Edgar Filing: SHARPS COMPLIANCE CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

-------------------

FORM 10-QSB

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001

| | TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
for the transition period from ____________ to ____________.

Commission File Number: 0-22390

-------------------

SHARPS COMPLIANCE CORP.
(Name of Small Business Issuer in its Charter)

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

9050 KIRBY DRIVE, HOUSTON, TEXAS 77054
(Address of principal executive offices) (Zip Code)

(713) 432-0300
Registrant's telephone number

Securities Registered under 12(g) of the Exchange Act: Title of Each Class
-------------------
Common Stock, $0.01
Par Value

Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No | |

Number of shares outstanding of the issuer's Capital Stock as of January 28,
2002: 9,805,356

Transitional Small Business Disclosure Format (check one): Yes | | No |X|

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

INDEX

PAGE

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets -- December 31, 2001 (Unaudited) and June
30, 2001.....................................................................3
Unaudited Condensed Consolidated Statements of Operations --
For the three months ended December 31, 2001 and 2000........................4
Unaudited Condensed Consolidated Statements of Operations --
For the six months ended December 31, 2001 and 2000..........................5
Unaudited Condensed Consolidated Statements of Cash Flows --
For the six months ended December 31, 2001 and 2000..........................6
Notes to Unaudited Condensed Consolidated Financial Statements ..................7

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................8

PART II OTHER INFORMATION

Item 1. Legal Proceedings...............................................................11
Item 2. Changes in Securities...........................................................11
Item 4. Submission of Maters to a Vote of Security Holder...............................11

Item 6. Exhibits and Reports on Form 8-K................................................11

SIGNATURE................................................................................12

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS DECEMBER 31, JUNE 30,
2001 2001
------------- -------------

(UNAUDITED)

CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 99,362 $ 107,275
Short-term investments............................................. 947,188 237,941
Accounts receivable, net........................................... 623,469 709,274
Inventory.......................................................... 436,759 223,207
Prepaids and other................................................. 86,454 149,740
------------- -------------

Total current assets.................................... 2,193,231 1,427,437

PROPERTY AND EQUIPMENT, net.......................................... 246,578 221,427

INTANGIBLE ASSETS, net............................................... 30,369 40,490

NOTE RECEIVABLE FROM STOCKHOLDER..................................... 320,000 320,000

OTHER ASSETS......................................................... 24,494 11,695
------------- -------------

Total assets............................................ $ 2,814,673 $ 2,021,049
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable................................................... $ 578,807 $ 560,954
Accrued liabilities................................................ 134,749 131,948
Current portion of accrued disposal costs.......................... 766,027 662,632
Current portion of deferred revenue................................ 102,571 85,843
Current maturities of notes payable................................ 43,016 129,299
------------- -------------
Total current liabilities............................... 1,625,170 1,570,676

LONG TERM ACCRUED DISPOSAL COSTS, net of current portion............. 286,248 253,518
LONG TERM DEFERRED REVENUE, net of current portion................... 48,269 40,396
NOTES PAYABLE, net of current maturities............................. 26,966 2,745
------------- -------------

Total liabilities....................................... 1,986,653 1,867,335

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share; 1,000,000 shares
authorized; -0- shares issued and outstanding.................... -- --
Common stock, $.01 par value per share; 20,000,000 shares
authorized; 9,805,356 and 8,705,356 respective shares issued and
outstanding for the periods...................................... 98,053 87,053
Additional paid-in capital......................................... 6,829,813 5,572,598
Accumulated deficit................................................ (6,099,846) (5,505,937)
------------- -------------

Total stockholders' equity ............................. 828,020 153,714
------------- -------------

Total liabilities and stockholders' equity.............. $ 2,814,673 $ 2,021,049
============= =============

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

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS
ENDED DECEMBER 31,
--------------------------------
2001 2000
-------------- -------------

REVENUES:
Distribution, net........................ $1,420,448 $1,058,754
Environmental............................ 57,013 37,369
Consulting services...................... 4,240 50,700
------------ ------------
Total revenues...................... 1,481,701 1,146,823

COSTS AND EXPENSES:
Cost of revenues......................... 1,027,582 724,610
Selling, general and administrative...... 865,253 809,094
Depreciation and amortization............ 33,094 29,323
------------ ------------
Operating loss...................... (444,228) (416,204)

INTEREST INCOME, net........................ 10,606 8,389
------------ ------------
Net loss............................ $ (433,622) $ (407,815)
============ ============

BASIC AND DILUTED NET LOSS PER SHARE........ $ (.04) $ (.05)
============ ============

SHARES USED IN COMPUTING NET LOSS PER
SHARE, BASIC AND DILUTED................. 9,661,878 8,626,444
============ ============

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

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS
ENDED DECEMBER 31,
--------------------------------
2001 2000
-------------- -------------

REVENUES:
Distribution, net........................ $ 2,916,207 $ 2,006,879
Environmental............................ 260,369 43,917
Consulting services...................... 7,536 85,700
------------ ------------
Total revenues...................... 3,184,112 2,136,496

COSTS AND EXPENSES:
Cost of revenues......................... 2,171,760 1,260,839
Selling, general and administrative...... 1,564,295 1,526,292
Depreciation and amortization............ 65,284 54,662
------------ ------------
Operating loss...................... (617,227) (705,297)

INTEREST INCOME, net........................ 23,320 18,655
------------ ------------
Net loss............................ $ (593,907) $ (686,642)
============= =============

BASIC AND DILUTED NET LOSS PER SHARE........ $ (.06) $ (.08)
============= =============

SHARES USED IN COMPUTING NET LOSS PER
SHARE, BASIC AND DILUTED................. 9,183,617 8,289,487
============= =============

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

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS
ENDED DECEMBER 31,
--------------------------------
2001 2000
-------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (593,907) $ (686,642)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Depreciation and amortization.................. 65,284 54,662
Changes in operating assets and liabilities-
Decrease in accounts receivable................ 85,805 2,098
(Increase) in inventory........................ (213,552) (64,564)
(Increase) Decrease in prepaids and other
assets........................................ 50,486 25,229
Increase (Decrease) in accounts payable and
accrued liabilities........................... 20,654 (50,826)
Increase in accrued disposal costs............. 136,122 28,654
Increase in deferred revenue................... 24,601 101,162
------------ ------------

Net cash (used in) operating activities........ (424,507) (590,227)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. (80,313) (83,607)
Sales of short-term investments................. 237,941 665,984
Purchases of short-term investments............. (947,188) (1,000,000)
----------- -----------

Net cash (used in) investing activities....... (789,560) (417,623)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable....................... (62,061) (53,627)
Issuance of common stock........................ 1,268,215 1,000,000
----------- ----------

Net cash provided by financing activities..... 1,206,154 946,373
---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS..................................... (7,913) (61,477)

CASH AND CASH EQUIVALENTS, beginning of period..... 107,275 153,346
---------- ----------

CASH AND CASH EQUIVALENTS, end of period........... $ 99,362 $ 91,869
========== ==========

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

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS:

ORGANIZATION

The accompanying condensed consolidated financial statements include the
accounts of Sharps Compliance Corp. ("SCC") (formerly U.S. Medical Systems,
Inc.) and its wholly owned subsidiaries, Sharps Compliance, Inc., dba Sharps
Compliance, Inc. of Texas ("SCI"), Sharps e-Tools.com, Inc. ("Sharps e-Tools"),
and Sharps Environmental Services, Inc., dba Sharps Environmental Services of
Texas, Inc. ("Sharps Environmental Services") (collectively, "Sharps" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.

BUSINESS

Sharps focuses on developing cost-effective, logistical and educational
solutions for healthcare, hospitality and residential markets. These solutions
include the Sharps Disposal by Mail(TM) System, Trip LesSystem(TM), SureTemp
Totes, Pitch It(TM) 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 required by federal, state, local and
regulatory agencies.

Waste generators who use the Sharps Disposal by Mail(TM) System are responsible
for mailing the systems to the Panola County Resource Recovery Facility (the
"Disposal Facility") for incineration. Effective July 1, 2000, the Company
entered into an agreement with the City of Carthage, Texas, and Panola County
(collectively, the "City") to manage and operate the Services Disposal Facility.
The length of the agreement is three years, and Sharps is responsible for
maintaining the Disposal Facility as required by federal, state and/or local
regulatory agencies. Prior to July 1, 2000, Sharps paid the City to perform the
incineration function on Sharps' behalf. Sharps is also responsible for paying
the postage costs associated with the Sharps Disposal by Mail(TM) System being
mailed to the Disposal Facility by the waste generators.

Prior to July 1, 2000, Sharps recorded accrued disposal costs for both postage
and incineration based on the number of Sharps Disposal by Mail(TM) Systems sold
that management estimated would eventually be returned for incineration.
However, for sales subsequent to June 30, 2000, Sharps accrues only for
estimated postage costs as the Company assumed operation of the Disposal
Facility effective July 1, 2000. For sales subsequent to June 30, 2000, deferred
revenue is recorded for non-refundable payments received for which the
incineration services have not been performed, and incineration costs are
expensed as incurred. The amount deferred is based on objective evidence of the
value of the services not performed. Sharps estimates returns of the Sharps
Disposal by Mail(TM) Systems based on historical experience. The amount and
timing of accrued disposal costs are adjusted prospectively for revisions in the
estimated disposal costs and return rate, if any. Depending upon the experience
of Sharps, such revisions could be significant. As of December 31, 2001, the
Company has reclassified a portion of its disposal liability as long-term, based
on historical experience and management's estimate of when returns of the Sharps
Disposal by Mail(TM) System will occur. During the six months ended December 31,
2001 and 2000, the Company accrued $405,553 and $362,143, respectively, for
estimated disposal costs and funded $303,334 and $333,489, respectively, of
actual disposal costs.

Sharps continues to sole-source each of its transportation and software
development functions. Sharps may be affected by its dependence on the suppliers
of these functions. Management believes the risk is mitigated by the
long-standing business relationships with and reputation of Sharps' suppliers.
Although there are no assurances with regard to the continued future business
associations after expirations of certain agreements between Sharps and its
suppliers, management believes that alternative sources would be available at
similar costs due to the generic nature of the products and services offered.

Sharps has incurred losses from operations since its inception. The future
success of Sharps is dependent upon its ability to identify and penetrate
additional markets for its products and services, continuity of its
distributorship agreements and maintaining an agreement with a disposal
facility. On October 12, 2001, the Company completed a private placement of
1,100,000 shares of its common stock for net proceeds of $1.2 million. If the
Company would require additional financing to meet its operating cash flow
needs, Management believes that it will be successful in raising such financing.
Management believes that the Company's current resources will be sufficient to
fund operations through the fiscal year 2002.

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, 2001,
the results of its operations for the six months ended December 31, 2001 and
2000, and its cash flows for the six months ended December 31, 2001 and 2000.
The results of operations for the six months ended December 31, 2001, are not
necessarily indicative of the results to be expected for the entire fiscal year
ending June 30, 2002. 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, 2001.

3. REVENUE RECOGNITION

Sharps has adopted Staff Accounting Bulletin No. 101, "Revenue Recognition"
("SAB No. 101"), which provides guidance related to revenue recognition based on
interpretations and practices followed by the Securities and Exchange
Commission. Adoption of SAB No. 101 did not have a material effect on the
Company's financial position or results of operations, although its revenue
recognition has been modified for a change in business that occurred in July
2000 (See Note 1).

Prior to July 1, 2000, product sales were recognized as revenue when the Sharps
Disposal by Mail(TM) System was delivered and accepted by the customer.
Effective July 1, 2000, the Company assumed responsibility for operation of the
Disposal Facility and, accordingly, began deferring a portion of the product
sales revenue associated with providing the incineration service. Deferred
revenue is recognized when the Sharps Disposal by Mail(TM) Systems sold are
returned to the Disposal Facility and incinerated. The deferral amount is based
on objective evidence of fair value for the incineration function, based on
sales of this service to other third parties. Further, the deferral amount is
based on the number of Sharps Disposal by Mail(TM) Systems that management
estimates will eventually be incinerated at the Disposal Facility. Deferred
revenue will be adjusted prospectively for revisions in the estimated return
rate, if any. Depending upon the experience of the Company, such revisions could
be significant.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 143 covers all
legally enforceable obligations associated with the retirement of tangible
long-lived assets and provides the accounting and reporting requirements for
such obligations. SFAS No. 143 is effective for the Company's fiscal year
beginning July 1, 2002. The Company is currently evaluating the impact that
adoption of this standard will have on its financial statements.

In August 2001, the FASB Issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The FASB's new rules on asset impairment
supersede SFAS No. 121. "Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed of" and will be effective for the Company's
fiscal year beginning July 1, 2002. The Company is currently evaluating the
impact that adoption of this standard will have on its financial statements.

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 SCC 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," "ESTIMATE" AND "INTEND" AND WORDS OR
PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO SCC 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.

GENERAL

On October 12, 2001, the Company significantly improved its working capital
position through the completion of a private placement of 1,100,000 shares of
its common stock for net proceeds of $1,200,000. This strengthening of Sharps
balance sheet has allowed the Company to invest our sales resources in new
markets.

Revenues increased 49% in the first six months of fiscal year 2002 over the
comparable period of 2001, primarily due to increased acceptance of the Sharps
Disposal by Mail(TM) System. Sharps' SureTemp Totes also contributed
significantly, as did retail sales as Sharps added three new distributors to
service the residential market. The Company expects these revenue trends to
continue during fiscal 2002.

In the second half of the year, Sharps expects to increase dramatically the
availability of the Sharps Disposal by Mail(TM) System in the residential
market. National distribution will place Sharps mailback products on retail
shelves, nationwide, which should result in further penetration of the
residential market. Additionally, the Company should begin recognizing
revenues from the assisted living market in the second half of fiscal year
2002. Sharps entered the assisted living market in February of 2002. The
Company believes that assisted living providers are an excellent market for
the Sharps Disposal By Mail(TM) System. Their residents are much more likely
than the general populous to self-inject, thereby generating a stream of
medical waste requiring proper disposal. The volume produced by each facility
is particularly suited to disposal in Sharps Disposal by Mail(TM) System.

RESULTS OF OPERATIONS

The discussion below analyzes changes in the consolidated operating results and
financial condition of the Company during the three months ended December 31,
2001 and 2000.

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

THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
--------- --------- --------- ---------

Net revenues 100% 100% 100% 100%
Costs and expenses:
Cost of revenues (69%) (63%) (68%) (59%)
Selling, general and administrative (58%) (71%) (49%) (71%)
Depreciation and amortization (3%) (3%) (2%) (3%)
--------- --------- --------- ---------
Total operating expenses (130%) (137%) (119%) (133%)
--------- --------- --------- ---------
Loss from operations (30%) (37%) (19%) (33%)
Total other income 1% 1% 1% 1%
--------- --------- --------- ---------
Net loss (29%) (36%) (19%) (32%)
========= ========= ========= =========

QUARTER ENDED DECEMBER 31, 2001, COMPARED TO QUARTER ENDED DECEMBER 31, 2000

The Company's distribution revenues were approximately $1,420,000 for the
quarter ended December 31, 2001, compared to revenues of approximately
$1,059,000 for the quarter ended December 31, 2000. The increase in revenue is
attributed primarily to the increased acceptance of the Company's Sharps
Disposal by Mail(TM) System and SureTemp Totes.

Environmental revenue was approximately $57,000 for the quarter ended December
31, 2001, compared to $37,000 for the quarter ended December 31, 2000. The
increase in revenue was primarily affected by the amounts of Deferred Revenue
that

was recognized for the disposal of the Sharps Disposal by Mail(TM) Systems that
were being disposed of over the same period. Disposal of third party waste for
the periods were 105,495 lbs. and 217,661 lbs. or $22,000 and $38,000, for the
quarters ending December 31, 2001 and 2000, respectively. Repairs and
maintenance at the Facility in the current period affected this slow down in the
disposal of third party waste.

Cost of Revenue increased 6% (as a percentage of revenue) during the quarter
ended December 31, 2001, compared to the quarter ended December 31, 2000. The
increase is due to incinerator facility operational inefficiencies, repair and
maintenance, incremental costs associated with higher shipping and freight
costs, lower blended gross profit margin due to product mix sold during the
quarter (primarily attributed to the SureTemp Totes).

Selling, general and administrative expenses increased to approximately $865,000
(or 58% of revenue) for the quarter ended December 31, 2001, from $809,000 (or
71% of revenue) for the quarter ended December 31, 2000. The $56,000 increase is
a result of increased professional fees, stock option expense, insurance and
commission costs, which are partial offset against lower travel and
entertainment costs.

The Company's net loss from operations was approximately $433,000 ($0.04 per
share) for the quarter ended December 31, 2001, compared to $408,000 ($0.05 per
share) for the quarter ended December 31, 2000.

SIX MONTHS ENDED DECEMBER 31, 2001 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2000

The Company's distribution revenues were approximately $2.9 million for the
period ended December 31, 2001, compared to revenues of approximately $2.0
million for the period ended December 31, 2000. The increase in revenue is
attributed primarily to the increased acceptance of the Company's Sharps
Disposal by Mail(TM) System with the addition of one new distributor in the
homecare market and entering the retail market by adding three new distributors
to service the residential customer and SureTemp Totes.

Environmental revenue was approximately $260,000 for the period ended December
31, 2001, compared to $44,000 for the period ended December 31, 2000. The
increase was due to a short-term service contract with a third party that ended
in September 2001. Additionally, the period ended December 31, 2000, was the
second period of operation of the facility.

Cost of Revenue increased 9% (as a percentage of revenue) during the period
ended December 31, 2001, compared to the period ended December 31, 2000. The
increase is due to operational inefficiencies and incremental costs associated
with a short-term service contract with a third party for Incinerator Services
and higher shipping costs.

Selling, general and administrative expenses increased to approximately
$1,564,000 (or 49% of revenue) for the period ended December 31, 2001, from
$1,526,000 (or 71% of revenue) for the period ended December 31, 2000. The
$38,000 increase is a result of increased professional fees, stock option
expense, insurance and commission costs, which are partial offset against lower
Travel and Entertainment Costs.

The Company narrowed the net loss from operations from 2000 to 2001 by
approximately $88,000, or 13%. This improvement is a result of continued revenue
growth of the Sharps Disposal by Mail(TM) Systems and increased Incinerator
Services revenues, which was partially offset by an increase in cost of revenue,
primarily related to incineration activities with a third party, operational
inefficiencies at the incinerator facility and higher shipping costs.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2001, the Company had approximately $1,046,000 in cash and
short-term investments, and current assets exceed current liabilities by
approximately $568,000. On October 12, 2001, the Company significantly improved
its working capital position through the completion of a private placement of
1,100,000 shares of its common stock for net proceeds of $1.2 million.

Capital expenditures during the quarter ended December 31, 2001, were
approximately $22,656 and consisted primarily of purchases for improvements to
the Disposal Facility.

At December 31, 2001, total long-term debt outstanding was approximately $27,000
for the Company.

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.

In relation to the aforementioned sale of securities on October 12, 2001, the
Company issued fully vested stock options for 50,000 shares at a strike price of
$1.10, in lieu of commissions. The result of which was the recognition of
$48,513 in expense related to this issue.

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

At the Annual Meeting of Stockholders held on November 19, 2001, the following
matters were adopted by the margins indicated:

1. To elect directors Lee Cooke, Parris H. Holmes, Dr. Burt Kunik and Philip
C. Zerrillo to serve until the 2002 Annual Meeting of Stockholders.

For: 7,897,584
Against: 340
Abstain: 255

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

The following exhibit is filed as part of this report.

Exhibit No. Description
----------- -----------
None

b) Reports on Form 8-K

None.

ITEMS 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

SIGNATURE

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 14, 2002 By: /s/ Gary L. Shell
------------------------------------------
Vice President and Chief Financial Officer

Dated: February 14, 2002 By: /s/ Dr. Burt Kunik
------------------------------------------
President and Chief Executive Officer