QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB/A

(Mark One)  

ý
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2002

o
TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT

For the transition period from                               to                              

Commission File Number: 0-22390

SHARPS COMPLIANCE CORP.
(Exact name of small business issuer as specified in its Charter)

Delaware   74-2657168
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer Identification No.)

9350 Kirby Drive, Houston, Texas 77054
(Address of principal executive offices)

(713) 432-0300
(Issuer's telephone number)

9050 Kirby Drive, Houston, Texas 77054
(Former name, former address and former fiscal year, if changed since last report)

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

        Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o    No o

APPLICABLE ONLY TO CORPORATE ISSUERS

        State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:As of February 7, 2003, there were 9,872,023 shares of common stock, $0.01 par value

Transitional Small Business Disclosure Format (check one): Yes o    No ý


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

INDEX

 
    
   PAGE
PART I    FINANCIAL INFORMATION    

Item 1.
 
Financial Statements
 
 

 
 
Condensed Consolidated Balance Sheets as of December 31, 2002 (Unaudited) and June 30, 2002
 
3

 
 
Unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2002 and 2001 (Restated)
 
4

 
 
Unaudited Condensed Consolidated Statements of Operations for the six months ended December 31, 2002 and 2001 (Restated)
 
5

 
 
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2002 and 2001 (Restated)
 
6

 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
7

Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
12

Item 3.
 
Controls and Procedures
 
16

PART II    OTHER INFORMATION
 
 

Item 1.
 
Legal Proceedings
 
17

Item 2.
 
Changes in Securities
 
17

Item 4.
 
Submission of Matters to a Vote of Security Holders
 
17

Item 6.
 
Exhibits and Reports on Form 8-K
 
17

Signatures
 
18

Chief Executive Officer Certification
 
19

Chief Financial Officer Certification
 
20

2

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
   December 31,
2002
   June 30,
2002
  
 
   (Unaudited)

    
  
ASSETS              
CURRENT ASSETS:              
  Cash   $ 501,675   $ 133,363  
  Short-term investments     10,010     876,287  
  Accounts receivable, net     1,547,748     784,466  
  Inventory     477,862     331,463  
  Prepaids and other assets     179,395     219,406  
   
 
 
    TOTAL CURRENT ASSETS     2,716,690     2,344,985  
PROPERTY AND EQUIPMENT, net     477,151     269,990  
INTANGIBLE ASSETS, net     10,124     20,246  
NOTE RECEIVABLE FROM STOCKHOLDER     —     320,000  
OTHER ASSETS     11,694     37,294  
   
 
 
    TOTAL ASSETS   $ 3,215,659   $ 2,992,515  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
CURRENT LIABILITIES:              
  Accounts payable   $ 845,513   $ 636,124  
  Accrued liabilities     412,060     290,440  
  Deferred revenue—pump return     370,640     323,088  
  Current portion of deferred revenue—incineration     113,610     114,212  
  Current portion of deferred revenue—transportation     478,528     419,370  
  Notes payable and current portion of long-term debt     204,627     114,429  
   
 
 
    TOTAL CURRENT LIABILITIES     2,424,978     1,897,663  
LONG-TERM DEFERRED REVENUE—INCINERATION, net of current portion     53,463     53,745  
LONG-TERM DEFERRED REVENUE—TRANSPORTATION, net of current portion     225,190     197,351  
LONG-TERM DEBT, net of current portion     99,971     24,227  
   
 
 
    TOTAL LIABILITIES     2,803,602     2,172,986  
COMMITMENTS AND CONTINGENCIES     —     —  
STOCKHOLDERS' EQUITY:              
  Common stock, $.01 par value per share; 20,000,000 shares authorized; 9,872,023 and 9,822,023 shares issued and outstanding, respectively     98,720     98,220  
  Additional paid-in capital     6,883,563     6,846,313  
  Accumulated deficit     (6,570,226 )   (6,125,004 )
   
 
 
    TOTAL STOCKHOLDERS' EQUITY     412,057     819,529  
   
 
 
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 3,215,659   $ 2,992,515  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
   For the Three Months
Ended December 31,
  
 
   2002
   2001
  
 
    
   (As Restated)

  
REVENUES:              
  Distribution, net   $ 2,267,575   $ 1,424,517  
  Environmental     60,126     62,135  
  Consulting services     12,108     4,240  
   
 
 
    TOTAL REVENUES     2,339,809     1,490,892  
COSTS AND EXPENSES:              
  Cost of revenues     1,598,551     1,076,405  
  Selling, general and administrative     958,146     788,879  
  Depreciation and amortization     46,695     33,094  
   
 
 
    TOTAL COSTS AND EXPENSES     2,603,392     1,898,378  
   
 
 
OPERATING LOSS     (263,583 )   (407,486 )
INTEREST INCOME, net     6,563     10,867  
   
 
 
NET LOSS   $ (257,020 ) $ (396,619 )
   
 
 
BASIC AND DILUTED NET LOSS PER SHARE   $ (.03 ) $ (.04 )
   
 
 
SHARES USED IN COMPUTING NET LOSS PER SHARE, BASIC AND DILUTED     9,862,784     9,661,878  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
   For the Six Months
Ended December 31,
  
 
   2002
   2001
  
 
    
   (As Restated)

  
REVENUES:              
  Distribution, net   $ 4,028,764   $ 2,641,067  
  Environmental     317,087     316,049  
  Consulting services     42,826     7,536  
   
 
 
    TOTAL REVENUES     4,388,677     2,964,652  
COSTS AND EXPENSES:              
  Cost of revenues     2,979,941     2,123,130  
  Selling, general and administrative     1,799,957     1,417,671  
  Depreciation and amortization     67,846     65,284  
   
 
 
    TOTAL COSTS AND EXPENSES     4,847,744     3,606,085  
   
 
 
OPERATING LOSS     (459,067 )   (641,433 )
INTEREST INCOME, net     13,845     23,321  
   
 
 
NET LOSS   $ (445,222 ) $ (618,112 )
   
 
 
BASIC AND DILUTED NET LOSS PER SHARE   $ (.05 ) $ (.07 )
   
 
 
SHARES USED IN COMPUTING NET LOSS PER SHARE, BASIC AND DILUTED     9,842,403     9,183,617  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
   For the Six Months
Ended December 31,
  
 
   2002
   2001
  
 
    
   (As Restated)

  
CASH FLOWS FROM OPERATING ACTIVITIES:              
  Net loss   $ (445,222 ) $ (618,112 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:              
    Depreciation and amortization     67,846     65,284  
  Changes in operating assets and liabilities:              
    (Increase) decrease in accounts receivable     (763,282 )   153,715  
    (Increase) decrease in inventory     (146,399 )   (246,397 )
    (Increase) decrease in prepaids and other assets     65,611     46,855  
    Increase (decrease) in accounts payable     209,389     98,054  
    Increase (decrease) in accrued expenses & other liabilities     121,620     (77,400 )
    Increase (decrease) in deferred revenue     133,665     153,494  
   
 
 
      Net cash used in operating activities     (756,772 )   (424,507 )
CASH FLOWS FROM INVESTING ACTIVITIES:              
  Purchases of property and equipment     (264,885 )   (80,313 )
  Proceeds from stockholder note receivable     320,000     —  
   
 
 
    Net cash provided by (used in) investing activities     55,115     (80,313 )
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Proceeds from notes payable     250,000     —  
  Payments on notes payable     (84,058 )   (62,061 )
  Issuance of common stock     37,750     1,268,215  
   
 
 
    Net cash provided by financing activities     203,692     1,206,154  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (497,965 )   701,334  
CASH AND CASH EQUIVALENTS, beginning of period     1,009,650     345,216  
   
 
 
CASH AND CASH EQUIVALENTS, end of period   $ 511,685   $ 1,046,550  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002

NOTE 1. ORGANIZATION AND BACKGROUND

        The accompanying condensed 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 Manufacturing Inc., and Sharps Environmental Services, Inc., dba Sharps Environmental Services of Texas, Inc. (collectively, "Sharps" or the "Company"). All significant intercompany accounts and transactions have been eliminated upon consolidation.

NOTE 2. BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and, accordingly, do not include all information and footnotes required under accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these interim condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position of the Company as of December 31, 2002, the results of its operations for the three months ended December 31, 2002 and 2001, the results of its operations for the six months ended December 31, 2002 and 2001 and its cash flows for the six months ended December 31, 2002 and 2001. The results of operations for the six months ended December 31, 2002, are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2003. These condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-KSB for the year ended June 30, 2002.

        For purposes of the Unaudited Condensed Consolidated Statements of Cash Flows, cash equivalents includes all cash and all amounts in short-term investments, all of which have maturities of three months or less.

NOTE 3. REVENUE RECOGNITION

        On July 1, 2000, Sharps adopted the SEC Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), which outlines the Staff's view and provides guidance related to revenue recognition. As a result, the Company has changed its revenue recognition policy relating to the multiple-deliverable revenue arrangements and to clarify and implement the shipping terms on the sales of products as F.O.B. destination. The adoption of SAB No. 101 has been accounted for as a cumulative effect of a change in accounting principle at July 1, 2000. Certain products offered by the Company have revenue producing components that are recognized over multiple delivery points and can consist of up to three separate elements as follows: (1) the sale of the container system, (2) the transportation of the container system and (3) the treatment and disposal (incineration) of the container system. The individual fair value of the transportation and incineration services are determined by the sales price of the service offered by third parties, with the fair value of the container being the residual value. Revenue for the sale of the container is recognized upon delivery to the customer, which is when the customer takes title and assumes risk of ownership. Transportation revenue is recognized when the customer returns the mailback container system and the container has been received at the Company's treatment facility. When returned, the container system is mailed to the incineration facility using the United States Postal Service ("USPS"). Incineration revenue is recognized upon the destruction and certification of destruction having been prepared on the container. Since the transportation element and the incineration elements are undelivered services at the point of initial sale of the container, the revenue is deferred until all the services are performed. However,

7


through regression analysis of historical data, the Company has determined that a certain percentage of all container systems sold may not be returned. Accordingly, a portion of the transportation and incineration elements are recognized at the point of sale.

NOTE 4. CONTINGENCIES

        Sharps continues to sole-source transportation, which consists of delivering the Sharps Disposal by Mail System™ from the end user to the Company's treatment facility. Transportation is currently sole-sourced to the USPS. Management believes the risk of dependence is mitigated by the long-standing business relationship. Although there are no assurances with regard to the continued future business association, management believes that alternative sources would be available, in the event of disruption of service from the USPS.

NOTE 5. LINE OF CREDIT

        The Company completed an agreement with a financial institution on August 30, 2002, for a $1.25 million asset based line of credit. This line of credit is in the form of a factoring arrangement whereby 80% of qualified accounts receivable would be eligible for borrowing. As of December 31, 2002, approximately $1,000,000 would be available under the factoring arrangement for borrowing.

        Management believes that the Company's current resources, including credit under the line of credit, will be sufficient to fund operations through calendar year 2003.

NOTE 6. NOTE RECEIVABLE FROM STOCKHOLDER

        On December 31, 2002, the Note Receivable from Stockholder was paid in full. The Company received the principal and interest in the amount of $358,400.

NOTE 7. SUBSEQUENT RELATED PARTY TRANSACTION

        On January 2, 2003, Dr. Burt Kunik (Chief Executive Officer of the Company) sold 356,000 shares of common stock of Sharps Compliance Corp. in a private sale. Purchasers of these shares included New Century Equity Holdings Corp. (200,000 shares), a 9% shareholder in the Company, John Dalton (50,000 shares), a 12.5% holder in the Company and Philip Zerrillo (10,000 shares), a member of the Company's Board of Directors.

NOTE 8. ASSET PURCHASE (PRO-TEC)

        On October 1, 2002, Sharps completed a purchase of the Pro-Tec product line assets from Futura Medical Corporation ("Futura") for $300,000. As consideration for the asset purchase, the Company made a payment of $50,000 at closing and will make payments of $83,333 on March 1, 2003, September 1, 2003, and March 1, 2004 to Futura. This asset purchase consists of all inventories, molds, fixtures, supplies, customer list and other fixed assets used in the manufacturing of the Pro-Tec product line. Sharps did not assume any operations, other liabilities, or employees as a part of this purchase.

NOTE 9. ACCOUNTS RECEIVABLE

        The accounts receivable balance at December 31, 2002, increased by approximately $760,000 over the June 30, 2002 balance, as a result of an increase in revenue for the six months ended December 31,

8


2002. Additionally, the receivable balance of $1,547,748 at December 31, 2002, includes two major accounts totaling $793,201, of which $598,870 has been collected since the end of the quarter.

NOTE 10. ADOPTION OF SAB 101 AND RESTATEMENT OF 2001

        During fiscal year 2002 and subsequent to the issuance of its 2001 Financial Statements, the Company (utilizing guidance provided by the Securities and Exchange Commission) changed its methodology of revenue recognition under SAB No. 101. The Company's new methodology is explained in detail in Footnote 2—Summary of Significant Accounting Policies: Revenue Recognition.

        Below is a reconciliation of the June 30, 2001 restated financial statements to that previously reported. The adjustments consist primarily of the deferral of previously recognized revenue and the reversal of previously accrued costs. Each adjustment is explained in detail in the notes to the tables below.

        In addition to the restatement adjustments, the Company also recorded the reclassification of certain operations related to labor costs from "Selling, general & administrative" expense to "Cost of

9


revenue". These adjustments represent the correction of a prior year classification error which has no impact on the reported net losses of the Company.

 
   Quarter Ended December 31, 2001
  
 
   As Stated
   Adjustments
   As Restated
  
Sales, net   $ 1,420,448   $ 4,069   (1) $ 1,424,517  
Environmental     57,013     5,122   (2)   62,135  
Consulting services and other     4,240     —     4,240  
   
 
 
 
  TOTAL REVENUE     1,481,701     9,191     1,490,892  

Cost of revenue
 
 
1,027,582
 
 
48,823
  (3)
 
1,076,405
 
Selling, general, and administrative     865,253     (76,374)   (4)   788,879  
Depreciation and amortization     33,094     —     33,094  
   
 
 
 
  OPERATING (LOSS)/INCOME     (444,228 )   37,742     (407,486 )

Interest income, net
 
 
10,606
 
 
261
 
 
10,867
 
   
 
 
 
    NET (LOSS)/INCOME   $ (433,622 ) $ 38,003   $ (396,619 )
   
 
 
 

Basic and Diluted Net Loss per Share
 
$
(0.04
)
$
(0.00
)
$
(0.04
)
   
 
 
 

Shares Used in Computing Basic and Diluted Net Loss per Share
 
 
9,661,878
 
 
9,661,878
 
 
9,661,878
 
   
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
   Six-Months Ended December 31, 2001
  
 
   As Stated
   Adjustments
   As Restated
  
Sales   $ 2,916,207   $ (275,140 )(5) $ 2,641,067  
Environmental     260,369     55,680   (6)   316,049  
Consulting services and other     7,536     —     7,536  
   
 
 
 
  TOTAL REVENUE     3,184,112     (219,460 )   2,964,652  

Cost of revenue
 
 
2,171,760
 
 
(48,630
)(7)
 
2,123,130
 
Selling, general, and administrative     1,564,295     (146,624 )(8)   1,417,671  
Depreciation and amortization     65,284     —     65,284  
   
 
 
 
  OPERATING (LOSS)/INCOME     (617,227 )   (24,206 )   (641,433 )

Interest income, net
 
 
23,320
 
 
1
 
 
23,321
 
   
 
 
 
    NET (LOSS)/INCOME   $ (593,907 ) $ (24,205 ) $ (618,112 )
   
 
 
 

Basic and Diluted Net Loss per Share
 
$
(0.06
)
$
(0.00
)
$
(0.07
)
   
 
 
 

Shares Used in Computing Basic and Diluted Net Loss per Share
 
 
9,183,617
 
 
9,183,617
 
 
9,183,617
 
   
 
 
 

10

(1)
Represents the net deferral of transportation and incineration revenue associated with Mail Back products and the deferral of transportation revenue associated with Pump Return products associated with items that have not yet been returned.

(2)
Represents the reclassification of $5,122 in incineration revenue from "Sales, net" to "consulting services and environmental" revenue.

(3)
Represents, (i) the reclassification of $76,634 in operations related labor costs to "Cost of revenue" from "Selling, general & administrative" expense (this is a correction of a prior year classification error), partially offset by (ii) the reversal of $27,551 in accrued disposal and transportation costs directly associated with previously recognized revenue (but now deferred in conjunction with the adoption of SAB No. 101).

(4)
Represents the reclassification of $76,374 in operations related labor costs from "Selling, general & administrative" expense to "Cost of revenue" (this is a correction of a prior year classification error).

(5)
Represents the deferral of transportation and incineration revenue associated with Mail Back products and the deferral of transportation revenue associated with Pump Return products associated with items that have not yet been returned.

(6)
Represents the reclassification of $55,680 in incineration revenue from "Sales, net" to "consulting services and environmental" revenue.

(7)
Represents, (i) the reclassification of $146,624 in operations related labor costs to "Cost of revenue" from "Selling, general & administrative" expense (this is a correction of a prior year classification error), partially offset by (ii) the reversal of $97,994 in accrued disposal and transportation costs directly associated with previously recognized revenue (but now deferred in conjunction with the adoption of SAB No. 101).

(8)
Represents the reclassification of $146,624 in operations related labor costs from "Selling, general & administrative" expense to "Cost of revenue" (this is a correction of a prior year classification error).

11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This quarterly report on Form 10-QSB contains certain forward-looking statements and information relating to Sharps 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," "estimate" and "intend" and words or phrases of similar import, as they relate to Sharps 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.

GENERAL

        Sharps develops cost-effective, logistical solutions for healthcare, hospitality, and residential markets. These solutions include the Sharps Disposal by Mail™ System, Trip LesSystem™, Sharps Pump Return Box, Sharps Enteral Pump Return Box, Sharps SureTemp Tote™, Pitch It™ IV Poles, Sharps e-Tools and Sharps Environmental Services. Sharps products and services are provided primarily to create cost and logistical efficiencies. These products and services facilitate compliance with state and federal regulations by tracking, incinerating and documenting the disposal of medical waste. Additionally, these services facilitate compliance with educational and training requirements of federal, state, and local agencies.

        On October 1, 2002, Sharps completed a purchase of the Pro-Tec product line assets from Futura Medical Corporation ("Futura") for $300,000. As consideration for the asset purchase, the Company made a payment of $50,000 at closing and will make payments of $83,333 on March 1, 2003, September 1, 2003, and March 1, 2004 to Futura. This asset purchase consists of all inventories, molds, fixtures, supplies, customer list and other fixed assets used in the manufacturing of the Pro-Tec product line. Sharps did not assume any operations, other liabilities, or employees as a part of this purchase.

        The Pro-Tec product line offers medical sharps disposal containers, specialized for safe disposal of biomedical waste. The Pro-Tec product line is a vertical business integration of the sharps disposal by mail products for the Company. The Company should have an opportunity for savings in product cost on its Sharps Disposable by Mail System™ and sales to third parties of this product.

        During the quarter ended December 31, 2002, the Company has begun to sell a new product for enteral patients. This system is a variance of our Trip LesSystem™ and involves the Pump Return Box and Pitch It™ IV Poles.

        On November 13, 2002, the Company entered into an agreement with the United States Postal Service ("USPS") to have a Detached Mail Unit ("DMU") at the Sharps Environmental Services, Inc.'s leased facility. A DMU is a secure and exclusive space within the Carthage Facility, which is provided to the USPS for the processing of the Carthage Facility's mail. This should create an opportunity for operational efficiencies both for the USPS and Sharps. The DMU is expected to be operational within three months.

        On December 31, 2002, the Company entered into an agreement to purchase a new integrated accounting system. The system is designed to add operational efficiencies to Sharps and is expected to be operational within six months.

12


RESULTS OF OPERATIONS

        The discussion below analyzes changes in the consolidated operating results and financial condition of the Company during the three months and six months ended December 31, 2002 and 2001.

        The following table sets forth, for the periods indicated, certain items from the Company's Condensed Consolidated Statements of Operations, expressed as a percentage of revenue:

 
   Three Months Ended December 31,
   Six Months Ended December 31,
  
 
   2002
   2001
   2002
   2001
  
Net revenues   100%   100%   100%   100%  
Costs and expenses:                  
  Cost of revenues   (68% ) (72% ) (68% ) (72% )
  Selling, general and administrative   (41% ) (53% ) (41% ) (48% )
  Depreciation and amortization   (2% ) (2% ) (1% ) (2% )
   
 
 
 
 
Total operating expenses   (111% ) (127% ) (110% ) (122% )
   
 
 
 
 
  Loss from operations   (11% ) (27% ) (10% ) (22% )
Total other income   —        —        —        1%  
   
 
 
 
 
Net loss   (11% ) (27% ) (10% ) (21% )
   
 
 
 
 

QUARTER ENDED DECEMBER 31, 2002, COMPARED TO QUARTER ENDED DECEMBER 31, 2001

        The revenues and cost of revenues components for the quarter ended December 31, 2002 and 2001 are as follows:

 
   Three Months Ended December 31,
 
   2002
   2001 (As Restated)
 
   Revenue
   Cost of
Revenue
   Revenue
   Cost of
Revenue
Products   $ 1,989,648   $ 1,205,636   $ 1,245,833   $ 739,647
Incineration Service     60,126     137,335     62,135     171,230
Transportation Service     277,927     255,580     178,684     165,528
Consulting Services     12,108     —     4,240     —
   
 
 
 
    $ 2,339,809   $ 1,598,551   $ 1,490,892   $ 1,076,405
   
 
 
 

        Product revenues for the quarter ended December 31, 2002, increased 60% as compared to the product revenues for the quarter ended December 31, 2001. This is due to continued penetration of target markets, which resulted in strong revenue growth of 42% for Sharps Disposal by Mail System™, 7% for the SureTemp Totes, 7% for Pro-Tec containers and 4% for all other products. A significant portion of the increase in the Sharps Disposal by Mail System™ is due to the fulfillment of a purchase order from a leading syringe manufacturer who ordered a new version of the Sharps Disposal by Mail System™ for residential use. During the quarter ended December 31, 2002, sales of products contributed 85% to total revenue while incineration, transportation and other services contributed 3%, 12%, and 1%, respectively, to total revenue. Product sales in quarter ended December 31, 2001 were 84% to total revenue while incineration and transportation contributed 4% and 12%, respectively, to total revenue. The Company expects that its results of operations will continue to fluctuate between periods based upon the timing and level of sales to distributors.

        Cost of Revenue as a percent of revenue for the quarter ended December 31, 2002, decreased by 4% as compared to the Cost of Revenue as a percent of revenue for the quarter ended December 31,

13


2001. This resulted from price increases to customers on certain products and incineration services, which was partially offset by a lower blended gross profit margin due to the product mix sold during the quarter. The cost of revenue on products contributed 75% to total cost of revenue while incineration and transportation contributed 9% and 16%, respectively, to total cost of revenue during quarter ended December 31, 2002. The cost of revenue on products contributed 69% to total cost of revenue while incineration and transportation contributed 16% and 15%, respectively, to total cost of revenue during quarter ended December 31, 2001.

        Selling, general and administrative expenses declined as a percent of revenue to 41% for the quarter ended December 31, 2002 from 53% for the quarter ended December 31, 2001. The decline is due to increased sales and our ability to leverage on the existing cost structure to support new growth. The increased dollar amount is attributed to increased payroll expenses, rent expenses associated with the Company's new office facility, insurance expenses, professional fees and travel expenses.

        The net loss from operations decreased in the quarter ended December 31, 2002 as compared to the quarter ended December 31, 2001 by approximately 16% as a percent of revenue. This improvement is substantially due to increased sales leveraging on the Company's cost structure.

SIX MONTHS ENDED DECEMBER 31, 2002, COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2001

        The revenues and cost of revenues components for the six months ended December 31, 2002 and 2001 are as follows:

 
   Six Months Ended December 31,
 
   2002
   2001 (As Restated)
 
   Revenue
   Cost of
Revenue
   Revenue
   Cost of
Revenue
Products   $ 3,541,156   $ 2,111,978   $ 2,295,896   $ 1,325,704
Incineration Service     317,087     421,751     316,049     476,591
Transportation Service     487,608     446,212     345,171     320,835
Consulting Services     42,826     —     7,536     —
   
 
 
 
    $ 4,388,677   $ 2,979,941   $ 2,964,652   $ 2,123,130
   
 
 
 

        Product revenues for the six months ended December 31, 2002 increased 54% as compared to the product revenues for the six months ended December 31, 2001. This is due to continued penetration of target markets, which resulted in strong revenue growth of 34% for Sharps Disposal by Mail System™, 13% for the SureTemp Totes, 5% for Pro-Tec containers and 2% for all other products. A significant portion of the increase in the Sharps Disposal by Mail System™ is due to the fulfillment of a purchase order from a leading syringe manufacturer who ordered a new version of the Sharps Disposal by Mail System™ for residential use. During the six months ended December 31, 2002, sales of products contributed 81% to total revenue while incineration, transportation and other services contributed 7%, 11%, and 1%, respectively, to total revenue. Product sales for the six months ended December 31, 2001 were 77% to total revenue while incineration transportation contributed 11% and 12%, respectively, to total revenue. The Company expects that its results of operations will continue to fluctuate between periods based upon the timing and level of sales to distributors.

        Cost of Revenue as a percent of revenue for the six months ended December 31, 2002, decreased by 4% as compared to the Cost of Revenue as a percent of revenue for the six months ended December 31, 2001. This resulted from price increases to customers on certain products and incineration services, which was partially offset by a lower blended gross profit margin due to the product mix sold during the quarter. The cost of revenue on products contributed 71% to total cost of revenue while incineration and transportation contributed 14% and 15%, respectively, to total cost of

14


revenue during six months ended December 31, 2002. The cost of revenue on products contributed 62% to total cost of revenue while incineration and transportation contributed 23% and 15%, respectively, to total cost of revenue during six months ended December 31, 2001.

        Selling, general and administrative expenses declined as a percent of revenue to 41% for the six months ended December 31, 2002 from 48% for the six months ended December 31, 2001. The decline is due to increased sales and our ability to leverage the existing cost structure to support the new growth. The increased dollar amount is attributed to increased payroll expenses, rent expenses associated with the Company's new office facility, insurance expenses, professional fees and travel expenses.

        The net loss from operations decreased in six months ended December 31, 2002 as compared to six months ended December 31, 2001 by approximately 11% as a percent of revenue. This improvement is substantially due to increased sales leveraging on the Company's cost structure.

LIQUIDITY AND CAPITAL RESOURCES

        As of December 31, 2002, the Company had $511,685 in cash and short-term investments and $1,547,748 accounts receivable. Current assets exceeded current liabilities by approximately $292,000 at December 31, 2002. On October 12, 2001, the Company completed a private placement of 1,100,000 shares of its common stock for gross proceeds of $1,210,000 which improved the Company's working capital position.

        The accounts receivable balance at December 31, 2002, increased by approximately $760,000 over the June 30, 2002 balance, as a result of an increase in revenue for the six months ended December 31, 2002. Additionally, the receivable balance of $1,547,748 at December 31, 2002, includes two major accounts totaling $793,201, of which $598,870 has been collected since the end of the quarter.

        On December 31, 2002, the Company received the principal and interest on the Note Receivable from Stockholder in the amount of $358,400.

        The Company completed an agreement with a financial institution on August 30, 2002 for a $1.25 million asset based line of credit. This line of credit is in the form of a factoring arrangement whereby 80% of qualified accounts receivable would be eligible for borrowing. As of December 31, 2002, $1,000,000 would be available under the factoring arrangement for borrowing.

        Management believes that the Company's current resources, including the line of credit, will be sufficient to fund operations through calendar year 2003.

Recently Issued Accounting Standards

        In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which requires among other items, that liabilities for the costs associated with exit or disposal activities be recognized when the liabilities are incurred, rather than when an entity commits to an exit plan. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The effect of adoption of SFAS No. 146 is dependent on the Company's activities subsequent to adoption.

        In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee and expands the disclosures required to be made by a guarantor about its obligations under guarantees that it has issued. Initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis

15


to guarantees issued or modified. The disclosure requirements are effective immediately and adopted for this Form 10-Q.

        In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 addresses certain aspects of the accounting by a company for arrangements under which it will perform multiple revenue-generating activities. In applying EITF 00-21, generally, separate contracts with the same customer that are entered into at or near the same time are presumed to have been negotiated as a package and should, therefore, be evaluated as a single contractual arrangement. It also addresses how contract consideration should be measured and allocated to the separate deliverables in the arrangement. This pronouncement is applicable to revenue arrangements entered into beginning in 2004. The Company believes that it is in compliance with the requirements of EITF 00-21 as described in the revenue recognition disclosure in Notes 2 and 11 of the consolidated financial statements as of June 30, 2002 contained in Form 10-KSB.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure requirements are effective for fiscal years ending December 15, 2002. The Company adopted the disclosure provisions for this Form 10-K. As the Company will continue to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees", the accounting for stock-based employee compensation will not change as a result of SFAS No. 148. The new interim disclosure provisions will be effective for the Company beginning with the quarter ended September 30, 2003.

        In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities", which requires that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The related disclosure requirements are effective immediately. Management does not believe the adoption of FIN 46 will have any impact on the Company's financial position or results of operations.

ITEM 3. CONTROLS AND PROCEDURES

        Prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures and based upon an evaluation, within 90 days of the filing of this report, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this 10-QSB. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the Chief Executive Officer and Chief Financial Officer's most recent evaluation.

16

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Sharps is involved in certain legal actions and claims arising in the normal course of business. While the outcome of these matters cannot be predicted with certainty, management believes these matters will not have a material adverse effect on Sharps' consolidated financial position, results of operations or liquidity.

ITEM 2. CHANGES IN SECURITIES

        On October 12, 2001, the Company approved the sale of 1,100,000 shares of common stock, $0.01 par value per share, in a private placement sale of the securities. This private placement was offered and sold only to individuals or companies who were accredited as defined by Rule 501 of Regulation D. The proceeds from the sale of the securities were $1,210,000 in cash. The sale of these securities was exempt under Regulation D.

        On January 7, 2002, the Company sold 16,667 shares of Common Stock for $16,667 in cash. This transaction was exempt under Regulation D and Section 4 of the Securities Act of 1933 as a transaction not involving a public offering.

        On October 18, 2002, the Company sold 50,000 shares of Common Stock for $37,750 in cash. This transaction was issued under the Company's 1993 Employee Stock Plan.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        At the Annual Meeting of Stockholders held on October 23, 2002, the following matters were adopted:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        The following exhibit is filed as part of this report.

Exhibit No.
   Description
10.35   Employment Agreement effective January 1, 2003, by and between Sharps Compliance Corp. and Dr. Burt Kunik (incorporated by reference from 13D/A dated January 10, 2003).

ITEMS 3 and 5 are not applicable and have been omitted.

17


SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.


 
 
REGISTRANT:

 
 
SHARPS COMPLIANCE CORP.

Dated: February 12, 2003
 
By:
 
/s/  GARY SHELL      
Vice President and Chief Financial Officer

Dated: February 12, 2003
 
By:
 
/s/  BURT KUNIK      
Chief Executive Officer

18


CERTIFICATIONS

I, Burt Kunik certify that:

Date: February 12, 2003

    /s/  BURT KUNIK      
Burt J. Kunik,
Chief Executive Officer

19

I, Gary Shell certify that:

Date: February 12, 2003

    /s/  GARY SHELL      
Gary L. Shell,
Chief Financial Officer

20

Exhibit Index

Ex. No.
   Description
99.1   Management's certifications required pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002.


QuickLinks

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES INDEX
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SHARPS COMPLIANCE CORP. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002
SIGNATURES
CERTIFICATIONS