smed-20210930
00008987706/302022Q1true5000008987702021-07-012021-09-3000008987702021-11-01xbrli:shares00008987702021-09-30iso4217:USD00008987702021-06-30iso4217:USDxbrli:shares00008987702020-07-012020-09-300000898770us-gaap:CommonStockMember2021-06-300000898770us-gaap:TreasuryStockMember2021-06-300000898770us-gaap:AdditionalPaidInCapitalMember2021-06-300000898770us-gaap:RetainedEarningsMember2021-06-300000898770us-gaap:CommonStockMember2021-07-012021-09-300000898770us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300000898770us-gaap:RetainedEarningsMember2021-07-012021-09-300000898770us-gaap:CommonStockMember2021-09-300000898770us-gaap:TreasuryStockMember2021-09-300000898770us-gaap:AdditionalPaidInCapitalMember2021-09-300000898770us-gaap:RetainedEarningsMember2021-09-300000898770us-gaap:CommonStockMember2020-06-300000898770us-gaap:TreasuryStockMember2020-06-300000898770us-gaap:AdditionalPaidInCapitalMember2020-06-300000898770us-gaap:RetainedEarningsMember2020-06-3000008987702020-06-300000898770us-gaap:CommonStockMember2020-07-012020-09-300000898770us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300000898770us-gaap:RetainedEarningsMember2020-07-012020-09-300000898770us-gaap:CommonStockMember2020-09-300000898770us-gaap:TreasuryStockMember2020-09-300000898770us-gaap:AdditionalPaidInCapitalMember2020-09-300000898770us-gaap:RetainedEarningsMember2020-09-3000008987702020-09-30smed:stateRegion0000898770srt:ScenarioPreviouslyReportedMember2021-09-300000898770srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2021-09-300000898770srt:ScenarioPreviouslyReportedMember2021-07-012021-09-300000898770srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2021-07-012021-09-300000898770srt:ScenarioPreviouslyReportedMember2021-06-300000898770srt:RevisionOfPriorPeriodErrorCorrectionAdjustmentMember2021-06-300000898770srt:ScenarioPreviouslyReportedMember2020-07-012020-09-300000898770smed:MailbacksMember2021-07-012021-09-300000898770us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMembersmed:MailbacksMember2021-07-012021-09-30xbrli:pure0000898770smed:MailbacksMember2020-07-012020-09-300000898770us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMembersmed:MailbacksMember2020-07-012020-09-300000898770smed:RouteBasedPickupServicesMember2021-07-012021-09-300000898770us-gaap:ProductConcentrationRiskMembersmed:RouteBasedPickupServicesMemberus-gaap:SalesRevenueNetMember2021-07-012021-09-300000898770smed:RouteBasedPickupServicesMember2020-07-012020-09-300000898770us-gaap:ProductConcentrationRiskMembersmed:RouteBasedPickupServicesMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300000898770smed:UnusedMedicationsMember2021-07-012021-09-300000898770smed:UnusedMedicationsMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2021-07-012021-09-300000898770smed:UnusedMedicationsMember2020-07-012020-09-300000898770smed:UnusedMedicationsMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300000898770smed:ThirdPartyTreatmentServicesMember2021-07-012021-09-300000898770us-gaap:ProductConcentrationRiskMembersmed:ThirdPartyTreatmentServicesMemberus-gaap:SalesRevenueNetMember2021-07-012021-09-300000898770smed:ThirdPartyTreatmentServicesMember2020-07-012020-09-300000898770us-gaap:ProductConcentrationRiskMembersmed:ThirdPartyTreatmentServicesMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300000898770us-gaap:ProductAndServiceOtherMember2021-07-012021-09-300000898770us-gaap:ProductAndServiceOtherMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2021-07-012021-09-300000898770us-gaap:ProductAndServiceOtherMember2020-07-012020-09-300000898770us-gaap:ProductAndServiceOtherMemberus-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300000898770us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2021-07-012021-09-300000898770us-gaap:ProductConcentrationRiskMemberus-gaap:SalesRevenueNetMember2020-07-012020-09-300000898770us-gaap:CostOfSalesMember2021-07-012021-09-300000898770us-gaap:CostOfSalesMember2020-07-012020-09-300000898770us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-07-012021-09-300000898770us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-07-012020-09-300000898770smed: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:CreditAgreementMember2018-06-292018-06-290000898770us-gaap:LondonInterbankOfferedRateLIBORMembersmed:CreditAgreementMember2018-06-292018-06-290000898770us-gaap:LondonInterbankOfferedRateLIBORMembersrt:MaximumMembersmed:CreditAgreementMember2018-06-292018-06-290000898770smed:CreditAgreementMember2021-09-300000898770smed:CreditAgreementMember2021-07-012021-09-300000898770smed:LoanAgreementMemberus-gaap:LoansPayableMember2019-08-212019-08-210000898770smed:LoanAgreementMember2019-08-210000898770smed:LoanAgreementMembersmed:RealEstateImprovementsMember2019-08-210000898770smed:LoanAgreementMembersmed:EquipmentLoanMember2019-08-210000898770smed:LoanAgreementMemberus-gaap:LondonInterbankOfferedRateLIBORMember2018-06-292018-06-290000898770smed:LoanAgreementMember2021-09-300000898770smed:RealEstateLoanAgreementMember2021-01-212021-01-210000898770smed:RealEstateLoanAgreementMember2021-01-220000898770us-gaap:LoansPayableMembersmed:CreditAgreementMember2021-07-012021-09-300000898770us-gaap:LoansPayableMembersmed:CreditAgreementMember2021-09-300000898770us-gaap:LoansPayableMembersmed:CreditAgreementMember2021-06-300000898770smed:LoanAgreementEquipmentMemberus-gaap:LoansPayableMember2021-07-012021-09-300000898770smed:LoanAgreementEquipmentMemberus-gaap:LoansPayableMember2021-09-300000898770smed:LoanAgreementEquipmentMemberus-gaap:LoansPayableMember2021-06-300000898770smed:LoanAgreementRealEstateMemberus-gaap:LoansPayableMember2021-07-012021-09-300000898770smed:LoanAgreementRealEstateMemberus-gaap:LoansPayableMember2021-09-300000898770smed:LoanAgreementRealEstateMemberus-gaap:LoansPayableMember2021-06-300000898770smed:WorkingCapitalMembersmed:CreditAgreementMember2021-09-300000898770smed:CreditAgreementMemberus-gaap:SeriesOfIndividuallyImmaterialBusinessAcquisitionsMember2021-09-300000898770us-gaap:LetterOfCreditMember2021-09-300000898770srt:MaximumMembersmed:CreditAgreementMember2021-07-012021-09-300000898770srt:MinimumMembersmed:CreditAgreementMember2021-07-012021-09-300000898770us-gaap:LoansPayableMember2021-09-3000008987702021-08-302021-08-3000008987702021-08-300000898770us-gaap:OverAllotmentOptionMember2021-08-302021-08-300000898770srt:MinimumMemberus-gaap:SubsequentEventMembersmed:AffordableMedicalWasteLLCMember2021-10-22smed:location0000898770us-gaap:SubsequentEventMembersmed:AffordableMedicalWasteLLCMember2021-10-222021-10-22

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
___________________

FORM 10-Q/A
(Amendment No. 1)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 1, 2021, there were 19,229,244 outstanding shares of the Registrant's common stock, par value $0.01 per share.






SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
PAGE

3


EXPLANATORY NOTE

On May 11, 2022, Sharps Compliance Corp. (“Sharps” or the “Company”) filed a Current Report on Form 8-K disclosing that the Audit Committee of the Board of Directors of the Company concluded that the unaudited consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2021 and December 31, 2021, filed with the Securities and Exchange Commission on November 3, 2021 and February 2, 2022, respectively (the “Initial Filings”), should not be relied upon because the Company had under reported freight costs associated with immunization related mailbacks returned for treatment. This occurred primarily as a result of a misunderstanding with the applicable carrier regarding certain charges for services rendered during these periods.

For the convenience of the reader, we have included all items in this Amendment which supersedes in its entirety the Original Form 10-Q.

The following sections in the Original From 10-Q have been revised in this Amendment No. 1 to reflect the restatement:
Part I, Item 1, "Financial Statements
Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations"
Part I, Item 4, "Controls and Procedures"
Part II, Item 1A, "Risk Factors"
the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer certifications in Exhibits 31.1, 31.2, 31.3, and 32

This amendment does not reflect adjustments for events occurring after the filing of the Original Form 10-Q except to the extent that they are otherwise required to be included and discussed herein and did not substantively modify or update the disclosures herein other than as required to reflect the adjustments described above. See Note 2 to the accompanying condensed consolidated financial statements, set forth in Item 1 of this Quarterly Report on Form 10-Q/A, for details of the restatement and its impact on the condensed consolidated financial statements.

See "Item 4 — Controls and Procedures" that discloses a material weakness in the Company's internal controls associated with the restatements.
4


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)
 September 30,June 30,
 20212021
(As restated)
ASSETS  
CURRENT ASSETS  
Cash$41,162 $27,767 
Accounts receivable, net 9,847 9,738 
Inventory7,272 6,114 
Contract asset27 20 
Prepaid and other current assets1,756 1,459 
TOTAL CURRENT ASSETS60,064 45,098 
PROPERTY, PLANT AND EQUIPMENT, net10,508 10,843 
OPERATING LEASE RIGHT OF USE ASSET7,919 8,353 
FINANCING LEASE RIGHT OF USE ASSET, net934 907 
INVENTORY, net of current portion982 989 
OTHER ASSETS118 110 
GOODWILL6,735 6,735 
INTANGIBLE ASSETS, net2,109 2,239 
DEFERRED TAX ASSET, net584 157 
TOTAL ASSETS$89,953 $75,431 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES  
Accounts payable$2,972 $2,922 
Accrued liabilities4,472 3,940 
Operating lease liability2,240 2,368 
Financing lease liability174 160 
Current maturities of long-term debt622 735 
Contract liability5,965 7,028 
TOTAL CURRENT LIABILITIES16,445 17,153 
CONTRACT LIABILITY, net of current portion1,352 1,461 
OPERATING LEASE LIABILITY, net of current portion5,810 6,118 
FINANCING LEASE LIABILITY, net of current portion772 741 
OTHER LIABILITIES44 45 
LONG-TERM DEBT, net of current portion3,236 3,329 
TOTAL LIABILITIES27,659 28,847 
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY  
Common stock, $0.01 par value per share; 40,000,000 shares authorized; 19,524,859 and 17,454,859 shares issued, respectively and 19,229,244 and 17,159,244 shares outstanding, respectively
197 176 
Treasury stock, at cost, 295,615 shares repurchased
(1,554)(1,554)
Additional paid-in capital51,363 34,333 
Retained earnings12,288 13,629 
TOTAL STOCKHOLDERS' EQUITY62,294 46,584 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$89,953 $75,431 
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)
 Three-Months Ended
September 30,
 20212020
(As restated)
REVENUES$13,915 $13,151 
Cost of revenues11,216 9,528 
GROSS PROFIT2,699 3,623 
Selling, general and administrative4,200 3,788 
Depreciation and amortization218 204 
OPERATING LOSS(1,719)(369)
OTHER INCOME (EXPENSE)  
Interest expense(56)(32)
Income associated with derivative instrument7 5 
TOTAL OTHER EXPENSE(49)(27)
LOSS BEFORE INCOME TAXES(1,768)(396)
INCOME TAX BENEFIT - Deferred(427)(103)
NET LOSS$(1,341)$(293)
NET LOSS PER COMMON SHARE - Basic and Diluted$(0.08)$(0.02)
WEIGHTED AVERAGE SHARES USED IN COMPUTING
   NET LOSS PER COMMON SHARE:
Basic and Diluted17,879 16,391 

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, 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— — — — 280 — 280 
Net loss, as restated— — — — — (1,341)(1,341)
Balances, September 30, 2021, as restated19,524,859 $197 (295,615)$(1,554)$51,363 $12,288 $62,294 
 Common StockTreasury StockAdditional
Paid-in
Capital
 Retained Earnings Total
Stockholders'
Equity
SharesAmountSharesAmount
Balances, June 30, 202016,667,572 $168 (295,615)$(1,554)$30,203 $761 $29,578 
Exercise of stock options50,531 1 — — 224 — 225 
Stock-based compensation— — — — 162 — 162 
Net loss— — — — — (293)(293)
Balances, September 30, 202016,718,103 $169 (295,615)$(1,554)$30,589 $468 $29,672 

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)

 Three-Months Ended
September 30,
 20212020
(As restated)
CASH FLOWS FROM OPERATING ACTIVITIES  
Net loss$(1,341)$(293)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization582 423 
Bad debt expense25 65 
Inventory write-off 10 
Loss on disposal of property, plant and equipment 1 
Stock-based compensation expense280 162 
Income associated with derivative instrument(7)(5)
Deferred tax benefit(427)(103)
Changes in operating assets and liabilities:
Accounts receivable(134)1,095 
Inventory(1,151)182 
Prepaid and other assets(305)296 
Accounts payable and accrued liabilities606 (311)
Contract asset and contract liability(1,179)239 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES(3,051)1,761 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment(47)(925)
Additions to intangible assets(18)(48)
NET CASH USED IN INVESTING ACTIVITIES(65)(973)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 225 
Proceeds from issuance of common stock, net 16,771 
Proceeds from long-term debt 508 
Repayments of long-term debt(206)(152)
Payments on financing lease liabilities(54) 
NET CASH PROVIDED BY FINANCING ACTIVITIES16,511 581 
NET INCREASE IN CASH13,395 1,369 
CASH, beginning of period27,767 5,416 
CASH, end of period$41,162 $6,785 
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid, net of refunds$170 $(283)
Interest paid on long-term debt$58 $23 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment financed through accounts payable$20 $85 

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 and Sharps Properties, 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 September 30, 2021, the results of its operations for the three months ended September 30, 2021 and 2020, cash flows for the three months ended September 30, 2021 and 2020, and stockholders’ equity for the three months ended September 30, 2021 and 2020. The results of operations for the three months ended September 30, 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.

Restatement/Revision of Previously Reported Condensed Consolidated Financial Statements

Subsequent to the issuance of the condensed consolidated financial statements as of and for the period ended September 30, 2021, the Company identified errors in the accounting for freight costs associated with immunization related mailbacks returned for treatment. The Company's management and the Audit Committee of the Company's Board of Directors concluded that it is appropriate to restate the unaudited condensed consolidated financial statements for the quarterly periods ended September 30, 2021 and December 31, 2021.

9


The following tables reflect the restatement adjustments recorded in connection with the Company's restatement of its condensed consolidated financial statements.

Condensed Consolidated Balance Sheet as of September 30, 2021

As Previously ReportedRestatement AdjustmentAs Restated
ASSETS  
CURRENT ASSETS  
Cash$41,162 $ $41,162 
Accounts receivable, net 9,847  9,847 
Inventory7,272  7,272 
Contract asset27  27 
Prepaid and other current assets1,756  1,756 
TOTAL CURRENT ASSETS60,064  60,064 
PROPERTY, PLANT AND EQUIPMENT, net10,508  10,508 
OPERATING LEASE RIGHT OF USE ASSET7,919  7,919 
FINANCING LEASE RIGHT OF USE ASSET, net934  934 
INVENTORY, net of current portion982  982 
OTHER ASSETS118  118 
GOODWILL6,735  6,735 
INTANGIBLE ASSETS, net2,109  2,109 
DEFERRED TAX ASSET, net413 171 584 
TOTAL ASSETS$89,782 $171 $89,953 
LIABILITIES AND STOCKHOLDERS' EQUITY 
CURRENT LIABILITIES 
Accounts payable$2,972 $ $2,972 
Accrued liabilities3,750 722 4,472 
Operating lease liability2,240  2,240 
Financing lease liability174  174 
Current maturities of long-term debt622  622 
Contract liability5,965  5,965 
TOTAL CURRENT LIABILITIES15,723 722 16,445 
CONTRACT LIABILITY, net of current portion1,352  1,352 
OPERATING LEASE LIABILITY, net of current portion5,810  5,810 
FINANCING LEASE LIABILITY, net of current portion772  772 
OTHER LIABILITIES44  44 
LONG-TERM DEBT, net of current portion3,236  3,236 
TOTAL LIABILITIES26,937 722 27,659 
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 
Common Stock, $0.01 par value
197  197 
Treasury stock, at cost, 295,615 shares repurchased
(1,554) (1,554)
Additional paid-in capital51,363  51,363 
Retained earnings12,839 (551)12,288 
TOTAL STOCKHOLDERS' EQUITY62,845 (551)62,294 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$89,782 $171 $89,953 


10


Condensed Consolidated Statements of Operations for Three Months Ended September 30, 2021

As Previously ReportedRestatement Adjustments As Restated
REVENUES$13,915 $ $13,915 
Cost of revenues10,494 722 11,216 
GROSS PROFIT3,421 (722)2,699 
Selling, general and administrative4,200  4,200 
Depreciation and amortization218  218 
OPERATING LOSS(997)(722)(1,719)
OTHER INCOME (EXPENSE)
Interest expense(56) (56)
Income associated with derivative instrument7  7 
TOTAL OTHER EXPENSE(49) (49)
LOSS BEFORE INCOME TAXES(1,046)(722)(1,768)
INCOME TAX BENEFIT - Deferred(256)(171)(427)
NET LOSS$(790)$(551)$(1,341)
NET LOSS PER COMMON SHARE - Basic and Diluted$(0.04)$(0.04)$(0.08)
WEIGHTED AVERAGE SHARES USED IN COMPUTING
   NET LOSS PER COMMON SHARE:
Basic and Diluted17,879  17,879 




11


Condensed Consolidated Statement of Cash Flows for the Three Months Ended September 30, 2021

As Previously
Reported
Restatement AdjustmentsAs Restated
CASH FLOWS FROM OPERATING ACTIVITIES  
Net loss$(790)$(551)$(1,341)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization582  582 
Bad debt expense25  25 
Inventory write-off   
Loss on disposal of property, plant and equipment   
Stock-based compensation expense280  280 
Income associated with derivative instrument(7) (7)
Deferred tax benefit(256)(171)(427)
Changes in operating assets and liabilities:— 
Accounts receivable(134) (134)
Inventory(1,151) (1,151)
Prepaid and other assets(305) (305)
Accounts payable and accrued liabilities(116)722 606 
Contract asset and contract liability(1,179) (1,179)
NET CASH USED IN OPERATING ACTIVITIES(3,051) (3,051)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment(47) (47)
Additions to intangible assets(18) (18)
NET CASH USED IN INVESTING ACTIVITIES(65) (65)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options   
Proceeds from issuance of common stock, net 16,771 16,771 
Proceeds from long-term debt   
Repayments of long-term debt(206) (206)
Payments on financing lease liabilities(54) (54)
NET CASH PROVIDED BY FINANCING ACTIVITIES16,511  16,511 
NET INCREASE IN CASH13,395  13,395 
CASH, beginning of period27,767  27,767 
CASH, end of period$41,162  $41,162 
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid, net of refunds$170  $170 
Interest paid on long-term debt$58  $58 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property, plant and equipment financed through accounts payable$20  $20 

Previously reported amounts for revenue, total cash flows from operating activities, and net changes in cash and cash equivalents are not affected by the adjustments described above. In addition, the condensed consolidated statements of stockholders' equity for the three-months ended September 30, 2021 and impacted disclosures have been restated to give effect to the correction.

12


In connection with the restatement described above, the Company also identified an immaterial error in Note 9 relating to the disclosure of the number of stock options excluded from the computation of diluted income (loss) per share because their effect would be anti-dilutive. The number of stock options excluded from the computation was originally reported as 0 and 25,000 for the three months ended September 30, 2021 and 2020, respectively, and should have been 685,000 and 1,112,000, respectively. The amount for the three months ended September 30, 2021 has been corrected in connection with the restatement described above, and the amount for the three months ended September 30, 2020 has been revised for comparability purposes.

Effects of COVID-19

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.

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 (dollar amounts in thousands):
 Three-Months Ended September 30,
 2021% Total2020% Total
REVENUES BY SOLUTION:    
Mailbacks$6,748 48.5 %$6,162 46.8 %
Route-based pickup services3,199 23.0 %3,156 24.0 %
Unused medications2,629 18.9 %2,361 18.0 %
Third party treatment services31 0.2 %135 1.0 %
Other (1)
1,308 9.4 %1,337 10.2 %
Total revenues$13,915 100.0 %$13,151 100.0 %
(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 months ended September 30, 2021 and 2020, the Company recorded billings from inventory builds that are held in VMI under these service agreements of $0.1 million and $1.0 million, respectively. As of September 30, 2021 and June 30, 2021, $3.1 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 three months ended September 30, 2021 and 2020 related to contract liabilities recorded as of June 30, 2021 and 2020 were $2.4 million and $0.8 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
13

SHARPS COMPLIANCE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 September 30, 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 three months ended September 30, 2021 and 2020 was 24.2% and 26.0%, respectively. During the three months ended September 30, 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.

14

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

During the three months ended September 30, 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 September 30,
 20212020
Lease cost (1) - fixed rent expense:
Operating lease cost included in:
Cost of revenues$653 $571 
Selling, general and administrative110 113 
Financing lease cost included in:
 Cost of revenues (amortization expense)65 18 
 Interest expense8 4 
 Total$836 $706 

(1) Short-term lease cost and variable lease cost were not significant during the period.
During the three months ended September 30, 2021 and 2020, the Company had the following cash and non-cash activities associated with leases (in thousands):
Three-Months Ended September 30,
 20212020
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash outflow for operating leases$774 $646 
Non-cash changes to the Operating ROU Asset and Operating Lease Liability
   Additions and modifications to ROU asset obtained from new operating lease liabilities$340 $1,676 
Additions to ROU asset obtained from new financing lease liabilities$99 $ 

As of September 30, 2021, the weighted average remaining lease term for all operating and financing leases is 3.80 years 5.23 years. The weighted average discount rate associated with operating and financing leases as of September 30, 2021 is 4% and 3%, respectively.
The future payments due under operating leases as of September 30, 2021 is as follows (in thousands):

Future payments due in the twelve months ended September 30,Operating leaseFinancing lease
2022$2,505 $201 
20232,224 198 
20241,999 198 
20251,480 191 
2026328 165 
Thereafter108 71 
Total undiscounted lease payments8,644 1,024 
Less effects of discounting
(594)(78)
Lease liability recognized
$8,050 $946 

15

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

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 September 30, 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 2.71% on September 30, 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 September 30, 2021 and June 30, 2020, long-term debt consisted of the following (in thousands):
September 30, 2021June 30, 2021
Acquisition loan, monthly payments of $43; maturing March 2022
$302 $431 
Equipment loan, monthly payments of $17; maturing August 2024, net of debt issuance costs of $38
780 830 
Real estate loans, monthly payments of $9; maturing August 2024 and January 2026
2,776 2,803 
Total long-term debt3,858 4,064 
Less: current portion622 735 
Long-term debt, net of current portion$3,236 $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 September 30, 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 September 30, 2021.

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
16

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

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 September 30, 2021.

Payments due on long-term debt subsequent to September 30, 2021 are as follows (in thousands):
Twelve Months Ending September 30, 
2022$622 
2023320 
20242,238 
202544 
2026 and thereafter672 
 $3,896 

17

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

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 months ended September 30, 2021 and 2021 is as follows (in thousands):
 Three-Months Ended September 30,
 20212020
Stock-based compensation expense included in:  
Cost of revenues$9 $ 
Selling, general and administrative271 162 
Total$280 $162 

NOTE 9 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) 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 included in the calculations for diluted weighted average shares since these shares have full voting rights and are entitled to participate in dividends declared on common shares, if any, and undistributed earnings. As participating securities, the shares of restricted stock are included in the calculation of basic and diluted EPS using the two-class method. For the periods presented, the amount of earnings allocated to the participating securities was not material.

The following information is necessary to calculate earnings per share for the periods presented (in thousands, except per-share amounts):
 Three-Months Ended September 30,
 20212020
(As restated)
Net loss as reported$(1,341)$(293)
Weighted average common shares outstanding17,879 16,391 
Effect of dilutive stock options  
Weighted average diluted common shares outstanding17,879 16,391 
Net loss per common share  
Basic and Diluted$(0.08)$(0.02)
Employee stock options excluded from computation of dilutive income (loss) per share amounts because their effect would be anti-dilutive685 1,112 

18

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

NOTE 10 - EQUITY TRANSACTIONS

During the three months ended September 30, 2021 and 2020, respectively, stock options to purchase shares of the Company's common stock were exercised as follows:
 Three-Months Ended September 30,
 20212020
Options exercised 50,531 
Proceeds (in thousands)$ $225 
Average exercise price per share$ $4.44 

As of September 30, 2021, there was $1.5 million of stock compensation expense related to non-vested awards, which is expected to be recognized over a weighted average period of 2.98 years.

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.

NOTE 11 – INVENTORY

The components of inventory are as follows (in thousands):
 September 30, 2021June 30, 2021
Raw materials$2,449 $2,040 
Finished goods5,805 5,063 
Total inventory8,254 7,103 
Less: current portion7,272 6,114 
Inventory, net of current portion$982 $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 - SUBSEQUENT EVENTS

Effective on October 22, 2021, the Company acquired Affordable Medical Waste LLC, a route-based provider of medical waste solutions with over 500 locations in the Midwest, primarily in Indiana, for $2.2 million paid in cash from funds on hand.
19


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.

Restatement of Previously Reported Condensed Consolidated Financial Statements
The accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement adjustments made to the previously reported Condensed Consolidated Financial Statement as of and for the period ended September 30, 2021. For additional information and a detailed discussion of the restatement, see Note 2, Basis of Presentation - Restatement of Previously Reported Condensed Consolidated Financial Statements.

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 months ended September 30, 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 an expected increase in customer demand related to the 2021 season flu and the COVID-19 vaccine;
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 months ended September 30, 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 months ended September 30, 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 September 30,
 2021%2020%
(As restated)
Revenues$13,915 100.0 %$13,151 100.0 %
Cost of revenues11,216 80.6 %9,528 72.5 %
Gross profit2,699 19.4