SRI SURGICAL EXPRESS INC

As of December 31, 2011, the Company did not comply with the required fixed charge coverage ratio under the Credit Facility. On February 28, 2012, the Company entered into an amendment to the Credit Facility with its lender, under which the Company’s lender waived this default. Prior to the default, the interest rate on the revolving and term loans varied between 50 and 250 basis points over the Base Rate (as defined in the Credit Facility) or LIBOR depending on the level of the fixed charge coverage ratio. The type of interest rate is an election the Company periodically makes. Under the amendment to the Credit Facility, the interest rate on the revolving and term loans increased to between 250 and 450 basis points over the Base Rate or LIBOR depending on the level of the fixed charge coverage ratio, which represents a 200 basis point increase. As of March 31, 2012, $7.5 million of the outstanding revolving loan was based on LIBOR plus 4.50% (4.75% as of March 31, 2012) and the remaining outstanding revolving loan balance of approximately $2.0 million was at the Prime Rate plus 3.00% (6.25% at March 31, 2012). As of March 31, 2012, $3.5 million of the outstanding term loan was based on LIBOR plus 4.50% (4.75% as of March 31, 2012) and the remaining outstanding term loan balance of approximately $12,000 was at the Prime Rate plus 3.00% (6.25% at March 31, 2012).

As part of the amendment to the Credit Facility, the Company’s fixed charge coverage ratio was not tested on January 31, 2012 or February 29, 2012 and the Company was required to maintain a minimum excess availability of not less than $2.5 million during the period February 1, 2012 through and including five business days following the Company’s lender’s receipt of required monthly compliance information from the Company for the period ending March 31, 2012. On May 4, 2012, the Company’s lender amended the Credit Facility whereby, the Company’s fixed charge coverage ratio will not be tested on March 31, 2012, April 30, 2012 or May 31, 2012 and the Company is required to maintain a minimum excess availability of not less than $2.5 million through and including five business days following the Company’s lender’s receipt of the required monthly compliance information for the period ending June 30, 2012.

Our profitability is primarily determined by our revenues, the efficiency with which we deliver products and services to customers, and our ability to control our costs. Although our revenues decreased for the three months ended March 31, 2012 as compared to the same period in the prior year, our gross profit increased and our net loss remained essentially unchanged when compared to the same period in the prior year. There were 64 billing days during the first quarter of 2012 as compared to 65 billing days during the first quarter of 2011. The change in the number of billing days negatively impacted our revenues, gross profit and net loss. Additionally, we continue to experience increases in towels and fuel costs attributable to increased usage as well as increased commodity prices for fuel. These increases, as well as the reduction in the number of billing days, have had a significant impact on our gross margin and net loss for the three month period ended March 31, 2012.

As of December 31, 2011, we were not in compliance with the required fixed charge coverage ratio under the Credit Facility. On February 28, 2012, we entered into an amendment to the Credit Facility with our lender, under which our lender waived this default. Prior to the default, the interest rate on the revolving and term loans varied between 50 and 250 basis points over the Base Rate (as defined in the Credit Facility) or LIBOR depending on the level of the fixed charge coverage ratio. The type of interest rate is an election we periodically make. Under the amendment to the Credit Facility, the interest rate on the revolving and term loans increased to between 250 and 450 basis points over the Base Rate or LIBOR depending on the level of the fixed charge coverage ratio, which represents a 200 basis point increase. As of March 31, 2012, $7.5 million of the outstanding revolving loan was based on LIBOR plus 4.50% (4.75% as of March 31, 2012) and the remaining outstanding revolving loan balance of approximately $2.0 million was at the Prime Rate plus 3.00% (6.25% at March 31, 2012). As of March 31, 2012, $3.5 million of the outstanding term loan was based on LIBOR plus 4.50% (4.75% as of March 31, 2012) and the remaining outstanding term loan balance of approximately $12,000 was at the Prime Rate plus 3.00% (6.25% at March 31, 2012).

As part of the amendment to the Credit Facility, the fixed charge coverage ratio was not tested on January 31, 2012 or February 29, 2012 and we were required to maintain a minimum excess availability of not less than $2.5 million during the period February 1, 2012 through and including five business days following the lender’s receipt of required monthly compliance information for the period ending March 31, 2012. On May 4, 2012, our lender amended the Credit Facility, whereby our fixed charge coverage ratio will not be tested on March 31, 2012, April 30, 2012 or May 31, 2012 and we are required to maintain a minimum excess availability of not less than $2.5 million through and including five business days following the lender’s receipt of the required monthly compliance information for the period ending June 30, 2012. There is no assurance that our lender will waive or amend the Credit Facility if future defaults occur. (See Risk Factors – “We may need additional capital in the future, which might not be available.” for additional information).