Table of Contents

AMENDMENT NO. 3

REGISTRATION STATEMENT

ALLIANCE MEDICAL CORPORATION

10232 South 51st Street

Ricardo M. Ferreira

Copies to:

     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis under Rule 415 under the Securities Act, check the following box:  o

     If this Form is filed to register additional securities for an offering under Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o            

     If this Form is a post-effective amendment filed under Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o            

     If this Form is a post-effective amendment filed under Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o            

     If delivery of the prospectus is expected to be made under Rule 434, check the following box:  o

CALCULATION OF REGISTRATION FEE

(1)	In accordance with Rule 457(o) under the Securities Act of 1933, the number of shares being registered and the proposed maximum offering price per share are not included in this table.
(2)	Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(3) Previously paid.

     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting under said Section 8(a), may determine.

Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

4,000,000 Shares

Common Stock

This is our initial public offering of shares of our common stock. No public market currently exists for our common stock. We expect the public offering price to be between $14.00 and $16.00 per share.

We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “ALMC.”

Before buying any shares of our common stock you should read the discussion of material risks of investing in our common stock in “Risk factors” beginning on page 7.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters may also purchase up to 600,000 shares of common stock from us at the public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus. The underwriters may exercise this option only to cover over-allotments, if any. If the underwriters exercise the option in full, the total underwriting discounts and commissions will be $          , and our total proceeds, before expenses, will be $          .

The underwriters are offering the common stock as set forth under “Underwriting.” Delivery of the shares will be made on or about                   , 2002.

UBS Warburg

Table of Contents

		CLEANING Devices are subjected to a cleaning process that is specific to each type of device, taking into account its materials, design, assembly, and operational characteristics. This cleaning protocol is subject to rigorous testing by an outside laboratory.
FUNCTION TESTING To ensure that devices will be fully functional after reprocessing, each device is subjected to a specific set of testing methods and procedures, which may include electrical profiling and inspection to determine whether the device conforms to established visual and dimensional standards.
		STERILIZATION The sterilization of each device is validated at specified assurance levels using state-of-the-art Ethylene Oxide sterilization chambers, which enable sterilization at low temperatures. An independent outside laboratory is used to confirm sterilization with respect to each lot prior to release to the customer.

Table of Contents

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock.

Through and including                , 2002 (the 25th day after commencement of this offering), all dealers that buy, sell, or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS

As used in this prospectus, references to “we,” “our,” “us,” and “Alliance” refer to Alliance Medical Corporation and its subsidiaries, unless the context requires otherwise.

Table of Contents

Prospectus summary

This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the risks of investing in shares of our common stock, which we discuss under “Risk factors,” and our consolidated financial statements and related notes. Except as otherwise indicated, information in this prospectus assumes a one for 3.3297 reverse stock split effected on November 13, 2001, the conversion of all of our preferred stock into 6,239,083 shares of our common stock, and no exercise of the underwriters’ over-allotment option.

OUR BUSINESS

We are a leading reprocessor of disposable medical devices that are used in a variety of medical procedures. Customers that implement our reprocessing programs can significantly reduce the costs associated with purchasing new devices, avoid the burdens of complying with government regulations, and reduce exposure to potential liability without compromising patient safety. Our comprehensive programs are designed to cover all phases of reprocessing and are easily implemented by health care facilities with minimal disruption to their workflow. For the nine months ended September 30, 2001, we provided reprocessing services to 641 health care facilities. We have entered into contracts with several leading national hospital group purchasing organizations and a number of nationally-recognized hospital networks, including AmeriNet, Inc., Henry Ford Health System, Kaiser Foundation Health Plan, Inc., Mayo Foundation for Medical Education and Research, Providence Health System, University HealthSystem Consortium, and VHA, Inc., that collectively represent more than 3,000 health care facilities. We believe these contracts, together with our financial resources and technical expertise, position us to capitalize on significant opportunities created by recent changes in the regulatory environment governing reprocessing.

INDUSTRY BACKGROUND

Reprocessing of disposable medical devices involves cleaning, function testing, and sterilizing used devices to ensure that they are safe and effective for reuse and will perform the functions for which they were designed. By reprocessing, rather than discarding, disposable medical devices after their initial use, hospitals and other health care facilities can substantially reduce their materials acquisition costs. An estimated $30 billion of disposable medical devices were sold in the United States in 2000. We estimate that at least 5% of this market consists of devices that may be reused if properly reprocessed and sterilized, which represents a potential market for reprocessing of more than $1 billion.

Many types of devices that are labeled as single-use may be reprocessed and safely reused in subsequent medical procedures. A significant number of these devices have been labeled as single-use by the manufacturer not because they are unsuitable for reuse, but rather to take advantage of the relatively shorter time periods required to obtain FDA approval for single-use devices or to benefit from the recurring nature of revenue generated by the sale of single-use devices.

Studies have indicated that up to 30% of US hospitals reuse disposable medical devices and that over two-thirds of the reprocessing market historically has been represented by hospitals that reprocess devices in-house. More recently, however, many health care providers have either been unable or unwilling to continue reprocessing in-house and have been forced to outsource their reprocessing needs to a relatively small number of independent third-party reprocessors.

KEY DEVELOPMENTS AFFECTING THE REPROCESSING INDUSTRY

Many health care providers that have not yet adopted reprocessing have cited public health concerns regarding the potential risks associated with reusing reprocessed medical devices, including the fact that, historically, third-party reprocessors were not subject to the same degree of regulatory oversight

Table of Contents

First, in June 2000, the US General Accounting Office, or GAO, issued a report citing clinical evidence that demonstrated certain devices could be reprocessed without compromising patient safety. Moreover, infection control experts advised the GAO that, with proper procedures, reprocessing of appropriate disposable medical devices had not been demonstrated to create a public health risk. Second, in August 2000, the US Food and Drug Administration, or FDA, adopted a Guidance Document providing that both hospital and third-party reprocessors of disposable medical devices are subject to the same extensive regulations as those applied to original device manufacturers.

Compliance with the FDA requirements is difficult and costly to achieve and maintain. As a result, we believe many health care providers with in-house reprocessing programs will consider outsourcing their reprocessing needs to third-party reprocessors, particularly those with the financial resources and technical expertise necessary to ensure safe and reliable reprocessing in compliance with FDA regulations.

THE ALLIANCE SOLUTION

We believe that we are well positioned to be the third-party reprocessor of choice for health care providers seeking to outsource their reprocessing needs. We believe our reprocessing system offers the following advantages to our existing and potential customers:

•	demonstrable cost savings;
•	elimination of regulatory burdens applicable to reprocessors;
•	easy implementation with no changes in practice patterns or buying preferences;
•	convenient and cost-efficient collection procedures; and
•	stringent adherence to high quality control procedures.

OUR STRATEGY

Our objective is to continue to lead the market for medical device reprocessing by using our financial resources and technical expertise to take advantage of the opportunities created by the new FDA regulatory environment. To achieve this objective, we intend to:

•	promote awareness of the benefits of reprocessing;
•	further penetrate our existing customer relationships;
•	focus on low-risk and high-margin products;
•	aggressively pursue national accounts and group purchasing contracts; and
•	formulate strategic relationships and pursue selected acquisitions.

We were incorporated in Delaware in October 1997 as GB Company and changed our name to Alliance Medical Corporation in February 1998. Our principal executive offices are located at 10232 South 51st Street, Phoenix, Arizona 85044, and our telephone number is (480) 763-5300. Our web site is www.alliance-medical.com. The information contained on our web site is not incorporated by reference into and does not form any part of this prospectus.

ORDirect^TM and QuickStart^TM are trademarks of Alliance Medical Corporation.

Table of Contents

The offering

The following information assumes that the underwriters do not exercise their over-allotment option to purchase additional shares in this offering.

Unless otherwise indicated, all information in this prospectus has been adjusted to reflect:

•	a one for 3.3297 reverse split of our common stock effected on November 13, 2001; and
•	the conversion of all of our outstanding preferred stock into 6,239,083 shares of our common stock upon completion of this offering.

The number of shares of our common stock referred to above that will be outstanding immediately after completion of this offering is based on the number of shares of our common stock outstanding as of November 29, 2001 and excludes:

•	926,930 shares of our common stock issuable upon exercise of options outstanding as of September 30, 2001 at a weighted-average exercise price of $3.33 per share;
•	248,748 shares of our common stock issuable upon exercise of warrants outstanding as of September 30, 2001 at a weighted-average exercise price of $5.37 per share; and
•	up to 23,305 additional shares of our common stock reserved for issuance under our 1999 Stock Incentive Plan and up to 525,572 additional shares of our common stock reserved for issuance under our 2001 Stock Incentive Plan.

Between September 30, 2001 and November 29, 2001, warrants to purchase 15,617 shares of our common stock were exercised, a warrant to purchase 19,671 shares of our common stock expired, warrants to purchase an aggregate of 7,266 shares of our common stock were issued, and options to purchase 1,426 shares of our common stock were exercised.

Table of Contents

Summary consolidated financial data

The following historical statement of operations data for the years ended December 31, 1998, 1999, and 2000 are derived from our audited financial statements. The statement of operations data for the nine months ended September 30, 2000 and 2001 and the balance sheet data as of September 30, 2001 are derived from our unaudited financial statements included in this prospectus, and include all adjustments consisting only of normal, recurring adjustments which we consider necessary for a fair presentation of the data. The unaudited pro forma statements of operations are derived from the unaudited pro forma consolidated financial statements and reflect our acquisition of Paragon Health Care Corporation, the conversion of our preferred stock into common stock, and the issuance of shares of common stock necessary to pay preferred stock dividends as if those events had occurred on January 1, 2000. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the entire fiscal year, for any other interim period, or for any future fiscal year. You should read the information contained in this table in conjunction with our consolidated financial statements and the related notes, “Use of proceeds,” “Selected consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations,” and “Unaudited pro forma condensed consolidated financial statements” contained elsewhere in this prospectus.

Table of Contents

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before making an investment decision. If any of the possible adverse events described below actually occurs, our business, results of operations, or financial condition would likely suffer. In such an event, the market price of our common stock could decline and you could lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

We are an early stage company that may never achieve or maintain profitability, which could cause the price of our common stock to decline.

We have experienced significant losses each year since inception. We had a net loss of approximately $3.4 million for the year ended December 31, 1999, approximately $6.7 million for the year ended December 31, 2000, and approximately $6.0 million for the nine months ended September 30, 2001. At September 30, 2001, we had an accumulated deficit of approximately $54.3 million. We have generated limited revenue from the sale of our services, and it is possible that we will never generate sufficient revenue to achieve or maintain profitability. If we are unable to achieve and maintain profitability, the market value of our common stock will likely decline.

Our results of operations may vary from quarter to quarter in future periods and, as a result, we may not meet the expectations of our investors or securities analysts, which could cause our stock price to fluctuate or decline.

Our revenues and results of operations have fluctuated significantly in the past and could fluctuate significantly in the future. Accordingly, you should not rely on period-to-period comparisons of operations as an indication of future performance.

Our results may fluctuate due to the factors described in these “Risk factors,” as well as:

•	increases or decreases in demand for our services;
•	changes in the types of products that we reprocess;
•	the impact of acquisitions or other significant corporate events;
•	changes in the manner in which our operations are regulated; and
•	increases in our operating expenses.

A substantial portion of our operating expenses is related to personnel costs, marketing programs, and overhead, which we may not be able to adjust quickly and are therefore relatively fixed in the short term. Our operating expenses are based, in significant part, on our expectations of future revenues. If actual revenues are below our expectations, we may not achieve our anticipated operating results. Moreover, it is possible that in some future periods our results of operations may be below the expectations of analysts and investors. In this event, the market price of our common stock is likely to decline.

If third-party reprocessing is not accepted by health care providers, our company will not be successful.

Third-party reprocessing of disposable medical devices is a relatively new and evolving industry that has not yet achieved widespread market acceptance. Market acceptance of third-party reprocessing will depend on a variety of factors, including:

•	concerns regarding the safety and effectiveness of reprocessed disposable medical devices;

Table of Contents

•	concerns regarding potential liability resulting from the use of reprocessed disposable medical devices;
•	perceived cost and administrative burdens associated with implementing a reprocessing program;
•	concerns regarding the timely return of reprocessed medical devices to the health care facility; and
•	evaluation of the cost-effectiveness of reprocessing disposable medical devices relative to purchasing new devices.

Even if the health care community generally accepts our reprocessing procedures, recommendations and endorsements by influential surgeons and other physicians will be important to the commercial success of our reprocessing business. If these or other factors beyond our control prevent a significant portion of the health care community from adopting third-party reprocessing as a common practice, the prospects for growth of our industry in general and our business in particular would be impaired.

If products we reprocess injure our customers’ patients, our ability to compete for new business or retain our existing customers may be harmed.

We believe the key factor underlying the acceptance of third-party reprocessing by health care providers is the perception that disposable medical devices may be reused without compromising patient safety. If a disposable medical device we reprocess injures a patient, we may suffer a number of negative consequences, including:

•	damage to our reputation;
•	delayed or lost revenue due to adverse client reaction; and
•	regulatory actions.

In addition, negative media reports or other publicity concerning medical device reprocessing, whether regarding us, our competitors, or the industry as a whole, may broadly and adversely affect our industry in general and our business in particular. Even if such publicity is not about us, our customers and potential customers may not distinguish our services or the reprocessing procedures we have implemented from those of our competitors or others engaged in reprocessing. Also, under most of our customer contracts, we are required to indemnify our customers against losses they suffer from patient injury resulting from reprocessed medical devices. Any of these events could undermine market acceptance of reprocessing and lead to increased regulatory burdens, which could adversely affect our business.

If product liability suits are filed against us, we could be required to engage in expensive and time-consuming litigation, pay substantial damages, and face an increase in our insurance rates.

If a medical device we reprocess is reused and causes injury to or infects one or more of our customer’s patients, we may become liable under product liability theories for damages resulting from product failure. Consequently, we face a significant risk of product liability claims. Claims of liability for product failure and patient injury could divert management’s attention from our core business, be expensive to defend, and result in sizable damage awards against us. We cannot assure you that our product liability insurance would adequately protect us from product liability claims. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing any coverage in the future. Even in the absence of a claim, our insurance rates may rise in the future to a point where they become prohibitively expensive.

Table of Contents

If one or more of our large customers terminate their contracts with us, which generally allow for termination without cause, we could lose a significant amount of revenue.

Our form of reprocessing agreement typically permits our customers to cancel that agreement at any time without cause upon 30 days’ written notice. Consequently, termination of customer agreements can occur for any or no reason. If one or more of our large customers cancel their existing reprocessing contracts, we could lose a significant amount of our revenue. No one customer, however, accounted for more than 10% of our revenue for the nine months ended September 30, 2001.

If our relationships with Stericycle/ BFI or Hospitec, which play critical roles in our ORDirect Program, are impaired or severed, or if a problem occurs with Federal Express, our carrier, we may need to restructure our operations or cease reprocessing surgical devices, which could adversely affect our revenues.

We currently rely on Stericycle/ BFI, Hospitec, Inc., and Federal Express to provide critical services and products in connection with the operation of our ORDirect program, a turnkey program that is designed to facilitate collection of surgical devices and accounted for approximately 9.2% of our revenue for the nine months ended September 30, 2001. We currently do not have contracts with any of these service providers. If Stericycle/ BFI, Hospitec, or Federal Express fails or is unable to perform as expected or if we lose their services, we may not be able to reprocess surgical devices in a timely manner, if at all.

Our business depends heavily upon regulatory compliance and approval, which significantly increases the costs and risks associated with our business.

The reprocessing of medical devices is subject to extensive regulation in the United States. For many years, third-party reprocessors have been subject to the FDA’s regulations requiring good manufacturing practices, labeling, medical device reporting, establishment registration, and device listing. In August 2000, the FDA adopted a Guidance Document describing its plan for phased enforcement of pre-market requirements in addition to other regulatory requirements in connection with the reprocessing of disposable medical devices and extending all regulations to hospital reprocessors, as well as third-party reprocessors. Compliance with the FDA’s regulatory requirements will substantially increase the cost and administrative burdens associated with reprocessing. Reprocessors of disposable medical devices are subject to all the regulatory requirements also applicable to original equipment manufacturers, including:

•	registration and listing;
•	pre-market notification and approval requirements;
•	submission of adverse event reports under the Medical Device Reporting regulations;
•	manufacturing and other requirements under the Quality System Regulation;
•	labeling requirements;
•	medical device tracking;
•	medical device corrections and removals; and
•	post-marketing reporting.

Table of Contents

Failure to comply with applicable regulatory requirements can result in enforcement actions which may include:

•	prohibiting specific devices from being reprocessed;
•	ceasing marketing;
•	operating under an injunction;
•	paying significant fines and penalties; and
•	criminal prosecutions and similar FDA actions that could adversely affect our business and profitability.

In addition, the FDA has stated that it intends to phase-in additional oversight of the reprocessing industry based on its assessment of current practices and potential risks over time. Although we believe we are in substantial compliance with the requirements the FDA is currently enforcing with respect to reprocessors, we cannot guarantee you that we will be able to maintain our compliance with these requirements, that we will be able to comply with any future requirements the FDA may impose on us, or that the cost of compliance will not adversely affect our revenue and profitability.

We are subject to a variety of other regulations, including those relating to the environment, health, and safety. Complying with these regulations can be expensive and restrict how we do business.

In addition to the FDA regulations described above, a variety of local, state, and federal laws and regulations govern our business, including those administered by the Occupational Safety and Health Administration and the Environmental Protection Agency. For example, we store, handle, and dispose of medical waste and other controlled hazardous and biological materials in our business. We incur substantial costs to manage these materials in accordance with applicable regulations, and if we fail to comply with these regulations, we could be subject to substantial fines and other sanctions, delays, and increased operating costs. In addition, if regulated materials were improperly released at our current or former facilities or at locations to which we send materials for disposal, we could be strictly liable for substantial damages and costs, including cleanup costs and personal injury or property damages, and incur delays and increased operating costs. We may in the future be subject to the other environmental, health, and safety regulations that may affect our operations.

If we do not receive and maintain necessary FDA approvals, we will not be able to operate our business as currently conducted.

In August 2000, the FDA adopted a Guidance Document explaining its policy for enforcement of regulatory requirements in connection with the reprocessing of disposable medical devices. Among other things, the FDA is requiring hospital and third-party reprocessors to comply with the pre-market regulatory requirements currently applicable to original equipment manufacturers. As a result of this new regulatory requirement, unless an exemption applies, we must obtain, for each medical device that we wish to reprocess, a 510(k) clearance or pre-market approval from the FDA. The process involved in obtaining either of these authorizations can be lengthy and expensive. The FDA’s 510(k) clearance process usually takes from four to twelve months, but may take longer. The pre-market approval, or PMA process is much more costly, lengthy, and uncertain, generally taking from one to three years or even longer after all the necessary data are submitted in the PMA. In its August 2000 Guidance Document, the FDA established dates, varying by class of medical device, by which reprocessors must file for and obtain these authorizations, in order to continue reprocessing the devices. You should refer to “Business—Government Regulation” for details on these deadlines and our progress in meeting them. We have limited experience in obtaining FDA clearances or approvals, and the FDA has limited

Table of Contents

experience in the application of pre-market review requirements to medical device reprocessors, which may increase the potential for delays in the FDA review process. Delays in filing for or obtaining regulatory clearance or approval would disrupt our operations, which would adversely affect our revenue and profitability. We may not be successful in obtaining such approvals or clearances or maintaining any approvals and clearances that we have obtained or may obtain in the future.

If we or our suppliers fail to comply with the FDA’s Quality System Regulation, our operations could be delayed and our business could be harmed.

Our reprocessing operations are required to comply with the FDA’s Quality System Regulation, or QSR, which incorporates the requirements of Good Manufacturing Practice and covers the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, and shipping of devices. The FDA enforces the QSR through periodic unannounced inspections. The FDA has inspected our facilities in the past and has identified certain deficiencies that we have had to cure. We cannot assure you that future inspections will not identify other deficiencies or that we would be able to cure any observed deficiencies in a timely fashion or without incurring significant cost. If the FDA observes significant deficiencies during an inspection, our operations could be disrupted. If we fail to take corrective action in response to a QSR inspection, the FDA could force us to cease our reprocessing operations, recall our reprocessed devices, delay the grant of pre-market clearance or approval, or subject us to other enforcement actions that could have a material adverse effect on our or our customers’ operations.

We may be adversely impacted by competitive factors. Moreover, because there are relatively few barriers to entry in our industry, new competitors could cause us to lose business opportunities or personnel and limit our ability to increase or sustain our revenue.

The reprocessing industry is highly competitive. Historically, we have competed with both other third-party reprocessors and hospitals that have engaged in reprocessing internally. We also compete, in effect, with the original equipment manufacturers that promote disposable medical devices as single-use products. Competitive factors can result in reduced market share and lower profit margins.

There are relatively few barriers to entry in our industry that cannot be overcome by competitors with significant financial resources and access to technical personnel. We do not own any technologies that preclude or inhibit competitors from entering the areas in which we compete. As a result, we expect competition to continue and to intensify from both existing competitors and from potential new entrants in our industry. Existing or future competitors may:

•	independently develop and implement superior reprocessing systems;
•	reduce prices;
•	offer new services;
•	hire our professional and other personnel; or
•	win new customers for which we are competing.

Any of these actions could place us at a competitive disadvantage and hurt our revenue and profitability.

Table of Contents

Actions by medical device manufacturers may impair our ability to compete effectively or otherwise hurt our business.

Because reprocessing tends to reduce the number of disposable medical devices purchased from device manufacturers, we and other medical device reprocessors may face competitive or claims-based measures by original equipment manufacturers designed to protect their market share. For example, manufacturers sometimes offer to sell their devices for a lower price to health care facilities that agree not to reprocess. Manufacturers could also try to redesign their devices to make reprocessing difficult or cost-prohibitive. Citizen petitions have also been submitted to the FDA on behalf of manufacturers seeking changes in the regulation of the reprocessing industry, including changes in the labeling of reprocessed medical devices. In addition, original device manufacturers have in the past claimed, and may claim in the future, that we or our customers infringe their patents or trademarks. Any such claims, regardless of their merit, could divert management’s attention from our core business, be expensive to defend, and result in a damage award against us. Such competitive tactics could adversely affect our ability to conduct our business and our financial condition.

We depend significantly on key personnel, and if we lose one or more of our senior management members, our ability to deliver reprocessing services efficiently and profitably could be adversely affected.

Our success largely depends on the skills, experience, and efforts of the members of our senior management. The loss of any of their services would weaken our management expertise and harm our business. With the exception of Mr. Ricardo M. Ferreira, our President and Chief Executive Officer, we do not have any key person life insurance on such individuals. Please see “Management” for more information.

If we are not able to maintain adequate personnel, systems, or other resources to effectively manage our planned growth, our ability to deliver services could be impaired and cause our customer and employee relations to suffer.

Our anticipated growth may strain our managerial and operational resources by diverting management attention from servicing our customers’ reprocessing needs to personnel recruitment, training, and infrastructure development. To manage future growth, we must continue to improve our operating and financial systems, procedures and controls, and to expand, train, retain, and manage our personnel base. Although our reprocessing facility has substantial excess capacity, we have experienced periodic difficulties of a short-term nature in meeting our customers’ expectations for the timely return of reprocessed medical devices. These difficulties resulted primarily from our transition to our new reprocessing facility and our temporary inability to recruit and train a sufficient number of qualified personnel to effectively reprocess the increased number of medical devices being sent to the new reprocessing facility. To increase sales, we must also recruit, train, and retain additional account executives, who are responsible for field sales and customer service. The loss of a substantial number of our reprocessing technicians or account executives or the inability to recruit these individuals in sufficient numbers could negatively affect our revenues. If our systems, procedures, and controls are inadequate to support our operations, we would not be able to reprocess medical devices on a timely basis or attract new customers or employees, and our planned growth may not materialize.

If a natural disaster or other unanticipated problem damages or renders our facilities inoperable, our operations would be disrupted and our business would be harmed.

Our reprocessing facility is located in a single building in Phoenix, Arizona. We also have a sorting facility located in Apopka, Florida. Despite precautions taken by us, a natural disaster such as fire or other unanticipated problem at either of these facilities could disrupt our ability to perform our

Table of Contents

reprocessing services or otherwise operate our business. In the event of any such problem, any inventory of supplies or products we have on hand for reprocessing or delivery may be destroyed. Although we believe that we possess adequate insurance to cover damage to our property and disruption to our business from fire and other casualties, such coverage may not be sufficient to protect us against all of our potential losses and may not continue to be available on acceptable terms, if at all. Any prolonged or repeated disruption or inability to perform our services or operate our business would have a material adverse effect on our business and profitability.

If we are unable to successfully integrate the operations of other companies we may acquire in the future, our business could be harmed.

We may in the future undertake acquisitions of other companies providing services or having technologies and operations that we believe complement our business. Acquisitions involve numerous risks, including difficulties in the integration of the operations, technologies, and services of the acquired companies, the diversion of management’s attention from other business concerns, and the potential loss of key employees of the acquired businesses. If we fail to successfully integrate other companies that we may acquire in the future, our business could be harmed.

RISKS RELATED TO THIS OFFERING

Our directors, executive officers, and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

After this offering, our officers, directors, and principal stockholders holding more than 5% of our common stock together will control approximately 53.3% of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control or a merger, consolidation, or other business combination at a premium price if these stockholders oppose it. This concentration of ownership may not be in the best interest of our other stockholders.

Our certificate of incorporation, bylaws, and Delaware law contain provisions that could discourage a takeover.

Our basic corporate documents and Delaware law contain provisions that might enable our management to resist a takeover. These provisions might discourage, delay, or prevent a change in the control of our company or a change in our management. The existence of these provisions could adversely affect the voting power of holders of our common stock and limit the price that investors might be willing to pay in the future for our common stock. See “Description of capital stock.”

Our common stock has not previously been publicly traded, and we expect that the price of our common stock will fluctuate substantially.

Before this offering, there has been no public market for our common stock. An active public trading market may not develop after completion of this offering or, if one develops, it may not be sustained. The price of the common stock sold in this offering will not necessarily reflect the market price of the common stock after this offering. The market price for the common stock after this offering will be affected by a number of factors, including:

•	the announcement of new customers or service enhancements by us or our competitors;
•	the loss by us of significant customers;

Table of Contents

•	quarterly variations in our results of operations or those of our competitors;
•	changes in earnings estimates or recommendations by securities analysts, or our failure to achieve analysts’ earnings estimates;
•	developments in our industry, particularly with respect to FDA regulations or changes in the health care insurance cost reimbursement system; and
•	general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

In addition, the stock prices of many companies in both the medical device and medical services industries have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These factors and price fluctuations may materially and adversely affect the market price of our common stock.

Our stock price, like that of many early stage medical technology companies, may be volatile, which may increase our exposure to stockholder derivative lawsuits.

If our future quarterly operating results are below the expectations of securities analysts or investors, the price of our common stock would likely decline. Stock price fluctuations may be exaggerated if the trading volume of our common stock is low. In the past, securities class action litigation has often been filed against a company after a period of volatility in the market price of its stock. Any securities litigation claims filed against us could result in substantial expense and the diversion of management’s attention from our core business.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market after this offering, including shares issued upon the exercise of outstanding options and warrants, the market price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. See “Shares eligible for future sale.”

If our management team does not effectively allocate the proceeds of this offering, we may fail to achieve our objectives and our stock price may decline.

Our management has significant flexibility in applying the proceeds that we receive in this offering. We intend to use a portion of the proceeds from this offering to support our regulatory compliance efforts, expand our direct sales force, pay accrued dividends on our preferred stock, purchase equipment to increase productivity, support research and development efforts to expand the number of devices suitable for reprocessing, and construct an additional reprocessing facility, if necessary, to meet increased demand for our services. We also may use a portion of the net proceeds to pursue acquisitions of other companies that we believe will complement our business. Because the proceeds are not required to be allocated to any specific investment or transaction, you cannot determine the value or propriety of our management’s application of the proceeds prior to your investment. If we do not allocate the proceeds of the offering effectively, we may fail to achieve our objectives and the market price of our common stock may decline.

Table of Contents

This prospectus, including the documents incorporated by reference, contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. All statements other than statements of current or historical fact contained in this prospectus, including statements regarding our future financial position, business strategy, budgets, projected costs and plans, and objectives of management for future operations, are forward-looking statements. The words “may,” “continue,” “estimate,” “intend,” “plan,” “will,” “believe,” “project,” “expect,” “anticipate,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. In particular, these include, among other things, statements relating to:

•	our estimates regarding the potential size of the reprocessing market;
•	our competitive advantage in generating business from certain group purchasing organizations and nationally-recognized hospital networks and their affiliated health care facilities;
•	our ability to use our financial resources and technical expertise to capitalize on recent regulatory changes;
•	health care facilities’ ability to realize cost savings through the use of reprocessing;
•	the removal of regulatory burdens and product liability exposure from our customers; and
•	our ability to further penetrate the reprocessing market.

Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties, and assumptions described in “Risk factors.” In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this prospectus, including those in “Prospectus summary,” “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations,” and “Business.”

Our forward-looking statements speak only as of the date the statement was made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

We estimate that we will receive net proceeds of approximately $54,600,000 from the sale of the 4,000,000 shares of our common stock in this offering, or $62,970,000 if the underwriters’ over-allotment option is exercised in full. Net proceeds are what we expect to receive after we pay the underwriting discounts and commissions and the estimated offering expenses. For the purpose of estimating net proceeds, we are assuming that the public offering price will be $15.00 per share.

We currently intend to use the net proceeds of this offering as follows:

•	approximately $2 million to complete our initial regulatory compliance efforts, which include the preparation and submission of 510(k) and PMA notifications for each device we intend to continue to reprocess, and to support ongoing regulatory efforts and clinical trials;
•	approximately $2 million to expand our direct sales force and add service technicians;
•	approximately $2 million to purchase new equipment to automate and improve the productivity of our reprocessing operations;
•	approximately $1 million to support research and development efforts designed to expand the range of devices suitable for reprocessing; and
•	approximately $10 million to construct an additional reprocessing facility, if necessary, to handle anticipated growth in operations.

Upon the completion of this offering, as required by the terms of our preferred stock, we also intend to pay approximately $3 million to the holders of our preferred stock, representing cumulative dividends through and including November 1, 2001. These cumulative dividends have been accruing on a daily basis at a rate of 8% per year since the date of issuance of each separate series. The holders of our preferred stock include officers, directors, principal stockholders, and other affiliated persons. Currently, we do not have a specific plan for the remaining net proceeds, although we may use a portion of the net proceeds to acquire additional businesses, services, products, or technologies or to invest in additional businesses that we believe will complement our current or future business. However, we are not party to any definitive agreement regarding any material acquisition or investment. We intend to use any other remaining net proceeds for working capital and general corporate purposes.

Except for the dividends payable to the holders of our preferred stock as described above, the amount of proceeds from this offering that we use for any purpose, and the timing of that use, will vary depending on a number of factors, including the amount of cash generated or used by our operations, the rate of growth, if any, of our business, regulatory developments, including whether or not we will be required to conduct clinical trials, potential acquisitions, and competitive conditions. As a result, we will retain broad discretion in the allocation of the net proceeds of this offering.

For information regarding specific amounts to be paid to certain affiliated holders of the preferred stock, see “Related party transactions” at page 54. For information regarding the anticipated cost to complete our initial regulatory compliance efforts, see “Management’s discussion and analysis of financial condition and results of operations — Overview” at page 23.

Pending the uses described above, we will invest the net proceeds of this offering in cash, cash-equivalents, money market funds, or short-term interest-bearing, investment-grade securities to the extent consistent with applicable regulations. We cannot predict whether the proceeds will be invested to yield a favorable return.

Table of Contents

Prior to this offering, we have never declared or paid any dividends on our capital stock. However, in connection with the completion of this offering, we are obligated to pay accrued dividends to the holders of our preferred stock. Other than these accrued dividends, we anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Additionally, under our loan agreement, we are prohibited from declaring dividends without the prior consent of our lender. Therefore, we do not expect to pay cash dividends, other than the payment of accrued dividends to the holders of preferred stock, in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, and other factors that the board of directors may deem relevant.

Table of Contents

The following table sets forth our capitalization as of September 30, 2001:

•	on an actual basis; and
•	on an as adjusted basis to give effect to the conversion of all outstanding shares of preferred stock into 6,239,083 shares of our common stock effective upon completion of this offering and to the sale of the shares of our common stock offered by this prospectus (excluding the over-allotment option) at an assumed initial public offering price of $15.00 per share, and the receipt and application of the estimated net proceeds therefrom.

The table above does not include:

•	926,930 shares of our common stock issuable upon exercise of options outstanding as of September 30, 2001 at a weighted-average exercise price of $3.33 per share;
•	248,748 shares of our common stock issuable upon exercise of warrants outstanding as of September 30, 2001 at a weighted-average exercise price of $5.37 per share; and
•	up to 23,305 additional shares of our common stock reserved for issuance under our 1999 Stock Incentive Plan and up to 525,572 additional shares of our common stock reserved for issuance under our 2001 Stock Incentive Plan.

Between September 30, 2001 and November 29, 2001, warrants to purchase 15,617 shares of our common stock were exercised, a warrant to purchase 19,671 shares of our common stock expired, warrants to purchase an aggregate of 7,266 shares of our common stock were issued, and options to purchase 1,426 shares of our common stock were exercised.

Table of Contents

Dilution

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering.

Our pro forma net tangible book value as of September 30, 2001 was $5,283,386, or $0.63 per share of our common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and cumulative preferred stock dividends and divided by the total number of shares of our common stock outstanding after giving effect to the conversion of all of our outstanding preferred stock into 6,239,083 shares of our common stock and the exercise of options and warrants held by officers, directors, and other affiliated persons to acquire 618,886 shares of common stock at a weighted-average exercise price of $3.99 per share. See “Capitalization.”

After giving effect to the sale of 4,000,000 shares of our common stock offered by this prospectus at an assumed initial public offering price of $15.00 per share and receipt of the estimated net proceeds therefrom, our pro forma net tangible book value as of September 30, 2001 would have been $59,883,386, or $4.82 per share. This represents an immediate increase in pro forma net tangible book value of $4.19 per share to existing stockholders and an immediate dilution of $10.18 per share to the new investors. The following table illustrates this per share dilution:

The following table summarizes, on a pro forma basis, as of September 30, 2001, the differences between the number of shares of common stock purchased from us, the aggregate consideration paid to us, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering, after giving effect to the conversion of our preferred stock into 6,239,083 shares of our common stock, and the exercise of options and warrants held by officers, directors, and other affiliated persons to acquire 618,886 shares of common stock at a weighted-average exercise price of $3.99 per share.

The foregoing tables and calculations assume no exercise of the underwriters’ over-allotment option and exclude 926,930 shares of common stock subject to options outstanding as of September 30, 2001, with a weighted-average exercise price of $3.33 per share, and 248,748 shares of common stock subject to warrants outstanding as of September 30, 2001, with a weighted-average exercise price of $5.37 per share, but include the exercise of options and warrants held by officers, directors, and other affiliated persons to acquire 618,886 shares of common stock at a weighted-average exercise price of

Table of Contents

$3.99 per share. Assuming exercise in full of all options and warrants, pro forma net tangible book value per share after this offering would be reduced and further dilute new investors an additional $0.06 per share, to $10.24 per share.

Between September 30, 2001 and November 29, 2001, warrants to purchase 15,617 shares of our common stock were exercised, warrants to purchase 19,671 shares of our common stock expired, warrants to purchase an aggregate of 7,266 shares of our common stock were issued, and options to purchase 1,426 shares of our common stock were exercised.

If the underwriters exercise their over-allotment option in full, the following will occur:

•	the percentage of shares of our common stock held by existing stockholders will decrease to approximately 65% of the total number of shares of our common stock outstanding after this offering; and
•	the number of shares of our common stock held by new investors will increase to 4,600,000, or approximately 35% of the total number of shares of our common stock outstanding after this offering.

Table of Contents

The selected financial data set forth below should be read in conjunction with our financial statements and notes thereto and “Management’s discussion and analysis of financial condition and results of operations” appearing elsewhere in this prospectus. During 1998, we acquired the operations of Applied Medical Recovery, Inc., Crystal Medical Technologies, Inc., dba ORRIS, and Sterile Reprocessing Services, Inc. All of these acquisitions were accounted for using the pooling of interests method of accounting for business combinations. The consolidated statements of operations data for the years ended December 31, 1996 and 1997 and the balance sheet data as of December 31, 1996 and 1997 represent the results of operations and financial position, respectively, of these companies as if they had been acquired on January 1, 1996. These results are unaudited and are not included elsewhere in this prospectus. The consolidated statements of operations data for the year ended December 31, 1998, which appear elsewhere in this prospectus, and the balance sheet data as of December 31, 1998, which does not appear elsewhere in this prospectus, have been derived from our financial statements, which have been audited by Nelson Lambson & Co. PLC, independent auditors. The consolidated statements of operations and balance sheet data presented below as of and for the years ended December 31, 1999 and 2000 have been derived from our financial statements, which have been audited by Deloitte & Touche LLP, independent auditors, and which appear elsewhere in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2000 and 2001 and the consolidated balance sheet data as of September 30, 2001 have been derived from our unaudited financial statements that appear elsewhere in this prospectus. These unaudited financial statements include all adjustments consisting only of normal, recurring adjustments that we consider necessary for a fair presentation of that information. Historical operating results are not necessarily indicative of the results that may be expected for any future period.

Table of Contents

Table of Contents