0000898770-22-000005.txt : 20220202 0000898770-22-000005.hdr.sgml : 20220202 20220202124541 ACCESSION NUMBER: 0000898770-22-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20211231 FILED AS OF DATE: 20220202 DATE AS OF CHANGE: 20220202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARPS COMPLIANCE CORP CENTRAL INDEX KEY: 0000898770 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 742657168 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34269 FILM NUMBER: 22582430 BUSINESS ADDRESS: STREET 1: 9220 KIRBY DRIVE STREET 2: STE 500 CITY: HOUSTON STATE: TX ZIP: 77054 BUSINESS PHONE: 713-432-0300 MAIL ADDRESS: STREET 1: 9220 KIRBY DRIVE STREET 2: STE 500 CITY: HOUSTON STATE: TX ZIP: 77054 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 10-Q 1 smed-20211231.htm 10-Q smed-20211231
00008987706/302022Q2false5000008987702021-07-012021-12-3100008987702022-01-31xbrli:shares00008987702021-12-31iso4217:USD00008987702021-06-30iso4217:USDxbrli:shares00008987702021-10-012021-12-3100008987702020-10-012020-12-3100008987702020-07-012020-12-310000898770us-gaap:CommonStockMember2021-09-300000898770us-gaap:TreasuryStockMember2021-09-300000898770us-gaap:AdditionalPaidInCapitalMember2021-09-300000898770us-gaap:RetainedEarningsMember2021-09-3000008987702021-09-300000898770us-gaap:AdditionalPaidInCapitalMember2021-10-012021-12-310000898770us-gaap:CommonStockMember2021-10-012021-12-310000898770us-gaap:RetainedEarningsMember2021-10-012021-12-310000898770us-gaap:CommonStockMember2021-12-310000898770us-gaap:TreasuryStockMember2021-12-310000898770us-gaap:AdditionalPaidInCapitalMember2021-12-310000898770us-gaap:RetainedEarningsMember2021-12-310000898770us-gaap:CommonStockMember2020-09-300000898770us-gaap:TreasuryStockMember2020-09-300000898770us-gaap:AdditionalPaidInCapitalMember2020-09-300000898770us-gaap:RetainedEarningsMember2020-09-3000008987702020-09-300000898770us-gaap:CommonStockMember2020-10-012020-12-310000898770us-gaap:AdditionalPaidInCapitalMember2020-10-012020-12-310000898770us-gaap:RetainedEarningsMember2020-10-012020-12-310000898770us-gaap:CommonStockMember2020-12-310000898770us-gaap:TreasuryStockMember2020-12-310000898770us-gaap:AdditionalPaidInCapitalMember2020-12-310000898770us-gaap:RetainedEarningsMember2020-12-3100008987702020-12-310000898770us-gaap:CommonStockMember2021-06-300000898770us-gaap:TreasuryStockMember2021-06-300000898770us-gaap:AdditionalPaidInCapitalMember2021-06-300000898770us-gaap:RetainedEarningsMember2021-06-300000898770us-gaap:CommonStockMember2021-07-012021-12-310000898770us-gaap:AdditionalPaidInCapitalMember2021-07-012021-12-310000898770us-gaap:RetainedEarningsMember2021-07-012021-12-310000898770us-gaap:CommonStockMember2020-06-300000898770us-gaap:TreasuryStockMember2020-06-300000898770us-gaap:AdditionalPaidInCapitalMember2020-06-300000898770us-gaap:RetainedEarningsMember2020-06-3000008987702020-06-300000898770us-gaap:CommonStockMember2020-07-012020-12-310000898770us-gaap:AdditionalPaidInCapitalMember2020-07-012020-12-310000898770us-gaap:RetainedEarningsMember2020-07-012020-12-31smed:stateRegion0000898770smed:MailbacksMember2021-10-012021-12-310000898770us-gaap:SalesRevenueNetMembersmed:MailbacksMemberus-gaap:ProductConcentrationRiskMember2021-10-012021-12-31xbrli:pure0000898770smed:MailbacksMember2020-10-012020-12-310000898770us-gaap:SalesRevenueNetMembersmed:MailbacksMemberus-gaap:ProductConcentrationRiskMember2020-10-012020-12-310000898770smed:RouteBasedPickupServicesMember2021-10-012021-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMembersmed:RouteBasedPickupServicesMember2021-10-012021-12-310000898770smed:RouteBasedPickupServicesMember2020-10-012020-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMembersmed:RouteBasedPickupServicesMember2020-10-012020-12-310000898770smed:UnusedMedicationsMember2021-10-012021-12-310000898770us-gaap:SalesRevenueNetMembersmed:UnusedMedicationsMemberus-gaap:ProductConcentrationRiskMember2021-10-012021-12-310000898770smed:UnusedMedicationsMember2020-10-012020-12-310000898770us-gaap:SalesRevenueNetMembersmed:UnusedMedicationsMemberus-gaap:ProductConcentrationRiskMember2020-10-012020-12-310000898770smed:ThirdPartyTreatmentServicesMember2021-10-012021-12-310000898770us-gaap:SalesRevenueNetMembersmed:ThirdPartyTreatmentServicesMemberus-gaap:ProductConcentrationRiskMember2021-10-012021-12-310000898770smed:ThirdPartyTreatmentServicesMember2020-10-012020-12-310000898770us-gaap:SalesRevenueNetMembersmed:ThirdPartyTreatmentServicesMemberus-gaap:ProductConcentrationRiskMember2020-10-012020-12-310000898770us-gaap:ProductAndServiceOtherMember2021-10-012021-12-310000898770us-gaap:ProductAndServiceOtherMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2021-10-012021-12-310000898770us-gaap:ProductAndServiceOtherMember2020-10-012020-12-310000898770us-gaap:ProductAndServiceOtherMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2020-10-012020-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2021-10-012021-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2020-10-012020-12-310000898770smed:MailbacksMember2021-07-012021-12-310000898770us-gaap:SalesRevenueNetMembersmed:MailbacksMemberus-gaap:ProductConcentrationRiskMember2021-07-012021-12-310000898770smed:MailbacksMember2020-07-012020-12-310000898770us-gaap:SalesRevenueNetMembersmed:MailbacksMemberus-gaap:ProductConcentrationRiskMember2020-07-012020-12-310000898770smed:RouteBasedPickupServicesMember2021-07-012021-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMembersmed:RouteBasedPickupServicesMember2021-07-012021-12-310000898770smed:RouteBasedPickupServicesMember2020-07-012020-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMembersmed:RouteBasedPickupServicesMember2020-07-012020-12-310000898770smed:UnusedMedicationsMember2021-07-012021-12-310000898770us-gaap:SalesRevenueNetMembersmed:UnusedMedicationsMemberus-gaap:ProductConcentrationRiskMember2021-07-012021-12-310000898770smed:UnusedMedicationsMember2020-07-012020-12-310000898770us-gaap:SalesRevenueNetMembersmed:UnusedMedicationsMemberus-gaap:ProductConcentrationRiskMember2020-07-012020-12-310000898770smed:ThirdPartyTreatmentServicesMember2021-07-012021-12-310000898770us-gaap:SalesRevenueNetMembersmed:ThirdPartyTreatmentServicesMemberus-gaap:ProductConcentrationRiskMember2021-07-012021-12-310000898770smed:ThirdPartyTreatmentServicesMember2020-07-012020-12-310000898770us-gaap:SalesRevenueNetMembersmed:ThirdPartyTreatmentServicesMemberus-gaap:ProductConcentrationRiskMember2020-07-012020-12-310000898770us-gaap:ProductAndServiceOtherMember2021-07-012021-12-310000898770us-gaap:ProductAndServiceOtherMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2021-07-012021-12-310000898770us-gaap:ProductAndServiceOtherMember2020-07-012020-12-310000898770us-gaap:ProductAndServiceOtherMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2020-07-012020-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2021-07-012021-12-310000898770us-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2020-07-012020-12-3100008987702021-07-012021-09-3000008987702020-07-012020-09-300000898770us-gaap:CostOfSalesMember2021-10-012021-12-310000898770us-gaap:CostOfSalesMember2020-10-012020-12-310000898770us-gaap:CostOfSalesMember2021-07-012021-12-310000898770us-gaap:CostOfSalesMember2020-07-012020-12-310000898770us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-10-012021-12-310000898770us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-10-012020-12-310000898770us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-07-012021-12-310000898770us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-07-012020-12-310000898770smed:HoustonTexasMemberus-gaap:SubsequentEventMember2022-01-24utr:sqftiso4217:USDutr:sqft0000898770smed:CreditAgreementMember2018-06-290000898770smed:CreditAgreementAmendmentMember2020-12-280000898770smed:WorkingCapitalMembersmed:CreditAgreementMember2018-06-290000898770us-gaap:LetterOfCreditMembersmed:CreditAgreementMember2018-06-290000898770smed:CreditAgreementMemberus-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember2018-06-290000898770smed:AdditionalWorkingCapitalMembersmed:CreditAgreementMember2018-06-290000898770smed:CreditAgreementMember2018-06-292018-06-290000898770smed:CreditAgreementMemberus-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember2018-06-292018-06-290000898770us-gaap:LoansPayableMembersmed:CreditAgreementMember2018-06-292018-06-290000898770smed:CreditAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2018-06-292018-06-290000898770srt:MaximumMembersmed:CreditAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2018-06-292018-06-290000898770smed:CreditAgreementMember2021-12-310000898770smed:CreditAgreementMember2021-07-012021-12-310000898770us-gaap:LoansPayableMembersmed:LoanAgreementMember2019-08-212019-08-210000898770smed:LoanAgreementMember2019-08-210000898770smed:RealEstateImprovementsMembersmed:LoanAgreementMember2019-08-210000898770smed:LoanAgreementMembersmed:EquipmentLoanMember2019-08-210000898770smed:LoanAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2018-06-292018-06-290000898770smed:LoanAgreementMember2021-12-310000898770smed:RealEstateLoanAgreementMember2021-01-212021-01-210000898770smed:RealEstateLoanAgreementMember2021-01-220000898770us-gaap:LoansPayableMembersmed:CreditAgreementMember2021-07-012021-12-310000898770us-gaap:LoansPayableMembersmed:CreditAgreementMember2021-12-310000898770us-gaap:LoansPayableMembersmed:CreditAgreementMember2021-06-300000898770smed:LoanAgreementEquipmentMemberus-gaap:LoansPayableMember2021-07-012021-12-310000898770smed:LoanAgreementEquipmentMemberus-gaap:LoansPayableMember2021-12-310000898770smed:LoanAgreementEquipmentMemberus-gaap:LoansPayableMember2021-06-300000898770us-gaap:LoansPayableMembersmed:LoanAgreementRealEstateMember2021-07-012021-12-310000898770us-gaap:LoansPayableMembersmed:LoanAgreementRealEstateMember2021-12-310000898770us-gaap:LoansPayableMembersmed:LoanAgreementRealEstateMember2021-06-300000898770smed:WorkingCapitalMembersmed:CreditAgreementMember2021-12-310000898770smed:CreditAgreementMemberus-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember2021-12-310000898770us-gaap:LetterOfCreditMember2021-12-310000898770srt:MaximumMembersmed:CreditAgreementMember2021-07-012021-12-310000898770srt:MinimumMembersmed:CreditAgreementMember2021-07-012021-12-310000898770us-gaap:LoansPayableMember2021-12-310000898770us-gaap:EmployeeStockOptionMember2021-12-310000898770us-gaap:RestrictedStockMember2021-12-310000898770us-gaap:EmployeeStockOptionMember2021-07-012021-12-310000898770us-gaap:RestrictedStockMember2021-07-012021-12-3100008987702021-08-302021-08-3000008987702021-08-300000898770us-gaap:OverAllotmentOptionMember2021-08-302021-08-300000898770smed:AffordableMedicalWasteLLCMembersrt:MinimumMember2021-10-22smed:location0000898770smed:AffordableMedicalWasteLLCMember2021-10-222021-10-220000898770smed:AffordableMedicalWasteLLCMember2021-10-220000898770smed:AffordableMedicalWasteLLCMemberus-gaap:CustomerRelationshipsMember2021-10-220000898770smed:AffordableMedicalWasteLLCMember2021-07-012021-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

FORM 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2021
OR

    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to .

Commission File Number: 001-34269
_______________________

SHARPS COMPLIANCE CORP.
(Exact name of registrant as specified in its charter)
Delaware74-2657168
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)

9220 Kirby Drive, Suite 500, Houston, Texas
77054
(Address of principal executive offices)(Zip Code)
    
(713) 432-0300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Shares, $0.01 Par ValueSMEDThe NASDAQ Capital Market

    Indicate by check mark if the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer
Smaller reporting company 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange



Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes  No 

As of January 31, 2022, there were 19,247,243 outstanding shares of the Registrant's common stock, par value $0.01 per share.






SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
PAGE

3


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and par value amounts)
 December 31,June 30,
 20212021
ASSETS  
CURRENT ASSETS  
Cash$36,001 $27,767 
Accounts receivable, net 13,047 9,738 
Inventory6,821 6,114 
Contract asset18 20 
Prepaid and other current assets1,857 1,459 
TOTAL CURRENT ASSETS57,744 45,098 
PROPERTY, PLANT AND EQUIPMENT, net11,155 10,843 
OPERATING LEASE RIGHT OF USE ASSET9,073 8,353 
FINANCING LEASE RIGHT OF USE ASSET, net980 907 
INVENTORY, net of current portion957 989 
OTHER ASSETS154 110 
GOODWILL7,996 6,735 
INTANGIBLE ASSETS, net2,772 2,239 
DEFERRED TAX ASSET, net 157 
TOTAL ASSETS$90,831 $75,431 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES  
Accounts payable$3,592 $2,922 
Accrued liabilities3,208 3,940 
Operating lease liability2,457 2,368 
Financing lease liability189 160 
Current maturities of long-term debt480 735 
Contract liability5,062 7,028 
TOTAL CURRENT LIABILITIES14,988 17,153 
CONTRACT LIABILITY, net of current portion408 1,461 
OPERATING LEASE LIABILITY, net of current portion6,752 6,118 
FINANCING LEASE LIABILITY, net of current portion804 741 
OTHER LIABILITIES23 45 
DEFERRED TAX LIABILITY, net53  
LONG-TERM DEBT, net of current portion3,172 3,329 
TOTAL LIABILITIES26,200 28,847 
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY  
Common stock, $0.01 par value per share; 40,000,000 shares authorized; 19,542,858 and 17,454,859 shares issued, respectively and 19,247,243 and 17,159,244 shares outstanding, respectively
197 176 
Treasury stock, at cost, 295,615 shares repurchased
(1,554)(1,554)
Additional paid-in capital51,712 34,333 
Retained earnings14,276 13,629 
TOTAL STOCKHOLDERS' EQUITY64,631 46,584 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$90,831 $75,431 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per-share data)
 Three-Months Ended
December 31,
 20212020
REVENUES$18,878 $17,011 
Cost of revenues12,271 11,374 
GROSS PROFIT6,607 5,637 
Selling, general and administrative4,388 3,756 
Depreciation and amortization236 205 
OPERATING INCOME1,983 1,676 
OTHER INCOME (EXPENSE)  
Interest income14  
Interest expense(58)(47)
Income associated with derivative instrument27 10 
TOTAL OTHER EXPENSE(17)(37)
INCOME BEFORE INCOME TAXES1,966 1,639 
INCOME TAX EXPENSE
Current63 64 
Deferred466 347 
TOTAL INCOME TAX EXPENSE529 411 
NET INCOME$1,437 $1,228 
NET INCOME PER COMMON SHARE - Basic and Diluted$0.07 $0.07 
WEIGHTED AVERAGE SHARES USED IN COMPUTING
   NET INCOME PER COMMON SHARE:
Basic19,245 16,497 
Diluted19,400 16,929 

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

5


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per-share data)
 Six-Months Ended
December 31,
 20212020
REVENUES$32,793 $30,162 
Cost of revenues22,765 20,902 
GROSS PROFIT10,028 9,260 
Selling, general and administrative8,588 7,544 
Depreciation and amortization454 409 
OPERATING INCOME986 1,307 
OTHER INCOME (EXPENSE)  
Interest income14  
Interest expense(114)(79)
Income associated with derivative instrument34 15 
TOTAL OTHER EXPENSE(66)(64)
INCOME BEFORE INCOME TAXES920 1,243 
INCOME TAX EXPENSE
Current63 64 
Deferred210 244 
TOTAL INCOME TAX EXPENSE273 308 
NET INCOME$647 $935 
NET INCOME PER COMMON SHARE - Basic and Diluted$0.03 $0.06 
WEIGHTED AVERAGE SHARES USED IN COMPUTING
    NET INCOME PER COMMON SHARE:
Basic 18,562 16,444 
Diluted18,656 16,875 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data)
 Common StockTreasury StockAdditional
Paid-in
Capital
 Retained EarningsTotal
Stockholders'
Equity
Shares AmountSharesAmount
Balances, September 30, 202119,524,859 $197 (295,615)$(1,554)$51,363 $12,839 $62,845 
Stock-based compensation— — — — 349 — 349 
Issuance of restricted stock17,999 — — — — — — 
Net income— — — — — 1,437 1,437 
Balances, December 31, 202119,542,858 $197 (295,615)$(1,554)$51,712 $14,276 $64,631 
 Common StockTreasury StockAdditional
Paid-in
Capital
 Retained Earnings Total
Stockholders'
Equity
SharesAmountSharesAmount
Balances, September 30, 202016,718,103 $169 (295,615)$(1,554)$30,589 $468 $29,578 
Exercise of stock options18,000 — — — 86 — 86 
Stock-based compensation— — — — 140 — 140 
Issuance of restricted stock63,599 1 — — (1)—  
Net income— — — — — 1,228 1,228 
Balances, December 31, 202016,799,702 $170 (295,615)$(1,554)$30,814 $1,696 $31,126 
 Common StockTreasury StockAdditional
Paid-in
Capital
Retained EarningsTotal
Stockholders'
Equity
SharesAmountSharesAmount
Balances, June 30, 202117,454,859 $176 (295,615)$(1,554)$34,333 $13,629 $46,584 
Issuance of common stock pursuant to secondary offering, net2,070,000 21 — — 16,750 — 16,771 
Stock-based compensation— — — — 629 — 629 
Issuance of restricted stock17,999 — — — — — — 
Net income— — — — — 647 647 
Balances, December 31, 202119,542,858 $197 (295,615)$(1,554)$51,712 $14,276 $64,631 
 Common StockTreasury StockAdditional
Paid-in
Capital
Retained EarningsTotal
Stockholders'
Equity
Shares AmountSharesAmount
Balances, June 30, 202016,667,572 $168 (295,615)$(1,554)$30,203 $761 $29,578 
Exercise of stock options68,531 1 — — 310 — 311 
Stock-based compensation— — — — 302 — 302 
Issuance of restricted stock63,599 1 — — (1)—  
Net income— — — — — 935 935 
Balances, December 31, 202016,799,702 $170 (295,615)$(1,554)$30,814 $1,696 $31,126 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

 Six-Months Ended
December 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$647 $935 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization1,166 923 
Bad debt expense44 100 
Inventory write-off1 24 
Loss on disposal of property, plant and equipment 1 
Stock-based compensation expense629 302 
Income associated with derivative instrument(34)(15)
Deferred tax expense210 244 
Changes in operating assets and liabilities:
Accounts receivable(3,288)(1,597)
Inventory(676)355 
Prepaid and other assets(442)488 
Accounts payable and accrued liabilities(251)160 
Contract asset and contract liability(3,017)1,050 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES(5,011)2,970 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment(761)(2,023)
Payments for business acquisition, net of cash acquired(2,181) 
Additions to intangible assets(74)(62)
NET CASH USED IN INVESTING ACTIVITIES(3,016)(2,085)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 311 
Proceeds from issuance of common stock, net 16,771 
Proceeds from long-term debt 961 
Repayments of long-term debt(412)(347)
Payments on financing lease liabilities(98) 
NET CASH PROVIDED BY FINANCING ACTIVITIES16,261 925 
NET INCREASE IN CASH8,234 1,810 
CASH, beginning of period27,767 5,416 
CASH, end of period$36,001 $7,226 
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid, net of refunds$177 $(261)
Interest paid on long-term debt$116 $80 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment financed through accounts payable$(143)$(263)

The accompanying notes are an integral part of these condensed consolidated financial statements.
8

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 1 - ORGANIZATION AND BACKGROUND

Organization: The accompanying unaudited 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 e-Tools”), Sharps Manufacturing, Inc., Sharps Environmental Services, Inc. (dba Sharps Environmental Services of Texas, Inc.), Sharps Safety, Inc., Alpha Bio/Med Services LLC, Bio-Team Mobile LLC, Citiwaste, LLC, Sharps Properties, LLC and Affordable Medical Waste LLC (collectively, “Sharps” or the “Company”). All significant intercompany accounts and transactions have been eliminated upon consolidation.

Business: Sharps is a full-service national provider of comprehensive waste management services including medical, pharmaceutical and hazardous for small and medium quantity generators. The Company’s solutions include Sharps Recovery System™ (formerly Sharps Disposal by Mail System®), TakeAway Recovery System, TakeAway Medication Recovery System™, MedSafe®, TakeAway Recycle System™, ComplianceTRACSM, SharpsTracer®, Sharps Secure® Needle Disposal System, Complete Needle™ Collection & Disposal System, TakeAway Environmental Return System™, Pitch-It IV™ Poles, Asset Return System and Spill Kit Recovery System. The Company also offers its route-based pick-up services in a thirty-seven (37) state region of the South, Southeast, Southwest, Midwest and Northeast portions of the United States.


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 (“SEC”) for interim financial information and with instructions to Form 10-Q and, accordingly, do not include all information and footnotes required under generally accepted accounting principles in the United States of America ("GAAP") for complete financial statements. Additionally, the preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts. 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 consolidated financial position of the Company as of December 31, 2021, the results of its operations for the three and six months ended December 31, 2021 and 2020, cash flows for the six months ended December 31, 2021 and 2020, and stockholders’ equity for the three and six months ended December 31, 2021 and 2020. The results of operations for the three and six months ended December 31, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2021.

A novel strain of coronavirus ("COVID-19") was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in servicing customers. The Company has implemented some and may take additional precautionary measures intended to help ensure the well-being of its employees, facilitate continued uninterrupted servicing of customers and minimize business disruptions. The full extent of the future impacts of COVID-19 on the Company's operations is uncertain. A prolonged outbreak could have a material adverse impact on the financial results and business operations of the Company. To date, the Company has not identified any material adverse impact of COVID-19 on its financial position and results of operations.
9

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition: The components of revenues by solution which reflect a disaggregation of revenue by contract type are as follows (in thousands):
 Three-Months Ended December 31,
 2021% Total2020% Total
REVENUES BY SOLUTION:    
Mailbacks$12,070 63.9 %$10,452 61.4 %
Route-based pickup services3,551 18.8 %3,491 20.5 %
Unused medications1,865 9.9 %1,713 10.1 %
Third party treatment services54 0.3 %179 1.1 %
Other (1)
1,338 7.1 %1,176 6.9 %
Total revenues$18,878 100.0 %$17,011 100.0 %
 Six-Months Ended December 31,
 2021% Total2020% Total
REVENUES BY SOLUTION:    
Mailbacks$18,818 57.3 %$16,614 55.2 %
Route-based pickup services6,750 20.6 %6,647 22.0 %
Unused medications4,494 13.7 %4,074 13.5 %
Third party treatment services85 0.3 %314 1.0 %
Other (1)
2,646 8.1 %2,513 8.3 %
Total revenues$32,793 100.0 %$30,162 100.0 %
(1)The Company’s other products include IV poles, accessories, containers, asset return boxes and other miscellaneous items with single performance obligations.

Vendor Managed Inventory ("VMI") - The VMI program includes terms that meet the “bill and hold” criteria and as such are recognized when the order is placed, title has transferred, there are no acceptance provisions and amounts are segregated in the Company’s warehouse for the customer. During the three and six months ended December 31, 2021, the Company recorded billings from inventory builds that are held in VMI under these service agreements of $1.7 million and $1.8 million, respectively. During the three and six months ended December 31, 2020, the Company recorded billings from inventory builds that are held in VMI under these service agreements of $2.5 million and $3.5 million, respectively. As of December 31, 2021 and June 30, 2021, $4.9 million and $3.7 million, respectively, of solutions sold through that date were held in VMI pending fulfillment or shipment to patients of pharmaceutical manufacturers who offer these solutions to patients in an ongoing patient support program.

The contract asset is related to VMI service agreements within the maibacks contract type category when the revenue recognition exceeds the amount of consideration the Company was entitled to at the point in time of satisfying the performance obligation associated with the sale of the compliance and container system. The contract liability is related to the mailbacks and unused medications contract type categories in which cash consideration exceeds the transaction price allocated to completed performance obligations. The amount recognized during the six months ended December 31, 2021 and 2020 related to contract liabilities recorded as of June 30, 2021 and 2020 were $5.2 million and $2.1 million, respectively.

Income Taxes: Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The establishment of valuation allowances requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. No such allowance was deemed necessary based on the Company's assessment of the recoverability of its deferred tax assets.

10


SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounts Receivable: Accounts receivable consist primarily of amounts due to the Company from normal business activities. Accounts receivable balances are determined to be delinquent when the amount is past due based on the contractual terms with the customer. The Company maintains an allowance for doubtful accounts to reflect the likelihood of not collecting certain accounts receivable based on past collection history and specific risks identified among uncollected accounts. Accounts receivable are charged to the allowance for doubtful accounts when the Company determines that the receivable will not be collected and/or when the account has been referred to a third party collection agency. The Company has a history of minimal uncollectible accounts.


NOTE 4 – RECENTLY ISSUED ACCOUNTING STANDARDS

In March 2020, guidance for applying optional expedients and exceptions to ease the potential burden in accounting for reference rate reform on financial reporting was issued. It is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform on financial reporting. The provisions of the new guidance are effective for interim periods beginning as of March 12, 2020 through December 31, 2022. There has been no material impact on the Company's consolidated financial statements and related disclosures from the modification of its arrangements as of December 31, 2021. The Company will continue to evaluate the standard as well as additional changes, modifications or interpretations which may impact the Company.

In June 2016, guidance for credit losses of financial instruments was issued, which requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. The provisions of the new guidance are effective for annual periods beginning after December 15, 2022 (effective July 1, 2023 for the Company), including interim periods within the reporting period, and early application is permitted. The Company is in the initial stages of evaluating the impact of the new guidance on its consolidated financial statements and related disclosures as well as evaluating the available transition methods. The Company will continue to evaluate the standard as well as additional changes, modifications or interpretations which may impact the Company.

NOTE 5 – INCOME TAXES

The Company’s effective tax rate for the six months ended December 31, 2021 and 2020 was 29.7% and 24.8%, respectively. During the six months ended December 31, 2021 and 2020, the effective tax rate is based on the statutory federal tax rate of 21% as well as an approximated state income tax rate net of the federal benefit.

NOTE 6 – LEASES

The Company has operating leases for real estate, field equipment, office equipment and vehicles and financing leases for vehicles and office equipment. Operating leases are included in Operating Lease Right of Use ("ROU") Asset and Operating Lease Liability on our Condensed Consolidated Balance Sheets. Financing leases are included in Financing Lease ROU Asset and Financing Lease Liability on the Condensed Consolidated Balance Sheets.

11

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

During the three and six months ended December 31, 2021 and 2020, lease cost amounts, which reflect the fixed rent expense associated with operating and financing leases, are as follows (in thousands):
Three-Months Ended December 31,Six-Months Ended December 31,
 2021202020212020
Lease cost (1) - fixed rent expense:
Operating lease cost included in:
Cost of revenues$671 $621 $1,324 $1,192 
Selling, general and administrative112 113 222 226 
Financing lease cost included in:
 Cost of revenues (amortization expense)24 18 89 36 
 Interest expense7 4 15 8 
 Total$814 $756 $1,650 $1,462 

(1) Short-term lease cost and variable lease cost were not significant during the period.

During the six months ended December 31, 2021 and 2020, the Company had the following cash and non-cash activities associated with leases (in thousands):
Six-Months Ended December 31,
 20212020
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash outflow for operating leases$1,553 $1,357 
Non-cash changes to the Operating ROU Asset and Operating Lease Liability
   Additions and modifications to ROU asset obtained from new operating lease liabilities$2,170 $1,688 
Additions to ROU asset obtained from new financing lease liabilities$190 $ 

As of December 31, 2021, the weighted average remaining lease term for all operating and financing leases is 3.93 years and 5.07 years. The weighted average discount rate associated with operating and financing leases as of December 31, 2021 is 4% and 3%, respectively.
The future payments due under operating leases as of December 31, 2021 is as follows (in thousands):

Future payments due in the twelve months ended December 31,Operating leaseFinancing lease
2022$2,780 $217 
20232,592 215 
20242,338 215 
20251,662 204 
2026485 169 
Thereafter92 52 
Total undiscounted lease payments9,949 1,071 
Less effects of discounting
(740)(78)
Lease liability recognized
$9,209 $993 
Effective January 24, 2022, the Company entered into a lease agreement for 27,318 square feet of additional warehouse space in Houston, Texas. This lease extends through January 23, 2027. The blended base rent for the first year of the Term is $5.76 per square foot with subsequent annual increases of 2.5%. The future minimum lease payments for the extended lease will be
12

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

an additional $0.1 million, $0.2 million, $0.2 million, $0.2 million, $0.2 million and $0.2 million for the twelve months ended December 31, 2022, 2023, 2024, 2025, 2026, and 2027, respectively.

NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT

On March 29, 2017, the Company entered into a credit agreement with a commercial bank which was subsequently amended on June 29, 2018 and on December 28, 2020 (“Credit Agreement”). The amended Credit Agreement, which expires on December 28, 2023, provides for a $14.0 million committed credit facility that can be increased to $18 million upon the Company's request. The proceeds of the Credit Agreement may be utilized as follows: (i) $6.0 million for working capital, letters of credit (up to $2.0 million) and general corporate purposes, (ii) $8.0 million for acquisitions and (iii) an additional $4 million for working capital, upon the Company's request. Indebtedness under the Credit Agreement is secured by substantially all of the Company’s assets with advances outstanding under the working capital portion of the credit facility at any time limited to a Borrowing Base (as defined in the Credit Agreement) equal to 80% of eligible accounts receivable plus the lesser of (i) 50% of eligible inventory and (ii) $3.0 million. Advances under the acquisition portion of the credit facility are limited to 75% of the purchase price of an acquired company and convert to a five-year term note at the time of the borrowing. Borrowings bear interest at the greater of (a) one-half percent or (b) the One Month ICE LIBOR plus a LIBOR Margin of 2.5%. The LIBOR Margin may increase to as high as 3.0% depending on the Company’s cash flow leverage ratio.  The interest rate as of December 31, 2021 was approximately 3.0%. The Company pays a fee of 0.25% per annum on the unused amount of the committed credit facility.

On August 21, 2019, certain subsidiaries of the Company entered into a Construction and Term Loan Agreement and a Master Equipment Finance Agreement with its existing commercial bank (collectively, the “Loan Agreement”). The Loan Agreement provides for a five-year, $3.2 million facility, the proceeds of which are to be utilized for expenditures to facilitate future growth at the Company’s treatment facility in Carthage, Texas (the “Texas Treatment Facility”) as follows: (i) $2.0 million for planned improvements and (ii) $1.2 million for equipment. Indebtedness under the Loan Agreement is secured by the Company’s real estate investment and equipment at the Texas Treatment Facility. Advances under the Loan Agreement mature five years from the Closing Date ("August 21, 2019") with monthly payments beginning in the month after the advancing period ends. The advancing period extended through January 15, 2021 and August 2020 for the real estate portion and the equipment portion of the Loan Agreement, respectively. Borrowings during the advancing period for the real estate portion and for the entire term of the equipment portion of the Loan Agreement bear interest computed at the One Month ICE LIBOR, plus two-hundred and fifty (250) basis points which was a rate of 2.73% on December 31, 2021. The Company has entered into a forward rate lock which fixed the rate on the real estate portion of the Loan Agreement at the expiration of the advancing period at 4.15%.

On January 22, 2021, certain wholly owned subsidiaries of the Company entered into a real estate term loan agreement (the "Real Estate Loan Agreement") with its existing commercial bank. The Real Estate Loan Agreement provides for a five-year, $0.9 million facility, the proceeds of which have been utilized to purchase the property in Pennsylvania which had previously been leased by the Company for its operations. The Real Estate Loan Agreement matures five years from January 22, 2021 with monthly payments based on a 20-year amortization and bears interest at 4%.

At December 31, 2021 and June 30, 2021, long-term debt consisted of the following (in thousands):
December 31, 2021June 30, 2021
Acquisition loan, monthly payments of $43; maturing March 2022
$173 $431 
Equipment loan, monthly payments of $17; maturing August 2024, net of debt issuance costs of $34
731 830 
Real estate loans, monthly payments of $9; maturing August 2024 and January 2026
2,748 2,803 
Total long-term debt3,652 4,064 
Less: current portion480 735 
Long-term debt, net of current portion$3,172 $3,329 

The Company has availability under the Credit Agreement of $13.3 million ($5.3 million for the working capital and $8.0 million for acquisitions) as of December 31, 2021 with the option to extend the availability up to $17.3 million. The Company has $0.7 million in letters of credit outstanding as of December 31, 2021.

13

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Credit and Loan Agreements contain affirmative and negative covenants that, among other things, require the Company to maintain a maximum cash flow leverage ratio of no more than 3.0 to 1.0 and a minimum debt service coverage ratio of not less than 1.15 to 1.00. The Credit and Loan Agreements also contain customary events of default which, if uncured, may terminate the agreements and require immediate repayment of all indebtedness to the lenders. The leverage ratio covenant may limit the amount available under the agreements. The Company was in compliance with all the financial covenants under the Credit and Loan Agreements as of December 31, 2021.

Payments due on long-term debt subsequent to December 31, 2021 are as follows (in thousands):
Twelve Months Ending December 31, 
2022$480 
2023320 
20242,169 
202544 
2026673 
 $3,686 

NOTE 8 – STOCK-BASED COMPENSATION

Stock-based compensation cost for options and restricted stock awarded to employees and directors is measured at the grant date based on the calculated fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). Contingently issued awards with a requisite service period that precedes the grant date are measured and recognized at the start of the requisite service period and remeasured each reporting period until the grant date. Total stock-based compensation expense for the three and six months ended December 31, 2021 and 2020 is as follows (in thousands):
 Three-Months Ended December 31,Six-Months Ended December 31,
 2021202020212020
Stock-based compensation expense included in:    
Cost of revenues$5 $ $14 $ 
Selling, general and administrative344 140 615 302 
Total$349 $140 $629 $302 

NOTE 9 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares after considering the additional dilution related to common stock options and restricted stock. In computing diluted earnings per share, the outstanding common stock options are considered dilutive using the treasury stock method.

The Company’s restricted stock awards are considered participating securities as the shares have full voting rights and are entitled to participate in dividends declared on common shares, if any, and undistributed earnings. The two-class method presentation of the basic and diluted EPS is not presented as the amount of earnings allocated to the participating securities was not material for the periods presented. Instead, the unvested awards are included in the diluted EPS.

14

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following information is necessary to calculate earnings per share for the periods presented (in thousands, except per-share amounts):
 Three-Months Ended December 31,Six-Months Ended December 31,
 2021202020212020
Net income as reported$1,437 $1,228 $647 $935 
Weighted average common shares outstanding19,245 16,497 18,562 16,444 
Effect of dilutive stock options155 432 94 431 
Weighted average diluted common shares outstanding19,400 16,929 18,656 16,875 
Net income per common share    
Basic and Diluted$0.07 $0.07 $0.03 $0.06 
Employee stock options excluded from computation of dilutive income per share amounts because their effect would be anti-dilutive269  269 25 

NOTE 10 - EQUITY TRANSACTIONS

During the three and six months ended December 31, 2021 and 2020, respectively, stock options to purchase shares of the Company's common stock were exercised as follows:
 Three-Months Ended December 31,Six-Months Ended December 31,
 2021202020212020
Options exercised 18,000  68,531 
Proceeds (in thousands)$ $86 $ $311 
Average exercise price per share$ $4.79 $ $4.53 

As of December 31, 2021, there was $0.8 million and $0.9 million of stock compensation expense related to non-vested options and non-vested restricted stock awards, respectively, which is expected to be recognized over weighted average periods of 2.68 years and 2.41 years, respectively.

On August 30, 2021, the Company closed its previously announced underwritten secondary offering of a total of 2,070,000 shares of its common stock at a public offering price of $8.65 per share, including the exercise in full by the underwriter of its option to purchase an additional 270,000 shares to cover over-allotments in connection with the offering. After the underwriting discount and offering expenses payable by the Company of $1.1 million, the Company received net proceeds of approximately $16.8 million.

15

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 11 – INVENTORY

The components of inventory are as follows (in thousands):
 December 31, 2021June 30, 2021
Raw materials$2,599 $2,040 
Finished goods5,179 5,063 
Total inventory7,778 7,103 
Less: current portion6,821 6,114 
Inventory, net of current portion$957 $989 

The current portion of inventory includes amounts which the Company expects to sell in the next twelve month period based on historical sales.

NOTE 12 - ACQUISITIONS

On October 22, 2021, the Company acquired Affordable Medical Waste LLC, a route-based provider of medical waste solutions with over 500 route-based customer locations in the Midwest, primarily in Indiana, for $2.2 million, net of cash acquired of $0.1 million, paid in cash from funds on hand. This tuck-in acquisition enhances the Company's presence in the Midwest and improves route density in the service area.

The following amounts represent the fair value of the assets acquired and liabilities assumed (in thousands):

Accounts receivable$65 
Fixed assets145 
Intangibles771 
Goodwill1,261 
Accounts payable and accrued liabilities(61)
Total purchase price, net of cash acquired$2,181 

Intangibles is primarily comprised of amounts allocated to customer relationships in the amount of $0.8 million. The fair value of the fixed assets were determined using the market approach (level 2 inputs) whereas the fair value of the customer relationships was determined using the income approach (level 3 inputs).

During the three and six months ended December 31, 2021, the Company incurred $0.2 million of acquisition related expenses for investment banking, legal and accounting fees which are included within selling, general and administrative expenses on our condensed consolidated statements of operations. The results of operations of the acquired business have been included in the condensed consolidated statements of operations from the date of acquisition.

Pro forma results of operations for Affordable Medical Waste are not presented because the pro forma effects were not material to the Company's consolidated results of operations. The goodwill recorded for the acquisition will be deductible for income taxes.

The goodwill recognized for the acquisitions since July 1, 2015 is attributable to expected revenue synergies generated by the integration of our products and services with those acquisitions and cost synergies resulting from the consolidation or elimination of certain functions.

16


ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain forward-looking statements and information relating to the Company and its subsidiaries that are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. When used in this report, the words "may,", "could", "position," "plan," "potential," "continue," "anticipate," "believe," "expect," "estimate," "project" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the known and unknown 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 including the impact of the coronavirus COVID-19 (“COVID-19”) pandemic on our operations and financial results. 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. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q or refer to our Annual Report on Form 10-K. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and as such should not consider the preceding list or the risk factors to be a complete list of all potential risks and uncertainties. The Company does not intend to update these forward-looking statements.

GENERAL

Sharps Compliance Corp. is a leading national healthcare waste management provider specializing in regulated waste streams including medical, pharmaceutical and hazardous. Our services facilitate the safe and proper collection, transportation and environmentally-responsible treatment of regulated waste from customers in multiple healthcare-related markets. The markets we manage are small to medium-size healthcare waste generators including professional offices (ambulatory surgical centers, physician groups, dentists and veterinarians), long-term care facilities, government agencies, home health care, retail clinics and immunizing pharmacies. Additionally, our mailback solutions are positioned to manage waste generated in the home setting such as sharps, lancets and ultimate-user medications which generates business relationships with pharmaceutical manufacturers and other markets to provide safe and proper disposal. Lastly, we maintain a strong distribution network for the sale of our solutions within the aforementioned markets.

We assist our customers in determining solutions that best fit their needs for the collection, transportation and treatment of regulated medical, pharmaceutical and hazardous waste. Our differentiated approach provides our customers the flexibility to transport waste via direct route-based services, the United States Postal Service (“USPS”) or common carrier depending upon quantity of waste generated, cost savings and facility needs. Our comprehensive services approach includes a single point of contact, consolidated billing, integrated manifest and proof of destruction repository. Furthermore, we provide comprehensive tracking and reporting tools that enable our customers to meet complex medical, pharmaceutical and hazardous waste disposal and compliance requirements. We believe the fully-integrated nature of our operations is a key factor leading to our success and continued recurring revenue growth.

Our flagship products are the Sharps Recovery System™ and MedSafe® Medication Disposal System. These two product offerings account for over 50% of company revenues. The Sharps Recovery System is a comprehensive medical waste management mailback solution used in all markets due to its cost-effective nature and nationwide availability. The MedSafe solution meets the immediate needs of an increasing community risk associated with unused, ultimate-user, medications. Developed in accordance with the Drug Enforcement Administration (“DEA”) implementation of the Secure and Responsible Drug Disposal Act of 2010 (the “Act”), MedSafe is a superior solution used in both private and public sectors to properly remove medications from communities and aid in the prevention of drug misuse.

Over the past few years, the Company has made a series of investments to build a robust direct service, route-based, pickup offering for medical, pharmaceutical and hazardous waste. We have built an infrastructure capable of covering more than 80% of the U.S. population with permitted trucks, transfer stations and treatment facilities. We continue to add routes and the infrastructure required for operational efficiency to reach more customers and prospects directly. Our route-based services, matched with comprehensive mailback solutions, offer us a key differentiator in the market and the ability to capitalize on larger or regional contracts within the healthcare market. With the growth in infrastructure to support the route-based service, we have strategically added new distribution for faster and more cost-effective delivery of products to customers.

We continue to develop new solutions to meet market demands. Over the past five years we have added a robust portfolio of ultimate-user medication disposal solutions for controlled substances, a system for DEA-inventory controlled medication disposal for professionals, the Black Pail Program for disposal of most unused pharmaceuticals, including Resource Conservation and Recovery Act ("RCRA") hazardous medications, and the Inhaler Disposal system. We have also developed route-based services for medical, pharmaceutical and hazardous waste, the TakeAway Recycle System™ for single-use devices ("SUDs") and the Hazardous Drug Spill Control Kit™, a USP <800> (as defined below) compliant spill kit for cleanup of chemotherapy and other hazardous drug spills.

As hospitals and surgery centers increase their sustainability efforts, they are looking for ways to recycle more materials, such as SUDs. SUDs are constructed of materials capable of being recycled, primarily plastics and metals. With a greater emphasis on more sustainable solutions, the TakeAway Recycle System is a much-needed complement to the single-use device market.

Our dually permitted trucks allow our hazardous waste direct pickup service to align with our medical waste so that we can fully service all our customers. Most healthcare professionals have hazardous waste in addition to medical waste. By also transporting hazardous waste, we have a competitive advantage over local haulers while still offering cost-effective pricing.

Significant Developments During the First Quarter of Fiscal Year 2022
Capital Markets Activity:

On August 30, 2021, the Company closed its previously announced underwritten secondary offering of a total of 2,070,000 shares of its common stock at a public offering price of $8.65 per share, including the exercise in full by the underwriter of its option to purchase an additional 270,000 shares to cover over-allotments in connection with the offering. After the underwriting discount and offering expenses payable by the Company, the Company received net proceeds of approximately $16.8 million.

Impact Relating to COVID-19 and the Company’s Continuation of Its Infrastructure Build Out
We are closely monitoring the impact of COVID-19 on all aspects of our business and geographies, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels. While we did not incur significant disruptions during the three and six months ended December 31, 2021 from COVID-19, we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to numerous uncertainties. These uncertainties include the severity of the virus, the duration of the outbreak, governmental, business or other actions (which could include limitations on our operations or mandates to provide products or services), impacts on our supply chain, the effect on customer demand or changes to our operations. The health of our workforce, and our ability to meet staffing needs in our route-based, treatment and distribution operations and other critical functions cannot be predicted and is vital to our operations.
The Company has taken precautions to ensure the safety of its employees including remote working options for certain corporate office employees, while at the same time remaining active as a leading national provider of comprehensive medical waste solutions, bringing uninterrupted essential support to its customers and the healthcare industry. For example, the Company increased its route-based drivers, plant and operations personnel by ten percent (10%) in advance of the COVID-19 pandemic to make sure that its operations and servicing of customers would not be adversely affected by the potential absence of employees due to COVID-19. The Company also temporarily increased the pay for its front-line operations personnel and drivers during the pandemic.
Related to customer demand, the Company saw temporary closures of about 1,000 dental, dermatology and physician practices equating to about $0.1 million in lost monthly revenue for the Company from mid-March 2020 through June 2020. Offsetting this through most of fiscal year ended June 30, 2021 was increased volumes of medical waste generated by many of the Company’s long-term care customers who are utilizing the Company’s systems and services to contain and dispose of personal protective equipment (“PPE”) used in their facilities.
The Company is continuing to focus on expanding its infrastructure programs, which began in calendar 2019, to support what it anticipated would be a strong 2021 flu and immunization season as well as medical waste disposal related to the COVID-19 vaccine which became available for administration in the U.S. at the end of calendar year 2020. Additionally, the Company saw some increased medical waste volumes related to COVID-19 such as the long-term care market where PPE in many facilities has been disposed of as medical waste and not as trash which has been the historical practice. Finally, the Company’s route-based footprint now extends to 37 states, or 80% of the population, significantly increasing the pipeline of larger small and medium quantity generator sales opportunities.
To address these opportunities, the Company has:
Significantly increased its production and inventory of medical waste mailback and shipback solutions to ensure it remains well positioned to meet ongoing customer demand related to immunizations overall and the continued rollout of COVID-19 vaccines and boosters as well as increased COVID-19 testing;
Increased its medical waste processing capacity from 10 million to 27 million pounds per year through the addition of a larger autoclave at its Texas facility as well as an additional autoclave at its Pennsylvania facility;
Secured a larger warehouse and distribution facility in Pennsylvania to store and distribute larger volumes of medical waste mailbacks; and
Expanded its route-based truck fleet and drivers necessary to facilitate the potential increase in volumes from its expanded 37 state route-based footprint and related larger prospect opportunities.

These efforts have contributed to the Company's success in meeting customer needs throughout the pandemic, particularly as the rollout of COVID-19 vaccines has created increased demand for the Company's services.
On a broader note, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending and other unanticipated consequences remain unknown. In addition, we cannot predict the impact that COVID-19 will have on our customers, vendors, suppliers and other business partners. However, any material adverse effect on these parties could adversely impact our results of operations, cash flows and financial conditions. External effects from the COVID-19 pandemic began at the end of the third quarter of 2020 and did not have a material adverse impact on the three and six months ended December 31, 2021 results. The situation surrounding COVID-19 remains fluid, and we are actively managing our response in collaboration with customers, employees and business partners and assessing potential impacts to our financial position and operating results, as well as adverse developments in our business. For further information regarding the impact of COVID-19 on the Company, please see Item 1A, Risk factors in the Company's annual report on form 10-K for the year ended June 30, 2021.

RESULTS OF OPERATIONS

The following analyzes changes in the condensed consolidated operating results and financial condition of the Company during the three and six months ended December 31, 2021 and 2020. The following table sets forth for the periods indicated certain items from the Company's Condensed Consolidated Statements of Operations (dollars in thousands and percentages expressed as a percentage of revenues, unaudited):

 Three-Months Ended December 31,Six-Months Ended December 31,
 2021%2020%2021%2020%
Revenues$18,878 100.0 %$17,011 100.0 %$32,793 100.0 %$30,162 100.0 %
Cost of revenues12,271 65.0 %11,374 66.9 %22,765 69.4 %20,902 69.3 %
Gross profit6,607 35.0 %5,637 33.1 %10,028 30.6 %9,260 30.7 %
SG&A expense4,388 23.2 %3,756 22.1 %8,588 26.2 %7,544 25.0 %
Depreciation and amortization236 1.3 %205 1.2 %454 1.4 %409 1.4 %
Operating Income1,983 10.5 %1,676 9.9 %986 3.0 %1,307 4.3 %
Total other expense(17)(0.1)%(37)(0.2)%(66)(0.2)%(64)(0.2)%
Income before income taxes1,966 10.4 %1,639 9.6 %920 2.8 %1,243 4.1 %
Income tax expense529 2.8 %411 2.4 %273 0.8 %308 1.0 %
Net Income$1,437 7.6 %$1,228 7.2 %$647 2.0 %$935 3.1 %
 
17


THREE MONTHS ENDED DECEMBER 31, 2021 AS COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2020

Total revenues for the three months ended December 31, 2021 of $18.9 million increased compared to the total revenues for the three months ended December 31, 2020 of $17.0 million. The increase in revenue is mainly due to higher product returns on sales in prior periods net of current year deferred revenue plus increased billings in the Professional and Retail markets. The net increase in revenue is partially offset by decreases in billings in the Pharmaceutical Manufacturer, Home Health Care and Long-Term Care markets. The components of billings by market are as follows (in thousands, unaudited):
 Three-Months Ended December 31,
 20212020Variance
BILLINGS BY MARKET:   
Retail$6,365 $6,139 $226 
Professional5,199 4,538 661 
Home Health Care2,028 2,832 (804)
Pharmaceutical Manufacturer1,901 3,062 (1,161)
Long-Term Care752 1,060 (308)
Government564 497 67 
Environmental54 179 (125)
Other137 159 (22)
Subtotal17,000 18,466 (1,466)
GAAP Adjustment *1,878 (1,455)3,333 
Revenue Reported$18,878 $17,011 $1,867 

*Represents the net impact of the revenue recognition adjustments to arrive at reported generally accepted accounting principles ("GAAP") revenue. Customer billings include all invoiced amounts associated with products shipped or services rendered during the period reported. GAAP revenue includes customer billings as well as numerous adjustments necessary to reflect, (i) the deferral of a portion of current period sales, (ii) recognition of certain revenue associated with product returned for treatment and destruction and (iii) provisions for certain product returns and discounts to customers which are accounted for as reductions in sales in the same period the related sales are recorded. See Note 3 “Significant Accounting Policies - Revenue Recognition” in “Notes to Condensed Consolidated Financial Statements”.

18


The components of billings by solution are as follows (in thousands except for percentages expressed as a percentage of total billings, unaudited):

 Three-Months Ended December 31,
 2021% Total2020% Total
BILLINGS BY SOLUTION:    
Mailbacks$10,192 60.0 %$11,907 64.4 %
Route-based pickup services3,551 20.9 %3,491 18.9 %
Unused medications1,865 11.0 %1,713 9.3 %
Third party treatment services54 0.3 %179 1.0 %
Other (1)
1,338 7.8 %1,176 6.4 %
Total billings17,000 100.0 %18,466 100.0 %
GAAP adjustment (2)
1,878  (1,455) 
Revenue reported$18,878