As filed with the Securities and Exchange Commission on February , 1998
                                                       Registration No. 333-
================================================================================
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM S-3

                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

                           RECOVERY ENGINEERING, INC.
             (Exact name of registrant as specified in its charter)

                 MINNESOTA                            41-1557115
     (State or other jurisdiction of              (I.R.S. Employer
      incorporation or organization)            Identification Number)


                             9300 NORTH 75TH AVENUE
                          MINNEAPOLIS, MINNESOTA 55428
                            TELEPHONE: (612) 315-5500
       (Address, including zip code, and telephone number, including area
               code, of registrant's principal executive offices)

                   BRIAN F. SULLIVAN, CHIEF EXECUTIVE OFFICER
                             9300 NORTH 75TH AVENUE
                          MINNEAPOLIS, MINNESOTA 55428
                            TELEPHONE: (612) 315-5500
 (Name, address, including zip code, and telephone number, including area code,
                              of agent for service)

                          COPIES OF COMMUNICATIONS TO:

      Eric O. Madson, Esq.                       Edward S. Rosenthal, Esq.
Robins, Kaplan, Miller & Ciresi L.L.P.        Fried, Frank, Harris, Shriver &
       2800 LaSalle Plaza                                Jacobson
       800 LaSalle Avenue                         350 South Grand Avenue
    Minneapolis, MN 55402-2015                          32nd Floor
    Telephone: (612) 349-0822                      Los Angeles, CA 90071
    Telecopier: (612) 339-4181                   Telephone: (213) 473-2000
                                                 Telecopier: (213) 473-2222

        Approximate date of commencement of proposed sale to the public:
   AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.

     If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

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

     If this Form is a post-effective amendment filed pursuant to 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. [ ]

     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

                         CALCULATION OF REGISTRATION FEE



============================================================================================================
                                                        PROPOSED MAXIMUM    PROPOSED MAXIMUM     AMOUNT OF
       TITLE OF EACH CLASS OF          AMOUNT TO BE      OFFERING PRICE    AGGREGATE OFFERING   REGISTRATION
    SECURITIES TO BE REGISTERED       REGISTERED (1)      PER SHARE (2)         PRICE (2)           FEE
- ----------------------------------- ------------------ ------------------ -------------------- -------------
                                                                                   
     Common Stock, $.01 par value   1,150,000 shares        $ 28.75            $33,062,500        $10,019
============================================================================================================


(1) Includes 150,000 shares subject to the Underwriters' over-allotment option.

(2) Estimated solely for purposes of calculating the registration fee pursuant
    to Rule 457(c) under the Securities Act of 1933, based on the average of the
    high and low prices for the Common Stock on February 19, 1998, as reported
    on the Nasdaq National Market.

     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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================




               SUBJECT TO COMPLETION, DATED FEBRUARY   , 1998

                                1,000,000 SHARES

                               [GRAPHIC OMITTED]
                           PUR DRINKING WATER SYSTEMS

                           RECOVERY ENGINEERING, INC.
                                  COMMON STOCK

     ALL OF THE SHARES OF COMMON STOCK ("COMMON STOCK") OFFERED HEREBY ARE BEING
SOLD BY RECOVERY ENGINEERING, INC. (THE "COMPANY").

     THE COMPANY'S COMMON STOCK IS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "REIN." ON FEBRUARY 23, 1998, THE LAST REPORTED SALE PRICE OF THE
COMMON STOCK WAS $28.50 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."

     SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

                               -----------------
  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.

================================================================================
                       PRICE TO     UNDERWRITING     PROCEEDS TO
                        PUBLIC      DISCOUNT (1)     COMPANY (2)
- --------------------------------------------------------------------------------
PER SHARE .........   $            $                $
TOTAL (3) .........   $            $                $
================================================================================


(1)  SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
     UNDERWRITERS AND OTHER MATTERS.

(2)  BEFORE DEDUCTING OFFERING EXPENSES PAYABLE BY THE COMPANY ESTIMATED TO BE
     $300,000.

(3)  THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
     150,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS,
     IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO
     PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL $ AND THE
     PROCEEDS TO COMPANY WILL TOTAL $ . SEE "UNDERWRITING."

     THE SHARES OF COMMON STOCK ARE OFFERED BY THE UNDERWRITERS NAMED HEREIN,
SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO REJECT
ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE CERTIFICATES
REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT THE OFFICE OF
NATIONSBANC MONTGOMERY SECURITIES LLC ON OR ABOUT , 1998.

                               -----------------
NationsBanc Montgomery Securities LLC
                                                       Deutsche Morgan Grenfell
                                       , 1998.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.



                                      PUR

                         SELF-MONITORING WATER FILTERS

               THE LEADER IN DRINKING WATER FILTRATION TECHNOLOGY



                                     NEWLY INTRODUCED PRODUCTS
[PHOTO OF PRODUCT]
The New PUR Plus
Walter Filtration Pitcher
and Replacement Filter
                          [PHOTO OF PRODUCT]
                          The New PUR Ultimate
                          Faucet Mount Water Filter
                          and Replacement Filter
                                                   [PHOTO OF PRODUCT]
                                                   The New PUR Plus
                                                   Water Filtration Dispenser
                                                   and Replacement Filter

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




PUR OFFERS A BROAD LINE OF PRODUCTS


POUR-THROUGH FILTERS
- --------------------

     [PHOTO OF PRODUCT]
     PUR STANDARD PITCHER

     Offers a unique Automatic Safety Monitor(TM) while removing high levels of
     lead and chlorine.


     [PHOTO OF PRODUCT]
     PUR PLUS PITCHER

     The only pour through pitcher water filter to remove microbiological cysts
     - including Cryptosporidium and Giardia.


     [PHOTO OF PRODUCT]
     PUR PLUS DISPENSER

     The only pour through dispenser water filter to remove microbiological
     cysts - including Cryptosporidium and Giardia.


IN-LINE SYSTEMS
- ---------------

FAUCET MOUNTS

     [PHOTO OF PRODUCT]
     PUR STANDARD FAUCET MOUNT

     Protects you from more contaminants than most pitcher water filters.

     [PHOTO OF PRODUCT]
     PUR PLUS FAUCET MOUNT

     Higher contaminant removal.

     [PHOTO OF PRODUCT]
     PUR ULTIMATE FAUCET MOUNT

     Our most advanced faucet mount filter provides protection from harmful
     chemicals linked to cancer.

COUNTERTOP & UNDERSINK

     [PHOTO OF PRODUCT]
     PUR PLUS COUNTERTOP

     Higher protection from contaminants and longer filter life.

     [PHOTO OF PRODUCT]
     PUR PLUS UNDERSINK

     Only PUR provides superior contaminant removal and the Automatic Safety
     Monitor Gauge in an undersink configuration.




PUR PORTABLE SYSTEMS

[PHOTO]
Make back country water microbiologically safe to drink by eliminating all types
of microorganisms, including viruses, bacteria and Giardia. PUR offers a line of
purifiers and microfilters at a variety of price points and safety levels.

[GRAPHIC]
Pioneer Microfilter

[GRAPHIC]
Hiker Microfilter

[GRAPHIC]
Voyageur Purifier

[GRAPHIC]
Scout Purifier

[GRAPHIC]
Explorer Purifier

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

PUR DESALINATION SYSTEMS

[PHOTO]
PUR makes dependable watermakers for extended use - under all kinds of
conditions. Highly efficient PUR PowerSurvivor 12-volt systems produce a
plentiful supply of drinking water while putting the least demand on power
supplies.

[GRAPHIC]
POWER SURVIVOR 40


PUR hand-operated Survivor watermakers are perfect for liferafts. They are
small, lightweight and proven life savers.

[GRAPHIC]
SURVIVOR 06

[GRAPHIC]
SURVIVOR 35

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




     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

     IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."

- ----------
PUR(R), SELF-MONITORING WATER FILTER(R), ASM(R), AUTOMATIC SAFETY MONITOR(TM),
TRITEK(R), PIONEER(R), HIKER(R), VOYAGEUR(TM), SCOUT(R), EXPLORER(R) AND
SURVIVOR(R) ARE TRADEMARKS OF THE COMPANY.




                               PROSPECTUS SUMMARY

     THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.

                                   THE COMPANY

     Recovery Engineering, Inc. (the "Company") designs, manufactures and
markets proprietary small-scale drinking water systems under the PUR(R) brand
name for the household, recreational and military markets. These products
include a line of self-monitoring water filters for household use, a rugged line
of portable drinking water systems for outdoor enthusiasts and international
travelers and a line of low-energy, reverse osmosis desalinators for offshore
marine, commercial life raft and military use. PUR household water filters,
which accounted for more than 80% of the Company's net sales in 1997, are
offered in a variety of configurations, including pitchers and dispensers which
are filled from the tap ("pour-through" systems) and faucet-mounted, countertop
and under-sink filter systems which are connected to the water lines ("in-line"
systems). PUR household products are distributed through approximately 26,000
retail outlets in the United States and Canada, including Wal-Mart, Sears,
Target, Costco, Kmart, Macy's and Walgreens.

     The United States Environmental Protection Agency ("EPA") and other
organizations have identified a number of harmful contaminants that many
municipal water authorities do not or cannot remove from drinking water. For
example, municipal drinking water available in many homes in the United States
contains dangerous contaminants such as lead, microbiological cysts,
agricultural pesticides and herbicides, and carcinogenic chlorine byproducts.
The Company believes that increasing awareness and concern in the United States
about tap water quality has contributed significantly to a steady increase in
the size of the market for tap water substitutes and filtration systems. The
United States market for bottled water is currently estimated to be over $3.0
billion annually, with approximately 35% of U.S. households purchasing bottled
water. The Company estimates that the overall annual market for household
drinking water systems, services and supplies (such as water filters, water
softeners and whole house systems) is approximately $1.5 billion, with the
Company's current segments of this overall market representing approximately
$400 million. Based on consumer research conducted in 1993, the Company
determined that this market offered an opportunity for a company with
significant technological expertise to achieve a leading position by developing
water filtration products with superior performance capabilities.

     The Company launched its first PUR water filters for the household market
in 1994 with the intent of establishing a large installed base of PUR water
filter systems to support recurring sales of replacement filter cartridges. To
date, the Company has sold more than 2.5 million household water filter systems
and has obtained a significant share of this market. According to survey
information from Intelect, a third party market research firm, PUR is the number
one brand of in-line water filters and the second leading brand of all household
water filters sold in the United States. To accomplish this, the Company has
invested significant resources during the past three years to develop advanced
filtration and monitoring technologies, launch a broad range of products at a
variety of price points, expand distribution aggressively, and provide high
levels of consumer and trade advertising support.

     The Company's internally developed proprietary filtration technologies
reduce a wide range of contaminants, such as microbiological cysts, lead,
pesticides, volatile organic compounds ("VOCs") and other impurities, while
improving water taste and odor. Each PUR household water filter system
incorporates a replaceable filtration cartridge which has a capacity from 40 to
200 gallons and provides the typical consumer with one to six months of filtered
water, depending on the system and the consumer's usage. To ensure that
consumers do not overuse their filtration cartridges, the Company developed a
proprietary technology, known as the Automatic Safety Monitor(TM) ("ASM(R)"),
that measures the filter's usage and indicates its remaining capacity. The
Company believes that this visible indication of when to replace the filter
cartridge encourages consumers to purchase replacement cartridges more
frequently than they otherwise would. The sale of the Company's replacement
cartridges is expected to comprise an increasing portion of sales of household
water filter products as the installed base of filter systems continues to
increase.




     The Company's objective is to establish and maintain PUR as the leading
brand of consumer water filter products and to obtain a leading position in each
market segment it enters. The Company's key strategies to accomplish this
objective are:

   * DEVELOP PROPRIETARY TECHNOLOGIES TO ADDRESS CONSUMER CONCERNS. Research and
     development efforts are focused on creating innovative and technologically
     superior products that provide performance characteristics exceeding those
     of competing products. The Company conducts consumer research to identify
     consumer concerns that can be addressed with innovative products. For
     example, in 1998 the Company introduced two new pour-through systems, the
     PUR PLUS pitcher and the PUR PLUS dispenser, which are the first
     gravity-fed water filter systems capable of removing potentially harmful
     microorganisms as small as CRYPTOSPORIDIUM and GIARDIA LAMBLIA.

   * OFFER A BROAD LINE OF SUPERIOR PRODUCTS WHICH CATER TO A WIDE CONSUMER
     SEGMENT. The Company has established a leading position in its consumer
     drinking water treatment categories by developing a broad range of products
     with superior performance characteristics at a number of retail price
     points.

   * ESTABLISH A BROAD DISTRIBUTION NETWORK. Since entering the household water
     filter market in 1994, the Company has expanded its distribution network
     aggressively. PUR household products are currently sold throughout the
     United States and Canada through approximately 26,000 retail outlets (an
     increase from approximately 15,000 retail outlets at the end of 1996),
     including department stores, mass merchants, drug stores, grocery stores,
     hardware stores and warehouse clubs.

   * PROMOTE BRAND AWARENESS THROUGH EFFECTIVE MARKETING. The Company invests
     significant resources in advertising and promotional activities to increase
     awareness of its products and build recognition of the PUR brand. These
     activities include point-of-sale displays and cooperative advertising
     programs for retailers, television commercials and infomercials, and print
     and radio advertisements.

   * GENERATE RECURRING SALES OF REPLACEMENT FILTER CARTRIDGES. The Company's
     strategy is to build brand name recognition for PUR products and develop an
     installed base of its products to promote recurring sales of replacement
     cartridges. In addition, all PUR household products incorporate the
     Company's ASM technology to indicate when a filter cartridge needs to be
     replaced. The Company anticipates that an increasing portion of its
     revenues in the household market will be derived from recurring sales of
     replacement cartridges, which on average have higher margins than the
     Company's other products.

   * DEVELOP LOW-COST, HIGH-VOLUME FLEXIBLE MANUFACTURING PROCESSES. The Company
     continues to make substantial investments in automating the manufacturing
     and assembly processes for its household water filters, including the
     development of several proprietary, automated processes for manufacturing
     filter elements. These automated processes enable the Company to improve
     its manufacturing efficiencies while enhancing its ability to provide high
     volumes of differentiated products to retailers.

     The Company was originally incorporated in the State of Delaware in March
1986 and was reincorporated in the State of Minnesota in March 1996. Its
principal office is located at 9300 North 75th Avenue, Minneapolis, Minnesota
55428, and its telephone number is (612) 315-5500.

                                  THE OFFERING

Common Stock offered............      1,000,000 shares

Common Stock to be outstanding
 after the offering.............      5,552,994 shares (1)

Use of proceeds.................      To repay certain existing indebtedness and
                                      for general corporate purposes, including
                                      working capital. See "Use of Proceeds."

Risk factors....................      Investors should carefully consider the
                                      factors discussed under "Risk Factors."

Nasdaq National Market symbol...      REIN

- -----------------
(1) Does not include 2,094,051 shares of Common Stock issuable upon exercise of
    options and warrants or conversion of convertible debt outstanding at
    December 31, 1997. See "Dilution."




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




                                                                              YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------------------------------------
                                                          1993           1994          1995          1996            1997
                                                      ------------   ------------   ----------   ------------   -------------
                                                                                                 
STATEMENT OF OPERATIONS DATA:
Net sales .........................................     $ 10,292       $ 16,671      $ 22,921     $  33,277      $   71,243
Gross profit ......................................        5,304          8,774         8,962        12,521          33,826
Income (loss) from operations .....................        2,057          2,470        (7,751)      (12,262)         (2,071)
Income (loss) before income taxes .................        2,202          2,926        (7,326)      (12,499)         (3,455)
Income tax expense (benefit) ......................          705            907        (2,564)           --              --
Net income (loss) .................................        1,497          2,019        (4,762)      (12,499)         (3,455)
                                                        ========       ========      ========     =========      ==========
Net income (loss) per share (basic) (1) ...........     $   0.53       $   0.57      $  (1.12)    $   (2.90)     $    (0.77)
                                                        ========       ========      ========     =========      ==========
Weighted average shares (basic) ...................        2,843          3,531         4,239         4,307           4,471
Net income (loss) per share (diluted) (1) .........     $   0.45       $   0.50      $  (1.12)    $   (2.90)     $    (0.77)
                                                        ========       ========      ========     =========      ==========
Weighted average shares (diluted) .................        3,321          4,029         4,239         4,307           4,471

OPERATING DATA:
Estimated number of retail outlets at end of
 period (2) .......................................        1,200          2,200         9,900        16,900          28,000
Number of replacement cartridges shipped
 during year ......................................        4,500         51,000       186,000       716,000       3,135,000


                                      DECEMBER 31, 1997
                                 ----------------------------
                                   ACTUAL     AS ADJUSTED (3)
                                 ---------   ----------------
BALANCE SHEET DATA:
Working capital ..............    $ 2,144         $28,634
Total assets .................     43,198          62,527
Long-term debt ...............     15,000          15,000
Shareholders' equity .........      4,729          31,219

- -----------------
(1) All earnings per share amounts for all periods have been presented and,
    where appropriate, restated to conform to FASB Statement 128 requirements.

(2) Represents the Company's estimate of the number of outlets at which one or
    more of the Company's household and outdoor products were sold. The
    approximate numbers of retail outlets at which the Company's household
    products were sold at the end of such periods were none in 1993, 1,000 in
    1994, 8,000 in 1995, 15,000 in 1996 and 26,000 in 1997.

(3) Adjusted to give effect to the sale of the 1,000,000 shares of Common Stock
    offered hereby at an assumed public offering price of $28.50 per share and
    the application of the estimated net proceeds therefrom. Does not include
    2,094,051 shares of Common Stock issuable upon exercise of options and
    warrants or conversion of convertible debt outstanding at December 31, 1997.
    See "Use of Proceeds," "Capitalization" and "Dilution."

                           FORWARD-LOOKING STATEMENTS

     Except for historical information contained in this Prospectus, the
matters discussed herein contain forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those suggested in the forward-looking statements, including without limitation
the effects of economic conditions, product demand, competitive products and
other risks detailed herein. See "Risk Factors."




                                  RISK FACTORS

     PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND CONSIDER THE FOLLOWING
RISK FACTORS AND OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.

RECENT HISTORY OF OPERATING LOSSES

     The Company has experienced a net loss in each of the last three years due
primarily to costs associated with entering the household market including,
among other things, costs of creating brand name awareness, developing broader
product line offerings, and establishing a wide distribution network for its
products. The net losses were incurred despite substantial increases in net
sales that resulted from the Company's entry into the household water filter
market. The Company intends to continue investing significant amounts in
development of additional extensions of its product lines, advertising and
promotional activities to support existing products and new product
introductions, and continued development of enhanced manufacturing processes and
expanded production capacity. Thus, the Company may continue to generate losses
even if revenues increase, and there can be no assurance that the Company will
become consistently profitable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."

CONTINUED ACCEPTANCE OF PRODUCTS

     The Company's ability to continue to increase its sales and return to
consistent profitability will depend to a significant degree on the continued
successful retail sell-through of new and existing household drinking water
treatment products for consumer markets in the United States and other
countries. The success of the Company's products will depend in part on the
Company's continued ability to educate consumers about the advantages of such
products over other means of addressing drinking water concerns, including
bottled water and alternative products for water filtration. Additionally, there
can be no assurance that the Company's household water filtration products will
continue to be successfully sold through the Company's established network of
retail outlets or that the Company will be able to maintain its distribution
network. The Company's performance will also depend on consumers' willingness to
continue using the Company's products and to buy replacement filter cartridges.
See "Business -- Industry Overview -- Household Market" and "Business --
Products -- Household Water Filters."

RELIANCE ON PROPRIETARY TECHNOLOGY

     The Company's ability to compete depends in part on its proprietary
technology, which it seeks to protect with patents and trademarks. The Company
is the owner of 12 United States utility patents, five United States design
patents, and 12 United States registered trademarks related to its desalinator,
recreational, and household water filtration products. Additionally, the Company
has applied for 11 patents related to its new and existing household water
filtration products and recreational products. The Company has also applied for
and received various corresponding foreign patents where it deemed such
applications necessary. The laws of certain foreign countries do not protect the
Company's intellectual property rights to the same extent as do the laws of the
United States. The Company intends to vigorously defend and protect its patents
and other proprietary technology against infringement or misappropriation by
others. There can be no assurance, however, that steps taken by the Company will
prevent misappropriation of its technology, that any patents from pending patent
applications or from any future patent application will be issued, that the
scope of any patent protection will provide competitive advantages to the
Company or preclude competitors from developing products similar to the
Company's products, that any of the Company's patents will be held valid if
subsequently challenged, or that others will not claim rights in or ownership of
the patents and other proprietary rights held by the Company. In addition, there
can be no assurance that third parties will not assert infringement claims with
respect to the Company's current or future products or that any such claims will
not require the Company to enter into license arrangements or result in
litigation, regardless of the merits of such claims. No assurance can be given
that any necessary licenses could be obtained on commercially reasonable terms,
or at all. Litigation or regulatory proceedings may also be necessary to enforce
patent or other intellectual property rights of the Company or to determine the
scope and validity of other parties' proprietary rights. Such litigation could
be expensive and time consuming and could have a




material adverse effect on the Company's business, financial condition or
results of operations regardless of the outcome of such litigation. See
"Business -- Patents."

PATENT LITIGATION

     The Company is currently engaged in litigation with respect to certain
aspects of its technology. The Company and several other water filtration
companies are defendants in a civil proceeding initiated in January 1997 by
Brita U.S.A. (a subsidiary of Clorox Company) which asserts that the defendants
have infringed one of Brita's patents relating to pitcher products. Brita's
lawsuit, now pending in the United States District Court for the Northern
District of Illinois, seeks injunctive relief and unspecified monetary damages.
The litigation is still in the initial stages. The Company is also a defendant
in a civil proceeding initiated in April 1997 by UltraPure Systems, Inc.
("UltraPure"), a subsidiary of Culligan Water Technologies, Inc., which asserts
that the Company has infringed an UltraPure patent on a faucet-mounted filter
system. UltraPure's lawsuit, now pending in the United States District Court for
the District of Minnesota, seeks injunctive relief and unspecified monetary
damages. This litigation is also still in the initial stages. The Company
believes it has meritorious defenses to both of these disputes and is vigorously
defending these actions. The Company is unable to predict the outcome of these
proceedings. An adverse decision in either proceeding could have a material
adverse effect on the Company's business, prospects and financial condition. See
"Business -- Litigation."

TECHNOLOGICAL CHANGE AND PRODUCT OBSOLESCENCE

     The water treatment markets in which the Company competes are subject to
technological changes, and the Company's business strategy is based to a
substantial extent on the Company's ability to offer technologically superior
products. The ability of the Company to compete successfully will depend in part
on its ability to continue to respond effectively to technological changes,
enhance its technology and develop and market new products and new applications
for its existing technology. Although the Company expends a significant portion
of its revenues on research and development and product enhancement efforts,
there can be no assurance that the Company can successfully develop and bring
any new products to the market in a timely manner, that such products will be
commercially successful, or that competitors' technologies or services will not
render the Company's products or services non-competitive or obsolete. The
Company relies on product effectiveness certifications from the National
Sanitation Foundation ("NSF"), a nationally recognized not-for-profit agency for
the certification of water filters, to support its claims to consumers. NSF
certification is currently pending for the Company's new PUR PLUS dispenser and
PUR FM ULTIMATE faucet mounted products. There can be no assurance that these or
other future products will receive anticipated certification or that the failure
to receive anticipated certification would not impair the Company's ability to
market such products. See "Business -- Products" and "Business -- Research and
Development."

MANAGEMENT OF GROWTH

     During the last three years, as a result of higher than forecast sales of
the Company's household water filter systems, the Company was not able at all
times to adjust its production capacity quickly enough to keep pace with the
demand for its products. However, the Company believes that any resulting
delivery delays did not materially adversely affect the Company's total net
sales over this period or its relationships with its principal customers. To
manage further growth successfully, the Company will be required to continue
improving its operations, management and financial systems and controls and
expand its facilities and its employee workforce. Any future growth can be
expected to place significant additional responsibilities on the Company's
management, operations, employees and resources. There can be no assurance the
Company will be able to maintain or accelerate its current growth, effectively
manage its expanding operations or achieve planned growth on a timely or
profitable basis. To the extent that the Company is unable to manage its growth
efficiently and effectively, the Company's business, financial condition and
results of operations could be materially adversely affected. Furthermore, in
pursuing its growth strategy, the Company may need to incur additional debt or
issue additional equity securities, resulting in increased financial leverage or
potential dilution to holders of Common Stock. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Business Strategy."




RISKS OF INTERNATIONAL OPERATIONS

     The Company's international sales efforts are and will continue to be
conducted principally through third party distributors and accordingly the
Company is dependent on the efforts of such distributors for the majority of its
international sales. There can be no assurance that the Company will be
successful in establishing and maintaining such distribution relationships, or
that such distributors will promote the Company's products aggressively or
achieve greater market awareness and penetration for the Company's products than
for competing products. In addition, because of this distribution strategy, the
Company is dependent upon the financial viability, reputation and success of its
distributors, with the result that the Company's business and financial
condition could be adversely affected by factors unrelated to the Company's
performance. The Company's international business may also be adversely affected
by governmental, political and economic conditions, including import quotas and
other factors. While foreign sales are expected to be priced in dollars,
fluctuation in currency exchange rates may reduce the demand for the Company's
products by increasing the price of these products in the currency of the
countries in which the products are sold. See "Business -- Marketing and
Distribution."

COMPETITION

     The Company encounters and expects to continue to encounter intense
competition in the sale of its products. The Company believes that the principal
competitive factors affecting the market for its products include product
features, product performance and reputation, price and service. The Company's
competitors include companies with established reputations in the consumer,
household water filtration and purification field and substantially greater
financial, technical, marketing and other resources than the Company. As a
result, such companies may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the promotion and sale of their products than the Company. Competition could
increase if new companies enter the market or if existing competitors expand
their product lines or intensify efforts within existing product lines. The
Company also indirectly competes on the retail consumer level with suppliers of
prepackaged bottled water and bulk water dispensing systems. There can be no
assurance that the Company's current products, products under development or
ability to discover new technologies will be sufficient to enable it to compete
effectively. See "Business -- Competition."

PRODUCT LIABILITY

     The Company could be liable for personal injuries allegedly caused by a
defect in one of the Company's products. While to date the Company has not
experienced any such claims, there can be no assurance that such claims will not
be made in the future. The Company currently carries product liability insurance
covering its products with policy limits of $2.0 million in the aggregate and
$1.0 million per occurrence. The Company also maintains umbrella coverage over
this amount to $15.0 million. It cannot be predicted, however, whether such
insurance is sufficient to adequately cover the Company's product liability
risk. Lack of sufficient insurance could expose the Company to substantial
damages in connection with product liability claims or product recalls. In
addition, the costs related to defending any claim, and/or the negative
publicity resulting from any liability action could have a material adverse
effect on the Company's sales and profitability.

CUSTOMER CONCENTRATION

     Sales of PUR household water filtration products to the Company's five
largest customers accounted for more than 45% of the Company's net sales in
1997, with Wal-Mart (12.8%) and Costco (10.1%) each representing more than 10%
of net sales. A reduction, delay or cancellation of orders from one or more of
these customers, or the loss of one or more of such customers, could have a
material adverse effect on the Company's operating results. See "Business --
Marketing and Distribution."

DEPENDENCE ON KEY PERSONNEL

     The Company's future success depends in significant part upon the continued
service of its key senior management and technical personnel, including Brian F.
Sullivan, President and Chief Executive Officer and Richard D. Hembree, Vice
President -- Engineering. The Company's future success also




depends on its continuing ability to attract and retain highly qualified
managerial and technical personnel. There can be no assurance that the Company
will be able to retain key employees or attract and retain other qualified
personnel in the future.

SEASONALITY; QUARTERLY FLUCTUATIONS; POSSIBLE VOLATILITY OF STOCK PRICE

     Management believes that the Company's business is to some extent seasonal,
with its highest sales levels occurring during the fourth quarter, although its
recent sales growth may have masked seasonal patterns. Results for any quarter
are not necessarily indicative of the results that the Company may achieve for
any subsequent quarter or a full fiscal year. Quarterly results may fluctuate as
a result of the timing of merchandise shipments, timing of expenditures for
product development and other factors. There can be no assurance that results in
future periods will not fluctuate on a quarterly basis. In addition, the market
price for the Common Stock may be highly volatile depending on various factors,
including the general economy, stock market conditions, the establishment or
loss of major customer relationships, technological innovations, new product
introductions by the Company or its competitors, and fluctuations in the
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

POTENTIAL ADVERSE EFFECT OF STOCK OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES

     A substantial number of shares of Common Stock are issuable upon the
exercise of outstanding stock options and warrants or the conversion of the
Company's 5% Convertible Notes due 2003 (the "Convertible Notes") at exercise or
conversion prices that are significantly less than recent market prices for the
Common Stock. When issued, such shares may become available for sale in the
public market. Sales of substantial amounts of such shares in the public market
could adversely affect the market price of the Common Stock. See "Dilution." The
Company, its officers, directors and certain other shareholders, including the
holders of the Convertible Notes, have agreed that, for a period of 180 days
from the date of this Prospectus (120 days in the case of the holders of the
Convertible Notes), they will not, without the prior written consent of
NationsBanc Montgomery Securities LLC, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or securities convertible into,
or exercisable or exchangeable for, Common Stock. Such shareholders beneficially
own an aggregate of 1,261,829 shares of Common Stock currently outstanding and
options exercisable for or securities convertible into an aggregate of 1,293,651
shares of Common Stock.

EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS

     The Company has adopted a Shareholder Rights Plan and is subject to certain
anti-takeover provisions of the Minnesota Business Corporation Act. Such
provisions could have the effect of discouraging a takeover proposal or tender
offer not approved by management and the Board of Directors of the Company.
Accordingly, shareholders may be denied the opportunity to participate in a
transaction which offers a premium to the prevailing market price of the Common
Stock. Furthermore, the Company's Board of Directors is authorized, without
further action by the holders of Common Stock, to establish various series of
Preferred Stock from time to time and to determine the rights, preferences and
restrictions of any wholly unissued series, including, among other matters,
dividend, liquidation and voting rights. Thus, the Board of Directors may,
without shareholder approval, issue shares of a class or series of Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of the Common Stock and could have the effect of delaying,
deferring or preventing a change in control of the Company. The creation and
issuance of shares of such a class or series of Preferred Stock could also
adversely affect the market price of the Common Stock.

DILUTION

     Purchasers of the shares of Common Stock offered hereby will experience
immediate substantial dilution in net tangible book value estimated at $23.01
per share, assuming a public offering price of $28.50. See "Dilution."




                                 USE OF PROCEEDS

     The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered hereby at an assumed public offering price of $28.50 per
share will be approximately $26.5 million ($30.5 million if the Underwriters'
over-allotment option is exercised in full), after deducting estimated
underwriting discounts and offering expenses.

     The Company currently intends to apply the net proceeds of this offering to
repay bank debt and support the continued expansion of the Company's business.
Approximately $15 million of the net proceeds will be used to repay borrowings
under the Company's credit facility with First Bank National Association ("First
Bank"). The remainder of the net proceeds of this offering (approximately $11.5
million) will be used to expand its consumer water treatment systems business
and for general corporate purposes. Pending the use of the net proceeds of this
offering, the Company will invest the funds in short-term interest bearing
securities.

     Borrowings under the Company's credit facility with First Bank were $10.4
million at January 31, 1998 and are expected to be approximately $15 million at
March 31, 1998. Approximately $4.0 million of the borrowings have been used to
finance equipment purchases, with the remainder being used for working capital
and general corporate purposes. Borrowings under the credit facility bear
interest at (i) the bank's reference rate plus 2.5% on borrowings for equipment
purchases, and (ii) the bank's reference rate plus 1.25% on the working capital
portion of the borrowings. The principal amount of borrowings for equipment
purchases is payable over a 42-month period commencing October 1998, unless
demand is made sooner. Other borrowings under the credit facility are due on
demand.

                                 DIVIDEND POLICY

     The Company has never paid or declared any cash dividends on its Common
Stock and does not intend to do so in the foreseeable future. The Company
presently expects to retain its earnings to finance the development and
expansion of its business. The payment by the Company of cash dividends, if any,
on its Common Stock in the future is subject to the discretion of the Company's
Board of Directors and will depend on the Company's earnings, financial
condition, capital requirements and other relevant factors. In addition, the
Company is prohibited from paying cash dividends on its Common Stock by the
terms of its current credit facility with First Bank and the terms of a
Securities Purchase Agreement dated July 19, 1996, between the Company and
certain investment partnerships, of which affiliates of The Goldman Sachs Group,
L.P. ("GS Group") are the general partner, managing general partner, managing
partner or investment manager, pursuant to which such investment partnerships
purchased $15.0 million principal amount of Convertible Notes from the Company.




                                 CAPITALIZATION

     The following table sets forth the capitalization of the Company at
December 31, 1997 on an actual basis and as adjusted to give effect to the sale
of the 1,000,000 shares of Common Stock offered hereby at an assumed public
offering price of $28.50 per share, and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this Prospectus.




                                                                DECEMBER 31, 1997
                                                              ---------------------
                                                               ACTUAL     AS ADJUSTED
                                                              --------     --------
                                                                  (IN THOUSANDS)
                                                                     
Short-term debt (1) ......................................    $  7,161     $   --
                                                              ========     ========
Long-term debt ...........................................    $ 15,000     $ 15,000
Shareholders' equity:
 Capital Stock, 100,000,000 shares authorized:
 Common Stock, $.01 par value; 4,548,249 shares issued and
  outstanding (actual); 5,548,249 shares (as adjusted) (2)          45           55
 Additional paid-in capital ..............................      21,364       47,844
 Retained earnings (deficit) .............................     (16,680)     (16,680)
                                                              --------     --------
  Total shareholders' equity .............................       4,729       31,219
                                                              --------     --------
   Total capitalization ..................................    $ 19,729     $ 46,219
                                                              ========     ========

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

(1)  Short-term debt was $10.4 million at January 31, 1998, and is expected to
     be approximately $15 million at March 31, 1998.

(2)  Does not include 2,094,051 shares of Common Stock issuable upon exercise of
     options and warrants or conversion of Convertible Notes outstanding at
     December 31, 1997. See "Dilution."

                                    DILUTION

     The net tangible book value of the Company's Common Stock at December 31,
1997 was $4.0 million, or $0.88 per share. Net tangible book value per share of
Common Stock represents the tangible assets (total assets less intangible
assets) reduced by total liabilities, divided by the number of outstanding
shares of Common Stock. After giving effect to the sale of the 1,000,000 shares
offered by the Company hereby at an assumed public offering price of $28.50 per
share and the application of the estimated net proceeds therefrom, and after
deducting estimated underwriting discounts and offering expenses payable by the
Company, the net tangible book value of the Company's Common Stock at December
31, 1997, would have been approximately $30.5 million, or $5.49 per share. This
represents an immediate dilution in net tangible book value to new investors of
$23.01 per share and an immediate increase in net tangible book value to
existing shareholders of $4.61 per share as illustrated by the following table:



                                                                          
Assumed Price to Public ..........................................              $  28.50
Net tangible book value per share at December 31, 1997 ........... $  0.88
Increase per share attributable to new investors .................    4.61
                                                                   -------
Pro forma net tangible book value per share after this offering ..                  5.49
                                                                                --------
Dilution per share to new investors ..............................              $  23.01
                                                                                ========


     The foregoing table assumes no exercise of stock options or warrants. As of
December 31, 1997, the Company had 946,450 shares of Common Stock issuable upon
the exercise of outstanding incentive and non-qualified stock options under the
Company's stock option plans, with a weighted average exercise price of $12.49
per share; and 137,500 shares issuable upon the exercise of outstanding warrants
at a weighted average exercise price of $7.59 per share. The foregoing table
also excludes 1,010,101 shares of Common Stock issuable upon the conversion of
$15.0 million principal amount of Convertible Notes at a conversion price of
$14.85 per share. See "Principal Shareholders" and Notes 5 and 6 of Notes to
Financial Statements.




                           PRICE RANGE OF COMMON STOCK

     The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "REIN" since March 1993. The following table sets forth, for
the periods indicated, the range of high and low prices for the Company's Common
Stock as reported on the Nasdaq National Market.

                                                         HIGH          LOW
                                                     -----------   ----------
    1996:
    First Quarter ................................    $  15.75      $  8.25
    Second Quarter ...............................       17.50        10.25
    Third Quarter ................................       14.75        11.50
    Fourth Quarter ...............................       12.38         6.50

    1997:
    First Quarter ................................    $   8.75      $  6.75
    Second Quarter ...............................       16.50         6.25
    Third Quarter ................................       30.50        15.00
    Fourth Quarter ...............................       31.50        23.00

    1998:
    First Quarter (through February 23, 1998) ....    $  30.50      $ 22.00

     On February 23, 1998, the last sale price of the Common Stock as reported
on the Nasdaq National Market was $28.50 per share. As of February 23, 1998,
there were 175 shareholders of record and approximately 2,200 beneficial owners
of the Company's Common Stock.




                             SELECTED FINANCIAL DATA

     The statement of operations data for the years ended December 31, 1995,
1996 and 1997, and the balance sheet data at December 31, 1996 and 1997, are
derived from the Company's financial statements included elsewhere in this
Prospectus, which have been audited by Ernst & Young LLP, independent auditors.
The statement of operations data for the years ended December 31, 1993 and 1994
and the balance sheet data at December 31, 1993, 1994 and 1995 are derived from
audited financial statements not included herein. The selected financial data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes thereto included elsewhere in this Prospectus.




                                                                   YEAR ENDED DECEMBER 31,
                                             -----------------------------------------------------------------
                                               1993         1994          1995          1996          1997
                                             --------     --------     ---------     ---------     -----------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
                                                                                    
STATEMENT OF OPERATIONS DATA:
Net sales ...............................    $ 10,292     $ 16,671     $  22,921     $  33,277     $    71,243
Cost of products sold ...................       4,988        7,897        13,959        20,756          37,417
                                             --------     --------     ---------     ---------     -----------
Gross profit ............................       5,304        8,774         8,962        12,521          33,826
Operating expenses:
 Selling, general and administrative ....       2,446        5,240        14,692        21,803          32,815
 Research and development ...............         801        1,064         2,021         2,007           3,082
 Facility relocation costs ..............        --           --            --             973            --
                                             --------     --------     ---------     ---------     -----------
                                                3,247        6,304        16,713        24,783          35,897
                                             --------     --------     ---------     ---------     -----------
Income (loss) from operations ...........       2,057        2,470        (7,751)      (12,262)         (2,071)
Other income (expense):
 Interest income ........................         167          508           551           220              43
 Interest expense .......................         (22)         (52)         (126)         (457)         (1,427)
                                             --------     --------     ---------     ---------     -----------
Income (loss) before income taxes .......       2,202        2,926        (7,326)      (12,499)         (3,455)
Income tax expense (benefit) ............         705          907        (2,564)         --              --
                                             --------     --------     ---------     ---------     -----------
Net income (loss) .......................    $  1,497     $  2,019     $  (4,762)    $ (12,499)    $    (3,455)
                                             ========     ========     =========     =========     ===========
Net income (loss) per share (basic) (1) .    $   0.53     $   0.57     $   (1.12)    $   (2.90)    $     (0.77)
                                             ========     ========     =========     =========     ===========
Weighted average shares (basic) .........       2,843        3,531         4,239         4,307           4,471
Net income (loss) per share (diluted) (1)    $   0.45     $   0.50     $   (1.12)    $   (2.90)    $     (0.77)
                                             ========     ========     =========     =========     ===========
Weighted average shares (diluted) .......       3,321        4,029         4,239         4,307           4,471

OPERATING DATA:
Estimated number of retail outlets at end
 of period (2) ..........................       1,200        2,200         9,900        16,900          28,000
Number of replacement cartridges shipped
 during year ............................       4,500       51,000       186,000       716,000       3,135,000

BALANCE SHEET DATA (at end of period):
Working capital .........................    $  7,458     $ 14,754     $  10,051     $   9,743     $     2,144
Total assets ............................      10,025       25,054        23,622        33,257          43,198
Long-term debt ..........................        --           --            --          15,000          15,000
Shareholders' equity ....................       8,667       22,895        19,430         7,131           4,729



- ------------------
(1) All earnings per share amounts for all periods have been presented and,
    where appropriate, restated to conform to FASB Statement 128 requirements.

(2) Represents the Company's estimate of the number of outlets at which one or
    more of the Company's household and outdoor products were sold. The
    approximate numbers of retail outlets at which the Company's household
    products were sold at the end of such periods were none in 1993, 1,000 in
    1994, 8,000 in 1995, 15,000 in 1996 and 26,000 in 1997.




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

     EXCEPT FOR HISTORICAL INFORMATION CONTAINED IN THIS PROSPECTUS, THE MATTERS
DISCUSSED HEREIN CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SUGGESTED IN THE FORWARD-LOOKING STATEMENTS, INCLUDING WITHOUT LIMITATION THE
EFFECTS OF ECONOMIC CONDITIONS, PRODUCT DEMAND, COMPETITIVE PRODUCTS AND OTHER
RISKS DETAILED HEREIN. SEE "RISK FACTORS."

OVERVIEW

     The Company designs, manufactures and markets proprietary small-scale
drinking water systems under the PUR(R) brand name for the household,
recreational and military markets. These products include a line of
self-monitoring water filters for household use, a rugged line of portable
drinking water systems for outdoor enthusiasts and international travelers and a
line of low-energy, reverse osmosis desalinators for offshore marine, commercial
life raft and military use, including the world's only hand-operated
desalinators. PUR household products, which accounted for more than 80% of the
Company's net sales in 1997, are distributed through approximately 26,000 retail
outlets in the United States and Canada, including Wal-Mart, Sears, Target,
Costco, Kmart, Macy's and Walgreens.

     Since its formation in 1986, the Company has utilized its mechanical and
chemical engineering expertise to develop new water filtration and purification
products that provide solutions to a variety of problems that have historically
prevented the adequate treatment of drinking water in a number of settings.
Initially, the Company developed a line of reverse osmosis desalinators for the
United States Navy and other military and offshore marine users. The Company
subsequently developed a line of PUR antimicrobial water purifiers and
microfilters for use by outdoor enthusiasts and international travelers. The
Company has a leading position in each of these markets.

     The Company entered the retail water filter market in late 1994 with the
intent of establishing PUR as the leading brand of household water filters.
Recognizing that a significant portion of revenues in the household market would
be derived from recurring sales of replacement cartridges, the Company pursued a
strategy of building brand name recognition for PUR products and developing an
installed base of its products to promote recurring sales of replacement
cartridges. To implement this strategy, the Company invested significant
resources to develop advanced filtration and monitoring technologies, launch a
broad range of products at a variety of price points, expand distribution of its
products, and provide high levels of consumer and trade advertising support. The
Company has also developed and implemented automated manufacturing and assembly
processes for its household products, which enables it to manufacture nearly all
of the filter elements for such products, reducing the Company's costs and
enhancing its ability to respond to retailers' needs. The Company currently
offers eight different types of household water filters at suggested retail
prices ranging from $19.99 to $119.99, as well as replacement cartridges for
each product, and has a distribution network of approximately 26,000 retail
outlets. This strategy of investing heavily to build the PUR brand name and
establish a large installed base, coupled with the resulting rapid growth in
production and sales, led to reduced profit margins and net losses in each of
the last three years. The Company believes it is now well positioned to benefit
from these investments, as evidenced by the Company's results of operations for
the fourth quarter of 1997, in which it had net sales of $23.1 million, a gross
margin of 52.4%, and its first quarterly profit since the first quarter of 1995.

     The Company's net sales increased from $10.3 million in 1993 to $71.2
million in 1997. The increase in net sales was primarily the result of the
Company's successful entry in late 1994 into the household water filter market.
Future increases in net sales are also expected to be derived principally from
the sale of household water filter systems and replacement cartridges. Sales of
the Company's household water filter systems have increased with (i) the
introduction of additional products for this market, (ii) an increase in the
number of retail outlets at which the Company's household products are sold,
(iii) an increase in the number of units sold at existing outlets, and (iv) the
overall growth in the market for household water filter systems. The Company
believes that its aggressive campaign to build brand name recognition for PUR
products has contributed significantly to the increase in net sales. Net sales
have also increased as a result of the sale of replacement filter cartridges to
the growing installed base of




owners of PUR water filter systems. The sale of replacement cartridges is
expected to constitute an increasing portion of the net sales in future periods
as the size of the installed base continues to increase. Revenues from the sale
of outdoor systems to consumers have also increased, but at a significantly
lower rate than revenues from the sale of household water filters.

     Cost of products sold is significantly affected by (i) costs of raw
materials, such as engineered thermoplastics, stainless steel and filtration
media, most of which are purchased from third party vendors, (ii) costs of
assembly, testing, quality control and packaging, which are performed by the
Company, and (iii) the mix of products sold. During 1995, 1996 and the first
half of 1997, gross margins were adversely affected by costs related to entering
the household water filter market, including investments made by the Company in
designing and implementing automated manufacturing and assembly processes for
PUR household water filters, together with the cost of conducting manual
assembly operations pending the installation of such automated processes. During
this period, the Company also took steps to reduce its material costs, including
development of a process to produce internally nearly all of its own filter
elements for its household products at significantly lower cost than purchasing
them from third party vendors. Following implementation of enhanced
manufacturing processes, the Company's household products generally carry a
higher gross margin than its other products, with replacement cartridges on
average carrying the highest gross margin of products within the household
category. The sale of household water filters and, in particular, the sale of
replacement cartridges is expected to constitute an increasing portion of net
sales in future periods.

     Selling, general and administrative expenses include advertising and
promotional expenses. To implement its strategy of building brand name
recognition for PUR products and developing an installed base of its products to
promote the sale of replacement filter cartridges, the Company has invested
heavily in advertising and promotional programs. Advertising and promotional
activities in 1995 and 1996 were designed to create an initial awareness of the
Company's products, establish recognition of the PUR brand name and build an
installed base supporting recurring sales of replacement cartridges. In 1997,
such expenses were incurred in connection with the introduction and promotion of
several new products for the household market. The Company expects that, as a
percentage of net sales, its advertising and promotional expenses in 1998 will
be essentially unchanged from 1997 as it continues to expand its position in the
household market, and will decline as a percentage of net sales in subsequent
years. However, the Company expects that advertising and promotional expenses
related to the introduction of new products may, from time to time, result in an
increase in such expenses as a percentage of net sales on a quarterly basis,
including in the first quarter of 1998.

     The Company intends to continue expanding its distribution network and seek
additional distribution channels to solidify its position in the growing
household water filter market. While such activities would be undertaken to
increase net sales and net income, they could affect the Company's gross profit
or selling, general and administrative expenses as a percentage of net sales.
For example, the sale of the PUR PLUS pitcher through infomercials, which
commenced in February 1998, is expected to result in different levels of gross
profit and selling, general and administrative expenses as a percentage of net
sales than the sale of the PUR products through retail outlets. The impact of
such differences will depend on the extent to which the Company determines to
use such distribution channels and the relative volumes of sales in the
respective channels.

     The Company's results of operations on a quarterly basis are subject to
fluctuation due to the seasonal nature of sales for its household products, with
highest sales levels occurring during the fourth quarter, and the periodic
introduction of new products. The Company believes that these seasonal patterns
may have been masked by its recent sales growth and by the mix of sales of
outdoor systems and household systems. The Company's results of operations are
also affected by the timing of the introduction of new products, product
enhancements and related advertising and promotional expenses. Product
development expenses are incurred and advertising and promotional efforts
typically are commenced prior to the initial shipments of new products and
product enhancements. As a result, product development expenses and advertising
and promotional expenses are incurred in periods before any revenues are
recognized from the sale of new products and enhancements, and therefore, gross
margins are relatively lower and operating expenses are relatively higher during
such periods. For example, the Company expects that its gross margin and results
of operations in the first quarter of 1998




will be adversely affected by its recent introduction of the PUR PLUS pitcher,
PUR PLUS dispenser and PUR ULTIMATE faucet-mounted products. Accordingly, the
Company expects that its gross margin for the first quarter of 1998 will be
similar to that in the third quarter of 1997. The Company also anticipates that
variations in its quarterly results of operations will occur from time to time
in future periods.

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, certain items
from the Company's statements of operations, expressed as a percentage of net
sales.




                                                      YEAR ENDED DECEMBER 31,
                                        -------------------------------------------------
                                        1993       1994       1995       1996       1997
                                        -----      -----      -----      -----      -----
                                                                     
Net sales ..........................    100.0%     100.0%     100.0%     100.0%     100.0%
Cost of products sold ..............     48.5       47.4       60.9       62.4       52.5
                                        -----      -----      -----      -----      -----
Gross profit .......................     51.5       52.6       39.1       37.6       47.5
Operating expenses:
 Selling, general and administrative     23.8       31.4       64.1       65.5       46.1
 Research and development ..........      7.8        6.4        8.8        6.0        4.3
 Facility relocation ...............     --         --         --          2.9       --
                                        -----      -----      -----      -----      -----
                                         31.6       37.8       72.9       74.4       50.4
                                        -----      -----      -----      -----      -----
Income (loss) from operations ......     19.9       14.8      (33.8)     (36.8)      (2.9)
Other income (expense):
 Interest income ...................      1.6        3.0        2.4        0.7        0.1
 Interest expense ..................     (0.2)      (0.3)      (0.6)      (1.4)      (2.0)
                                        -----      -----      -----      -----      -----
Income (loss) before income taxes ..     21.3       17.5      (32.0)     (37.5)      (4.8)
Income tax expense (benefit) .......      6.8        5.4      (11.2)      --         --
                                        -----      -----      -----      -----      -----
Net income (loss) ..................     14.5%      12.1%     (20.8)%    (37.5)%     (4.8)%
                                        =====      =====      =====      =====      =====



     YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

     Net sales increased 114.1% to $71.2 million in 1997 from $33.3 million in
1996. This $37.9 million increase in net sales was attributable primarily to an
increase of $38.4 million in sales of the Company's PUR household water filter
products, reflecting increased sales of filter systems and replacement
cartridges, and the introduction of the PUR PLUS faucet-mounted filter and the
PUR under-sink models, offset by a decrease of $1.5 million in sales of reverse
osmosis desalinators to military customers. Revenues from the sale of outdoor
systems to consumers also increased, but at a significantly lower rate than
revenues from the sale of household water filters. Sales of OEM water filters to
Braun AG were discontinued upon expiration of the Company's contract with Braun
AG in December 1997. Price increases did not have a significant impact on net
sales for 1997.

     Gross profit as a percentage of net sales increased to 47.5% in 1997 from
37.6% in 1996. The increase in gross profit as a percentage of net sales in 1997
was due to the implementation of automated manufacturing and assembly processes,
reductions in costs of materials, and an increase in sales of higher margin
household products and replacement filter cartridges as a percentage of net
sales.

     Selling, general and administrative expenses increased to $32.8 million in
1997 from $21.8 million in 1996, representing 46.1% and 65.5% of net sales,
respectively. The increase in selling, general and administrative expenses was
attributable primarily to advertising and promotional expenses related to the
continued roll-out and expansion of the Company's line of household water
filters. Advertising costs accounted for 46.0% of the increase in selling,
general and administrative expenses in 1997 relative to 1996. Despite continued
investment in marketing and advertising expenditures relating to new product
introductions, the Company believes that selling, general and administrative
expenses will remain flat as a percentage of net sales in 1998.

     Research and development expenses increased to $3.1 million in 1997 from
$2.0 million in 1996, representing 4.3% and 6.0% of net sales, respectively. The
Company expects that research and development expenses will continue to increase
in 1998 as it develops new technology and product line extensions.




     Interest income decreased to $43,000 in 1997 from $220,000 in 1996 due to
decreased balances of cash, cash equivalents and marketable securities. Interest
expense increased to $1.4 million in 1997 from $457,000 in 1996 due to interest
on the Company's line of credit, which was established in 1997, and a full year
of interest on the Company's long-term debt in 1997 compared with six months of
interest in 1996.

     The Company's effective tax rate for 1997 and 1996 was 0%. The Company
recorded a valuation allowance for the tax benefit related to the net operating
losses for 1997 and 1996. The Company had net operating tax loss carryforwards
of $23.7 million at December 31, 1997.

     YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

     Net sales increased 45.2% to $33.3 million in 1996 from $22.9 million in
1995. This $10.4 million increase in net sales was attributable primarily to
increased sales of the Company's PUR household water filter products, including
the countertop and pitcher models which were introduced in 1996, as well as a
full year's sales of OEM water filters to Braun AG. These increases were
partially offset by a decline in sales of reverse osmosis desalinators due to
lower military sales. Price increases did not have a significant impact on net
sales for 1996 and 1995.

     Gross profit as a percentage of sales decreased to 37.6% in 1996 from 39.1%
in 1995. The decrease in gross profit as a percentage of sales in 1996 was
primarily the result of costs associated with entering the household water
filter market, including investments made by the Company in automating its
manufacturing and assembly processes and the cost of conducting manual assembly
operations pending the installation of such automated processes, as well as the
full year impact of OEM filter sales, which had relatively lower profit margins.

     Selling, general and administrative expenses increased to $21.8 million in
1996 from $14.7 million in 1995, representing 65.5% and 64.1% of net sales,
respectively. The increase in selling, general and administrative expenses
related primarily to the continued roll-out and expansion of the household water
systems in 1996. Advertising costs accounted for 44.6% of the increase in
selling, general and administrative expenses in 1996 relative to 1995.

     Research and development expenses were $2.0 million in each of 1996 and
1995, representing 6.0% and 8.8% of net sales, respectively.

     Interest income decreased to $220,000 in 1996 from $551,000 in 1995, due to
decreased balances of cash, cash equivalents and marketable securities. Interest
expense increased to $457,000 in 1996 from $126,000 in 1995 due to interest on
long-term debt issued by the Company in July 1996.

     The Company's effective tax rate for 1996 was 0%, compared with 35.0% in
1995. The Company recorded a valuation allowance for the tax benefit related to
the 1996 net operating loss.

     SELECTED QUARTERLY FINANCIAL DATA

     The following table sets forth certain unaudited quarterly financial data
of the Company for each quarter in calendar year 1996 and 1997. The quarterly
data are derived from the Company's unaudited financial statements not otherwise
contained in this Prospectus. The Company believes that such unaudited
statements include all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of such quarterly information.
The operating results for any quarter are not necessarily indicative of the
results of the full year or any future quarter.







                                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                      1996
                                     ----------------------------------------------------------------------
                                      FIRST QUARTER     SECOND QUARTER     THIRD QUARTER     FOURTH QUARTER
                                     ---------------   ----------------   ---------------   ---------------
                                                                                
Net sales ........................      $  6,440           $  6,598          $  11,001         $  9,238
Gross profit .....................         2,454              2,522              4,239            3,306
Gross profit margin ..............          38.1%              38.2%              38.5%            35.8%
Net income (loss) ................        (1,921)            (1,722)            (2,916)          (5,940)
Net income (loss) per common share
 (Basic and Diluted) .............       $ (0.45)           $ (0.40)          $  (0.67)         $ (1.37)





                                                                      1997
                                     ----------------------------------------------------------------------
                                      FIRST QUARTER     SECOND QUARTER     THIRD QUARTER     FOURTH QUARTER
                                     ---------------   ----------------   ---------------   ---------------
                                                                                
Net sales ........................     $  10,347          $  15,462           $ 22,371         $ 23,063
Gross profit .....................         4,155              7,001             10,581           12,089
Gross profit margin ..............          40.2%              45.3%              47.3%            52.4%
Net income (loss) ................        (1,898)            (1,492)              (448)             383
Net income (loss) per common share
 (Basic and Diluted) .............      $  (0.44)         $   (0.33)          $  (0.10)         $  0.08


LIQUIDITY AND CAPITAL RESOURCES

     Cash used in operations was $9.1 million in 1997, $5.7 million in 1996, and
$8.1 million in 1995. The reduction in cash flow from operations in 1997
resulted primarily from the net loss and increases in inventories and accounts
receivable. Cash used in operations in 1996 was primarily the result of the net
loss and an increase in accounts receivable. In 1995, the reduction in cash flow
from operations resulted primarily from the net loss and increased inventory
levels. In 1997 and 1996, the decrease in cash flow was partially offset by
increases in accounts payable and accrued liabilities.

     Capital expenditures were $6.3 million in 1997 compared with $4.1 million
in 1996 and $4.6 million in 1995. The Company anticipates that capital
expenditures in 1998, principally associated with new product introductions and
an increase in production capacity, will total approximately $8.6 million.

     In the past three years the Company has funded its cash requirements
principally with proceeds from the sale of securities and borrowings under
credit facilities with a bank. In June 1994, the Company received net proceeds
of approximately $12.0 million from a public offering of Common Stock. In July
1996, the Company issued $15.0 million of Convertible Notes to GS Group. The
Convertible Notes bear interest at an annual rate of five percent, payable
quarterly, and are due in July 2003. GS Group has the right to convert the
principal amount of the Convertible Notes to Common Stock at any time prior to
maturity at a conversion price of $14.85 per share.

     The Company had $7.2 million outstanding under its bank credit facility at
December 31, 1997, compared with no bank borrowings at December 31, 1996. The
credit facility, established in March 1997, provides for total borrowings of up
to $14.0 million, secured by equipment, inventory, receivables, and intangibles.
The credit facility consists of a $10.0 million discretionary working capital
line of credit, limited to eligible receivables and inventory, which bears
interest at the bank's reference rate plus 1.25%, and a $4.0 million equipment
loan which bears interest at the bank's reference rate plus 2.5%. The principal
amount of the equipment loan is payable over a 42-month period commencing
October 1998, unless demand is made sooner. Other borrowings under the credit
facility are due on demand. The Company is currently negotiating a $25.0 million
credit facility with the same bank which would replace its current $14.0 million
credit facility. The new credit facility would consist of a $15.0 million
working capital line of credit limited to eligible receivables and inventory,
payable on demand, and an equipment term loan of up to $10.0 million amortized
over 48 months. Pursuant to the Company's agreement with GS Group, borrowings
under the bank credit facility were limited to $10.0 million in 1997 and will be
limited to $12.5 million in 1998. However, the Company received a waiver from GS
Group allowing it to borrow up to $14.0 million under the credit facility during
the fourth quarter of 1997 to accommodate the Company's peak borrowing needs.




     Management believes that anticipated cash flows from operations, funds
available through its bank credit facility and the net proceeds from this
offering will provide sufficient capital resources for current operations and
planned product introductions through 1999. The Board of Directors currently
intends to retain all earnings for expansion of the Company's business.

     At December 31, 1997, the Company had net operating tax loss carryforwards
available to offset future taxable income of approximately $23.7 million. The
net operating loss carryforwards are available to offset future taxable income
and begin to expire in 2010 and are subject to limitations under Section 382 of
the Internal Revenue Code due to changes in equity ownership of the Company.

ACCOUNTING STATEMENTS

     In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128, EARNINGS PER SHARE. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to Statement 128
requirements.

     In 1997, the FASB issued Statements No. 130, REPORTING COMPREHENSIVE
INCOME, and No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, effective for fiscal years beginning after December 15, 1997. The
adoption by the Company of these Statements in January 1998 is not expected to
have a material impact on the Company's financial statements

YEAR 2000 ISSUES

     Many existing computer programs use only two digits to identify a year in
the date field, with the result that data referring to the year 2000 and
subsequent years may be misinterpreted by these programs. If present in the
computer applications of the Company or its suppliers and customers and not
corrected, this problem could cause computer applications to fail or to create
erroneous results and could cause a disruption in operations and have a
short-term adverse effect on the Company's business and results of operations.
The Company has evaluated its principal computer systems and has determined that
they are substantially Year 2000 compliant. The Company has initiated
discussions with its key suppliers and customers to determine whether they have
any Year 2000 issues. The Company has not incurred any material expenses to date
in connection with this evaluation and does not anticipate material expenses in
the future, depending on the status of its suppliers and customers with respect
to this issue.




                                    BUSINESS

GENERAL

     The Company designs, manufactures and markets proprietary small-scale
drinking water systems under the PUR(R) brand name for the household,
recreational and military markets. These products include a line of
self-monitoring water filters for household use, a rugged line of portable
drinking water systems for outdoor enthusiasts and international travelers and a
line of low-energy, reverse osmosis desalinators for offshore marine, commercial
life raft and military use. PUR household water filters, which accounted for
more than 80% of the Company's net sales in 1997, are offered in a variety of
configurations, including pour-through pitchers and dispensers and in-line
faucet-mounted, countertop and under-sink filter systems. Each PUR household
water filter system incorporates a replaceable filtration cartridge.

     The Company's objective is to establish and maintain PUR as the leading
brand of consumer drinking water treatment equipment, using proprietary
technology, superior design and extensive advertising and promotional programs
to obtain a leading position in each market segment it enters. The Company
launched its first PUR water filters for the household market in late 1994, with
the intent of establishing a large installed base of PUR water filter systems to
support recurring sales of replacement filter cartridges. To date, the Company
has sold more than 2.5 million household water filter systems and has obtained a
significant share of this market. According to survey information from Intelect,
a third party market research firm, PUR is the number one brand of in-line water
filters and the second leading brand of all household water filters sold in the
United States. PUR household products currently are distributed through
approximately 26,000 retail outlets in the United States and Canada, compared
with approximately 15,000 retail outlets at the end of 1996. Major customers
include Wal-Mart, Sears, Target, Costco, Kmart, Macy's and Walgreens.

     Since its formation in 1986, the Company has utilized its mechanical and
chemical engineering expertise to develop new water filtration and purification
products with superior performance characteristics to meet the identified needs
of consumers. PUR reverse osmosis desalinators, introduced in 1988, include
hand-operated models for life rafts which it believes are the only such products
available in the world, and motor-driven models powered by a 12-volt DC motor.
PUR portable systems drinking water products, launched in 1991, incorporate the
Company's proprietary Tritek(R) disinfection technology which eliminates
microorganisms from water in seconds, making it possible for individuals to
produce safe drinking water when traveling, backpacking or on wilderness trips.
The Company has established a leading position in each of these markets.

     In 1994, the Company introduced a faucet-mounted water filter, the first
PUR product for the rapidly growing household water filter market. Since then,
the Company has expanded its household product lines to include a broad range of
products at a variety of price points. The Company's household water filters use
advanced filtration technologies to reduce a wide range of contaminants, such as
microbiological cysts, lead, pesticides, VOCs and other impurities, while
improving water taste and odor. The Company currently offers eight different
types of pour-through and in-line water filters, as well as replacement filter
cartridges for such products. All PUR household products incorporate the
Company's proprietary technology, known as ASM(R) (Automatic Safety
Monitor(TM)), which measures the filter's usage and indicates its remaining
capacity. The Company believes that this visible indication of when to replace
the filter cartridge encourages consumers to purchase replacement cartridges
more frequently than they otherwise would. The Company anticipates that the
installed base of PUR water filter systems will continue to grow, further
promoting the sale of replacement filter cartridges, which on average carry a
higher margin than the Company's other products. Sales of replacement filter
cartridges are expected to comprise an increasing portion of the market for
household water filter products and provide a source of recurring revenues.

INDUSTRY OVERVIEW

     During the last half of this century, reliable drinking water has largely
been taken for granted in the United States and other industrialized countries.
However, lead and other impurities can make water potentially unsafe or
unpleasant in taste and odor. In addition, much of the populated world,
including




parts of Asia, Africa and Latin America, does not have adequate sewage or water
treatment facilities, leaving tap water unfit for human consumption.

     HOUSEHOLD MARKET

     The EPA and other organizations have identified a number of harmful
contaminants that many municipal water authorities do not remove from drinking
water or that enter the water supply after it has left the municipal water
treatment facility.

   *  In 1993, the EPA identified microbiological cysts, in particular
      CRYPTOSPORIDIUM, as contaminants likely to be found in over 55% of the
      nation's surface waters and 17% of the nation's municipal water supplies.
      There have been numerous instances of water-borne illness resulting from
      such contaminants. For example, approximately 400,000 people became ill in
      1993 by an outbreak of CRYPTOSPORIDIA in the municipal water supply for
      Milwaukee, Wisconsin, despite the fact that water from the Milwaukee
      water-treatment plants met all existing state and federal quality
      standards.

   *  In 1994, the EPA reported on the effect of chlorine byproducts, such as
      trihalomethane, in drinking water supplies. The presence of
      trihalomethanes in drinking water is considered by the EPA to be a cancer
      risk. In 1998, the California Department of Health Services released a
      study which found that women who had a high exposure to trihalomethanes
      from water consumption were more likely to have miscarriages.

   *  In 1993, CONSUMER REPORTS published a report on tests it conducted for
      lead in household drinking water that found unacceptable lead
      contamination, based on EPA standards, in Chicago, Boston, New York,
      Washington, D.C. and San Francisco. Lead consumption is regarded as a
      significant health hazard, particularly for children.

   *  In 1997, a study conducted by the Environmental Working Group found that
      certain pesticides and herbicides have leached into underground aquifers
      in areas with concentrated agricultural activities. The Environmental
      Working Group reported that tap water testing in 1996 by authorities in
      midwestern states found that 104 communities, with a total population of
      3.3 million, were provided tap water contaminated with five or more cancer
      causing weed killers.

     A new contaminant selection regulation under the Safe Drinking Water Act
requires the EPA to publish a list of contaminants that may be found in water
supplies and to consider the need for regulations addressing such contaminants.
The EPA will require all municipalities to notify their customers once a year
whether any contaminants are found in levels higher than the acceptable limits
identified by the EPA. The Company believes that this requirement will promote
public awareness that water supplies may contain health contaminants that
municipalities are currently unable to remove and that water treatment in the
home at the point-of-use is an increasingly important option for homeowners.

     The Company believes that increasing awareness and concern about water
quality has contributed significantly to a steady increase in the size of the
market in the United States for household tap water substitutes (primarily
bottled water) and drinking water equipment. The United States market for
bottled water is currently estimated to be over $3.0 billion annually, with
approximately 35% of United States households purchasing bottled water in
individual or bulk containers. However, bottled water is less convenient and
over time is more costly per gallon than water from a point-of-use treatment
system. The Company estimates that the overall annual market for household
drinking water systems, services and supplies (such as water filters, water
softeners and whole house systems) is approximately $1.5 billion, with the
Company's current segments of this overall market representing approximately
$400 million. Despite heightened awareness of water quality and safety issues,
the domestic market penetration of household drinking water treatment systems is
estimated by the Company to be less than 25% of United States households.

     OUTDOOR MARKETS

     The outdoor market consists of reverse osmosis desalinators for offshore
marine and military applications, as well as portable water treatment systems
for recreational outdoor use. The Company estimates that the annual U.S. market
for such outdoor systems is approximately $30 million. The reverse



osmosis desalinator segment includes large motorized systems for use aboard
larger vessels, as well as smaller systems which are hand-operated or powered by
12-volt DC motors for use aboard life rafts or as a back-up system on a boat or
ship. The recreational segment includes a variety of portable, hand-operated
water purifiers and microfilters which eliminate harmful microorganisms from
outdoor or other questionable water sources, such as tap water in developing
countries. These products are typically used by outdoor enthusiasts and
international travelers.

BUSINESS STRATEGY

     The Company's objective is to establish and maintain PUR as the leading
brand of consumer drinking water treatment equipment and attain a leading
position in each of the market segments it enters. The Company's key strategies
to accomplish this objective are:

   *  DEVELOP PROPRIETARY TECHNOLOGY TO ADDRESS CONSUMER CONCERNS. The Company's
      research and development efforts are focused on creating innovative and
      technologically superior products that provide performance characteristics
      exceeding those of competing products. Consumer research conducted by the
      Company in 1993 and 1996 revealed that the performance of water filters
      from other manufacturers failed to meet consumers' expectations because
      (i) consumers were uncertain whether a filter had reached the end of its
      useful life and (ii) such filters treated primarily the aesthetic
      properties of drinking water and generally did not remove contaminants
      related to health concerns. In response to these findings, the Company
      developed the ASM monitoring technology and higher performance filters
      such as the PUR ULTIMATE faucet-mounted filter and the PUR PLUS
      pour-through pitcher and dispenser which were introduced in January 1998.
      The Company believes that its research and development team gives it a
      significant competitive advantage over others engaged in the design and
      manufacture of consumer water filtration and purification equipment.

   *  OFFER A BROAD LINE OF SUPERIOR PRODUCTS WHICH CATER TO A WIDE CONSUMER
      SEGMENT. The Company has established a leading position in its consumer
      drinking water treatment categories by developing a broad range of
      products with superior performance characteristics at a number of retail
      price points. The Company's products are offered in a variety of
      configurations with varying performance characteristics.

   *  ESTABLISH A BROAD DISTRIBUTION NETWORK. The Company's entry into the
      household water filter market in 1994 required it to establish new
      distribution channels for its products. Since then, the Company has
      expanded its distribution network aggressively. The Company's broad
      product line and range of price points and its ability to provide
      retailers with differentiated product configurations has enabled PUR
      products to be sold by a wide variety of retailers including department
      stores, mass merchants, drug stores, grocery stores, hardware stores and
      warehouse clubs. PUR household products are currently sold throughout the
      United States and Canada through approximately 26,000 retail outlets, a
      significant increase from approximately 15,000 retail outlets at the end
      of 1996. The Company continues to seek additional retail outlets and
      distribution channels for its household products. The Company also
      distributes its household products to international markets through
      Groupe-SEB, one of the world's leading suppliers of small household
      appliances whose products are distributed in over 80 countries under the
      brand names Rowenta and T-Fal.

   *  PROMOTE BRAND AWARENESS THROUGH EFFECTIVE MARKETING. The Company entered
      the growing household water filter market with the belief that it could
      capture a significant share of the market by quickly establishing its PUR
      brand. The Company therefore invested and continues to invest significant
      resources in advertising and promotional activities to increase awareness
      of its products and build the PUR brand name. These activities include
      providing its retailers with point-of-sale displays, cooperative
      advertising programs, product flyers and in-store product demonstrations.
      The Company also utilizes television commercials and infomercials which
      air on a variety of national cable channels and local broadcast stations,
      as well as print and radio advertisements. These efforts have enabled the
      Company to establish PUR products as the number one brand of in-line water
      filters and the number two brand of all household water filters sold in
      the United States.




   *  GENERATE RECURRING SALES OF REPLACEMENT FILTER CARTRIDGES. The Company has
      pursued a strategy of building brand name recognition for PUR products and
      developing an installed base of its products to promote recurring sales of
      replacement cartridges. The Company anticipates that, as the installed
      base of PUR water filter systems grows, an increasing portion of its net
      sales will be derived from recurring sales of replacement cartridges,
      which on average carry a higher margin than the Company's other products.
      All PUR household products incorporate the Company's proprietary ASM
      technology which measures the filter's usage and indicates its remaining
      capacity. The Company believes that this visible indication of when to
      replace the filter cartridge encourages consumers to purchase replacement
      filters more frequently than they otherwise would.

   *  DEVELOP LOW-COST, HIGH-VOLUME FLEXIBLE MANUFACTURING PROCESSES. The
      Company has invested heavily in automating the manufacturing and assembly
      processes for its household water filters, including the development of
      several proprietary, automated processes for manufacturing filter elements
      used in certain of its products. These automated processes have enabled
      the Company to improve its manufacturing efficiencies while enhancing its
      ability to provide high volumes of differentiated products to respond to
      retailers' needs. Many of these processes were implemented in 1997 and
      have contributed to improved margins. The Company intends to continue
      implementing processes to reduce the cost of manufacturing it products.

PRODUCTS

     Since its formation in 1986, the Company has utilized its mechanical and
chemical engineering expertise to develop new water filtration and purification
products with superior performance characteristics to address the identified
concerns of consumers. The Company believes it is a leader in introducing new
technology to the markets its serves.

   *  In 1988, the Company introduced the world's first hand-operated reverse
      osmosis desalinator.

   *  In 1991, the Company launched its line of PUR portable systems employing
      the Company's proprietary Tritek(R) disinfection technology which enables
      the elimination of microorganisms from water.

   *  In 1994, the Company introduced the first faucet-mounted water filter
      capable of removing CRYPTOSPORIDIUM and GIARDIA LAMBLIA.

   *  In 1994, the Company introduced the first faucet-mounted water filter with
      a device that automatically monitors the useful life of the filter
      cartridge.

   *  In 1996, the Company introduced the first gravity-fed, pour-through
      pitcher with an automatic monitoring device.

   *  In 1997, the Company introduced the first faucet-mounted water filter to
      remove mercury, particulates, atrazine and lindane.

   *  In 1998, the Company introduced two new pour-through systems, the PUR PLUS
      pitcher and the PUR PLUS dispenser, the first gravity-fed water filter
      systems capable of removing microorganisms as small as CRYPTOSPORIDIUM and
      GIARDIA LAMBLIA.

   *  In 1998, the Company introduced the PUR ULTIMATE faucet-mounted filter,
      the first faucet-mounted system to remove VOCs, including trihalomethanes,
      which have been linked to cancer.

     The Company believes its track record of introducing leading edge
technology to the marketplace ahead of its competitors has enabled it to attain
the number one market share in the outdoor product and reverse osmosis market
segments in which it competes, as well as the number one market share in in-line
household water filter systems.

     HOUSEHOLD WATER FILTERS

     The Company believes it offers the broadest line of household water filters
widely available at retail. PUR household water filters are offered in a variety
of configurations, including pour-through




pitchers and dispensers and in-line faucet-mounted, countertop and under-sink
filters. Each PUR household water filter system incorporates a replaceable
filter cartridge. Within each configuration, the Company offers different levels
of contaminant reduction capabilities and a range of price points. In addition,
the Company's flexible manufacturing processes allow it to make minor
modifications to its products to meet the preferences of retailers.

     All PUR household water filters incorporate the Company's ASM technology
which measures the filter's usage and indicates its remaining capacity, enabling
consumers to anticipate the need to purchase a replacement filter cartridge. The
PUR in-line products also include a feature that automatically shuts off the
water flow when the filter cartridge needs changing. Replacement filter
cartridges are sold at suggested retail prices ranging from $7.99 to $29.99
which allow consumers to obtain filtered water at a small fraction of the cost
of bottled water.

     PUR faucet-mounted water filters, introduced to the market in 1994, were
the first household water filters offered by the Company. These compact units
are approximately five inches high and incorporate a proprietary carbon block
filter developed by the Company. The filter cartridges for these units have a
useful life of about two to three months based on the Company's surveys of
consumer usage. The Company introduced its PUR countertop water filter systems
in 1996 and its PUR under-sink water filter system in 1997, with filter
cartridges having a useful life of four to six months. Each of these products is
approximately nine inches high and offers greater contaminant reduction and
longer filter life than the faucet-mounted units. The filter cartridge for the
countertop and under-sink units employ the same proprietary carbon block
technology as the faucet-mounted units. The Company estimates, based on survey
information from Intelect, that its line of faucet-mounted PUR water filters
accounted for approximately 75% of all household faucet-mounted water filtration
sales in the United States in 1997.

     The initial PUR pour-through product, introduced to the market in January
1996, is a water pitcher which holds approximately a half-gallon of filtered
water. In 1998, the Company introduced its PUR PLUS pitcher and PUR PLUS
dispenser, which are the only gravity-fed water filters capable of filtering
microorganisms as small as CRYPTOSPORIDIUM and GIARDIA LAMBLIA. The Company
expects to begin shipping the PUR PLUS pour-through products to retailers toward
the end of the first quarter of 1998. The PUR pour-through products incorporate
a proprietary three-stage filtration cartridge, developed and manufactured by
the Company, which employs activated carbon, ion exchange resin and a
microfilter and has a useful life of approximately one to two months based on
the Company's surveys of consumer usage. The Company estimates, based on survey
information from Intelect, that its line of PUR pour-through products accounted
for approximately 8% of all water filtration pitcher sales in the United States
in 1997.




   The products comprising the PUR line of household water filters are as
follows:




                                                                                                      SUGGESTED RETAIL PRICE
                                                                                                    --------------------------
                               ASM
                           FILTER LIFE              NSF CERTIFICATION OF                FILTER         FILTER      REPLACEMENT
PRODUCT/CONFIGURATION       INDICATOR     CONTAMINANT REDUCTION CAPABILITY (1)(2)    CAPACITY (3)    SYSTEM (4)     CARTRIDGE
- ------------------------- -------------  -----------------------------------------  --------------  ------------  ------------
                                                                                                   
POUR-THROUGH PRODUCTS:

PUR Pitcher                     X        * Chlorine, Taste/Odor, Zinc,              40 gal.          $  19.99       $  7.99
(1/2 gallon capacity)                    Particulate, Lead, Copper                  1-2 mos.

PUR PLUS Pitcher                X        * Chlorine, Taste/Odor, Zinc,              40 gal.          $  29.99       $ 12.99
(1/2 gallon capacity)                    Particulate, Lead, Copper                  1-2 mos.
                                         * Cysts (CRYPTOSPORIDIUM, GIARDIA),
                                         Asbestos, Turbidity

PUR PLUS Dispenser              X        * Chlorine, Taste/Odor, Zinc,              40 gal.          $  39.99       $ 12.99
(2 gallon capacity)                      Particulate, Lead, Copper                  1-2 mos.
                                         * Cysts (CRYPTOSPORIDIUM, GIARDIA),
                                         Asbestos, Turbidity

IN-LINE PRODUCTS:

PUR FM (standard)               X        * Chlorine, Taste/Odor, Particulate,       100 gal.         $  29.99       $ 14.99
(faucet-mounted)                         Cysts (CRYPTOSPORIDIUM, GIARDIA),          2-3 mos.
                                         Lead

PUR FM PLUS                     X        * Chlorine, Taste/Odor, Particulate,       100 gal.         $  39.99       $ 19.99
(faucet-mounted)                         Cysts (CRYPTOSPORIDIUM, GIARDIA),          2-3 mos.
                                         Lead
                                         * Asbestos, Mercury, Lindane,
                                         Atrazine

PUR FM ULTIMATE                 X        * Chlorine, Taste/Odor, Particulate,       100 gal.         $  49.99       $ 21.99
(faucet-mounted)                         Cysts (CRYPTOSPORIDIUM, GIARDIA),          2-3 mos.
                                         Lead
                                         * Asbestos, Mercury, Lindane,
                                         Atrazine
                                         * VOCs

PUR CT PLUS                     X        * Chlorine, Taste/Odor, Particulate,       200 gal.         $  79.99       $ 29.99
(countertop)                             Cysts (CRYPTOSPORIDIUM, GIARDIA),          4-6 mos.
                                         Lead
                                         * Asbestos, Mercury, Lindane,
                                         Atrazine
                                         * Turbidity

PUR US PLUS                     X        * Chlorine, Taste/Odor, Particulate,       200 gal.         $ 119.99       $ 29.99
(under-sink)                             Cysts (CRYPTOSPORIDIUM, GIARDIA),          4-6 mos.
                                         Lead
                                         * Asbestos, Mercury, Lindane,
                                         Atrazine



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

(1)  The National Sanitation Foundation ("NSF") is a nationally recognized
     not-for-profit agency which, at the request of state drinking water
     administrators and the EPA, has developed consensus standards for the
     certification of water filters. NSF certification indicates that a product
     has passed a series of stringent independent tests.

(2)  NSF certification of the PUR PLUS dispenser and PUR FM ULTIMATE
     faucet-mounted products is pending.

(3)  Estimated useful life (months) based on Company surveys of consumer usage.

(4)  A filter system includes the base unit and one filtration cartridge.




     OUTDOOR PRODUCTS

     The Company believes that it offers the broadest line of small-scale
drinking water systems for recreational and offshore marine use. The Company's
outdoor products include a rugged line of portable drinking water systems for
outdoor enthusiasts and international travelers and a line of low-energy,
reverse osmosis desalinators for offshore marine, commercial life raft and
military use.

     Various methods have historically been used to disinfect fresh water,
including chlorine gas, iodine, silver nitrate, hydrogen peroxide and boiling.
These methods involve a significant amount of time to be effective and,
therefore, are not convenient or practical for use on a consistent basis to
produce drinking water. In addition, chemical disinfectants are relatively
ineffective against cyst forms of various parasites, including GIARDIA LAMBLIA,
and leave residual concentrations in water, which may render the water
unpalatable. Although filtration is also commonly used to treat contaminated
water and is an effective means of removing larger microorganisms like protozoa
and bacteria, filtration is not a practical means of removing viruses.

     PUR fresh water purifiers incorporate the Company's proprietary Tritek
technology, which combines microfiltration and an iodinated resin matrix to
produce safe drinking water in seconds. The microfilter is used to remove
sediment and the largest and most chemically resistant microorganisms. Smaller
microorganisms, like bacteria and viruses, are killed upon contact with the
iodinated resin. The result is a process that takes advantage of the positive
attributes of microfiltration and iodinated resin, without suffering the
drawbacks of each approach when used alone. Each of the PUR fresh water
purifiers is registered with the EPA, which has established minimum performance
guidelines for microbiological water purifiers. See "Business -- Government
Regulation."

     The Company offers a range of PUR water purifiers and microfilters for use
by backpackers, campers and other outdoor enthusiasts. The PUR Voyageur(TM) is a
compact water purifier which produces approximately 1.0 liter of water per
minute. The Voyageur incorporates the Company's proprietary Anti-Clog Filter
Technology ("AFT") which extends the life of the filter, eliminating the need
for the user to clean or maintain it. The PUR Scout(R) also incorporates the AFT
filter technology and produces approximately 0.5 liter of water per minute. The
PUR Explorer(R) has a double-action pump which enables one person to produce
over 1.5 liters of water per minute. The Explorer includes a self-cleaning
mechanism, permitting the filter to be cleaned conveniently without disassembly.
The Company's microfilter products include the PUR Pioneer(R), an entry level
product which features a disposable microfilter designed to filter up to 20
gallons, and the PUR Hiker(R), which incorporates the Company's AFT filter
technology and is designed to filter up to 100 gallons.

     The Company also offers a line of PUR reverse osmosis desalinators for
converting seawater to potable water when sources of energy are either
unavailable or in limited supply. These products are used primarily in offshore
marine, commercial life raft and military applications. Reverse osmosis
desalination, which has been in use in large-scale systems for over 20 years,
occurs when feed water with dissolved solids (such as salt) is forced against a
semipermeable membrane at high pressure, typically 800 pounds per square inch.
The membrane acts as a barrier to contaminants such as salts, viruses and
bacteria, separating them from the pure water that passes through the membrane.
In a conventional reverse osmosis system, approximately 10% of the seawater
forced against the membrane passes through as pure water. The remaining
high-pressure waste brine stream is discharged. This process requires a large
amount of energy, making it impractical for small-scale applications. In 1988,
the Company introduced the world's first hand-operated reverse osmosis
desalinator, a compact unit incorporating a patented high-pressure energy
recovery pump that is designed to recover and effectively use energy that is
wasted in a conventional reverse osmosis system. The pump recycles the
high-pressure waste brine stream, redirecting it to the backside of the pump's
piston, providing a power assist to the pumping operation. By thus recovering
energy contained in the high-pressure waste brine stream, the Company's energy
recovery pump reduces the external power needed to operate a desalinator by
approximately 90%, and makes possible a small-scale low-energy desalinator.

     The PUR Survivor(R) models are hand-operated desalinators, designed
primarily for emergency life raft use. The Survivor-35, the first desalinator
built by the Company, was designed for use by the United States Navy in
25-person life rafts and is also available in commercial versions. The
Survivor-06, the




smallest reverse osmosis desalinator manufactured in the world, can produce a
pint of fresh water in less than 30 minutes. It is recommended for 4-to
12-person life rafts and individual survival kits. The Company is not aware of
any other hand-operated desalinators on the market. The PUR PowerSurvivor models
are driven by a 12-volt DC motor with power supplied by a boat's battery.

     The products comprising the PUR line of outdoor products are as follows:




                                                                                          SUGGESTED
PRODUCT                         TYPE                    SPECIAL FEATURES                 RETAIL PRICE
- ------------------------   -------------   ------------------------------------------   -------------
                                                                               
PORTABLE SYSTEMS:
PUR Pioneer                Microfilter     Disposable filter                             $    34.95
PUR Hiker                  Microfilter     Anti-clog filter                              $    59.95
PUR Voyageur               Purifier        Anti-clog filter with iodinated resin         $    74.95
PUR Scout                  Purifier        Anti-clog filter with iodinated resin         $    89.95
                                           and dirt shield
PUR Explorer               Purifier        Double-action pump; self-cleaning filter      $   129.95
                                           with iodinated resin
DESALINATORS:
PUR Survivor-06            Desalinator     Hand-operated, 6 gallons per day ("gpd")      $   585.00
PUR Survivor-35            Desalinator     Hand-operated, 35 gpd                         $ 1,550.00
PUR PowerSurvivor-40E      Desalinator     Powered by 12-volt DC motor, 40 gpd           $ 2,220.00
PUR PowerSurvivor-80E      Desalinator     Powered by 12-volt DC motor, 80 gpd           $ 3,540.00
PUR PowerSurvivor-160E     Desalinator     Powered by 12-volt DC motor, 160 gpd          $ 3,770.00


MARKETING AND DISTRIBUTION

     The Company entered the growing household water filter market with the
belief that it could capture a significant share of the market by quickly
establishing its PUR brand name. The Company therefore invested and continues to
invest significant resources in advertising and promotional activities to create
awareness of its products and recognition of the PUR brand name. These
activities include providing its retailers with point-of-sale displays,
cooperative advertising programs, product flyers and in-store product
demonstrations. The Company also utilizes television commercials which air on a
variety of national cable channels and local broadcast stations, as well as
print and radio advertisements. These efforts have enabled the Company to
establish PUR products as the number one brand of in-line water filters and the
second leading brand of all household water filters sold in the United States.
In February 1998, the Company began airing a one-half hour infomercial featuring
the PUR PLUS pitcher. This infomercial is designed to generate both direct and
retail sales and further educate consumers about the advantages of the PUR PLUS
pitcher relative to the leading pitcher brand.

     The Company's entry into the household water filter market in 1994 required
it to establish new distribution channels for its products. Since then, the
Company has expanded its distribution network aggressively, and currently sells
its household water filters in the United States and Canada through a wide
variety of mass retail channels, including department stores, mass merchants,
drug stores, grocery stores, hardware stores, and warehouse clubs. The Company's
household products are distributed in approximately 26,000 stores in the United
States and Canada. The accounts are serviced by a network of more than 30
independent manufacturers' representative agencies. The Company continues to
seek additional retail outlets and distribution channels for its household
products.




     The Company's household products are distributed through the following
channels:




                             APPROXIMATE
DISTRIBUTION CHANNEL      NO. OF STORES (1)    REPRESENTATIVE RETAILERS
- ----------------------   -------------------   -----------------------------------------------------
                                         

Mass merchants                  6,400          Wal-Mart; Target; Kmart

Department stores               2,100          Dayton's; Marshall Fields; Macy's; Robinson-May;
                                               Dillard's; Bloomingdale's; JC Penney; Sears

Drug stores                     7,800          Walgreens; Eckerd Drug; Long's Drug; American Stores
Grocery stores                  3,400          Albertson's; Kroger; Super Valu; Fleming; Wegman's
Home center and                 4,500          Home Depot; Lowes; Menards; Payless Cashways;
 hardware stores                               Builders Square; Ace Hardware; True Value Hardware;
                                               Hardware Hank; Servistar; Coast-to-Coast

Warehouse clubs                   700          Costco; Sam's Club; B.J.'s

Specialty retailers             1,100          Bed, Bath & Beyond; Linens 'N Things; Home Place;
                                               Lechters; QVC


- ------------------
(1) Represents the Company's estimate of the number of outlets at which one or
    more of the Company's household products are sold, including but not limited
    to the representative retailers named in the table.

     As part of its continuing efforts to enhance communications with its
customers, the Company utilizes electronic data interchange with its customers
to generate electronic purchase orders and invoices. The Company also receives
point-of-sale information through this system from 25 retailers including the
Company's top 10 customers. This information allows the Company to track and
monitor consumer sales of its products and anticipate orders from its principal
customers.

     In 1996, the Company established an international distribution agreement
with Groupe-SEB, one of the world's leading suppliers of small household
appliances whose products are distributed in over 80 countries under the brand
names Rowenta and T-Fal. Under the distribution agreement, Groupe-SEB has the
right to distribute PUR household water filters in all countries outside of
North America and Japan. The multi-year agreement with renewal options gives the
Company immediate access to worldwide markets with minimal investment in sales
and marketing activities.

     The Company's portable drinking water systems are offered to outdoor
enthusiasts and international travelers through more than 1,550 outdoor and
travel stores and more than a dozen mail order catalogs. A network of
approximately 20 independent manufacturers' representatives services these
accounts. The Company's reverse osmosis desalinators can be purchased from more
than 450 marine dealers and service centers on the Atlantic, Pacific and Gulf
coasts and from several marine catalogs. Internal sales and service personnel
manage these accounts directly. The Company also sells directly to the United
States armed forces. Sales to foreign military forces and consumers are made
through approximately 30 distributors located in Europe, Asia and the Middle
East. To create awareness for its products, the Company advertises in consumer
and trade publications, participates in consumer and trade shows, and publishes
periodic newsletters to its retailers.

RESEARCH AND DEVELOPMENT

     The Company believes that its research and development team gives it a
significant competitive advantage over others engaged in the design and
manufacture of consumer water filtration and purification equipment. Through the
efforts of its research and development team, the Company develops products
which incorporate proprietary technology to offer performance superior to
comparably priced products sold by competitors. The Company utilizes customer
surveys, focus groups, home user studies and field testing of its products to
assess consumer needs and preferences. Research and development efforts are then
focused on products where technological innovation can create a meaningful
difference between the Company's products and competing products. The Company's
research and development team includes an advanced manufacturing design group
which works to coordinate the transition of new products from the research and
development stage through the manufacturing process and ultimately to a
successful product launch. The Company's expenditures for




research and development were $3.1 million in 1997 and $2.0 million in each of
1996 and 1995, representing 4.3%, 6.0% and 8.8% of sales, respectively.

MANUFACTURING

     Since entering the household water filter market in 1994, the Company has
invested heavily in developing and implementing automated assembly and
manufacturing processes. Since 1994, the Company's annual production volume has
risen from approximately 140,000 units and cartridges to approximately 5.4
million in 1997. During this period, the Company has also implemented management
processes and information systems which it believes can accommodate significant
additional growth.

     The Company currently assembles all of the filter elements used in its
household products. The manufacturing and assembly processes of some of its
filter units and most of its filter cartridges is automated. The assembly,
testing, quality control and packaging of the Company's products are conducted
by the Company's employees at its facilities in Minneapolis, Minnesota.

     The principal raw materials utilized in the Company's manufacturing
operations are engineered thermoplastics, stainless steel and filtration media.
The Company relies on third party machine shops and injection molders to
manufacture components to the Company's specifications. The Company has
consolidated its supply relationships to two or three vendors for each component
to promote quality control. The Company has identified additional potential
suppliers for most of its components, and believes that alternate sources of
supply would be readily available to the Company if its relationships with
current suppliers were interrupted. The interruption of any of these supply
relationships could have a material adverse effect on the Company's results of
operations.

PATENTS

     The Company is the owner of 12 United States utility patents and five
United States design patents related to its reverse osmosis desalinators,
portable drinking water systems and household drinking water systems. These
patents expire at various dates from 1998 to 2013. The Company has applied for
corresponding foreign patents where it deemed such applications necessary. The
Company has also applied for 11 other patents in the United States with respect
to its household drinking water products and for corresponding foreign patents.
The protection offered by these patents and the ability to obtain protection
with respect to new technology are important to the Company's future
performance. See "Risk Factors -- Reliance on Proprietary Technology."

COMPETITION

     The Company competes with a number of companies in the manufacture and
marketing of household water filtration and purification systems. The most
significant competitors in this market currently are Brita U.S.A. (a subsidiary
of Clorox Company), Teledyne Waterpik (a subsidiary of Allegheny Teledyne,
Inc.), Culligan Water Technologies, Inc., Rubbermaid Inc. and Signature Brands
Inc. As this market develops, the Company may experience increased competition
from public water utilities, appliance manufacturers and consumer electronics
companies. In addition, the Company competes indirectly with suppliers of
bottled water.

     The Company is not aware of any other company which manufactures
hand-operated desalinators. The Company competes with several other companies in
the manufacture and sale of small-scale motorized reverse osmosis desalinators.
These companies include Sea Recovery Corp. and Village Marine Tec. The Company
also competes with several companies in the manufacture of water filters and
purifiers for personal and recreational uses. These companies include Katadyn
U.S.A., Inc., Mountain Safety Research Corporation (a subsidiary of Recreational
Equipment, Inc.), and Cascade Designs, Inc.

     The Company competes in the sale of drinking water systems on the basis of
product features, product performance and reputation, price and service.

GOVERNMENT REGULATION

     The manufacture, marketing, advertising and distribution of water
purification devices containing active ingredients, such as iodine, is regulated
by the EPA. The EPA generally requires registration of the




manufacturer, the active ingredients and the applicable device and its packaging
prior to sale of the product. Registration entails obtaining scientific data as
to the efficacy and toxicity of the device and its active ingredients. The PUR
Explorer, Scout and Voyageur, all of which contain iodinated resin, have been
registered by the EPA as "microbiological water purifiers."

     In 1987, the EPA issued a protocol (the "1987 Protocol"), applicable to
manufacturers of microbiological water purification devices, for the testing and
certification of such devices, including those offered by the Company. The 1987
Protocol requires that to be registered as a "microbiological water purifier," a
device must remove, kill or inactivate all types of disease-causing
microorganisms from the water, including bacteria, viruses and protozoan cysts,
so as to render the processed water safe for drinking. The 1987 Protocol does
not require the removal of all traces of iodine from the treated water. Because
small amounts of iodine may be present in water treated by the Company's
antimicrobial water purifiers, the Company, in its labeling, advises persons
with thyroid problems and pregnant women to consult their doctors before use of
such products. Management believes the Company's water purification products
satisfy all the 1987 Protocol requirements.

     In addition to EPA regulation, some states require registration of
household water filtration and purification products. The Company believes that
its current household products, and any future household products it develops,
comply and will comply with state regulations applicable to such products. There
can be no assurance, however, that such state registration requirements will not
result in delays in introduction of these products in certain markets.

     The Company is also subject to regulation with respect to the handling and
disposal of the elemental iodine used in manufacturing resins. The Company
believes it is in compliance with applicable rules, and that it has properly
disposed of such material. There can be no assurance that more restrictive and
costly requirements will not be imposed in the future.

EMPLOYEES

     At December 31, 1997, the Company had approximately 345 full-time
employees, of whom 33 were involved in research and development, 229 in
manufacturing, assembly and testing, 47 in sales, marketing, technical and
customer service, and 36 in administration. None of the Company's employees is
represented by a labor union or is covered by a collective bargaining agreement.
The Company has not experienced any work stoppages and believes that its
employee relations are excellent.

FACILITIES AND EQUIPMENT

     The Company is headquartered in a leased facility of 101,000 square feet at
9300 North 75th Avenue, Minneapolis, Minnesota 55428. The Company initiated
construction on an 87,000 square foot expansion of this facility in 1997, and
expects to take occupancy of such expansion in May 1998, at which time the
expiration date of the lease for the entire facility will be extended from April
2007 to the date that is ten years from the date of occupancy, plus 15 days. The
Company believes this expanded facility will provide sufficient space to support
the Company's anticipated requirements for the near-term, and that additional or
alternate facilities would be available on terms acceptable to the Company if
the Company's operations were to require additional space. The Company also
leases a warehouse facility of 19,000 square feet in Brooklyn Park, Minnesota
pursuant to a one year lease that expires on July 31, 1998.

     The Company was formerly headquartered in a leased facility of 52,000
square feet in Minneapolis, Minnesota pursuant to a seven-year lease which
expires on December 31, 2000. The Company has obtained a replacement tenant for
26,000 square feet of that facility and is seeking tenants for the remainder of
the facility. The original lease remains in effect and the Company will have
continuing financial obligations under such lease to the extent the facility is
not occupied by another tenant or the tenant does not assume or perform the
Company's obligations under the original lease.

     The Company owns manufacturing and engineering equipment, located at its
facilities in Minneapolis, used in its assembly operations and research and
development efforts. Such equipment is available from a variety of sources, and
the Company believes that it currently owns or can readily acquire equipment
required for its current and anticipated levels of operations.




LITIGATION

     The Company and several other water filtration companies are defendants in
a civil proceeding initiated in January 1997 by Brita U.S.A., a subsidiary of
Clorox Company, which asserts that the defendants have infringed one of Brita's
patents relating to pitcher products. Brita's lawsuit, now pending in the United
States District Court for the Northern District of Illinois, seeks injunctive
relief and unspecified monetary damages. This litigation is still in the initial
stages. The Company was aware of Brita's patent prior to developing the PUR
pitcher design and believes that it does not infringe Brita's patent. The
Company intends to defend vigorously its right to market and sell these
products. The design of the PUR PLUS pitcher, dispenser and related filter
cartridge differs in material respects from the design of the pitcher products
that are the subject of this litigation.

     The Company is also a defendant in a civil proceeding initiated in April
1997 by UltraPure Systems, Inc., a subsidiary of Culligan Water Technologies,
Inc., which asserts that the Company has infringed an UltraPure patent on a
faucet-mounted filter system. UltraPure's lawsuit, now pending in the United
States District Court for the District of Minnesota, seeks injunctive relief and
unspecified monetary damages. The Company believes it does not infringe
UltraPure's patent and intends to defend vigorously its right to market and sell
these products.

     The Company from time to time is involved in various other legal
proceedings arising in the normal course of business, none of which is expected
to result in any material loss to the Company.




                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

     The directors and executive officers of the Company are as follows:




NAME                                    AGE               POSITION WITH COMPANY
- ------------------------------------   -----   -------------------------------------------
                                         

   Brian F. Sullivan ...............    36     President, Chief Executive Officer
                                               and Director
   Jeffrey T. Dekko ................    31     Vice President -- Marketing
   Richard D. Hembree ..............    45     Vice President -- Engineering
   Charles F. Karpinske ............    43     Vice President and Chief Financial Officer
   Sally S. Mainquist ..............    42     Vice President -- Manufacturing
   Barry B. Van Lerberghe ..........    36     Vice President -- Sales
   Robert R. Gheewalla .............    30     Director
   John E. Gherty ..................    54     Director
   Sanjay H. Patel .................    37     Director
   William D. Thompson .............    76     Director
   William F. Wanner, Jr. ..........    55     Director
   Ronald W. Weber .................    69     Director
   Richard J. Zeckhauser ...........    57     Director


     BRIAN F. SULLIVAN has been the President and Chief Executive Officer and a
director of the Company since its inception in 1986, and also served as Chief
Financial Officer of the Company from 1986 to 1994. Mr. Sullivan has established
and directed the implementation of the Company's strategic direction since its
inception. He has led the Company from the development stage through its initial
contracts with the United States armed forces, the introduction of reverse
osmosis desalinators and portable drinking water systems, and the development
and introduction of the Company's household drinking water systems. Mr. Sullivan
is named as an inventor on four United States patents held by the Company. Mr.
Sullivan is also a director of North Central Life Insurance Company and Simple
Simon, Inc.

     JEFFREY T. DEKKO has served as Vice President -- Marketing of the Company
since July 1995. Mr. Dekko served as Vice President of Recreational Products
for the Company from October 1994 to July 1995. Mr. Dekko directs the Company's
marketing efforts in the consumer household water products category. From 1988
to October 1994, Mr. Dekko was marketing manager for General Mills, Inc.

     RICHARD D. HEMBREE has served as chief engineer of the Company since 1986
and Vice President -- Engineering since 1987. Mr. Hembree has been principally
responsible for the development of new technologies incorporated into the
Company's products. Mr. Hembree is named as an inventor on eight United States
patents held by the Company. From 1983 to 1986, Mr. Hembree was a senior design
engineer at Seagold Industries Corporation, a manufacturer of desalinators,
where he designed several energy recovery pumps and was engaged in the design
and development of manual desalinators and hydraulic energy recovery devices.

     CHARLES F. KARPINSKE has served as the Company's Vice President and Chief
Financial Officer since February 1996. Prior to joining the Company, Mr.
Karpinske served as Vice President of Operations and Chief Financial Officer of
Goretek Data Systems, a software development company, from April 1995 to
February 1996. From August 1993 to March 1995, Mr. Karpinske was the Chief
Operating Officer and Chief Financial Officer for Decision Data, a manufacturer
and distributor of computer equipment. From October 1986 to July 1993, Mr.
Karpinske worked for Apertus Technologies (formerly Lee Data), a manufacturer
and distributor of computer equipment, serving in a number of financial
positions including Chief Financial Officer, Vice President of Finance and
Administration and Corporate Controller.

     SALLY S. MAINQUIST has served as Vice President -- Manufacturing of the
Company since March 1994. Ms. Mainquist directs the Company's manufacturing
operations and is responsible for establishing automated manufacturing processes
for the Company's household drinking water systems. From 1982 to February 1994,
Ms. Mainquist served in various positions with Graco Inc., a manufacturer of
fluid handling equipment, most recently as a factory operations manager.




     BARRY B. VAN LERBERGHE has served as Vice President -- Sales of the Company
since July 1995. Prior to joining the Company, Mr. Van Lerberghe was Western
Regional Manager for Sunbeam Household Products from 1992 to 1995, and District
Sales Manager for Polaroid Corporation from 1988 to 1992.

     ROBERT GHEEWALLA has been a director of the Company since February 1998.
Mr. Gheewalla has been an Associate in the Principal Investment Area of
Goldman, Sachs & Co. since 1994. From 1989 to 1994, he worked in the Global
Finance Department of Goldman, Sachs & Co. Mr. Gheewalla also serves on the
Advisory Committees or Boards of Directors of Marcus Cable Co., L.P. and North
American Railnet, Inc.

     JOHN E. GHERTY has been a director of the Company since 1988. Mr. Gherty
has been President and Chief Executive Officer of Land O' Lakes, Inc., a food
and agricultural company, since 1989 and prior thereto was Group Vice President
and Chief Administrative Officer of Land O' Lakes, Inc. Mr. Gherty is also a
director of CF Industries, Inc., the National Parenting Association, the
National Council of Farmer Cooperatives and the Minnesota Business Partnership.

     SANJAY H. PATEL has been a director of the Company since July 1996. Mr.
Patel is expected to join Greenwich Street Capital Partners as a managing
director in April 1998. Mr. Patel was a Managing Director in the Principal
Investment Area of Goldman, Sachs & Co. from 1996 to January 1998, and worked
in the Leveraged Buyout Group of Goldman, Sachs & Co. from 1987 to 1996. Mr.
Patel is also a director of Stirling Cooke Brown Holdings Limited.

     WILLIAM D. THOMPSON has been a director of the Company since December
1995. Mr. Thompson served as Executive Vice President of the New York City
advertising firm of Young & Rubicam, Inc. until his retirement in 1989. During
37 years of service for Young & Rubicam, Mr. Thompson oversaw accounts for
numerous companies, including General Foods, Merrill Lynch, General Electric,
Warner-Lambert, Bristol-Meyers Squibb, and Johnson & Johnson.

     WILLIAM F. WANNER, JR. has been a director of the Company since its
inception in 1986. Mr. Wanner served as Chairman of the Board of the Company
from 1986 to 1994. Since 1973, Mr. Wanner has been the Chief Executive Officer
and principal shareholder of Wanner Engineering, Inc. and its affiliated
companies, which design, produce and market a range of high pressure pumps and
controls.

     RONALD W. WEBER has been a director of the Company since 1993. Mr. Weber
has been President and Chief Executive Officer of Normark Corporation, a
distributor of fishing and sporting equipment, since 1959. Mr. Weber is also a
director of Rapala Oy, a manufacturer of fishing and sporting equipment.

     RICHARD J. ZECKHAUSER has been a director of the Company since 1987. Dr.
Zeckhauser has been a professor of political economy at the John F. Kennedy
School of Government at Harvard University since 1968. Dr. Zeckhauser was a
co-founder of Niederhoffer, Cross and Zeckhauser, a New York-based investment
firm specializing in mergers and acquisitions and money management.

     Directors of the Company are elected annually to serve until the next
annual meeting of shareholders. GS Group has the right to nominate one person to
serve on the Company's Board of Directors, and the Company has agreed to use its
best efforts to secure the election of such nominee to the Board of Directors.
Mr. Gheewalla serves as a director of the Company pursuant to such arrangements.




                             PRINCIPAL SHAREHOLDERS

     The following table sets forth information as of December 31, 1997,
regarding the beneficial ownership of shares of Common Stock of the Company by
each director and executive officer of the Company, by all directors and
executive officers of the Company as a group, and by each shareholder known by
the Company to own beneficially more than five percent (5%) of the outstanding
shares of the Company's Common Stock. Unless otherwise noted, each person or
group identified possesses sole voting and investment power with respect to such
shares.




                                                                                     PERCENT OF OUTSTANDING
                                                                                           SHARES (2)
                                                                                     ----------------------
                                                          NUMBER OF SHARES             BEFORE       AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER                       BENEFICIALLY OWNED (1)     OFFERING     OFFERING
- -------------------------------------------------------   ------------------------   ----------   ---------
                                                                                         
Certain investment funds affiliated with
 The Goldman Sachs Group, L.P. (3) ....................           1,015,101              18.2%       15.5%
85 Broad Street
New York, NY 10004

Investment Advisers, Inc. (4) .........................             620,300              13.6%       11.2%
3700 First Bank Place
Minneapolis, MN 55440

Wanner Engineering, Inc. (5) ..........................             596,100              13.1%       10.7%
1204 Chestnut Avenue
Minneapolis, MN 55403

US Trust Company of New York (6) ......................             370,036               8.1%        6.7%
114 West 47th Street
New York, NY 10036

Nevis Capital Management, Inc. (7) ....................             311,300               6.8%        5.6%
1119 St. Paul Street
Baltimore, MD 21202

DIRECTORS AND EXECUTIVE OFFICERS:
Brian F. Sullivan (8)(9) ..............................             530,000              11.3%        9.3%
Jeffrey T. Dekko (8) ..................................              15,263                 *           *
Richard D. Hembree (8) ................................              72,150               1.6%        1.3%
Charles F. Karpinske (8) ..............................              22,500                 *           *
Sally S. Mainquist (8) ................................              20,615                 *           *
Barry B. Van Lerberghe (8) ............................              16,050                 *           *
Robert R. Gheewalla (10) ..............................                  --                 *           *
John E. Gherty (8) (11) ...............................              56,451               1.2%        1.0%
Sanjay H. Patel (8) (12) ..............................               5,700                 *           *
William D. Thompson (8) ...............................              21,000                 *           *
William F. Wanner, Jr. (8)(13) ........................             660,150              14.5%       11.9%
Ronald W. Weber (8) ...................................              28,000                 *           *
Richard J. Zeckhauser (8) (14) ........................              92,500               2.0%        1.7%

All directors and executive officers as a group
 (13 persons, including those named above)(8) .........           1,540,379              31.9%       26.4%


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

*    Less than one percent.

(1)  Each person has sole voting and sole power with respect to all outstanding
     shares, except as noted.

(2)  Based on 4,548,249 shares outstanding before the offering and 5,548,249
     shares to be outstanding after the offering. Such amounts do not include
     2,094,051 shares of Common Stock issuable upon exercise of stock options
     and warrants or conversion of Convertible Notes outstanding at December 31,
     1997. Each figure showing the percentage of outstanding shares owned
     beneficially has been calculated by treating as outstanding and owned the
     shares which could be purchased by the indicated person(s) within 60 days
     upon the exercise of existing stock options or the conversion of the
     Convertible Notes.

(3)  Reflects information included on a Schedule 13D, dated October 1, 1997,
     filed with the Securities and Exchange Commission by certain investment
     partnerships, of which affiliates of The Goldman Sachs Group, L.P. ("GS
     Group") are the general partner, managing general partner, managing partner
     or investment manager. Includes (i) 1,010,101 shares which may be




     acquired upon the conversion of Convertible Notes owned by the investment
     partnerships, and (ii) 5,000 shares subject to options held for the benefit
     of the GS Group by Mr. Patel (see Notes 8 and 12). Includes Convertible
     Notes held of record by GS Capital Partners II, L.P., currently convertible
     into 633,766 shares, Convertible Notes held of record by GS Capital
     Partners II Offshore, L.P., currently convertible into 251,948 shares,
     Convertible Notes held of record by Stone Street Fund 1996, L.P., currently
     convertible into 60,191 shares, Convertible Notes held of record by Bridge
     Street Fund 1996, L.P., currently convertible into 40,819 shares, and
     Convertible Notes held of record by Goldman, Sachs & Co. Verwaltungs GmbH,
     currently convertible into 23,377 shares. Does not include up to 367,309
     aggregate shares of Common Stock in respect of certain reset rights held by
     the investment partnerships. GS Group disclaims beneficial ownership of the
     shares owned by such investment partnerships to the extent attributable to
     partnership interests therein held by persons other than GS Group and its
     affiliates. Each of such investment partnerships shares voting and
     investment power with certain of its respective affiliates. See "Dilution."

(4)  Reflects information as of December 31, 1997, based on a Schedule 13G,
     dated January 30, 1998, filed by such company with the Securities and
     Exchange Commission, which indicates that the shareholder has sole voting
     power and sole dispositive power with respect to 464,500 shares and shared
     voting power and shared dispositive power with respect to 155,800 shares.

(5)  Mr. Wanner, a director of the Company, is a director, officer and principal
     shareholder of Wanner Engineering, Inc. Such shares are also included in
     the shares beneficially owned by Mr. Wanner.

(6)  Reflects information as of December 31, 1997, based on a Schedule 13G,
     dated February 6, 1998, filed by such company with the Securities and
     Exchange Commission, which indicates that the shareholder has shared voting
     power and shared dispositive power with respect to said shares.

(7)  Reflects information as of December 31, 1996, based on a Schedule 13G,
     dated February 12, 1997, filed by such company with the Securities and
     Exchange Commission, which indicates that the shareholder has sole voting
     power and sole dispositive power with respect to said shares.

(8)  Includes shares which could be purchased within 60 days upon the exercise
     of stock options as follows: Mr. Sullivan, 121,500 shares; Mr. Dekko,
     14,750 shares; Mr. Hembree, 41,250 shares; Mr. Karpinske, 22,500 shares;
     Ms. Mainquist, 19,800 shares, Mr. Van Lerberghe, 12,250 shares; Mr. Gherty,
     9,000 shares; Mr. Patel, 5,000 shares; Mr. Thompson, 6,000 shares; Mr.
     Wanner, 10,000 shares; Mr. Weber, 8,000 shares; Dr. Zeckhauser, 8,500
     shares; and all directors and executive officers as a group, 278,550
     shares.

(9)  Mr. Sullivan's address is 9300 North 75th Avenue, Minneapolis, MN 55428.

(10) Does not include securities that may be deemed to be beneficially owned by
     GS Group (see Note 3). Mr. Gheewalla, a director of the Company, is an
     associate of Goldman, Sachs & Co., the investment manager for certain of
     the investment partnerships, Mr. Gheewalla disclaims beneficial ownership
     of such securities.

(11) Includes 10,701 shares held by Mr. Gherty as custodian for his minor
     children.

(12) Includes 5,000 shares subject to options held for the benefit of GS Group
     with which Mr. Patel was previously associated. Mr. Patel disclaims
     beneficial ownership of such securities.

(13) Includes 2,200 shares held by Mr. Wanner as trustee for members of his
     family and 596,100 shares owned by Wanner Engineering, Inc., of which Mr.
     Wanner is a director, officer and principal shareholder.

(14) Includes 25,000 shares owned by Dr. Zeckhauser's wife. Dr. Zeckhauser,
     having no voting or dispositive powers with respect to such shares,
     disclaims beneficial ownership of such shares.




                                  UNDERWRITING

     NationsBanc Montgomery Securities LLC and Deutsche Morgan Grenfell Inc.
(the "Underwriters") have severally agreed, subject to the terms and conditions
in the underwriting agreement (the "Underwriting Agreement") by and between the
Company and the Underwriters, to purchase from the Company the aggregate number
of shares of Common Stock indicated below opposite their respective names at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all the shares of Common Stock if they
purchase any.


         UNDERWRITER                                          NUMBER OF SHARES
         -----------                                          ----------------
         NationsBanc Montgomery Securities LLC ..........
         Deutsche Morgan Grenfell Inc. ..................
                                                                ---------
          Total .........................................       1,000,000

     The Underwriters have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share and the Underwriters
may allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the offering, the public offering price
and other selling terms may be changed by the Underwriters. The Common Stock is
offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.

     The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 150,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 1,000,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such
over-allotment option, each of the Underwriters will be committed, subject to
certain conditions, 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 made in connection with this offering.

     The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.

     The Company, its officers, directors and certain other shareholders of the
Company designated by the Underwriters, including the holders of the Convertible
Notes, have agreed that, for a period of 180 days from the date of this
Prospectus (120 days in the case of the holders of the Convertible Notes), they
will not, without the prior written consent of NationsBanc Montgomery Securities
LLC, offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock, except that the Company may issue shares of Common Stock (i) in
connection with acquisitions and (ii) pursuant to the conversion of the
Convertible Notes and the exercise of options and warrants outstanding as of the
closing of this offering. Such shareholders beneficially own an aggregate of
1,261,829 shares of Common Stock currently outstanding and options exercisable
for or securities convertible into an aggregate of 1,293,651 shares of Common
Stock.

     The Underwriters have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.

     Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Underwriters are permitted to
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock. If the Underwriters create
a short position in the Common Stock in connection with this offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Underwriters may reduce that short position by purchasing
Common Stock in the open




market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above. The
Underwriters may also impose a penalty bid on certain Underwriters and selling
group members. This means that if the Underwriters purchase shares of Common
Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of this offering.

     In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.

                                  LEGAL MATTERS

     The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Robins, Kaplan, Miller & Ciresi L.L.P., Minneapolis,
Minnesota. Eric O. Madson, a partner in Robins, Kaplan, Miller & Ciresi L.L.P.,
is the Secretary of the Company and a beneficial owner of shares of Common
Stock. Certain legal matters will be passed upon for the Underwriters by Fried,
Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), Los Angeles, California.

                                     EXPERTS

     The financial statements of the Company as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997, included
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon, appearing
elsewhere herein, and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

                             AVAILABLE INFORMATION

     The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended, with respect to the offering of
the shares of Common Stock made hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement. For further information
with respect to the Company and the Common Stock, reference is made to such
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other documents referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved. The Registration
Statement may be inspected without charge and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; 500 West Madison, Suite 1400, Chicago, Illinois 60661; and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials may
also be obtained at prescribed rates from the Commission's Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549.

     The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected without charge and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
500 West Madison, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials may also be
obtained at prescribed rates from the Commission's Public Reference Section at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a web
site at "http://www.sec.gov" which provides on-line access to registration
statements, reports, proxy statements and other information regarding
registrants that file electronically with the Commission.




                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus except as superseded or modified
herein:

     i.   The Company's Annual Report on Form 10-K for the fiscal year ended
          December 31, 1997;

     ii.  The description of the Company's capital stock, contained in the
          Company's Form 8-A filed February 3, 1996, and amended on December 4,
          1997; and

     iii. The description of the Company's Rights Plan, contained in the
          Company's Form 8-A filed February 20, 1996.

     All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the shares of Common Stock
offered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents.

     Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.

     The Company will provide without charge to each person, including a
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all documents that have been or may be
incorporated by reference herein (other than exhibits to such documents which
are not specifically incorporated by reference into such documents). Such
requests should be directed to the Chief Financial Officer at the Company's
principal executive offices at 9300 North 75th Avenue, Minneapolis, Minnesota
55428, telephone number (612) 315-5500.




                          INDEX TO FINANCIAL STATEMENTS




                                                                                   PAGE
                                                                                  -----
                                                                               
 Report of Independent Auditors ...............................................    F-2
 Balance Sheets as of December 31, 1996 and 1997 ..............................    F-3
 Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997     F-4
 Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997     F-5
 Statements of Changes in Shareholders' Equity for the Years Ended
  December 31, 1995, 1996 and 1997 ............................................    F-6
 Notes to Financial Statements ................................................    F-7






                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
Recovery Engineering, Inc.

     We have audited the accompanying balance sheets of Recovery Engineering,
Inc. as of December 31, 1996 and 1997, and the related statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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 statement presentation. 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 Recovery Engineering, Inc.
at December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

                                                  Ernst & Young LLP

Minneapolis, Minnesota
January 30, 1998




                           RECOVERY ENGINEERING, INC.

                                 BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)




                                                                 DECEMBER 31,
                                                          ---------------------------
                                                              1996           1997
                                                          ------------   ------------
                                                                   

                                     ASSETS

Current assets:
 Cash and cash equivalents ............................    $   5,988      $     261
 Marketable securities ................................        1,542             --
 Accounts receivable (net of allowance of $212 for 1996
  and $314 for 1997) ..................................        8,109         16,236
 Inventory ............................................        4,926          7,594
 Other current assets .................................          304          1,522
                                                           ---------      ---------
Total current assets ..................................       20,869         25,613
Property and equipment:
 Tooling ..............................................        6,057          9,815
 Equipment and fixtures ...............................        6,569          9,123
                                                           ---------      ---------
                                                              12,626         18,938
 Less accumulated depreciation ........................        3,003          4,771
                                                           ---------      ---------
                                                               9,623         14,167

Deferred income taxes .................................        1,512          1,512
Patents (net of accumulated amortization) .............          766            732
Other assets ..........................................          487            676
Note receivable -- related party ......................           --            498
                                                           ---------      ---------
Total assets ..........................................    $  33,257      $  43,198
                                                           =========      =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
 Bank line of credit ..................................    $      --      $   7,161
 Accounts payable .....................................        6,483          8,336
 Accrued facility relocation costs ....................          608            217
 Accrued marketing expenses ...........................          861          1,781
 Accrued coop advertising .............................        1,050          2,138
 Other accrued expenses ...............................        2,124          3,836
                                                           ---------      ---------
Total current liabilities .............................       11,126         23,469
Long term debt ........................................       15,000         15,000

Commitments

Shareholders' equity:
 Common stock, $.01 par value:
   Authorized shares -- 100,000,000
    Issued and outstanding shares 1996 -- 4,325,710 and
    1997 -- 4,548,249 .................................           43             45
 Additional paid-in capital ...........................       20,313         21,364
 Retained earnings (deficit) ..........................      (13,225)       (16,680)
                                                           ---------      ---------
Total shareholders' equity ............................        7,131          4,729
                                                           ---------      ---------
Total liabilities and shareholders' equity ............    $  33,257      $  43,198
                                                           =========      =========


                             See accompanying notes



                           RECOVERY ENGINEERING, INC.

                            STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)




                                                             YEAR ENDED DECEMBER 31,
                                                    ------------------------------------------
                                                        1995           1996           1997
                                                    ------------   ------------   ------------
                                                                         
Net sales .......................................     $ 22,921      $  33,277       $ 71,243
Cost of products sold ...........................       13,959         20,756         37,417
                                                      --------      ---------       --------
Gross profit ....................................        8,962         12,521         33,826
Operating expenses:
 Selling, general and administrative ............       14,692         21,803         32,815
 Research and development .......................        2,021          2,007          3,082
 Facility relocation costs ......................           --            973             --
                                                      --------      ---------       --------
                                                        16,713         24,783         35,897
                                                      --------      ---------       --------
Loss from operations ............................       (7,751)       (12,262)        (2,071)
Other income (expense):
 Interest income ................................          551            220             43
 Interest expense ...............................         (126)          (457)        (1,427)
                                                      --------      ---------       --------
Loss before income taxes ........................       (7,326)       (12,499)        (3,455)
Income tax benefit ..............................       (2,564)            --             --
                                                      --------      ---------       --------
Net loss ........................................     $ (4,762)     $ (12,499)      $ (3,455)
                                                      ========      =========       ========
Net loss per share -- basic and diluted .........     $  (1.12)     $   (2.90)      $  (0.77)
                                                      ========      =========       ========
Weighted average shares .........................        4,239          4,307          4,471
                                                      ========      =========       ========


                             See accompanying notes



                           RECOVERY ENGINEERING, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)




                                                                          YEAR ENDED DECEMBER 31,
                                                                -------------------------------------------
                                                                    1995            1996           1997
                                                                ------------   -------------   ------------
                                                                                      
OPERATING ACTIVITIES
Net loss ....................................................     $ (4,762)      $ (12,499)     $  (3,455)
Adjustments to reconcile net income (loss) to net
 cash used in operating activities:
  Depreciation and amortization .............................          852           1,396          1,883
  Write off of leasehold improvements .......................           --             365             --
  Deferred income taxes .....................................       (1,775)             --             --
  Changes in operating assets and liabilities:
    Accounts receivable .....................................         (207)         (3,913)        (8,127)
    Inventory ...............................................       (3,554)          1,247         (2,668)
    Refundable income taxes .................................         (975)          1,177             --
    Other current assets ....................................           69              80         (1,218)
    Other assets ............................................           --            (487)          (687)
    Accounts payable ........................................        1,489           3,571          1,853
    Accrued expenses ........................................          807           3,363          3,329
                                                                  --------       ---------      ---------
Net cash used in operating activities .......................       (8,056)         (5,700)        (9,090)

INVESTING ACTIVITIES
Purchase of marketable securities ...........................       (2,511)        (12,185)            --
Sale of marketable securities ...............................        4,963          11,665          1,542
Purchase of investments .....................................         (614)             --             --
Sale of investments .........................................        5,116              --             --
Purchase of property and equipment ..........................       (4,601)         (4,117)        (6,312)
Purchase of patents .........................................         (216)           (166)           (81)
                                                                  --------       ---------      ---------
Net cash (used in) provided by investing activities .........        2,137          (4,803)        (4,851)

FINANCING ACTIVITIES
Gross borrowings -- bank line of credit .....................           --              --         52,181
Gross repayments -- bank line of credit .....................           --              --        (45,020)
Issuance of warrants ........................................           --              --            328
Proceeds from issuance of long-term debt ....................           --          15,000             --
Exercise of stock options and warrants ......................        1,342             334            725
Common stock acquired .......................................          (45)           (134)            --
                                                                  --------       ---------      ---------
Net cash provided by financing activities ...................        1,297          15,200          8,214
                                                                  --------       ---------      ---------
Increase (decrease) in cash and cash equivalents ............       (4,622)          4,697         (5,727)
Cash and cash equivalents at beginning of year ..............        5,913           1,291          5,988
                                                                  --------       ---------      ---------
Cash and cash equivalents at end of year ....................     $  1,291       $   5,988      $     261
                                                                  ========       =========      =========


                             See accompanying notes



                           RECOVERY ENGINEERING, INC.

                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)




                                                        COMMON STOCK                              RETAINED
                                                  ------------------------      ADDITIONAL        EARNINGS
                                                      SHARES       AMOUNT     PAID-IN CAPITAL     (DEFICIT)        TOTAL
                                                  -------------   --------   ----------------   ------------   ------------
                                                                                                
December 31, 1994 .............................     4,002,414       $ 40         $18,819         $   4,036      $  22,895
 Stock options and warrants exercised .........       251,525          2           1,270                --          1,272
 Employee stock purchase plan .................         5,312         --              70                --             70
 Common stock acquired ........................        (2,528)        --             (45)               --            (45)
 Net loss for year ............................            --         --              --            (4,762)        (4,762)
                                                    ---------       ----         -------         ---------      ---------
December 31, 1995 .............................     4,256,723         42          20,114              (726)        19,430
 Stock options and warrants exercised .........        71,375          1             272                --            273
 Employee stock purchase plan .................         6,874         --              61                --             61
 Common stock acquired ........................        (9,262)        --            (134)               --           (134)
 Net loss for year ............................            --         --              --           (12,499)       (12,499)
                                                    ---------       ----         -------         ---------      ---------
December 31, 1996 .............................     4,325,710         43          20,313           (13,225)         7,131
 Stock options and warrants exercised .........       213,038          2             605                --            607
 Employee stock purchase plan .................         9,501         --             118                --            118
 Issuance of warrants .........................            --         --             328                --            328
 Net loss for year ............................            --         --              --            (3,455)        (3,455)
                                                    ---------       ----         -------         ---------      ---------
December 31, 1997 .............................     4,548,249       $ 45         $21,364         $ (16,680)     $   4,729
                                                    =========       ====         =======         =========      =========


                             See accompanying notes



                           RECOVERY ENGINEERING, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

NOTE 1. BUSINESS ACTIVITY

     Recovery Engineering, Inc., (the Company) manufactures and markets low
energy desalinators, antimicrobial water purifiers and microfilters, and
residential water filters sold primarily to retailers under the PUR brand name
for residential, marine, military and recreational use in the United States and
foreign markets.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

     Marketable securities and investments are classified as available for sale
and consist primarily of commercial paper, US Treasury Notes and municipal
bonds. At December 31, 1997, the Company had no marketable securities. At
December 31, 1996, the market value of marketable securities and investments
approximates cost.

     Sales are recorded upon shipment of product. The Company performs periodic
credit evaluation of its customers' financial condition and generally does not
require collateral. The Company requires irrevocable letters of credit on sales
to certain foreign customers. Receivables generally are due within 30 days.
Credit losses relating to customers consistently have been within management's
expectations.

     Inventories are stated at the lower of cost or market determined by the
first-in, first-out (FIFO) method. Inventory cost elements consist of raw
materials, purchased parts, direct labor and applied manufacturing overhead.

     The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in
accounting for its stock options. Under APB 25, when the exercise price of stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

     In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("Statement 123"). The Company adopted the disclosure only
provisions of Statement 123. Accordingly, the Company has made pro forma
disclosures of what net loss and loss per share would have been had the
provisions of Statement 123 been applied to the Company's stock options.

     Property and equipment are stated at cost. The Company depreciates these
assets over their estimated useful lives ranging from three to ten years.
Depreciation expense was $767,000, $1,294,000 and $1,768,000 for the years ended
1995, 1996, and 1997, respectively.

     Patents are stated at cost and are amortized on a straight-line basis
ranging from three to fifteen years. The carrying value of a patent will be
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that patent cost will not be recoverable, as determined based
on the undiscounted cash flows over the remaining amortization period, the
Company's carrying value of the patents will be reduced by the estimated
shortfall of cash flows.

     Deferred financing costs which are included in other assets are being
amortized over a five year period.

     The Company records losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.

     Advertising costs are charged to operations in the year incurred.
Advertising costs charged to operations were $6,372,000, $9,541,000 and
$14,602,000 for the years ended December 31, 1995, 1996, and 1997, respectively.



                           RECOVERY ENGINEERING, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting and
tax basis of assets and liabilities.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from the estimates.

     In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128, EARNINGS PER SHARE. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to Statement 128
requirements.

     In 1997, the FASB issued Statements No. 130, REPORTING COMPREHENSIVE
INCOME, and No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, effective for fiscal years beginning after December 15, 1997. The
adoption by the Company of these Statements in January 1998 is not expected to
have a material impact on the Company's financial statements

NOTE 3. INVENTORIES

     Inventories consist of the following:

                                         DECEMBER 31
                                -----------------------------
                                     1996            1997
                                -------------   -------------
   Finished goods ...........    $1,704,000      $1,981,000
   Work in progress .........        95,000         157,000
   Raw materials ............     3,127,000       5,456,000
                                 ----------      ----------
                                 $4,926,000      $7,594,000
                                 ==========      ==========

NOTE 4. RELATED PARTY NOTE RECEIVABLE

     At December 31, 1997 the Company had a note receivable of approximately
$498,000 due from its president and CEO. The note bears interest at 9.25%.
Principal and interest are due and payable in one installment on June 30, 1999.
The proceeds of the note were used to exercise stock options which were nearing
their expiration date.

NOTE 5. DEBT

     Long-term debt consists of a $15.0 million convertible loan with certain
investment partnerships affiliated with The Goldman Sachs Group, L.P. ("GS
Group") which bears interest at 5% per annum and expires in 2003. Interest on
the loan is paid quarterly. GS Group may convert the outstanding balance of the
loan into shares of Common Stock at a conversion price of $14.85 per share at
any time during the life of the loan. If not converted, the loan is payable in
annual installments starting August 2001. The estimated fair value of the
convertible loan, based on the Company's incremental borrowing rate for similar
liabilities, approximates its carrying value.

     The Company had no bank debt at December 31, 1996, compared with $7.2
million at December 31, 1997. In March 1997, the Company obtained a $14.0
million credit facility secured by equipment, inventory, receivables, and
intangibles. The credit facility consists of a $10.0 million discretionary
working capital line-of-credit, limited to eligible receivables and inventory,
which bears interest at the bank reference rate plus 1.25%, and a $4.0 million
equipment loan which bears interest at the bank reference rate plus 2.50%. The
principal amount of the equipment loan is payable over a 42-month period
commencing October 1998, unless demand is made sooner. Other borrowings under
the credit facility



                           RECOVERY ENGINEERING, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

NOTE 5. DEBT (CONTINUED)

are due on demand. The Company's weighted average interest rate on the bank debt
for 1997 was 10.2%. Borrowings under this agreement are limited to $10.0 million
in 1997 and $12.5 million in 1998 by provisions in the convertible loan
agreement. The Company received a waiver allowing it to make full use of the
$14.0 million credit facility for the fourth quarter of 1997. In connection with
the acquisition of the credit facility, the Company issued warrants to the bank
for the purchase of 80,000 shares of Common Stock at $7.00 per share. The
warrants cannot be exercised until October 8, 1998 and expire six years from the
effective date of the credit facility. The Company has estimated the value of
the warrants to be $328,000, which has been included in additional paid-in
capital and is being amortized over the estimated life of the warrants.

NOTE 6. STOCK OPTIONS AND WARRANTS

     The Company has various incentive and non-qualified stock option plans
which it uses as an incentive for directors, officers, and other employees,
consultants and technical advisors. Options are granted at fair market values
determined on the date of grant and vesting normally occurs over a four year
period. The Company adopted the 1993 Director Stock Option Plan, a non-qualified
stock option plan, to provide non-employee directors with an automatic annual
stock option grant at 85% of fair market value on the date of grant.

     Shares available and options outstanding are as follows:




                                                                                                             WEIGHTED
                                                PLAN                                           DIRECTOR       AVERAGE
                                              OPTIONS            PLAN          NON-PLAN          PLAN        EXERCISE
                                           AVAILABLE FOR       OPTIONS         OPTIONS         OPTIONS         PRICE
                                               GRANT         OUTSTANDING     OUTSTANDING     OUTSTANDING     PER SHARE
                                          ---------------   -------------   -------------   -------------   ----------
                                                                                             
Balance at December 31, 1994. .........        280,611          610,425          500            10,000       $  4.32
 Additional shares reserved ...........        350,000               --           --                --            --
 Granted ..............................       (306,475)         306,475           --             8,000         13.86
 Exercised ............................             --         (251,525)          --                --          2.30
 Canceled .............................         14,125          (14,125)          --                --         12.90
                                              --------         --------          ---            ------       -------
Balance at December 31, 1995 ..........        338,261          651,250          500            18,000          8.97
 Granted ..............................       (410,850)         410,850           --             7,000         12.04
 Exercised ............................             --          (71,375)          --                --          3.75
 Canceled .............................         95,700          (95,700)          --                --         11.27
                                              --------         --------          ---            ------       -------
Balance at December 31, 1996. .........         23,111          895,025          500            25,000          9.77
 Additional shares reserved ...........        350,000               --           --                --            --
 Granted ..............................       (249,825)         249,825           --            24,000         13.59
 Exercised ............................             --         (212,925)          --                --          2.86
 Canceled .............................         34,975          (34,975)          --                --         10.52
                                              --------         --------          ---            ------       -------
Balance at December 31, 1997 ..........        158,261          896,950          500            49,000       $ 12.49
                                              ========         ========          ===            ======       =======


     The weighted average fair value of options granted in 1995, 1996 and 1997
was $6.77, $6.35 and $8.52, per share, respectively. The exercise price of
options outstanding at December 31, 1997 ranged from $2.50 to $29.19 per share
as summarized in the following table:



                           RECOVERY ENGINEERING, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

NOTE 6. STOCK OPTIONS AND WARRANTS (CONTINUED)




                           NUMBER         WEIGHTED AVERAGE                             WEIGHTED AVERAGE
 RANGE OF EXERCISE     OUTSTANDING AT         REMAINING        NUMBER EXERCISABLE     EXERCISE PRICE PER
       PRICES             12/31/97        CONTRACTUAL LIFE         AT 12/31/97              SHARE
- -------------------   ----------------   ------------------   --------------------   -------------------
                                                                         
 $ 2.50 - $10.00          256,000            10 years                 65,438              $  7.26
 $10.01 - $12.00          180,150             8 years                 84,388              $ 10.22
 $12.01 - $14.00          397,400             9 years                143,375              $ 13.92
 $14.01 - $29.19          112,900            10 years                  1,425              $ 22.92
- -------------------       -------        ------------------          -------              -------
 $ 2.50 - $29.19          946,450             9 years                294,626              $ 12.49
===================       =======        ==================          =======              =======


     The number of stock options exercisable at December 31, 1995 and 1996 were
391,025 and 403,350, respectively, at a weighted average price of $7.30 and
$7.68, respectively.

     The Company has elected to follow Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided under FASB
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

     Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1995, 1996 and 1997, respectively; risk-free interest rate of
6%; volatility factor of the expected market price of the Company's Common Stock
of .55 and a weighted-average expected life of the options of 6 years.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information is as follows:




                                                          1995                1996               1997
                                                    ----------------   -----------------   ----------------
                                                                                  
   Pro forma net loss ...........................     $ (5,024,000)      $ (13,102,000)      $ (4,254,000)
   Pro forma net loss per common share ..........     $      (1.19)      $       (3.05)      $      (0.95)


     These pro forma amounts may not be indicative of future years' amounts
since the statement provides for a phase in of option values beginning with
those granted in 1995.

     The Company has a warrant outstanding for the purchase of 57,500 shares of
Common Stock at $8.40 per share, which expires in 1998.

     The Company has an Employee Stock Purchase Plan with 100,000 shares
reserved for issuance under the plan. During 1995, 1996 and 1997, 5,312, 6,874
and 9,501 shares were issued under the plan at prices ranging from $5.84 to
$25.73. Approximately 75,000 shares remain reserved for future issuance.



                           RECOVERY ENGINEERING, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

NOTE 7. INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:




                                                          YEAR ENDED DECEMBER 31,
                                                       ---------------------------
                                                          1996             1997
                                                       -----------     -----------
                                                                 
Deferred tax assets:
 Net operating loss carryforward ..................    $ 5,590,000     $ 8,070,000
 Tax benefit of nonqualified stock options ........        530,000         449,000
 Warranty reserve .................................        130,000         296,000
 Inventory obsolescence ...........................         81,000         150,000
 Bad debt reserve .................................         76,000         130,000
 Facility relocation costs ........................        350,000          78,000
 Accrued expenses .................................        165,000          74,000
 Other ............................................         34,000          29,000
                                                       -----------     -----------
Total deferred tax assets .........................      6,956,000       9,276,000

Deferred tax liabilities:
 Tax depreciation in excess of financial reporting
  depreciation ....................................        769,000       1,670,000
 Tax amortization of patents in excess of financial
  reporting amortization ..........................        116,000         108,000
                                                       -----------     -----------
Total deferred tax liabilities ....................        885,000       1,778,000
                                                         6,071,000       7,498,000
Valuation allowance ...............................     (4,496,000)     (5,923,000)
                                                       -----------     -----------
Net deferred tax assets ...........................    $ 1,575,000     $ 1,575,000
                                                       ===========     ===========



     Significant components of the provision for income taxes are as follows:


                                       YEAR ENDED DECEMBER 31,
                                 -----------------------------------
                                       1995          1996      1997
                                 ----------------   ------   -------
      Current:
       Federal ...............     $ (1,256,000)     $ --     $ --
       State .................               --        --       --
                                   ------------      ----     ----
       Total current .........       (1,256,000)       --       --
                                   ------------      ----     ----
      Deferred:
       Federal ...............       (1,158,000)       --       --
       State .................         (150,000)       --       --
                                   ------------      ----     ----
      Total deferred .........       (1,308,000)       --       --
                                   ------------      ----     ----
                                   $ (2,564,000)     $ --     $ --
                                   ------------      ----     ----

     The Company has a net operating loss carryforward of $23,664,000 available
to offset future taxable income, which begins to expire in 2010. Cash paid for
income taxes amounted to $31,000, $0, and $0 in 1995, 1996, and 1997,
respectively.



                           RECOVERY ENGINEERING, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997

NOTE 7. INCOME TAXES (CONTINUED)

     A reconciliation of the statutory federal income tax rate of 34% to the
Company's effective income tax rate is as follows:




                                                                              YEAR ENDED DECEMBER 31,
                                                               ------------------------------------------------------
                                                                     1995               1996               1997
                                                               ----------------   ----------------   ----------------
                                                                                            
   Income taxes (benefit) at statutory rate (34%). .........     $ (2,491,000)      $ (4,249,000)      $ (1,175,000)
   State tax net of federal benefit ........................         (100,000)          (255,000)           (69,000)
   Effect of tax rate changes on NOL carryback .............          171,000                 --                 --
   Valuation allowance .....................................               --          4,496,000          1,427,000
   Other ...................................................         (144,000)             8,000           (183,000)
                                                                 ------------       ------------       ------------
   Provision (benefit) for income taxes ....................     $ (2,564,000)      $         --       $         --
                                                                 ------------       ------------       ------------
   Effective rate ..........................................               35%                --%                --%
                                                                 ------------       -------------      -------------


NOTE 8. RETIREMENT SALARY SAVINGS PLAN

     The Company has a defined contribution 401(k) plan that covers all
full-time employees who have six months of vested service. Employees are allowed
to contribute up to 15% of their pre-tax income to the plan. Employee salary
deferrals are matched by the Company at a rate of 100% of the first 1% of salary
deferred and 25% of the next 4% of salary deferred. The Company contributions to
this plan for each of the years ended December 31, 1995, 1996, and 1997 were
$34,000, $61,000, and $98,000, respectively.

NOTE 9. SALES AND SEGMENT INFORMATION

     The Company, operating in a single business segment, designs, manufactures
and markets water purification products. The Company's manufacturing and
distribution operations are located within the United States. Export sales for
1995, 1996, and 1997 amounted to $2.6 million, $3.9 million, and $6.3 million,
respectively. During 1995, four customers accounted for approximately 39% of the
total net sales. During 1996, three customers accounted for approximately 23% of
the total net sales. During 1997, two customers accounted for approximately 23%
of the total net sales.

NOTE 10. COMMITMENTS

     The Company has noncancelable operating lease agreements for its facilities
in Minneapolis, Minnesota extending through April 2008. Under the terms of the
lease agreements, the Company is responsible for base rent and all operating
costs associated with the building. Total rent expense was $393,000, $469,000
and $695,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Future minimum rental lease commitments are as follows: 1998 -- $837,000; 1999
- -- $717,000; 2000 -- $738,000; 2001 -- $613,000; 2002 -- $682,000; thereafter --
$3,698,000.

     In the fourth quarter of 1997, management entered into an agreement to
expand the Company's facility. The Company entered into a noncancelable
operating lease agreement for an expansion to its facility in Brooklyn Park,
Minnesota extending through April 2008. Under the terms of the lease agreement,
the Company will be responsible for base rent and all operating costs associated
with the addition. Future minimum rental lease commitments are as follows: 1998
- -- $408,000; 1999 -- $544,000; 2000 -- $544,000; 2001 -- $544,000; 2002 --
$605,000; thereafter -- $3,281,000.

     The Company incurred expenses of $973,000 for the year ended December 31,
1996, primarily related to the writedown of certain fixed assets, buildout
costs, future lease payments on the original lease, and real estate commissions
associated with the relocation to its new facility.



                    ALL PUR PRODUCTS USE ADVANCED TECHNOLOGY


[GRAPHIC] AUTOMATIC SAFETY MONITOR(TM) GAUGE
          AUTOMATICALLY TELLS YOU WHEN TO CHANGE THE FILTER


     ADVANCED MICROFILTER GIVES YOU DOUBLE FILTER
     PROTECTION USING AN EXCLUSIVE TWO-LAYER
     PROCESS.


     [THIS CAPTION POINTS TO PHOTO AT RIGHT]
     AUTOMATIC SAFETY MONITOR(TM)
     Only PUR has an exclusive Automatic Safety
     Monitor that shows how much filter life is
     left, and automatically tells you when to
     replace it.

     [THIS CAPTION POINTS TO PHOTO AT RIGHT]               PUR Plus Pitcher &
     LAYER ONE                                              Dispenser Filter
     PLEATED MICROFILTER                                         [PHOTO]
     Only PUR has a pleated microfilter that
     removes microbiological cysts as well as
     asbestos. No other pitcher filter removes
     these contaminants.

     [THIS CAPTION POINTS TO PHOTO AT RIGHT]
     LAYER TWO
     ION EXCHANGE RESIN
     AND ACTIVATED CARBON 
     Reduces Lead, Copper, Zinc, chlorine, bad
     taste and odor for great-tasting water.




     [THIS CAPTION POINTS TO PHOTO AT RIGHT]
     AUTOMATIC SAFETY MONITOR(TM)
     The Automatic Safety Monitor(TM) gauge for
     in-line systems automatically shuts off when
     the filter needs changing in addition to
     indicating remaining filter life.

     [THIS CAPTION POINTS TO PHOTO AT RIGHT]                PUR Standard Faucet
     ADVANCED MICROFILTER                                      Mount Filter
     The PUR one-micron carbon filter offers                     [PHOTO]
     superior protection by reducing lead and
     removing even the smallest elements such as
     Cryptosporidium and Giardia.

     [THIS CAPTION POINTS TO PHOTO AT RIGHT]
     BYPASS FEATURE
     With a twist of the wrist the faucet mount
     unit bypasses the filter for unfiltered water
     and provides convenient access to the faucet
     for washing dishes.



                             POINT-OF-SALE EDUCATION

[PHOTO]
These displays help educate consumers on the different safety levels, as well as
features and benefits. They are used by a number of PUR's national accounts.



================================================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY THE SECURITIES BY ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF
THIS PROSPECTUS.

               ---------------------------------------------------
                                TABLE OF CONTENTS
               ---------------------------------------------------


                                        PAGE
PROSPECTUS SUMMARY ....................    3
RISK FACTORS ..........................    6
USE OF PROCEEDS .......................   10
DIVIDEND POLICY .......................   10
CAPITALIZATION ........................   11
DILUTION ..............................   11
PRICE RANGE OF COMMON STOCK ...........   12
SELECTED FINANCIAL DATA ...............   13
MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS ..........................   14
BUSINESS ..............................   20
MANAGEMENT ............................   32
PRINCIPAL SHAREHOLDERS ................   34
UNDERWRITING ..........................   36
LEGAL MATTERS .........................   37
EXPERTS ...............................   37
AVAILABLE INFORMATION .................   37
INCORPORATION OF CERTAIN DOCUMENTS BY
  REFERENCE ...........................   38
INDEX TO FINANCIAL STATEMENTS .........  F-1

================================================================================


                                1,000,000 SHARES

                               [GRAPHIC OMITTED]
                           PUR DRINKING WATER SYSTEMS

                           RECOVERY ENGINEERING, INC.

                                  COMMON STOCK


                      ------------------------------------
                                   PROSPECTUS
                      ------------------------------------


                             NationsBanc Montgomery
                                 Securities LLC

                            Deutsche Morgan Grenfell

                                       , 1998



                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     The following table sets forth the estimated expenses to be borne by the
Company in connection with the issuance and distribution of the shares of Common
Stock offered hereby:


         SEC registration fee .....................    $ 10,019
         NASD filing fee ..........................       3,807
         Nasdaq listing fee .......................      17,500
         Legal fees and expenses ..................      90,000
         Accounting fees and expenses .............      45,000
         Blue Sky fees and expenses ...............       6,000
         Printing expenses ........................      75,000
         Transfer agent fees and expenses .........       5,000
         Miscellaneous ............................      47,674
                                                       --------
          TOTAL ...................................    $300,000
                                                       ========

     Each amount set forth above, except the SEC registration fee, NASD filing
fee and Nasdaq listing fee, is estimated.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Section 302A.521 of the Minnesota Statutes provides that unless prohibited
or limited by a corporation's articles of incorporation or bylaws, the Company
must indemnify its current and former officers, directors, employees and agents
against reasonable expenses (including attorneys' fees), judgments, penalties,
fines and amounts paid in settlement and which were incurred in connection with
actions, suits, or proceedings in which such persons are parties by reason of
the fact that they are or were an officer, director, employee or agent of the
corporation, if they (i) have not been indemnified by another organization, (ii)
acted in good faith, (iii) received no improper personal benefit, (iv) in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful, and (v) reasonably believed that the conduct was in the best
interests of the corporation. Section 302A.521 also permits a corporation to
purchase and maintain insurance on behalf of its officers, directors, employees
and agents against any liability which may be asserted against, or incurred by,
such persons in their capacities as officers, directors, employees and agents of
the corporation, whether or not the corporation would have been required to
indemnify the person against the liability under the provisions of such section.

     Article V of the Bylaws of the Company provides that the directors,
officers, committee members, of the Company and other persons shall have the
rights to indemnification provided by Section 302A.521 of the Minnesota
Statutes.

     Section 8 of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides certain indemnification rights to officers and
directors of the Registrant.

ITEM 16. EXHIBITS




  EXHIBIT
    NO.                                           DESCRIPTION
- ----------   -------------------------------------------------------------------------------------
          
  1.1        Form of Underwriting Agreement
  4.1        Rights Agreement dated as of January 30, 1996 between Recovery Engineering, Inc. and
             Norwest Bank Minnesota, National Association, as Rights Agent
4.1.1        Amendment No. 1 dated as of February 3, 1998 to Rights Agreement between
             Recovery Engineering, Inc. and Norwest Bank Minnesota, National Association, as
             Rights Agent
  5.1        Opinion of Robins, Kaplan, Miller & Ciresi L.L.P.*
 10.1        Recovery Engineering, Inc. 1986 Stock Option Plan, as amended**




   EXHIBIT
     NO.                                             DESCRIPTION
- ------------   ---------------------------------------------------------------------------------------
    10.2       Recovery Engineering, Inc. 1993 Director Stock Option Plan**
    10.3       Recovery Engineering, Inc. 1994 Stock Purchase Plan**
    10.4       Recovery Engineering, Inc. 1994 Stock Option and Incentive Plan**
    10.5       Supplier Agreement dated November 25, 1996, between Thermotech and Recovery
               Engineering, Inc.
    10.6       Form of Distributor Agreement
    10.7       Financing Agreement dated March 31, 1997 between Recovery Engineering, Inc. and
               First Bank National Association
    10.8       Securities Purchase Agreement dated July 19, 1996 by and among Recovery
               Engineering, Inc. and investment partnerships affiliated with The Goldman Sachs Group,
               L.P. ("GS Group")
    10.9       Registration Rights Agreement dated July 19, 1996 by and among Recovery
               Engineering, Inc. and GS Group
    10.10      Executive Restriction Agreement dated July 19, 1996 by and among
               Recovery Engineering, Inc., GS Group and Brian F. Sullivan**
    10.11      Executive Severance Pay Agreement dated March 24, 1997 between Recovery
               Engineering, Inc. and Charles F. Karpinske**
    10.12      Lease Agreement dated November 8, 1996 between Ryan Companies US, Inc. and
               Recovery Engineering, Inc.
 10.12.1       First Amendment to Lease dated December 20, 1996, between Ryan Companies US,
               Inc. and Recovery Engineering, Inc.
 10.12.2       Second Amendment to Lease dated May 1, 1997, between Ryan
               Recovery, LLC and Recovery Engineering, Inc.
 10.12.3       Third Amendment to Lease dated December 22, 1997, between Ryan
               Recovery, LLC and Recovery Engineering, Inc.
    23.1       Consent of Ernst & Young LLP
    23.2       Consent of Robins, Kaplan, Miller & Ciresi L.L.P. (included in Exhibit 5.1)
    24.1       Powers of Attorney



- ------------------
 *To be filed by amendment.

 **Management Contracts

ITEM 17. UNDERTAKINGS.

     (a)  Insofar as indemnification for liabilities arising under the
          Securities Act of 1933, as amended, may be permitted to directors,
          officers, and controlling persons of the registrant pursuant to the
          provisions summarized in Item 15 above, or otherwise, the registrant
          has been advised that in the opinion of the Securities and Exchange
          Commission such indemnification is against public policy as expressed
          in the Act and is, therefore, unenforceable. In the event that a claim
          for indemnification against such liabilities (other than the payment
          by the registrant of expenses incurred or paid by a director, officer
          or controlling person of the registrant in the successful defense of
          any action, suit, or proceeding) is asserted by such director,
          officer, or controlling person in connection with the securities being
          registered, the registrant will, unless in the opinion of its counsel
          the matter has been settled by controlling precedent, submit to a
          court of appropriate jurisdiction the question whether such
          indemnification by it is against public policy as expressed in the
          Act, as amended, and will be governed by the final adjudication of
          such issue.

     (b)  The undersigned registrant hereby undertakes that:

          (1)  For purposes of determining any liability under the Securities
               Act of 1933, the information omitted from the form of prospectus
               filed as part of this registration statement in reliance



               upon Rule 430A and contained in a form of prospectus filed by the
               registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
               Securities Act shall be deemed to be part of this registration
               statement as of the time it was declared effective.

          (2)  For the purpose of determining any liability under the Securities
               Act of 1933, each post-effective amendment that contains a form
               of prospectus shall be deemed to be a new registration statement
               relating to the securities offered therein, and the offering of
               such securities at that time shall be deemed to be the initial
               bona fide offering thereof.



                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on February 24,
1998.

                                        RECOVERY ENGINEERING, INC.

                                        By:      /S/ BRIAN F. SULLIVAN
                                           -------------------------------------
                                                     Brian F. Sullivan
                                           Chairman and Chief Executive Officer

     Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.




            SIGNATURE                                TITLE                            DATE
- -------------------------------- --------------------------------------------- ------------------
                                                                         
        /S/ BRIAN F. SULLIVAN    President, Chief Executive Officer and        February 24, 1998
- ------------------------------   Director (Principal Executive Officer)
           Brian F. Sullivan

      /S/ CHARLES F. KARPINSKE   Vice President and Chief Financial Officer    February 24, 1998
- ------------------------------   (Principal Financial and Accounting Officer)
         Charles F. Karpinske

                *                Director                                      February 24, 1998
- ------------------------------
           Robert Gheewalla

                *                Director                                      February 24, 1998
- ------------------------------
             John E. Gherty

                *                Director                                      February 24, 1998
- ------------------------------
            Sanjay H. Patel

                *                Director                                      February 24, 1998
- ------------------------------
         William D. Thompson

                *                Director                                      February 24, 1998
- ------------------------------
        William F. Wanner, Jr.

                                 Director                                      February   , 1998
- ------------------------------
            Ronald W. Weber

                *                Director                                      February 24, 1998
- ------------------------------
        Richard J. Zeckhauser


*By:   /S/ BRIAN F. SULLIVAN
    --------------------------
           Brian F. Sullivan
            Attorney-in-fact





                                INDEX TO EXHIBITS




  EXHIBIT
    NO.      DESCRIPTION                                             METHOD OF FILING
- ----------   -----------------------------------------   ----------------------------------------
                                                   
  1.1        Form of Underwriting Agreement ..........   Filed electronically herewith

  4.1        Rights Agreement dated as of                Filed as Exhibit 4.1 to the Company's
             January 30, 1996 between Recovery           Form 8-A Registration Statement dated
             Engineering, Inc. and Norwest Bank          February 20, 1996 (File No. 0-21232)
             Minnesota, National Association, as         and incorporated herein by reference
             Rights Agent

4.1.1        Amendment No. 1 dated as of                 Filed as Exhibit 4.1.1 to the Company's
             February 3, 1998 to Rights Agreement        Annual Report on Form 10-K for the
             between Recovery Engineering, Inc.          year ended December 31, 1997 (File
             and Norwest Bank Minnesota, National        No. 0-21232) and incorporated herein
             Association, as Rights Agent                by reference

  5.1        Opinion of Robins, Kaplan, Miller &
             Ciresi L.L.P.                               *

 10.1        Recovery Engineering, Inc. 1986 Stock       Filed as Exhibit 10.6 to the Company's
             Option Plan, as amended**                   Registration Statement on Form SB-2
                                                         (No. 33-57826C) and incorporated
                                                         herein by reference

 10.2        Recovery Engineering, Inc. 1993             Filed as Exhibit 10.7 to the Company's
             Director Stock Option Plan**                Annual Report on Form 10-K for the
                                                         year ended December 31, 1993 (File
                                                         No. 0-21232) and incorporated herein
                                                         by reference

 10.3        Recovery Engineering, Inc. 1994 Stock       Filed as Exhibit 10.8 to the Company's
             Purchase Plan**                             Annual Report on Form 10-K for the
                                                         year ended December 31, 1993 (File
                                                         No. 0-21232) and incorporated herein
                                                         by reference

 10.4        Recovery Engineering, Inc. 1994 Stock       Filed as Exhibit 99.1 to the Company's
             Option and Incentive Plan**                 Registration Statement on Form S-8
                                                         (No. 333-       ) and incorporated
                                                         herein by reference

 10.5        Supplier Agreement dated                    Filed as Exhibit 10.5 to the Company's
             November 25, 1996, between                  Annual Report on Form 10-K for the
             Thermotech and Recovery                     year ended December 31, 1997 (File
             Engineering, Inc.                           No. 0-21232) and incorporated herein
                                                         by reference

 10.6        Form of Distributor Agreement               Filed as Exhibit 10.3 to the Company's
                                                         Registration Statement on Form SB-2
                                                         (No. 33-57826C) and incorporated
                                                         herein by reference

 10.7        Financing Agreement dated March 31,         Filed as Exhibit 99.1 to the Company's
             1997 between Recovery Engineering,          Quarterly Report on Form 10-Q for the
             Inc. and First Bank National                quarter ended June 30, 1997 (File
             Association                                 No. 0-21232) and incorporated herein
                                                         by reference

 10.8        Securities Purchase Agreement dated         Filed as Exhibit 4.1 to the Company's
             July 19, 1996 by and among Recovery         Report on Form 8-K dated July 19,
             Engineering, Inc. and investment            1996 (File No. 0-21232) and
             partnerships affiliated with The            incorporated herein by reference
             Goldman Sachs Group, L.P. ("GS
             Group")








   EXHIBIT
     NO.        DESCRIPTION                                           METHOD OF FILING
- -------------   ---------------------------------------   ----------------------------------------
                                                    
     10.9       Registration Rights Agreement dated       Filed as Exhibit 99.1 to the Company's
                July 19, 1996 by and among Recovery       Report on Form 8-K dated July 19,
                Engineering, Inc. and GS Group            1996 (File No. 0-21232) and
                                                          incorporated herein by reference

     10.10      Executive Restriction Agreement dated     Filed as Exhibit 99.2 to the Company's
                July 19, 1996 by and among Recovery       Report on Form 8-K dated July 19,
                Engineering, Inc., GS Group and Brian     1996 (File No. 0-21232) and
                F. Sullivan**                             incorporated herein by reference

     10.11      Executive Severance Pay Agreement         Filed as Exhibit 99.2 to the Company's
                dated March 24, 1997 between              Quarterly Report on Form 10-Q for the
                Recovery Engineering, Inc. and Charles    quarter ended June 30, 1997 (File
                F. Karpinske**                            No. 0-21232) and incorporated herein
                                                          by reference

     10.12      Lease Agreement dated November 8,         Filed as Exhibit 10.20 to the Company's
                1997 between Ryan Companies US, Inc.      Annual Report on Form 10-K for the
                and Recovery Engineering, Inc.            year ended December 31, 1996 (File
                                                          No. 0-21232) and incorporated herein
                                                          by reference

  10.12.1       First Amendment to Lease dated            Filed as Exhibit 10.12.1 to the
                December 20, 1996, between Ryan           Company's Annual Report on Form
                Companies US, Inc. and Recovery           10-K for the year ended December 31,
                Engineering, Inc.                         1997 (File No. 0-21232) and
                                                          incorporated herein by reference

  10.12.2       Second Amendment to Lease dated           Filed as Exhibit 10.12.2 to the
                May 1, 1997, between Ryan Recovery,       Company's Annual Report on Form
                LLC and Recovery Engineering, Inc.        10-K for the year ended December 31,
                                                          1997 (File No. 0-21232) and
                                                          incorporated herein by reference

  10.12.3       Third Amendment to Lease dated            Filed as Exhibit 10.12.3 to the
                December 22, 1997, between Ryan           Company's Annual Report on Form
                Recovery, LLC and Recovery                10-K for the year ended December 31,
                Engineering, Inc.                         1997 (File No. 0-21232) and
                                                          incorporated herein by reference

     23.1       Consent of Ernst & Young LLP ..........   Filed electronically herewith

     23.2       Consent of Robins, Kaplan, Miller &
                Ciresi L.L.P.                             Included in Exhibit 5.1

     24.1       Powers of Attorney ....................   Filed electronically herewith


- ------------------
 *To be filed by amendment.

 **Management Contracts