Tusa
Executive Vice President
Chief Financial Officer, Business
Development and Corporate Secretary
By: /s/ JOHN W. DALTON
John W. Dalton
Director
By: /s/ RAMSAY GILLMAN
Ramsay Gillman
Director
By: /s/ JOHN R. GROW
John R. Grow
Director
By: /s/ PARRIS H. HOLMES, JR.
Parris H. Holmes, Jr.
Director
By: /s/ F. GARDNER PARKER
F. Gardner Parker
Director
By: /s/ PHILIP C. ZERRILLO
Philip C. Zerrillo
Director
25
[THIS PAGE INTENTIONALLY LEFT BLANK]
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Registered Public Accounting Firm ...................................................................
F-2
Consolidated Balance Sheets as of June 30, 2009 and 2008 ...................................................................
F-3
Consolidated Statements of Income for the Years Ended June 30, 2009
and 2008 ..............................................................................................................................................
F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended
June 30, 2009 and 2008 .......................................................................................................................
F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 2009 and 2008 .........................
F-6
Notes to Consolidated Financial Statements ...........................................................................................
F-7
F- 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Sharps Compliance Corp. and Subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of Sharps Compliance Corp. (a Delaware
corporation) and subsidiaries (collectively the “Company”) as of June 30, 2009 and 2008, and the related
consolidated statements of income, stockholders’ equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
We were not engaged to examine management’s assertion about the effectiveness of the Company’s
internal control over financial reporting as of June 30, 2009 included in the accompanying annual report
on Form 10-K and, accordingly we do not express an opinion thereon.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Sharps Compliance Corp. and subsidiaries as of June 30,
2009 and 2008, and the consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ UHY LLP
Houston, Texas
September 22, 2009
F-2
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
2009
2008
CURRENT ASSETS
Cash and cash equivalents………………………………………………………… 4,791,870
Restricted cash………………………………………………………………………
Accounts receivable, net of allowance for doubtful accounts of $16,876 and
$15,301, respectively…………………………………………………………
1,606,415
Inventory…………………………………………………………………………… 2,282,504
Prepaid and other current assets……………………………………………………
775,958
Deferred income taxes………………………………………………………………
17,352
TOTAL CURRENT ASSETS…………………………………………………… 9,474,099
$
-
$
2,035,219
10,010
1,183,975
580,861
359,894
-
4,169,959
PROPERTY AND EQUIPMENT, net……………………………………………… 3,445,053
1,375,657
DEFERRED INCOME TAXES, non-current……………………………………… 2,120,655
-
INTANGIBLE ASSETS, net of accumulated amortization of $167,561 and
$140,801, respectively……………………………………………………………… 148,629
130,702
TOTAL ASSETS…………………………………………………………………… 15,188,436
$
$
5,676,318
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable…………………………………………………………………… 2,499,146
Accrued liabilities………………………………………………………………… 1,188,589
Deferred revenue…………………………………………………………………… 1,220,600
TOTAL CURRENT LIABILITIES……………………………………………… 4,908,335
$
$
778,423
432,971
1,063,016
2,274,410
LONG-TERM DEFERRED REVENUE……………………………………………
624,841
516,372
RENT ABATEMENT………………………………………………………………
84,872
-
TOTAL LIABILITIES…………………………………………………………… 5,618,048
2,790,782
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value per share; 20,000,000 shares authorized;
13,257,507 and 12,580,183 shares issued and outstanding, respectively………
132,575
Additional paid-in capital………………………………………………………… 11,706,331
Accumulated deficit………………………………………………………………… (2,268,518)
TOTAL STOCKHOLDERS' EQUITY…………………………………………… 9,570,388
125,802
9,225,342
(6,465,608)
2,885,536
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY……………………… 15,188,436
$
$
5,676,318
See accompanying notes to consolidated financial statements
F-3
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended June 30,
2009
2008
REVENUES……………………………………………………………… 20,297,207
$
$
12,840,911
COSTS AND EXPENSES
Cost of revenues…………………………………………………………
Selling, general and administrative……………………………………
Special charge…………………………………………………………
Depreciation and amortization…………………………………………
TOTAL COSTS AND EXPENSES…………………………………
9,840,965
6,092,308
512,372
387,555
16,833,200
7,770,366
4,782,532
67,541
221,168
12,841,607
OPERATING INCOME (LOSS)………………………………………
3,464,007
(696)
OTHER INCOME
Interest income…………………………………………………………
Other income ……………………………………………………………
TOTAL OTHER INCOME……………………………………………
27,244
5,988
33,232
INCOME BEFORE INCOME TAXES…………………………………
3,497,239
INCOME TAX EXPENSE (BENEFIT)
Current…………………………………………………………………
Deferred…………………………………………………………………
TOTAL INCOME TAX EXPENSE (BENEFIT)……………………
120,706
(820,557)
(699,851)
NET INCOME……………………………………………………………
$
4,197,090
85,259
456
85,715
85,019
3,446
-
3,446
$
81,573
NET INCOME PER COMMON SHARE
Basic…………………………………………………………………
$
0.33
$
0.01
Diluted…………………………………………………………………
$
0.30
$
0.01
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET
INCOME PER COMMON SHARE:
Basic…………………………………………………………………
12,907,688
Diluted………………………………………………………………… 13,996,207
12,313,160
13,540,381
See accompanying notes to consolidated financial statements
F-4
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity
Balances, July 1, 2007
11,998,453
$
119,985
$
8,596,321
$
(6,547,181)
$
2,169,125
Exercise of stock options
581,730
5,817
548,572
Stock-based
compensation
Excess tax benefit from
stock-based award
activity
Net Income
-
-
-
-
-
-
70,823
9,626
-
81,573
Balances, June 30, 2008
12,580,183
$
125,802
$
9,225,342
$
(6,465,608)
$
2,885,536
Exercise of stock options
435,100
4,351
447,119
Change in valuation
allowance related to tax
benefits of stock
compensation
Stock-based
compensation
-
-
-
-
1,317,450
703,806
Issuance of Restricted Stock
242,224
2,422
(2,422)
Excess tax benefit from
stock-based award
activity
Net Income
-
-
-
-
15,036
-
4,197,090
4,197,090
Balances, June 30, 2009
13,257,507
132,575
11,706,331
(2,268,518)
$
9,570,388
See accompanying notes to consolidated financial statements
F-5
-
-
-
554,389
70,823
9,626
81,573
-
-
-
-
-
451,470
1,317,450
703,806
-
15,036
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
2009
2008
$
CASH FLOWS FROM OPERATING ACTIVITIES
Net income………………………………………………………………… 4,197,090
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization……………………………………………
Stock based compensation expense………………………………………
Excess tax benefits from stock-based award activity……………………
Deferred tax benefit………………………………………………………
Changes in operating assets and liabilities:
Decrease in restricted cash………………………………………………
Decrease (increase) in accounts receivable………………………………
Increase in inventory……………………………………………………
Increase in prepaid and other current assets………………………………
Increase in accounts payable and accrued liabilities……………………
Increase in deferred revenue………………………………………………
NET CASH PROVIDED BY OPERATING ACTIVITIES……………
10,010
(392,625)
(1,701,643)
(445,879)
2,576,249
266,055
4,795,918
418,448
703,806
(15,036)
(820,557)
$
81,573
265,613
70,823
(9,626)
-
-
116,941
(216,856)
(143,978)
50,004
302,907
517,401
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment……………………………………
Additions to intangible assets……………………………………………
NET CASH USED IN INVESTING ACTIVITIES……………………
.
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations……………………………………
Excess tax benefits from stock-based award activity……………………
Proceeds from exercise of stock options…………………………………
NET CASH PROVIDED BY FINANCING ACTIVITIES………………
(2,461,085)
(44,688)
(2,505,773)
(1,102,366)
(76,174)
(1,178,540)
-
15,036
451,470
466,506
(1,809)
9,626
554,389
562,206
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT
2,756,651
(98,933)
CASH AND CASH EQUIVALENTS, beginning of year…………………
2,035,219
2,134,152
CASH AND CASH EQUIVALENTS, end of year………………………… 4,791,870
$
$
2,035,219
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid
$
11,488
$
8,257
See accompanying notes to consolidated financial statements
F-6
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
NOTE 1 - ORGANIZATION AND BACKGROUND
Organization: The accompanying consolidated financial statements include the financial transactions and accounts
of Sharps Compliance Corp. and its wholly owned subsidiaries, Sharps Compliance, Inc. of Texas (dba Sharps
Compliance, Inc.), Sharps e-Tools.com, Inc. (“Sharps e-Tools”), Sharps Manufacturing, Inc., Sharps Environmental
Services, Inc. (dba Sharps Environmental Services of Texas, Inc.) and Sharps Safety, Inc. (collectively, “Sharps” or
the “Company”). All significant intercompany accounts and transactions have been eliminated upon consolidation.
Business: Sharps is a leading provider of cost-effective disposal solutions for medical and pharmaceutical waste
generated outside the hospital and large healthcare facility setting. These solutions include Sharps Disposal by Mail
System®, RxTakeAway™, Sharps®MWMS™, Pitch-It™ IV Poles, Trip LesSystem®, Sharps Pump Return Box,
Sharps Enteral Pump Return Box, Sharps Secure®, Sharps SureTemp Tote®, IsoWash® Linen Recovery System,
Biohazard Spill Clean-Up Kit and Disposal System, Sharps e-Tools, Sharps Environmental Services and Sharps
Consulting.
Concentration of Customers: Although Sharps has experienced growth in revenues over the past few years, there is
an inherent concentration of credit risk associated with accounts receivable arising from sales to its major
customers. For the fiscal year ended June 30, 2009, four customers represented approximately 48% of revenues.
Those same four customers represented approximately 28%, or $503,735, of the total accounts receivable balance at
June 30, 2009. For the fiscal year ended June 30, 2008, four customers represented approximately 38% of
revenues. Those same four customers represented approximately 34%, or $402,723, of the total accounts receivable
balance at June 30, 2008. The Company may be adversely affected by its dependence on a limited number of high
volume customers. Management believes that the risks are mitigated by, (i) the contractual relationships with key
customers, (ii) the high quality and reputation of the Company and its products and (iii) the continued
diversification of the Company’s products and services into additional markets outside of its traditional Healthcare
customer base.
Currently, the majority of Sharps transportation is sourced with the United States Postal Service (“USPS”), which
consists of delivering the Sharps Disposal by Mail System® from the end user to the Company’s leased incineration
facility. The Company also has an arrangement with United Parcel Service Inc. (“UPS”) whereby UPS transports
the Company’s Sharps Disposal by Mail System® products from the end user (non-healthcare facility) to the
Company’s leased incineration facility. The Company began selling a UPS product to select customers in fiscal year
2007. Management believes the risk of dependence on the USPS is mitigated by (i) the new arrangement with UPS
and (ii) the long-standing business relationship with the USPS.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less at
the time of purchase to be cash equivalents.
The Company maintains funds in bank accounts that, at times, may exceed the limit insured by the Federal Deposit
Insurance Corporation, or “FDIC”. In October 2008, the FDIC increased its insurance from $100,000 per depositor
to $250,000, and to an unlimited amount for non-interest bearing accounts. The coverage increase, which is
temporary, extends through December 31, 2013. The Company also maintains funds in money market funds, which
are triple A rated by Standard & Poor’s and not insured by the FDIC. The risk of loss attributable to these
uninsured balances is mitigated by depositing funds only in high credit quality financial institutions. The Company
has not experienced any losses in such accounts.
F-7
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts Receivable: Accounts receivable consist primarily of amounts due to us from our normal business
activities. Accounts receivable balances are determined to be delinquent when the amount is past due based on the
contractual terms with the customer. We maintain an allowance for doubtful accounts to reflect the expected
uncollectibility of accounts receivable based on past collection history and specific risks identified among
uncollected accounts. Accounts receivable are charged to the allowance for doubtful accounts when we have
determined that the receivable will not be collected and/or when the account has been referred to a third party
collection agency. The Company has a history of minimal uncollectible accounts.
Inventory: Inventory consists primarily of finished goods and supplies held for sale and are stated at the lower of
cost or market using the average cost method. At June 30, 2009 total inventory was $2,282,504 of which
$1,212,099 was finished goods and $1,070,405 was raw materials. At June 30, 2008 total inventory was $580,861
of which $393,648 was finished goods and $187,213 was raw materials.
Property and Equipment: Property and equipment, including third party software and implementation costs, is stated
at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the
estimated useful lives of the assets. Additions, improvements and renewals significantly adding to the asset value or
extending the life of the asset are capitalized. Ordinary maintenance and repairs, which do not extend the physical or
economic life of the property or equipment, are charged to expense as incurred. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or
loss is reflected in the results of operations for the period.
In accordance with Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use, all programming, implementation, and costs incurred with developing internal-use
software are capitalized during the development project stage. External direct costs of materials and services
consumed in developing or obtaining internal-use computer software are capitalized.
The Company expenses costs associated with developing or obtaining internal-use software during the preliminary
project stage. Training and maintenance costs associated with system changes or internal-use software are expensed
as incurred. Additionally, the costs of data cleansing, reconciliation, balancing of old data to the new system,
creation of new/additional data and data conversion costs are expensed as incurred.
During the fiscal years ended June 30, 2009 and 2008, the Company recorded depreciation expense of $391,689 and
$245,139, respectively.
Intangible Assets: Intangible assets consist of, (i) permit costs related to the Company’s incineration facility in
Carthage, Texas, (ii) three patents, two acquired in June 1998 and one in November 2003 and (iii) defense costs
related to certain existing patents. The permit costs are being amortized over the estimated life of the incinerator
facility. The one patent acquired in November 2003 is being amortized over its estimated useful life of seventeen
years. During the fiscal years ended June 30, 2009 and 2008, the Company recorded amortization expense of
$26,759 and $20,474, respectively. Accumulated amortization at June 30, 2009 and 2008 was $167,561 and
$140,801, respectively. Future amortization for intangible assets is as follows: $27,928, $27,928, $27,927, $13,538,
$6,157 and $45,151 for the fiscal years ending June 30, 2010, 2011, 2012, 2013, 2014 and thereafter, respectively,
for a total amortization of $148,629.
Stock-Based Compensation: The Company accounts for share-based compensation under the provisions of
Statement of Financial Accounting Standards No. 123R, (“SFAS 123R”) Share-Based Payment, which establishes
accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123R, share-
based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is
recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity
F-8
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
grant). Share-based compensation expense, included in general and administrative expenses in the Company’s
consolidated statement of operations for the fiscal years ended June 30, 2009 and June 30, 2008, was $703,806 and
$70,823 respectively. SFAS No. 123R requires any reduction in taxes payable resulting from tax deductions that
exceed the recognized tax benefit associated with compensation expense (excess tax benefits) to be classified as
financing cash flows. The Company included $15,036 and $9,626 of excess tax benefits in our cash flows from
financing activities for the fiscal years ended June 30, 2009 and June 30, 2008, respectively.
The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input
assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected
option term, the expected volatility of the Company’s stock over the option’s expected term, the risk free interest
rate over the option’s expected term, and the Company’s expected annual dividend yield. The risk free interest rate
is derived using the U.S. Treasury yield curve in effect at date of grant. Volatility, expected life and dividend yield
are based on historical experience and activity. The Company believes that the valuation technique and the
approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the
Company’s stock options granted during the fiscal year ended June 30, 2009. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by persons who receive equity awards.
The fair value of the Company’s stock options was estimated on the grant date using the Black-Scholes option-
pricing model with the following assumptions:
Weighted average risk-free interest rate
Weighted average expected volatility
Weighted average expected life (in years)
Dividend yield
Year Ended June 30,
2009
2.1%
61%
3.09
-
2008
3.3%
88%
5.2
-
For stock-based awards granted on or after July 1, 2006, the Company considers an estimated forfeiture rate for
stock options and RSUs based on historical experience and the anticipated forfeiture rates during the future contract
life.
Revenue Recognition: The Company complies with the SEC’s Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue Recognition”, which provides guidance related to revenue recognition based on interpretations and
practices followed by the SEC. Under SAB No. 104, certain products offered by the Company have revenue
producing components that are recognized over multiple delivery points (Sharps Disposal by Mail Systems, referred
to as “Mailbacks” and Sharps Pump Return Boxes, referred to as “Pump Returns”) and can consist of up to three
separate elements as follows: (1) the sale of the container system, (2) the transportation of the container system and
(3) the treatment and disposal (incineration) of the container system. The individual fair value of the transportation
and incineration services are determined by the sales price of the service offered by third parties, with the fair value
of the container being the residual value. Revenue for the sale of the container is recognized upon delivery to the
customer, at which time the customer takes title and assumes risk of ownership. Transportation revenue on
Mailbacks is recognized when the customer returns the mailback container system and the container has been
received at the Company’s treatment facility. The Mailback container system is mailed to the incineration facility
using the USPS. Incineration revenue is recognized upon the destruction and certification of destruction having
been prepared on the container. Since the transportation element and the incineration elements are undelivered
services at the point of initial sale of the container, the Mailback and incinerator revenue is deferred until the
services are performed. The current and long-term portions of deferred revenues are determined through regression
analysis and historical trends. Furthermore, through regression analysis of historical data, the Company has
determined that a certain percentage of all container systems sold may not be returned. Accordingly, a portion of
the transportation and incineration elements are recognized at the point of sale.
F-9
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Shipping and Handling Fees and Costs: The Company records amounts billed to customers for shipping and
handling as revenue. Costs incurred by the Company for shipping and handling have been classified as cost of
revenues.
Additional Product Related Costs: The Company records inbound shipping, purchasing and receiving costs,
inspection costs, warehousing costs and other product related costs as cost of revenues.
Advertising Costs: Advertising costs are charged to expenses when incurred and totaled $45,920 and $20,292 for
the fiscal years ended June 30, 2009 and 2008, respectively.
Realization of Long-lived Assets: The Company evaluates the recoverability of property and equipment and
intangible or other assets if facts and circumstances indicate that any of those assets might be impaired. If an
evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the
asset’s carrying amount to determine if a write-down to market value or discounted cash flow value is necessary.
Employee Benefit Plans: In addition to group health related benefits, the Company maintains a 401(k) employee
savings plan available to all full-time employees. The Company matches a portion of employee contributions with
cash (25% of employee contribution up to 6%). Company contributions to the 401(k) plan were $24,567 and
$20,700 for the fiscal years ended June 30, 2009 and 2008, respectively, and are included in selling, general and
administrative expenses. For purposes of the group health benefit plan, the Company self-insures an amount equal
to the excess of the employees’ deductible ($1,000 for individual and $2,000 for family coverage) up to the amount
by which the third party insurance coverage begins ($5,000 for individual and $10,000 for family). The amount of
liability at June 30, 2009 and 2008 was $9,069 and $3,267, respectively, and is included in “Accrued Liabilities”.
Income Taxes: The liability method is used in accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected
to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
Net Income Per Share: Earnings per share (“EPS”) data for all years presented has been computed pursuant to
Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share”, that requires a presentation
of basic and diluted EPS. Basic EPS excludes dilution and is determined by dividing income or loss available to
common stockholders by the weighted average number of common shares outstanding during the period adjusted
for preferred stock dividends, if any. Diluted EPS reflects the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common stock.
Financial Instruments: The Company considers the fair value of all financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities, not to be materially different from their
carrying values at year-end due to their short-term nature.
Segment Reporting: SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,”
requires that a public business enterprise report financial and descriptive information about its operating segments.
Generally, financial information is required to be reported on the basis used internally for evaluating segment
performance and resource allocation. The Company operates in a single segment, focusing on developing cost
effective, logistical and educational solutions for healthcare and non-healthcare institutional markets.
Use of Estimates: The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosure of contingent liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ
from these estimates.
F-10
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Uncertain Tax Positions: The Company adopted the provisions of FASB issued Interpretation No. 48 ("FIN 48"),
Accounting for Uncertainty in Income Taxes, - an interpretation of FASB Statement No. 109, effective July 1,
2007. The adoption of FIN 48 did not have a material effect on the Company’s consolidated financial statements.
The Company classifies interest and penalties associated with the payment of income taxes in the Other Income
(Expense) section of its consolidated statements of income. At June 30, 2009 and 2008, the Company did not have
any FIN 48 liability or gross recognized tax benefit. Tax return filings which are subject to review by local tax
authorities by major jurisdiction are as follows:
• United States – fiscal years ended June 30, 2006, 2007, 2008 and 2009
• State of Texas – fiscal years ended June 30, 2005, 2006, 2007, 2008 and 2009
Recent Accounting Pronouncements: In September 2006, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 157 (“SFAS 157”), Fair Value Measurements, which defines fair value, establishes a framework
for measuring fair value and expands the related disclosure requirements, SFAS 157 is effective for fiscal years
beginning after November 15, 2007 and for interim periods within those years. In February, 2008, the FASB issued
FASB Staff Position (“FSP”) No. FAS 157-2. This FSP defers the effective date of SFAS 157 for non-financial
assets and liabilities on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the scope of this FSP. The Company adopted SFAS 157
effective July 1, 2008, except for non financial assets and liabilities as permitted by FSP SFAS 157-2, and the
adoption of such statement did not have a significant impact on our consolidated results of operations or financial
position.
In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and
Financial Liabilities — Including an Amendment of FASB Statement No. 115.” This statement permits entities to
choose to measure many financial instruments and certain other items at fair value that are not currently required to
be measured at fair value and establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for similar types of assets and liabilities.
SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The
Company adopted SFAS 159 effective July 1, 2008. The Company elected to not fair value any additional financial
instruments and thus the adoption of the standard did not have a material impact on its consolidated financial
position and consolidated results of operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”), which establishes principles and
requirements for subsequent events. This statement defines the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, and the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements. SFAS 165 also sets forth the
disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS
165 is effective for the interim or annual periods ending after June 15, 2009. The adoption of SFAS 165 did not
have an impact on the Company’s consolidated financial position, results of operations or cash flows. We evaluate
events and transactions that occur after the balance date but before the financial statements are issued. We
evaluated such events and transactions through September 22, 2009, when the consolidated financial statements
were electronically filed with the SEC.
Reclassifications: Certain items in the 2008 consolidated financial statements have been reclassified to conform to
the 2009 presentation, for which there was no effect on income or cash flows.
NOTE 3 - PROPERTY AND EQUIPMENT
At June 30, 2009 and 2008, property and equipment consisted of the following:
F-11
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
Furniture and fixtures
Equipment
Manufacturing
Computers and software
Plant and Equipment
Land
Less: accumulated depreciation
Useful Life
3 to 5 years
3 to 15 years
15 years
3 to 5 years
3 to 5 years
June 30,
2009
2008
$
96,259
1,559,198
221,636
1,021,491
1,524,117
19,325
4,442,026
996,973
$
62,232
515,499
221,636
831,934
667,484
10,000
2,308,785
933,129
Net property and equipment
$
3,445,053
$
1,375,657
Depreciation expense included in Cost of Goods Sold in the fiscal years ended 2009 and 2008 is $30,893 and
$44,445, respectively.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
On March 16, 2009, the Company entered into an Amended Credit Agreement with JPMorgan Chase Bank, N.A.
(“Credit Agreement”) which provides for a $2.5 million line of credit facility (the “Facility”), the proceeds of which
may be utilized for, (i) working capital, (ii) letters of credit (up to $200,000), (iii) acquisitions (up to $500,000) and
(iv) general corporate purposes. Indebtedness under the Credit Agreement is secured by substantially all of the
Company’s assets. Borrowings bear interest at a fluctuating rate per annum equal to either, (i) prime rate (interest
per annum announced from time to time by the Bank) or (ii) LIBOR plus a margin of 2.75%. Any outstanding
revolving loans, and accrued and unpaid interest, will be due and payable on March 31, 2010, the maturity date of
the Facility. The aggregate principal amount of advances outstanding at any time under the Facility shall not exceed
the Borrowing Base which is equal to, (i) 80% of Eligible Accounts Receivable (as defined in the Credit
Agreement) plus (ii) 50% of Eligible Inventory (as defined in the Credit Agreement). The Credit Agreement
contains affirmative and negative covenants that, among other things, require the Company to maintain a specified
tangible net worth and capital expenditure limits. The Credit Agreement also contains customary events of default.
Upon the occurrence of an event of default that remains uncured after any applicable cure period, the lenders’
commitment to make further loans may terminate and the Borrower may be required to make immediate repayment
of all indebtedness to the lenders. The lender would also be entitled to pursue other remedies against the Company
and the collateral. As of June 30, 2009, the borrowing base has been reduced by $97,391 in letters of credit
outstanding drawn against the line of credit. As of June 30, 2009 and 2008, no amounts related to the Credit
Agreement were outstanding. Under the Credit Agreement, and based upon the Company’s June 30, 2009 level of
accounts receivable and inventory, the amount available to borrow at fiscal year end was $1.6 million.
NOTE 5 - INCOME TAXES
The reconciliation of the statutory income tax rate to the Company’s effective income tax rate for the fiscal years
ended June 30, 2009 and 2008 is as follows:
F-12
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
Statutory rate……………………………………………………
State income taxes, net……………………………………………
Meals and entertainment…………………………………………
Change in valuation allowance…………………………………
AMT benefit from stock-based compensation……………………
Return to provision………………………………………………
Year Ended June 30,
2009
2008
35.0%
0.9%
0.6%
(51.6%)
0.4%
(5.3%)
(20.0%)
34.0%
14.1%
25.7%
(48.5%)
(10.2%)
(11.0%)
4.1%
For the fiscal year ended June 30, 2009, state income taxes relate to the Texas Margin Tax and Georgia Income Tax.
For the fiscal year ended June 30, 2008, state income taxes relate to the Texas Margin Tax.
At June 30, 2009 and 2008, significant components of deferred tax assets and liabilities are approximated as
follows:
June 30,
2009
2008
Deferred tax assets relating to:
Accounts receivable allowance………………………………..
5,907
Accrued vacation………………………………………………
13,475
Deferred revenue………………………………………………
675,610
Stock Compensation……………………………………………
104,182
Net operating loss carryforwards and other credits………….
1,493,500
Total deferred tax assets……………………………………… 2,292,674
5,202
-
536,992
25,859
2,408,947
2,977,000
Deferred tax liablities related to:
Depreciation differences………………………………………
Valuation allowance………………………………………………
(154,667)
2,138,007
-
(31,636)
2,945,364
(2,945,364)
Net deferred tax asset …………………………………..
$
2,138,007
$
-
At June 30, 2009 and 2008, components of Income Tax Expense Benefit are as follows:
Year Ended June 30,
2009
2008
Current
Deferred
Total
Current
Deferred
Total
State
Federal
46,555
74,151
-
46,555
(820,557)
(746,406)
15,000
(11,554)
120,706
(820,557)
(699,851)
3,446
F-13
-
-
-
15,000
(11,554)
3,446
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
During the fiscal year ended June 30,2009, the Company evaluated the need for the valuation allowance on its
deferred tax asset balances. Based on that evaluation the Company determined it was more likely than not that the
Company would realize these deferred tax assets and, as such, the valuation allowance was reduced to zero.
At June 30, 2009, the Company had net operating loss carryforwards for income tax purposes of approximately $5.1
million. The carryforwards will expire beginning June 30, 2010 through June 30, 2027 if not otherwise used. There
is a limitation under the Internal Revenue Code Section 382 on the Company’s net operating losses generated prior
to 1998. This limitation will cause $0.9 million of losses to expire unused. Therefore, only $4.2 million of the
Company’s net operating loss carryforwards are available for use in future years. Of the $4.2 million, $2.9 relates to
excess tax deductions related to options which were previously accounted for under APB 25. A tax benefit of $1.3
million resulting from the reduction of the deferred tax valuation allowance was recorded in the quarter ended
December 31, 2008 to additional paid in capital. In addition, $0.1 million of net operating loss relates to excess tax
deductions for stock compensation accounted for under SFAS 123R. The benefit for this net operating loss will be
recorded to additional paid in capital in the period the loss is utilized.
NOTE 6 - STOCK TRANSACTIONS
During the fiscal year ended June 30, 2009, stock options to purchase 435,100 of the Company’s shares of common
shares were exercised. Total proceeds to the Company were $451,470 (average exercise price of $1.04 per share).
During the fiscal year ended June 30, 2008, stock options to purchase 581,730 of the Company’s shares common
stock were exercised. Total proceeds to the Company were $554,389 (average exercise price of $0.95 per share).
NOTE 7 - STOCK BASED-COMPENSATION
The Company sponsors the Sharps Compliance Corp. 1993 Stock Plan (the “Plan”) covering employees, consultants
and non-employee directors. The Plan, as amended, provides for the granting of stock-based compensation (stock
options or restricted stock) up to 4,000,000 shares of the Company’s common stock of which 1,254,960 shares are
outstanding as of June 30, 2009. The Company also has issued 637,500 non-Plan options to purchase common stock
of which 215,000 are outstanding as of June 30, 2009. Options granted generally vest over a period of three years
and expire seven years after the date of grant. Restricted stock generally vests over a three year period.
The summary of activity for all stock options during the fiscal years ended June 30, 2009 and 2008 is presented in
the table below:
F-14
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
Balance, July 1, 2007……………… 1
Granted……………………………1
Exercised………………………… 1
Forfeited or Canceled…………… 1
Options
Outstanding
2,208,330
140,000
(581,730)
(110,000)
Balance, July 1, 2008……………… 1
Granted……………………………1
Exercised………………………… 1
Forfeited or Canceled…………… 1
1,656,600
206,500
(435,100)
(30,000)
Balance, June 30, 2009………………1
1,398,000
Exercisable at June 30, 2009………. #
1,209,832
(1) Excludes 101,000 shares of Restricted Stock
(2) Excludes 71,960 shares of Restricted Stock
Weighted
Average
Exercise
Price
$
$
$
$
1.06
2.65
0.95
3.02
$
$
$
$
1.10
2.10
1.04
2.82
(1)
(2)
(2)
As of June 30, 2009 and 2008, there were 536,006 and 224,444 options, respectively, available for grant under the
Plan.
The following table summarizes information about stock options outstanding as of June 30, 2009:
Options Outstanding
Range of Exercise
Price
Outstanding
as of
June 30, 2009
$0.50 - $1.50
$1.51 - $2.50
$2.51 - $3.50
$3.51 - $5.50
1,061,500
275,000
60,000
1,500
1,398,000
Weighted
Average
Remaining
Life
(in Years)
1.63
6.19
5.56
6.93
Weighted
Average
Exercise
Price
$
$
$
$
0.87
2.18
3.00
5.45
$
1.17
The following table summarizes information about stock options outstanding and exercisable as of June 30, 2009:
F-15
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
Options Outstanding and Exercisable
Outstanding
and
Exercisable as
of
June 30, 2009
Weighted
Average
Remaining
Life
(in Years)
1,061,500
125,000
23,332
-
1,209,832
1.63
6.23
5.43
-
Weighted
Average
Exercise
Price
0.87
$
2.16
$
$
3.06
$
-
$
1.05
Range of Exercise
Price
$0.50 - $1.50
$1.51 - $2.50
$2.51 - $3.50
$3.51 - $5.50
As of June 30, 2009 there was $276,693 of option compensation expense related to non-vested awards. This
expense is expected to be recognized over a weighted average period of 1.27 years.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Leases: Sharps currently leases 196,018 square feet of rentable (office and warehouse) space in Houston,
Texas and College Park, Georgia. The leases expirations range from February 2012 to January 2015. Rent expense
for the fiscal years ended June 30, 2009 and 2008 was $435,768 and $316,787, respectively. Future minimum lease
payments under non-cancelable operating leases as of June 30, 2009 are as follows:
Year Ending June 30,
2010
2011
2012
2013
2014
There after
$
958,032
1,377,086
1,195,854
1,145,914
1,155,740
489,574
$
6,322,200
Former Employee Matters:
On June 14, 2004, the Company provided Mr. Ronald E. Pierce (“Mr. Pierce”), its then Chief Operating Officer,
with notice of non-renewal of his employment agreement. As such, July 14, 2004 was Mr. Pierce’s last day of
employment. The Company advised Mr. Pierce that under the terms of the employment contract no further
compensation (including services) was due. On July 15, 2008, the Company received a demand for arbitration from
Mr. Pierce. The claim amount under the demand for arbitration is $300,001. The Company has also received
various letters from Mr. Pierce’s attorney advising that Mr. Pierce is taking the position that the non-renewal of this
employment agreement was not timely and, therefore, Mr. Pierce was terminated without cause. Additionally, Mr.
Pierce claims that the Company had no right to terminate him on the anniversary date of his agreement without the
obligation of paying Mr. Pierce as if he were terminated without cause. The Company believes that notice of such
F-16
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
non-renewal was timely, and that in accordance with Mr. Pierce’s employment agreement, the Company was
entitled to provide notice thirty days prior to the anniversary of its intent to terminate the agreement, and no
severance would therefore be due to Mr. Pierce.
The claim is currently in arbitration with a decision expected in the quarter ended March 31, 2010.
The Company believes it has meritorious defenses against Mr. Pierce’s claims (including among others, the
Company’s belief that the claim to arbitrate is time barred) and believes that a material loss is remote and therefore
has not recorded a liability related to this matter.
Other:
On December 21, 2007, the Company entered into a Settlement Agreement and Release with Drive Medical Design
and Manufacturing (“Drive Medical”) whereas Drive Medical would among other things direct the production of
the Company’s Pitch-It™ IV Pole products via an overseas manufacturer. Under this Agreement, the Company is
subject to a minimum annual purchase commitment of $600,000 for each subsequent calendar year succeeding the
first thirteen calendar months following the effective date of the agreement December 21, 2007 through February
2012. During the contract periods December 21, 2007 through January 31, 2008 and February 1, 2008 through
January 31, 2009 the Company exceeded the $600,000 required minimum.
The Company is also involved in legal proceedings and litigation in the ordinary course of business. In the opinion
of management, the outcome of such matters will not have a material adverse effect on the Company’s consolidated
financial position or consolidated results of operations.
NOTE 9 - EARNINGS PER SHARE
Earnings per share are measured at two levels: basic per share and diluted per share. Basic per share is computed by
dividing net income by the weighted average number of common shares outstanding during the period. Diluted per
share is computed by dividing net income by the weighted average number of common shares after considering the
additional dilution related to common stock options and restricted stock. In computing diluted earnings per share,
the outstanding common stock options are considered dilutive using the treasury stock method. Vested restricted
shares are included in basic common shares outstanding, and unvested restricted shares are included in the diluted
common shares outstanding if the effect is dilutive. The following information is necessary to calculate earnings per
share for the periods presented:
Year Ended June 30,
2009
2008
Net income, as reported……………………………………………… 4,197,090
$
$
81,573
Weighted average common shares outstanding……………………… 12,907,688
Effect of dilutive stock options……………………………………… 1,088,519
Weighted average diluted common shares outstanding……………… 13,996,207
12,313,160
1,227,221
13,540,381
Net income per common share
Basic…………………………………………………………………
Diluted………………………………………………………………
$
$
0.33
0.30
$
$
0.01
0.01
Employee stock options excluded from computation of diluted
income per share amounts because their effect would
be anti-dilutive………………………………………………………
-
85,000
F-17
Exhibit 21.1
Subsidiaries of the Registrant
Name
Jurisdiction of Incorporation
Sharps Compliance of Texas (dba Sharps Compliance, Inc.)
Texas
Sharps e-Tools, Inc.
Sharps Safety, Inc.
Sharps Manufacturing, Inc.
Sharps Environmental Services, Inc. (dba Sharps
Environmental Services of Texas, Inc.)
Delaware
Texas
Delaware
Delaware
F-18
Exhibit 23.10
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No.
333-155638) of Sharps Compliance Corp. of our report dated September 22, 2009, with respect to the consolidated
financial statements of Sharps Compliance Corp. and Subsidiaries as of June 30, 2009 and 2008, and for the years
then ended, included in this Annual Report on Form 10-K for the year ended June 30, 2009.
/s/ UHY LLP
Houston, Texas
September 22, 2009
F-19
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER IN ACCORDANCE WITH SECTION 302 OF THE
SARBANES-OXLEY ACT
I, Burton J. Kunik, certify that:
1.
I have reviewed this annual report on Form 10-K of Sharps Compliance Corp;
2. Based on my knowledge, this report does not contain any untrue statement of 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 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 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: September 22, 2009
/s/ BURTON J. KUNIK
Burton J. Kunik
Chairman of the Board, Chief
Executive Officer and President
F-20
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER IN ACCORDANCE WITH SECTION 302 OF THE
SARBANES-OXLEY ACT
I, David P. Tusa, certify that:
1.
I have reviewed this annual report on Form 10-K of Sharps Compliance Corp;
2. Based on my knowledge, this report does not contain any untrue statement of 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 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 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: September 22, 2009
/s/ DAVID P. TUSA
David P. Tusa
Executive Vice President,
Chief Financial Officer, Business
Development and Corporate Secretary
F-21
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER IN ACCORDANCE WITH SECTION 906 OF
THE SARBANES- OXLEY ACT
In conjunction with the annual report of Sharps Compliance Corp. (the “Company”) on Form 10-K for the
year ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof, I, Burton
J. Kunik, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my
knowledge that
(1) The Form 10-K report for the year ended June 30, 2009, filed with the Securities and Exchange
Commission on September 22, 2009, fully complies with the requirements of Section 13 (a) or
15(d) of the Securities and Exchange Act of 1934; and
(2) The information contained in the Form 10-K report for the year ended June 30, 2009 fairly
presents, in all material respects, the financial condition and results of operations of Sharps
Compliance Corp.
Date: September 22, 2009
By: /s/ BURTON J. KUNIK
Chairman of the Board, Chief
Executive Officer and President
Burton J. Kunik
F-22
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER IN ACCORDANCE WITH SECTION 906 OF
THE SARBANES- OXLEY ACT
In conjunction with the annual report of Sharps Compliance Corp. (the “Company”) on Form 10-K for the
year ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof, I, David
P. Tusa, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my
knowledge that
(3) The Form 10-K report for the year ended June 30, 2009, filed with the Securities and Exchange
Commission on September 22, 2009, fully complies with the requirements of Section 13 (a) or
15(d) of the Securities and Exchange Act of 1934; and
(4) The information contained in the Form 10-K report for the year ended June 30, 2009 fairly
presents, in all material respects, the financial condition and results of operations of Sharps
Compliance Corp.
Date: September 22, 2009
By: /s/ DAVID P. TUSA
David P. Tusa
Executive Vice President,
Chief Financial Officer,
Business Development and
Corporate Secretary
F-23
[THIS PAGE INTENTIONALLY LEFT BLANK]
I N V E S TO R I N F O R M AT I O N
/ / E X E C U T I V E O F F I C E R S
/ / C O R P O R AT E M A N A G E M E N T
Dr. Burton J. Kunik
Chairman of the Board
& Chief Executive Offi cer
David P. Tusa
Executive Vice President,
Chief Financial Offi cer
& Business Development
/ / B O A R D O F D I R E C T O R S
Dr. Burton J. Kunik
Chairman of the Board
& Chief Executive Offi cer
Sharps Compliance Corp.
Houston, Texas
Ramsay H. Gillman (1)
Chief Executive Offi cer & President,
Gillman Companies
Houston, Texas
Claude A. Dance
Senior Vice President,
Sales & Marketing
Khairan “Al” Aladwani
Vice President,
Quality Control/Assurance
Scott T. Freeman
Vice President,
Operations
Parris H. Holmes (2) (3) (4)
Private Investor
San Antonio, Texas
F. Gardner Parker (1) (3) (4) (5)
Parker Investments
Houston, Texas
Philip C. Zerrillo, Ph.D. (2) (3)
Visiting Professor
Northwestern University
JL Kellogg Graduate School
of Management
/ / C O M PA N Y F I N A N C I A L I N F O R M AT I O N
Website
www.sharpsinc.com
Ticker Symbol
SMED (NASDAQ)
Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Independent Public Accountants
UHY L.L.P.
Houston, Texas
Annual Shareholder Meeting
November 19, 2009, at 10:00 am
Hilton Houston Post Oak Hotel
Aesops Room
2001 Post Oak Blvd.
Houston, Texas 77056
Investor Relations
Investors, stockbrokers, security analysts
and others seeking information about
the Company should contact one of
the following:
David P. Tusa
Executive Vice President,
Chief Financial Offi cer
& Business Development
Phone: 713.660.3514
dtusa@sharpsinc.com
Deborah K. Pawlowski
Investor Relations
Kei Advisors LLC
Phone: 716.843.3908
dpawlowski@keiadvisors.com
Gregory C. Davis
Director of Information Technology
Thomas J. Gentempo
Director of Operations
Elizabeth “Liz” Martin
Corporate Controller
Paul “Pete” Garrett
Senior Director, Marketing
Justyna Grot-Hatfi eld
Director of Client Services
John W. Dalton (1) (2) (4)
Private Investor
Houston, Texas
(1) Member of the Compensation Committee
(2) Member of Nominating/Corporate
Governance Committee
(3) Member of the Audit Committee
(4) Member of the Acquisition Committee
(5) Lead Independent Director
Additional information is available
on our website at:
www.sharpsinc.com
Materials may be obtained, without
charge, by writing to the Company at:
Sharps Compliance Corp.
Investor Relations
9220 Kirby Drive, Suite 500
Houston, Texas 77054
9220 Kirby Drive, Suite 500
Houston, Texas 77054
800.772.5657
www.sharpsinc.com