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9220 Kirby Drive • Suite 500
Houston, Texas 77054
713.432.0300
www.sharpsinc.com
Sharps Compliance (nASDAQ: SMeD)
Company Financial Information
with this medical waste stream, including pharmaceutical manufacturers, home healthcare providers, retail
pharmacies and clinics, the u.S. government and the professional market which is comprised of physicians,
Headquartered in Houston, Texas, Sharps Compliance is a leading full-service provider of comprehensive
medical waste management services throughout north America. Its strategy is to capture a large part of the
estimated $3.8 billion untapped market for its solutions by targeting the major agencies that are interrelated
Transf orm
Transf ormed
Transf orm
Transf orm
Transf orm
Transf orm
Transf orm
comprehensive solution for the containment, transportation, treatment and tracking of medical
comprehensive solution for the containment, transportation, treatment and tracking of medical
comprehensive solution for the containment, transportation, treatment and tracking of medical
waste and used healthcare materials. The Company has partnered with Daniels Sharpsmart
waste and used healthcare materials. The Company has partnered with Daniels Sharpsmart
waste and used healthcare materials. The Company has partnered with Daniels Sharpsmart
addressing small and large quantity medical waste generators
addressing small and large quantity medical waste generators
with highly cost-effective and compliant solutions.
with highly cost-effective and compliant solutions.
dentists and veterinary practices. The Company’s flagship product, the Sharps® Recovery System, is a
in a joint marketing alliance to serve the entire u.S. medical waste market,
in a joint marketing alliance to serve the entire u.S. medical waste market,
2013
2013
BILLINGS
BILLINGS
BY MARKET
BY MARKET
(FY 2013 $21.3 million)
(FY 2013 $21.3 million)
Home HealtHcare 31.6%
Home HealtHcare 31.6%
etail 23.7%
retail 23.7%
retail
core government 3.4%
core government 3.4%
otHer 4.4%
otHer 4.4%
iving 7.4%
assisted living 7.4%
assisted living
Professional 18.2%
Professional 18.2%
Professional
PHarmaceutical 11.3%
PHarmaceutical 11.3%
investor relations
Investors, stockbrokers, security analysts
and others seeking information about the
Company should contact:
additional information is available
on our website at:
www.sharpsinc.com
diana P. diaz, cPa
Vice President and Chief Financial Officer
materials may be obtained, without
charge, by writing to the company at:
Phone: 713.660.3547
ddiaz@sharpsinc.com
deborah K. Pawlowski
Kei Advisors LLC
Investor Relations
Phone: 716.843.3908
dpawlowski@keiadvisors.com
Sharps Compliance Corp.
Investor Relations
9220 Kirby Drive, Suite 500
Houston, Texas 77054
independent Public accountants
UHY L.L.P.
Houston, Texas
ticker symbol
NASDAQ: SMED
annual shareholder meeting
November 21, 2013,
at 10:00 AM CT
Hilton Houston Post Oak
Aesops Room
2001 Post Oak Blvd.
Houston, TX 77056
transfer agent
For services such as change of address,
replacement of lost certificates and changes
in registered ownership or for inquiries to
your account, contact:
registrar and transfer company
10 Commerce Drive
Cranford, NJ 07016
Phone: 800.368.5948
www.rtco.com
Corporate and Management Information
Executive Officers
David P. Tusa
Chief Executive Officer and President
Berkley C. Nelson
Senior Vice President of Sales
Diana P. Diaz, CPA
Vice President and
Chief Financial Officer
Gregory C. Davis
Vice President of Operations
Khairan “Al” Aladwani
Vice President,
Quality Control / Assurance
Board of Directors
F. Gardner Parker
Chairman of the Board
Founder, Parker Investments
John W. Dalton (1)* (2) (3)
Founder
Domaine Capital Properties
Parris H. Holmes Jr. (1) (2)*
Chairman and CEO (retired)
USLD Communications Corp.
Renee P. Tannenbaum, Pharm. D. (1) (3)
Head of Global Commercial Excellence
AbbVie
David P. Tusa
Chief Executive Officer and President
Sharps Compliance Corp.
Philip C. Zerrillo, Ph.D. (2) (3)*
Executive Director
Postgraduate Professional Studies
Case Writing Initiatives
Singapore Management University
(1) Member of Compensation Committee
(3) Member of Audit Committee
(2) Member of Corporate Governance Committee
* Committee Chairman
‘‘We have transformed the company into a leading full-service provider of
comprehensive medical waste and unused medication management service.’’
Transf ormmedemedemeddmedd
Transf ormmed
Transf ormmed
Transf ormed
med
med
5-YEAR
5-YEAR
Financial HigHligHts
Financial HigHligHts
(in thousands, except employee and per share data)
(in thousands, except employee and per share data)
Weighted Average Shares Outstanding–Diluted
15,255
Performance
Revenue
Gross Profit
Gross Margin
Selling, General and Administrative
Operating Income (Loss)
Operating Margin
Net Income (Loss)
Diluted Earnings (Loss) Per Share
Year–end financial Position
Cash and Cash Equivalents
Total Assets
Long-term Debt
Shareholders’ Equity
other Year–end data
Depreciation and Amortization
Number of Employees
20131
20122
20113
2010
20094
$
$
$
$
$
$
21,530
6,347
29.5 %
8,619
(2,709 )
(12.6 )%
(2,712 )
(0.18 )
$
$
$
$
$
$
21,787
6,541
30.0 %
8,609
(2,521 )
(11.6 ) %
(3,621 )
(0.24 )
15,109
$
$
$
$
15,503
25,532
–
21,070
$
$
$
$
17,498
27,638
–
23,180
$
$
$
$
$
$
$
$
$
$
19,395
6,224
32.1 %
9,837
(4,536 )
(23.4 )%
(2,975 )
(0.20 )
14,944
18,280
30,598
–
25,865
$
$
$
$
$
$
$
$
$
$
$
1,103
$
1,117
$
1,003
$
62
56
57
39,156
23,654
60.4 %
8,815
14,398
36.8 %
9,356
0.63
14,952
18,068
31,632
–
26,941
796
67
$
$
$
$
$
$
$
$
$
$
$
20,297
10,456
51.5 %
6,092
3,464
17.1 %
4,197
0.30
13,996
4,792
15,188
–
9,570
418
43
1 Operating loss includes $150,000 and $200,000 of expenses related to the Atlanta facility lease obligation and severance costs, respectively. Net loss also includes a $900,000 deferred tax valuation
allowance charge.
2Operating loss includes $300,000 of one-time expense related to the Atlanta facility lease obligation. Net loss also includes a $2.0 million charge for a deferred tax valuation allowance.
3 Operating loss includes a special charge of $570,000 in 2011 related to the retirement of the Company’s former CEO and $400,000 of unusual expenses for a legal settlement and severance costs.
4 Operating income includes a special charge of $512,000 in 2009 related to the departure of a former officer of the Company. Net income also includes an unusual tax benefit of $1.8 million.
Dear Fellow Stockholders,
REVENUE
(IN MILLIONS)
OPERATING
(LOSS) INCOME
(IN MILLIONS)
Fiscal 2013 was a pivotal year, as we have transformed the
company into a leading full-service provider of comprehensive
medical waste and unused medication management services.
We are now positioned to address the needs of multiple markets
including healthcare, assisted living, dental groups and other
organizations that have multi-site and multi-size locations, by
providing highly cost-effective and compliant solutions. While
medical waste challenges continue to multiply across the country,
our ability to provide comprehensive solutions has strengthened
our position in our target markets, estimated at $800 million for
the regulated sector and $3 billion for the unregulated. We have
seen early success from the execution of this strategy during
the fiscal 2013 year, and expect it to drive further growth and
shareholder value in years to come.
solid core growth – stable Performance
While our revenue declined 1.2% to $21.5 million in fiscal 2013,
$40
35
30
25
20
15
10
5
0
$14
12
10
8
6
4
2
0
-2
-4
’09
’10
’11
’12
’13
’09
’10
’11
’12
’13
this market through our inside and online sales channel, which
grew 41% compared with fiscal 2012, and through the joint
marketing alliance with Daniels Sharpsmart, which allows us
to serve multi-location providers with a national footprint.
our core customer billings increased 5.9% to $21.3 million.
Assisted living billings increased 21% over the prior year
This core customer billings measurement excludes a $1.7 million
to $1.6 million, as our sales and marketing programs realized
impact in fiscal 2012 from the maintenance portion of a
success in servicing the growing medical waste management
US government contract which was terminated effective
needs derived from changing demographics. Our solutions are
January 31, 2012. The core billings growth was driven by inroads
a solid fit for this market. The US population over the age of 65 is
made and successes realized in several of our markets, evidence
expected to double within the next 25 years and one out of every
that our strategy is working. While our operating loss was
five Americans will be over 65 years of age by 2030. We see the
$2.7 million in fiscal 2013 compared with $2.5 million in 2012,
growth from this market coming from existing customers and
we believe that we have overcome the impact of the terminated
from new customers as large assisted living providers also grow
US government contract and that revenue and operating
because of this demographic trend.
leverage will grow.
The pharmaceutical manufacturer market also posted strong
As we indicated last year, the professional market was one of
year-over-year revenue growth, up 13% to $2.4 million. Our
our strategic targeted markets for fiscal 2013, and we’re pleased
customers have been pleased with the positive results of
to report that we realized a 28% increase in billings to
our patient support programs, and we are leveraging this to
$3.9 million compared with $3.0 million in fiscal 2012. This
drive more opportunities within existing and new programs.
remains a significant opportunity for growth as we continue
Importantly, we are beginning to see new patient support
to create awareness of our cost-effective solutions among the
program opportunities for additional drugs that have the
estimated 800,000 doctors, dentists, veterinarians and other
potential to positively impact calendar years 2014 and 2015.
small quantity generators of medical waste which make up a
Our retail billings were down slightly from the prior year due to
$600 million regulated market opportunity. We are addressing
the timing of flu shot-related orders. However, we are encouraged
comprehensive solutions has
strengthened our position in
‘‘Our ability to provide
our target markets.’’
SHAREHOLDERS’
EQUITY
(IN MILLIONS)
DILUTED EPS
(IN MILLIONS)
$30
25
20
15
10
5
0
$0.8
0.6
0.4
0.2
0
-0.2
-0.4
’09
’10
’11
’12
’13
’09
’10
’11
’12
’13
advantage to win major customers
proposition provides a competitive
‘‘We believe that our value
in our key markets.’’
that US retail clinics are projected to double between 2011 and
2015, according to an Accenture ACN report from June 2013.
capturing Opportunities – creating growth
Our company is poised to leverage its vertically integrated,
These retail pharmacies offer a significant volume of flu shots and
full-service operation. We believe that our value proposition
other inoculations, making this a very fertile market for Sharps.
provides a competitive advantage to win major customers in
our key markets. We are aligned to educate the marketplace that
transformation – Expands addressable Market
Our transformation into a comprehensive medical waste and
we are an alternative provider that is positioned to service their
needs for safe and cost-effective medical waste management.
unused medication management solutions provider is supported
And we have developed a highly scalable business model to drive
by our alliance with Daniels Sharpsmart, announced in May
operating leverage.
2012. The alliance is opening doors and allowing us to bid on
The advances we have made as an organization and our
opportunities where we were previously not able to participate.
ability to transform are the result of the dedication of our Sharps
We now provide both large and small quantity waste solutions,
Compliance team who are focused on delivering results. We hope
multiple waste treatment facilities and options, and online
you are as excited as we are about Sharps’ future.
tracking and reporting tools which allow us to customize unique
solutions for our different customers. Additionally, our regulatory,
Sincerely,
logistics and waste minimization solutions provide value to
many customers who don’t have the compliance background
or understanding of the complex regulatory environment. As
healthcare costs continue to rise, healthcare facilities continue to
consolidate, and the delivery model becomes more decentralized,
our cost-effective and compliant solutions become even more
David P. Tusa
compelling.
President and Chief Executive Officer
October 2, 2013
RegulAtoRy expeRts
We have regulaTory experTs
on sTaff ready To supporT
your needs regarding all
applicable local, sTaTe and
federal regulaTions
MAil BACk solutions
cosT-effecTive mail back
or ship back sysTems To
accommodaTe smaller
quanTiTy generaTors
WAste MiniMizAtion
commiTmenT To proper
segregaTion Training ThaT
reduces cosTs and
increases efficiencies
single point of ContACt
simplifies service delivery,
performance reporTing
and billing
One solution,
comprehensive
capabilities
Route-BAsed piCk-up seRviCe
reliable medical WasTe
services ideal for larger
quanTiTy generaTors
enviRonMentAlly
ResponsiBle
unlike oThers, sharps
compliance uTilizes landfill
avoidance Technology ThaT
converTs The WasTe inTo
indusTrial fuel or recyclable
maTerials
Competitive Advantage
Comprehensive medical waste and unused medication management solutions to fit all generators
For twenty years, Sharps Compliance has provided
regulatory compliant and cost-effective medical waste
management services for customers nationwide. Our
innovations in medical waste management extend beyond
safe collection and proper treatment. We offer online
tracking with proof of treatment, comprehensive OSHA
training, waste minimization support, easy program
management options and a team of dedicated experts
challenged daily to exceed customers’ expectations.
To further expand our addressable market, we have
created a unique offering of solutions with Daniels
Sharpsmart, Inc. This marketing alliance combines mail/
ship back with route-based pick-up services for small
and large quantity generators of medical waste and used
healthcare materials. Through this marketing alliance, our
solutions have set a new standard for our industry.
Our complete solutions are unmatched in the
industry. We are uniquely structured to provide medical
waste disposal, sharps management, hazardous waste
removal and pharmaceutical waste services for both small
and large quantity generators. Unlike other traditional
waste hauling companies, we are able to completely cus-
tomize a solution that we believe will result in lower costs
and maximum efficiencies for operations of any size.
advantages for customers of all sizes:
Comprehensive Medical Waste
Management Services Provider
We are not a mailback company. We combine multiple
offerings into a single solution designed to increase
customer operational efficiencies as well as lower cost.
History of Success
Sharps Compliance has been successfully serving
customers for 20 years and has launched new customers
ranging in size from 1 to 820 locations.
“As Needed” Mailback vs
Traditional Scheduled Pick-up
Our “as needed” service allows for maximum utilization of
waste containment systems and avoids inefficiencies with
the pick-up of partially filled containers by your current
provider. Our industry leading “mailback systems” are the
best alternatives to the traditional pick up services when
small quantities of waste are generated.
Waste Minimization and Proper Segregation
Sharps is committed to training your staff on waste
segregation and minimizing what materials can be thrown
in the trash versus being identified as medical or other
related waste.
ComplianceTRACSM
ComplianceTRAC is a Sharps OSHA-compliant management
system that replaces outdated hardcopy manuals with up-
to-date resources available 24/7. It’s platform includes on-
line HazCom, Bloodborne Pathogens, and HHS-compliant
HIPAA training for your employees as well as SDS (MSDS)
Management, safety plans and self-audits.
Easy Program Management
With auto-reorder, Sharps delivers a new system to your
office when returned systems are processed at our
treatment facility. With auto-shipping, Sharps delivers
a new system to your office based on individual office
frequency needs.
‘‘Proper disposal is only part of the equation’’
SEC Form 10-K
[THIS PAGE INTENTIONALLY LEFT BLANK]
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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)
74-2657168
(I.R.S. Employer Identification No.)
9220 Kirby Drive, Suite 500, Houston, Texas
(Address of principal executive offices)
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
Common Shares, $0.01 Par Value
Name of Each Exchange on Which Registered
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 No
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 No
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. YesNo
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(§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such
files). Yes No
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.
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
Accelerated filer
Non-accelerated filer Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No
As of December 31, 2012, the aggregate market value of the Registrant’s Common Stock held by non-affiliates was
approximately $28.7 million (based on the closing price of $2.26 on December 31, 2012 as reported by The NASDAQ
Capital Market).
The number of common shares outstanding of the Registrant was 15,344,960 as of August 26, 2013.
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 21, 2013 are incorporated by
reference into Part III.
2
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
TABLE OF CONTENTS *
ANNUAL REPORT ON FORM 10-K
PART I
Description of Business
Risk Factors
Unresolved Staff Comments
Description of Property
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
PART IV
*This Table of Contents is inserted for convenience of reference only and is not a part of this Report
as filed.
4
14
17
17
17
17
18
21
21
30
30
30
31
32
32
32
33
33
33
33
37
3
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.
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.
COMPANY OVERVIEW
Sharps Compliance Corp. is a leading full-service provider of solutions for the cost-effective management of medical waste,
used health care materials and unused dispensed medications. Our solutions facilitate the proper collection, containment,
transportation and treatment of numerous types of healthcare-related materials, including hypodermic needles, lancets and
other devices or objects used to puncture or lacerate the skin, or sharps, and unused consumer dispensed medications and
over-the-counter drugs. We serve customers in multiple markets such as home health care, retail clinics and immunizing
pharmacies, pharmaceutical manufacturers, professional offices (physicians, dentists and veterinarians), assisted living and
long-term care facilities (assisted living, continuing care, long-term acute care, memory care and skilled nursing),
government (federal, state and local), consumers, commercial and agriculture, as well as distributors to many of the
aforementioned markets. We assist our customers in determining which of our solution offerings best fit their needs for the
collection, containment, return transportation and treatment of medical waste, used healthcare materials and unused
dispensed medications. Our differentiated approach provides our customers the flexibility to return and properly treat
medical waste, used healthcare materials or unused dispensed medications through a variety of solutions and products
transported primarily through the United States Postal Service (“USPS”). For customers with facilities or locations that may
generate larger quantities of medical waste, we integrate the Daniels Sharpsmart route-based pick-up service into our
complete offering. The benefits of this comprehensive offering include single point of contact, consolidated billing,
integrated manifest and proof of destruction repository in addition to our cost savings. Furthermore, we provide
comprehensive tracking and reporting tools that enable our customers to meet complex medical waste disposal and unused
dispensed patient medication compliance requirements. We believe the fully-integrated nature of our operations is a key
factor leading to our success and continued recurring revenue growth. We continue to take advantage of the many
opportunities in all markets served as we educate the market place and as prospective customers become more aware of
alternatives to traditional methods of disposal (i.e., route-based pick-up services).
As a leading full-service provider of comprehensive medical waste management services throughout North America, our
4
strategy is to capture a large part of the estimated $3.8 billion untapped market for our solutions by targeting the major
agencies that are interrelated with this medical waste stream, including pharmaceutical manufacturers, home healthcare
providers, retail pharmacies and clinics, the U.S. government and the professional market which is comprised of physicians,
dentists and veterinary practices. The Company’s flagship product, the Sharps® Recovery System is a comprehensive
solution for the containment, transportation, treatment and tracking of medical waste and used healthcare materials. The
Company has partnered with Daniels Sharpsmart in a joint marketing alliance (“JMA”) to serve the entire U.S. medical
waste market, addressing small and large quantity medical waste generators with highly cost-effective and compliant
solutions.
Our principal executive offices are located at 9220 Kirby Drive, Suite 500, Houston, Texas. Our telephone number at that
location is (713) 432-0300. We currently have 60 full-time employees and 2 part-time employees. We have manufacturing,
assembly, distribution and warehousing operations located on Reed Road in Houston, Texas, and our corporate offices
located on Kirby Drive in Houston, Texas. We have a warehouse facility in Atlanta, Georgia. As a result of the termination
of the U.S. Government contract, the Company executed an agreement with the Atlanta facility landlord reducing its
obligation under the lease for the 51,000 square foot facility by approximately 20,000 square feet effective September 1,
2012. Effective February 1, 2013, the Company subleased the remaining portion of the Atlanta facility to a third party. We
own and operate a fully-permitted treatment facility in Carthage, Texas that incorporates our processing and treatment
operations. Approximately four years ago we supplemented the treatment facility’s existing incineration process with an
autoclave system, which is a cost-effective alternative to traditional incineration that treats medical waste with steam at high
temperature and pressure to kill pathogens. The autoclave system is utilized alongside the incinerator for day-to-day
operations. We believe that our facility is one of only ten permitted commercial facilities in the United States capable of
treating all types of medical waste, used healthcare materials and unused or expired dispensed medications (i.e., both
incineration and autoclave capabilities). During fiscal year 2013, the Company, under an agreement with Daniels
Sharpsmart, began supplementing its treatment facility operations by utilizing four Daniels Sharpsmart treatment facilities
located across the country for the proper treatment of medical waste and used healthcare materials generated by certain of
our customers. This arrangement not only reduces the Company’s return transportation costs associated with its Solutions
but also provide back-up treatment facility capabilities in the event of disruption at the Company’s treatment facility in
Carthage, Texas.
SOLUTIONS OVERVIEW
We offer a broad line of product and service solutions to manage the medical waste and unused dispensed medications
generated by our customers. Our primary solutions include the following:
Sharps Recovery System™ (formerly Sharps Disposal by Mail System®): a comprehensive solution for the containment,
transportation, treatment and tracking of medical waste and used health care materials generated outside the hospital and
large health care facility setting. The Sharps Recovery System includes a securely sealed, leak and puncture resistant sharps
container in several sizes ranging from one quart to twenty gallons; USPS approved shipping box with pre-paid priority mail
postage; absorbent material inside the container that can safely hold up to 150 milliliters of fluids; a bag for additional
containment; and complete documentation and tracking manifest. The Sharps Recovery System is transported to our owned
or contracted facilities for treatment. Upon treatment or conversion of the waste, we provide electronic proof of receipt and
treatment documentation to the customer through our proprietary SharpsTracer® system. We introduced new systems this
year to the Sharps Recovery System brand portfolio that are best suited for facilities with multiple treatment rooms. These
new systems offer multiple sharps containers with a single return, pre-paid return box.
TakeAway Environmental Return System™: a comprehensive solution that facilitates the proper disposal or treatment of
unused dispensed medications and includes the TakeAway Environmental Return System and the RxTakeAway Recovery
and Reporting System. The solution provides a means for individual consumers, retail or mail-order pharmacies,
communities and facilities including assisted living, long-term care and correction operations to facilitate the proper disposal
of unused dispensed medications (other than controlled substances) and consists of customized containment, transportation,
destruction or conversion and tracking services. Our proprietary tracking system, MedsTracerSM, is designed for tracking
unused dispensed medications, which assists pharmaceutical manufacturers in monitoring drug usage and provides critical
data for patient management and compliance. Our proprietary tracking system is a highly value-added component of our
solution as it enhances pharmaceutical manufacturers’ ability to monitor patient drug usage.
Complete Needle™ Collection and Disposal System: a safe, easy-to-use and cost-effective solution designed for self-
injecting consumers and includes the Company’s containment, packaging, return shipping via the U.S. Postal Service,
5
tracking and treatment. The Complete Needle Collection and Disposal System is actually two offerings in one. First, the
product provides the individual self-injector with a reasonably priced containment solution designed to protect self-injectors
and their family members. Second, the system includes an optional disposal feature utilizing the USPS and is designed to
protect the individual’s community, solid waste workers and the environment. Our solution offers significant convenience as
it utilizes the same delivery channel, the retail pharmacy, that the self-injector typically uses to obtain medications, for
example insulin, and needles or syringes. Our solution is also designed to enhance the interactions between the pharmacist
and the individual thereby creating counseling opportunities and possibly better treatment outcomes.
ComplianceTRACSM: a more advanced web-based version of the Company’s compliance and training program.
ComplianceTRAC is designed to improve worker safety while satisfying applicable Occupational Safety and Health
Administration (“OSHA”) and other requirements for the end-user. The program includes employee training for
Bloodborne pathogens, HHS-compliant HIPAA and Hazardous Communications. The online program also provides access
to a database of over a million SDSs (MSDs), safety plans, regulatory information and facility self-audits. The program is
designed to replace outdated hard copy manuals with an updated platform available 24/7.
Route-Based Pick-Up Service: as a full-service medical waste services company, we offer route-based pick-up services to
customers and prospects that have facilities or branches that generate larger quantities of medical waste or where the route-
based pick-up service is preferred. This blended service of mailback and pick-up provides cost-savings benefits by
customizing the right solution with each location to reach the best outcome for the customer.
Other Solutions: a wide variety of other solutions including SharpsTracer®, Pitch-It IV™ Poles, Trip LesSystem®, Sharps®
Pump and Asset Return System, Sharps Secure® Needle Collection and Containment System™, Sharps® MWMS™ (a
Medical Waste Management System (“MWMS”)), and Spill Kit TakeAway Recovery System™.
MARKET OVERVIEW
The Company continues to take advantage of the many opportunities in the markets served as professional offices, retail
pharmacies and clinics, communities, assisted living and long-term care facilities, home healthcare companies, consumers,
pharmaceutical manufacturers, government agencies, health care facilities, individual self-injectors and commercial
organizations become more aware of alternatives to the traditional methods of management of medical sharps waste, used
healthcare materials and unused dispensed medications.
The Company’s growth strategies are focused on the Retail, Pharmaceutical, Professional, Assisted Living, Home Health
Care and Core Government markets. The Company believes its growth opportunities are supported by:
An increase in the number of used needles improperly disposed of outside the large healthcare setting and
into the solid waste system to 7.8 billion each year (tripled volume over the past ten years) and an increase
in the number of self-injectors in the country to 13.5 million over the same period;
An estimated 800,000 doctors, dentists, veterinarians, clinics, tattoo parlors and other businesses in the
country that generate smaller quantities of medical waste, including used syringes to whom we offer a
lower cost alternative to the traditional pick-up service. The Company addresses this market from two
directions: (i) field sales which focuses on larger dollar and nation-wide opportunities where we can utilize
the JMA with Daniels Sharpsmart to integrate the route-based pick-up service along with our mailback
solutions to create a comprehensive medical waste management offering and (ii) inside and online sales
which focus on the individual or small group professional offices;
An estimated 40% of the four billion dispensed medication prescriptions which go unused every year in
the United States generating an estimated 200 million pounds of unused medication waste;
The pace of regulation of sharps and unused dispensed medications disposal which is gaining momentum
at both the state and federal level - as of June 30, 2013, approximately 46 percent of U.S. citizens live in
states that have enacted legislation or strict guidelines mandating the proper disposal of home generated
used syringes while 67 percent live in states that have enacted or proposed legislation mandating the
proper disposal of home generated dispensed unused medications. Further, since 2009, the federal
government, nine states and several counties have introduced legislation requiring manufacturer
responsibility for consumer generated unused medications. State regulatory agencies are also addressing
6
this issue within the regulated industry. Multiple states now require healthcare providers to avoid sewer
and trash disposal of non-hazardous unused medications within their facilities. States such as California,
Washington and Minnesota have required assessment and proper treatment by a medical waste disposal
company for years. However, other states such as Colorado and Florida are now requiring even small
healthcare providers to segregate unused medications for proper disposal. In addition, states are beginning
to more closely scrutinize generators returning through reverse distribution unused medications that are
actually waste pharmaceuticals and should be disposed of as such.
The number of U.S. retail clinics is projected to double between 2011 and 2015, expecting business to
increase 20%-25% per year, driven by the increasing demand of newly insured patients under healthcare
reform as well as patients looking for more convenient care. The two leading retail pharmacies in the
country are emphasizing their efforts to grow their capability as a low cost provider of health care services
for non-chronic conditions. The number of pharmacists nationwide trained to deliver vaccines has
quadrupled since 2007. Vaccines offered in retail clinics include season flu programs as well as year
round programs for pneumococcus, shingles, pediatric immunizations, HPV and international travel;
The changing demographics of the U.S. population - one out of five Americans will be 65 years or older
by 2030, which will increase the need for cost-effective medical waste management solutions especially in
the home healthcare and assisted living markets;
The change in delivery of healthcare (more health care being administered in an alternative site) as well as
uncertainty created by the current state of healthcare-facts which are driving more healthcare providers to
increase efficiencies and reduce costs;
The Company’s JMA with Daniels Sharpsmart announced in May 2012, to serve the entire U.S. medical
waste market, offering clients a blended product portfolio to effectively target prospective customers with
multi-site and multi-sized locations including those that generate larger quantities of medical waste, The
JMA has had a significant positive impact on our pipeline of sales opportunities – over 60% of this
pipeline is attributable to alliance-type opportunities providing comprehensive medical waste management
service offerings where both the mailback and pick-up service are integrated into the offering;
New solution offerings including the Complete Needle™ Collection and Disposal System (designed for
the traditional under-served home self-injector), the TakeAway line of products for unused medications
(including TakeAway Environmental Return System™), the Medical/Professional TakeAway Recovery
System and enhanced patient support programs with pharmaceutical manufacturers; and
The Company’s strong financial position with a cash balance of $15.5 million and no debt as of June 30,
2013.
TERMINATED CONTRACT
in
In February 2009, the Company launched Sharps®MWMS™, which is a comprehensive medical waste and dispensed
medication solution which includes an array of products and services necessary to effectively collect, store and treat medical
waste and unused dispensed medication outside of the hospital or large health care facility setting. In connection with the
launch in 2009, the Company signed a five year contract (one year, plus four option years) with a major U.S. government
agency for a $40 million program to provide our comprehensive Medical Waste Management System™, or
Sharps®MWMS™, which is a rapid-deployment solution offering designed to provide medical waste collection, storage and
treatment
the event of natural disasters, pandemics, man-made disasters, or other national emergencies.
Sharps®MWMS™ is unique in that the solution also offers warehousing, inventory management, training, data and other
services necessary to provide a comprehensive solution. We received a purchase order for $28.5 million ($6.0 million of
which was recognized in fiscal year 2009, and $22.5 million was recognized in the first half of fiscal year 2010). In January
2010, we were awarded the first option year (ending January 31, 2011) valued at approximately $1.6 million which was
recognized from February 1, 2010 through January 31, 2011. In January 2011, we were awarded the second option year
(ending January 31, 2012) valued at approximately $3.0 million and was recognized from February 1, 2011 through January
31, 2012. The Company was notified by an agency of the U. S. Government, acting on behalf of the Division of Strategic
National Stockpile (“DSNS”) that the maintenance contract would not be renewed for the third option year (beginning
February 1, 2012) and that the contract would be terminated effective January 31, 2012. This non-renewal was preceded by a
7
letter dated December 2, 2011 advising the Company of the U.S. Government’s intent to exercise the third option year.
Although not stated in the notice provided by the U.S. Government, the Company believes the action is part of a budget
reduction program being implemented by the DSNS.
COMPETITIVE STRENGTHS
We believe our competitive strengths include the following:
Leading full-service provider of comprehensive and cost-effective medical waste management solutions throughout
North America.
We offer a full line of solutions and services that address the proper management of medical waste, used healthcare
materials and patient dispensed unused or expired medications. In connection with our JMA, we offer a blended product
portfolio that includes both a mailback and route-based pick-up service to target prospective customers with multi-site and
multi-sized locations that may include facilities that generate larger quantities of medical waste. This blended offering
includes a single point of contact, consolidated billing, regulatory support and complete integration of our SharpsTracer ®
system. Our proprietary SharpsTracer® tracking and documentation systems provide customers a comprehensive electronic
record of receipt and treatment of their waste to meet regulatory requirements. The Company’s mail or ship-back based
services are generally offered at a significantly lower cost as compared to the traditional route-based pick-up services for
small quantity generators since the Company utilizes the existing infrastructure of USPS or in some cases United Parcel
Service (“UPS”) for return transportation. While competitors may attempt to replicate our comprehensive solution
offerings, we believe the ability to offer such a comprehensive, value-added turnkey solution is a significant competitive
advantage. We have only begun to offer this comprehensive solution over the past twelve months with the primary focus of
our marketing efforts on educating the marketplace about us as an alternative to the historical provider of medical waste
services.
Vertically integrated full-service operations.
Our operations are fully integrated including manufacturing, assembly, distribution, treatment, online tracking and customer
reporting. We have manufacturing, assembly, distribution and warehousing operations in Houston, Texas. We own and
operate a fully-permitted treatment facility in Carthage, Texas, that incorporates our processing and treatment operations.
Approximately four years ago we supplemented the treatment facility’s existing incineration process with an autoclave
system, which is a cost-effective alternative to traditional incineration that treats medical waste with steam at high
temperature and pressure to kill pathogens. The autoclave system is utilized alongside the incinerator for day-to-day
operations. We believe that our facility is one of only ten permitted commercial facilities in the United States capable of
treating all types of medical waste, used healthcare materials and unused or expired dispensed medications (i.e., both
incineration and autoclave capabilities). During fiscal year 2013, the Company, under an agreement with Daniels
Sharpsmart, began utilizing four Daniels Sharpsmart treatment facilities located across the country for the proper treatment
of medical waste and used healthcare materials generated by our customers. This will not only reduce the Company’s return
transportation costs but also provide back-up treatment facility capabilities in the event of disruption at the Company’s
treatment facility in Carthage, Texas. We track the movement of each shipment from outbound shipping to ultimate
treatment and provide confirmation to the customer for their records using our proprietary SharpsTracer® tracking and
documentation system. We also track treatment volumes associated with pick-up services provided as part of our JMA
blended product portfolio using SharpsTracer®. We also provide customized reporting and comprehensive regulatory
support for many of our customers. By controlling all aspects of the process internally, the Company is able to provide a
one-stop solution and simplify the tracking and record-keeping processes to meet regulatory requirements for our customers.
We believe the fully-integrated nature of our operations is seen by current and prospective customers as a key factor and
differentiator leading to our success and leadership position in our industry.
Diverse product markets.
Sharps offers services and products to a wide variety of end markets. The Company’s growth strategies are focused on retail
pharmacies and clinics, pharmaceutical manufacturers, professional physician, dental and veterinary clinics, home healthcare
companies, retirement and assisted living and long-term care facilities and federal, state and local government agencies. We
also serve hospitality and other which includes hotel, commercial, industrial and agriculture.
8
Our billings by market for the years ended June 30, 2013, 2012 and 2011 are below (as expressed in percentages of
revenues):
Highly scalable business model.
Because of our proven business model, we can add new business while leveraging our existing infrastructure. Our facilities
are able to accommodate significant additional volume, incurring only variable costs of transportation and processing. Once
we gain a new customer, our profitability typically increases as our customer base grows without additional overhead
expense due to the embedded nature of our products and the ease with which we can accommodate additional volume.
Increased state and federal regulatory attention.
To protect citizens and waste workers from needle stick injuries, nine states have passed legislation or regulations making it
illegal to discard used sharps into household trash. Another nine states and the District of Columbia have strict guidelines
regarding home sharps disposal. Passed or strict guidelines related to home sharps disposal covers 46% of the U.S.
population.
In order to reduce accidental poisonings and pollution of our water and municipal water systems, twenty-two states and the
District of Columbia have introduced legislation over the last few years intended to manage the disposal of consumer unused
medications. Seven states and the District of Columbia have successfully passed such legislation. Passed or pending
legislation related to disposal of consumer medications covers 67% of the U.S. population. Further, since 2009, the federal
government, nine states and several counties have introduced legislation requiring manufacturer responsibility for consumer
generated unused medications. State regulatory agencies are also addressing this issue within the regulated industry.
Multiple states now require healthcare providers to avoid sewer and trash disposal of non-hazardous unused medications
within their facilities. States such as California, Washington and Minnesota have required assessment and proper treatment
by a medical waste disposal company for years. However, other states such as Colorado and Florida are now requiring even
small healthcare providers to segregate unused medications for proper disposal. In addition, states are beginning to more
closely scrutinize generators returning through reverse distribution unused medications that are actually waste
pharmaceuticals and should be disposed of as such. As state and federal enforcement of these statutes increases, more
companies could turn to solutions such as ours to help manage their medical waste and regulatory compliance. We believe
we are well positioned to benefit given our strict adherence to established standards and extensive documentation and
records.
Environmentally-conscious solution provider.
In addition to providing cost-effective solutions for our customers, the Company is committed to mitigating the effects of
medical waste and dispensed patient medications on the environment. Today, most used syringes and needles end up in
landfills while unused or expired dispensed medications are flushed causing pollution within our rivers, lakes and streams
with trace amounts of pharmaceuticals. Our products and services provide an environmentally progressive alternative
process for treatment. With our patented Waste Conversion Process™ and other innovations used at treatment facilities
nationwide, we divert waste from landfills and rivers. The diverted waste is repurposed into new resources for use in
industrial applications such as the generation of electricity or recycled plastics used in the industrial sector. The use of
recycled paper and plastic materials for many of our products further demonstrates our total commitment to environmentally
sound business practices. As an organization, the Company is a leading proponent for the development of solutions for the
9
201320122011BILLINGS BY MARKET:Home Health Care32%31%35%Retail24%24%24%Professional18%14%10%Pharmaceutical 11%10%2%Assisted Living7%6%6%Core Government 3%2%4%Other5%5%8%U.S. Government contract0%8%11%100%100%100%Year Ended June 30,
safe disposal of sharps and unused dispensed medications in the community and continually works to raise public awareness
of the issue.
Experienced and accomplished management team.
Our senior management team has extensive industry experience, and is committed to the continued growth and success of
our company. Mr. David P. Tusa, CEO and President, in addition to his ten plus years with the Company has over 20 years
of business and public company experience in multiple industries and in companies with revenues up to $500 million. Mr.
Berkley C. Nelson, Senior Vice President of Sales, has broad health care sales and sales management experience at a variety
of firms including Alere, Inc., Waste Management (Healthcare Solutions) and Siemens Medical Solutions Diagnostics. Ms.
Diana P. Diaz, CPA, MBA, Vice President and Chief Financial Officer, has over 25 years of finance, accounting, health care
and public company industry experience. Mr. Gregory C. Davis, Vice President of Operations, has over 19 years of
information technology and operations-related experience. Mr. Khairan Aladwani, Vice President of Assurance/Quality
Control, has over 25 years of quality assurance and operations experience, including medical devices, at a variety of
companies both private and public.
The Company’s Board of Directors oversees CEO and senior management succession planning. The process focuses on
building management depth, considers continuity and stability within the Company, and responds to Sharps’ evolving needs
and changing circumstances.
GROWTH STRATEGIES
We plan to grow our business by employing the following primary growth strategies:
Further penetrate existing customers and markets.
Many of our customers who currently use the Sharps Recovery System™ (formerly Sharps Disposal by Mail System®)
could also benefit from the TakeAway Environmental Return System™ products, the Complete Needle™ Collection and
Disposal System or other specialized products. Although currently focused primarily on the proper management of used
syringes and needles as well as dispensed expired or unused medication, pharmacies (including chains and mail order),
assisted living facilities and other related organizations will develop needs for our other product lines as they expand their
patient service offerings. As an entrenched and value-added supplier of treatment solutions, we believe the Company is
well-positioned to capture incremental business from our existing customers.
In May 2012, the Company announced a joint marketing alliance with Daniels Sharpsmart (“JMA”) to serve the entire U.S.
medical waste market, offering clients a blended product portfolio to effectively target health care customers with multi-site
and multi-sized locations including those that generate larger quantities of medical waste. The offering includes a single
point of contact, consolidated billing, regulatory support and complete integration of our Sharps Tracer System. The alliance
also enables a team effort for cross selling each company’s capabilities where best suited. The Company believes the JMA
will assist the Company in landing larger opportunities whereby the customer has both large and small quantity facilities
generating medical waste and used healthcare materials.
We are positive about anticipated growth opportunities in the Retail market. Regarding the future of this market, a recently
published reported by Accenture cites that the number of U.S. retail clinics are projected to double between 2011 and 2015,
expecting business to increase 20%-25% per year, driven by the increasing demand of newly insured patients under
healthcare reform as well as patients looking for more convenient care. The two leading retail pharmacies in the country are
emphasizing their efforts to grow their capability as a low cost provider of health care services for non-chronic conditions.
Given our strong market share, we believe we are very well-positioned to capitalize on this trend which would, in-turn, drive
demand for our cost-effective solutions.
Since June 30, 2011, the Company experienced growth of almost 700% or $2.1 million in the pharmaceutical market. We
continue to see interest in our patient support program solution offering among pharmaceutical manufacturers as it relates to
self-injectable medications especially related to new drug launches. We believe manufacturers are now, more than ever,
focused on (i) product differentiation, (ii) improved interaction with patients and (iii) creating a touch point for individual
patient follow-up that could lead to improved therapy outcomes. In fiscal year 2012, we launched three new patient support
programs announced in August and October 2011. The patient support programs include the direct fulfillment of the Sharps
Recovery System® to the pharmaceutical manufacturers’ program participants which provides the proper containment,
return and treatment of the needles or injection devices utilized in therapy. Sharps’ proprietary SharpsTracer™ system tracks
the return of the Sharps Recovery System® by the patient to the treatment facility, and then makes available to the
10
pharmaceutical manufacturer electronic data which assists them in monitoring medication discipline and provides them with
a touch point for individual patient follow-up which potentially could lead to better outcomes. Although we have not had
any product launches since fiscal year 2012, we are beginning to see new patient support program opportunities for new
drug launches that have the potential to positively impact calendar year 2014 and 2015. We believe the Company is the
leader in providing solutions of this type to this market.
In August 2011, the Company introduced the Complete Needle™ Collection and Disposal System which is focused on the
traditional under-served home self-injector required to regularly use needles or syringes for their health and well-being, such
as people with diabetes. The Complete Needle™ Collection and Disposal System is actually two offerings in one. First, the
product provides the individual self-injector with a reasonably priced containment solution designed to protect self-injectors
and their family members. Second, the product includes an optional disposal feature utilizing the USPS designed to protect
the individual’s community, solid waste workers and the environment. The solution offers significant convenience as it
utilizes the same delivery channel, the retail pharmacy that the self-injector typically uses to obtain medications, for
example, insulin, and needles or syringes. The solution is also designed to enhance the interaction between the pharmacist
and the individual thereby creating counseling opportunities and possibly better treatment outcomes.
Enhance sales and marketing efforts.
Field Sales – The Company maintains a field sales team that focuses on larger dollar and nation-wide opportunities in most
of the markets served. The field sales team is able to address much larger opportunities as a result of the JMA with Daniels
Sharpsmart where we can integrate the route-based pick-up service along with our mailback solutions to create a
comprehensive medical waste management offering. We have seen success with this approach in fiscal year 2013 and
believe the comprehensive offering capabilities should accelerate revenue growth of the Company.
Web and Inside Sales – Through targeted telemarketing initiatives (inside sales), e-commerce driven website and web-
based promotional activities, we believe we can drive significant additional growth as we increase awareness of the
Company’s innovative solution offerings.
Improve product and service awareness to attract new customers.
As we grow, we continue to focus additional marketing and sales efforts designed to educate home health care providers,
physician and dental clinics, pharmaceutical manufacturers, consumers, communities and government agencies of the
benefits of our solution offerings and the need for safe, cost-effective and environmentally-friendly methods of medical
waste treatment. We believe that the full-service nature of our solution offerings, ease of our mail and ship-back based
delivery system and convenience will attract new customers who are not yet aware of the services we provide. In addition to
providing a convenient, cost-effective solution to waste and used healthcare materials treatment, we believe future growth
will be driven by the need for our customers to properly document and track the disposal of their hazardous waste to
maintain compliance with new and existing legislation. We believe our understanding of the legislative process and focus
on accurate and thorough electronic tracking of waste disposal or treatment will provide substantial benefits to new
customers looking to comply with new standards and promote environmentally cleaner business practices.
Develop new products and services.
We continue to develop new solution offerings including the Complete Needle™ Collection and Disposal System (designed
for the traditional under-served home self-injector), the TakeAway line of products for unused medications (including
TakeAway Environmental Return System™),
the
Sharps®MWMS™ and ComplianceTRACSM. These innovative product and service offerings allow us to gain further sales
from existing customers as well as gain new customers who have a need for more comprehensive products. We will
continue our efforts to develop new solution offerings designed to facilitate the proper and cost effective solutions for
management of medical waste, used healthcare materials and unused dispensed medications to better serve our customers
and the environment. Additionally, we will continue to seek out and identify prospective new customers and markets for
new solutions designed to meet the needs of these new customer segments. Research and development expenses were $0,
$1 thousand and $131 thousand for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
the Medical/Professional TakeAway Recovery System™,
Increase adoption of our product lines among federal, state and local government agencies.
In January 2010, we launched a pilot program with the United States Department of Veterans Affairs (“VA”) within the VA
Capitol Health Care Network (“Veterans Integrated Service Network” or “VISN”). The VISN is part of the Veterans Health
Administration which encompasses the largest integrated health care system in the United States, consisting of 153 medical
11
centers, in addition to numerous community based outpatient clinics, community living centers and Vet Centers. Together
these health care facilities provide comprehensive care to over 5.5 million Veterans each year. The pilot allowed each of the
participating medical centers within the VISN, both inpatient and outpatient, to provide the Sharps Recovery System™
(formerly known as the Sharps Disposal By Mail System®) and the TakeAway Environmental Return System solutions to
their patients. Since its original launch, the pilot program expanded to include eight VISNs. The VA Pilot was completed as
of June 30, 2012 and generated revenue of approximately $0.1 million and $0.4 million in the fiscal years ended June 30,
2013 and 2012, respectively.
In February 2009, we signed a five year contract (one year, plus four option years) with a major U.S. government agency for
a $40 million program to provide our comprehensive Medical Waste Management System™, or Sharps®MWMSTM, which is
a rapid-deployment solution offering designed to provide medical waste collection, storage and treatment in the event of
natural disasters, pandemics, man-made disasters, or other national emergencies. Sharps®MWMSTM is unique in that the
solution also offers warehousing, inventory management, training, data and other services necessary to provide a
comprehensive solution. The contract was terminated effective January 31, 2012. This non-renewal was preceded by a letter
dated December 2, 2011 advising the Company of the U.S. Government’s intent to exercise the third option year. Although
not stated in the notice provided by the U.S. Government, the Company believes the action was part of a budget reduction
program implemented by the DSNS.
CONCENTRATION OF CREDIT AND SUPPLIERS
There is a concentration of credit risk associated with accounts receivable arising from sales to our major customers. For the
fiscal year ended June 30, 2013, one customer represented approximately 22% of revenue. This customer represented
approximately 25% or $638 thousand, of the total accounts receivable balance at June 30, 2013. For the fiscal year ended
June 30, 2012, two customers represented approximately 30% of revenues. One of these customers represented
approximately 26%, or $623 thousand, of the total accounts receivable balance at June 30, 2012. The other customer, which
had no accounts receivable balance at June 30, 2012, was a major U.S. government agency which terminated January 31,
2012. For the fiscal year ended June 30, 2011, two customers represented approximately 33% of revenues. We may be
adversely affected by our 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 solution offerings and (iii) the continued diversification of our solution offerings into additional markets outside of its
traditional customer base.
We currently transport (from the patient or user to the Company’s facility) the majority of our solution offerings using
USPS; therefore, any long-term interruption in USPS delivery services would disrupt the return transportation and treatment
element of our 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, we entered into an arrangement with UPS whereby UPS
transports our TakeAway Recovery System™ line of solution offerings. The ability to ship items, whether through the USPS
or UPS, is regulated by the government and related agencies. Any change in regulation restricting the shipping of medical
waste, used healthcare materials or unused or expired dispensed pharmaceuticals through these channels would be
detrimental to our ability to conduct operations.
We maintain relationships with multiple raw materials suppliers and vendors in order to meet customer demands and assure
availability of our products and solutions. With respect to the Sharps Recovery System™ (formerly Sharps Disposal by Mail
System®) solutions, we own all proprietary molds and dies and utilize three contract manufacturers for the production of the
primary raw materials. We believe that alternative suitable contract manufacturers are readily available to meet the
production specifications of our products and solutions. We utilize national suppliers such as Herman Packaging and R & D
Molders for the majority of the raw materials used in our other products and solutions and international suppliers such as
Ashoka Company for Pitch-It™ IV Poles.
INTELLECTUAL PROPERTY
We have a portfolio of trademarks and patents, both granted and pending. We consider our trademarks important in the
marketing of our products and services, including Sharps Disposal by Mail System®, TakeAway Environmental Return
System™, Complete Needle™ Collection and Disposal System, ComplianceTRACSM, Sharps®MWMS™, Pitch-It IV™
Poles, Trip LesSystem®, GREEN Waste Conversion Process™, and PELLA-DRX™ among others. With respect to our
registered marks, we continue using such marks and will file all necessary documentation to maintain their registrations for
the foreseeable future. We have a number of patents issued, including those applicable to our PELLA-DRX waste
12
conversion process (patent numbers US 8,163,045, US 8,100,989 and US 8,268,073), our Sharps Secure® Needle Collection
and Containment System™ (patent numbers US 8,162,139 and US 8,235,883) and our unique design features related to the
TakeAway Environmental Return System™ drop-off boxes (patent number US 8,324,443). We have patents pending on our
Complete Needle™ Collection & Disposal System and our Medical Waste Management System (Sharps MWMS™ rapid
deployment system).
COMPETITION
There are several competitors who offer similar or identical products and services that facilitate the disposal of smaller
quantities of medical waste. 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
include (i) smaller private companies or (ii) divisions of larger companies. Additionally, we compete, in most markets, with
Stericycle, the largest medical waste company in the country, which focuses primarily on a pick-up service business model.
With the addition of the route-based pick-up services offered through the JMA with Daniels Sharpsmart, the Company
believes it is better positioned, with its comprehensive medical waste management offering, to compete with Stericycle. As
Sharps continues to grow and increase awareness of the proper disposal of syringes and unused medications, it could face
additional and possibly significant competition. We believe our comprehensive line of proven solution offerings,
comprehensive medical waste management service offerings, first mover advantages, excellent industry reputation,
significant history of market and customer success, quality solutions and products, as well as our capabilities as a vertically
integrated producer of products and services, provides significant differentiation in the current competitive market.
GOVERNMENT REGULATION
Sharps is subject to extensive federal, state, and/or local laws, rules and regulations. We are required to obtain permits,
authorizations, approvals, certificates and other types of governmental permission from the EPA, the State of Texas and the
local governments in Carthage, Texas with respect to our facilities. Such laws, rules and regulations 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 transported medical waste. Our
estimated annual costs of complying with these laws, regulations and guidelines is currently less than $200,000 per year. In
the event additional laws, rules or regulations are adopted which affect our business, additional expenditures may be
required in order for Sharps to be in compliance with such changing laws, rules and regulations.
COMPLIANCE WITH ENVIRONMENTAL LAWS
In November 2005 and September 2009, the EPA and the Texas Commission on Environmental Quality promulgated new
regulations under the Clean Air Act and associated state statutes which affect the incineration portion of our operation of the
treatment facility located in Carthage, Texas. These regulations modify the emission limits and monitoring procedures
required to operate an incineration facility. These new regulations and the recent receipt of a Title V permit required
additional emissions-related monitoring equipment and compliance. Such changes required us to incur capital expenditures,
which are reflected in cash flows from investing activities in the Company’s consolidated statement of cash flows, in order
to meet the requirements of the new regulations.
13
ITEM 1A. RISK FACTORS
We may be unable to manage our growth effectively.
We continue to experience core revenue growth for fiscal year 2013, as we saw the benefits of our marketing activities in
our target markets, Pharmaceutical and Professional. Core revenue increased more than 7% to $21.5 million for the fiscal
year ended June 30, 2013 driven by targeted telemarketing initiatives and promotional activities in the professional market
and continued roll-out of new patient support programs in the pharmaceutical market. Though the Retail market was down
about 4% due to inconsistent timing of flu shot related orders compared to the prior year, we saw growth of nearly 21% in
the Assisted Living market as providers continue to accommodate the aging population. The increase in revenue and
execution of our growth strategies has placed and will continue to place significant demands on our financial, operational
and management resources. In order to continue our growth, we may need, at some point, to add operations, administrative
and other personnel, and may need to make additional investments in the infrastructure and systems. There can be no
assurance that we will be able to find and train qualified personnel, do so on a timely basis, or expand our operations and
systems to the extent, and in the time, required.
The loss of the Company’s senior executives could affect the Company’s ability to manage the business profitability.
Our 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 CEO and President, Senior Vice President of Sales, Vice President and
CFO, Vice President of Operations and Vice President of Quality Assurance. We believe 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 arrangements with key personnel and (ii) approved the Executive Officer Incentive
Compensation Plan for participation by certain senior management members in order to provide an incentive for their
continued employment with the Company. The unplanned loss of one or more members of the senior management team and
our inability to hire key employees could disrupt and adversely impact the Company’s ability to execute its business plan.
The Board of Directors oversees CEO and senior management succession planning. The process focuses on building
management depth, considers continuity and stability within the Company, and responds to Sharps’ evolving needs and
changing circumstances. The Board approves continuity plans for the CEO and senior management succession planning to
enable the Board to respond to planned or unexpected vacancies in key positions. The Board considers optimizing the
ongoing safe and sound operation of the Company and minimizing any potential disruption or loss of continuity to our
business and operations as it evaluates the plan.
Our business is dependent on a small number of customers. To the extent we are not successful in winning additional
business mandates from our government and commercial customers or attracting new customers, our results of
operations and financial condition would be adversely affected.
We are dependent on a small group of customers. In addition, there is a concentration of credit risk associated with accounts
receivable arising from sales to our major customers. For the fiscal year ended June 30, 2013, one customer represented
approximately 22% of revenues. This customer represented approximately 25%, or $638 thousand, of the total accounts
receivable balance at June 30, 2012. To the extent these significant customers are delinquent or delayed in paying or we are
not successful in obtaining consistent and additional business from our existing and new customers, our results of operations
and financial condition would be adversely affected.
Aggressive pricing by existing competitors and the entrance of new competitors could drive down the Company’s profits
and slow its growth.
There are several competitors who offer similar or identical products and services that facilitate the disposal of smaller
quantities of medical waste. 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
include (i) smaller private companies or (ii) divisions of larger companies. Additionally, we do compete, in certain markets,
with Stericycle, the largest medical waste company in the country, which focuses primarily on a pick-up service business
model. As Sharps continues to grow and increase awareness of the proper disposal of syringes and unused medications, it
could face additional and possibly significant competition. As a result, we could experience increased pricing pressures that
could reduce our margins. In addition, as we expand our business into other markets, the number, type and size of our
14
competitors may expand. Many of these potential competitors may have greater financial and operational resources,
flexibility to reduce prices and other competitive advantages that could adversely impact our current competitive position.
The lack of customer long-term volume commitments could adversely affect the Company’s profits and future growth.
Although we enter into exclusive contracts with the majority of our enterprise customers, 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. Canceled, delayed or reduced purchase orders could
significantly affect our financial performance.
The Company is subject to extensive and costly federal, state and local laws and existing or future regulations may
restrict the Company’s operations, increase our costs of operations and subject us to additional liability.
We are subject to extensive federal, state, and/or local laws, rules and regulations. We are required to obtain permits,
authorizations, approvals, certificates and other types of governmental permission from the EPA, Texas and the local
governments in Carthage, Texas with respect to our facilities. Such laws, rules and regulations 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 transported medical waste. We
believe that we are currently in compliance in all material respects with all applicable laws and regulations governing our
business, including the permits and authorizations for our incinerator facility. Our estimated annual costs of complying with
these laws, regulations and guidelines is currently less than $200,000 per year. In the event additional laws, rules or
regulations are adopted which affect our business, additional expenditures may be required in order for us to be in
compliance with such changing laws, rules and regulations. Furthermore, any material relaxation of any existing regulatory
requirements governing the transportation and disposal of medical waste could result in a reduced demand for our products
and services and could have a material adverse effect on our 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.
In November 2005 and September 2009, the EPA and the Texas Commission on Environmental Quality promulgated new
regulations under the Clean Air Act and associated state statutes which affect the incineration portion of our operation of the
treatment facility located in Carthage, Texas. These regulations modify the emission limits and monitoring procedures
required to operate an incineration facility. These new regulations and the recent receipt of a Title V permit required
additional emissions-related monitoring and compliance. Such changes required us to incur capital expenditures, which are
reflected in cash flows from investing activities in the Company’s consolidated statement of cash flows, in order to meet the
requirements of the new regulations. We have received conditional acceptance of our compliance efforts pending additional
activities that we expect to complete by the end of September 2013 with additional capital costs of less than $100,000. There
can be no assurance that once we incur the capital expenditures and complete the additional activities that the facility will
comply with the new regulations. An inability to comply with the regulations could disrupt incinerator operations at the
treatment facility and could have a material adverse effect on our future operations.
The inability of the Company to operate its treatment facility would adversely affect its operations.
Our business utilizes a treatment facility for the proper disposal or treatment of medical waste, used health care materials
and unused pharmaceuticals. Our owned facility has both incineration and autoclave technologies in Carthage, Texas
(Panola County). Prior to the purchase of the facility in January 2008, we operated the facility since 1999 under a lease
arrangement. Sharps’ believes it operates and maintains the facility in compliance in all material respects with all federal,
state and local laws and/or any other regulatory agency requirements involving treatment and disposal and the operation of
the incinerator and autoclave facility. The failure to maintain the permits for the treatment facility or unfavorable conditions
contained in the permits or new regulations could substantially impair our operations and reduce our revenues. During fiscal
year 2013, the Company, under an agreement with Daniels Sharpsmart, began utilizing four Daniels Sharpsmart treatment
facilities located across the country for the proper treatment of medical waste and used healthcare materials generated by our
customers. This will not only reduce the Company’s return transportation costs but also provide back-up treatment facility
capabilities in the event of disruption at the Company’s treatment facility in Carthage, Texas. Any disruption in the
availability of a disposal or treatment facility, whether as a result of action taken by governmental authorities, natural
disasters or otherwise, would have an adverse effect on our operations and results of operations.
15
The handling and disposal or treatment of regulated waste carries with it the risk of personal injury to employees and
others.
Our business requires us to handle materials that may be infectious or hazardous to life and property in other ways. Although
our products and procedures are designed to minimize exposure to these materials, the possibility of accidents, leaks, spills,
and acts of God always exists. Human beings, animals or property could be injured, sickened or damaged by exposure to
regulated waste. This in turn could result in lawsuits in which we are found liable for such injuries, and substantial damages
could be awarded against us. While we carry liability insurance intended to cover these contingencies, particular instances
may occur that are not insured against or that are inadequately insured against. An uninsured or underinsured loss could be
substantial and could impair our profitability and reduce our liquidity.
An inability to win additional government contracts could have a material adverse effect on our operations and adversely
affect our future revenue.
A material amount of our revenues were generated through a contract with a major U.S. government agency for the period
from March 2009 through the contract’s termination in January 2012 totaling $33 million. Subsequent to the contract’s
termination, our Company-wide revenues have experienced a decrease compared to prior periods. Although the Company is
attempting to secure large additional U.S. Government contracts, including programs with the Veterans Administration,
there can be no assurances that such efforts will be successful. All contracts with, or subcontracts involving, the federal
government are terminable, or subject to renegotiation, by the applicable governmental agency on 30 days’ notice, at the
option of the governmental agency. If a material contract is terminated or renegotiated in a manner that is materially adverse
to us, our revenues and future operations could be materially adversely affected.
As a government contractor, we are subject to extensive government regulation, and our failure to comply with applicable
regulations could subject us to penalties that may restrict our ability to conduct our business.
Governmental contracts or subcontracts involving governmental facilities are often subject to specific procurement
regulations, contract provisions and a variety of other requirements relating to the formation, administration, performance
and accounting of these contracts. Many of these contracts include express or implied certifications of compliance with
applicable regulations and contractual provisions. If we fail to comply with any regulations, requirements or statutes, our
existing governmental contracts or subcontracts involving governmental facilities could be terminated or we could be
suspended from government contracting or subcontracting. If one or more of our governmental contracts or subcontracts are
terminated for any reason, or if we are suspended or debarred from government work, we could suffer a significant reduction
in expected revenues and profits. Furthermore, as a result of our governmental contracts or subcontracts involving
governmental facilities, claims for civil or criminal fraud may be brought by the government for violations of these
regulations, requirements or statutes.
The possibility of postal work interruptions and restrictions on shipping through the mail would adversely affect the
disposal or treatment element of the Company’s business and have an adverse effect on our operations, results of
operations and financial condition.
We currently transport (from the patient or user to the Company’s facility) the majority of our solution offerings using
USPS; therefore, any long-term interruption in USPS delivery services would disrupt the return transportation and treatment
element of our 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, we entered into an arrangement with UPS whereby UPS
transports our TakeAway Recovery System™ line of solution offerings. The ability to ship items, whether through the USPS
or UPS, is regulated by the government and related agencies. Any change in regulation restricting the shipping of medical
waste, used healthcare materials or unused or expired dispensed pharmaceuticals through these channels would be
detrimental to our ability to conduct operations. Notwithstanding the foregoing, any disruption in the transportation of
products would have an adverse effect on our operations, results of operations and financial condition.
The Company’s stock has experienced, and may continue to experience, low trading volume and price volatility.
Our common stock has been listed on the NASDAQ Capital Market (“NASDAQ”) under the symbol “SMED” since May 6,
2009. The daily trading volumes for our common stock are, and may continue to be, relatively small compared to many
other publicly traded securities. Since trading on the NASDAQ, our average daily trading volume has been approximately
16
69,000 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 our common stock may, therefore, be volatile.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the date of this report, we do not have any unresolved staff comments.
ITEM 2. DESCRIPTION OF PROPERTY
Sharps leases 170,489 square feet of space in Houston, Texas and Atlanta, Georgia. Sharps has manufacturing, assembly,
distribution and warehousing operations on Reed Road in Houston, Texas, and corporate offices on Kirby Drive in Houston,
Texas. In August 2012, the Company executed an agreement with the Atlanta facility landlord reducing its obligation under
the lease for the 51,000 square foot facility by approximately 20,000 square feet effective September 1, 2012. In February
2013, the Company subleased the remaining portion of the Atlanta facility effective February 1, 2013. The Company’s
leases expire from April 2014 to April 2015 with options to renew the leases for warehouses for 5 years and for office space
for 10 years.
We own and operate a fully-permitted facility in Carthage, Texas that houses our processing and treatment operations in an
estimated 12,000 square foot building on 4.5 acres of land. The facility is permitted to process 40 tons per day of municipal
solid waste (including medical, pharmaceutical and other healthcare related waste). The incinerator at the facility is currently
permitted to treat 40 tons per day of municipal solid waste with 10% of this amount identified as applicable to healthcare
facility generated medical waste while the autoclave is capable of treating up to seven tons per day of medical waste.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
17
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 the 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”. Since trading on the NASDAQ, the Company’s common stock had an average trading volume
of approximately 69,000 shares traded per month. The table below sets forth the high and low closing prices of the
Company’s common stock on the NASDAQ (July 1, 2011 through August 26, 2013) for each quarter within the last two
fiscal years.
Stockholders: At August 26, 2013, there were 15,344,960 shares of common stock held by approximately 174 holders of
record. The last reported sale of the common stock on August 26, 2013 was $2.69 per share.
Dividend Policy: The Company has never declared nor paid any cash dividends on its common stock. The Company
currently intends to retain its cash generated from operations for working capital purposes and to fund the continued
expansion of its business and does not anticipate paying any dividends on our common stock in the foreseeable future.
18
HighLowFiscal Year Ended June 30, 2012First Quarter4.55$ 2.98$ Second Quarter4.83$ 3.88$ Third Quarter4.25$ 3.47$ Fourth Quarter4.14$ 2.97$ Fiscal Year Ended June 30, 2013First Quarter3.74$ 2.50$ Second Quarter3.35$ 2.26$ Third Quarter3.00$ 2.10$ Fourth Quarter3.18$ 2.60$ Fiscal Year Ending June 30, 2014First Quarter (August 26, 2013)2.80$ 2.57$ Common Stock
Issuer Purchases of Equity Securities: On January 7, 2013, the Company announced that its Board of Directors approved
a stock repurchase program effective January 3, 2013, authorizing the Company to repurchase in the aggregate up to $3
million of its outstanding common stock over a two-year period. The shares would be purchased from time to time on the
open market or in privately negotiated transactions, at the Company's discretion, in each case, in compliance with Rule 10b-
18 under the Securities Exchange Act of 1934, as amended, subject to market and business conditions, applicable legal
requirements, explicit black-out dates and other factors. The purchases will be funded using the Company's available cash
balances and cash generated from operations. The program does not obligate the Company to acquire any particular amount
of common stock and may be modified, suspended or terminated at any time at the Company's discretion in accordance with
Rule 10b-18. During the year ended June 30, 2013, shares were repurchased as follows:
19
Period(a) Total Number of Shares Purchased(b) Average Price Paid per Share(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(d) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or ProgramsJuly 1 - July 31, 2012- -$ - -$ August 1 - August 31, 2012- - - - September 1 - September 30, 2012- - - - October 1 - October 31, 2012- - - - November 1 - November 30, 2012- - - - December 1 - December 31, 2012- - - - January 1 - January 31, 2013- - - 3,000,000 February 1 - February 28, 2013- - - 3,000,000 March 1 - March 31, 201325,360 2.93 25,360 2,925,579 April 1 - April 30, 2013- - - 2,925,579 May 1 - May 31, 2013- - - 2,925,579 June 1 - June 30, 2013- - - 2,925,279 25,360 2.93$ 25,360 2,925,579$
Corporate Performance Graph*: The graph compares the cumulative total return (i.e., stock price appreciation) on the
Company’s common stock from the first day it began trading on the NASDAQ and each quarter thereafter with the
cumulative total return for the same period on the NASDAQ Small Cap Index and the Dow Jones US Waste and Disposal
Services Index. The graph assumes that $100 was invested on May 6, 2009 in our common stock and in the stock
represented by each of the two indices.
Comparison of 49 Month Cumulative Total Return
Assumes Initial Investment of $100
June 2013
Sharps Compliance Corp.
Sharps Compliance Corp.
NASDAQ Small Cap Index
NASDAQ Small Cap Index
Dow Jones US Waste and Disposal Services Index
Dow Jones US Waste and Disposal Services Index
250 00
250.00
200.00
200.00
150.00
150.00
100.00
50.00
50.00
0.00
0.00
*The Corporate Performance Graph and related information shall not be deemed "soliciting material" or to be "filed" with the SEC, nor
shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the
extent that we specifically incorporate it by reference into such filing.
Securities Authorized for Issuance under Equity Compensation Plans:
The following equity compensation plan information is provided as of June 30, 2013:
Notes:
(1) Represents stock options issued under the Sharps Compliance Corp. 2010 Stock Plan. The 2010 Stock Plan replaced the 1993 Stock
Plan in November 2010. There are 384,667 stock options issued under the 1993 Stock Plan (with a weighted average exercise price of
$4.86) which remain outstanding subsequent to the replacement of the 1993 Stock Plan.
(2) Number of securities to be issued and weighted average exercise price include the effect of 15,499 shares of restricted stock issued to
the Board of Directors.
20
Plan CategoryNumber of securities to be issued upon exercise of outstanding options, warrants and rightsWeighted average exercise price of outstanding options, warrants and rightsNumber of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)(a)(b)(c)2010 Stock Plan as approved by shareholders (1) (2)507,079 3.59$ 296,308
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data has been derived from our audited financial statements and should be read in
conjunction with the historical Consolidated Financial Statements and related notes (in thousands except earnings per share
data):
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 analyzes changes in the consolidated operating results and financial condition of the Company during the
twelve months ended June 30, 2013, 2012 and 2011, respectively. The following table sets forth, for the periods indicated,
certain items from the Company’s Consolidated Statements of Operations (dollars in thousands except for percentages
expressed as a percentage of revenues):
21
20132012201120102009Revenues 21,530$ 21,787$ 19,395$ 39,156$ 20,297$ Operating Income (Loss)(2,709)$ (2,521)$ (4,536)$ 14,398$ 3,464$ Net Income (Loss)(2,712)$ (3,621)$ (2,975)$ 9,356$ 4,197$ Net Income (Loss) per share: Basic (0.18)$ (0.24)$ (0.20)$ 0.66$ 0.33$ Diluted(0.18)$ (0.24)$ (0.20)$ 0.63$ 0.30$ Total Assets 25,532$ 27,638$ 30,598$ 31,632$ 15,188$ Total Debt-$ -$ -$ -$ -$ Cash and Cash Equivalents 15,503$ 17,498$ 18,280$ 18,068$ 4,792$ Working Captial 16,643$ 18,607$ 20,226$ 21,617$ 4,566$ Total Stockholders' Equity21,070$ 23,180$ 25,865$ 26,941$ 9,570$ For the Year Ended June 30, 2013%2012%2011%Revenues21,530$ 100.0%21,787$ 100.0%19,395$ 100.0% Cost of revenues15,183 70.5%15,246 70.0%13,171 67.9% Gross profit6,347 29.5%6,541 30.0%6,224 32.1% SG&A expense8,619 40.0%8,609 39.5%9,837 50.7% Special charge- 0.0%- 0.0%570 2.9% Depreciation and amortization437 2.0%453 2.1%353 1.8% Operating loss(2,709) (12.6%)(2,521) (11.6%)(4,536) (23.4%) Other income12 0.1%23 0.1%45 0.2% Loss before income taxes(2,697) (2,498) (4,491) Income tax expense (benefit)15 0.1%1,123 5.2%(1,516) (7.8%)Net loss(2,712)$ (12.6%)(3,621)$ (16.6%)(2,975)$ (15.3%)Year Ended June 30,
YEAR ENDED JUNE 30, 2013 AS COMPARED TO YEAR ENDED JUNE 30, 2012
Total revenues for the fiscal year ended June 30, 2013 of $21.5 million decreased by $0.3 million, or 1.2%, from the total
revenues for the fiscal year ended June 30, 2012 of $21.8 million. Billings by market are as follows (in thousands):
*Represents the net impact of the revenue recognition adjustment required to arrive at reported generally accepted accounting principles
(“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 disposal or treatment. 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”.
This Annual Report on Form 10-K contains certain financial information not derived in accordance with GAAP, including
customer billings information. The Company believes this information is useful to investors and other interested parties as
customer billings represents all invoiced amounts associated with products shipped during the period reported. Such
information should not be considered as a substitute for any measures derived in accordance with GAAP, and may not be
comparable to other similarly titled measures of other companies. Reconciliation of this information to the most comparable
GAAP measures is included above.
The decrease in revenues is primarily attributable to decreased billings in the U.S. Government Contract ($1.7 million) and
Retail ($0.2 million) markets. These decreases in billings were partially offset by increased billings in the Professional ($0.8
million), Core Government ($0.3 million) and Pharmaceutical ($0.3 million) markets. U.S. Government Contract billings are
associated with the Company’s contract with a major U.S. government agency announced in February 2009. The decrease in
the U.S. Government contract market billings is associated with the January 31, 2012 termination of the maintenance portion
of a U.S. Government contract with the Division of Strategic National Stockpile (“DSNS”) of the Centers for Disease
Control (“CDC”). The decrease in Retail billings was primarily due to the timing of customer orders and a new program
launch in the prior-year period of the TakeAway Environmental Return System™ solutions. These decreases in the Retail
market were partially offset by higher sales of the Complete Needle Collection & Disposal System™ in the current fiscal
year. The increase in the Professional market billings was a direct result of the Company’s targeted telemarketing initiatives
and promotional activities to inform doctors, dentists and veterinarians of the significant cost advantage and convenience of
the Company’s Sharps® Recovery System when compared with the traditional pick-up service in the small quantity
generator sector. The Professional market was also positively impacted by JMA related business during the current year. The
increase in the Core Government market billings reflects distributor sales to a major U.S. agency to facilitate the launch of
our solutions in selected military bases. The increase in the Pharmaceutical market billings is due to the timing of customer
orders including resupply orders from several patient support programs. The programs include the direct fulfillment of the
Sharps® Recovery System to the pharmaceutical manufacturers’ program participants which provides the proper
containment, return and treatment of the needles or injection devices utilized in therapy.
Cost of revenues for the year ended June 30, 2013 of $15.2 million was 70.5% of revenues. Cost of revenues for the year
ended June 30, 2012 of $15.2 million was 70.0% of revenue. The lower gross margin for the year ended June 30, 2013 of
22
20132012 Variance (Unaudited)(Unaudited)(Unaudited)BILLINGS BY MARKET:Home Health Care6,721$ 6,856$ (135)$ Retail5,041 5,259 (218) Professional3,863 3,019 844 Pharmaceutical 2,413 2,129 284 Assisted Living1,576 1,307 269 Core Government732 419 313 Other937 1,114 (177) U.S. Government Contract- 1,685 (1,685) Subtotal21,283 21,788 (505) GAAP Adjustment *247 (1) 248 Revenue Reported21,530$ 21,787$ (257)$ Year Ended June 30,
29.5% (versus 30.0% for the year ended June 30, 2012) was due to ongoing facility costs of $0.3 million, or 120 basis
points, associated with the maintenance portion of the U.S. government contract that was terminated as of January 31, 2012.
Selling, general and administrative (“SG&A”) expenses for the year ended June 30, 2013 and 2012 were $8.6 million.
SG&A for fiscal year 2013 was negatively impacted by severance costs for a former officer of the Company of $0.2 million.
The Company generated an operating loss of $2.7 million for the year ended June 30, 2013 compared to an operating loss of
$2.5 million for the year ended June 30, 2012. The operating margin was (12.6%) for the year ended June 30, 2013
compared to (11.6%) for the year ended June 30, 2012. The increase in operating loss is a result of lower billings in fiscal
year 2013 (discussed above).
The Company generated a loss before income taxes of $2.7 million for year ended June 30, 2013 versus a loss before income
taxes of $2.5 million for the year ended June 30, 2012. The increase in loss before income taxes is a result of a higher
operating loss in fiscal year 2013 (discussed above).
The Company’s effective tax rate for the year ended June 30, 2013 was 1.0% reflecting estimated state income taxes
compared to 45.0% for the year ended June 30, 2012. During the year ended June 30, 2012, the Company recorded $2.0
million to establish a deferred tax valuation allowance on net deferred tax assets. The Company’s tax benefit associated with
taxable losses during the year ended June 30, 2013 was offset by a deferred tax valuation allowance of $0.9 million.
Excluding the impact of the valuation allowance, the effective tax rate benefit was relatively flat at 33.6% for the year ended
June 30, 2013 compared to 33.5% for the year ended June 30, 2012.
The Company generated a net loss of $2.7 million for year ended June 30, 2013 compared to a net loss of $3.6 million for
the year ended June 30, 2012. The improvement in net loss was primarily due to the decrease in the deferred tax valuation
allowance recorded in fiscal year 2013 compared with fiscal year 2012 (discussed above).
The Company reported diluted loss per share of ($0.18) for the year ended June 30, 2013 versus diluted loss per share of
($0.24) for year ended June 30, 2012. The improvement in diluted loss per share is a result of a lower net loss (discussed
above).
23
YEAR ENDED JUNE 30, 2012 AS COMPARED TO YEAR ENDED JUNE 30, 2011
Total revenues for the fiscal year ended June 30, 2012 of $21.8 million increased by $2.4 million, or 12.3%, over the total
revenues for the fiscal year ended June 30, 2011 of $19.4 million. Billings by market are as follows (in thousands):
*Represents the net impact of the revenue recognition adjustment required to arrive at reported generally accepted accounting principles
(“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 disposal or treatment. 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”.
This Annual Report on Form 10-K contains certain financial information not derived in accordance with GAAP, including
customer billings information. The Company believes this information is useful to investors and other interested parties as
customer billings represents all invoiced amounts associated with products shipped during the period reported. Such
information should not be considered as a substitute for any measures derived in accordance with GAAP, and may not be
comparable to other similarly titled measures of other companies. Reconciliation of this information to the most comparable
GAAP measures is included above.
The increase in revenues is primarily attributable to increased billings in the Pharmaceutical ($1.8 million), Professional
($1.0 million) and Retail ($0.6 million) markets. These increases in billings were partially offset by decreased billings in the
U.S. Government Contract ($0.4 million), Core Government ($0.3 million) and Other ($0.5 million) markets. The increase
in the Pharmaceutical market billings is due to the timing of customer orders including the launch of three new patient
support programs announced in August and October 2011 and resupply orders for existing patient support programs. The
programs include the direct fulfillment of the Sharps Recovery System® to the pharmaceutical manufacturers’ program
participants which provides the proper containment, return and treatment of the needles or injection devices utilized in
therapy. The increase in the Professional market was a direct result of the Company’s targeted telemarketing activities, e-
commerce focused website, trade show participation and internet-based promotional activities to educate doctors, dentists
and veterinarians on the significant cost advantage and the convenience of the Sharps Recovery System™ over the
traditional pick-up service. The increase in the Retail market is primarily due to sales from a strong 2011 flu shot season,
orders in advance of the 2012 flu shot season, immunizations administered in the retail setting and the initial fill of the
Complete Needle™ Collection & Disposal System in two major retail pharmacy chains as well as several food and drug
chains. Partially offsetting this increase was prior year sales of $1.6 million related to the initial orders of the Company’s
TakeAway™ Environmental Return System™ envelope solution by three large retail pharmacy chains and several food and
drug chains to address growing concerns regarding the hazards of unused medications in the home and environment. U.S.
Government Contract billings are associated with the Company’s contract with a major U.S. government agency announced
in February 2009. The decrease in the U.S. Government contract market billings is associated with the January 31, 2012
termination of the maintenance portion of a U. S. Government contract with the DSNS of the CDC. The level of Core
Government market billings reflects the completion of the VA Pilot Program.
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20122011 Variance (Unaudited)(Unaudited)(Unaudited)BILLINGS BY MARKET:Home Health Care6,856$ 6,859$ (3)$ Retail5,259 4,641 618 Professional3,019 2,007 1,012 Pharmaceutical 2,129 304 1,825 Assisted Living1,307 1,287 20 U.S. Government Contract1,685 2,089 (404) Core Government419 699 (280) Other1,114 1,619 (505) Subtotal21,788 19,505 2,283 GAAP Adjustment *(1) (110) 109 Revenue Reported21,787$ 19,395$ 2,392$ Year Ended June 30,
The Other market consists of sales that vary due to timing of orders which order primarily from distributors.
Cost of revenues for the year ended June 30, 2012 of $15.2 million was 70.0% of revenues. Cost of revenues for the year
ended June 30, 2011 of $13.2 million was 67.9% of revenue. The lower gross margin for the year ended June 30, 2012 of
30.0% (versus 32.1% for the year ended June 30, 2011) was due to ongoing facility costs associated with the maintenance
portion of the U.S. government contract that was terminated as of January 31, 2012 and the recording of a $0.3 million
accrued loss related to the Atlanta facility lease obligation.
SG&A expenses for the year ended June 30, 2012 of $8.6 million, decreased by $1.2 million, from SG&A expenses of $9.8
million for the year ended June 30, 2011. The decrease in SG&A is primarily due to (i) lower professional fees of $0.5
million (primarily due to regulatory and consulting fees, legal fees and other sales-related consulting fees), (ii) prior year
unusual costs associated with a legal settlement of $0.35 million, (iii) lower compensation and benefit expense including
payroll tax of $0.2 million (primarily due to timing of employee hires and terminations) and (iv) lower miscellaneous
expense of $0.2 million (primarily related to prior year severance costs and recruiting fees).
During the first quarter of fiscal year 2011, the Company recorded a special charge of $0.6 million on a pre-tax basis, or
$0.02 per diluted loss per share, which represents expenses incurred with the retirement of the Company’s former Chief
Executive Officer, Dr. Burton Kunik. The special charge consists of (i) severance-related items totaling $0.5 million and (ii)
non-cash stock-based compensation expense of $0.1 million (resulting from accelerated vesting of stock option awards). The
Company paid Dr. Kunik $0.1 million in September 2010 and $0.4 million in April 2011 related to the expenses noted
above.
The Company generated an operating loss of $2.5 million for the year ended June 30, 2012 compared to an operating loss of
$4.5 million for the year ended June 30, 2011. The operating margin was (11.6%) for the year ended June 30, 2012
compared to (23.4%) for the year ended June 30, 2011. The improvement in operating loss is a result of the higher sales
volume as well as strong cost discipline and focused use of resources on targeted markets primarily Retail, Pharmaceutical,
Professional and Core Government markets (discussed above).
The Company generated a loss before income taxes of $2.5 million for year ended June 30, 2012 versus a loss before income
taxes of $4.5 million for the year ended June 30, 2011. The improvement in loss before income taxes is a result of a lower
operating loss (discussed above).
The Company’s effective tax rate for the year ended June 30, 2012 was 45.0% compared to (33.8%) for the year ended June
30, 2011. During the year ended June 30, 2012, the Company recorded $2.0 million to establish a deferred tax valuation
allowance on net deferred tax assets. The establishment of valuation allowances and development of projected annual
effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence,
as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a
valuation allowance on deferred tax assets. Under generally accepted accounting principles, the valuation allowance has
been recorded to reduce our net deferred tax asset to an amount that is more likely than not to be realized and is based upon
the uncertainty of the realization of certain federal and state deferred tax assets related to net operating loss carryforwards
and other tax attributes. Excluding the impact of the valuation allowance, the effective tax rate benefit was relatively flat at
(33.5%) for the year ended June 30, 2012 compared to (33.8%) for the year ended June 30, 2011.
The Company generated a net loss of $3.6 million for year ended June 30, 2012 compared to a net loss of $3.0 million for
the year ended June 30, 2011. The higher net loss was primarily due to the $2.0 million deferred tax valuation allowance
(discussed above) offset by the improved loss before income taxes from fiscal year 2011 to 2012 (discussed above).
The Company reported diluted loss per share of ($0.24) for the year ended June 30, 2012 versus diluted loss per share of
($0.20) for year ended June 30, 2011. The decrease in diluted loss per share is a result of a higher net loss (discussed above).
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PROSPECTS FOR THE FUTURE
The Company continues to take advantage of the many opportunities in the markets served as professional offices, retail
pharmacies and clinics, communities, assisted living and long-term care facilities, home healthcare companies, consumers,
pharmaceutical manufacturers, government agencies, health care facilities, individual self-injectors and commercial
organizations become more aware of alternatives to the traditional methods of management of medical sharps waste, used
healthcare materials and unused dispensed medications.
The Company’s growth strategies are focused on the Retail, Pharmaceutical, Professional, Assisted Living, Home Health
Care and Core Government markets. The Company believes its growth opportunities are supported by:
An increase in the number of used needles improperly disposed of outside the large healthcare setting and
into the solid waste system to 7.8 billion each year (tripled volume over the past ten years) and an increase
in the number of self-injectors in the country to 13.5 million over the same period;
An estimated 800,000 doctors, dentists, veterinarians, clinics, tattoo parlors and other businesses in the
country that generate smaller quantities of medical waste, including used syringes to whom we offer a
lower cost alternative to the traditional pick-up service. The Company addresses this market from two
directions: (i) field sales which focuses on larger dollar and nation-wide opportunities where we can utilize
the JMA with Daniels Sharpsmart to integrate the route-based pick-up service along with our mailback
solutions to create a comprehensive medical waste management offering and (ii) inside and online sales
which focus on the individual or small group professional offices;
An estimated 40% of the four billion dispensed medication prescriptions which go unused every year in
the United States generating an estimated 200 million pounds of unused medication waste;
The pace of regulation of sharps and unused dispensed medications disposal which is gaining momentum
at both the state and federal level - as of June 30, 2012, approximately 46 percent of U.S. citizens live in
states that have enacted legislation or strict guidelines mandating the proper disposal of home generated
used syringes while 67 percent live in states that have enacted or proposed legislation mandating the
proper disposal of home generated dispensed unused medications. Further, since 2009, the federal
government, nine states and several counties have introduced legislation requiring manufacturer
responsibility for consumer generated unused medications. State regulatory agencies are also addressing
this issue within the regulated industry. Multiple states now require healthcare providers to avoid sewer
and trash disposal of non-hazardous unused medications within their facilities. States such as California,
Washington and Minnesota have required assessment and proper treatment by a medical waste disposal
company for years. However, other states such as Colorado and Florida are now requiring even small
healthcare providers to segregate unused medications for proper disposal. In addition, states are beginning
to more closely scrutinize generators returning through reverse distribution unused medications that are
actually waste pharmaceuticals and should be disposed of as such;
The number of U.S. retail clinics is projected to double between 2011 and 2015, expecting business to
increase 20%-25% per year, driven by the increasing demand of newly insured patients under healthcare
reform as well as patients looking for more convenient care. The two leading retail pharmacies in the
country are emphasizing their efforts to grow their capability as a low cost provider of health care services
for non-chronic conditions. The number of pharmacists nationwide trained to deliver vaccines has
quadrupled since 2007. Vaccines offered in retail clinics include season flu programs as well as year
round programs for pneumococcus, shingles, pediatric immunizations, HPV and international travel;
The changing demographics of the U.S. population - one out of five Americans will be 65 years or older
by 2030, which will increase the need for cost-effective medical waste management solutions especially in
the home healthcare and assisted living markets;
The change in delivery of healthcare (more health care being administered in an alternate site) as well as
uncertainty created by the current state of healthcare – facts which are driving more healthcare providers
to increase efficiencies and reduce costs;
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The Company’s JMA with Daniels Sharpsmart, announced in May 2012, to serve the entire U.S. medical
waste market, offering clients a blended product portfolio to effectively target prospective customers with
multi-site and multi-sized locations including those that generate larger quantities of medical waste. The
JMA has had a significant positive impact on our pipeline of sales opportunities – over 60% of this
pipeline is attributable to alliance-type opportunities providing comprehensive medical waste management
service offerings where both the mailback and pick-up service are integrated into the offering;
New solution offerings including the Complete Needle™ Collection and Disposal System (designed for
the traditional under-served home self-injector), the TakeAway line of products for unused medications
(including TakeAway Environmental Return System™), the Medical/Professional TakeAway Recovery
System and enhanced patient support programs with pharmaceutical manufacturers; and
The Company’s strong financial position with a cash balance of $15.5 million and no debt as of June 30,
2013.
TERMINATED CONTRACT
in
In February 2009, the Company launched Sharps®MWMS™, which is a comprehensive medical waste and dispensed
medication solution which includes an array of products and services necessary to effectively collect, store and treat medical
waste and unused dispensed medication outside of the hospital or large health care facility setting. In connection with the
launch in 2009, the Company signed a five year contract (one year, plus four option years) with a major U.S. government
agency for a $40 million program to provide our comprehensive Medical Waste Management System™, or
Sharps®MWMS™, which is a rapid-deployment solution offering designed to provide medical waste collection, storage and
treatment
the event of natural disasters, pandemics, man-made disasters, or other national emergencies.
Sharps®MWMS™ is unique in that the solution also offers warehousing, inventory management, training, data and other
services necessary to provide a comprehensive solution. We received a purchase order for $28.5 million ($6.0 million of
which was recognized in fiscal year 2009, and $22.5 million was recognized in the first half of fiscal year 2010). In January
2010, the Company was awarded the first option year (ending January 31, 2011) valued at approximately $1.6 million which
was recognized from February 1, 2010 through January 31, 2011. In January 2011, we were awarded the second option year
(ending January 31, 2012) valued at approximately $3.0 million and was recognized from February 1, 2011 through January
31, 2012. The Company was notified by an agency of the U. S. Government, acting on behalf of the DSNS, that the
maintenance contract would not be renewed for the third option year (beginning February 1, 2012) and that the contract
would be terminated effective January 31, 2012. This non-renewal was preceded by a letter dated December 2, 2011
advising the Company of the U.S. Government’s intent to exercise the third option year. Although not stated in the notice
provided by the U.S. Government, the Company believes the action is part of a budget reduction program being
implemented by the DSNS.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Cash and cash equivalents decreased by $2.0 million to $15.5 million at June 30, 2013 from $17.5 million at June 30, 2012.
The decrease in cash and cash equivalents is primarily due to operating losses generated for the year ended June 30, 2013,
the timing of collections from orders related to billings in June 2013, the timing of sales and adjustments of inventory levels
to facilitate customer orders and capital expenditures and additions to intangible assets of $1.1 million (discussed below).
Accounts receivable increased by $0.4 million to $2.6 million at June 30, 2013 from $2.2 million at June 30, 2012. The
decrease is due to timing of billings and cash collections.
Inventory decreased by $0.6 million to $1.6 million at June 30, 2013 from $2.2 million at June 30, 2012. The decrease in
inventory is due to timing of sales and adjustment of inventory levels to facilitate customer orders.
Accounts payable increased by $0.3 million to $1.1 million at June 30, 2013 from $0.8 million at June 30, 2012. The
increase is a result of the timing of payments.
Working capital decreased $2.0 million to $16.6 million at June 30, 2013 from $18.6 million at June 30, 2012. The decrease
27
is primarily due to decreases in cash and cash equivalents and inventory offset by higher accounts receivable and accounts
payable (discussed above).
Property, plant and equipment, net decreased by $0.2 million to $4.4 million at June 30, 2013 from $4.6 million at June 30,
2012. The decrease in property and equipment is related to depreciation expense of $1.1 million, partially offset by capital
expenditures of $0.9 million. The capital expenditures are attributable primarily to (i) treatment facility improvements of
$724 thousand, (ii) computer and office equipment and custom software programming of $114 thousand and (iii)
manufacturing and assembly equipment including molds, dies and printing plates of $71 thousand.
Stockholders’ equity decreased by $2.1 million to $21.1 million at June 30, 2013 from $23.2 million at June 30, 2012. This
decrease is primarily attributable to (i) a net loss for the year ended June 30, 2013 of $2.7 million and (ii) the repurchase of
25,360 shares. The impact was partially offset by the effect on equity (credit) of non-cash stock based award expense of $0.5
million.
Off-Balance Sheet Arrangements
The Company was not a party to any off-balance sheet transactions as defined in Item 303 of Regulation S-K for the years
ended June 30, 2013 and 2012.
Contractual Obligations
The Company entered into non-cancelable operating leases for certain of our facility, vehicle and equipment needs. These
leases allow us to conserve cash by paying a monthly lease rental fee for use of facilities, vehicles and equipment rather than
purchasing them. At the end of the lease, we have no further obligation to the lessor. If the Company decides to cancel or
terminate a lease before the end of its term, the Company would typically owe the lessor the remaining lease payments under
the term of the lease. The contractual obligations related to minimum lease payments under non-cancelable operating leases
as of June 30, 2013 are as follows (in thousands):
Credit Facility
Effective April 30, 2013, the Company executed a Credit Agreement (the “Restated Credit Agreement”) with Wells Fargo,
National Association (the “Bank”) which extends the maturity date of the Credit Agreement executed on July 15, 2010
(“Prior Agreement”) from July 15, 2014 to July 15, 2015 and reduces the line from $5 million to $200,000 due to its lack of
need for borrowings. The Company’s Restated Credit Agreement with the Bank provides for a two-year, cash-collateralized
$200,000 line of credit facility, the proceeds of which may be utilized for: (i) working capital, (ii) capital expenditures and
(iii) letters of credit (up to $200,000). As of June 30, 2013, the Company had no outstanding borrowings and $110 thousand
in letters of credit outstanding. The Company has no borrowings under the Restated Credit Agreement as a result of its
strong cash position and lack of need for borrowings.
Borrowings bear interest at either (i) a fluctuating rate per annum equal to LIBOR plus a margin of 250 basis points or (ii) at
the Company’s option, a fixed rate for a 30, 60, or 90 day period set at the option date’s LIBOR plus a margin of 250 basis
points. Any outstanding revolving loans, and accrued and unpaid interest, will be due and payable on July 15, 2015, the
maturity date set under the Restated Credit Agreement. The Company pays a fee of 0.2% per annum on the unused amount
of the line of credit. We estimate that the interest rate applicable to the borrowings under the Restated Credit Agreement
would be approximately 2.8% as of June 30, 2013.
The Restated Credit Agreement also contains customary events of default. Upon the occurrence of an event of default that
remains uncured after any applicable cure period, the lender’s commitment to make further loans may terminate and the
Company may be required to make immediate repayment of all indebtedness to the lender.
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20142015TotalOperating lease obligations1,393$ 748 2,141$ Twelve Months Ending June 30,
Management believes that the Company’s current cash resources (cash on hand) will be sufficient to fund operations for the
twelve months ending June 30, 2014.
Treatment Facility
The Company’s treatment facility in Carthage, Texas is currently permitted to process 40 tons per day of municipal solid
waste. The incinerator at the facility is currently permitted to treat 40 tons per day of municipal solid waste with 10% of this
amount identified as applicable to healthcare facility generated medical waste. Approximately four years ago, the Company
supplemented the treatment facility’s existing incineration process with an autoclave system and technology capable of
treating up to seven tons per day of medical waste at the same facility. Autoclaving is a cost-effective alternative to
traditional incineration that treats medical waste with steam at high temperature and pressure to kill pathogens. The
autoclave system is utilized alongside the incinerator for day-to-day operations. The autoclave system is not impacted by the
EPA amended Clean Air Act (discussed below). We believe that our facility is one of only ten permitted commercial
facilities in the United States capable of treating all types of medical waste, used healthcare materials and unused or expired
dispensed medications (i.e., both incineration and autoclave capabilities).
In November 2005 and September 2009, the EPA and the Texas Commission on Environmental Quality promulgated new
regulations under the Clean Air Act and associated state statutes which affect the incineration portion of our operation of the
treatment facility located in Carthage, Texas. These regulations modify the emission limits and monitoring procedures
required to operate an incineration facility. These new regulations and the recent receipt of a Title V permit required
additional emissions-related monitoring equipment and compliance. Such changes required us to incur capital expenditures,
which are reflected in cash flows from investing activities in the Company’s consolidated statement of cash flows, in order
to meet the requirements of the new regulations.
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 2014 and
beyond.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition: The Company recognizes revenue from product sales when goods are shipped or delivered, and title
and risk of loss pass to the customer except for those sales via multiple-deliverable arrangements. Provisions for certain
rebates, product returns and discounts to customers are accounted for as reductions in sales in the same period the related
sales are recorded. Product discounts granted are based on the terms of arrangements with direct, indirect and other market
participants, as well as market conditions, including prices charged by competitors. Rebates are estimated based on
contractual terms, historical experience, trend analysis and projected market conditions in the various markets served.
The Company recognizes revenue in accordance with guidance on revenue recognition of multiple-deliverable revenue
arrangements. Under this guidance, certain products offered by the Company have revenue producing components that are
recognized over multiple delivery points (Sharps Recovery System™ (formerly the Sharps Disposal by Mail Systems®) and
various TakeAway Environmental Return Systems™ referred to as “Mailbacks” and Sharps® Pump and Asset Return Boxes,
referred to as “Pump Returns”) and can consist of up to three separate elements, or units of measure, as follows: (1) the sale
of the compliance and container system, (2) return transportation and (3) treatment service.
In accordance with the relative selling price methodology, an estimated selling price is determined for all deliverables that
qualify for separate units of accounting. The actual consideration received in a multiple-deliverable arrangement is then
allocated to the units based on their relative sales price. The selling price for the transportation revenue and the treatment
revenue utilizes third party evidence. The Company estimates the selling price of the compliance and container system
based on the product and services provided including compliance with local, state and Federal laws, adherence to stringent
manufacturing and testing requirements, safety to the patient and the community as well as storage and containment
capabilities.
Revenue for the sale of the compliance and container is recognized upon delivery to the customer, at which time the
customer takes title and assumes risk of ownership. Transportation revenue is recognized when the customer returns the
compliance and container system and the container has been received at the Company’s owned or contracted facilities. The
29
compliance and container system is mailed or delivered by an alternative logistics provider to the Company’s owned or
contracted facilities. Treatment revenue is recognized upon the destruction or conversion and proof of receipt and treatment
having been performed on the container. Since the transportation element and the treatment elements are undelivered
services at the point of initial sale of the compliance and container, transportation and treatment 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 compliance and container systems sold may not be returned. Accordingly, a portion of the transportation
and treatment elements are recognized at the point of sale.
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.
The establishment of valuation allowances and development of projected annual effective tax rates requires significant
judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and
verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on
deferred tax assets.
Stock-Based Compensation: The Company accounts for stock-based compensation under guidance which establishes
accounting for equity instruments exchanged for employee services. Under this guidance, stock-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). Total stock-based compensation
expense for the fiscal years ended June 30, 2013, 2012 and 2011, was $514 thousand ($21 thousand included in cost of
revenues and $493 thousand included in general and administrative expenses in the Company’s consolidated statement of
operations), $786 thousand ($68 thousand included in cost of revenues and $718 thousand included in general and
administrative expenses in the Company’s consolidated statement of operations) and $871 thousand ($67 thousand included
in cost of revenues and $804 thousand included in general and administrative expenses in the Company’ consolidated
statement of operations), respectively. The guidance 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 and as an increase to additional paid in capital. The Company included $0.0 million, $0.1 million and
$1.0 million of excess tax benefits in its cash flows from financing activities for the fiscal years ended June 30, 2013, 2012
and 2011, respectively. For the year ended June 30, 2013, excess tax benefits were eliminated by the valuation allowance on
deferred tax assets.
RECENTLY ISSUED ACCOUNTING STANDARDS
There are no recently issued accounting pronouncements that will impact the Company’s consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have exposure to significant financial market risk including commodity price risk, foreign currency
exchange risk or interest rate risk. Management does not use derivative instruments. The Company has limited exposure to
changes in interest rates due to its lack of indebtedness. The Company maintains a credit agreement under which we may
borrow funds in the future. The Company does not currently forsee any borrowing needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated 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-20 and are included herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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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 of June 30, 2013 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, 2013.
Changes in Internal Controls
During the quarter ended June 30, 2013, 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.
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, 2013.
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, 2013, the Company's internal control over financial reporting was effective based on those
criteria.
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The Company’s internal control over financial reporting as of June 30, 2013 has been audited by UHY LLP, an independent
registered public accounting firm, as stated in their report which appears herein.
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 21, 2013.
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, 2013, 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. Zerrillo (Chairman) and Dalton, and Mme. Tannenbaum 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. Zerrillo is an independent director who qualifies as an audit
committee financial expert, as that term is defined in Item 407(d)(5)(ii) of Regulation S-K.
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.
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 21, 2013.
32
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 21, 2013.
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 21, 2013.
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
21, 2013.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
Exhibit
Number
2.1
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
10.1
10.2
10.3
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).
Certificate of Elimination of the Series A 10% Voting Convertible Preferred Stock of Sharps
Compliance Corp. (incorporated by reference from Exhibit 3.6 to Form 10-KSB, filed September
29, 1998).
Bylaws of Sharps Compliance Inc (herein referred to as the Corporation) dated May 23, 1994
(incorporated by reference from Exhibit 3.1 to Form 8-K, filed May 10, 2010).
Bylaws of Sharps Compliance Corp (incorporated by reference from Exhibit 3.2 to Form 8-K, filed
May 10, 2010).
Amended and Restated Bylaws of Sharps Compliance Corp dated May 23, 1994 (incorporated by
reference to Exhibit 3.2 to Form 8-K, filed November 19, 2011).
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).*
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).*
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).*
33
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
Executive Employment Agreement by and between Sharps Compliance Corp. and Michael D.
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).
Lease Agreement between Lakes Technology Center, Ltd. and Sharps Compliance, Inc., dated
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).*
Employment Agreement Amendment by and between Sharps Compliance Corp. and David P.
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).*
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).
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).
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).
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).*
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).*
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).*
Form of Restricted Stock Award Agreement dated June 9, 2008 (incorporated by reference to
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).
34
10.23
Sharps Compliance Corp. 1993 Stock Plan, as amended (incorporated by reference from Annex A
10.24
10.25
10.26
10.27
10.28
10.29
10.31
10.32
of the Registrant’s Proxy Statement on Schedule 14A, filed October 21, 2008)
Second Amendment to Lease Agreement between Sharps Compliance, Inc. and Warehouse
Associates Corporate Centre Kirby II, ltd. (incorporate by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed March 9, 2010).
Employment Agreement by and between Sharps Compliance Corp. and David P. Tusa dated
June 14, 2010 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed June 14, 2010).*
Employment Agreement by and between Sharps Compliance Corp. and Diana P. Diaz dated June
14, 2010 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-
K, filed June 14, 2010).*
Contract No. V797P-DSNS-9005 dated January 29, 2009 by and between the Department of
Veterans Affairs and Sharps Compliance Corp. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed
June 25, 2010). **
Credit Agreement dated July 15, 2010, by and Sharps Compliance, Inc. and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K, filed July 19, 2010).
Line of Credit Note dated July 15, 2010, by and between Sharps Compliance, Inc. and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, filed July 19, 2010).
Separation Agreement between Sharps Compliance and Dr. Burton J. Kunik dated September 7,
2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,
filed September 7, 2010).
Consulting Agreement between Sharps Compliance and Dr. Burton J. Kunik dated September 7,
2011 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K,
filed September 7, 2010).
10.33
Sharps Compliance Corp. 2010 Stock Plan dated November 22, 2010 (incorporated by reference to
10.34
10.35
10.36
10.37
10.39
10.40
10.41
10.42
the Registrant’s Form S-8, filed on November 22, 2010).
Employment Agreement by and between Sharps Compliance, Inc. and Ramsey E. Hashem dated
December 1, 2010 (incorporated by reference to Exhibit 10.1 and Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K, filed December 1, 2010).
Employment Agreement by and between Sharps Compliance, Inc. and Gregory C. Davis dated
May 18, 2011 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed May 18, 2011).
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. Subsidiaries of Sharps
Compliance Corp. (filed herewith).
Executive Employment Agreement Amendment between Sharps Compliance, Inc. and David P.
Tusa dated March 6, 2012 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K, filed March 7, 2012).*
Executive Employment Agreement Amendment between Sharps Compliance, Inc. and Claude A.
Dance dated March 6, 2012 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, filed March 7, 2012).*
Executive Employment Agreement Amendment between Sharps Compliance, Inc. and Diana P.
Diaz dated March 6, 2012 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K, filed March 7, 2012).*
First Amendment to Credit Agreement dated July 13, 2012, by and between Sharps Compliance,
In. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed on July 17, 2012).
Line of Credit Note dated July 13, 2012, by and between Sharps Compliance, Inc. and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, filed on July 17, 2012).
35
10.43
10.44
10.44
10.44
Employment Agreement by and between Sharps Compliance, Inc. and Berkley C. Nelson dated
February 28, 2013 (incorporated by reference to Exhibit 10.1 and Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K, filed February 19, 2013).
Restated Credit Agreement effective April 30, 2013, by and between Sharps Compliance, Inc. and
Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed on May 6, 2013).
Revolving Line of Credit effective April 30, 2013, by and between Sharps Compliance, Inc. and
Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K, filed on May 6, 2013).
Security Agreement effective April 30, 2013, by and between Sharps Compliance, Inc. and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K, filed on May 6, 2013).
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 on September 20, 2004).
21.1
23.1
31.1
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).
31.2
Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act
(filed herewith).
32.1
Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act
(filed herewith).
32.2
Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act
(filed herewith).
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document (filed herewith)
XBRL Taxonomy Extension Schema Document (filed herewith)
XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
XBRL Taxonomy Extension Linkbase Document (filed herewith)
XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
*
**
This exhibit is a management contract or a compensatory plan or arrangement.
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
36
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
SHARPS COMPLIANCE CORP.
Dated: August 29, 2013
By: /s/ DAVID P. TUSA
David P. Tusa
Chief Executive Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: August 29, 2013
Dated: August 29, 2013
Dated: August 29, 2013
Dated: August 29, 2013
Dated: August 29, 2013
Dated: August 29, 2013
Dated: August 29, 2013
By: /s/ DAVID P. TUSA
David P. Tusa
Chief Executive Officer and President
(Principal Executive Officer)
By: /s/ DIANA P. DIAZ
Diana P. Diaz
Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/ F. GARDNER PARKER
F. Gardner Parker
Chairman of the Board Of Directors
By: /s/ JOHN W. DALTON
John W. Dalton
Director
By: /s/ PARRIS H. HOLMES, JR.
Parris H. Holmes, Jr.
Director
By: /s/ RENEE P. TANNENBAUM
Renee P. Tannenbaum
Director
By: /s/ PHILIP C. ZERRILLO
Philip C. Zerrillo
Director
37
[THIS PAGE INTENTIONALLY LEFT BLANK]
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2013 and 2012
Consolidated Statements of Operations for the Years Ended June 30, 2013, 2012 and 2011
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended June 30, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Sharps Compliance Corp.
We have audited the accompanying consolidated balance sheets of Sharps Compliance Corp. (a Delaware
corporation) and subsidiaries (collectively, the “Company”) as of June 30, 2013, and 2012, and the related
consolidated statements of operations, stockholders’ equity and cash flows for each of the three fiscal years in the
period ended June 30, 2013. 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.
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, 2013, and 2012, and the
consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended
June 30, 2013, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of Sharps Compliance Corp. and subsidiaries’ internal control over financial reporting as of
June 30, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 29,
2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
/s/ UHY LLP
Houston, Texas
August 29, 2013
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
Sharps Compliance Corp.
We have audited Sharps Compliance Corp. (a Delaware corporation) and subsidiaries’ internal control over financial
reporting as of June 30, 2013, based on criteria established in Internal Control – Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in Part II, Item 9A of this Form 10-K. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) 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 consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Sharps Compliance Corp. and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2013, based on criteria established in Internal Control – Integrated
Framework (1992) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Sharps Compliance Corp and subsidiaries as of June 30, 2013, and 2012,
and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three
fiscal years in the period ended June 30, 2013, and our report dated August 29, 2013 expressed an unqualified
opinion on those consolidated financial statements.
/s/ UHY LLP
Houston, Texas
August 29, 2013
F-3
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
See accompanying notes to consolidated financial statements
F-4
20132012ASSETSCURRENT ASSETS Cash and cash equivalents15,503$ 17,498$ Restricted cash111 - Accounts receivable, net of allowance for doubtful accounts of $26 and $28, respectively2,595 2,215 Inventory1,632 2,219 Prepaids and other current assets583 610 TOTAL CURRENT ASSETS20,424 22,542 PROPERTY, PLANT AND EQUIPMENT, net4,440 4,632 INTANGIBLE ASSETS, net of accumulated amortization of $275 and $257, respectively668 464 TOTAL ASSETS25,532$ 27,638$ LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES Accounts payable1,085$ 752$ Accrued liabilities1,345 1,302 Deferred revenue1,351 1,881 TOTAL CURRENT LIABILITIES3,781 3,935 LONG-TERM DEFERRED REVENUE579 358 OTHER LONG-TERM LIABILITIES102 165 TOTAL LIABILITIES4,462 4,458 COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' EQUITY Common stock, $0.01 par value per share; 20,000,000 shares authorized; 15,370,320 and 15,206,127 shares issued and outstanding, respectively154 152 Treasury stock, at cost, 25,360 and 0 shares repurchased, respectively(74) - Additional paid-in capital23,211 22,537 Retained earnings (accumulated deficit)(2,221) 491 TOTAL STOCKHOLDERS' EQUITY21,070 23,180 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY25,532$ 27,638$ June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share data)
See accompanying notes to consolidated financial statements
F-5
201320122011REVENUES21,530$ 21,787$ 19,395$ Cost of revenues15,183 15,246 13,171 GROSS PROFIT6,347 6,541 6,224 Selling, general and administrative8,619 8,609 9,837 Special charge- - 570 Depreciation and amortization437 453 353 OPERATING LOSS(2,709) (2,521) (4,536) OTHER INCOME (EXPENSE) Interest income27 36 55 Other expense (15) (13) (10) TOTAL OTHER INCOME 12 23 45 LOSS BEFORE INCOME TAXES(2,697) (2,498) (4,491) INCOME TAX EXPENSE (BENEFIT) Current15 88 (1,226) Deferred- 1,035 (290) TOTAL INCOME TAX EXPENSE (BENEFIT)15 1,123 (1,516) NET LOSS(2,712)$ (3,621)$ (2,975)$ NET LOSS PER COMMON SHARE Basic(0.18)$ (0.24)$ (0.20)$ Diluted(0.18)$ (0.24)$ (0.20)$ WEIGHTED AVERAGE SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE: Basic15,255 15,109 14,944 Diluted15,255 15,109 14,944 Year Ended June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
See accompanying notes to consolidated financial statements
F-6
Retained EarningsSharesAmountSharesAmountAdditional Paid-in Capital (Accumulated Deficit)Total Stockholders'EquityBalances, June 30, 201014,891,754 149$ - -$ 19,705$ 7,087$ 26,941$ Exercise of stock options62,500 1 - - 48 - 49 Stock-based compensation- - - - 871 - 871 Issuance of restricted stock99,062 1 - - (1) - - Excess tax benefit from stock-based award activity- - - - 979 - 979 Net loss- - - - - (2,975) (2,975) Balances, June 30, 201115,053,316 151 - - 21,602 4,112 25,865 Exercise of stock options89,443 - - - 65 - 65 Stock-based compensation- - - - 786 - 786 Issuance of restricted stock63,368 1 - - (1) - - Excess tax benefit from stock-based award activity- - - - 85 - 85 Net loss- - - - - (3,621) (3,621) Balances, June 30, 201215,206,127 152 - - 22,537 491 23,180 Exercise of stock options100,445 1 - - 161 - 162 Stock-based compensation- - - - 514 - 514 Issuance of restricted stock63,748 1 - - (1) - - Shares repurchased- - (25,360) (74) - - (74) Net loss- - - - - (2,712) (2,712) Balances, June 30, 201315,370,320 154$ (25,360) (74)$ 23,211$ (2,221)$ 21,070$ Common StockTreasury Stock
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
See accompanying notes to consolidated financial statements
F-7
201320122011CASH FLOWS FROM OPERATING ACTIVITIES Net loss(2,712)$ (3,621)$ (2,975)$ Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization1,103 1,117 1,003 Loss on disposal of property, plant and equipment16 83 10 Stock-based compensation expense514 786 871 Excess tax benefits from stock-based award activity- (85) (979) Deferred tax expense (benefit)- 1,035 (290) Changes in operating assets and liabilities: Restricted cash(111) - - Accounts receivable(380) 850 (1,032) Inventory587 (449) (32) Prepaid and other current assets27 247 2,512 Accounts payable and accrued liabilities313 (388) 780 Deferred revenue(309) 114 167 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES(952) (311) 35 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment(909) (452) (702) Additions to intangible assets(222) (169) (149) NET CASH USED IN INVESTING ACTIVITIES(1,131) (621) (851) CASH FLOWS FROM FINANCING ACTIVITIES Excess tax benefits from stock-based award activity- 85 979 Proceeds from exercise of stock options162 65 49 Shares repurchased(74) - - NET CASH PROVIDED BY FINANCING ACTIVITIES88 150 1,028 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(1,995) (782) 212 CASH AND CASH EQUIVALENTS, beginning of year17,498 18,280 18,068 CASH AND CASH EQUIVALENTS, end of year15,503$ 17,498$ 18,280$ SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid, net of refunds18$ (445)$ (2,502)$ Year Ended June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
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 full-service provider of cost-effective management solutions for small quantity
generators of medical waste, used healthcare materials and unused dispensed medications. These solutions include
Sharps® Recovery System™ (formerly Sharps Disposal by Mail System®), TakeAway Recovery System™,
Complete Needle Collection and Disposal System™, TakeAway Environmental Return System™, Compliance
TRACSM, Sharps Secure® Needle Collection and Containment System™, Pitch-It IV™ Poles, Trip LesSystem®,
Sharps® Pump and Asset Return System, and Spill Kit TakeAway Recovery System™.
Concentration of Customers and Service Providers: 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, 2013, one customer
represented approximately 22% of revenues. This customer represented approximately 25%, or $638 thousand, of
the total accounts receivable balance as of June 30, 2013. For the fiscal year ended June 30, 2012, two customers
represented approximately 30% of revenues. One of the customers represented approximately 26%, or $623
thousand, of the total accounts receivable balance as of June 30, 2012. The other customer, which had no accounts
receivable balance at June 30, 2012, was a major U.S. government agency which terminated January 31, 2012. For
the fiscal year ended June 30, 2011, two customers represented approximately 33% of revenues. The Company may
be adversely affected by its dependence on a limited number of high volume customers.
Currently, the majority of Sharps transportation is sourced with the United States Postal Service (“USPS”), which
consists of delivering the Sharps® Recovery System™ (formerly Sharps Disposal by Mail System®) from the end
user to the Company’s facility. The Company also has an arrangement with United Parcel Service Inc. (“UPS”)
whereby UPS transports the Company’s TakeAway Recovery System products from the end user to the Company’s
facility. Sharps maintains relationships with multiple raw materials suppliers and vendors in order to meet customer
demands and assure availability of our products and solutions. With respect to the Sharps Recovery System™
(formerly Sharps Disposal by Mail System®) solutions, the Company owns all proprietary molds and dies and utilize
three contract manufacturers for the production of the primary raw materials. Sharps believes that alternative
suitable contract manufacturers are readily available to meet the production specifications of our products and
solutions. The Company utilizes national suppliers such as Herman Packaging and R & D Molders for the majority
of the raw materials used in our other products and solutions and international suppliers such as Ashoka Company
for Pitch-It™ IV Poles.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and 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 (“FDIC”). The Company also maintains funds in high yield savings accounts, which are
FDIC insured up to applicable limits. 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.
Accounts Receivable: Accounts receivable consist primarily of amounts due to the Company from 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. The Company maintains 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 the Company
F-8
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
determines 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, 2013, total inventory was $1.6 million of which $0.7
million was finished goods and $0.9 million was raw materials. At June 30, 2012, total inventory was $2.2 million
of which $1.0 million was finished goods and $1.2 million 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.
Computer and software development costs, which include 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.
Intangible Assets: Intangible assets consist of (i) permit costs related to the Company’s treatment facility in
Carthage, Texas, (ii) nine patents (two acquired in June 1998, one in November 2003, one in January 2012, two in
April 2012, one in August 2012, one in September 2012 and one in December 2012), and (iii) defense costs related
to certain existing patents. Permit costs related to the facility are amortized over the expected life of the treatment
facility. Patent costs are being amortized over seventeen years, the estimated useful life of the patents. During the
fiscal years ended June 30, 2013, 2012 and 2011, the Company recorded amortization expense of $18 thousand, $30
thousand and $31 thousand, respectively.
As of June 30, 2013, future amortization of intangible assets is as follows (in thousands):
Stock-Based Compensation: The Company accounts for stock-based compensation under guidance which
establishes accounting for equity instruments exchanged for employee services. Under this guidance, stock-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). Total
stock-based compensation expense for the fiscal years ended June 30, 2013, 2012 and 2011, was $514 thousand
($21 thousand included in cost of revenues and $493 thousand included in general and administrative expenses
F-9
Year Ending June 30,201449$ 201549 201649 201748 201846 Thereafter427 668$
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
in the Company’s consolidated statement of operations), $786 thousand ($68 thousand included in cost of revenues
and $718 thousand included in general and administrative expenses in the Company’s consolidated statement of
operations) and $871 thousand ($67 thousand included in cost of revenues and $804 thousand included in general
and administrative expenses in the Company’s consolidated statement of operations), respectively. The guidance
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 and as an
increase to additional paid in capital. The Company included approximately $0.0 million, $0.1 million and $1.0
million of excess tax benefits in its cash flows from financing activities for the fiscal years ended June 30, 2013,
2012 and 2011, respectively. For the year ended June 30, 2013, excess tax benefits were eliminated by the valuation
allowance on deferred tax assets.
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. 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:
For stock-based awards granted on or after July 1, 2006, the Company considers an estimated forfeiture rate for
stock options and restricted stock units based on historical experience and the anticipated forfeiture rates during the
future contract life.
Revenue Recognition: The Company recognizes revenue from product sales when goods are shipped or delivered,
and title and risk of loss pass to the customer except for those sales via multiple-deliverable revenue arrangements.
Provisions for certain rebates, product returns and discounts to customers are accounted for as reductions in sales in
the same period the related sales are recorded. Product discounts granted are based on the terms of arrangements
with direct, indirect and other market participants, as well as market conditions, including prices charged by
competitors. Rebates are estimated based on contractual terms, historical experience, trend analysis and projected
market conditions in the various markets served.
The Company recognizes revenue in accordance with guidance on revenue recognition of multiple-deliverable
arrangements. Under this guidance, certain products offered by the Company have revenue producing components
that are recognized over multiple delivery points (Sharps Recovery System™ (formerly the Sharps Disposal by Mail
Systems®) and various TakeAway Environmental Return Systems™ referred to as “Mailbacks” and Sharps® Pump
and Asset Return Boxes, referred to as “Pump Returns”) and can consist of up to three separate elements, or units of
measure, as follows: (1) the sale of the compliance and container system, (2) return transportation and (3) treatment
service.
In accordance with the relative selling price methodology, an estimated selling price is determined for all
deliverables that qualify for separate units of accounting. The actual consideration received in a multiple-deliverable
F-10
201320122011Weighted average risk-free interest rate0.5%0.3%0.7%Weighted average expected volatility58%66%67%Weighted average expected life (in years)4.613.894.40Dividend yield- - - Year Ended June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
arrangement is then allocated to the units based on their relative sales price. The selling price for the transportation
revenue and the treatment revenue utilizes third party evidence. The Company estimates the selling price of the
compliance and container system based on the product and services provided including compliance with local, state
and Federal laws, adherence to stringent manufacturing and testing requirements, safety to the patient and the
community as well as storage and containment capabilities.
Revenue for the sale of the compliance and container is recognized upon delivery to the customer, at which time the
customer takes title and assumes risk of ownership. Transportation revenue is recognized when the customer returns
the compliance and container system and the container has been received at the Company’s owned or contracted
facilities. The compliance and container system is mailed or delivered by an alternative logistics provider to the
Company’s owned or contracted facilities. Treatment revenue is recognized upon the destruction or conversion and
proof of receipt and treatment having been performed on the container. Since the transportation element and the
treatment elements are undelivered services at the point of initial sale of the compliance and container,
transportation and treatment 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
compliance and container systems sold may not be returned. Accordingly, a portion of the transportation and
treatment elements are recognized at the point of sale.
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 $495 thousand, $578
thousand and $510 thousand for the fiscal years ended June 30, 2013, 2012 and 2011, 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 fair value is necessary. During the years ended June 30,
2013 and 2012, an impairment loss of $129 thousand and $70 thousand, respectively, was recognized related to the
leasehold improvements at the Atlanta, Georgia facility.
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 $39 thousand, $38
thousand and $41 thousand for the fiscal years ended June 30, 2013, 2012 and 2011, respectively, and are included in
selling, general and administrative expenses. For purposes of the group health benefit plan and beginning February 1,
2013, the Company self-insures an amount equal to the excess of the employees’ deductible (range from $2,000 for
each individual and family member covered) up to the amount by which the third party insurance coverage begins
(ranges from $2,000 for individual up to $14,999 for family coverage). Prior to February 1, 2013, the Company self-
insured an amount equal to the excess of the employees’ deductible (ranges from $1,500 for individual up to $3,500 for
family coverage) up to the amount by which the third party insurance coverage begins (ranges from $11,000 for
individual up to $33,000 for family coverage).The amount of liability at June 30, 2013 and 2012 was $28 thousand and
$18 thousand respectively, and is included in “Accrued Liabilities”.
F-11
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. The establishment of valuation allowances and development of projected annual
effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative
evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the
appropriateness of recording a valuation allowance on deferred tax assets.
Uncertain Tax Positions: Under the accounting guidance for the uncertainty of income taxes, the income tax
provision reflects the full benefit of all positions that will be taken in the Company’s income tax returns, except to
the extent that such positions are uncertain and fall below the recognition requirements of the guidance. In the event
that the Company determines that a tax position meets the uncertainty criteria, an additional liability or benefit will
result. The Company periodically reassesses the tax positions reflected in tax returns for open years based on the
latest information available and determines whether any portion of the tax benefits reflected therein should be
treated as an unrecognized tax benefit. The amount of unrecognized tax benefit requires management to make
significant assumptions about the expected outcomes of certain tax positions included in filed or yet to be filed tax
returns. At June 30, 2013 and 2012, the Company did not have any uncertain tax positions. Tax return filings which
are subject to review by federal and state tax authorities by jurisdiction are as follows:
United States – fiscal years ended June 30, 2010, 2011, 2012 and 2013
State of Texas – fiscal years ended June 30, 2008, 2009, 2010, 2011, 2012 and 2013
State of Georgia – fiscal years ended June 30, 2010, 2011, 2012 and 2013
During the fiscal year ended June 30, 2013, the Company began doing business in a number of additional states
throughout the United States. As a result, the Company will begin filing state income tax returns in the appropriate
states for the fiscal year ending June 30, 2014. None of the Company’s federal or state tax returns are currently
under examination. The Company records income tax related interest and penalties, if applicable, as a component of
the provision for income tax expense. However, there were no such amounts recognized in the consolidated
statements of operations.
Net Income (Loss) Per Share: Earnings per share (“EPS”) data for all years presented has been computed under
guidance 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.
Fair Value of 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: The guidance for disclosures about segments of an enterprise 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 management solutions for
medical waste and unused dispensed medications generated outside the hospital and large healthcare facility setting.
F-12
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. The Company uses
estimates to determine many reported amounts, including but not limited to: allowance for doubtful accounts,
recoverability of long-lived assets and intangibles, useful lives used in depreciation and amortization, income taxes
and valuation allowances, selling price used in multiple-deliverable arrangements and return rates used to estimate
the percentage of container systems sold that will not be returned. Actual results could differ from these estimates.
Recent Accounting Pronouncements: There are no recently issued accounting pronouncements that will impact the
Company’s consolidated financial statements.
Reclassifications: Certain reclassifications have been made in prior period financial statements to conform to current
period presentation. These reclassifications had no effect on the financial position, results of operations or cash
flows of the Company.
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT
At June 30, 2013 and 2012, property and equipment consisted of the following (in thousands):
Total depreciation expense in the fiscal years ended June 30, 2013, 2012 and 2011 is $1.1 million, $1.1 million and
$972 thousand, respectively. Depreciation expense included in cost of revenues in the fiscal years ended 2013, 2012
and 2011 was $666 thousand, $664 thousand and $650 thousand, respectively.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
Effective April 30, 2013, the Company executed a Credit Agreement (the “Restated Credit Agreement”) with Wells
Fargo, National Association (the “Bank”) which extends the maturity date of the Credit Agreement executed on July
15, 2010 (“Prior Agreement”) from July 15, 2014 to July 15, 2015 and reduces the line from $5 million to $200,000
due its lack of need for borrowings. The Company’s Restated Credit Agreement with the Bank provides for a two-
year, cash-collateralized $200,000 line of credit facility, the proceeds of which may be utilized for: (i) working
capital, (ii) capital expenditures and (iii) letters of credit (up to $200,000). As of June 30, 2013, the Company had no
outstanding borrowings and $110 thousand in letters of credit outstanding. The Company has no borrowings under
the Restated Credit Agreement as a result of its strong cash position and lack of need for borrowings.
Borrowings bear interest at either (i) a fluctuating rate per annum equal to LIBOR plus a margin of 250 basis points
or (ii) at the Company’s option, a fixed rate for a 30, 60, or 90 day period set at the option date’s LIBOR plus a
margin of 250 basis points. Any outstanding revolving loans, and accrued and unpaid interest, will be due and
F-13
Useful Life20132012Furniture and fixtures3 to 5 years192$ 192$ Plant and equipment3 to 17 years5,422 5,122 Manufacturing15 years220 222 Computers and software3 to 5 years1,583 1,532 Leasehold improvements3 to 15 years897 854 Land19 19 Construction-in-progress376 26 8,709 7,967 Less: accumulated depreciation4,269 3,335 Net property, plant and equipment4,440$ 4,632$ June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT (continued)
payable on July 15, 2015, the maturity date set under the Restated Credit Agreement. The Company pays a fee of
0.2% per annum on the unused amount of the line of credit. We estimate that the interest rate applicable to the
borrowings under the Restated Credit Agreement would be approximately 2.8% as of June 30, 2013.
The Restated 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 lender’s commitment to make further loans may
terminate and the Company may be required to make immediate repayment of all indebtedness to the lender.
NOTE 5 - INCOME TAXES
The components of income tax expense (benefit) are as follows (in thousands):
The reconciliation of the statutory income tax rate to the Company’s effective income tax rate for the fiscal years
ended June 30, 2013, 2012 and 2011 is as follows:
For the fiscal years ended June 30, 2013, 2012 and 2011, state income taxes relate to the Texas Franchise Tax and
Georgia Income Tax. For the fiscal years ended June 30, 2012, 2011 and 2010, the Company evaluated the need for
a valuation allowance on its deferred tax asset balances. Based on that evaluation, the Company determined as of
June 30, 2011 that it was more likely than not that the Company would realize these deferred tax assets and as such
that there was no valuation allowance provided. During the years ended June 30, 2013 and 2012, the Company
recorded $0.9 million and $2.0 million to establish a deferred tax valuation allowance to fully reserve net deferred
tax assets. The establishment of valuation allowances and development of projected annual effective tax rates
F-14
201320122011CurrentFederal-$ 80$ (1,161)$ State158(65)1588(1,226)DeferredFederal- 1,038(305)State- (3) 15 - 1,035(290)15$ 1,123$ (1,516)$ Year ended June 30, 201320122011Statutory rate34.0%34.0%34.0%State income taxes, net(0.4%)0.0%1.0%Meals and entertainment(0.5%)(0.5%)(0.4%)Section 199 deduction (1)0.0%0.0%(1.3%)Return to provision differences and other0.5%0.0%0.5%Effective rate before valuation allowance33.6%33.5%33.8%Change in valuation allowance(34.2%)(78.5%)0.0%Effective tax rate(0.6%)(45.0%)33.8%(1) Section 199 refers to Internal Revenue Service deduction for Income Attributable to Manufacturing ActivitiesYear Ended June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 5 - INCOME TAXES (continued)
requires significant judgment and is impacted by various estimates. Both positive and negative evidence including
losses over eleven of the past twelve quarters, as well as the objectivity and verifiability of that evidence, is
considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. Under
generally accepted accounting principles, the valuation allowance has been recorded to reduce our deferred tax asset
to an amount that is more likely than not to be realized and is based upon the uncertainty of the realization of certain
federal and state deferred tax assets related to net operating loss carryforwards and other tax attributes.
At June 30, 2013 and 2012, the significant components of deferred tax assets and liabilities are approximated as
follows (in thousands):
During the year ended June 30, 2013, the net deferred tax asset increased $0.9 million which was fully offset by a
valuation allowance. The increase was primarily due to the generation of additional net operating loss carryforwards
during the year.
During the years ended June 30, 2013 and 2012, the Company did not utilize any net operating loss carryforwards
for income tax purposes. During the years ended June 30, 2013, 2012 and 2011 $0.0 million, $0.1 million and $1.0
million respectively, of benefit was recorded to additional paid in capital which related to excess tax deductions for
stock-based compensation accounted for in accordance with the FASB’s guidance.
At June 30, 2013, the Company had net operating loss carryforwards of $6.0 million which will expire, if unused,
between June 30, 2031 and June 30, 2033. At June 30, 2013, the Company had various tax credit carryforwards of
$0.4 million, of which $0.2 million will expire June 30, 2031 and $0.2 which may be carried forward indefinitely.
F-15
20132012Deferred tax assets relating to: Stock compensation695$ 583$ AMT and research and development credits397 397 Deferred rent106 145 Inventory81 119 Professional fees106 72 Accrued vacation21 21 Accounts receivable allowance9 9 Contribution carryovers4 3 Net operating loss carryforwards 2,076 1,215 Total deferred tax assets3,495 2,564 Deferred tax liablities related to depreciation differences(611) (603) Net deferred tax assets before valuation allowance2,884 1,961 Valuation allowance(2,884) (1,961) Net deferred tax assets -$ -$ June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 6 - EQUITY TRANSACTIONS
During the years ended June 30, 2013, 2012 and 2011, stock options to purchase shares of the Company’s common
stock were exercised as follows:
On January 7, 2013, the Company announced that its Board of Directors approved a stock repurchase program
effective January 3, 2013, authorizing the Company to repurchase in the aggregate up to $3 million of its
outstanding common stock over a two-year period. During the years ended June 30, 2013, 2012 and 2010, shares
were repurchased as follows:
NOTE 7 - STOCK BASED COMPENSATION
The Company sponsors the Sharps Compliance Corp. 2010 Stock Plan (the “2010 Plan”) covering employees,
consultants and non-employee directors. The 2010 Stock Plan replaced the Sharps Compliance Corp. 1993 Stock
Plan (the “1993 Plan”). The 2010 Plan provides for the granting of stock-based compensation (stock options or
restricted stock) of up to 1,000,000 shares of the Company’s common stock of which 507,079 shares are outstanding
as of June 30, 2013. Options granted generally vest over a period of three to four years and expire seven years after
the date of grant. Restricted stock generally vests over one year.
The 1993 Plan, as amended, provided for the granting of stock-based compensation (stock options or restricted
stock) of up to 4,000,000 shares of the Company’s common stock of which 384,667 shares are outstanding as of
June 30, 2013. Options granted generally vest over a period of three years and expire seven years after the date of
grant. Restricted stock generally vested between one to three years.
As of June 30, 2013, 2012 and 2011, options available for grant under the 2010 Plans are as follow:
F-16
201320122011Options Exercised100,445 89,443 62,500 Proceeds (in thousands)162$ 65$ 49$ Average exercise price per share1.62$ 0.73$ 0.78$ Year Ended June 30, 201320122011Shares repurchased25,360 - - Cash paid for shares repurchased (in thousands)74$ -$ -$ Average price paid per share2.93$ -$ -$ Year Ended June 30, June 30,2010 Stock Plan2013296,308 2012372,384 2011754,000
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 7 - STOCK BASED COMPENSATION (continued)
The summary of activity for all stock options during the fiscal years ended June 30, 2013, 2012 and 2011 is
presented in the table below (in thousands):
The summary of activity for all restricted stock during the fiscal years ended June 30, 2013, 2012 and 2011 is
presented in the table below (in thousands):
The weighted average fair value per share of restricted stock granted during the fiscal years ended June 30, 2013,
2012, and 2011 was $2.48, $4.46 and $4.65, respectively. The weighted average fair value per share of restricted
stock which vested during the fiscal years ended June 30, 2013, 2012 and 2011 was $3.01, $4.47 and $4.41,
respectively.
F-17
Options OutstandingWeighted Average Exercise PriceBalance, June 30, 2010792 4.21$ Granted243 4.55$ Exercised(63) 0.78$ Forfeited or canceled(84) 5.46$ Balance, June 30, 2011888 4.43$ Granted320 3.97$ Exercised(89) 0.73$ Forfeited or canceled(41) 4.23$ Balance at June 30, 20121,078 4.60$ Granted178 2.90$ Exercised(100) 1.62$ Forfeited or canceled(280) 5.82$ Balance at June 30, 2013876 4.21$ Exercisable at June 30, 2013516 4.70$ 201320122011Unvested at beginning of the year17 - 30 Granted 62 81 70 Vested(64) (64) (100) Forfeited- - - Unvested at end of the year15 17 - Year Ended June 30,
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 7 - STOCK BASED COMPENSATION (continued)
The following table summarizes information about stock options outstanding as of June 30, 2013 (in thousands
except per share amount):
The following table summarizes information about stock options exercisable as of June 30, 2013 (in thousands
except per share amount):
As of June 30, 2013, there was $376 thousand of stock option and restricted stock compensation expense related to
non-vested awards. This expense is expected to be recognized over a weighted average period of 2.78 years.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Leases: The Company leases 170,489 square feet of space in Houston, Texas and Atlanta, Georgia. The
Company recognizes escalating rental payments that are quantifiable at the inception of the lease on a straight-line
basis over the lease term. The leases expire from April 2014 to April 2015 with options to renew the Company’s
leases for warehouses for 5 years and for office space 10 years. Rent expense for the fiscal years ended June 30,
F-18
Range of Exercise Price Outstanding as of June 30, 2013 Weighted Average Remaining Life (in Years) Weighted Average Exercise Price$0.00 - $2.5099 2.35 2.10$ $2.51 - $3.50204 5.90 2.92$ $3.51 - $5.50468 4.76 4.26$ $5.51 - $7.50- - -$ $7.51- $9.50105 3.11 8.50$ 876 4.21$ Options OutstandingRange of Exercise Price Exercisable as of June 30, 2013 Weighted Average Remaining Life (in Years) Weighted Average Exercise Price$0.00 - $2.5099 2.35 2.10$ $2.51 - $3.5027 1.49 3.04$ $3.51 - $5.50286 4.44 4.38$ $5.51 - $7.50- - -$ $7.51- $9.50104 3.12 8.50$ 516 4.70$ Options Exercisable
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
2013, 2012 and 2011 was $1.2 million, $1.4 million and $1.5 million, respectively. Future minimum lease payments
under non-cancelable operating leases as of June 30, 2013 are as follows (in thousands):
Other: The Company is also involved in legal proceedings and litigation in the ordinary course of business. In the
opinion of management, the outcome of such matters will not have a material adverse effect on the Company’s
consolidated financial position or consolidated results of operations.
NOTE 9 - EARNINGS PER SHARE
Earnings per share are measured at two levels: basic per share and diluted per share. Basic per share is computed by
dividing net income by the weighted average number of common shares outstanding during the period. Diluted per
share is computed by dividing net income by the weighted average number of common shares after considering the
additional dilution related to common stock options and restricted stock. In computing diluted earnings per share,
the outstanding common stock options are considered dilutive using the treasury stock method. Vested restricted
shares are included in basic common shares outstanding, and unvested restricted shares are included in the diluted
common shares outstanding if the effect is dilutive.
The following information is necessary to calculate earnings per share for the periods presented (in thousands,
except per share amount):
F-19
20142015TotalOperating lease obligations1,393$ 748 2,141$ Twelve Months Ending June 30, Year Ended June 30,201320122011Net loss, as reported(2,712)$ (3,621)$ (2,975)$ Weighted average common shares outstanding15,255 15,109 14,944 Effect of dilutive stock options- - - Weighted average diluted common shares outstanding15,255 15,109 14,944 Net loss per common share Basic(0.18)$ (0.24)$ (0.20)$ Diluted(0.18)$ (0.24)$ (0.20)$ Employee stock options excluded from computation of diluted income per share amounts because their effect would be anti-dilutive728 831 550
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013, 2012 and 2011
NOTE 10 - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following tables show quarterly financial information for the years ended June 30, 2013 and 2012. The
Company believes that all necessary adjustments have been included in the amounts below to present fairly the
results of such periods (in thousands expect per share amounts).
F-20
September 30, 2012 December 31, 2012 March 31, 2013 June 30, 2013 Total revenues5,153$ 5,717$ 5,410$ 5,250$ Cost of revenues3,601$ 4,017$ 3,894$ 3,671$ Operating loss(641)$ (431)$ (942)$ (695)$ Net loss(639)$ (428)$ (955)$ (690)$ Net loss per share - diluted(0.04)$ (0.03)$ (0.06)$ (0.05)$ Weighted average shares-diluted15,209 15,232 15,246 15,333 September 30, 2011 December 31, 2011 March 31, 2012 June 30, 2012 Total revenues5,743$ 6,212$ 5,291$ 4,541$ Cost of revenues3,924$ 4,065$ 3,766$ 3,491$ Operating income (loss)(498)$ 34$ (808)$ (1,249)$ Net income (loss)(325)$ 28$ (520)$ (2,804)$ Net income (loss) per share - diluted(0.02)$ 0.00$ (0.03)$ (0.18)$ Weighted average shares-diluted15,065 15,404 15,111 15,185 Quarter EndedQuarter Ended
Exhibit 21.1
Subsidiaries of the Registrant
Name
Sharps Compliance, Inc. of Texas (dba Sharps Compliance, Inc.)
Sharps e-Tools.com, Inc.
Sharps Safety, Inc.
Sharps Manufacturing, Inc.
Sharps Environmental Services, Inc. (dba Sharps Environmental
Services of Texas, Inc.)
Jurisdiction of Incorporation
Texas
Delaware
Texas
Delaware
Delaware
F-21
Exhibit 23.1
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 our reports dated August 29, 2013, with respect to the consolidated financial statements of Sharps
Compliance Corp. (the “Company”) as of June 30, 2013 and 2012, and for each of the three fiscal years in the period
ended June 30, 2013, and to the effectiveness of the Company’s internal control over financial reporting as of June
30, 2013, which appear in this Annual Report on Form 10-K for the year ended June 30, 2013.
/s/ UHY LLP
Houston, Texas
August 29, 2013
F-22
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE 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: August 29, 2013
By: /s/ DAVID P. TUSA
David P. Tusa
Chief Executive Officer and President
(Principal Executive Officer)
F-23
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER IN ACCORDANCE WITH SECTION 302 OF THE
SARBANES-OXLEY ACT
I, Diana P. Diaz, 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: August 29, 2013
By: /s/ DIANA P. DIAZ
Diana P. Diaz
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
F-24
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, 2013, as filed with the Securities and Exchange Commission on the date hereof, I, David P.
Tusa, Chief Executive Officer and President 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, 2013, filed with the Securities and Exchange
Commission on August 29, 2013 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, 2013 fairly
presents, in all material respects, the financial condition and results of operations of Sharps
Compliance Corp.
Date: August 29, 2013
By: /s/ DAVID P. TUSA
David P. Tusa
Chief Executive Officer and President
(Principal Executive Officer)
F-25
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, 2013, as filed with the Securities and Exchange Commission on the date hereof, I, Diana P.
Diaz, 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:
(1) The Form 10-K report for the year ended June 30, 2013, filed with the Securities and Exchange
Commission on August 29, 2013, 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, 2013 fairly
presents, in all material respects, the financial condition and results of operations of Sharps
Compliance Corp.
Date: August 29, 2013
By: /s/ DIANA P. DIAZ
Diana P. Diaz
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
F-26
Sharps Compliance (nASDAQ: SMeD)
Company Financial Information
Transf ormed
transfer agent
For services such as change of address,
replacement of lost certificates and changes
in registered ownership or for inquiries to
your account, contact:
annual shareholder meeting
November 21, 2013,
at 10:00 AM CT
Hilton Houston Post Oak
Aesops Room
2001 Post Oak Blvd.
Houston, TX 77056
diana P. diaz, cPa
Vice President and Chief Financial Officer
Phone: 713.660.3547
ddiaz@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
deborah K. Pawlowski
Kei Advisors LLC
Investor Relations
Phone: 716.843.3908
dpawlowski@keiadvisors.com
additional information is available
on our website at:
www.sharpsinc.com
independent Public accountants
UHY L.L.P.
Houston, Texas
investor relations
Investors, stockbrokers, security analysts
and others seeking information about the
Company should contact:
ticker symbol
NASDAQ: SMED
registrar and transfer company
10 Commerce Drive
Cranford, NJ 07016
Phone: 800.368.5948
www.rtco.com
Corporate and Management Information
Executive Officers
David P. Tusa
Chief Executive Officer and President
Berkley C. Nelson
Senior Vice President of Sales
Diana P. Diaz, CPA
Vice President and
Chief Financial Officer
Gregory C. Davis
Vice President of Operations
Khairan “Al” Aladwani
Vice President,
Quality Control / Assurance
Board of Directors
F. Gardner Parker
Chairman of the Board
Founder, Parker Investments
John W. Dalton (1)* (2) (3)
Founder
Domaine Capital Properties
Parris H. Holmes Jr. (1) (2)*
Chairman and CEO (retired)
USLD Communications Corp.
Renee P. Tannenbaum, Pharm. D. (1) (3)
Head of Global Commercial Excellence
AbbVie
David P. Tusa
Chief Executive Officer and President
Sharps Compliance Corp.
Philip C. Zerrillo, Ph.D. (2) (3)*
Executive Director
Postgraduate Professional Studies
Case Writing Initiatives
Singapore Management University
(1) Member of Compensation Committee
(2) Member of Corporate Governance Committee
(3) Member of Audit Committee
* Committee Chairman
Headquartered in Houston, Texas, Sharps Compliance is a leading full-service provider of comprehensive
medical waste management services throughout north America. Its strategy is to capture a large part of the
estimated $3.8 billion untapped market for its solutions by targeting the major agencies that are interrelated
with this medical waste stream, including pharmaceutical manufacturers, home healthcare providers, retail
pharmacies and clinics, the u.S. government and the professional market which is comprised of physicians,
dentists and veterinary practices. The Company’s flagship product, the Sharps® Recovery System, is a
comprehensive solution for the containment, transportation, treatment and tracking of medical
waste and used healthcare materials. The Company has partnered with Daniels Sharpsmart
in a joint marketing alliance to serve the entire u.S. medical waste market,
addressing small and large quantity medical waste generators
with highly cost-effective and compliant solutions.
2013
BILLINGS
BY MARKET
(FY 2013 $21.3 million)
Home HealtHcare 31.6%
retail 23.7%
core government 3.4%
otHer 4.4%
assisted living 7.4%
Professional 18.2%
PHarmaceutical 11.3%
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9220 Kirby Drive • Suite 500
Houston, Texas 77054
713.432.0300
www.sharpsinc.com