STERILE RECOVERIES INC, 424B1, 1996-07-19

STERILE RECOVERIES INC
424B1, 1996-07-19
PERSONAL SERVICES

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<PAGE> 1

Filed Pursuant to Rule 424(b)(1)
Registrant No. 333-3745

PROSPECTUS

2,000,000 SHARES

STERILE RECOVERIES, INC.

COMMON STOCK

------------------------

All of the 2,000,000 shares of Common Stock are being offered by Sterile
Recoveries, Inc. Prior to the offering, there has been no public market for the
Common Stock. See "Underwriting" for information relating to the determination
of the initial public offering price. A substantial portion of the offering
proceeds will be used to repay indebtedness.

The Common Stock has been approved for listing on the Nasdaq Stock Market's
National Market under the symbol "STRC".

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AT PAGE 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................................ $9.50 $0.665 $8.835
- -----------------------------------------------------------------------------------------------------
Total(3)............................................. $19,000,000 $1,330,000 $17,670,000
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and certain shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses estimated at $1,050,000, all of which are
payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
150,000 additional shares of Common Stock and shareholders Richard T. Isel,
Wayne R. Peterson, and James T. Boosales have granted the Underwriters a
30-day option to purchase up to 150,000 additional shares of Common Stock
on the same terms and conditions set forth above to cover over-allotments,
if any. The Company will not receive any proceeds from the sale of any
additional shares by these shareholders. See "Principal Shareholders." If
the Underwriters exercise this over-allotment option in full with respect
to all 300,000 shares, the total Price to Public will be $21,850,000, the
total Underwriting Discounts and Commissions will be $1,529,500, the total
Proceeds to Company will be $18,995,250, and the total proceeds to these
shareholders will be $1,325,250. See "Underwriting."

------------------------

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as, and if delivered to and accepted by the Underwriters
and subject to their right to reject orders in whole or in part. It is expected
that delivery of the certificates representing the shares of Common Stock will
be made on or about July 24, 1996, through the Depository Trust Company or at
the offices of Robert W. Baird & Co. Incorporated, Milwaukee, Wisconsin.

ROBERT W. BAIRD & CO. RAYMOND JAMES & ASSOCIATES, INC.
INCORPORATED

THE DATE OF THIS PROSPECTUS IS JULY 18, 1996.

<PAGE> 2

[DIAGRAM SHOWING IN A CIRCLE THE FOUR
PRINCIPAL ELEMENTS OF THE COMPANY'S REPROCESSING OPERATION]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Financial Statements (including the Notes thereto) appearing
elsewhere in this Prospectus.

THE COMPANY

Sterile Recoveries, Inc. ("SRI" or the "Company") provides hospitals and
surgery centers with a comprehensive surgical procedure-based delivery and
retrieval service for reusable gowns, towels, drapes, and basins and provides
other disposable products necessary for surgery. At seven regional facilities,
SRI collects, sorts, cleans, inspects, packages, sterilizes, and delivers its
reusable products on a just-in-time basis. SRI offers an integrated
"closed-loop" reprocessing service that uses two of the most technologically
advanced reusable textiles: (i) a GORE(R) Surgical Barrier Fabric for gowns and
drapes that is breathable yet liquidproof and provides a viral/bacterial barrier
and (ii) an advanced microfiber polyester surgical fabric for gowns and drapes
that is liquid and bacterial resistant. The Company believes that its reusable
surgical products made from these fabrics provide protection and comfort that
are superior to disposable alternatives.

The Company currently serves a growing customer base of approximately 200
hospitals and surgery centers located in 17 states, including Duke University
Medical Center (Durham), Henry Ford Hospital (Detroit), Johns Hopkins Medical
Center (Baltimore), St. Luke's Episcopal Hospital (Houston), Jackson Memorial
Hospital (Miami), IHC Hospitals, Inc. (Salt Lake City), and Hospital of the Good
Samaritan (Los Angeles). None of the foregoing customers individually accounts
for a material portion of the Company's revenues. The Company's comprehensive
delivery and retrieval service enables its customers to outsource a costly and
burdensome function to SRI.

The Company believes that its reusable surgical product delivery and
retrieval service is a superior and competitively priced alternative to
disposable surgical products or to operating an in-house reusable program for
surgical products. The Company's delivery service offers savings to hospitals by
reducing the costs associated with: (i) the disposal of biohazardous wastes,
(ii) carrying an inventory of disposable surgical products, and (iii) in-house
processing of reusable surgical products. In addition to these cost savings, the
Company's liquidproof and liquid resistant gowns offer surgeons and surgical
staff enhanced protection against transmission of blood-borne pathogens,
including the HIV and hepatitis viruses. The Company believes that a service
that provides daily delivery of substantially better quality surgical products
without any capital investment, thereby reducing employee and space needs,
should become an attractive managed care option for hospitals.

Several developments have created a market opportunity for the kind of cost
competitive reusable surgical product delivery and retrieval services SRI
offers. These factors include: increasing pressure on hospitals to contain costs
and increase productivity; heightened concern regarding the transmission of
infectious diseases; concern regarding the handling and disposal of biohazardous
waste; and increased outsourcing of hospital functions that do not involve
patient care.

SRI purchased the assets of its business from AMSCO Sterile Recoveries,
Inc., an indirect wholly-owned subsidiary of AMSCO International, Inc., on July
31, 1994 (the "Acquisition"). Since the Acquisition, SRI has reduced its
variable cost by more efficiently servicing increased revenue levels with
reduced labor hours. From December 31, 1994 to March 31, 1996, SRI retained in
excess of 85% of its customers.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,000,000 shares(1)
Common Stock to be outstanding after
the Offering............................... 5,367,089 shares(2)
Use of Proceeds.............................. For repayment of debt, capital expenditures,
working capital, and general corporate
purposes.
See "Use of Proceeds."
Nasdaq National Market symbol................ STRC
</TABLE>

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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FIVE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------ ------------- ------------------------------
1994(3) 1995(3) 1995 1996
------------ ------------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. 9,285 25,320 5,817 7,330
Cost of revenues...................... 6,550 17,659 4,181 5,024
------------ ------------- ------------ ---------------
Gross profit........................ 2,735 7,661 1,636 2,306
Distribution expenses................. 1,032 2,801 694 722
Selling and administrative expenses... 2,162 3,975 1,014 1,067
------------ ------------- ------------ ---------------
Income (loss) from operations....... (459) 885 (72) 517
Interest expense...................... 735 1,489 379 347
------------ ------------- ------------ ---------------
Net income (loss)................... $ (1,194) $ (604) $ (451) $ 170
============ ============ ============ ==============
Pro forma net income (loss)(4)........ $ (1,194) $ (604) $ (451) $ 170
============ ============ ============ ==============
Pro forma net income (loss) per common
share(4)(5)......................... $ (0.34) $ (0.17) $ (0.13) $ 0.05
============ ============ ============ ==============
Weighted average common shares
outstanding......................... 3,513 3,513 3,513 3,513
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
ACTUAL AS ADJUSTED(6)
------------ ---------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Reusable surgical products............ $ 5,413 $ 5,413
Total assets.......................... 15,635 21,599
Total indebtedness.................... 11,790 1,134
Shareholders' equity.................. 1,211 17,833
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1995 1996
--------- ------------ ------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
QUARTERLY STATEMENT OF OPERATIONS DATA:
Revenues.............................. 5,817 6,063 6,527 6,913 7,330
Cost of revenues...................... 4,181 4,222 4,464 4,792 5,024
--------- ------------ ------------- ------------ -------
Gross profit........................ 1,636 1,841 2,063 2,121 2,306
Distribution expenses................. 694 691 690 726 722
Selling and administrative expenses... 1,014 1,011 962 988 1,067
--------- ------------ ------------- ------------ -------
Income (loss) from operations....... (72) 139 411 407 517
Interest expense...................... 379 374 371 365 347
--------- ------------ ------------- ------------ -------
Net income (loss)................... $ (451) $ (235) $ 40 $ 42 $ 170
--------- ------------ ------------- ------------ -------
Pro forma net income(loss)(4)......... $ (451) $ (235) $ 40 $ 42 $ 170
========= ============ ============ ============ ==============
Pro forma net income (loss) per common
share(4)(5)......................... $ (0.13) $(0.07) $ 0.01 $ 0.01 $ 0.05
========= ============ ============ ============ ==============
Weighted average common shares
outstanding......................... 3,513 3,513 3,513 3,513 3,513
OTHER DATA:
Average daily revenue(7).............. 91 95 104 110 115
</TABLE>

4
<PAGE> 5

- ---------------

(1) The Company has granted to the Underwriters a 30-day option to purchase up
to 150,000 additional shares of Common Stock and shareholders Richard T.
Isel, Wayne R. Peterson, and James T. Boosales have granted to the
Underwriters a 30-day option to purchase an aggregate of up to 150,000
additional shares of Common Stock. The Company will not receive any
proceeds from the sale of any shares by these shareholders.

(2) Excludes 180,000 shares of Common Stock issuable upon exercise of
outstanding stock options, 219,500 shares of Common Stock issuable on
exercise of options to be granted immediately on the completion of the
offering, and 128,205 shares of Common Stock issuable on partial conversion
of a Convertible Demand Promissory Note dated March 1, 1996, of the Company
(which is not redeemable).

(3) The Company operates on a 52-53 week fiscal year ending the Sunday nearest
December 31.

(4) As an S Corporation for federal income tax purposes, the Company has not
been subject to corporate income tax. On a pro forma basis, assuming the
Company had been subject to corporate income tax for all periods presented,
the Company would not have recognized any corporate income tax in the
relevant periods. See Notes B and K of Notes to Financial Statements.

(5) Supplemental pro forma net income per common share for the year ended
December 31, 1995 and the three months ended March 31, 1996, giving effect
to the payment of debt from a portion of the offering's proceeds and the
increased number of shares, is $0.18 and $0.11 per common share (assuming
4,508,000 and 4,412,000 weighted average common shares outstanding). See
"Use of Proceeds."

(6) Adjusted to reflect the sale of 2,000,000 shares of Common Stock being
offered by the Company hereby and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

(7) Average daily revenue is calculated by dividing revenues for the period by
the number of days the facilities made deliveries to customers during the
period, which is generally 254 days per year and 63 or 64 days for a
quarter. The Company does not deliver on holidays or weekends.

Unless otherwise stated, the information in this Prospectus does not give
effect to the exercise of the Underwriters' over-allotment option. Except if the
context otherwise requires, the terms "SRI" and the "Company" as used in this
Prospectus refer to Sterile Recoveries, Inc., a Florida corporation. GORE(R) is
a registered trademark of W.L. Gore & Associates, Inc.

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<PAGE> 6

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, as well as the other information set forth in this Prospectus.

LIMITED OPERATING HISTORY AND HISTORICAL LOSSES

The Company's predecessor, AMSCO Sterile Recoveries, Inc. ("Amsco
Sterile"), began operations in 1991 and was acquired by SRI on July 31, 1994.
Accordingly, the Company's business has only a short operating history. SRI's
predecessor funded operating losses of approximately $30 million (excluding
depreciation, amortization and interest) in starting and initially operating the
business. Additionally, for the five months ended December 31, 1994, and the
fiscal year ended December 31, 1995, the Company had net losses of approximately
$1.2 million and $600,000, respectively. There is no assurance that the Company
will operate profitably in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

SALES PROCESS AND MARKET ACCEPTANCE OF PRODUCTS AND SERVICES

The Company's future performance depends on its ability to sell its
products and services to new and existing customers. The Company's sales process
for new customers is typically between six and twelve months in duration from
initial contact to purchase commitment. The extended sales process is typically
due to the complicated approval process within hospitals for purchases from new
suppliers, the long duration of existing supply contracts, and implementation
delays pending termination of a hospital's previous supply relationships. The
long sales process inhibits the ability of the Company to quickly increase sales
to new and existing customers or enter new markets.

SRI's future performance will also depend on market acceptance of its
combination of reusable surgical products and direct delivery and retrieval
service. SRI's market is now dominated by disposable products, and the Company's
strategic emphasis on reusable surgical products and reprocessing services
requires its customers to change their customary purchasing patterns. There is
no assurance that a significant portion of the market will shift from disposable
products to the Company's reusable surgical products and reprocessing services.
The Company's inability to gain wider market acceptance of its reusable products
and reprocessing services would have a material adverse effect on the Company's
operating and expansion plans. See "Business -- The Market."

NEED FOR CAPITAL

The Company's business is capital intensive and will require substantial
capital expenditures for additional surgical products and equipment during the
next several years to achieve its operating and expansion plans. To adequately
service a new customer, SRI makes an investment in new reusable surgical
products and carts equal to approximately 50% of the projected first year
revenue from the customer. SRI estimates that its capital expenditures for new
carts and reusable surgical products will be approximately $275,000 per month in
the twelve months following the offering, although the amount will fluctuate
depending on the growth rate of SRI's business. The Company also expects to make
additional expenditures of approximately $300,000 in each of its five largest
facilities to increase the aggregate capacity of those facilities. In the longer
term, the Company expects that its needs for capital expenditures will be
substantial and will depend on its growth and opportunities. The Company's
inability to obtain adequate capital could have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview" and "Liquidity and Capital Resources."

DEPENDENCE ON A SIGNIFICANT CUSTOMER AND MARKET CONSOLIDATION

During 1995 and the first quarter of 1996, Columbia/HCA Healthcare
Corporation ("Columbia") hospitals with which the Company currently does
business accounted for approximately 12% and 15% of SRI's sales, respectively.
Although each Columbia hospital currently makes its purchasing decisions on an
individual

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basis, and no single hospital accounted for more than 3% of the Company's sales,
the Company believes that the executive management of Columbia has the ability
to influence the selection of particular vendors. The loss of a substantial
portion of the Columbia hospitals' business would have a material adverse effect
on the Company. Additionally, hospitals are increasingly buying products and
services in groups to improve efficiency and lower costs. Although SRI is
increasingly targeting these groups for its sales efforts, a change of its
customers' purchasing patterns to group purchasing could have a material adverse
effect on the Company. See "Business -- Customers."

DEPENDENCE ON A KEY SUPPLIER

A significant percentage of the Company's business is dependent upon its
ability to obtain the GORE Surgical Barrier Fabric from W.L. Gore & Associates,
Inc. This material is a key component of SRI's liquidproof surgical gowns, which
accounted for approximately 17% of its revenues in fiscal year 1995. The Company
does not have a long-term commitment from W.L. Gore & Associates, Inc. for the
supply of this fabric and is currently unaware of any equivalent substitute for
the GORE product. Sustained loss of this supply relationship would have a
material adverse effect on the Company. See "Business -- Products."

DEPENDENCE ON KEY EXECUTIVES

The Company is largely dependent upon the management expertise and
experience of Richard T. Isel, Wayne R. Peterson, James T. Boosales, and Bertram
T. Martin, Jr., its principal officers. Mr. Isel underwent heart bypass surgery
in March 1996, and although he has returned to work on a full-time basis, there
is no assurance that his condition will permit him to provide the same level of
service to the Company that he provided before his surgery. The loss of the
services of one or more of these key employees could have a material adverse
effect on the Company. The Company has purchased $1.0 million key man life
insurance policies on the lives of each of Messrs. Isel, Peterson, Boosales, and
Martin. There is no assurance that this insurance will be maintained or
available in the future or that the amount of insurance would adequately
compensate the Company for the loss of services of any of these executives. See
"Management."

COMPETITION

The Company's business is highly competitive. The Company's competitors
include a large number of distributors and manufacturers, as well as the
in-house reprocessing operations of hospitals. Certain of the Company's existing
and potential competitors possess substantially greater resources than the
Company, and the Company's market is dominated by their disposable products.
Some of the Company's competitors, including Baxter International Inc., serve as
the sole supplier of a wide assortment of products to a significant number of
hospitals. The Company does not provide an array of products as complete as
those provided by some of its competitors, which in some instances is a
competitive disadvantage. There is no assurance that the Company will be able to
compete effectively with existing or potential competitors. See "Business --
Competition."

PROTECTION OF OPERATING KNOWLEDGE

The Company's success will depend in part on its ability to protect the
operating knowledge associated with operation of its closed-loop system. The
Company relies on a combination of trade secret law, proprietary know-how,
non-disclosure and other contractual provisions to protect its knowledge
associated with operation of the closed-loop system. The Company does not hold
any patents. Failure to adequately protect its operating knowledge could have a
material adverse effect on the Company.

INCREASING REPLACEMENT AND AMORTIZATION COSTS

SRI acquired its equipment and surgical products at a cost that is
substantially below both their original cost and current replacement cost, which
has resulted in lower depreciation, amortization, and shrinkage expense for
those assets since the Acquisition, as compared to the expenses incurred by
Amsco Sterile. Since the Acquisition, SRI has purchased equipment and surgical
products at current replacement cost, resulting in

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<PAGE> 8

increased depreciation, amortization, and shrinkage expense. SRI amortizes its
reusable surgical products on a per use basis. If the products' actual number of
uses proves to be shorter than SRI's current estimates, SRI's annual product
amortization expense would increase, which would adversely affect its
profitability. The amount of shrinkage (loss and scrap of reusable surgical
products) experienced by the Company is influenced by a variety of factors
including the customers' surgical product rotation and operating room control
procedures, the Company's internal tracking of reusable surgical products
through bar coding and the Company's increased use of standardized surgical
packs. Since the Acquisition, because the replacement cost of reusable surgical
products is substantially higher than the cost of the surgical products acquired
from Amsco Sterile, the amount of shrinkage may increase, which could adversely
affect the profitability of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and Note
B of Notes to Financial Statements.

GOVERNMENT REGULATION

Substantially all of the Company's products and services are subject to
extensive government regulation in the United States by federal, state and local
governmental agencies, including the Food and Drug Administration (the "FDA"),
the Department of Transportation ("DOT"), and the Occupational Safety and Health
Administration ("OSHA"). The process of obtaining and maintaining FDA and other
required regulatory approvals is lengthy, expensive, and uncertain, and
regulatory agencies can delay or prevent product introductions or license
renewals. The Company's products are subject to regulation by the FDA as medical
devices. Required notifications under Section 510(k) of regulations issued under
the Federal, Food, Drug and Cosmetics Act ("FDA Act") have been filed and
approved by the FDA, allowing the Company to market its existing products. In
addition, the Company's facilities are subject to FDA and state agency
inspections and its products must be manufactured in compliance with "Good
Manufacturing Practices" specified in regulations under the FDA Act and similar
state laws. Failure to comply with applicable regulatory requirements can result
in fines, civil and criminal penalties, stop sale orders, loss or denial of
approvals and recalls or seizures of products. Changes in existing regulations,
changes in interpretations of existing regulations, or the adoption of new
regulations could have a material adverse effect on the Company. See
"Business -- Regulation."

HEALTH CARE REFORM

Numerous proposals have been debated in Congress and in several state
legislatures regarding health care legislation intended to control the cost and
availability of health care services. It is not possible to determine what
health care reform legislation will be adopted by Congress or any state
legislature, or if and when any such legislation will be adopted and implemented
by regulations. In that event, there can be no assurance that the Company will
be able to adjust effectively to any regulatory changes made by future health
care reform legislation and remain profitable. The Company is unable to predict
accurately the nature and effect, if any, that the adoption of health care
legislation or regulations or changing interpretations at the federal or state
level would have upon the Company. See "Business -- Regulation."

PRODUCT LIABILITY AND INSURANCE COVERAGE

The use of the Company's products entails a risk of liability from injuries
suffered by patients, hospital staff, and the Company's employees. The Company's
products are used in connection with surgery, which exposes all of the above
persons to risks of transmission of blood-borne pathogens, including the HIV and
hepatitis viruses. Although no claims have been asserted to date, product
liability or other claims might be asserted against the Company by persons who
allege that the use of the Company's products resulted in injury or other
adverse effects, and the claims might involve large amounts of alleged damages
and significant defense costs. Although the Company currently maintains product
liability and workers compensation insurance, the liability limits or the scope
of the Company's insurance policies might be inadequate to protect against
potential claims. In addition, the Company's insurance policies must be renewed
annually. The Company has been able to obtain product liability insurance in the
past; however this insurance varies in cost, might be difficult to obtain, and
might not be available on commercially reasonable terms in the future. A
successful claim against the Company in excess of its available insurance
coverage could have a material

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<PAGE> 9

adverse effect on the Company. In addition, the Company's business reputation
could be adversely affected by product liability claims, regardless of their
merit or eventual outcome.

VOTING CONTROL BY MANAGEMENT AND ANTI-TAKEOVER PROVISIONS

Upon the conclusion of the offering, directors and executive officers of
the Company, as a group, will beneficially own approximately 61.5% of the
Company's outstanding Common Stock (approximately 57.3% if the Underwriters'
over-allotment option is exercised in full). As a result, these shareholders
will have sufficient voting power to control the outcome of shareholder votes,
including votes concerning the election of directors, the adoption or amendment
of provisions in the Company's Articles of Incorporation or Bylaws, and the
approval of any sale or merger of the Company and other significant corporate
transactions. This could have the effect of delaying, deferring or preventing a
change of control of the Company, including transactions in which holders of the
Common Stock might otherwise receive a premium for their shares over
then-current market prices.

Purchasers in the offering will become minority shareholders of the Company
and will be unable to control the management or business policies of the
Company. Moreover, subject to general fiduciary obligations, the Company is not
prohibited from engaging in transactions with management and principal
shareholders, or with entities in which such persons are interested.

Florida law and the Company's Bylaws and Articles of Incorporation contain
provisions that might have the effect of inhibiting a non-negotiated merger or
other business combination, including a classified board of directors and
special voting requirements. These provisions are intended to encourage a person
interested in acquiring the Company to negotiate with, and obtain the approval
of, the Board of Directors in connection with the transaction. However, certain
of these provisions might discourage a future acquisition of the Company,
including an acquisition in which shareholders otherwise might receive a premium
for their shares. Further, certain provisions of the Company's employment
agreements and employee benefit plans might also render any such business
combination more costly and therefore less probable, by triggering provisions
for accelerated vesting of stock options and payment of severance compensation
following any involuntary or constructive employment termination. In addition,
the Board of Directors has the authority to issue shares of Preferred Stock and
fix its rights and preferences, which could have the effect of delaying or
preventing a change of control. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have outstanding
5,367,089 shares of Common Stock (5,517,089 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, 2,000,000 shares
sold in the offering (2,300,000 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable by persons other than
affiliates of the Company, without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
3,367,089 shares of Common Stock (3,217,089 shares if the Underwriters'
over-allotment option is exercised in full) will be "restricted" securities
within the meaning of Rule 144 under the Securities Act, and cannot be sold
unless an exemption from registration is available, including the exemption
contained in Rule 144. Beginning 90 days after the date of this Prospectus,
approximately 3,100,000 shares will be eligible for public sale subject to the
volume and other limitations of Rule 144. However, the holders of all of those
shares have agreed not to sell or otherwise dispose of their shares for a period
ending 180 days after the date of this Prospectus without the prior written
consent of the Representatives of the Underwriters. The sale of a substantial
number of shares of Common Stock could adversely affect the market price of the
Common Stock. See "Management" and "Shares Eligible for Future Sale."

NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF SHARE PRICE

Prior to the offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or continue after the offering, or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering

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<PAGE> 10

price was determined by negotiation between the Company and the Underwriters
based on several factors and might not be indicative of the market price for the
Common Stock after the offering. See "Underwriting."

The Company believes that various factors, such as general economic
conditions and changes or volatility in financial markets, changing conditions
in the health care industry or health care reform, and quarterly or annual
variations in the Company's financial results, some of which are unrelated to
the Company's performance, could cause the market price of the Company's Common
Stock to fluctuate substantially.

BENEFITS TO BE RECEIVED BY AFFILIATES OF THE COMPANY AS A RESULT OF THE OFFERING

The founding investors in the Company (Messrs. Isel, Peterson, Boosales,
and Kemberling) acquired 1,042,329, 960,000, 900,000 and 225,807 shares of
Common Stock, respectively, at prices of $.01, $.01, $1.11, and $4.43,
respectively. The unrealized gain of Messrs. Isel, Peterson, Boosales, and
Kemberling as a result of the offering will be $9,896,126, $9,114,000,
$7,550,000, and $1,145,167, respectively. If an active trading market develops
for the Common Stock following the offering, these persons will be able to sell
their securities, after the expiration of certain "lock-up" periods to which
they are subject and subject to the restrictions applicable under the Securities
Act. See "-- Shares Eligible for Future Sale," "The Company -- The Acquisition"
and "Principal Shareholders."

DILUTION

Purchasers in the offering will incur immediate dilution in the tangible
book value of the Common Stock of $6.28 per share. Additional dilution is likely
to occur on the exercise of options and conversion of the Convertible Note. See
"Dilution" and "Certain Transactions."

10
<PAGE> 11

THE COMPANY

SRI provides hospitals and surgery centers with a comprehensive surgical
procedure-based delivery and retrieval service for reusable gowns, towels,
drapes, and basins and provides other disposable products necessary for surgery.
At seven regional facilities, SRI collects, sorts, cleans, inspects, packages,
sterilizes, and delivers its reusable products on a just-in-time basis. SRI
offers an integrated "closed-loop" reprocessing service that uses two of the
most technologically advanced reusable textiles: (i) a GORE Surgical Barrier
Fabric for gowns and drapes that is breathable yet liquidproof and provides a
viral/bacterial barrier and (ii) an advanced microfiber polyester surgical
fabric for gowns and drapes that is liquid and bacterial resistant. The Company
believes that its reusable surgical products made from these fabrics provide
protection and comfort that are superior to disposable alternatives.

ORIGIN OF THE BUSINESS -- AMSCO'S INVESTMENT

In 1991, Richard T. Isel, SRI's co-founder and Chief Executive Officer,
became aware of new surgical fabrics that led to the formation of Sterile
Recoveries, Inc. Mr. Isel, who previously founded Sterile Design, Inc. in 1979
to develop and market sterile disposable custom procedure trays, believed that
SRI could improve on custom procedure trays by responding to the needs of
hospitals and surgery centers to reduce costs, curtail biohazardous waste, and
improve the protection and comfort of surgeons and surgical staff during
surgery. To fund the significant capital requirements for fabric, equipment, and
infrastructure required for the new concept, Mr. Isel and Wayne R. Peterson
negotiated for AMSCO, a manufacturer and distributor of heavy sterilizer
equipment to acquire Sterile Recoveries, Inc. and Mr. Isel and Mr. Peterson
became the principal executive officers of this corporation. The new company
became AMSCO Sterile Recoveries, Inc., a wholly-owned subsidiary of AMSCO's
subsidiary, American Sterilizer Company.

Amsco Sterile designed and built nine state-of-the-art processing
facilities in 1992 and 1993. During these two years, Amsco Sterile developed and
subsequently refined the washing and sterilizing system that serves as the
foundation for the Company's current closed-loop system. Amsco Sterile spent
considerable resources to create a reprocessing system that would meet the
significant logistical challenges of efficiently collecting, sorting, cleaning,
inspecting, packaging, sterilizing, and delivering an assortment of surgical
products to a dispersed customer base on a just-in-time basis. The primary
challenge was to effectively clean and sterilize soiled gowns and other sewn
goods while preserving the products' liquid resistance and breathability over
their maximum potential useful lives. Amsco Sterile incurred a substantial
amount of debt, costs, and losses in starting up, equipping, and developing the
business from its inception in 1991 through the Acquisition. SRI believes that
its predecessor's expenditures of time, money, and effort to develop the
reprocessing system have allowed SRI's current management to gain valuable
experience and represent significant barriers for potential competitors. See
"Management's Discussion and Analysis of Financial Statements -- Overview."

AMSCO Sterile incurred substantial losses that resulted in the sale of its
assets to SRI on July 31, 1994. Messrs. Isel and Peterson, who were the
principal officers of AMSCO Sterile during the period 1991-1994, and are
currently executive officers of the Company, believe that AMSCO made several
operational and

11
<PAGE> 12

strategic decisions that impaired the growth of AMSCO Sterile and contributed to
the magnitude of these losses. Foremost among these strategic mistakes in the
view of Messrs. Isel and Peterson, was the decision to incur the substantial
capital and operating costs associated with the construction of nine facilities
before establishing a sufficient customer base to generate a level of sales
adequate to operate the facilities profitability. Also significant was the delay
until August 1992 experienced by AMSCO Sterile in obtaining FDA pre-market
approval of its products, even though it had been incurring substantial expenses
since September 1991 related to its facilities.

Due to differences in management philosophy, AMSCO removed Mr. Isel as
President of Amsco Sterile in November 1993, and reassigned Mr. Peterson to a
planning role. Continued losses caused Amsco Sterile to close three facilities
in early 1994. In May 1994, AMSCO approached Mr. Isel about buying the business.

THE ACQUISITION

Mr. Isel and Mr. Peterson formed SRI and purchased substantially all the
assets of Amsco Sterile for $15.3 million, including $1.5 million of assets that
were sold to a third party. SRI believes that the asset purchase price was
affected by the historical losses described above suffered by Amsco Sterile in
operating the business. Concurrently, James T. Boosales invested in the Company
and joined the management team as an Executive Vice President and the principal
financial officer.

The uses and sources of funds in connection with the Acquisition were as
follows:

<TABLE>
<S> <C>
Uses:
Cash portion of purchase price............................................... $ 5,012,000
Deferred portion of purchase price........................................... 9,871,000
Direct acquisition costs..................................................... 152,000
Payment of assumed liabilities............................................... 265,000
-----------
Total..................................................................... $15,300,000
===========
Sources:
Cash equity from initial investors........................................... $ 1,012,000
Convertible Note from Lee R. Kemberling...................................... 1,000,000
Acquisition debt financing from Amsco Sterile................................ 9,871,000
Accounts receivable loan facility............................................ 1,887,000
-----------
Subtotal attributable to retained assets..................................... $13,770,000
Concurrent asset sale to third party......................................... 1,530,000
-----------
Total..................................................................... $15,300,000
===========
</TABLE>

As of July 10, 1996, Messrs. Isel, Peterson, Boosales, and Kemberling owned
3,128,136 shares of the Company's common stock. The aggregate unrealized gain as
a result of the offering for these shareholders would be as follows:

<TABLE>
<CAPTION>
TOTAL
COMMON TOTAL TOTAL
STOCK AMOUNT UNREALIZED
INVESTOR OWNED INVESTED GAIN
- -------------------------------------------------------- -------- --------- ----------
<S> <C> <C> <C>
Richard T. Isel(1)...................................... 1,042,329 $ 6,000 $ 9,896,126
James T. Boosales(1).................................... 900,000 1,000,000 7,550,000
Wayne R. Peterson(1).................................... 960,000 6,000 9,114,000
Lee R. Kemberling(2).................................... 225,807 1,000,000 1,145,167
--------- --------- -----------
3,128,136 $2,012,000 $27,705,293
========= ========== ===========
</TABLE>

12
<PAGE> 13

- ---------------

(1) Messrs. Isel, Boosales, and Peterson purchased their shares in connection
with the initial formation of the Company for effective cash prices per
share of $.01, $1.11, and $.01, respectively. Mr. Isel and Mr. Peterson also
personally guaranteed the accounts receivable loan facility.

(2) Mr. Kemberling received these shares in connection with his conversion of a
Convertible Note in the original principal amount of $1,000,000, which Mr.
Kemberling received for a loan in that amount that partially funded the
Acquisition. His effective price per share was $4.43. See "Certain
Transactions."

See "Principal Shareholders" and "Risk Factors -- Benefits to Be Received by
Affiliates of the Company as a Result of the Offering."

The assets retained by SRI included eight of the nine facilities developed
by Amsco Sterile (one owned, seven leased) and all of its surgical products
inventory and operating equipment relating to the retained facilities. SRI's
processing facilities are currently underutilized and provide the capacity to
support significant growth for SRI's new and existing customers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Since acquiring the business from Amsco Sterile, SRI has changed its
business strategy and operations to overcome the operating problems experienced
by Amsco Sterile. Using the substantial management expertise developed before
the Acquisition, SRI management has designed and implemented standard operating
procedures at each facility, decentralized its management by promoting or
recruiting facility general managers who are accountable for both sales and
profitability, and imposed increased financial discipline. As a result, the
Company has improved its operating efficiency, reduced service costs, and
standardized its delivery and reprocessing service. Since the Acquisition, SRI
has reduced its variable cost by more efficiently servicing greater sales levels
with reduced labor hours. From December 31, 1994 to March 31, 1996, the Company
has retained in excess of 85% of its customers and increased its average daily
revenues by approximately 32%.

RECENT DEVELOPMENTS

On February 26, 1996, the Company acquired Surgipro, Inc., an Orlando-based
provider of disposable surgical products. This acquisition has enhanced SRI's
ability to offer flexible, tailored solutions to its customers' surgical supply
needs by supplementing its reusable surgical product delivery and retrieval
service with disposable accessory packs, which contain disposable items such as
needles, sutures, syringes, and tubing for surgical procedures.

To further strengthen the management team, Bertram T. Martin, Jr., a
director and a shareholder of the Company, will become Executive Vice President
and Chief Operating Officer on the consummation of the offering. Prior to
joining SRI, Mr. Martin assisted in formulating the initial business plan in
1991 and has served as a financial consultant to the Company.

The Company's executive offices are located at 28100 U.S. Highway 19 North,
Suite 201, Clearwater, Florida 34621, and its telephone number is (813)
726-4421.

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds from the sale of 2,000,000 shares of Common Stock offered
by the Company after deducting the underwriting discounts and commissions and
offering expenses payable by the Company, are estimated to be approximately
$16.6 million ($19.3 million if the Underwriters' over-allotment option is
exercised in full).

The Company intends to use approximately $11.1 million of the net proceeds
to repay indebtedness, including approximately $8.4 million of debt owed to
Amsco Sterile and $2.7 million of debt owed to a lender, Metro Factors, Inc. The
Amsco Sterile debt was incurred to finance the Acquisition, matures in August
1997, and accrues interest at a variable rate equal to the prime rate plus 1.5%.
The remaining debt matures in January 1997 and accrues interest at a base
lending rate plus 2.0%. The balance of the net proceeds will be used for working
capital and general corporate purposes including the purchase of more reusable
surgical products and equipment to expand SRI's existing operations. During the
next 12 months, the Company estimates that it will require $275,000 per month
for new carts and reusable surgical products and expects that it will also make
expenditures of approximately $300,000 for additional equipment in each of its
five largest facilities to increase their capacity. In the longer term, the
Company expects that its needs for capital expenditures will be substantial and
will depend on its growth and opportunities. Although it does not have any
current plans, the Company might use part of the proceeds to acquire businesses,
technologies, or products complementary to the Company's business or to develop
additional facilities in new locations. Pending application, the proceeds will
be invested in short-term, investment grade securities or money market
instruments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock.
The Company currently expects that all of its earnings will be retained for
development and expansion of its business and does not anticipate paying
dividends on its Common Stock in the foreseeable future. Any payment of
dividends in the future will be at the sole discretion of the Company's Board of
Directors and will depend on, among other things, future earnings, contractual
restrictions, capital requirements, the general financial condition of the
Company, and general business conditions. Additionally, financial covenants in
the Company's credit facility prohibit the payment of cash dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

14
<PAGE> 15

DILUTION

The net tangible book value of the Company as of March 31, 1996, was
$674,459, or $.20 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's tangible net worth (total tangible assets
less total liabilities), divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of 2,000,000 shares of Common Stock
by the Company in the offering and the application of the net proceeds therefrom
(after deduction of estimated offering expenses to be paid by the Company), the
pro forma net tangible book value of the Company as of March 31, 1996, would
have been approximately $17.3 million or $3.22 per share of Common Stock. This
represents an immediate increase in pro forma net tangible book value of $3.02
per share to current shareholders and an immediate dilution of $6.28 per share
to purchasers of shares in the offering. The following table illustrates the per
share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share...................................... $9.50
Net tangible book value per share before offering.......................... $0.20
Increase per share attributable to new investors........................... 3.02
-----
Pro forma net tangible book value per share after the offering............... 3.22
-----
Dilution to new investors.................................................... $6.28
=====
</TABLE>

The following table sets forth the number of shares purchased from the
Company, the total consideration paid, and the average price per share paid by
the Company's existing shareholders and to be paid by new investors in the
offering and before deduction of estimated underwriting discounts and
commissions:

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. 3,367,089 62.7% $ 2,838,500 13.0% $0.84
New investors......................... 2,000,000 37.3 19,000,000 87.0 9.50
--------- ------- ----------- -------
Total....................... 5,367,089 100.0% $21,838,500 100.0%
======== ===== ========== =====
</TABLE>

- ---------------
(1) Excludes 180,000 shares of Common Stock issuable on the exercise of
outstanding stock options, an aggregate of 219,500 shares of Common Stock
issuable on the exercise of stock options to be granted upon the completion
of the offering, and 128,205 shares of Common Stock issuable on partial
conversion of the Convertible Note. See "Management -- Stock Option Plans;"
and "Certain Transactions." Exercise of outstanding stock options and
conversion of the Convertible Note will result in further dilution to
investors in the offering.

15
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
March 31, 1996, and (ii) as adjusted to reflect the application of the net
proceeds from the issuance and sale by the Company of 2,000,000 shares of Common
Stock in the offering. See "Use of Proceeds."

<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable -- working capital loan facility....................... $ 1,975 $ --
Notes payable -- related parties..................................... 1,134 1,134
Acquisition debt..................................................... 8,681 --
Shareholders' equity
Preferred Stock, $0.001 par value, 5,000,000 shares authorized; no
shares issued and outstanding................................... -- --
Common Stock, $0.001 par value, 30,000,000 shares authorized;
3,367,089 shares issued and outstanding; 5,367,089 shares as
adjusted(1)..................................................... 3 5
Additional paid-in capital......................................... 2,835 19,455
Accumulated deficit................................................ (1,627) (1,627)
------- -----------
Total shareholders' equity...................................... 1,211 17,833
------- -----------
Total capitalization.......................................... $13,001 $18,967
======= =========
</TABLE>

- ---------------

(1) Excludes 180,000 shares of Common Stock issuable upon the exercise of
outstanding stock options, an aggregate of 219,500 shares of Common Stock
issuable upon the exercise of stock options to be granted upon the
completion of the offering, and 128,205 shares of Common Stock issuable on
partial conversion of the Convertible Note.

16
<PAGE> 17

SELECTED FINANCIAL DATA

The following table contains certain selected financial data and is
qualified by the more detailed Financial Statements and Notes thereto included
elsewhere in this Prospectus. The selected financial data for the five months
ended December 31, 1994, and the fiscal year ended December 31, 1995, have been
derived from the Company's audited financial statements. The selected financial
data (statement of income data only) set forth below for the fiscal year ended
December 31, 1993, and the seven months ended July 31, 1994, have been derived
from audited financial statements of Amsco Sterile (the predecessor company).
The selected financial data set forth below for the three months ended March 31,
1995 and 1996 have been derived from the unaudited financial statements of the
Company, which include all adjustments that the Company considers necessary for
a fair presentation of the results of operation for the periods presented.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the full year ended December
31, 1996. The selected financial data for the years ended December 31, 1991 and
1992 and Balance Sheet Data as of December 31, 1993 and July 31, 1994 have been
derived from the unaudited statements of operations and balance sheets of Amsco
Sterile exclusive of notes thereto, which include all adjustments that Amsco
Sterile considers necessary for a fair presentation of its results of operation
and financial position for the periods presented. The following information
should be read in conjunction with the Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.

PREDECESSOR COMPANY(1) STERILE RECOVERIES, INC.(1)
------------------------------------------ -------------------------------------------------
SEVEN MONTHS FIVE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED ENDED
YEARS ENDED DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, MARCH 31,
--------------------------- ------------ ----------- ------------ -------------------
1991 1992 1993 1994 1994 1995 1995 1996
------ ------- -------- ------------ ----------- ------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... -- 1,132 7,988 12,069 9,285 25,320 5,817 7,330
Cost of revenues............... -- 684 15,090 14,091 6,550 17,659 4,181 5,024
------ ------- -------- ------------ ----------- ------------ ------- -------
Gross profit (loss).......... -- 448 (7,102) (2,022) 2,735 7,661 1,636 2,306
Distribution expenses.......... -- -- 981 1,309 1,032 2,801 694 722
Selling and administrative
expenses..................... 578 7,638 12,132 7,375 2,162 3,975 1,014 1,067
Restructuring expenses......... -- -- 1,550 -- -- -- -- --
------ ------- -------- ------------ ----------- ------------ ------- -------
Income (loss) from
operations................. -- (7,190) (21,765) (10,706) (459) 885 (72) 517
Interest expense............... -- 1,536 5,727 4,791 735 1,489 379 347
------ ------- -------- ------------ ----------- ------------ ------- -------
(578) (8,726) (27,492) (15,497) (1,194) (604) (451) 170
Income tax expense............. -- -- -- -- -- -- -- --
------ ------- -------- ------------ ----------- ------------ ------- -------
Net income (loss)............ $ (578) $(8,726) $(27,492) $(15,497) $(1,194) $ (604) $ (451) $ 170
====== ======= ======== =========== ========== ========== ======= =======
Pro forma net income
(loss)(2).................... $(1,194) $ (604) $ (451) $ 170
========== ========== ======= =======
Pro forma net income (loss)
per common share(2)(3)....... $ (0.34) $ (0.17) $ (0.13) $ 0.05
========== ========== ======= =======
Weighted average common shares
outstanding.................. 3,513 3,513 3,513 3,513
BALANCE SHEET DATA:
Reusable surgical products..... $ -- $18,344 $ 31,226 $ 32,836 $ 4,867 $ 4,924 $ 4,722 $ 5,413
Total assets................... 1,997 43,999 63,871 67,651 13,388 13,493 12,913 15,635
Total indebtedness............. 2,021 49,156 96,088 115,841 11,942 10,891 11,925 11,790
Shareholders' equity
(deficit).................... 1,422 (7,304) (34,796) (50,293) (182) 214 (634) 1,211
</TABLE>

- ---------------
(1) The table covers periods before and after the Company acquired its business
from Amsco Sterile on July 31, 1994. The Company's operating results for the
periods after the Acquisition are not comparable to the operating results
before the Acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

(2) As an S Corporation for federal income tax purposes, the Company has not
been subject to income tax. On a pro forma basis, assuming the Company had
been subject to income tax for all periods presented, the Company would not
have recognized any corporate income tax in the relevant periods. See Notes
B and K of Notes to Financial Statements.

(3) Supplemental pro forma net income per common share for the year ended
December 31, 1995 and the three months ended March 31, 1996, giving effect
to the payment of debt from a portion of the offering's proceeds and the
increased number of shares, is $0.18 and $0.11 per common share (assuming
4,508,000 and 4,412,000 weighted average common shares outstanding). See
"Use of Proceeds."

17
<PAGE> 18

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

The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and the Notes thereto included elsewhere in
this Prospectus.

OVERVIEW

This discussion and analysis covers periods before and after the Company
acquired its business from Amsco Sterile on July 31, 1994. The Company's
operating results for the periods after the Acquisition are not comparable to
the operating results for the periods before the Acquisition for several
reasons. Amsco Sterile incurred a significant amount of debt, costs, and losses
in starting up, equipping, and developing the business from its inception in
1991 through the Acquisition. SRI purchased eight of the nine facilities and all
of Amsco Sterile's depreciated equipment and surgical products inventory for
approximately 17% of their net book value. Consequently, SRI has one fewer
facility, less debt, and considerably lower depreciation and amortization
expense than Amsco Sterile. In addition, the Company has significantly changed
the business operations since the Acquisition. See "The Company" and Note C of
Notes to Financial Statements.

The Company's revenues are derived from providing hospitals and surgery
centers with reusable gowns, towels, drapes, and basins for use in surgical
procedures through a "closed-loop" delivery and retrieval service and also from
the sale of disposable surgical products that supplement its reusable surgical
product service. The Company's revenue growth is primarily affected by the
number of customers, the number and type of surgical procedures that it services
for each customer, and the pricing by type of surgical pack.

The Company believes that its facilities currently operate at approximately
50% of their estimated aggregate annual revenue capacity of approximately $60
million at current prices. Estimated annual revenue capacity is based on the
Company's estimate of revenues that would be derived from the full utilization
of the facilities at current prices and without addition of equipment. SRI
believes that the aggregate revenue capacity can be further increased to
approximately $80 million (at current prices) with additional equipment
expenditures of approximately $300,000 to add a washer and a sterilizer in each
of its five largest facilities. The revenue capacity determination is based on
an assumed work week of five 16 hour days and data regarding the product
processing capability of each facility, both with and without the additional
processing line. The addition of a washer and a sterilizer in each facility will
increase the capacity of those functions by 50%. Each facility currently has two
washers and two sterilizers with the exception of Houston, which has three
sterilizers. Variations in maximum sale potential by facility result from
differences in product mix and pricing for each facility. The Company's ability
to use this excess revenue capacity will depend on its success in substantially
increasing its volume of business. A primary strategy of the Company is to
increase its operating leverage by expanding revenues within existing markets.
See "Business -- Strategy."

During 1996, the Company has substantially increased its expenditures for
reusable surgical products, primarily to support anticipated increases in
business. To adequately service a new customer, SRI estimates that it makes an
investment in new reusable surgical products and carts equal to approximately
50% of the projected first year revenue from the customer. Until the beginning
of 1996, SRI minimized its new purchases of reusable surgical products by using
excess stocks of reusable surgical fabrics and products that were included in
the Acquisition at a relatively low cost. With excess stocks almost fully
utilized, SRI's capital expenditures for new carts and reusable surgical
products were $800,000 in the first quarter of 1996, compared to $800,000 for
all of fiscal year 1995. SRI estimates that its capital expenditures for new
carts and reusable surgical products will be approximately $275,000 per month
for the next 12 months, although the amount will fluctuate depending on the
growth rate of SRI's business. See "-- Liquidity and Capital Resources."

The Company amortizes its reusable surgical products on a per use basis,
based on estimates of the products' useful lives. SRI's purchase of used
reusable surgical products in the Acquisition at approximately

18
<PAGE> 19

17% of Amsco Sterile's net book value has resulted in lower amortization expense
since the Acquisition. The Company's purchases of new reusable surgical products
at current replacement cost will increase future amortization expense. However,
the Company's current replacement cost is substantially less than Amsco
Sterile's original cost due to significantly improved sourcing of fabrics. See
"Risk Factors -- Increasing Replacement and Amortization Costs" and Note B of
Notes to Financial Statements.

The Company regularly reviews the impact on its business of changes in such
government-sponsored programs as Medicare and Medicaid, especially those
resulting from a shift to managed care options. Based on its review of current
legislative proposals, the Company does not expect that reductions or changes in
government-sponsored programs will impact the Company's operations. See "Risk
Factors -- Health Care Reform."

The Company has been an S Corporation for state and federal income tax
purposes since its inception and accordingly, has not been subject to corporate
income taxes. On completion of the offering, the Company's S Corporation status
will terminate and the Company will become subject to corporate income taxes.
See Notes B and K of Notes to Financial Statements.

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual future results will depend on a variety of
factors and circumstances, including those discussed in "Risk Factors" at the
beginning of this Prospectus.

QUARTERLY RESULTS

The following table presents unaudited quarterly operating results for the
Company for 1995 and the first quarter of 1996. The data have been derived by
the Company from the Financial Statements included elsewhere in this Prospectus,
and include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation thereof. These operating
results are not necessarily indicative of the Company's future performance.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1995 1996
--------- -------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues........................... 5,817 6,063 6,527 6,913 7,330
Cost of revenues................... 4,181 4,222 4,464 4,792 5,024
--------- -------- ------------- ------------ ---------
Gross profit..................... 1,636 1,841 2,063 2,121 2,306
Distribution expenses.............. 694 691 690 726 722
Selling and administrative
expenses......................... 1,014 1,011 962 988 1,067
--------- -------- ------------- ------------ ---------
Income (loss) from
operations.................. (72) 139 411 407 517
Interest expense................... 379 374 371 365 347
--------- -------- ------------- ------------ ---------
Pro forma and historical net income
(loss)........................... $ (451) $ (235) $ 40 $ 42 $ 170
======= ====== ========== ========== =======
Pro forma net income (loss) per
share............................ $ (0.13) $(0.07) $ 0.01 $ 0.01 $ 0.05
======= ====== ========== ========== =======
</TABLE>

The Company experienced a trend of improving net income during the
foregoing time period primarily because of increased revenues from additional
customers and additional sales to existing customers. The Company also benefited
from improved gross margins resulting from labor efficiencies and leveraging
fixed costs over more revenues and improved efficiency in distribution and
selling and administrative expenses.

19
<PAGE> 20

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
revenues represented by certain items reflected in the statements of operations
of the Company and Amsco Sterile.

<TABLE>
<CAPTION>
STERILE RECOVERIES, INC.
PREDECESSOR COMPANY --------------------------------------------
--------------------------- THREE MONTHS
SEVEN MONTHS FIVE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED MARCH 31,
DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, --------------
1993 1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues................. 188.9 116.7 70.5 69.7 71.9 68.5
------------ ------------ ------------ ------------ ------ -----
Gross profit................ (88.9) (16.7) 29.5 30.3 28.1 31.5
Distribution expenses............ 12.3 10.9 11.1 11.1 11.9 9.9
Selling and administrative
expenses....................... 151.9 61.1 23.3 15.7 17.4 14.6
Restructuring expense............ 19.4 -- -- -- -- --
------------ ------------ ------------ ------------ ------ -----
Income (loss) from
operations................ (272.5) (88.7) (4.9) 3.5 (1.2) 7.0
Interest expense................. 71.7 39.7 7.9 5.9 6.5 4.7
------------ ------------ ------------ ------------ ------ -----
Pro forma and historical net
income (loss).................. (344.2) (128.4) (12.8) (2.4) (7.7) 2.3
</TABLE>

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995

Revenues. The Company's revenues increased $1.5 million, or 26.0%, to $7.3
million in the first quarter of 1996 from $5.8 million in the first quarter of
1995, primarily as a result of new customers and the addition of disposable
surgical products to supplement the Company's reusable surgical products service
in March 1995. New customers and the addition of disposable surgical products
accounted for $1.1 million and $413,000, respectively, of the revenue increase.
The Company's reusable surgical products delivery and retrieval service provided
94.1% of revenues in the first quarter of 1996 and 99.6% of revenues in the
first quarter of 1995. Substantially all the revenues from the sale of
disposable products in both periods was attributable to disposable products
purchased from a third party vendor and distributed to SRI customers under a
joint marketing agreement.

Gross Profit. Gross profit increased $671,000, or 41.0%, to $2.3 million
in the first quarter of 1996 from $1.6 million in the first quarter of 1995.
Gross margin increased to 31.5% in the first quarter of 1996 from 28.1% in the
first quarter of 1995. The improvement in gross margin is largely attributable
to labor efficiencies in the pack room and the economies of scale associated
with spreading fixed costs over more revenues. These favorable developments were
partially offset by increased costs for amortization of reusable surgical
products and the Company's relatively lower gross margin on its distribution of
the third party vendor's disposable products. The Company expects the gross
margin on disposable surgical products to increase if Surgipro revenues
increase. However, the sale of disposable products will reduce the Company's
overall gross margin when combined with the higher gross margin on reusable
surgical product services.

Distribution Expenses. Distribution expenses increased $29,000, or 4.1%,
to $722,000 in the first quarter of 1996 from $694,000 in the first quarter of
1995. As a percentage of revenues, distribution expenses decreased to 9.9% in
the first quarter of 1996 from 11.9% in the first quarter of 1995. The Company
incurs distribution expenses both in transporting its reusable surgical products
locally and between the facility and outlying metropolitan areas. The
improvement in distribution expenses as a percentage of revenues resulted
primarily from efficiencies derived from delivering more volume over existing
routes and the reopening of the Raleigh facility.

Selling and Administrative Expenses. Selling and administrative expenses
increased $53,000, or 5.2%, to $1.1 million in the first quarter of 1996 from
$1.0 million in the first quarter of 1995. As a percentage of revenues, selling
and administrative expenses decreased to 14.6% in the first quarter of 1996 from
17.4% in the first quarter of 1995 due to the leveraging of fixed administrative
expenses over additional revenues. Administrative expenses will increase after
the offering with the addition of another executive officer and the expense
associated with being a public company.

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<PAGE> 21

Interest Expense. Interest expense decreased by $32,000, or 8.5%, to
$347,000 for the first quarter of 1996 from $379,000 in the first quarter of
1995, primarily as the result of a lower variable interest rate on its working
capital loan, conversion of a $1.0 million convertible note into Common Stock in
September 1995, and a $1.2 million reduction in the principal balance of the
Amsco Sterile note. As a percentage of revenues, interest expense decreased to
4.7% in the first quarter of 1996 from 6.5% in the first quarter of 1995.

Net Income. As a result of the foregoing, SRI's net income increased to
$170,000 for the first quarter of 1996, from a net loss of $451,000 in the first
quarter of 1995. As a percentage of revenues, net income in the first quarter of
1996 was 2.3% of revenues compared to a net loss of 7.7% of revenues in the
first quarter of 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO FIVE MONTHS ENDED DECEMBER 31, 1994

Revenues. The Company's revenues increased to $25.3 million in 1995 from
$9.3 million in the last five months of 1994. The total revenue amounts are not
comparable because of the different lengths of the comparative periods.
Excluding the effect of period differences, revenues increased, primarily as a
result of additional customers, an increase in sales to existing customers and
the addition of disposable surgical products to supplement the Company's
reusable surgical products service.

Gross Profit. As a percentage of revenues, gross profit increased to 30.3%
in 1995 from 29.5% in the last five months of 1994. The increase was due
primarily to leveraging of the facility infrastructure as revenues increased.

Distribution Expenses. As a percentage of revenues, distribution expenses
remained constant at 11.1% in 1995 and in the last five months of 1994.

Selling and Administrative Expenses. As a percentage of revenues, selling
and administrative expenses decreased to 15.7% in fiscal year 1995 from 23.3% in
the last five months of 1994 due to the leveraging of fixed administrative
expenses over additional revenues, a reduction in computer expenses incurred in
the transition following the Acquisition, and a reduction in corporate staff.

Interest Expense. As a percentage of revenues, interest expense decreased
to 5.9% in 1995 from 7.9% in the last five months of 1994. The decrease resulted
from a $400,000 reduction in the average outstanding balance of the Company's
working capital loan from the last five months of 1994 to fiscal year 1995, the
conversions of a $1.0 million convertible note into Common Stock in September
1995, and the increase in revenues. See Notes E and F of Notes to Financial
Statements.

Net Loss. As a result of the foregoing, the Company's net loss decreased
to 2.4% of revenues in fiscal year 1995 from 12.8% in the last five months of
1994.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

The following discussion and analysis pertains to operations both before
and after the Acquisition. The stated amounts for 1995 are for the Company's
operations. The stated amounts for 1994 include the combined operations in that
year of both the Company (August 1 and after) and Amsco Sterile (before August
1). For reasons stated above, the operations of Amsco Sterile are not comparable
to the Company. See "-- Overview" and "The Company".

Revenues. Revenues increased $3.9 million, or 18.6%, to $25.3 million in
1995 from $21.4 million in 1994. In 1994 and early 1995, the revenue growth of
the business slowed because of marketplace concerns regarding AMSCO's sale or
closure of Amsco Sterile, SRI's financial condition after the Acquisition, and
SRI management's focus on retaining existing customers and implementing
operating efficiencies to generate operating profits.

Gross Profit. Gross profit increased $7.0 million, or 1,000%, to $7.7
million in 1995 from $713,000 in 1994. Gross margin increased to 30.3% in 1995
from 3.3% in 1994. The comparison of gross profit for 1994 and 1995 is not
meaningful because of Amsco Sterile's significantly higher depreciation and
amortization expenses associated with higher book asset values. In particular,
SRI's purchase of used reusable surgical products in

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<PAGE> 22

the Acquisition at approximately 17% of Amsco Sterile's net book value has
resulted in lower amortization expense since the Acquisition. See "-- Overview."

Distribution Expenses. Distribution expenses increased $460,000, or 19.6%,
to $2.8 million in 1995 from $2.3 million in 1994. As a percentage of revenues,
distribution expenses increased slightly to 11.1% in 1995 from 11.0% in 1994.
The Company did not experience any economies in distribution expense on the year
to year revenue increase.

Selling and Administrative Expenses. Selling and administrative expenses
decreased $5.5 million, or 58.3%, to $4.0 million in 1995 from $9.5 million in
1994. As a percentage of revenues, selling and administrative expenses decreased
to 15.7% in 1995 from 44.7% in 1994 primarily due to reductions in corporate
overhead following the Acquisition, the reduction of sales expense, and the
leveraging of fixed administrative expenses over additional revenues. Management
significantly reduced personnel and expenses after the Acquisition.

Interest Expense. Interest expense decreased by $4.0 million, or 73.1%, to
$1.5 million in 1995. As a percentage of revenues, interest expense decreased to
5.9% in 1995 from 25.9% in 1994. Amsco Sterile incurred significant intercompany
debt to AMSCO in connection with its start up and development of the business
that was replaced following the Acquisition by a significantly lower level of
debt incurred to finance the Acquisition and the Company's cash flow
requirements.

Net Loss. As a result of the foregoing, the net loss decreased $16.1
million, or 96.4%, to $604,000 for 1995 from $16.7 million in 1994. As a
percentage of revenues, the net loss in 1995 was 2.4% of revenues compared to a
net loss of 78.2% of revenues in 1994.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

The following discussion pertains to operations both before and after the
Acquisition. The stated amounts for 1993 are for Amsco Sterile's operations. The
stated amounts for 1994 include the combined results of operations of both the
Company (August 1 and after) and Amsco Sterile (before August 1). For reasons
stated above, the operations of Amsco Sterile are not comparable to the Company.
See "-- Overview" and "The Company".

Revenues. Revenues for 1994 increased $13.4 million, or 167.3%, to $21.4
million from $8.0 million in 1993, primarily as a result of the continued
marketing efforts of Amsco Sterile.

Gross Profit (Deficit). Gross profit increased $7.8 million to $713,000 in
1994 from a deficit of $7.1 million in 1993. The comparison of gross profit for
1994 and 1993 is not meaningful because of Amsco Sterile's significantly higher
depreciation and amortization expenses associated with its relatively higher
book asset values.

Distribution Expenses. Distribution expenses increased $1.4 million, or
139%, to $2.3 million in 1994 from $981,000 in 1993. As a percentage of
revenues, distribution expenses decreased to 11.0% in 1994 from 12.3% in 1993 as
more deliveries were made over the same routes.

Selling and Administrative Expenses. Selling and administrative expenses
decreased $2.6 million, or 21.4%, to $9.5 million in 1994 from $12.1 million in
1993. As a percentage of revenues, selling and administrative expenses decreased
to 44.7% in 1994 from 151.9% in 1993 due to the leveraging of fixed
administrative expenses over additional revenues. Management significantly
reduced personnel and related expenses after the Acquisition.

Interest Expense. Interest expense decreased slightly by $201,000, or
3.5%, to $5.5 million in 1994 from $5.7 million in 1993. As a percentage of
revenues, interest expense decreased to 25.9% in 1994 from 71.7% in 1993. Amsco
Sterile incurred significant intercompany debt to AMSCO in connection with its
start up and development of the business that was replaced following the
Acquisition by a significantly lower level of debt incurred to finance the
Acquisition and the Company's working capital requirements.

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<PAGE> 23

Net Loss. As a result of the foregoing, the net loss decreased $10.8
million, or 39.3%, to $16.7 million for 1994 from $27.5 million in 1993. As a
percentage of revenues, the net loss in 1994 was 78.2% of revenues compared to a
net loss of 344.2% of revenues in 1993.

SEVEN MONTHS ENDED JULY 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

The following discussion and analysis pertains to operations before the
Acquisition on July 31, 1994 and the inception of the Company's operations. See
"-- Overview" and "The Company."

Revenues. The Company's revenues increased $4.1 million, or 51.1%, to
$12.1 million in the first seven months of 1994 from $8.0 million in 1993. The
total revenue amounts are not comparable because of the different lengths of the
comparative periods. Excluding the effect of the longer period, the revenue
increase is primarily a result of continuing marketing efforts of Amsco Sterile.

Gross Profit (Deficit). As a percentage of revenues, Amsco Sterile's gross
profit (deficit) decreased to a deficit of 16.7% in the seven months ended July
31, 1994, from a deficit of 88.9% in fiscal year 1993. Gross profit (deficit) in
fiscal year 1993 was adversely affected by facility start-ups and process
refinement, both of which contributed to extraordinarily high variable costs due
to inefficiencies, training costs, and inexperienced personnel. In early 1994,
Amsco Sterile consolidated the facility operations of Chicago into Detroit,
Raleigh into Baltimore, and Dallas into Houston to increase production volume in
Detroit, Houston, and Baltimore and reduced facility overhead by converting the
Chicago, Raleigh and Dallas facilities to depot operations.

Distribution Expenses. As a percentage of revenues, Amsco Sterile's
distribution expenses decreased to 10.9% in the seven months ended July 31,
1994, from 12.3% in fiscal year 1993. Increases in distribution expenses
($82,000 per month in 1993 compared to $187,000 per month in the seven months
ended July 31, 1994) associated with the conversion of three operating
facilities to depots were offset by economies of scale derived from a
substantial increase in revenues.

Selling and Administrative Expenses. As a percentage of revenues, Amsco
Sterile's selling and administrative expenses decreased to 61.1% of revenues for
the seven months ended July 31, 1994, from 151.9% for fiscal year 1993. Selling
and administrative expenses for both periods were just over $1.0 million per
month and as a percentage of revenues, decreased in the seven months ended July
31, 1994 from fiscal year 1993 because of increases in revenues.

Interest Expense. As a percentage of revenues, Amsco Sterile's interest
expense decreased to 39.7% in the seven months ended July 31, 1994 from 71.7% in
fiscal year 1993. Average interest expense increased to $684,000 per month for
the seven months ended July 31, 1994, from $477,000 per month in fiscal year
1993, as AMSCO's continuing investments in Amsco Sterile were reflected in
intercompany debt. However, revenues increased during the first seven months of
1994 at a higher rate than interest expense, causing interest expense to
decrease as a percentage of revenues.

Restructuring Expense. Amsco Sterile incurred a $1.6 million restructuring
expense in fiscal year 1993 in connection with its decision to close three of
the reprocessing facilities. See Note D of Notes to Amsco Sterile's Financial
Statements.

Net Loss. As a result of the foregoing, Amsco Sterile's net loss decreased
to 128.4% of revenues in the seven months ended July 31, 1994, from 344.2% of
revenues in fiscal year 1993.

LIQUIDITY AND CAPITAL RESOURCES

Since the Acquisition, the Company's primary sources of capital have been
cash flows from operations, private sales of debt and equity securities,
operating leases for facilities and distribution vehicles, and available
borrowings under its working capital loan facility. In March 1996, the Company
raised $1.3 million through the sale of Common Stock and the Convertible Note.
See "Certain Transactions."

The Company had positive cash flow from operating activities of $38,000 for
the first quarter of 1996, compared to $22,000 for the same period in 1995. The
Company's positive cash flow from operating activities was $1.1 million for
1995, and $774,000 for the last five months of 1994, compared to a deficit of
$13.1 million

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<PAGE> 24

for Amsco Sterile for the seven months ended July 31, 1994, and a deficit of
$12.4 million for 1994 for the combined operations of the Company and Amsco
Sterile. The Company benefited in 1994 and the first quarter of 1995 from
collection of Amsco Sterile's trade accounts receivable of $551,000 for 1994 and
$367,000 for the first quarter of 1995. This one-time impact of trade accounts
receivable collection favorably impacted the net cash provided from operations
by $367,000 for the first quarter of 1995, thereby understating the improvement
of cash flow from the first quarter of 1995 to the first quarter of 1996. As an
investing activity, the Company expended $805,000 for purchases of reusable
surgical products in the first quarter of 1996 as compared to $28,000 in the
first quarter of 1995.

The Company used approximately $924,000 more net cash in investing
activities during the first quarter of 1996 than during the first quarter of
1995, reflecting additional capital expenditures in 1996 for equipment of
$191,000 and reusable surgical products of $805,000 to support sales growth as
compared to $38,000 for equipment and $28,000 for reusable surgical products in
1995. These expenditures were funded primarily by cash provided by financing
activities. The Company derived approximately $1.5 million during the first
quarter of 1996 from a private sale of common stock for $300,000, a $1,000,000
loan from Lee R. Kemberling pursuant to a secured convertible note, and
approximately $165,000 of advances under the Company's working capital loan
facility, and used the funds to purchase the additional assets and to repay
$400,000 of acquisition debt owed to Amsco Sterile. See "The Company -- The
Acquisition." During the same period in 1995, the Company used approximately
$17,000 of net cash in financing activities to reduce its borrowings under its
working capital loan facility.

The net cash used by the Company in investing activities was approximately
$1.1 million in 1995 and approximately $3.6 million during the last five months
of 1994, compared to approximately $10.1 million for the combined operations of
the Company and Amsco Sterile in 1994. Except for the five months ended December
31, 1994, the investing activities during all the comparative years were
primarily capital expenditures for equipment and reusable surgical products. The
significant capital expenditures in the first seven months of 1994 were
primarily for the purpose of equipping and stocking new processing facilities
built by Amsco Sterile. The capital expenditures in 1995 were funded mostly by
cash flow from operating activities. The 1994 capital expenditures were funded
by cash provided by financing activities.

During the last five months of 1994, the Company invested approximately $5
million in cash to purchase its business from Amsco Sterile and derived
approximately $1.5 million of those funds from the concurrent resale of certain
assets to a third party. The Company derived the remaining funds from financing
activities that consisted of $1.0 million of cash equity from founding
shareholders, a $1.0 million loan from Lee R. Kemberling (which has since been
converted into Common Stock), and a $1.5 million loan under an accounts
receivable credit facility. See "The Company -- The Acquisition."

In 1995, the Company increased its borrowings under its working capital
loan facility by approximately $750,000 and repaid $800,000 of acquisition debt
owed to Amsco Sterile. A total of approximately $22.8 million of net cash was
provided to the Company and Amsco Sterile by financing activities during 1994
and was used primarily to fund operating losses of $12.4 million before the
Acquisition and to purchase equipment and reusable surgical products for $6.6
million. As stated above, approximately $3.1 million in net cash was derived by
the Company from financing activities during the five months ended December 31,
1994, and used to fund the Acquisition. Amsco Sterile financed the development
of the processing facilities and its business start up primarily through loans
and advances from its parent corporation, which totaled $19.8 million during the
seven months ended July 31, 1994.

Inventories at March 31, 1996, were $679,000, compared to $305,000 and
$217,000 at the end of 1995 and 1994, respectively. The increases in inventories
reflects the introduction of disposable surgical products to supplement the
Company's delivery and retrieval service for reusable products. As a result of
the acquisition of Surgipro on February 26, 1996, inventories are expected to
continue to increase with revenues as the Company fully implements the offering
of disposable products.

At March 31, 1996, the Company had $11.8 million of notes payable and
acquisition debt outstanding. Approximately $11.1 million of the net proceeds of
the offering will be used to repay most of this outstanding indebtedness. Before
and after the Acquisition, the business of the Company has been financed
primarily with

24
<PAGE> 25

interest-bearing borrowings that have negatively impacted its earnings. The
Company's interest expense in 1995 was $1.5 million. The use of a portion of the
offering proceeds to retire most of the Company's outstanding borrowings will on
an annualized basis eliminate interest expense of approximately $1.4 million and
principal payments to Amsco Sterile of approximately $1.2 million. See "Use of
Proceeds."

The Company has a commitment from First Union National Bank of Florida for
a $15.0 million unsecured revolving credit facility that will be effective upon
completion of the offering and expire in July 1999. The facility imposes certain
financial covenants. Beginning January 1, 1997, total outstanding borrowings
under the facility are limited to three times the Company's earnings before
interest, taxes, depreciation, and amortization (EBITDA) for the previous four
quarters (declining to two and one-half times by the third year). The facility
also imposes a covenant concerning the maintenance at the 1996 year end of
minimum tangible net worth of at least $1.3 million plus the amount of the net
proceeds of this offering. The Company expects that it will comply with these
covenants following the offering and at the end of its 1996 fiscal year end. A
breach of either of the foregoing covenants constitutes a default under the
credit facility and eliminates any further availability under the facility in
the absence of the lender's waiver. This minimum tangible net worth amount
increases by $1.5 million in 1997 and $3.0 million in 1998. Pursuant to the
terms of the credit facility, SRI may elect to convert up to $5.0 million of the
available facility into term loans for capital expenditures that are ratably
payable over five years. All borrowings accrue interest at the London Interbank
Offered Rate (LIBOR) plus 200 basis points (7.5% as of May 1, 1996). The
Company's revolving credit agreement with the bank restricts the declaration of
dividends and prohibits the Company from encumbering its assets.

After the offering, the Company's primary capital requirements will be for
additional stocks of reusable surgical products, primarily to support
anticipated growth in revenues. The Company anticipates that such expenditures
will be approximately $275,000 per month for the next 12 months, subject to
fluctuations in the growth of SRI's business. The Company also expects to make
additional equipment expenditures of approximately $300,000 in each of its five
largest facilities to increase the aggregate capacity of those facilities. The
Company will also require additional working capital to support its inventory of
disposable surgical products following the Surgipro acquisition. Management
believes that the proceeds of the offering, combined with its cash flow from
operating activities and funds available under its credit facility, will be
sufficient to fund its growth and anticipated capital requirements for at least
the next 12 months. In the longer term, the Company expects that its needs for
capital expenditures will be substantial and will depend on its growth and
opportunities. In particular, additional growth could require the Company to
make additional capital expenditures for reusable surgical products, carts, and
capital equipment and possibly for additional facilities. The Company expects to
fund additional capital expenditures from a combination of internal cash flow,
its credit facility, and other capital sources. See "Risk Factors -- Need for
Capital."

RECENT ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued, pro forma disclosures are required as if
SFAS No. 123 accounting provisions were followed. Management has determined not
to adopt SFAS No. 123's accounting recognition provisions related to stock
options granted to employees and accordingly, will continue following APB No.
25's accounting provisions. See Note B of Notes to Financial Statements.

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<PAGE> 26

BUSINESS

The Company believes that its reusable surgical product delivery and
retrieval service is a superior and competitively priced alternative to
disposable surgical products or to operating an in-house reusable program for
surgical products. The Company's delivery service offers savings to hospitals by
reducing the costs associated with: (i) the disposal of biohazardous wastes,
(ii) carrying an inventory of disposable surgical products, and (iii) in-house
processing of reusable surgical products. In addition to these cost savings, the
Company's liquidproof and liquid resistant gowns offer surgeons and surgical
staff enhanced protection against transmission of blood-borne pathogens,
including the HIV and hepatitis viruses. Also, the Company's reusable gowns are
made with a breathable surgical fabric that is designed for superior comfort
during long procedures.

Through the Company's acquisition of Surgipro on February 26, 1996, SRI
offers its customers disposable accessory packs containing smaller surgical
items that are not reusable, such as needles, sutures, syringes, and tubing. The
Company's Surgipro acquisition enables SRI to complement its reusable surgical
product delivery and retrieval service with disposable surgical products that
are not available in reusable form. The Company believes that the flexibility it
offers its customers by combining reusable surgical gowns, towels, drapes, and
basins with disposable products will improve the Company's competitive position
in the marketplace.

THE MARKET

The United States health care system includes approximately 6,500 acute
care hospitals, over 2,300 freestanding surgery centers, and a variety of other
health care facilities. According to industry sources, approximately 31 million
procedures will be performed at hospitals and surgery centers in 1996. The
Company believes that between $40-$50 of reusable surgical products service
revenues can be realized from a typical surgical procedure.

In the 1980's, hospitals began using custom procedure trays because of
their convenience, a trend that continued to grow until recently. A custom
procedure tray typically contains in disposable form most of the sterile
products used in a particular surgical or other medical procedure. According to
industry sources, total sales of custom procedure trays in the United States
were an estimated $1.5 billion in 1995.

With the growth of managed care, many hospitals and surgery centers are
seeking alternatives to custom procedure trays. The Company believes that custom
procedure trays have several shortcomings relative to reusable products,
including costs associated with excessive product content, storage, handling,
and waste disposal, and the working capital requirements required to carry
product inventory. Most hospitals which converted to custom procedure trays
eliminated the in-house personnel and equipment necessary to process reusable
surgical products. Furthermore, hospitals possessing in-house facilities are
increasingly unwilling to support those personnel and capital requirements. The
Company believes that a service that provides daily

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<PAGE> 27

delivery of substantially better quality surgical products without any capital
investment by the hospital, thereby reducing employee and space needs, should
become an attractive managed care option for hospitals.

Several developments have created a market opportunity for the kind of
cost-competitive, reusable surgical product delivery and retrieval service SRI
offers, including:

Increasing Pressure on Hospitals to Contain Cost and Increase
Productivity. With the growth of managed care, economic constraints continue to
require hospitals to become more efficient by limiting capital investments,
reducing staff, and reducing costs. Hospitals are increasingly seeking to
decrease their cost of supplies and the associated cost of waste disposal. SRI
offers a cost-competitive service that eliminates the need for in-house
inventory or processing facilities or the costs associated with stocking and
discarding disposable products.

Heightened Concern Regarding the Transmission of Infectious Diseases. The
health care industry has experienced a substantial increase in the transmission
of infectious disease through cross-infections. These concerns have increased
the desirability of surgical barrier fabrics that protect surgeons and surgical
staff from patient liquids. SRI's liquidproof gown prevents liquid and viral
strike-through in critical areas during surgical procedures involving higher
risk. The Company's standard gown is specially designed to resist liquid and
bacterial strike-through in most other surgical procedures.

Concern Regarding the Handling and Disposal of Biohazardous Waste. The
disposal of large volumes of infectious and hazardous solid and liquid waste
generated by the health care industry has attracted increased public awareness.
The increased burdens on hospitals generating biohazardous waste due to
restrictions on incineration and access to dump sites give a competitive
advantage to reprocessing systems, such as SRI's, that replace disposable
surgical products with reusable surgical products. The SRI reprocessing cycle
substantially reduces biohazardous waste and its impact on the environment.

Increased Outsourcing of Hospital Functions that Do Not Involve Patient
Care. Hospitals with significant staff, capital and space dedicated to in-house
processing of reusable surgical products are increasingly outsourcing this
function to more efficient outside providers. This trend is consistent with the
overall industry focus on efficiency and improved patient care. SRI's service
allows hospitals to outsource to SRI the ownership and reprocessing of surgical
products.

STRATEGY

The Company's objective is to continue its growth and become a leading
provider of reusable surgical products and related delivery and retrieval
services to hospitals and surgery centers. The Company's principal strategies
for achieving this objective are as follows:

Leverage Infrastructure with Increased Penetration in Existing
Markets. The Company believes that its existing facilities currently operate at
approximately 50% of their aggregate annual revenue capacity, allowing it to add
a substantial amount of sales without the need for significant additional
capital expenditures for equipment or new facilities. To obtain increased
operating leverage and expand profit margins, the Company intends to grow its
customer base within its existing markets and focus on expanding its
relationships with existing customers by servicing additional surgical
procedures.

Become a Preferred Vendor Through Competitive Pricing and Expanded Service
Solutions. As hospitals seek to contain costs and outsource functions that do
not involve patient care or revenue producing activities, the Company believes
that hospitals will seek relationships with vendors that offer a broad range of
products or services at competitive prices. The Company intends to establish
preferred vendor relationships with its customers by providing high-quality
reusable surgical products, related delivery and retrieval services, and
disposable accessory packs containing disposable surgical items. Through its
disposable products division, SRI has expanded its range of surgical products to
include those products typically offered by its competitors through disposable
custom procedure trays, while giving its customers the added flexibility of
using the Company's reusable surgical products.

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<PAGE> 28

Expand National and Regional Agreements. To date, the Company's service
agreements are primarily with individual hospitals. Management believes that
there is a trend toward group purchasing among hospitals. To address this
consolidation, management intends to offer its reusable products delivery
service through agreements with national and regional hospital groups.

Add Facilities in Selected Markets. SRI currently services customers in 17
states through seven regional facilities. SRI serves several large metropolitan
areas through highway transport and satellite distribution facilities (depots)
that are supported from a regional facility. To expand geographically, the
Company expects to build additional facilities when needed in markets previously
served by highway transport. For example, the Company reopened its Raleigh,
North Carolina facility during the second quarter of 1995 to serve customers in
North Carolina and South Carolina that were previously serviced from the
Company's facility in Baltimore, Maryland. From each new facility, SRI will be
able to serve new metropolitan areas that were previously too far from an
existing regional facility. The Company believes that this strategy of
incremental geographic expansion will allow the Company to operate these new
facilities profitably by beginning operations with an existing customer base.

Decentralize Operations to Facilities. The Company operates each of its
facilities on a stand alone basis, with the general manager of each facility
accountable to senior management for sales, operations, and profitability within
the facility's market area. The Company believes that individual general
managers with operational experience in local markets are best suited to respond
to local business opportunities with overall direction and support from the
Company's corporate staff. The Company implemented an incentive compensation
plan in 1995 that provides compensation awards for the general managers and
certain key production and sales employees based on individual and facility
performance, as well as overall Company performance. Each general manager
participates in the Company's stock option plan.

Utilize Operational Knowledge. The Company's management gained substantial
knowledge in operating Amsco Sterile's facilities. Amsco Sterile invested
approximately $100 million during the period from 1991 to 1994, allowing
management to implement innovative techniques and processes. As a result, when
the Company acquired these facilities, management had developed a high degree of
expertise in operations and was ready to capitalize upon Amsco Sterile's
development efforts. The Company intends to utilize this expertise to provide
superior products and services at a competitive cost.

DELIVERY, RETRIEVAL, AND REPROCESSING SYSTEM

SRI's closed-loop reprocessing service picks up soiled reusable surgical
products from its customers and sorts, cleans, inspects, packages, sterilizes,
and redelivers the products. In one trip, SRI's trucks deliver clean carts of
sterilized surgical products to the hospital or surgical center and return carts
containing soiled products to its facility for reprocessing, always dividing
clean carts from "soiled" carts. The specially designed aluminum carts hold
sterile products, lock to maintain security and sterilization, conveniently roll
for delivery within the hospital and convert into hampers to hold soiled
products after the procedure. The customer avoids the need to maintain secondary
stock locations and the costs of either reprocessing reusable products or
stocking and discarding disposable products.

Upon return to SRI's facility, the contents of the soiled carts are sorted
in a decontamination area. Soiled products are routed through an automated
washing and drying process that delivers clean, dry, and decontaminated products
to a pack room where they are carefully inspected for damage, repaired if
necessary, folded and assembled into packs, and then wrapped in a barrier wrap.
The wrapped pack is steam sterilized before being packaged, sorted, and
redelivered to the customer. SRI separately cleans, dries, and decontaminates
its carts, stainless steel basins, and other hard reusable products through
special automatic tunnel washers before redelivery. The processing through the
facility occurs in three to five days.

Because the Company's ability to price competitively with disposable
products depends on maintaining its sewn goods' useful lives, SRI closely
monitors their reprocessing to ensure longevity. SRI uses a bar coding system to
track its reusable surgical products' status, history, and number of uses. SRI
continually refines the washing and sterilization processes, building on Amsco
Sterile's substantial investments of time and money to initially develop those
operations.

28
<PAGE> 29

PRODUCTS

SRI's principal reusable surgical products are its liquidproof and liquid
resistant surgical gowns, towels, drapes, and stainless steel basin sets. SRI
offers these products in a variety of packs that are configured to the
hospital's specific needs. Packs are comprised of various combinations of gowns,
absorbent towels, liquidproof backtable covers, mayo stand covers, and possibly
some stainless components. SRI also offers disposable accessory packs with
disposable products such as needles, syringes, sutures, tubing, and other
products that are not available in reusable form.

SRI's liquidproof gown has GORE Surgical Barrier Fabric in critical areas
to provide protection for procedures that present a higher risk of liquid
strike-through. The GORE fabric is breathable yet liquidproof and prevents both
viral and liquid strike-through. This protection is critical to SRI's customers
given current concerns of doctors, staff, and regulatory authorities regarding
transmission of blood-borne pathogens, including the HIV and hepatitis viruses.
The Company's liquid resistant gown is made of an advanced microfiber polyester
fabric designed to resist liquid and bacterial strike-through in most surgical
procedures. All of SRI's gowns and drapes offer the wearer both comfort and
breathability, combined with a high level of protection from liquid penetration
that SRI believes is superior to that offered by disposable products.

SRI contracts with third party vendors for the weaving of microfiber fabric
and the cutting and sewing of garments, wraps, and drapes. The Company's
business is substantially dependent on its ability to obtain from GORE the
Surgical Barrier Fabric, a key component of its liquidproof surgical products.
The Company does not have a long-term commitment from GORE for the supply of
that product, but enjoys a good relationship with that company. The other
components of the Company's products are currently available at reasonable costs
from a variety of suppliers. See "Risk Factors -- Dependence on a Key Supplier."

FACILITIES AND SERVICE AREAS

SRI operates seven processing facilities of approximately 23,000 to 32,000
square feet each in Baltimore, Detroit, Houston, Los Angeles, Raleigh, Salt Lake
City, and Tampa. Each facility contains a uniform set of computerized and fully
automated heavy washers, dryers, and sterilizers to achieve consistent cleaning
and sterilization cycles for reusable surgical products. The Company uses
standard operating procedures at each facility, regularly implementing at all
facilities efficiencies that are developed and tested at one location.

The Company believes that its existing facilities currently operate at
approximately 50% of their aggregate annual revenue capacity. The Company
believes that it can significantly increase its revenues without significant
additional capital expenditures for equipment or new facilities. SRI intends to
eventually add another washer and sterilizer to each facility, which will
further increase its capacity in its existing facilities. Furthermore, the
Dallas facility is fully equipped to operate as a processing facility but is
currently only used as a depot. Should the North Texas and Oklahoma market
warrant a processing facility, SRI could begin full processing operations with
minimal capital expenditures. SRI believes it has an opportunity to
significantly improve its operating results by servicing added sales through
increased use of its existing facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

29
<PAGE> 30

The Company's properties and the major markets that they serve are
summarized below. All the properties are leased, except for the Houston
processing facility. SRI believes that its existing facilities are adequate to
meet its current requirements.

<TABLE>
<CAPTION>
SQUARE FEET
FACILITY AND LOCATION (APPROX.) LEASE EXPIRATION(1) SELECTED MARKETS SERVED
- ---------------------------------- ----------- ------------------- -------------------------
<S> <C> <C> <C>
Processing facilities:
Baltimore, Maryland............. 32,000 February 1, 2003 Baltimore, Philadelphia,
Pittsburgh, Washington,
D.C.
Detroit, Michigan............... 23,000 September 30, 2002 Chicago, Detroit,
Louisville, Milwaukee,
Toledo
Houston, Texas(2)............... 30,000 Owned Dallas, Houston, San
Antonio, Oklahoma City
Los Angeles, California......... 30,000 December 31, 2002 San Diego, Sacramento,
Los Angeles, San
Francisco
Raleigh, North Carolina......... 26,000 April 30, 2002 Richmond, Atlanta, South
Carolina, North Carolina
Salt Lake City, Utah............ 24,000 November 31, 2003 Utah
Tampa, Florida.................. 29,000 January 24, 2002 Tampa, Miami, Orlando,
Jacksonville
Depots:
Chicago, Illinois............... 3,000 September 30, 1996 --
Dallas, Texas................... 20,000 March 31, 2002 --
Louisville, Kentucky............ 3,000 December 31, 1996 --
Miami, Florida.................. 4,000 January 31, 1997 --
San Francisco, California....... 6,000 May 31, 1997 --
Warehouse:
Houston, Texas.................. 5,000 September 30, 1996 --
Disposable products facility:
Orlando, Florida................ 18,500 February 28, 1999 --
Corporate office:
Clearwater, Florida............. 9,000 October 31, 1996 --
</TABLE>

- ---------------

(1) Excludes renewal options in the leases that range from one to 10 years.

(2) The Houston property is owned by the Company subject to a first mortgage
securing a Convertible Note in the principal amount of $1.0 million. See
"Certain Transactions."

EMPLOYEES

As of March 31, 1996, SRI employed approximately 650 people, consisting of
approximately 30 persons in management, administration, and finance at its
corporate office and approximately 620 people in various positions at the
Company's facilities. The Company's employees are not covered by a collective
bargaining agreement, and the Company considers its employee relations to be
good.

30
<PAGE> 31

CUSTOMERS

The Company currently services approximately 200 hospitals and surgery
centers in 17 states throughout the United States. The following is a partial
list of these customers and their locations:

<TABLE>
<S> <C>
Allegheny General Hospital............... Pittsburgh, Pennsylvania
Audubon Regional Hospital................ Louisville, Kentucky
Duke University Medical Center........... Durham, North Carolina
Henry Ford Hospital...................... Detroit, Michigan
Hermann Hospital......................... Houston, Texas
Hospital of the Good Samaritan........... Los Angeles, California
Jackson Memorial Hospital................ Miami, Florida
Johns Hopkins Medical Center............. Baltimore, Maryland
IHC Hospitals, Inc,...................... Salt Lake City, Utah
Medical City Dallas...................... Dallas, Texas
St. Luke's Episcopal Hospital............ Houston, Texas
Southwest Texas Methodist Hospital....... San Antonio, Texas
</TABLE>

From December 31, 1994 through March 31, 1996, the Company has retained in
excess of 85% of its customers. SRI believes that this low attrition rate among
its customers reflects its products' appeal, its service quality, and general
customer resistance to change when the SRI system is in place. SRI also believes
that its direct relationship with hospital staff has been important in retaining
and attracting customers. Many of SRI's competitors use a distributor system
that SRI believes adds cost and introduces an intermediary between the
competition and their customers.

The Company's sales process for new customers is typically six to twelve
months in duration from initial contact to a purchase commitment. The extended
sales process is typically due to the complicated approval process within
hospitals for purchases from new suppliers, the long duration of existing supply
contracts, and implementation delays pending termination of a hospital's
previous supply relationships. The Company believes that there is a tendency to
maintain the status quo in many hospitals and that this favors its retention of
existing customers. See "Risk Factors -- Sales Process and Market Acceptance of
Products and Services."

SRI bills its customers weekly for the previous week's deliveries on a per
use basis under service contracts or purchase orders. Consistent with industry
custom, these contracts generally are cancellable by either party with 90 days'
notice, and customers may unilaterally reduce their use of the Company's
services under such contracts without penalty. The Company does not have any
order backlog because its products are generally delivered daily in response to
customer orders.

COMPETITION

SRI competes principally with sellers of both reusable and disposable
gowns, drapes, utensils, and other products for surgical procedures. The market
is dominated by disposables, especially custom procedure trays. SRI believes
that it is the leading provider of high quality reusable surgical gowns and
drapes. With the acquisition of Surgipro, SRI can compete directly with
suppliers of disposable custom procedure trays.

Unlike SRI, many of SRI's competitors can offer full national coverage and
have much greater resources than the Company. The Company's principal competitor
is the Convertors division of Baxter International Inc., which has a substantial
market share. See "Risk Factors -- Competition."

The Company competes primarily based on price, service, quality, and its
ability to save its customers waste disposal costs. The changing healthcare
environment in recent years has led to increasingly intense competition among
health care suppliers based on price, service, and product performance.
Hospitals are seeking cost reductions in response to pressure from governments,
insurance companies, and health maintenance organizations. The Company believes
that its high degree of expertise in operations significantly assists it in
offering a superior product at a competitive cost. In addition, hospitals are
increasingly seeking

31
<PAGE> 32

buying leverage by purchasing in integrated networks. SRI believes that
competitive pressure in these areas will continue.

REGULATION

The Company's products are subject to regulation by the FDA as medical
devices. The regulated devices include the Company's gowns, towels, drapes,
basins, boots, surgical wraps, surgical packs, and delivery blankets. The FDA
regulates the development, production, distribution, and promotion of medical
devices in the United States. Various states in which the Company's products are
being sold or may be sold in the future might impose additional regulatory
requirements. Pursuant to the Federal Food Drug and Cosmetics Act (the "FDA
Act"), a medical device is subject to general controls regarding FDA inspections
of facilities, "Good Manufacturing Practices," labeling, maintenance of records,
and filings with the FDA. FDA pre-market approval of these devices is obtained
under Section 510(k) of regulations issued under the FDA Act, which provides for
FDA approval on an expedited basis for products that can be shown to be
substantially equivalent to devices legally marketed before May 1976 (the month
and year of enactment of the FDA Act). Products must be produced in registered
establishments and be manufactured in accordance with "Good Manufacturing
Practices," as defined under the FDA Act. In addition, all medical devices must
be periodically listed with the FDA. Labeling and promotional activities are
subject to scrutiny by the FDA and, in certain instances, by the Federal Trade
Commission. If the Company fails to comply with the applicable provisions of the
FDA Act, the FDA can institute proceedings to detain or seize products, enjoin
future violations, impose product labeling restrictions or enforce product
recalls or withdrawals from the market. The Medical Device Reporting ("MDR")
regulation obligates the Company to provide information to the FDA on injuries
alleged to have been associated with the use of a product or in connection with
certain product failures which could cause serious injury or death. SRI and its
hospital customers also must comply with regulations of OSHA, including the
blood-borne pathogen rule requiring that "universal precautions" be observed to
minimize exposure to blood and other bodily fluids. To comply with these
requirements, SRI's employees wear protective gear in handling soiled linens in
the facility's decontamination area. Properly used, SRI's products allow its
hospital customers to protect their employees in compliance with these
regulations. The Company must comply with local regulations governing the
discharge of water used in its operations. SRI uses local licensed contractors
to dispose of any biohazardous waste generated by the hospital and received by
SRI and therefore does not need to obtain permits for biohazardous waste
disposal. The Company must comply with DOT and OSHA regulations governing the
transportation of hazardous materials. These regulations concern, among other
things, labelling, marketing, placarding, using proper containers, and reporting
discharges. The Company complies with these regulations by putting soiled
products in marked liquidproof bags and locked, marked transfer carts and by
separating sterile and soiled products on its trucks. Sterilization of the
Company's disposable accessory packs is provided under contract by a third
party. The use of ethylene oxide by that third party in the sterilization of the
Company's disposable accessory packs is subject to regulation under OSHA and by
the Environmental Protection Agency. In addition to the foregoing, numerous
other federal, state and local regulatory authorities, including those enforcing
laws that relate to the environment, fire hazard control, and working
conditions, have jurisdiction to take actions that could have a material adverse
effect on the Company. SRI makes expenditures from time to time to comply with
environmental regulations, but does not expect any material capital expenditures
for environmental compliance in the current or next fiscal year.

LEGAL PROCEEDINGS

Neither the Company nor any of its property is subject to any litigation or
other legal proceeding that is expected to have a material effect on the Company
or its business.

32
<PAGE> 33

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's Board of Directors is divided into three classes, with the
members of each class serving three-year terms expiring at the third annual
meeting of shareholders after their election. The following table sets forth
information, as of the date of this Prospectus, regarding the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
- --------------------------------------- --- --------------------------------------- --------
<S> <C> <C> <C>
Richard T. Isel........................ 52 President, Chief Executive Officer, and 1999
Director
Wayne R. Peterson...................... 44 Executive Vice President - Operations 1998
and Director
James T. Boosales...................... 53 Executive Vice President, Chief 1997
Financial Officer, Secretary and
Director
Bertram T. Martin, Jr.*................ 46 Executive Vice President, Chief 1998
Operating Officer, and Director
Lee R. Kemberling...................... 70 Director 1997
James M. Emanuel....................... 47 Director 1999
</TABLE>

- ---------------

* Mr. Martin will become an executive officer of the Company at the completion
of the offering.

Richard T. Isel has been the Company's President and a director since the
Company's inception in 1994. Mr. Isel co-founded Amsco Sterile in 1991 and
served as its President and a director until November 1993. From November 1993
until the Acquisition, Mr. Isel engaged in private investment activities and
arranged the Acquisition. Before starting Amsco Sterile, Mr. Isel was a founder
and the chief executive officer of Sterile Design, Inc., a manufacturer of
sterile custom procedure trays. Sterile Design, Inc. was acquired by Johnson &
Johnson in 1986 and operated as a wholly owned subsidiary until it was sold to
Maxxim Medical, Inc. in 1993. Following his sale of Sterile Design, Inc., Mr.
Isel was subject to a five-year non-compete agreement and engaged in consulting
and private investment activities. Before founding Sterile Design, Inc., Mr.
Isel served as an area vice president with American Hospital Supply Corporation.

Wayne R. Peterson has been the Company's Executive Vice President
responsible for operations and a director since the Company's inception. Mr.
Peterson co-founded Amsco Sterile and served as a Vice President until the
Acquisition. Before joining Amsco Sterile, Mr. Peterson was President of Agora
Development, Inc., a real estate development company that from 1987 to 1991
developed projects totaling 2,000,000 square feet in four Western States
(California, Nevada, Arizona, and Illinois) for a total combined value of $278
million. Mr. Peterson is Mr. Isel's brother-in-law.

James T. Boosales has been the Company's Executive Vice President and
principal financial officer and a director since the Company's inception. He
served as President, International, of Fisher-Price, Inc., a $200 million
division of this toy and juvenile products company, from 1990 through 1993.
Before joining Fisher-Price, Inc., Mr. Boosales served in several senior
executive capacities with General Mills, Inc., including President,
International, for Kenner Parker Toys, Inc./Tonka Corp. from 1985 to 1989,
during and after its spinoff as a public company, and President of Foot-Joy,
Inc. from 1982 to 1985.

Bertram T. Martin, Jr. was elected a director of the Company on May 2,
1996, and will become Executive Vice President and Chief Operating Officer of
the Company on the consummation of the offering. Since July 1995, Mr. Martin has
provided consulting services to the Company (from October 1995) and other
businesses through Corporate Strategic Directions, Inc. From 1993 until 1995, he
was President and Chief Operating Officer of Pharmacy Management Services, Inc.,
a nationwide provider of medical cost containment and managed care services and
a Nasdaq-listed company, until its acquisition by Beverly Enterprises,

33
<PAGE> 34

Inc. in June 1995. He served as a director during the five years Pharmacy
Management was a public company. Before joining Pharmacy Management, Mr. Martin
was a Vice President, director, and shareholder of Tunstall Consulting, Inc., a
corporate financial consulting business, from 1985 to 1993.

Lee R. Kemberling, an initial investor in the Company, has been a director
of the Company since its inception. Mr. Kemberling is the founder, and since
1969 has been sole shareholder and President of, Kemco Systems, Inc., a
developer and manufacturer of commercial and industrial waste water heat
recovery systems, including systems used in SRI's operations.

James M. Emanuel has been a director of the Company since May 2, 1996.
Since January 1984, he has served as the Chief Financial Officer of Lincare
Inc., a national provider of respiratory therapy services for patients with
pulmonary disorders, and has been the Chief Financial Officer of Lincare
Holdings since November 1990. Mr. Emanuel has also served as a director of
Lincare Inc. and Lincare Holdings since November 1990. Mr. Emanuel served in
numerous financial capacities at Union Carbide Corporation between 1973 and
1984, and acted as Business Controller of Union Carbide's Cryogenic Equipment
Business immediately prior to joining Lincare.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
paid to or earned by the Company's President and Chief Executive Officer and
each of the Company's other most highly compensated executive officers for the
year ended December 31, 1995:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITIONS SALARY COMPENSATION
- ---------------------------------------------------------------------- -------- ------------
<S> <C> <C>
Richard T. Isel, President and Chief Executive Officer................ $220,000 --
Wayne R. Peterson, Executive Vice President - Operations.............. $200,000 --
James T. Boosales, Executive Vice President and Chief Financial
Officer............................................................. $200,000 --
</TABLE>

None of the foregoing officers received any bonus compensation in 1995 or has
ever received any stock option grants.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with all of the executive officers
listed in the Summary Compensation Table and with Bertram T. Martin, Jr. that
provide for annual salary as follows for fiscal year 1996:

<TABLE>
<CAPTION>
NAME SALARY
-------------------------------------------------------------------------- --------
<S> <C>
Richard T. Isel........................................................... $220,000
Wayne R. Peterson......................................................... $200,000
James T. Boosales......................................................... $200,000
Bertram T. Martin, Jr..................................................... $200,000*
</TABLE>

- ---------------

* Mr. Martin will become an executive officer of the Company at the completion
of the offering.

The agreements can be terminated by either party without cause at any time,
subject to certain notice requirements. Each officer is prohibited from
competing with the Company during the three year period following termination of
the officer's employment. The Company also has severance agreements with each of
its executive officers that provide for a severance compensation benefit equal
to two times the executive officer's annual cash compensation (payable in a lump
sum) for an involuntary or constructive termination of employment following a
"change of control."

STOCK OPTION PLANS

The Company maintains two stock option plans (collectively, the "Stock
Option Plans") to attract, motivate, and retain key employees and members of the
Board of Directors who are not employees of the

34
<PAGE> 35

Company. The Company's 1995 Stock Option Plan (the "Employee Plan") and the 1996
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") have been
adopted by the Board of Directors and were approved by the shareholders of the
Company on December 21, 1995 and May 2, 1996, respectively. An amendment to the
Employee Plan was approved by the Board of Directors and shareholders of the
Company on May 2, 1996.

1995 Stock Option Plan. The Employee Plan provides for the grant to
employees of incentive or nonqualified options to purchase up to 500,000 shares
of Common Stock. On December 21, 1995, the Company granted non-qualified stock
options covering a total of 94,000 shares of Common Stock to various employees
at an exercise price of $5.85 per share. None of the options vest until
completion of the offering, and then vest ratably over the four-year period
following the completion of the offering. All of the options vest on a change in
control of the Company. Options granted under the Employee Plan expire not later
than ten years after the date granted or sooner in the event of death,
disability, retirement, or termination of employment. Upon the completion of the
offering, Bertram T. Martin, Jr. will be granted options to purchase a total of
70,000 shares of Common Stock at the initial offering price per share. All
participants in the option plan as a group (including Mr. Martin) will be
granted options to purchase a total of 219,500 shares of Common Stock at the
initial offering price per share. Each of these options vests ratably over the
five-year period following the completion of the offering.

1996 Non-Employee Director Stock Option Plan. The Non-Employee Plan
provides for the grant of nonqualified stock options to purchase up to 100,000
shares of Common Stock to members of the Board of Directors who are not
employees of the Company. As of the date of this Prospectus, such members held
no options under the Non-Employee Plan. Upon the completion of the offering,
each outside director will be granted options to purchase 4,000 shares of Common
Stock for each full remaining year of the director's term. Thereafter, on the
date on which a new outside director is first elected or appointed, he will
automatically be granted options to purchase 4,000 shares of Common Stock for
each year of his initial term. Each outside director will be granted options to
purchase 4,000 shares of Common Stock for each year of any subsequent term to
which he is elected. All options become exercisable ratably over the director's
term and have an exercise price equal to the fair market value of the Common
Stock on the date of grant.

DIRECTOR COMPENSATION

Directors who are executive officers of the Company receive no compensation
as such for service as members of either the Board of Directors or committees
thereof. Directors who are not employees of the Company receive $1,000 per Board
and committee meeting attended. The outside directors are also eligible to
receive options to purchase Common Stock under the Non-Employee Plan. See
"Management -- Stock Option Plans -- 1996 Non-Employee Director Stock Option
Plan." In addition, upon becoming a director of the Company, James M. Emanuel
was granted options to purchase 7,500 shares of Common Stock at an exercise
price equal to $8.00 per share, which vest one-third on the closing of the
offering, one-third at the 1997 annual meeting of shareholders, and one-third at
the 1998 annual meeting of shareholders.

COMMITTEES OF THE BOARD

The Board of Directors has established committees whose responsibilities
are summarized as follows:

Audit Committee. The Audit Committee is comprised of Messrs. Kemberling
and Emanuel and is responsible for reviewing the independence, qualifications,
and activities of the Company's independent certified accountants and the
Company's financial policies, control procedures, and accounting staff. The
Audit Committee recommends to the Board the appointment of the independent
certified public accountants and reviews and approves the Company's financial
statements. The Audit Committee also is responsible for the review of
transactions between the Company and any Company officer, director, or entity in
which a Company officer or director, has a material interest.

Compensation Committee. The Compensation Committee is comprised of Messrs.
Kemberling and Emanuel and is responsible for establishing the compensation of
the Company's directors, officers, and other managerial personnel, including
salaries, bonuses, termination arrangements, and other executive officer

35
<PAGE> 36

benefits. In addition, the Committee is responsible for the administration of
the Company's Employee Plan, including the recipient, amount, and terms of stock
option grants.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors established a Compensation Committee on May 2, 1996.
Members of the Compensation Committee are Messrs. Kemberling and Emanuel.
Certain members of the Company's Board of Directors are parties to transactions
with the Company. See "Certain Transactions."

CERTAIN TRANSACTIONS

In September 1995, Lee R. Kemberling, a director of the Company, converted
a Convertible Demand Promissory Note in the original principal amount of
$1,000,000 into 225,807 shares of the Common Stock at an effective conversion
price of $4.43 per share. The indebtedness to Mr. Kemberling was incurred to
partially finance the Acquisition. In March 1996, the Company borrowed another
$1,000,000 from Mr. Kemberling for working capital pursuant to a secured
Convertible Demand Promissory Note (the "Convertible Note") that is not
redeemable before March 1, 1997. The Convertible Note bears interest at an
annual rate of 8.5%, and the entire principal amount of the Convertible Note is
payable on demand on or after March 1, 1997. At any time before that date, up to
$750,000 of the principal amount of the Convertible Note is convertible into
Common Stock at $5.85 per share. The Convertible Note is secured by a first lien
on the Company's Houston facility and the equipment located there.

Mr. Kemberling is also the director, president, and sole stockholder of
Kemco, Inc., a developer and manufacturer of commercial and industrial waste
water heat recovery systems that originally furnished Amsco Sterile with the
water and heat reclamation equipment installed at each of its facilities. The
Company expects to pay Kemco in 1996 between $75,000 and $100,000 to design and
supply the components for water reclamation systems for five of the Company's
facilities. The Company believes that the terms of its transactions with Kemco
approximate those that would be available from an independent third party.

Since October 1995, Bertram T. Martin, Jr. and his company, Corporate
Strategic Directions, Inc., have performed consulting services for the Company,
including advising the Company in connection with the offering, its interim
financing, and its strategic plan, for which he received options to purchase
66,000 shares of Common Stock at $4.43 per share and will receive consulting
fees of $254,320 on the completion of the offering. The options were awarded in
October 1995.

The Audit Committee of the Board of Directors is responsible for reviewing
all future transactions between the Company and any officer or director of the
Company or any entity in which an officer or director has a material interest.
Any such transactions must be on terms no less favorable than those that could
be obtained on an arms-length basis from independent third parties.

36
<PAGE> 37

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of June 6, 1996, and as adjusted to reflect the
sale of Common Stock offered hereby, with respect to: (i) each of the Company's
directors and the executive officers named in the Summary Compensation Table;
(ii) all directors and officers of the Company as a group; (iii) shareholders
potentially selling pursuant to the Underwriters' over-allotment option, and
(iv) each person known by the Company to own beneficially more than 5% of the
Common Stock. Each of the shareholders listed below has sole voting and
investment power over the shares beneficially owned.

<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED
---------------------------------------------------
AFTER EXERCISE OF
SHARES SHARES SUBJECT TO OVER- BEFORE AFTER OVER-ALLOTMENT
BENEFICIAL OWNER(1) BENEFICIALLY OWNED ALLOTMENT OPTION THE OFFERING THE OFFERING(2) OPTION
- ------------------- ------------------ ------------------------ ------------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
Richard T. Isel.... 1,042,329 54,000 31.0% 19.4% 17.9%
James T.
Boosales......... 900,000 46,500 26.7 16.8 15.5
Wayne R.
Peterson......... 960,000 49,500 28.5 17.9 16.5
Bertram T. Martin,
Jr.(3)........... 165,126 -- 4.8 3.0 3.0
Lee R.
Kemberling(4).... 354,012 -- 10.1 6.4 6.4
James M.
Emanuel(5)....... 2,500 -- * * *
All directors and
officers as a
group (6
persons)(6)...... 3,423,967 -- 96.0% 61.5% 57.3%
</TABLE>

- ---------------

* Indicates less than 1%.

(1) The business address for Richard T. Isel, James T. Boosales, Wayne R.
Peterson, and Bertram T. Martin, Jr. is 28100 U.S. Highway 19 North, Suite
201, Clearwater, Florida 34621. The business address for Lee R. Kemberling
is 11500 47th Street North, Clearwater, Florida 34622.

(2) Assumes the Underwriters' over-allotment option is not exercised.

(3) Includes 66,000 shares of Common Stock issuable on the exercise of
outstanding stock options that will become exercisable on completion of the
offering. Excludes 70,000 shares of Common Stock issuable on the exercise
of stock options that are not exercisable within 60 days.

(4) Includes 128,205 shares of Common Stock issuable on conversion of the
Convertible Note. Excludes 4,000 shares of Common Stock issuable on
exercise of stock options that are not exercisable within 60 days.

(5) Represents shares of Common Stock issuable pursuant to the exercise of
outstanding stock options that will become exercisable on completion of the
offering. Excludes 17,000 shares of Common Stock issuable on exercise of
stock options that are not exercisable within 60 days.

(6) Includes 128,205 shares of Common Stock issuable on conversion of the
Convertible Note held by Lee R. Kemberling, 66,000 shares of Common Stock
issuable upon the exercise of outstanding stock options held by Bertram T.
Martin, Jr. and 2,500 shares of Common Stock issuable upon the exercise of
outstanding stock options held by James M. Emanuel that will become
exercisable on completion of the offering.

37
<PAGE> 38

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, $.001 par value per share, and 5,000,000 shares of preferred
stock, $.001 par value per share (the "Preferred Stock"). The following
description of the capital stock of the Company is qualified in its entirety by
reference to the Company's Articles of Incorporation and Bylaws.

COMMON STOCK

As of May 6, 1996, the Company had outstanding 3,367,089 shares of Common
Stock and had eight holders of record of the Common Stock. This total excludes
shares issuable on the exercise of outstanding options and conversion of the
Convertible Note. Each shareholder of record is entitled to one vote per share
on all matters to be voted upon by the shareholders. The Company's Articles of
Incorporation do not provide for cumulative voting.

Subject to preferences that might be applicable to any then outstanding
Preferred Stock, the holders of the Common Stock are entitled to receive
dividends when, as, and if declared from time to time by the Board of Directors
out of funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution, or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities subject to prior distribution rights of any Preferred Stock then
outstanding. The Common Stock has no preemptive or conversion rights and is not
subject to call or assessment by the Company. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock in the offering are, and the shares offered hereby on issuance and sale
will be, duly authorized, validly issued, fully paid, and non-assessable.

PREFERRED STOCK

The Board of Directors has the authority, without any further vote or
action by the Company's shareholders, to issue Preferred Stock in one or more
series and to fix the number of shares, designations, relative rights (including
voting rights), preferences, and limitations of those series to the full extent
now or hereafter permitted by Florida law. The Company believes that this power
to issue Preferred Stock will provide flexibility in connection with possible
corporate transactions. The issuance of Preferred Stock, however, could
adversely affect the voting power of holders of Common Stock and restrict their
rights to receive payments upon liquidation. The Company has no present
intention to issue shares of Preferred Stock, although it may determine to do so
in the future.

Depending on the rights of the Preferred Stock, the issuance of Preferred
Stock could have an adverse effect on holders of Common Stock by delaying or
preventing a change in control of the Company, making removal of the present
management of the Company more difficult, or resulting in restrictions in the
payment of dividends and other distributions to the holders of Common Stock.

REGISTRATION RIGHTS

The holders of 444,933 shares of Common Stock (collectively, the "Holders")
each have certain registration rights with respect to the registration of those
shares under the Securities Act. Each of such shareholders has "piggyback"
registration rights to request that the Company register any of such shares to
the extent that the Company proposes to register any of its Common Stock under
the Securities Act (other than in exchange for assets or securities of another
corporation, Common Stock to be issued pursuant to a transaction registered on
Form S-4 or a comparable registration statement, or a stock option plan or other
employee plan or securities issued or issuable pursuant to such a plan).
However, if such piggyback rights are exercised in connection with an
underwritten public offering of the Company's Common Stock, the managing
underwriter of such an offering has the right to reduce the number of such
shares to be included in the offering.

38
<PAGE> 39

CERTAIN STATUTORY AND OTHER PROVISIONS

Statutory Provisions. The Company is subject to several anti-takeover
provisions under Florida law that apply to a public corporation organized under
Florida law unless the corporation has elected to opt out of those provisions in
its articles of incorporation or (depending on the provision in question)
bylaws. The Company has not elected to opt out of those provisions. The Florida
Business Corporation Act (the "Florida Act") prohibits the voting of shares in a
publicly-held Florida corporation that are acquired in a "control share
acquisition" unless the Board of Directors approves the control share
acquisition or the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors, or
the acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition. A "control share acquisition" is
defined as an acquisition that immediately thereafter entitles the acquiring
party to vote in the election of directions within each of the following ranges
of voting power: (i) one-fifth or more but less than one-third of such voting
power, (ii) one-third or more but less than a majority of such voting power, and
(iii) a majority or more of such voting power. This statutory voting restriction
is not applicable in certain circumstances set forth in the Florida Act.

The Florida Act also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years, or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates, beneficially
owns (as defined in Section 607.0901(1)(e) of the Florida Act) more than 10% of
the corporation's outstanding voting shares.

Classified Board of Directors. The Company's Articles of Incorporation and
Bylaws provide that the Board of Directors of the Company will be divided into
three classes, with staggered terms of three years for each class. The term of
one class expires every year. The Company's Articles of Incorporation provide
that any vacancies on the Board of Directors shall be filled only by the
affirmative vote of a majority of the directors then in office, even if less
than a quorum. The Articles of Incorporation of the Company also provide that
any director may be removed from office, but only for cause and only upon the
affirmative vote of the holders of at least two-thirds of the Common Stock.

Special Voting Requirements. The Company's Articles of Incorporation
provide that all actions taken by the shareholders must be taken at an annual or
special meeting of the shareholders or by unanimous written consent. The
Articles of Incorporation provide that special meetings of the shareholders may
be called only by the President, the Chairman of the Board, a majority of the
members of the board of directors, or the holders of not less than 35% of the
Company's outstanding voting shares. Under the Company's Bylaws, shareholders
will be required to comply with advance notice provisions with respect to any
proposal submitted for shareholder vote, including nominations for elections to
the Board of Directors. The Articles of Incorporation and Bylaws of the Company
contain provisions requiring the affirmative vote of the holders of at least
two-thirds of the Common Stock to amend certain provisions thereof.

Indemnification and Limitation of Liability. The Florida Act authorizes
Florida corporations to indemnify any person who was or is a party to any
proceeding (other than an action by, or in the right of, the corporation), by
reason of the fact that he or she is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or other
entity, against liability incurred in connection with such proceeding, including
any appeal thereof, if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or on behalf of a corporation, indemnification may not be made if the
person seeking indemnification is adjudged liable, unless the court in which
such action was brought determines such person is fairly and reasonably entitled
to indemnification. The indemnification provisions of the Florida Act require
indemnification if a director or

39
<PAGE> 40

officer has been successful on the merits or otherwise in defense of any action,
suit, or proceeding to which he or she was a party by reason of the fact that he
or she is or was a director or officer of the corporation. The indemnification
authorized under Florida law is not exclusive and is in addition to any other
rights granted to officers and directors under the Articles of Incorporation or
Bylaws of the corporation or any agreement between officers and directors and
the corporation. A corporation may purchase and maintain insurance or furnish
similar protection on behalf of any officer or director against any liability
asserted against the officer or director and incurred by the officer or director
in such capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him or her
against such liability under the Florida Act.

The Company's Articles of Incorporation provide for the indemnification of
directors and executive officers of the Company to the maximum extent permitted
by Florida law and for the advancement of expenses incurred in connection with
the defense of any action, suit, or proceeding that the director or executive
officer was a party to by reason of the fact that he or she is or was a director
or executive officer of the Company upon the receipt of an undertaking to repay
such amount, unless it is ultimately determined that such person is not entitled
to indemnification.

Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available.

The Company also has entered into agreements with each of its current
directors and executive officers pursuant to which it is obligated to indemnify
those persons to the fullest extent authorized by law and to advance payments to
cover defense costs against an unsecured obligation to repay such advances if it
is ultimately determined that the recipient of the advance is not entitled to
indemnification. The Company is not required to indemnify a director or officer
if the indemnified loss results from any of the following: (a) a violation of
Section 16(a) of the Securities and Exchange Act of 1934, as amended; (b) a
violation of criminal law; (c) a transaction from which the officer or director
received an improper personal benefit; (d) willful misconduct or a conscious
disregard for the Company's best interests; or (e) a transaction for which the
director is liable pursuant to Section 607.0834 of the Florida Act for certain
distributions from the corporation to its shareholders.

The foregoing provisions of the Florida Act and the Company's Articles of
Incorporation and Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, the Company.

REGISTRAR AND TRANSFER AGENT

The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina, Charlotte, North Carolina.

40
<PAGE> 41

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of the offering, the Company will have 5,367,089 shares
of Common Stock outstanding (5,517,089 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,000,000
shares of Common Stock sold in the offering (2,300,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradeable by persons other than affiliates of the Company, without restriction
under the Securities Act of 1933, as amended (the "Securities Act"). The
remaining 3,367,089 shares of Common Stock (3,217,089 shares if the
Underwriters' over-allotment option is exercised in full) will be "restricted"
securities within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemptions contained in
Rule 144. Of this amount, approximately 3.1 million shares will be beneficially
owned by persons who are affiliates of the Company and, commencing 90 days after
the date of this Prospectus, would be eligible for public sale pursuant to Rule
144, subject to the volume restrictions discussed below. However, the directors,
executive officers, and principal shareholders of the Company have agreed not to
sell, contract to sell, or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the Representatives.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the company, who has
beneficially owned his or her shares for at least two years (including the prior
holding period of any prior owner other than an affiliate) is entitled to sell
within any three-month period that number of shares which does not exceed the
greater of 1% of the outstanding shares of the Common Stock, or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements, and the availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is not or has
not been deemed an "affiliate" of the Company for at least three months, and who
has beneficially owned shares for at least three years (including the holding
period of any prior owner other than an affiliate) would be entitled to sell
such shares under Rule 144 without regard to the limitations discussed above.

A public market for the Common Stock has not existed before the offering.
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.

41
<PAGE> 42

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters listed
below, and the Underwriters, for whom Robert W. Baird & Co. Incorporated and
Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase, the respective number of
shares of Common Stock set forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Robert W. Baird & Co. Incorporated........................................ 667,500
Raymond James & Associates, Inc. ......................................... 667,500
Alex. Brown & Sons Incorporated........................................... 50,000
A.G. Edwards & Sons, Inc. ................................................ 50,000
Montgomery Securities..................................................... 50,000
Robertson, Stephens & Company LLC......................................... 50,000
J.C. Bradford & Co. ...................................................... 25,000
Brean Murray, Foster Securities Inc. ..................................... 25,000
Dain Bosworth Incorporated................................................ 25,000
Furman Selz............................................................... 25,000
Interstate/Johnson Lane Corporation....................................... 25,000
Janney Montgomery Scott Inc. ............................................. 25,000
McDonald & Company Securities, Inc. ...................................... 25,000
Morgan Keegan & Company, Inc. ............................................ 25,000
Needham & Company, Inc. .................................................. 25,000
Principal Financial Securities, Inc. ..................................... 25,000
Ragen MacKenzie Incorporated.............................................. 25,000
Stephens Inc. ............................................................ 25,000
Tucker Anthony Incorporated............................................... 25,000
Unterberg Harris.......................................................... 25,000
Vector Securities International, Inc. .................................... 25,000
Wedbush Morgan Securities................................................. 25,000
Wheat First Butcher Singer................................................ 25,000
Allen & Co. of Florida Inc. .............................................. 20,000
Allen C. Ewing & Co. ..................................................... 20,000
---------
Total........................................................... 2,000,000
========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated to
purchase all the shares of Common Stock offered hereby, excluding shares covered
by the over-allotment option granted to the Underwriters, if any are purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price, less a concession not in excess of $.40 per share, and that the
Underwriters and such dealers may reallow a concession not in excess of $.10 per
share to other dealers. The public offering price and concessions and
reallowances to dealers may be changed by the Representatives after the initial
public offering.

The Company has granted to the Underwriters an option, exercisable within
30 days after the date of the initial public offering, to purchase up to an
additional 150,000 shares of Common Stock to cover over-allotments, at the same
price per share to be paid by the Underwriters for the other shares offered
hereby. In addition, shareholders Richard T. Isel, Wayne R. Peterson, and James
T. Boosales, have granted the Underwriters a 30-day option to purchase an
aggregate of up to 150,000 additional shares of Common Stock to cover
over-allotments if any. If the Underwriters purchase any such additional shares
pursuant to this option,

42
<PAGE> 43

each of the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if any, in
connection with the offering.

The Company and the Underwriters have agreed to indemnify, or to contribute
to payments made by, each other against certain civil liabilities, including
certain civil liabilities under the Securities Act.

The Company has a written agreement with Corporate Strategic Directions,
Inc., a financial consulting firm that is controlled by Bertram T. Martin, Jr.
and which has no affiliation with the Underwriters or the Company, to pay up to
$250,000, plus costs, for consulting services relating to the offering.

Before the offering, there has been no public market for the Common Stock.
The initial public offering price was determined by negotiation among the
Company, the Selling Shareholders and the Representatives. The factors
considered in determining the initial public offering price include the history
of and prospects for the business in which the Company operates, past and
present operations, revenues, and earnings of the Company and the trend of such
earnings, the prospects for such earnings, the general condition of the
securities markets at the time of the offering, and the demand for similar
securities of reasonably comparable companies.

The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to make sales to any accounts over which
they exercise discretionary authority.

The Company and its directors and executive officers, and the Selling
Shareholders have agreed not to sell, contract to sell, or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of the Representatives. See "Shares
Eligible for Future Sale."

LEGAL MATTERS

The validity of the issuance of the Common Stock offered pursuant to this
Prospectus will be passed upon for the Company by Glenn Rasmussen & Fogarty,
P.A., Tampa, Florida. Certain legal matters in connection with the sale of the
Common Stock offered hereby will be passed upon for the Underwriters by Holland
& Knight, Tampa, Florida. A shareholder of Glenn Rasmussen & Fogarty, P.A.
beneficially owns 19,827 shares of Common Stock of the Company.

EXPERTS

The financial statements and financial statement schedule for SRI as of
December 31, 1995 and December 31, 1994, and for the five months ended December
31, 1994, and the year ended December 31, 1995, and the financial statements and
financial statement schedule for AMSCO Sterile Recoveries, Inc. for the year
ended December 31, 1993, and the seven months ended July 31, 1994, included in
this Prospectus and in the Registration Statement, have been audited by Grant
Thornton LLP, independent certified public accountants, as stated in their
reports included herein, and in the Registration Statement, and are included
herein in reliance upon the reports given upon the authority of that firm as
experts in auditing and accounting.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part)
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and its exhibits and schedules, certain portions of which are omitted
as permitted by the rules and regulations of the Commission. Statements made in
this Prospectus regarding the contents of any plan, contract, document, or
agreement are not necessarily complete, and, in each instance, reference is made
to the copy of the plan, contract, document, or agreement filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference and the exhibits and

43
<PAGE> 44

schedules thereto. For further information concerning the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits and schedules filed with that statement, which may be obtained from
the Commission at the public reference facilities maintained by the Commission
at 450 Fifth Street N.W., Washington, D.C. 20549, at prescribed rates.

The Company intends to furnish its shareholders annual reports containing
financial statements certified by an independent public accounting firm and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.

44
<PAGE> 45

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF STERILE RECOVERIES, INC.
Report of Independent Certified Public Accountants.................................. F-2
Balance Sheets as of December 31, 1994 and 1995, and March 31, 1996 (unaudited)..... F-3
Statements of Operations for the five months and year ended December 31, 1994 and
1995, and the three months ended March 31, 1995 and 1996 (unaudited)............. F-4
Statement of Shareholders' Equity (Deficit) for the five months and year ended
December 31, 1994 and 1995, and the three months ended March 31, 1996
(unaudited)...................................................................... F-5
Statements of Cash Flows for the five months and year ended December 31, 1994 and
1995, and the three months ended March 31, 1995 and 1996 (unaudited)............. F-6
Notes to Financial Statements....................................................... F-7
FINANCIAL STATEMENTS OF AMSCO STERILE RECOVERIES, INC.
Report of Independent Certified Public Accountants.................................. F-19
Statements of Operations for the year ended December 31, 1993 and the seven months
ended July 31, 1994.............................................................. F-20
Statements of Cash Flows for the year ended December 31, 1993 and the seven months
ended July 31, 1994.............................................................. F-21
Notes to Financial Statements....................................................... F-22
</TABLE>

F-1
<PAGE> 46

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Sterile Recoveries, Inc.

We have audited the accompanying balance sheets of Sterile Recoveries, Inc.
as of December 31, 1994 and 1995, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the five months ended December
31, 1994 and year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sterile Recoveries, Inc., as
of December 31, 1994 and 1995, and the results of operations and cash flows for
the five months ended December 31, 1994 and year ended December 31, 1995, in
conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Tampa, Florida
May 10, 1996

F-2
<PAGE> 47

STERILE RECOVERIES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash................................................ $ 287,881 $ 251,444 $ 365,260
Accounts receivable, net............................ 3,295,518 3,389,243 3,842,895
Inventories......................................... 217,335 305,450 678,722
Prepaid expenses and other assets................... 258,009 303,309 390,098
Reusable surgical products, net of accumulated
amortization of $374,130, $1,137,603, and
$1,392,277, respectively.......................... 4,867,447 4,924,271 5,412,737
Property, plant and equipment, net.................. 4,462,305 4,318,840 4,409,110
Goodwill, net....................................... -- -- 536,229
----------- ----------- -----------
Total assets.............................. $13,388,495 $13,492,557 $15,635,051
=========== =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable -- working capital loan facility...... $ 1,061,341 $ 1,810,119 $ 1,975,386
Notes payable -- related parties.................... 1,000,000 -- 1,133,977
Accounts payable.................................... 679,814 1,166,657 1,527,382
Employee related accrued expenses................... 439,712 652,990 634,185
Other accrued expenses.............................. 509,197 568,084 472,601
Acquisition debt.................................... 9,880,832 9,080,832 8,680,832
----------- ----------- -----------
Total liabilities......................... 13,570,896 13,278,682 14,424,363
Commitments......................................... -- -- --
Shareholders' equity (deficit)
Preferred stock -- authorized 5,000,000 shares of
$.001 par value; no shares issued and
outstanding.................................... -- -- --
Common stock -- authorized 30,000,000 shares of
$.001 par value; issued and outstanding
3,000,000, 3,225,807 and 3,367,089 shares,
respectively................................... 3,000 3,226 3,367
Additional paid-in capital........................ 1,009,000 2,008,774 2,835,133
Accumulated deficit............................... (1,194,401) (1,798,125) (1,627,812)
----------- ----------- -----------
Total shareholders' equity (deficit)........... (182,401) 213,875 1,210,688
----------- ----------- -----------
Total liabilities and shareholders'
equity.................................. $13,388,495 $13,492,557 $15,635,051
=========== =========== ===========
</TABLE>

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

F-3
<PAGE> 48

STERILE RECOVERIES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------ ------------ -------------------------
1994 1995 1995 1996
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................ $ 9,284,792 $ 25,319,824 $5,816,530 $7,330,177
Cost of revenues........................ 6,549,809 17,658,762 4,180,857 5,023,536
----------- ----------- ---------- ----------
Gross profit....................... 2,734,983 7,661,062 1,635,673 2,306,641
Distribution expenses................... 1,031,954 2,801,419 693,678 722,213
Selling and administrative expenses..... 2,162,012 3,974,849 1,014,001 1,067,109
----------- ----------- ---------- ----------
Income (loss) from operations...... (458,983) 884,794 (72,006) 517,319
Interest expense........................ 735,418 1,488,518 379,153 347,006
----------- ----------- ---------- ----------
Net income (loss).................. $ (1,194,401) $ (603,724) $ (451,159) $ 170,313
=========== =========== ========== ==========
Unaudited pro forma information
Historical net income (loss).......... $ (1,194,401) $ (603,724) $ (451,159) $ 170,313
Income tax expense.................... -- -- -- --
----------- ----------- ---------- ----------
Pro forma net income (loss)........... $ (1,194,401) $ (603,724) $ (451,159) $ 170,313
=========== =========== ========== ==========
Pro forma net income (loss) per common
share.............................. $ (0.34) $ (0.17) $ (0.13) $ 0.05
=========== =========== ========== ==========
Weighted average common shares
outstanding........................ 3,512,815 3,512,815 3,512,815 3,512,815
=========== =========== ========== ==========
</TABLE>

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

F-4
<PAGE> 49

STERILE RECOVERIES, INC.

STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Initial cash capitalization
of the Company............ 3,000,000 $3,000 $1,009,000 $ -- $ 1,012,000
Net loss..................... -- -- -- (1,194,401) (1,194,401)
--------- ------ ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1994... 3,000,000 3,000 1,009,000 (1,194,401) (182,401)
Conversion of note payable... 225,807 226 999,774 -- 1,000,000
Net loss..................... -- -- -- (603,724) (603,724)
--------- ------ ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1995... 3,225,807 3,226 2,008,774 (1,798,125) 213,875
Issuance of Common Stock for
cash (unaudited).......... 51,282 51 299,949 -- 300,000
Acquisition of Surgipro
(unaudited)............... 90,000 90 526,410 -- 526,500
Net income (unaudited)....... -- -- -- 170,313 170,313
--------- ------ ---------- ----------- -----------
BALANCE AT MARCH 31, 1996
(UNAUDITED).................. 3,367,089 $3,367 $2,835,133 $(1,627,812) $ 1,210,688
========= ====== ========== =========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE> 50

STERILE RECOVERIES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FIVE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1994 1995 1995 1996
------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net income (loss)................................................ $(1,194,401 ) $ (603,724 ) $(451,159) $ 170,313
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization.................................. 169,778 421,243 102,687 112,741
Amortization of reusable surgical products..................... 274,130 763,473 173,261 254,674
Provision for reusable surgical products shrinkage............. 100,000 -- -- 61,458
Change in assets and liabilities:
Accounts receivable.......................................... 551,175 (93,725 ) 366,845 (389,850)
Inventories.................................................. (90,119 ) (88,115 ) (128,001) (167,028)
Prepaid expenses and other assets............................ (258,009 ) (45,300 ) (47,795) 46,698
Accounts payable............................................. 401,025 486,843 (112,912) 239,226
Accrued expenses............................................. 820,364 272,164 119,475 (289,754)
----------- ----------- --------- ---------
Net cash provided by operating activities................. 773,943 1,112,859 22,401 38,478
----------- ----------- --------- ---------
Cash flows from investing activities
Proceeds from sale of assets from acquired company............... 1,529,540 -- -- --
Purchases of property, plant, and equipment...................... (62,112 ) (277,778 ) (37,722) (190,973)
Purchases of reusable surgical products.......................... (14,831 ) (820,297 ) (27,932) (804,598)
Payment for acquisition of business, net of cash acquired........ (5,012,000 ) -- -- 5,634
----------- ----------- --------- ---------
Net cash used in investing activities.......................... (3,559,403 ) (1,098,075 ) (65,654) (989,937)
----------- ----------- --------- ---------
Cash flows from financing activities
Proceeds from initial capitalization of the Company.............. 1,012,000 -- -- --
Proceeds from convertible demand notes........................... 1,000,000 -- -- 1,000,000
Payments on acquisition debt..................................... -- (800,000 ) -- (400,000)
Net proceeds from working capital loan facility.................. 1,061,341 748,779 (16,856) 165,275
Proceeds from issuance of common stock........................... -- -- -- 300,000
----------- ----------- --------- ---------
Net cash provided by (used in) financing activities............ 3,073,341 (51,221 ) (16,856) 1,065,275
----------- ----------- --------- ---------
Increase (decrease) in cash........................................ 287,881 (36,437 ) (60,109) 113,816
Cash at beginning of period........................................ -- 287,881 287,881 251,444
----------- ----------- --------- ---------
Cash at end of period.............................................. $ 287,881 $ 251,444 $ 227,772 $ 365,260
=========== =========== ========= =========
Supplemental cash flow information
Cash paid for interest........................................... $ 686,085 $ 1,418,623 $ 263,760 $ 418,857
=========== =========== ========= =========
Supplemental schedule of non-cash investing and financing
activities:
Purchase of Amsco Sterile (1994) and Surgipro (1996)
Fair value of assets acquired.................................. $15,300,000 $ -- $ -- $ 952,000
Cash (paid) received........................................... (5,012,000 ) -- -- 6,000
Common stock issued............................................ -- -- -- (526,000)
----------- ----------- --------- ---------
Liabilities incurred or assumed................................ $10,288,000 $ -- $ -- $ 432,000
=========== =========== ========= =========
Conversion of convertible demand note into 225,807 shares of
common stock................................................... $ -- $ 1,000,000 $ -- $ --
=========== =========== ========= =========
</TABLE>

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

F-6
<PAGE> 51

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE A -- DESCRIPTION OF ORGANIZATION AND BUSINESS

Sterile Recoveries, Inc. ("SRI" or the "Company") was incorporated on June
13, 1994 in Florida to acquire substantially all of the assets of its
predecessor, AMSCO Sterile Recoveries, Inc. ("Amsco Sterile") on July 31, 1994
(see Note C) (the "Acquisition"). The Company's corporate office is located in
Clearwater, Florida.

SRI provides hospitals and surgery centers with a comprehensive surgical
procedure-based delivery and retrieval service for reusable gowns, towels,
drapes and basins and provides other disposable products necessary for surgery.
At seven regional facilities located in various states, SRI collects, sorts,
cleans, inspects, packages, sterilizes, and delivers its reusable products on a
just-in-time basis. While its emphasis is providing a reusable surgical product
delivery and retrieval service, the Company also earns revenues from the sale of
disposable surgical products, representing 6% or less of total revenues for all
periods presented herein. On February 26, 1996, the Company acquired Surgipro,
Inc. ("Surgipro") which became its disposable products division in order to
expand its revenues from disposable accessory packs containing small surgical
items such as needles and sutures.

SRI's customers, hospitals and surgery centers are currently located in
seventeen states. During 1995 and the first quarter of 1996, Columbia/HCA
Healthcare Corporation ("Columbia") hospitals, with which the Company currently
does business, accounted for approximately 12% and 15% of SRI's sales,
respectively. Although each Columbia hospital currently makes its purchasing
decisions on an individual basis, and none of the individual hospitals accounted
for more than 3% of the Company's sales, the Company believes that the executive
management of Columbia has the ability to influence the hospitals' use of
particular vendors. The loss of a substantial portion of the Columbia hospitals'
business would have a material adverse effect on the Company. Additionally,
hospitals are increasingly buying products and services in groups to improve
efficiency and negotiating leverage. Although SRI is increasingly targeting
these groups for its sales efforts, a change of its customers' purchasing
patterns to group purchasing might have a material adverse effect on the Company
because the Company has historically sold its products to hospitals on an
individual basis.

SRI contracts with third party vendors for the weaving of microfiber fabric
and the cutting and sewing of gowns, wraps, and drapes. A significant percentage
of the Company's business is dependent on its ability to obtain a key component
of its liquid-proof surgical products from one principal vendor.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial statement presentation

The Company had no assets or operations from June 13, 1994 until the
Acquisition, except for the Company's initial cash capitalization of $1,012,000
by its three shareholders on July 21, 1994. The statements of operations, cash
flows and shareholders' equity present the Company's initial period as the five
month period August 1, 1994 through December 31, 1994.

The Company operates on a 52-53 week fiscal year ending the Sunday nearest
December 31. The financial statements reflect the Company's year-end as December
31 for presentation purposes.

Use of estimates in financial statements

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

F-7
<PAGE> 52

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Cash equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company has no cash
equivalents for any of the periods presented.

Inventories

Inventories consist principally of consumables, supplies, and disposable
surgical products since the acquisition of Surgipro (see Note C) and are stated
at the lower of cost or market; cost being determined on the first-in, first-out
method.

Reusable surgical products

Reusable surgical products are stated at historical cost, net of
amortization. The products are amortized on a basis similar to the units of
production method. Estimated useful lives are based on the estimated total
number of available uses for each product. The expected total available usage
for its products using the three principal fabrics (accounting for 85% of its
products) are 75, 100, and 125 uses based on several factors including studies
performed by management. Based on current inventory (product) turnover, the
expected total available usage equates to a time period of approximately three
to seven years. The estimates, however, are subject to revision if actual
experience differs from the estimated available uses.

The Company has experienced minor amounts of shrinkage since August 1,
1994, with actual shrinkage currently ranging 1% - 1.5% of revenues. At December
31, 1994, the Company established a reserve for shrinkage of $100,000 to account
for the estimated amount of product at customer locations that will not be
returned to the Company. An additional provision was not deemed necessary during
1995, in part because of the favorable effect of returned products previously
written off. The Company will continue to evaluate at least quarterly the actual
shrinkage experience and trends, and will review the shrinkage provision if
deemed necessary.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets, or the term of the related
leases for leasehold improvements, if less than the useful lives.

Goodwill

Goodwill, which resulted from the acquisition of Surgipro, is stated at
cost less accumulated amortization which is provided using the straight-line
method over 20 years.

On a quarterly basis, the Company will evaluate the projected undiscounted
cash flows of each business unit (reusable and disposable) to determine whether
or not there is permanent impairment of its long-lived assets, including
goodwill, and will expense the amount, if any, determined to be permanently
impaired.

Revenues

Revenues are recognized as the agreed upon services, as described in Note A
of Notes to Financial Statements, are delivered, which is generally daily. The
Company's revenues are principally generated from service agreements with
varying terms of one to three years, which are cancelable by either party with
generally a 90-day notice. All reusable surgical products provided to a customer
under these agreements are used by the customer, but remain the Company's
property.

F-8
<PAGE> 53

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income taxes

The Company is taxed as an S Corporation under the provisions of the
Internal Revenue Code. As such, the Company's taxable income is includable in
the individual income tax returns of its shareholders for federal and state
income tax purposes. Accordingly, no provisions for federal and state income
taxes have been recorded in the accompanying historical financial statements.

On completion of the offering, the Company will terminate its S Corporation
status, become subject to corporate income taxes, and record deferred income
taxes to account for the temporary differences between the tax and reported
bases of the Company's assets and liabilities, which will be included in the
Company's statement of operations (see Note K).

Collectibility of accounts receivable

The Company grants credit to customers who meet pre-established credit
requirements. The Company does not require collateral when trade credit is
granted to customers. Credit losses have been less than $25,000 for each period
presented herein. The allowance for doubtful accounts at December 31, 1994 and
1995 and March 31, 1996 is $6,000, $21,000 and $27,000, respectively.

Fair value of financial instruments

The carrying amounts of cash, receivables, accounts payables, accrued
expenses and notes payable approximate fair value because of the short-term
nature of the items. The carrying value of the acquisition debt approximates its
fair value based on current interest rates, coupled with the expected near term
payoff of the debt with the proceeds from the offering.

New accounting pronouncement

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued, pro forma disclosures are required as if
SFAS No. 123's accounting provisions were followed. Management has determined
not to adopt SFAS No. 123's accounting recognition provisions related to stock
options granted to employees and accordingly, will continue following APB No.
25's accounting provisions. All other requirements of SFAS No. 123 will be
implemented on January 1, 1996 and are not expected to have a material effect on
the Company's financial statements.

Unaudited financial statements

The unaudited financial statements and the related notes thereto for March
31, 1995 and 1996 include all normal and recurring adjustments which in the
opinion of management are necessary for a fair presentation and are prepared on
the same basis as audited annual statements. The interim results are not
necessarily indicative of the results that may be expected for the full year.

NOTE C -- BUSINESS COMBINATIONS

Amsco Sterile Recoveries, Inc.

Effective July 31, 1994, the Company acquired from Amsco Sterile in the
Acquisition substantially all of its assets, principally reusable surgical
products, property, plant and equipment, and accounts receivable. Amsco
Sterile's parent is American Sterilizer Company, a subsidiary of AMSCO
International, Inc.

F-9
<PAGE> 54

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

("AMSCO"). Two of the Company's officers and major shareholders were formerly
executive officers of Amsco Sterile. The total consideration of approximately
$15,300,000 consisted of:

<TABLE>
<S> <C>
Cash.................................................................... $ 5,012,000
Acquisition debt to Amsco Sterile....................................... 9,871,000
Liabilities assumed..................................................... 265,000
Direct acquisition costs................................................ 152,000
-----------
$15,300,000
===========
</TABLE>

The cash was provided from: (i) $1,012,000 contributed by the Company's
three shareholders; (ii) $1,000,000 from a convertible note agreement with an
individual who became a director of the Company (see Note F); (iii) $1,470,000
from the concurrent factoring of certain of the acquired accounts receivable
(see Note E); and (iv) $1,530,000 from the concurrent sale of one of the
facilities acquired from Amsco Sterile, including reusable surgical products, to
an unrelated third party.

The acquisition was accounted for as a purchase transaction. The purchase
cost was allocated based on the fair value of the net assets acquired or
estimated amounts expected to be received upon disposal, as follows:

<TABLE>
<S> <C>
Accounts receivable..................................................... $ 3,847,000
Inventories............................................................. 127,000
Reusable surgical products.............................................. 5,226,000
Property, plant and equipment........................................... 4,570,000
-----------
13,770,000
Assets sold concurrently................................................ 1,530,000
-----------
$15,300,000
===========
</TABLE>

The Company's active operations commenced upon the acquisition of Amsco
Sterile's business on July 31, 1994; therefore, the statement of operations
includes the acquired business' operating results from August 1, 1994.

Surgipro

In February 1996, the Company purchased the operations of Surgipro. The
Company paid consideration of approximately $600,000, consisting of 90,000
shares of the Company's Common Stock valued at $526,500 and a note payable of
approximately $76,000 due in 1998 (or on the earlier completion of the
offering), for approximately $500,000 of assets and the assumption of
approximately $400,000 of liabilities. The note payable amount is subject to
further adjustment upon final determination. Any adjustment is not expected to
exceed $35,000 and will result in an increase to recorded goodwill. This
acquisition was accounted for as a purchase transaction and, accordingly, the
purchase price was allocated to the assets and liabilities based upon their
estimated fair values at the time of the acquisition, with the excess of
approximately $540,000 being allocated to goodwill. The results of operations
are included in the accompanying Statement of Operations from the acquisition
date.

F-10
<PAGE> 55

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following unaudited pro forma financial information assumes that the
purchase had occurred at the beginning of the respective periods after giving
effect to certain pro forma adjustments including, among others, adjustments to
reflect amortization of goodwill. The pro forma information is presented for
informational purposes only and may not be indicative of actual results had the
purchase occurred at the beginning of the respective periods.

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER ENDED MARCH 31,
31, -------------------------
1995 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Revenues...................................... $26,315,051 $6,062,430 $7,444,371
Net income (loss)............................. $ (683,968) $ (451,341) $ 122,330
Net income (loss) per common share............ $ (.19) $ (.13) $ .04
</TABLE>

NOTE D -- PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
USEFUL ------------------------- 1996
LIVES IN YEARS 1994 1995 ----------
-------------- ---------- ---------- (UNAUDITED)
<S> <C> <C> <C> <C>
Land and building................ 38 $ 314,369 $ 314,369 $ 320,568
Leasehold improvements........... 2-18 1,298,697 1,300,698 1,310,549
Machinery and equipment.......... 3-12 2,677,164 2,928,415 3,105,059
Office furniture and equipment... 5-10 341,853 366,390 424,657
---------- ----------- ----------
4,632,083 4,909,872 5,160,833
Less: Accumulated depreciation
and amortization............... 169,778 591,032 751,723
---------- ---------- ----------
$4,462,305 $4,318,840 $4,409,110
========== ========== ==========
</TABLE>

NOTE E -- NOTES PAYABLE -- WORKING CAPITAL LOAN FACILITY

In July 1994, the Company established a factoring arrangement with a
finance company whereby the Company factors substantially all of its trade
receivables on a recourse basis. The arrangement had an initial term of 180 days
and automatically renews after each successive 365-day term. The finance company
may terminate the arrangement at the end of any of the successive 365-day terms
upon written notice of at least 60 days prior to the end of any such term or at
any time upon an event of default (including nonpayment of indebtedness when
declared due or a bankruptcy filing) or if the finance company reasonably deems
itself insecure as to the intent or ability of the Company to pay any of its
indebtedness under the arrangement. Generally, the Company may borrow up to 90%
of the unpaid face amount of such receivables less a reserve amount equal to
previously issued unpaid advances and an amount established by the lender to
cover for disputed and/or underpaid billings not repurchased by the Company. The
agreement requires the Company to repurchase the receivables which are unpaid
after 90 days and allows the Company to repurchase the receivables and terminate
the arrangement at any time upon payment to the factor of all advances made and
all interest and fees owed. Interest on the cash drawings are at a base lending
rate (8.75% and 8.25% at December 31, 1995 and March 31, 1996, respectively)
plus 4% (adjusted to 2% at March 1, 1996). The factor also receives a commission
on the face amount of the receivables financed. Interest and fees totaled
$307,327 in 1994, $422,234 in 1995 and $114,477 in 1996. Advances owed under
this arrangement total $1,061,341, $1,810,119, and $1,975,386 at December 31,
1994, December 31, 1995, and March 31, 1996, respectively. Available borrowings
under this arrangement at December 31, 1995 and March 31, 1996 approximate
$373,000 and $493,000, respectively.

F-11
<PAGE> 56

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE F -- NOTES PAYABLE -- RELATED PARTIES

Notes payable -- related parties consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ---------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Convertible demand promissory note............. $1,000,000 $ -- $ 1,000,000
Note payable other............................. -- -- 133,977
---------- ---------- ----------
$1,000,000 $ -- $ 1,133,977
========== ========== ==========
</TABLE>

Convertible Demand Promissory Note

In conjunction with the Acquisition, the Company borrowed $1,000,000 from a
director of the Company pursuant to a secured Convertible Demand Promissory Note
that accrued interest at 12% per annum. In September 1995, the note was
converted into 225,807 shares of Common Stock at an effective conversion price
of $4.43 per share.

In March 1996, the Company borrowed another $1,000,000 from the director
pursuant to another Convertible Demand Promissory Note. Beginning on March 1,
1997, the Convertible Note becomes payable on demand and may be redeemed by the
Company for face value. At any time before that date, $750,000 of the
Convertible Note is convertible to Common Stock at $5.85 per share. The $250,000
balance is not convertible and is payable on maturity. The Convertible Note has
a stated interest rate of 8.5% and is secured by a first lien on the Company's
Houston, Texas facility and the equipment located at the facility.

The Company incurred interest expense related to the two demand notes of
$50,000, $70,000, $30,000 and $7,000 for the five months ended December 31,
1994, the year ended December 31, 1995, and the three months ended March 31,
1995 and 1996.

Note Payable Other

In connection with the Surgipro acquisition (Note C), the Company will
issue a note payable in the amount of $76,000 due in four equal quarterly
installments of $18,988 beginning April 1997. The full amount of the note is
payable ten days after the Company closes the offering. Issuance of the note has
been deferred pending post-closing adjustments which are not expected to exceed
$35,000. Interest on the note accrues after July 1996 at a stated rate equal to
the prime rate announced from time to time by the Company's principal bank and
is payable in quarterly installments beginning October 1996 and continuing until
the note is paid in full.

Also, in connection with the same acquisition, the Company assumed a
non-interest bearing note payable of $58,025 due in three equal monthly
installments of $19,342 beginning April 1996.

The weighted average interest rates of all the Company's notes payable at
December 31, 1994 and 1995 and March 31, 1996 were 12.26%, 12.75%, and 10.73%
respectively.

F-12
<PAGE> 57

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- ACQUISITION DEBT

Acquisition debt consists of the following:

DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Purchase money note -- Amsco Sterile; monthly principal
payments of $100,000 through July 1997 with a balloon
payment due August 1997; interest at a bank's prime
rate (8.75% at December 31, 1995 and March 31, 1996)
plus 1.5%; collateralized by all Company assets,
excluding accounts receivable and real and personal
property at the Houston, Texas facility.............. $9,880,832 $9,080,832 $8,680,832
========== ========== ==========
</TABLE>

At December 31, 1995, aggregate maturities of acquisition debt are
summarized below:

<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1996........................................................... $1,200,000
1997........................................................... 7,880,832
----------
$9,080,832
==========
</TABLE>

The Purchase Money Security Agreement with Amsco Sterile contains various
financial related covenants, including, among other things, limiting in 1996 the
Company's total allowed capital expenditures and general indebtedness to
approximately $4,400,000 and $18,600,000, respectively. In addition, certain
limitations exist as to the permitted amount of Common Stock dividends and
distributions. If the Company completes the offering of common stock described
in Note K, the entire debt would be paid off from the proceeds of the offering.

Interest expense for the five months ended December 31, 1994, the year
ended December 31, 1995, and the three months ended March 31, 1995 and 1996
totaled $378,758, $977,711, $247,021, and $221,021, respectively.

NOTE H -- COMMITMENTS

Operating Leases

The Company leases offices, facilities and distribution vehicles under
noncancelable operating leases with terms ranging from one year to nine years.
At present the Company intends to exercise certain of these renewal options when
the initial term expires. The office and processing facility leases contain
various renewal options and escalating payments. The vehicle leases contain
contingent rentals based on mileage.

Future minimum lease payments at December 31, 1995 under leases in excess
of one year are as follows:

<TABLE>
<S> <C>
Year ending
1996................................................................ $1,635,345
1997................................................................ 1,211,563
1998................................................................ 1,011,777
1999................................................................ 788,511
2000................................................................ 720,800
Thereafter.......................................................... 1,166,413
----------
$6,534,409
==========
</TABLE>

F-13
<PAGE> 58

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Rental expense for the five-month period ended December 31, 1994, the year
ended December 31, 1995, and the three months ended March 31, 1995 and 1996
totaled $815,235, $1,866,246, $432,491 and $477,042 (including contingent
rentals of approximately $100,000, $230,000, $55,000 and $45,000), respectively.

Management Incentive Plan

The Company has established a Management Incentive Plan in which forty (40)
employees participated in 1995. The incentives are based on various performance
factors and can be adjusted to reflect the Company's overall performance as
determined by the Board of Directors. Payment of the cash incentives is made at
the end of the second month after the end of the incentive year and the
participant must still be an employee of the Company at that time.

Approximately $195,000 and $30,000 of estimated incentives were recognized
during the year ended December 31, 1995 and the three months ended March 31,
1996.

Financial Consultant Agreement

In accordance with a financial consulting agreement dated October 18, 1995
with a director, upon the successful completion of the offering, approximately
$255,000 cash remuneration will be payable to the consultant. Because payment
for the consultant services is contingent upon successful completion of the
offering, which is uncertain, no amounts have been accrued.

Management Employment Agreements

On May 2, 1996, the Board approved employment agreements with four
executives in which each executive would receive severance pay equal to three
years of base salary in the event that the executive is terminated following a
change in control of the Company.

Shareholder Agreement

The Company and its shareholders have entered into a shareholder agreement
(amended as of February 20, 1996) whereby the Company has the first option and
the shareholders the second option to purchase any (but not less than all)
shares that a shareholder intends to transfer to any person other than the
Company, generally at the same price contemplated by the intended transfer. This
agreement will automatically terminate upon completion of the offering.

NOTE I -- SHAREHOLDERS' EQUITY

Common Stock

The Company, on December 21, 1995, increased the number of authorized
Common Stock shares from 10,000,000 to 30,000,000 at $.001 par value per share.
Subject to preferences that might be applicable to any then outstanding
Preferred Stock, the holders of the Common Stock are entitled to receive
dividends when, as, and if declared from time to time by the Board of Directors
out of funds legally available therefor. In the event of liquidation,
dissolution, or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
subject to prior distribution rights of any Preferred Stock then outstanding.
The Common Stock has no preemptive or conversion rights and is not subject to
call or assessment by the Company. There are no redemption or sinking fund
provisions applicable to the Common Stock.

The Company, on December 21, 1995, declared a 3-for-1 stock split which was
effectuated as a 200% stock dividend. All share and per share data in the
Company's financial statements and notes thereto have been retroactively
restated to give effect to the split.

F-14
<PAGE> 59

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Preferred Stock

The Company is authorized to issue 5,000,000 shares of Preferred Stock,
$.001 par value per share. The Board of Directors has the authority, without any
further vote or action by the Company's shareholders, to issue Preferred Stock
in one or more series and to fix the number of shares, designations, relative
rights (including voting rights), preferences, and limitations of those series
to the full extent now or hereafter permitted by Florida law. The Company
believes that this power to issue Preferred Stock will provide flexibility in
connection with possible corporate transactions. The issuance of Preferred
Stock, however, could adversely affect the voting power of holders of Common
Stock and restrict their rights to receive payments upon liquidation and could
have the effect of delaying, deferring, or preventing a change in control of the
Company. The Company has no present intention to issue shares of Preferred
Stock, although it may determine to do so in the future.

NOTE J -- STOCK OPTIONS

The Company maintains two stock option plans which were adopted by the
Board of Directors and were approved by the shareholders of the Company on
December 21, 1995, the Company's 1995 Stock Option Plan (the "Employee Plan")
and on May 2, 1996, the Company's 1996 Non-Employee Director Plan (the "Non-
Employee Plan").

The Employee Plan

The Employee Plan provides for the grant to employees of incentive or
non-qualified options to purchase up to 500,000 shares of Common Stock. On
December 21, 1995, the Company granted non-qualified stock options covering a
total of 94,000 shares of Common Stock to various employees at an exercise price
of $5.85 per share. The exercise price represents the estimated fair value of
the Company's Common Stock at the time of the grant, as approved by the Board of
Directors based upon various factors including an independent third party firm's
valuation. None of the options vest until completion of the offering, and then
vest ratably over the four-year period following the completion of the offering.
All outstanding options vest upon the change in control of the Company. Options
granted under the Employee Plan expire not later than ten years after the date
granted or sooner in the event of death, disability, retirement or termination
of employment. Upon completion of the offering, all employees as a group that
participate in the Employee Plan will also be granted options to purchase a
total of 219,500 shares of Common Stock at the initial offering price per share.
Included in these options are 70,000 options to an employee who is also a
director of the Company. Each of these options vests ratably over the five-year
period following the completion of the offering.

The Non-Employee Plan

The Non-Employee Plan provides for the grant of nonqualified stock options
to purchase up to 100,000 shares of Common Stock to members of the Board of
Directors who are not employees of the Company. As of the date of these
financial statements, such members held no options under the Non-Employee Plan.
Upon the completion of the offering, each non-employee director will be granted
options to purchase 4,000 shares of Common Stock for each full remaining year of
the director's term at the offering price. Thereafter, on the date on which a
new non-employee director is first elected or appointed, he will automatically
be granted options to purchase 4,000 shares of Common Stock for each year of his
initial term. Each non-employee director will be granted options to purchase
4,000 shares of Common Stock for each year of any subsequent term to which he is
elected. All options become exercisable ratably over the director's term and
have an exercise price equal to the fair market value of the Common Stock on the
date of grant.

F-15
<PAGE> 60

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Other Stock Options

In March 1995, in conjunction with an employment termination and an
agreement that the former employee would be a future independent sales
representative for the Company, 12,500 options at $1.00 a share exercise price
were granted to the individual. The option term is for 10 years and includes a
put option whereby the Company could be required to buy back the option at the
net book value per share of the Company's Common Stock at the preceding year end
value, less $1.00 a share. At March 31, 1996, the put option has no value (i.e.
net book value per share is less than $1.00 a share).

In October 1995, in conjunction with a financial consulting arrangement
with an individual who has become a director of the Company, the Company granted
the individual a non-qualified stock option for 66,000 shares of its Common
Stock at an exercise price of $4.43 a share, exercisable as follows: (1) 22,000
shares upon the completion of an interim financing (completed in March 1996);
and (2) 44,000 upon completing an initial public offering before September 1,
1996. The exercise price was determined by the Board of Directors to approximate
the estimated fair value of the Company's Common Stock at the date of grant
based on various factors, including the Company's history of operating losses.

On May 2, 1996, the Company issued to a recently appointed director, an
option to purchase 7,500 shares of the Company's Common Stock for $8.00 per
share, which vests one third on completion of the offering, one third at the
1997 annual meeting of shareholders, and one third at the 1998 annual meeting of
shareholders.

The following table summarizes the activity in Common Stock subject to
options since the Company's inception:

<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE
-------- -------------
<S> <C> <C>
Outstanding at July 31, 1994 and December 31, 1994.......... -- --
Granted
March, 1995............................................ 12,500 $ 1.00
October, 1995.......................................... 66,000 $ 4.43
December, 1995......................................... 94,000 $ 5.85
Exercised................................................. --
Cancelled................................................. --
------- -------------
Outstanding at December 31, 1995 and March 31, 1996......... 172,500 $1.00 - $5.85
======= =============
</TABLE>

At December 31, 1995 and March 31, 1996, stock options for 12,500 shares
($1.00 a share) and 34,500 shares ($1.00 -- $4.43 a share) were exercisable,
respectively.

NOTE K -- PRO FORMA INFORMATION (UNAUDITED)

Pro forma income taxes

In conjunction with the completion of the offering, the Company will
terminate its S Corporation election and become subject to corporate income
taxes from that date forward.

The statements of operations for all periods presented reflect the pro
forma effect on income taxes (benefits) as if the Company's earnings (losses)
had been subjected to federal and state income taxes as a C Corporation.

In the determination whether to recognize any tax benefits from the
Company's operating losses on a pro forma basis, management considered the
Company's history of net operating losses. While management acknowledges that
the Company's recent fiscal quarters demonstrate the Company's ability to be
profitable, management believes using the more likely than not criteria
established by SFAS No. 109, "Accounting for

F-16
<PAGE> 61

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes," that no tax benefits should be recognized for any reported
period, except for the three months ended March 31, 1996. As the table below
reflects, the estimated income tax expense before utilization of the Company's
net operating loss carryforwards was approximately $65,000 on the earnings for
the first quarter of 1996.

Reconciliation of the income tax expense (benefit) calculated using the
federal statutory income tax rate of 34% to the income tax expense (benefit)
recorded is as follows:

<TABLE>
<CAPTION>
FIVE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, --------------------
1994 1995 1995 1996
------------ ------------ --------- --------
<S> <C> <C> <C> <C>
Federal income taxes (benefit) at
statutory rates................................ $ (406,000) $ (205,000) $(153,000) $ 58,000
State income taxes, net of federal benefit....... (44,000) (22,000) (16,000) 6,000
Net operating losses not currently utilizable.... 444,000 224,000 167,000 --
Utilization of net operating carryforwards....... -- -- -- (65,000)
Other, net....................................... 6,000 3,000 2,000 1,000
------------ ----------- - ---------- ---------
Income tax expense (benefit)..................... $ -- $ -- $ -- $ --
============ ============ ========== =========
</TABLE>

Since the Company's cumulative net operating losses have passed directly to
its S Corporation shareholders, the losses will not be available to the Company
upon conversion to C Corporation status.

At December 31, 1994 and 1995 and March 31, 1996, there were differences
between the bases for the Company's assets and liabilities as reported for
income tax return purposes and as reported for financial statement purposes. The
aggregate bases difference at these dates has been approximately $500,000
representing principally reported liabilities, such as accrued vacation expense,
which have no bases for income tax purposes.

Pro forma net income (loss) per common share

Pro forma net income (loss) per common share is computed by dividing pro
forma net income (loss) by the weighted average number of shares of common stock
outstanding. Pro forma net income (loss) includes a pro forma provision for
income taxes assuming the Company had been subject to income taxes during the
period it was an S Corporation for income tax purposes. All Common Stock and
options issued within one year prior to the Company's offering are deemed
outstanding for all periods. In addition, the Company assumed that the
Convertible Demand Promissory Note issued March 1996 (see Notes F and L) would
be converted prior to or concurrently with the offering and accordingly, the
resulting shares of Common Stock are included in the net income (loss) per
common share calculation. The Company used the treasury stock method to
calculate the Common Stock equivalents that the stock options would represent.
The additional shares assumed outstanding in the calculation of income (loss)
per common share, relate primarily to the Common Stock issued as described in
the Statement of Shareholders' Equity and Notes C, F and L of the financial
statements and the previously described convertible notes.

<TABLE>
<CAPTION>
FIVE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1994 1995 1995 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Actual weighted average shares
outstanding.............................. 3,000,000 3,094,086 3,000,000 3,255,807
Additional shares.......................... 512,815 418,729 512,815 257,008
--------- --------- --------- ---------
Weighted average shares used in income per
share calculation........................ 3,512,815 3,512,815 3,512,815 3,512,815
========= ========= ========= =========
</TABLE>

F-17
<PAGE> 62

STERILE RECOVERIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company is contemplating the offering in the amount of $22,000,000,
from which proceeds will be used to retire approximately $10,700,000 of debt.
The supplementary pro forma income per common share for 1995 and the three
months ended March 31, 1996 as if this debt has been retired at the beginning of
the respective periods, would be $.18 and $.11 per share (assuming 4,507,558 and
4,411,992 weighted average common shares outstanding, respectively).

NOTE L -- RELATED PARTY TRANSACTIONS

During fiscal years 1994 and 1995 and the three months ended March 31,
1996, SRI purchased repair parts and services for the Company's water and heat
reclamation equipment from a company which is owned by a director and
shareholder of the Company, incurring total expense of $4,000, $8,000 and
$14,000, respectively, which is included in cost of revenues.

In March 1996, the Company's financial consultant who subsequently became a
director (see Note H) and a member of the law firm representing the Company as
general counsel, contributed $250,000 and $50,000 in cash for 42,735 and 8,547
shares of the Company's Common Stock, respectively. The shares of Common Stock
were valued at $5.85 a share, representing its estimated fair value as
determined by the Company's Board of Directors upon considering various factors,
including an independent third-party firm's valuation, the Company's inability
to obtain other financing, and a contemporaneous transaction at the same
purchase price per share.

In both July 1994 and March 1996, the Company received $1,000,000 in cash
from a director and significant shareholder. In each case, the cash was received
for a Convertible Demand Promissory Note (see Note F).

F-18
<PAGE> 63

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Sterile Recoveries, Inc.

We have audited the accompanying statements of operations of Amsco Sterile
Recoveries, Inc. (a wholly-owned subsidiary of American Sterilizer Company and
predecessor to Sterile Recoveries, Inc.) and the related statements of cash
flows for the year ended December 31, 1993 and the seven months ended July 31,
1994. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of Amsco Sterile Recoveries,
Inc. and cash flows for the year ended December 31, 1993 and the seven months
ended July 31, 1994, in conformity with generally accepted accounting
principles.

GRANT THORNTON LLP

Tampa, Florida
May 10, 1996

F-19
<PAGE> 64

AMSCO STERILE RECOVERIES, INC.
(PREDECESSOR TO STERILE RECOVERIES, INC.)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, JULY 31,
1993 1994
------------ ------------
<S> <C> <C>
Revenues
Reusable surgical products service............................ $ 7,988,117 $ 12,069,411
Cost of revenues................................................ 15,089,952 14,091,339
--------- ---------
Gross profit (deficit)..................................... (7,101,835) (2,021,928)
Distribution expenses........................................... 980,937 1,309,603
Selling and administrative expenses............................. 12,132,167 7,374,720
Restructuring expense........................................... 1,550,000 --
--------- ---------
Loss from operations.......................................... (21,764,939) (10,706,251)
Interest expense................................................ 5,727,107 4,790,888
--------- ---------
Loss before income taxes...................................... (27,492,046) (15,497,139)
Income taxes.................................................... -- --
--------- ---------
Net loss...................................................... $(27,492,046) $(15,497,139)
========= =========
</TABLE>

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

F-20
<PAGE> 65

AMSCO STERILE RECOVERIES, INC.
(PREDECESSOR TO STERILE RECOVERIES, INC.)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, JULY 31,
1993 1994
------------ ------------
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net loss...................................................... $(27,492,046) $(15,497,139)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.............................. 1,904,070 1,388,032
Amortization of reusable surgical products................. 1,401,899 2,564,912
Provision for reusable surgical product shrinkage.......... 1,151,335 950,747
Change in assets and liabilities:
Accounts receivable...................................... (1,602,749) (1,609,963)
Prepaid expenses and other assets........................ (641,466) (450,646)
Accounts payable......................................... (2,703,893) 49,955
Accrued expenses......................................... 1,197,470 23,804
Accrued restructuring.................................... 1,550,000 (549,014)
------------ ------------
Net cash used in operating activities................. (25,235,380) (13,129,312)
------------ ------------
Cash flows from investing activities
Purchases of property, plant and equipment.................... (7,156,044) (1,390,265)
Purchases of reusable surgical products....................... (15,301,269) (5,125,698)
------------ ------------
Net cash used in investing activities................. (22,457,313) (6,515,963)
------------ ------------
Cash flows from financing activities
Advances and loans (net) from parent.......................... 46,932,851 19,752,400
------------ ------------
Net cash provided by financing activities............. 46,932,851 19,752,400
------------ ------------
Increase (decrease) in cash..................................... (759,842) 107,125
Cash at beginning of period..................................... 800,031 40,189
------------ ------------
Cash at end of period........................................... $ 40,189 $ 147,314
============ ============
Supplemental cash flow information
Cash paid for interest(1)..................................... $ 5,727,107 $ 4,790,888
============ ============
</TABLE>

- ---------------
(1) Accrued through intercompany charges.

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

F-21
<PAGE> 66

AMSCO STERILE RECOVERIES, INC.
(PREDECESSOR TO STERILE RECOVERIES, INC.)

NOTES TO FINANCIAL STATEMENTS

NOTE A -- DESCRIPTION OF ORGANIZATION AND BUSINESS

AMSCO Sterile Recoveries, Inc. ("Amsco Sterile") was a wholly-owned
subsidiary of American Sterilizer Company, a Pennsylvania corporation whose
parent, AMSCO International, Inc. ("AMSCO"), is a Delaware corporation. The
Amsco Sterile corporate headquarters were located in Clearwater, Florida.

Amsco Sterile commenced business in September 1991 when it acquired Amsco
Sterile's predecessor, a Delaware corporation, which at that time had no assets
or liabilities, except for exclusive rights under a distribution agreement with
a manufacturer of certain fabric material used in Amsco Sterile's products.

Amsco Sterile provided hospitals and surgery centers with a comprehensive
surgical procedure-based delivery and retrieval service for reusable gowns,
towels, drapes and basins, necessary for surgery. At regional facilities located
in various states, Amsco Sterile collected, sorted, cleaned, inspected,
packaged, sterilized, and delivered its reusable products on a just-in-time
basis.

In 1993, one customer accounted for approximately 12% of revenues. In 1994,
no customer accounted for more than 10% of revenues.

Amsco Sterile contracted with third party vendors for the weaving of
microfiber fabric and the cutting and sewing of gowns, wraps, and drapes. Amsco
Sterile's business was substantially dependent on its ability to obtain a key
component of its surgical products from two principal vendors.

Effective July 31, 1994, Amsco Sterile consummated a sale of substantially
all its assets to Sterile Recoveries, Inc. (see Note B).

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial statement presentation

Amsco Sterile maintained separate books and records as its operations were
generally on the stand alone basis as it related to its affiliated group, except
that Amsco Sterile was solely dependent on its parent to finance its operations
through intercompany loans and advances and Amsco Sterile and its parent had
many common customers. The accompanying financial statements therefore may not
necessarily be indicative of the results of operations that would be obtained if
Amsco Sterile had operated exclusively as an independent entity.

The statement of operations reflect the interest charged by AMSCO on the
intercompany debt. The other services provided by AMSCO that are material have
been included in the financial statements (see below). While Amsco Sterile was
part of AMSCO's consolidated income tax return, Amsco Sterile's income tax
provision herein is determined on the separate return basis (see note E).

AMSCO's Board of Directors, on June 23, 1994, approved a plan to divest or
wind down Amsco Sterile's business and engaged a nationally recognized
investment banking firm to solicit bids to purchase Amsco Sterile. AMSCO's
decision was based on the difficulties encountered in achieving Amsco Sterile's
growth objectives in the healthcare environment existing at that time. In
connection with this divestment plan, Amsco Sterile consummated the sale of
substantially all of its assets on July 31, 1994 to a newly formed company,
Sterile Recoveries, Inc. (the "Successor"), a Florida corporation, owned by two
former executive officers of Amsco Sterile and another individual. These two
former executive officers were also two of the founders and stockholders of
Amsco Sterile's predecessor in September 1991 (see Note A). The purchase price
totaled approximately $14,883,000 (exclusive of assumed liabilities of
$265,000), consisting of cash of $5,012,000 and a purchase money note of
$9,871,000. The purchase price was substantially less than the recorded cost of
the assets disposed.

F-22
<PAGE> 67

AMSCO STERILE RECOVERIES, INC.
(PREDECESSOR TO STERILE RECOVERIES, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The accompanying financial statements do not contain any adjustments such
as writedown of assets or establishment of reserves resulting from AMSCO's
decision to discontinue Amsco Sterile's operations and/or to sell most of the
assets effective July 31, 1994.

The Company operates on a 52-53 week fiscal year ending the Sunday nearest
December 31. The financial statements reflect the Company's year-end as December
31.

Use of estimates in financial statements

In preparing financial statements in conformity with generally accepted
accounting principles, management made estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could have differed from those estimates.

Revenues

Revenues are recognized as the agreed upon services, as described in Note A
to the financial statements, are delivered, which is generally daily. Amsco
Sterile's revenues were principally generated from service agreements with
varying terms of one to three years, which are cancelable by either party with
generally a 90-day notice. All reusable surgical products provided to the
customers under these agreements, are used by the customer, but remain Amsco
Sterile's property.

Depreciation of property, plant and equipment

Depreciation and amortization is provided using the straight-line method
over the estimated useful lives of the assets: 40 years for buildings; 5-20
years for leasehold improvements; 3-12 years for machinery and equipment; and
5-10 years for office furniture and equipment. Leasehold improvements are
amortized using the lesser of the asset's useful lives or the lease term.

Management on a quarterly basis reviews the Company's actual and projected
operations and cash flows on an overall basis and by facility to ascertain
whether or not any permanent impairment in the carrying value of its assets
should be recognized. No impairment has been recognized in the financial
statements.

Amortization of reusable surgical products

The products are amortized on a basis similar to the unit of production
method. Estimated useful lives are based on the estimated total number of
available uses for each product. The expected total available usage for its
products using the three principal fabrics (accounting for 85% of its products)
are 75, 100, and 125 uses based on several factors including studies performed
by management. Based on current inventory (product) turnover, the expected total
available usage equates to a time period of approximately three to seven years.
The estimates, however, are subject to revision if actual experience differs
from the estimated available uses.

In addition to the amortization of the reusable surgical products, Amsco
Sterile provided for shrinkage of the product. The provision was generally 8% of
revenues and was based on management estimates.

F-23
<PAGE> 68

AMSCO STERILE RECOVERIES, INC.
(PREDECESSOR TO STERILE RECOVERIES, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Goodwill amortization

Goodwill amortization is provided using the straight-line method over 40
years. The goodwill is related to the purchase of Amsco Sterile's predecessor
and is accounted for at the subsidiary level using push down accounting by
AMSCO.

NOTE C -- RELATED PARTY TRANSACTIONS

Administrative costs

AMSCO charged fees to Amsco Sterile to develop certain computer software
for Amsco Sterile's use. Such fees allocated by AMSCO, based on estimates of
actual time incurred, which management believed to be a reasonable allocation
method, aggregated approximately $41,000 and $400,000 for the year ended
December 31, 1993 and seven months ended July 31, 1994, respectively. AMSCO also
processed payroll, collected Amsco Sterile's accounts receivable and performed
computer processing for Amsco Sterile at no charge to Amsco Sterile. No estimate
of these costs has been reflected in these financial statements as management
believed that the amounts were not material to the financial statements.

Interest expense

AMSCO charged Amsco Sterile interest monthly on borrowings made by Amsco
Sterile based upon the average balance owed to AMSCO at a rate comparable to
that which is paid by AMSCO on its borrowings (approximately 9% at July 31,
1994). Amsco Sterile's management believed that the interest allocation method
was reasonable.

Purchase of property, plant and equipment

Amsco Sterile purchased various equipment from AMSCO, which AMSCO also
marketed and sold to its other customers, totaling $700,000 and $-0- in 1993 and
1994.

NOTE D -- RESTRUCTURING

Amsco Sterile decided by December 31, 1993 to close three of its facilities
and reduce some of its workforce in 1994, consequently Amsco Sterile recorded a
$1,550,000 restructuring provision in 1993 consisting of (1) $900,000 for lease
termination charges; (2) $300,000 for severance and relocation costs; and (3)
$350,000 for various other matters. Through July 31, 1994, approximately
$550,000 of these items were paid.

NOTE E -- INCOME TAXES

Amsco Sterile's tax provision was determined on a separate return basis.

Amsco Sterile incurred substantial losses since inception. In addition,
substantially all of Amsco Sterile's assets were sold at July 31, 1994 for an
amount which was less than the assets' carrying values. The statements of
operations do not reflect any income tax benefits for Amsco Sterile's losses as,
under the circumstances described above and in Note B to the financial
statements, none have been or are likely to be realized.

F-24
<PAGE> 69

AMSCO STERILE RECOVERIES, INC.
(PREDECESSOR TO STERILE RECOVERIES, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE F -- COMMITMENTS

The terms of the acquisition agreement with Amsco Sterile's predecessor
also included additional consideration under the terms of an earn-out provision
based on net profits of the Company through December 31, 1996. Because of the
substantial losses incurred since the September 1991 acquisition through July
31, 1994, there have been no adjustments to the original purchase price.

NOTE G -- OPERATING LEASES

Amsco Sterile leased offices, facilities and distribution vehicles under
noncancelable operating leases with terms ranging from 1 year to 10 years. The
office and processing facility leases contained various renewal options and
escalating payments. The vehicle leases contained contingent rentals based on
mileage.

Total rental expense for the year ended December 31, 1993, and the seven
months ended July 31, 1994 aggregated approximately $1,125,000 and $670,000
(including contingent rentals of approximately $178,000 and $155,000),
respectively.

NOTE H -- EMPLOYEE BENEFIT PLANS

Employees of Amsco Sterile were entitled to participate in the benefit
plans of AMSCO. AMSCO's plans consisted of the following:

AMSCO Employees' Retirement Account

AMSCO administered the AMSCO Employees' Retirement Account (the "Plan"),
which is a qualified employee stock ownership plan.

The Plan enabled eligible employees, including Amsco Sterile's management,
to receive an equity participation in AMSCO. Contributions declared by the
Board of Directors, up to a maximum of 25% of eligible employee
compensation, were made to the Plan. The Plan in turn used the funds to
purchase shares of the AMSCO's stock or made investments in certain other
securities.

AMSCO Pension Plan

AMSCO had a defined benefit pension plan which covered substantially all
domestic union employees and provided pension benefits of stated amounts
for each year of service of the employee. The following table sets forth
the pension plan's funded status at December 31, 1993:

<TABLE>
<CAPTION>
<S> <C>
Actuarial present value of benefit obligations
Vested............................................................... $(29,421,000)
Nonvested............................................................ (982,000)
------------
Projected benefit obligation (equal to the accumulated benefit
obligation).......................................................... (30,403,000)
Plan assets at fair value.............................................. 26,462,000
------------
Plan assets less than projected benefit obligation................... $ (3,941,000)
============
</TABLE>

Amsco Sterile's expenses relating to these benefit plans were approximately
$0 and $243,000 in 1993 and 1994, respectively, and was based on the allocation
of the expense directly related to Amsco Sterile's participating employees.
Management believes that the allocation method is reasonable.

F-25
<PAGE> 70

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL SCHEDULE

Board of Directors
Sterile Recoveries, Inc.

In connection with our audit of the financial statements of Sterile
Recoveries, Inc., referred to in our report dated May 10, 1996, which is
included in the Prospectus constituting Part I of this Registration Statement,
we have also audited Schedule II for the five months ended December 31, 1994 and
the year ended December 31, 1995. In our opinion, this schedule presents fairly,
in all material respects, the information required to be set forth therein.

GRANT THORNTON LLP
Tampa, Florida
May 10, 1996

S-1
<PAGE> 71

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

STERILE RECOVERIES, INC.

<TABLE>
<CAPTION>
COLUMN C
------------------------------
COLUMN B ADDITIONS
---------- ------------------------------ COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED TO ------------ --------------
- --------------------------------- BEGINNING COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- --------------------------------- ---------- ---------- ----------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Five months ended December 31,
1994:
Allowance for doubtful
accounts.................... $ -- $ 6,000 -- $ -- $ 6,000
Year ended December 31, 1995:
Allowance for doubtful
accounts.................... 6,000 25,000 -- (10,000)(1) 21,000
</TABLE>

- ---------------
(1) Write-offs of uncollectible accounts.

S-2
<PAGE> 72

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL SCHEDULE

Board of Directors
Sterile Recoveries, Inc.

In connection with our audit of the financial statements of AMSCO Sterile
Recoveries, Inc. referred to in our report dated May 10, 1996, which is included
in the Prospectus constituting Part I of this Registration Statement, we have
also audited Schedule II for the year ended December 31, 1993 and the seven
months ended July 31, 1994. In our opinion, this schedule presents fairly, in
all material respects, the information required to be set forth therein.

GRANT THORNTON LLP
Tampa, Florida
May 10, 1996

S-3
<PAGE> 73

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

AMSCO STERILE RECOVERIES, INC.

<TABLE>
<CAPTION>
COLUMN C
------------------------------
COLUMN B ADDITIONS
---------- ------------------------------ COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED TO ------------ --------------
- --------------------------------- BEGINNING COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- --------------------------------- ---------- ---------- ----------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Allowance for doubtful
accounts.................... $ -- $ 27,182 -- $ (2,182)(1) $ 25,000
Seven Months ended July 31, 1994:
Allowance for doubtful
accounts.................... 25,000 125,000 150,000
</TABLE>

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(1) Write-offs of uncollectible accounts.

S-4
<PAGE> 74

[MAP SHOWING LOCATION OF FACILITIES
AND DEPOTS THROUGHOUT THE UNITED STATES]
<PAGE> 75

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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
The Company............................ 11
Use of Proceeds........................ 14
Dividend Policy........................ 14
Dilution............................... 15
Capitalization......................... 16
Selected Financial Data................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 26
Management............................. 33
Certain Transactions................... 36
Principal Shareholders................. 37
Description of Capital Stock........... 38
Shares Eligible for Future Sale........ 41
Underwriting........................... 42
Legal Matters.......................... 43
Experts................................ 43
Available Information.................. 43
Index to Financial Statements.......... F-1
</TABLE>

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UNTIL AUGUST 12, 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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2,000,000 SHARES

STERILE RECOVERIES, INC.

COMMON STOCK
------------------------

PROSPECTUS

------------------------
ROBERT W. BAIRD & CO.
INCORPORATED

RAYMOND JAMES &
ASSOCIATES, INC.

July 18, 1996

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