On January 13, 2012, Sharps Compliance Corp. (the "Company", "we") was notified by a department of the U. S. Government, acting on behalf of the Division of Strategic National Stockpile ("DSNS"), that the maintenance contract between the Company and the DSNS dated January 29, 2009, pursuant to which the Company managed Sharps^®MWMS™ inventory for the DSNS will 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. On January 17, 2012, the Company issued a press release announcing the non-renewal notice. A copy of the press release is attached as Exhibit 99.1.

In February 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, we were 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 is to be recognized from February 1, 2011 through January 31, 2012. The remaining two option years were expected to be approximately $3.0 million per contract 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. The Company did not incur early termination penalties as a result of the U.S. Government not renewing the maintenance contract for the third option year.