Summary of SHARPS COMPLIANCE CORP

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 "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 Compliance Corp. is a leading full-service provider of solutions for the cost-effective management of medical waste, used health care materials and unused dispensed medications. Our solutions facilitate the proper collection, containment, transportation and treatment of numerous types of healthcare-related materials, including hypodermic needles, lancets and other devices or objects used to puncture or lacerate the skin, or sharps, and unused consumer dispensed medications and over-the-counter drugs.. We serve customers in multiple markets such as home health care, retail clinics and immunizing pharmacies, pharmaceutical manufacturers, professional offices (physicians, dentists and veterinarians), hospitality (including assisted living facilities, hotels, motels and restaurants), government (federal, state and local), consumers, commercial, industrial and agriculture, and distributors to many of the aforementioned markets. We assist our customers in determining which of our solution offerings best fit their needs for the collection, containment, return transportation and treatment of medical waste, used healthcare materials and unused dispensed medications. Our differentiated approach provides our customers the flexibility to return and properly treat medical waste, used healthcare materials or unused dispensed medications through a variety of solutions and products transported primarily through the United States Postal Service ("USPS"). Furthermore, we provide comprehensive tracking and reporting tools that enable our customers to meet complex medical waste disposal and unused dispensed patient medication compliance requirements. We believe the fully-integrated nature of our operations is a key factor leading to our success and continued recurring revenue growth. We continue to take advantage of the many opportunities in all markets served as we educate the market place and as prospective customers become more aware of alternatives to traditional methods of disposal (i.e., route-based pick-up services).

The Company's solutions include Sharps® Recovery System™ (formerly Sharps Disposal by Mail System®), TakeAway™ Recovery System, Complete Needle Collection & Disposal System™, TakeAway Environmental Return System™, Compliance TRACSM, Sharps Secure® Needle Collection and Containment System™, Pitch-It™ IV Poles, Trip LesSystem®, Sharps® Pump and Asset Return System, and Spill Kit TakeAway Recovery System™.

RESULTS OF OPERATIONS

The following analyzes changes in the consolidated operating results and
financial condition of the Company during the three and six months ended
December 31, 2012 and 2011. 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
revenue:

                         Three-Months Ended December 31,                    Six-Months Ended December 31,
                    2012          %          2011          %          2012          %           2011          %
                                   (Unaudited)                                       (Unaudited)

Revenues           $ 5,717       100.0 %    $ 6,212       100.0 %   $ 10,870       100.0 %    $ 11,955       100.0 %

Cost of revenues     4,017        70.3 %      4,065        65.4 %      7,618        70.1 %       7,989        66.8 %
Gross profit         1,700        29.7 %      2,147        34.6 %      3,252        29.9 %       3,966        33.2 %

SG&A expense         2,020        35.3 %      1,997        32.1 %      4,100        37.7 %       4,207        35.2 %
Depreciation and
amortization           111         1.9 %        116         1.9 %        224         2.1 %         223         1.9 %

Operating income
(loss)             $  (431 )      (7.5 %)   $    34         0.5 %   $ (1,072 )      (9.9 %)   $   (464 )      (3.9 %)

Other income             8         0.1 %          9         0.1 %         16         0.1 %           6         0.1 %

Income (loss)
before income
taxes                 (423 )      (7.4 %)        43         0.7 %     (1,056 )      (9.7 %)       (458 )      (3.8 %)
Income tax
expense
(benefit)                5         0.1 %         15         0.2 %         11         0.0          (161 )      (1.3 %)
Net income
(loss)             $  (428 )      (7.5 %)   $    28         0.5 %   $ (1,067 )      (9.8 %)   $   (297 )      (2.5 %)

THREE MONTHS ENDED DECEMBER 31, 2012 AS COMPARED TO THREE MONTHS ENDED DECEMBER
31, 2011

Total revenues for the three months ended December 31, 2012 of $5.7 million
decreased by $0.5 million, or 8.0%, over the total revenues for the three months
ended December 31, 2011 of $6.2 million. Billings by market are as follows (in
thousands):

                                             Three-Months Ended December 31,
                                                       (Unaudited)
                                          2012              2011          Variance

       BILLINGS BY MARKET:
       Home Health Care                $     1,559       $     1,740     $     (181 )
       Retail                                1,434             1,303            131
       Professional                            950               720            230
       Pharmaceutical                          910               709            201
       Assisted Living / Hospitality           376               269            107
       Core Government                         108                90             18
       Other                                   202               434           (232 )
       U.S Government Contract                   -               722           (722 )
       Subtotal                              5,539             5,987           (448 )
       GAAP Adjustment *                       178               225            (47 )
       Revenue Reported                $     5,717       $     6,212     $     (495 )

*Represents the net impact of the revenue recognition adjustment required to arrive at reported generally accepted accounting principles ("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 Condensed Consolidated Financial Statements".

This quarter-to-date table 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 decrease in revenues is primarily attributable to decreased billings in the U.S. Government contract ($0.7 million), Home Health Care ($0.2 million) and Other ($0.2 million) markets. The decrease in billings was partially offset by increased billings in the Professional ($0.2 million), Pharmaceutical ($0.2 million), Retail ($0.1 million) and Assisted Living/Hospitality ($0.1 million) markets. U.S. Government Contract billings are associated with the Company's contract with a major U.S. government agency announced in February 2009. The decrease in the U.S. Government contract market billings is associated with the January 31, 2012 termination of the maintenance portion of a U.S. Government contract with the Division of Strategic National Stockpile ("DSNS") of the Centers for Disease Control ("CDC"). The decrease in the Home Health Care market was primarily due to timing of sales to home health care related distributors addressing the growing trend of patient volumes in the home health care industry. The decrease in the Other market was due to timing of orders. The increase in the Professional market was a direct result of the Company's targeted telemarketing activities and corresponding promotional activities to educate doctors, dentists and veterinarians on the significant cost advantage and the convenience of the Sharps® Recovery System over the traditional pick-up service in the small quantity generator sector. The increase in the Pharmaceutical market billings is due to the timing of customer orders including resupply orders from one of the three new patient support programs announced in August and October 2011. The programs include the direct fulfillment of the Sharps® Recovery System to the pharmaceutical manufacturers' program participants which provides the proper containment, return and treatment of the needles or injection devices utilized in therapy. The increase in Retail market billings is primarily due to the 2012 flu season and reorders of the Complete Needle Collection & Disposal System™ offset by lower sales of the TakeAway Environmental Return System™ due to initial launches in the prior year.

Cost of revenues for the three months ended December 31, 2012 of $4.0 million was 70.3% of revenues. Cost of revenues for the three months ended December 31, 2011 of $4.1 million was 65.4% of revenues. The lower gross margin for the quarter ended December 31, 2012 of 29.7% (versus 34.6% for the quarter ended December 31, 2011) was due to (i) ongoing facility costs of $0.1 million, or approximately 200 basis points, associated with the maintenance portion of the U.S. government contract that was terminated as of January 31, 2012, (ii) an additional accrued loss for lease related liabilities for the Atlanta facility of $64 thousand, or 110 basis points, (iii) treatment facility-related repairs and seasonal labor and (iv) lower revenue compared with the prior year which included the U.S. Government contract.

Selling, general and administrative ("SG&A") expenses for the three months ended December 31, 2012 and 2011 was $2.0 million.

The Company generated an operating loss of $0.4 million for the three months ended December 31, 2012 compared to operating income of $34 thousand for the three months ended December 31, 2011. The operating margin was (7.5%) for the three months ended December 31, 2012 compared to 0.5% for the three months ended December 31, 2011. The increase in operating loss is a result of the lower billings in the current quarter primarily due to the U.S. government contract that was terminated as of January 31, 2012 partially mitigated by strong cost discipline and focused use of resources on targeted markets primarily Professional, Pharmaceutical and Retail markets (discussed above).

The Company generated a loss before income tax expense of $0.4 million for the three months ended December 31, 2012 versus income before tax of $43 thousand for the three months ended December 31, 2011. The increase in the loss before income tax is a result of the higher operating loss (discussed above).

The Company's effective tax rate for the three months ended December 31, 2012 was 1.2% reflecting estimated state income taxes. The Company's effective tax rate for the three months ended December 31, 2011 was 34.9%. During the year ended June 30, 2012, the Company recorded $2.0 million to establish a deferred tax valuation allowance on net deferred tax assets. The Company's tax benefit associated with taxable losses during the three months ended December 31, 2012 was offset by a deferred tax valuation allowance.

The Company generated a net loss of $0.4 million for the three months ended December 31, 2012 compared to net income of $28 thousand for the three months ended December 31, 2011. The higher net loss is a result of a higher operating loss and lower tax benefit (discussed above).

The Company reported diluted loss per share of ($0.03) for the three months ended December 31, 2012 versus diluted income per share of $0.00 for the three months ended December 31, 2011. The decrease in diluted earnings per share is a result of a higher net loss in the current quarter (discussed above).

SIX MONTHS ENDED DECEMBER 31, 2012 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2011
Total revenues for the six months ended December 31, 2012 of $10.9 million
decreased by $1.1 million, or 9.1%, over the total revenues for the six months
ended December 31, 2011 of $12.0 million. Billings by market are as follows (in
thousands):


                                              Six-Months Ended December 31,
                                                       (Unaudited)
                                            2012            2011       Variance

         BILLINGS BY MARKET:
         Home Health Care                $    3,306       $  3,507     $    (201 )
         Retail                               2,599          3,026          (427 )
         Professional                         1,951          1,422           529
         Pharmaceutical                       1,472            979           493
         Assisted Living / Hospitality          752            569           183
         Core Government                        500            215           285
         Other                                  388            703          (315 )
         U.S. Government Contract                 -          1,444        (1,444 )
         Subtotal                            10,968         11,865          (897 )
         GAAP Adjustment *                      (98 )           90          (188 )
         Revenue Reported                $   10,870       $ 11,955     $  (1,085 )

This year-to-date table 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 decrease in revenues is primarily attributable to decreased billings in the U.S. Government Contract ($1.4 million), Retail ($0.4 million) and Home Health Care ($0.2 million). The decrease in billings was partially offset by increased billings in the Professional ($0.5 million), Pharmaceutical ($0.5 million) and Core Government ($0.3 million) markets. U.S. Government Contract billings are associated with the Company's contract with a major U.S. government agency announced in February 2009. The decrease in the U.S. Government contract market billings is associated with the January 31, 2012 termination of the maintenance portion of a U.S. Government contract with the DSNS of the CDC. The decrease in the Retail market billings is primarily due to timing of customer orders and new program launches in the prior-year period of both the Complete Needle Collection & Disposal System™ and the TakeAway Environmental Return System™ solutions. The decrease in billings in the Home Health Care market was primarily due to timing of sales to home health care related distributors addressing the growing trend of patient volumes in the home health care industry. The increase in the Professional market was a direct result of the Company's targeted telemarketing activities and corresponding promotional activities to educate doctors, dentists and veterinarians on the significant cost advantage and the convenience of the Sharps® Recovery System over the traditional pick-up service in the small quantity generator sector. The increase in the Pharmaceutical market billings is due to the timing of customer orders including resupply orders from one of the three new patient support programs announced in August and October 2011. The programs include the direct fulfillment of the Sharps® Recovery System to the pharmaceutical manufacturers' program participants which provides the proper containment, return and treatment of the needles or injection devices utilized in therapy. The increase in the Core Government market billings reflects distributor sales to a major U.S. agency to facilitate the launch of our solutions in selected military bases.

Cost of revenues for the six months ended December 31, 2012 of $7.6 million was 70.1% of revenues. Cost of revenues for the six months ended December 31, 2011 of $8.0 million was 66.8% of revenue. The lower gross margin for the six months ended December 31, 2012 of 29.9% (versus 33.2% for the six months ended December 31, 2011) was due to (i) ongoing facility costs of $0.2 million, or 210 basis points, associated with the maintenance portion of the U.S. government contract that was terminated as of January 31, 2012, (ii) an additional accrued loss for lease related liabilities for the Atlanta facility of $64 thousand, or 60 basis points, (iii) treatment facility-related repairs and (iv) lower revenue compared with the prior year which included the U.S. Government contract.

Selling, general and administrative ("SG&A") expenses for the six months ended December 31, 2012 of $4.1 million, decreased by $0.1 million, from SG&A expenses of $4.2 million for the six months ended December 31, 2011.

The Company generated an operating loss of $1.1 million for the six months ended December 31, 2012 compared to an operating loss of $0.5 million for the six months ended December 31, 2011. The operating margin was (9.9%) for the six months ended December 31, 2012 compared to (3.9%) for the six months ended December 31, 2011. The increase in operating loss is a result of the lower billings in the first half of fiscal year 2013 primarily due to the

U.S. government contract that was terminated as of January 31, 2012 partially mitigated by strong cost discipline and focused use of resources on targeted markets primarily Retail, Pharmaceutical, Professional and Core Government markets (discussed above).

The Company generated a loss before tax of $1.1 million for the six months ended December 31, 2012 versus a loss before tax of $0.5 million for the six months ended December 31, 2011. The increase in loss before tax is a result of a higher operating loss (discussed above).

The Company's effective tax rate for the six months ended December 31, 2012 was 1.0% reflecting estimated state income taxes compared to 35.2% for the six months ended December 31, 2011. During the year ended June 30, 2012, the Company recorded $2.0 million to establish a deferred tax valuation allowance on net deferred tax assets. The Company's tax benefit associated with taxable losses during the six months ended December 31, 2012 was offset by a deferred tax valuation allowance.

The Company generated a net loss of $1.1 million for the six months ended December 31, 2012 compared to a net loss of $0.3 million for the six months ended December 31, 2011. The increase is result of a higher operating loss and lower tax benefit (discussed above).

The Company reported diluted loss per share of ($0.07) for the six months ended December 31, 2012 versus diluted loss per share of ($0.02) for the six months ended December 31, 2011. The decrease in diluted earnings per share is a result of a higher net loss (discussed above).

PROSPECTS FOR THE FUTURE

The Company continues to take advantage of the many opportunities in the markets served as professional offices, retail pharmacies and clinics, communities, assisted living, home healthcare companies, consumers, pharmaceutical manufacturers, government agencies, health care facilities, individual self-injectors and commercial organizations become more aware of the need for the proper treatment of medical sharps waste, used healthcare materials and unused dispensed medications as well as alternatives to traditional methods of disposal.

The Company's growth strategies are focused on the Retail, Pharmaceutical, Professional and Core Government markets. The Company also serves the Home Health Care, Assisted Living/Hospitality and Other markets. The Company believes its growth opportunities are supported by:

· An increase in the number of used needles improperly disposed of outside the large healthcare setting and into the solid waste system to 7.8 billion each year (tripled volume over the past ten years) and an increase in the number of self-injectors in the country to 13.5 million over the same period;

· An estimated 800,000 doctors, dentists, veterinarians, clinics, tattoo parlors and other businesses in the country that generate smaller quantities of medical waste, including used syringes to whom we offer a lower cost alternative to the traditional pick-up service;

· An estimated 40% of the four billion dispensed medication prescriptions which go unused every year in the United States generating an estimated 200 million pounds of unused medication waste;

· The pace of regulation of sharps and unused dispensed medications disposal which is gaining momentum at both the state and federal level - as of June 30, 2012, approximately 46 percent of U.S. citizens live in states that have enacted legislation or strict guidelines mandating the proper disposal of used syringes while 67 percent live in states that have enacted or proposed legislation mandating the proper disposal of dispensed unused medications;

· New solution offerings including the Complete Needle™ Collection and Disposal System (designed for the traditional under-served home self-injector), the TakeAway line of products for unused medications (including TakeAway Environmental Return System™), the Medical/Professional TakeAway Recovery System and enhanced patient support programs with pharmaceutical manufacturers;

· The opportunity to increase the availability to individuals of our consumer focused solutions like Complete Needle™ Collection and Disposal System and the TakeAway line of products through sponsorship by drug and ancillary product manufacturers;

· The Company's joint marketing alliance with Daniels Sharpsmart ("JMA"), announced in May 2012, to serve the entire U.S. medical waste market, offering clients a blended product portfolio to effectively target health care customers with multi-site and multi-sized locations; and

· The Company's strong financial position with a cash balance of $16.8 million, no debt and $3.0 million of credit available pursuant to its amended credit agreement as of December 31, 2012.

TERMINATED CONTRACT

In February 2009, the Company launched Sharps®MWMS™, a Medical Waste Management System ("MWMS"), which is a comprehensive medical waste and dispensed medication solution which includes an array of products and services necessary to effectively collect, store and treat medical waste and unused dispensed medication outside of the hospital or large health care facility setting. In connection with the launch in 2009, the Company signed a five year contract (one year, plus four option years) with a major U.S. government agency for a $40 million program to provide our comprehensive Medical Waste Management System™, or Sharps®MWMS™, which is a rapid-deployment solution offering designed to provide medical waste collection, storage and treatment in the event of natural disasters, pandemics, man-made disasters, or other national emergencies. Sharps®MWMS™ is unique in that the solution also offers warehousing, inventory management, training, data and other services necessary to provide a comprehensive solution. We received a purchase order for $28.5 million ($6.0 million of which was recognized in fiscal year 2009, and $22.5 million was recognized in the first half of fiscal year 2010). In January 2010, the Company was awarded the first option year (ending January 31, 2011) valued at approximately $1.6 million which was recognized from February 1, 2010 through January 31, 2011. In January 2011, we were awarded the second option year (ending January 31, 2012) valued at approximately $3.0 million and was recognized from February 1, 2011 through January 31, 2012. The Company was notified by an agency of the U. S. Government, acting on behalf of the DSNS, that the maintenance contract would not be renewed for the third option year (beginning February 1, 2012) and that the contract would be terminated effective January 31, 2012. This non-renewal was preceded by a letter dated December 2, 2011 advising the Company of the U.S. Government's intent to exercise the third option year. Although not stated in the notice provided by the U.S. Government, the Company believes the action is part of a budget reduction program being implemented by the DSNS.

RECENT DEVELOPMENTS

On January 7, 2013, the Company announced that its Board of Directors approved a stock repurchase program effective January 3, 2013, authorizing the Company to repurchase in the aggregate up to $3 million of its outstanding common stock over a two-year period. The shares would be purchased from time to time on the open market or in privately negotiated transactions, at the Company's discretion, in each case, in compliance with Rule 10b-18 under the Securities . . .