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 "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 current risks, uncertainties and assumptions related to certain factors, including without limitations, competitive factors, general economic conditions, customer relations, relationships with vendors, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, expected, estimated or intended. The Company does not intend to update these forward-looking statements.

GENERAL

Sharps is a leading comprehensive provider of cost-effective disposal solutions for medical waste and unused dispensed medication generated outside the hospital and large healthcare facility setting. These solutions include Sharps Disposal by Mail System®, RxTakeAway™, Sharps®MWMS™, Pitch-It™ IV Poles, Trip LesSystem®, Sharps Pump Return Box, Sharps Enteral Pump Return Box, Sharps Secure®, Sharps SureTemp Tote®, IsoWash® Linen Recovery System, Biohazard Spill Clean-Up Kit and Disposal System, Sharps e-Tools, Sharps Environmental Services and Sharps Consulting. Some products and services facilitate compliance with state and federal regulations by tracking, treating and documenting the disposal of medical waste and unused dispensed medication. Additionally, some products and services facilitate compliance with educational and training requirements that meet federal, state, and local regulatory and compliance requirements.

RESULTS OF OPERATIONS

The following analyzes changes in the consolidated operating results and
financial condition of the Company during the three months ended September 30,
2009 and 2008.

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

                                             Three Months Ended
                                               September 30,
                                            2009               2008
                                         (Unaudited)

Net revenues                                      100 %          100 %
Costs and expenses
  Cost of revenues                                (29 %)         (57 %)
  Selling, general and administrative             (12 %)         (27 %)
  Depreciation and amortization                    (1 %)          (2 %)
Total costs and expenses                          (42 %)         (86 %)
  Operating income                                 58 %           14 %
Total other income                                  0 %            0 %
  Income tax expense                               20 %            0 %
Net income                                         38 %           14 %

THREE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2008

Total revenues for the three months ended September 30, 2009 of $15.4 million increased by $11.1 million, or 260%, over the total revenues for the three months ended September 30, 2008 of $4.3 million. Customer billings by market are as follows (in thousands):

                                     (unaudited)
                           Three-Months Ended September 30,
                         2009              2008        Variance

BILLINGS BY MARKET:
Government            $    11,017       $       55     $  10,962
Health Care                 1,622            1,907          (285 )
Retail                      1,547              841           706
Professional                  421              248           173
Pharmaceutical                319              875          (556 )
Hospitality                   261              209            52
Other                         254              168            86
Agriculture                    86              174           (88 )
Commercial                     64              185          (121 )
Subtotal                   15,591            4,662        10,929
GAAP Adjustment *            (212 )           (392 )         180
Revenue Reported      $    15,379       $    4,270     $  11,109

*Represents the net impact of the revenue recognition adjustment required to arrive at reported GAAP revenue. Customer billings include all invoiced amounts associated with products shipped 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 and (ii) recognition of certain revenue associated with products returned for treatment and destruction. The difference between customer billings and GAAP revenue is reflected in the Company's balance sheet as deferred revenue. See Note 3 "Revenue Recognition" in "Notes to Consolidated Financial Statements".

This Quarterly Report on Form 10-Q contains certain financial information not derived in accordance with GAAP, including customer billings information. The Company believes this information is useful to investors and other interested parties as customer billings represents all invoiced amounts associated with products shipped during the period reported. Such information should not be considered as a substitute for any measures derived in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies. Reconciliation of this information to the most comparable GAAP measures is included above.

The increase in revenues is primarily attributable to increased billings in the Government ($11.0 million), Retail ($0.7 million), and Professional ($0.2 million) markets. The increases were partially offset by decreased billings in the Pharmaceutical ($0.6 million), Healthcare ($0.3 million), and Commercial ($0.1 million) markets. The increase in the Government market is a result of $11.0 million in billings related to the sale of the Company's Sharps®MWMS™ to an agency of the United States Government under the contract announced in February 2009. The increase in the billings in the Retail market is a result of,
(i) increased market and customer penetration, (ii) a strong 2009 flu shot season (i.e., purchases of the Sharps Disposal By Mail Systems® by retail clinics and pharmacies who use the products to collect, store and properly dispose of syringes used to administer flu-related shots) and (iii) increased purchases of the Sharps Disposal By Mail Systems® used to support community programs. The increase in the Professional market billings was driven by higher demand for the Company's products as professional offices (doctors, dentists, and veterinary) are made aware of the Company's Sharps Disposal By Mail System® products as cost-effective and convenient alternatives to the traditional medical waste pick up service. The decrease in Pharmaceutical market billings is due to the variability in timing associated with the Patient Support Programs the Company provides to the drug manufacturers. The decrease in the Health Care market billings is related to the ordering patterns of the larger home healthcare customers as well as additional distributor incentives designed to drive future growth in this market.

Cost of revenues for the three months ended September 30, 2009 of $4.5 million was 29% of revenues. Cost of revenues for the three months ended September 30, 2008 of $2.4 million was 57% of revenue. The higher gross margin for the quarter ended September 30, 2009 of 70.8% (versus 43.3% for the quarter ended September 30, 2008) was a result of (i) the higher revenue (i.e. higher coverage of fixed cost components in cost of goods sold) and (ii) the mix of products and services sold in the quarter ended September 30, 2009 versus the quarter ended September 30, 2008.

Selling, general and administrative ("S, G & A") expenses for the three months ended September 30, 2009 of $1.8 million, increased by $651 thousand, from S, G & A expenses for the three months ended September 30, 2008. The increase in S, G & A is primarily due to higher (i) compensation and benefit expense including payroll tax of $189 thousand, (ii) non-cash, 123(R) stock based compensation expense of $169 thousand, (iii) professional fees of $105 thousand, (iv) costs related to increased sales and marketing-related activities of $104 thousand,
(v) general office expense of $19 thousand, (vi) investor relation expenses of $18 thousand and (vii) computer and systems-related expenses of $34 thousand. The increase in compensation expense is due primarily to an increased number of employees (from 33 to 48) to support the growth experienced by the Company and increased sales and marketing-related activities. The increase in non-cash stock-based award expense was primarily due to the accrued quarterly expense associated with the award of restricted stock for the fiscalyear 2010 Board of Director compensation and the award of additional stocks options in November 2008 and July 2009 to employees, including officers.

The increase in professional fees was a result of expenses associated with (i) the Ronald Pierce former employment-related arbitration (ii) consulting fees for several ongoing sales and marketing projects and (iii) general corporate matters.

The Company generated operating income of $9.0 million for the three months ended September 30, 2009 compared to $0.6 million for the three months ended September 30, 2008. The operating margin was 58.4% for the three months ended September 30, 2009 compared to 14.3% for the three months ended September 30, 2008. The increase in operating income and operating margin is a result of the above mentioned increase in revenue and operating leverage inherent in the Company's business model.

The Company generated income before tax of $9.0 million for the three months ended September 30, 2009 versus a pre-tax income of $625 thousand for the three months ended September 30, 2008. The increase in income before tax is a result of higher operating income (discussed above).

The Company generated net income of $5.8 million for the three months ended September 30, 2009 compared to net income of $605 thousand for the three months ended September 30, 2008. The increase in net income is a result of higher operating income (discussed above).

The Company reported diluted earnings per share of $0.40 for the three months ended September 30, 2009 versus diluted earnings per share of $0.04 for the three months ended September 30, 2008. The increase in diluted earnings per share is a result of a higher net income (discussed above).

PROSPECTS FOR THE FUTURE

The Company continues to take advantage of the many opportunities in the markets served as communities, consumers, government and healthcare and commercial organizations become more aware of the need for the proper disposal of medical sharps waste and unused dispensed medications. This education process was enhanced in December 2004 when the U. S. Environmental Protection Agency ("EPA") issued its new guidelines for the proper disposal of medical sharps, revising the previous guidance that advised patients to dispose of used syringes in the trash (see www.epa.gov/epaoswer/other/medical/sharps.htm). Additionally, in July 2006 the states of California and Massachusetts passed legislation designed to mandate appropriate disposal of sharps waste necessary to protect the general public and workers from potential exposure to contagious diseases and health and safety risks. Currently, seven states ban the disposal of used syringes in the trash and five states are considering or have introduced similar legislation, while the remaining states operate under the EPA guidance noted above. In August 2008, the U.S. House of Representatives and U.S. Senate introduced bills 3251 and 1909, respectively, which, if enacted, would provide for Medicare reimbursement, under part D, for the safe and effective disposal of used needles and syringes. In October 2009, California passed Senate Bill 486 requiring drug companies that market and sell prescribed medications that are routinely injected at home to submit plans to the California Integrated Waste Management Board on or before July 1, 2010 (and annually thereafter) describing how they support safe needle collection and disposal programs for patients using their drugs. Among the methods of disposal recommended as part of the above noted regulatory actions are mail-back programs such as those marketed by the Company. The CDC and the EPA estimate that there are over three billion used syringes disposed of annually outside of the hospital setting in the United States. Additionally, the Company estimates that it would require 30 to 50 million Sharps Disposal by Mail System® products to properly dispose of all such syringes, which would equate to a market opportunity of over $1 billion. Based upon the current level of sales, the Company estimates that it has penetrated approximately 1% of this market.

The Company continues to develop new products and services including the Sharps® MWMS™, the RxTakeAway™ line of products and the 18 gallon Medical Professional Sharps Disposal by Mail System®. The Company continues to develop products and services designed to facilitate the proper and cost effective disposal of medical waste and unused dispensed medication generated outside the hospital and large healthcare facility setting. The Company believes its future growth will be driven by, among other items, (i) the positive impact and awareness created by the existing and above noted regulatory actions as well as additional potential future legislation, (ii) the effects of the Company's extensive direct marketing efforts and (iii) the Company's leadership position in the development and sales of products and services designed for the proper and cost-effective disposal of medical waste and unused dispensed medications generated outside the hospital and large healthcare facility setting.

Demand for the Company's primary product, the Sharps Disposal by Mail System®, which facilitates the proper and cost-effective disposal of medical waste including hypodermic needles, lancets and other devices or objects used to puncture or lacerate the skin (referred to as "sharps"), has been growing rapidly because of its cost-effective and convenient mail-back component and unique data tracking feature. In addition, targeted opportunities continue to expand as a result of, (i) legislation mandating the proper disposal of sharps,
(ii) the growing awareness of the need to properly handle sharps medical waste for safety and environmental concerns, (iii) the significant increase in self-injectable medications and (iv) the changing paradigm in the healthcare industry.

The Company is experiencing a strong flu shot business (included in the Retail market billings) in light of the global concern over the H1N1 flu virus. While the flu shot business traditionally positively impacts the quarter ended September 30, the Company believes that the December 31, 2009 quarter will most likely be positively impacted by the flu shot season consistent with the expected administration of flu-related shots through the end of the calendar year 2009 and quite possibly into the quarter ended March 31, 2010.

The Company is actively marketing its Sharps®MWMS™ to federal, state and local agencies as well as to large corporations. On February 2, 2009, the Company announced a $40 million contract award (the "U.S. Government Contract") to provide its Sharps®MWMS™ to an agency of the United States Government. The total contract is expected to be executed over a five year period (one year plus four option years). The Company has received a purchase order for $28.5 million which represents products and services to be provided during the first contract year of which $6.0 million was billed, in aggregate, in the quarters ended March 31, and June 30, 2009 and $11.0 million in the quarter ended September 30, 2009. The Company expects to bill $11.5 million related to the U.S. Government Contract in the quarter ending December 31, 2009. The remaining $11.5 million is expected to be earned during fiscal years 2011 through 2014 as the program moves from the production phase to the maintenance phase. The above amounts are estimates only and are subject to change. Although the Company believes the amounts above to be reasonable based upon its current project plan, it makes no assurances regarding the actual recognition of revenue by fiscal year, which could vary significantly from that noted above.

The Sharps®MWMS™, a Medical Waste Management System, is a comprehensive medical waste and unused dispensed medication solution which includes an array of products and services necessary to effectively collect, store and dispose of medical waste and unused dispensed medication outside of the hospital or large healthcare facility setting. Sharps®MWMS™, which is designed for rapid deployment, features the Sharps Disposal By Mail System® and RxTakeAway™ products (the "Products") combined with warehousing, inventory management, training, data and other services (the "Services") necessary to provide a comprehensive solution. The Sharps®MWMS™ is designed to be an integral part of governmental and commercial emergency preparedness programs.

The Company recognizes revenue for the Product portion of the contract in accordance with the revenue recognition policy for the Sharps Disposal By Mail System® products. The Services portion of the contract, described above, is recognized as services are performed.

The Company serves customers in multiple markets including, but not limited to, Healthcare, Government, Professional, Pharmaceutical, Industrial, Agriculture and Hospitality. As shown in the results for the fiscal year ended June 30, 2009 and first quarter ended September 30, 2009, the Company has not experienced a downturn in its overall business, rather an increase in the majority of markets in which it serves. Order activity and purchase trends remain positive in most markets served. Additionally, the Company (i) expects the strong flu shot business for the 2009 flu season to continue through the quarter ended December 31, 2009 as a result of the recent concerns regarding the H1N1 virus (as discussed above) and (ii) believes it will continue to experience significant growth for the quarter ending December 31, 2009 as it continues to execute on the U.S. Government Contract (discussed above). The Company currently has a significant cash balance, no debt, and an undrawn $2.5 million line of credit.

California Senate Bill 486, which was signed into law on October 12, 2009, requires pharmaceutical manufacturers who sell or distribute medications that are routinely injected at home to submit plans to the California Integrated Waste Management Board (the "Board") on or before July 1, 2010 describing how they support and provide safe syringe and needle collection and disposal programs for their patients. The manufacturers are also required to post those plans on their website and the Board will post the information on its website as well in order to help educate consumers regarding safe and effective means to dispose of their used needles and syringes or injection devices.

Sharps believes its proven Patient Support Program (in place with pharmaceutical manufacturers since 2006) is an excellent solution for the patients of pharmaceutical manufacturers as it facilitates the proper, convenient and cost-effective storage, collection and disposal of used syringes.

Sharps' Patient Support Program includes the direct fulfillment of the Sharps Disposal By Mail System® to the pharmaceutical manufacturers' self-injecting patient support program participants, who use the product as a convenient means of disposing of used syringes, educational information on the disposal process and distinctive branding for the manufacturer's product. The Company's SharpsTracer™ system tracks the return of the Sharps Disposal By Mail System® by the patient to the treatment facility, where the package is processed prior to destruction utilizing the Company's proprietary and customizable system. This data is electronically transmitted and available to the pharmaceutical manufacturer via the Company's proprietary data warehouse which aids in monitoring drug usage and establishes a touch point for individual patient follow-up.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased by $3.6 million to $8.4 million at September 30, 2009 from $4.8 million at June 30, 2009. The increase in cash and cash equivalents is primarily a result of cash generated from operations of $3.5 million plus proceeds from the exercise of stock options of $208 thousand, partially offset by capital expenditures of $328 thousand.

Accounts receivable increased by $4.8 million to $6.4 million at September 30, 2009 from $1.6 million at June 30, 2009. The increase is a direct result of the increase in billings generated by the Company for the quarter ended September 30, 2009 of $15.6 million versus the quarter ended June 30, 2009 of $3.9 million. The accounts receivable of $6.4 million at September 30, 2009 included $4.3 million related to the U.S. Government Contract which was collected in October of 2009.

Inventory increased by $490 thousand to $2.8 million at September 30, 2009 from $2.3 million at June 30, 2009. The increase in inventory is attributable to (i) the production of products in conjunction with the U.S. Government Contract (ii) the build up of inventory to facilitate the anticipated increase in demand of the Sharps Disposal By Mail System® related to the 2009 flu season and (iii) bulk purchases of Sharps Secure® and Pitch-It™ IV Poles which are manufactured overseas (six to eight weeks of product sales ordered at a time).

As of the quarter ended September 30, 2009, the Company is no longer in a net operating loss position and is a current tax payer. Accrued liabilities at September 30, 2009 included a $1.5 million income tax payable which is expected to be paid in December of 2009.

Property and equipment increased by $168 thousand to $3.6 million at September 30, 2009 from $3.4 million at June 30, 2009. The increase in property and equipment is due to capital expenditures of $322 thousand which was partially offset by depreciation expense of $154 thousand. The capital expenditures are attributable primarily to the purchase of, (i) warehouse/operations-related equipment of $135 thousand, (ii) molds, dies and printing plates for production of $118 thousand, (iii) treatment facility improvements of $28 thousand and(iv) computer equipment and custom software programming totaling $38 thousand. The warehouse/operations equipment included equipment necessary to accommodate the automation and continued expansion of in-house assembly and production of the Company's products. The molds and printing plates were procured for development of new products and additional production capacity in light of the Company's growth.

Accounts payable decreased by $361 thousand to $2.1 million at September 30, 2009 from $2.5 million at June 30, 2009. The decrease is a result of the timing of payments for products purchased and capital expenditures.

Accrued liabilities increased by $1.3 million to $2.5 million at September 30, 2009 from $1.2 million at June 30, 2009. The increase is due primarily to the recording of $1.5 million in federal and state income tax payable (discussed above).

Stockholder's equity increased by $6.5 million from $9.6 million to $16.1 million. This increase is attributable to, (i) net income for the three months ended September 30, 2009 of $5.8 million, (ii) the effect of stock options to purchase 171,000 common stock exercised with proceeds of $208 thousand (average exercise price of $1.22), (iii) the effect on equity (credit) of non-cash stock based award expense of $206 thousand and (iv) the excess tax benefits from stock-based award activity of $303 thousand.

Management believes that the Company's current cash resources (cash on hand and cash generated from operations) along with its $2.5 million line of credit with JPMorgan Chase Bank, N.A. will be sufficient to fund operations for the twelve months ending September 30, 2010. Terms of the line of credit are expected to be renewed in March 2010 under similar or more favorable (increased line) terms currently in place.

CRITICAL ACCOUNTING ESTIMATES

Certain products offered by the Company have revenue producing components that are recognized over multiple delivery points and can consist of up to three separate elements as follows: (1) the sale of the container system, (2) the transportation of the container system and (3) the treatment and disposal of the container system. Since the transportation element and the treatment element are undelivered services at the point of initial sale of the container, the revenue is deferred until the services are performed. The current and long-term portions of deferred revenues are determined through regression analysis and historical trends. Furthermore, through regression analysis of historical data, the Company has determined that a certain percentage of all container systems sold may not be returned. Accordingly, a portion of the transportation and treatment elements is recognized at the point of sale.

RECENTLY ISSUED ACCOUNTING STANDARDS

On June 30, 2009, the Company adopted changes issued by the Financial Accounting Standards Board "FASB" to accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, otherwise known as "subsequent events". Specifically, these changes set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transaction that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of these changes had no impact on the

Financial Statements. The Company evaluated such events and transactions through October 30, 2009, when the consolidated financial statements were electronically filed with the SEC.

On September 30, 2009, the Company adopted changes issued by the FASB to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification TM "Codification" as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the . . .