-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PYbaEEAx4zhGCWZfq0XomtMICkW1Or5C2gMyDp8hlr3AVbS/OIegfi7f82PDhXpl IpaHHmefsNWQyJnyehdIEw== 0000950129-99-004659.txt : 19991029 0000950129-99-004659.hdr.sgml : 19991029 ACCESSION NUMBER: 0000950129-99-004659 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991028 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARPS COMPLIANCE CORP CENTRAL INDEX KEY: 0000898770 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 742657168 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22390 FILM NUMBER: 99735686 BUSINESS ADDRESS: STREET 1: 9050 KIRBY DRIVE STREET 2: STE 350 CITY: HOUSTON STATE: TX ZIP: 77054 BUSINESS PHONE: 713-432-0300 MAIL ADDRESS: STREET 1: 7600 BURNET RD STREET 2: STE 350 CITY: AUSTIN STATE: TX ZIP: 78757 FORMER COMPANY: FORMER CONFORMED NAME: US MEDICAL SYSTEMS INC DATE OF NAME CHANGE: 19970128 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL POLYMERS TECHNOLOGIES INC DATE OF NAME CHANGE: 19930916 10QSB 1 SHARPS COMPLIANCE CORP. - DATED 09/30/99 1 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 September 30, 1999 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 October 26, 1999: 7,626,444 Transitional Small Business Disclosure Format (check one): Yes No x 2 SHARPS COMPLIANCE CORP. INDEX PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 1999 (Unaudited) and June 30, 1999......................................................3 Condensed Consolidated Statements of Operations (Unaudited) - For the three months ended September 30, 1999 and 1998.............................4 Condensed Consolidated Statements of Cash Flows (Unaudited) - For the three months ended September 30, 1999 and 1998.............................5 Notes to Condensed Consolidated Financial Statements (Unaudited)........................................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................................7 PART II OTHER INFORMATION 10 Item 6. Exhibits and Reports on Form 8-K......................................................10 SIGNATURE......................................................................................10
3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SHARPS COMPLIANCE CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30 JUNE 30 1999 1999 ----------- ------------ (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 268,000 $ 15,000 Short-term investments 500,000 1,300,000 Accounts receivable, net 797,000 474,000 Inventory 195,000 132,000 Prepaids and other 83,000 83,000 ------------ ------------ Total current assets 1,843,000 2,004,000 PROPERTY AND EQUIPMENT, net 188,000 189,000 INTANGIBLE ASSETS, net 76,000 81,000 NOTE RECEIVABLE FROM STOCKHOLDER 320,000 320,000 ------------ ------------ Total assets $ 2,427,000 $ 2,594,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 102,000 $ 162,000 Accrued liabilities 174,000 148,000 Accrued disposal costs 1,268,000 1,073,000 Current maturities of long-term debt 16,000 23,000 ------------ ------------ Total current liabilities 1,560,000 1,406,000 LONG-TERM DEBT, net of current maturities 13,000 15,000 ------------ ------------ Total liabilities 1,573,000 1,421,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value per share; 20,000,000 shares authorized; 7,626,444 shares issued and outstanding 76,000 76,000 Additional paid-in capital 4,371,000 4,371,000 Deferred compensation (8,000) (11,000) Accumulated deficit (3,585,000) (3,263,000) ------------ ------------ Total stockholders' equity 854,000 1,173,000 ------------ ------------ Total liabilities and stockholders' equity $ 2,427,000 $ 2,594,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 SHARPS COMPLIANCE CORP. AND SUBSIDIARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30 ---------------------------- 1999 1998 ------------ ------------ REVENUES: Sales, net $ 975,000 $ 578,000 Consulting services and other 31,000 -- ------------ ------------ Total revenues 1,006,000 578,000 COSTS AND EXPENSES: Cost of revenues 595,000 354,000 Selling, general and administrative 723,000 711,000 expenses Depreciation and amortization 24,000 10,000 ------------ ------------ Operating loss (336,000) (497,000) INTEREST INCOME 14,000 45,000 ------------ ------------ Net loss $ (322,000) $ (452,000) ============ ============ BASIC AND DILUTED NET LOSS PER SHARE $ (.04) $ (.06) ============ ============ SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER SHARE 7,626,444 7,586,987 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 5 SHARPS COMPLIANCE CORP. AND SUBSIDIARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30 ---------------------------- 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (322,000) $ (452,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities- Depreciation and amortization 24,000 11,000 Amortization of deferred compensation 3,000 -- Changes in operating assets and liabilities- Increase in accounts receivable (323,000) (159,000) (Increase) decrease in inventory (63,000) 61,000 Decrease in other current assets -- 22,000 Decrease in accounts payable and accrued liabilities (34,000) (74,000) Increase in accrued disposal costs 195,000 135,000 ------------ ------------ Net cash used in operating activities (520,000) (456,000) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (18,000) (28,000) Sales of short-term investments 800,000 100,000 ------------ ------------ Net cash provided by investing activities 782,000 72,000 CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable (9,000) (9,000) ------------ ------------ Net cash used in financing activities (9,000) (9,000) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 253,000 (393,000) CASH AND CASH EQUIVALENTS, beginning of period 15,000 444,000 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 268,000 $ 51,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 5 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 1. ORGANIZATION AND BACKGROUND: ORGANIZATION The accompanying consolidated financial statements include the accounts of Sharps Compliance Corp. ("SCC") (formerly U.S. Medical Systems, Inc.) and its wholly owned subsidiary, Sharps Compliance of Texas, Inc., d.b.a. Sharps Compliance, Inc. d.b.a. Inscite ("SCI") collectively, the "Company" or "Sharps"). All significant intercompany accounts and transactions have been eliminated in consolidation. BUSINESS Sharps provides mail disposal services for certain medical sharps products (i.e., needles, razors and syringes) as well as other systems to provide the home healthcare industry with cost effective alternatives to traditional methods of transporting medical equipment from home healthcare patients. Sharps' products are designed primarily to facilitate small waste generators' compliance with local, state and federal regulations for the disposal of medical waste. Sharps also provides consulting services related to medical sharps products to other entities. Waste generators that use the Sharps Disposal By Mail System, (the "Mail Disposal System") are responsible for mailing the systems to a third party for incineration. Sharps is responsible for the postage and burn costs associated with the customer mailing the Mail Disposal Systems directly to the third party incinerator. Sharps records accrued disposal costs for estimated future postage and burn costs based on mail disposal systems sold that management estimates will eventually be returned for incineration. The estimated returns are based on historical experience. The accrued disposal costs are adjusted prospectively for revisions in the estimated costs. Depending upon the experience of Sharps, such revisions could be significant. Prior to August 1, 1999, Sharps contracted through a third party who held an exclusive contract to incinerate medical waste at a facility in the City of Carthage, Texas (the "facility"). Sharps was notified by the City of Carthage in August 1999 that, effective July 31, 1999, the third party's exclusivity for medical waste incineration at the facility had been terminated. Sharps continues to utilize the facility directly with the City of Carthage on a daily basis. Sharps is currently negotiating a contractual arrangement with the City of Carthage to allow Sharps to continue to incinerate its medical waste at the facility. There can be no assurance that the arrangement under negotiations will ultimately be entered into between Sharps and the City of Carthage, or that Sharps would be able to enter into another arrangement for the incineration of its products at a cost that would be acceptable to Sharps. Sharps has sole-sourced the majority of its manufacturing, assembly and transportation functions and its disposal function. Sharps may be affected by its dependence on the suppliers of these functions. The risk is mitigated by the long-standing business relationships with and reputation of Sharps' suppliers. Although there are no assurances with regard to future business associations after expirations of certain agreements between Sharps and its suppliers, management believes that alternative sources would be available at similar costs and terms. Sharps has received limited revenues to date and has incurred cumulative losses since its inception. The future success of Sharps is dependent upon many factors, including environmental regulation, continuity of its license agreements, maintaining an agreement with an incineration facility, successful completion of its product development activities, the identification and penetration of markets for its products and services, and obtaining funds necessary to complete these activities. Furthermore, if Sharps is unable to achieve its fiscal year 2000 projected results of operations or if the actual return of Mail Disposal Systems exceeds those estimated by management, additional financing may be required to fund Sharps' operations. Management believes Sharps' current resources will be sufficient to fund operations through at least December 2000. 6 7 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 generally accepted accounting principles 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 September 30, 1999, and the results of its operations and its cash flows for the three months ended September 30, 1999 and 1998. The results of operations for the three months ended September 30, 1999 are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2000. 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, 1999. 3. NET LOSS PER SHARE Earnings per share data for all periods presented has been computed pursuant to Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," that requires a presentation of basic earnings per share (basic EPS) and diluted earnings per share (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. 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. Options outstanding as of each period end have not been included in the calculation of diluted EPS as they would have an anti-dilutive effect on EPS. 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 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. GENERAL The Company's revenues increased 47% (from $685,000 to $1,006,000) for the quarter ended September 30, 1999 over the quarter ended June 30, 1999. The increase in revenues is the result of increasing acceptance of Sharps' logistical solutions for the home healthcare industry. The Sharps Disposal by Mail System ("Mail Disposal System") is being accepted as a more cost-effective means of disposing of contaminated sharps. The home healthcare industry is also increasing its acceptance of Sharps Trip LesSystem(TM) and the Sharps Pitch-It series of disposable IV poles as they focus on reducing costs associated with trips to the patient's home to retrieve used sharps containers, infusion pumps and IV poles. The increase in cost of revenues of $183,000, or 44%, for the quarter ended September 30, 1999 over the quarter ended June 30, 1999 is due to the increase in sales volume. Cost of revenues decreased as a percentage of sales primarily due to increased coverage of fixed costs through increased sales. Cost of revenues also decreased as a percentage of sales due to adjustments made to the estimated rate of return for mail disposal units expected to be returned for incineration. 7 8 Selling, general and administrative expenses decreased $82,000, or 10%, from the quarter ended September 30, 1999 over the quarter ended June 30, 1999 from $805,000 to $723,000. The decrease is due to staffing adjustments and related savings during August 1999 as well as an overall decrease in professional services used during the quarter. The Company's net loss narrowed 40% from $534,000 for the quarter ended June 30, 1999 to $322,000 in the quarter ended September 30, 1999. RESULTS OF OPERATIONS The discussion below analyzes changes in the consolidated operating results and financial condition of the Company during the three months ended September 30, 1999 and 1998. 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 SEPTEMBER 30 1999 1998 ---------- ---------- Revenues 100% 100% Costs and expenses: Cost of revenues (61%) (59%) Selling, general and administrative (72%) (123%) Depreciation and amortization (2%) (2%) ========== ========== Total operating expenses (133%) (186%) ========== ========== Loss from operations (33%) (86%) Total other income 1% 8% ========== ========== Net loss (32%) (78%) ========== ==========
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998 Revenues increased $428,000, or 74%, from $578,000 for the quarter ended September 30, 1998 to $1,006,000 for the quarter ended September 30, 1999. The sales increase can be attributed to increased marketing efforts, which began in January 1998. These continuing efforts have created a wider acceptance of the Mail Disposal System and the Trip LesSystem(TM) as cost effective logistical solutions for Sharps' primary customer, home healthcare facilities. Consulting revenue increased from $-0- for the quarter ended September 30, 1998 to $31,000 for the quarter ended September 30, 1999. The increase is due to the formation of INSCITE, Sharps' consulting division, on March 1, 1999 and its activities since inception. The increase in cost of revenues of $241,000, or 68%, is due to the increase in the Company's sales volume. Cost of revenues decreased as a percentage of sales primarily due to increased coverage of fixed costs through increased sales volume. Cost of revenues also decreased as a percentage of sales due to adjustments made to the estimated rate of return for mail disposal units expected to be returned for incineration. Selling, general and administrative expenses increased $12,000, or 2% from $711,000 to $723,000. The increase is due to Sharps' expansion of its infrastructure and additional resources expended to penetrate new markets. The needed additional support and sales staffing, the travel expenses associated with Sharps' sales personnel and the overall increased marketing efforts have increased these expense items. These increases were offset by the elimination of the expenses attributable to Sharps' former subsidiary, U.S. Medical, Inc., of $122,000. This included the net book value of the assets and liabilities of U.S. Medical, Inc. (approximately $92,000) which were transferred to SCC's former Chief Executive Officer and President as noted in fiscal year 1999. 8 9 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1999, Sharps has approximately $768,000 in cash and short-term investments. Working capital at September 30, 1999 was $283,000. The liquidity ratios are primarily due to the $3,828,000 in net proceeds from the private placement of 2,000,000 shares of Sharps common stock in February 1998. Capital expenditures during the year ended September 30, 1999 were approximately $18,000 and consisted mainly of computer equipment. Although Sharps realized a decline in its net loss for the quarter ended September 30, 1999, negative operating cash flows increased primarily due to individually significant receivables which had not been collected as of September 30, 1999. At September 30, 1999, total long-term debt outstanding was approximately $13,000. Sharps expects to continue to incur substantial costs related to sales, marketing and administrative activities. The amount and timing of anticipated expenditures will depend upon numerous factors both within and outside Sharps' control, including the nature and timing of marketing and sale activities. Moreover, Sharps' ability to generate income from operations will be dependent upon, among other things, sufficient penetration of the home healthcare, industrial and other markets. Management believes that Sharps' current resources will satisfactorily fund operations for the next 18 to 24 months. There can be no assurance that Sharps will be able to obtain financing on acceptable terms, if at all, to fund operations beyond that time frame. YEAR 2000 ISSUES Many currently installed computer systems and software products were coded using two digits rather than four to define the applicable year. As a result these computer systems and software products have time-sensitive software that recognizes a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations, causing disruptions of operations, including, among other things, a temporary inability to process transactions, to send invoices or to engage in similar normal business activities. Finally, computer systems and software product devices may fail to process accurately leap year logic associated with the Year 2000. The Company believes that any potential adverse impact of Year 2000 issues on its internal computer systems will not be material. Most of the personal computers and computer systems used by the Company have been installed in the past year as the Company has been growing its organization. The Company has conducted a manual review of all its software and has found no incidence of Year 2000 coding issues. The Company has not contacted its material vendors and suppliers to determine if such vendors and suppliers have any Year 2000 issues that have not been resolved or may not be resolved in a timely manner. However, the Company does not believe that Year 2000 issues would materially adversely affect its financial condition or results of operations if its vendors or suppliers were unable to successfully address these issues. To date, minimal expenses have been incurred associated with the Company's evaluation of Year 2000 issues, and the Company does not expect that expenditures for upgrades or additional testing for Year 2000 issues will be material. The above Year 2000 disclosure statement constitutes a "Year 2000 Readiness Disclosure" as defined in The Year 2000 Information and Readiness Disclosure Act (the "Act"), which was signed into law on October 19, 1998. The Act provides added protection from liability for certain public and private statements concerning a company's Year 2000 readiness. 9 10 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits The following exhibit is filed as part of this report. Exhibit No. Description ----------- ----------- 27.1 Financial Data Schedule (filed herewith) b) Reports on Form 8-K None. ITEMS 1, 2, 3, 4 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: October 27, 1999 By: /s/ Kent D. Manby -------------------------- Kent D. Manby, Vice President and Chief Financial Officer 10 11 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27.1 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF SEPTEMBER 30, 1999, AND THE STATEMENT OF OPERATIONS FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS SEP-30-1999 JUL-01-1999 SEP-30-1999 268,000 500,000 798,000 24,000 196,000 1,844,000 267,000 79,000 2,428,000 1,560,000 13,000 0 0 76,000 778,000 2,428,000 975,000 1,006,000 585,000 595,000 747,000 3,000 0 0 0 322,000 0 0 0 (322,000) .04 .04
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