BIG B INC, 424B4, 1995-04-27

BIG B INC
424B4, 1995-04-27
DRUG STORES AND PROPRIETARY STORES

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Number 33-58153

PROSPECTUS

2,705,000 SHARES
(Big B Inc. Logo )
COMMON STOCK
---------------------

Of the 2,705,000 shares of common stock, par value $.001 per share (the
"Common Stock"), offered hereby (the "Offering"), 2,500,000 shares are being
sold by Big B, Inc. ("Big B" or the "Company") and an aggregate of 205,000
shares are being sold by Joseph S. Bruno, Chairman Emeritus of the Board of
Directors of the Company (65,000 shares), Anthony J. Bruno, Chairman of the
Board of Directors and Chief Executive Officer (60,000 shares) and Vincent J.
Bruno, Director and Senior Vice President -- Merchandising and Advertising
(80,000 shares) (the "Selling Shareholders"). Joseph and Anthony Bruno are
brothers and Vincent Bruno is their nephew. Prior to the Offering, the Selling
Shareholders and James A. Bruno, the son of Anthony J. Bruno, beneficially own
2,764,141 shares (17.7%) of the Common Stock of the Company (including an
aggregate of 22,000 shares represented by options exercisable within 60 days by
Vincent J. Bruno and James A. Bruno, under the Company's Employee Stock Option
Plan) and after the Offering these shareholders will beneficially own 2,559,141
shares (16.4%). These shareholders are the only members of the Bruno family who
are officers or directors of the Company. See "Management." The Company will not
receive any of the proceeds from the sale of the shares of Common Stock being
sold by the Selling Shareholders. See "Selling Shareholders."

The Company's Common Stock is quoted on The Nasdaq Stock Market under the
symbol "BIGB." The last sale price of the Common Stock on April 26, 1995, as
reported on The Nasdaq Stock Market, was $14.50 per share. See "Price Range of
Common Stock."

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

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

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2) PROCEEDS TO SELLING
SHAREHOLDERS(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $14.00 $.70 $13.30 $13.30
- ---------------------------------------------------------------------------------------------------
Total(3) $37,870,000 $1,893,500 $33,250,000 $2,726,500
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."

(2) Before deducting expenses of the Company estimated to be $275,000 and
expenses payable by the Selling Shareholders estimated to be $1,052.

(3) The Company has granted the Underwriter an option to purchase up to 405,750
additional shares on the same terms and conditions as set forth above. If
all of the additional shares are purchased by the Underwriter, the total
Price to Public, the total Underwriting Discount, the total Proceeds to
Company and the total Proceeds to Selling Shareholders will be $43,550,500,
$2,177,525, $38,646,475, and $2,726,500, respectively. See "Underwriting."

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

The Common Stock is offered by the Underwriter, subject to prior sale,
when, as and if issued and accepted by the Underwriter, and subject to approval
of certain legal matters by counsel for the Underwriter and to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock offered hereby will be made on or about
May 4, 1995.

MORGAN KEEGAN & COMPANY, INC.

THE DATE OF THIS PROSPECTUS IS APRIL 27, 1995.

<PAGE> 2

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

2
<PAGE> 3

STATEMENT OF AVAILABLE INFORMATION

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 reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the office of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its Regional
Offices located at 7 World Trade Center, 13th Floor, New York, New York 10048;
and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661, and copies of
such material can be obtained from the Public Reference Section of the
Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.

This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended. This
Prospectus omits certain information contained in the Registration Statement,
and reference is hereby made to the Registration Statement and related exhibits
for further information with respect to the Company and the securities offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and in each instance reference is made to
the copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended January
28, 1995 filed pursuant to Section 13 of the Exchange Act is incorporated in
this Prospectus by reference. All documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act, prior to
termination of this Offering, shall be deemed to be incorporated by reference
into this Prospectus.

Any statement contained in a document 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 modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus. The
Company will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of any document incorporated by reference in this
Prospectus (other than exhibits, unless such exhibits are expressly incorporated
by reference in such documents). Requests should be directed to Big B, Inc.,
2600 Morgan Road, S.E., Birmingham, Alabama 35023, (205) 424-3421, Attention:
President.

3
<PAGE> 4

PROSPECTUS SUMMARY

Big B, Inc. operates the Alabama stores and a wholly owned subsidiary, Big
B Drugs, Inc., operates all other stores. Reference to Big B or the Company in
this Prospectus includes Big B, Inc. and its subsidiaries. This summary is
qualified in its entirety by the detailed information and financial statements
appearing elsewhere or incorporated by reference in this Prospectus. The
information in this Prospectus has been restated to reflect a two-for-one stock
split in the form of a stock dividend distributed to holders of record on
September 17, 1993. Unless otherwise indicated, the information in this
Prospectus assumes that the Underwriters' over-allotment option will not be
exercised.

THE COMPANY

Big B, Inc. ("Big B" or the "Company") was organized in 1972 and operates a
chain of 367 stores throughout the southeastern United States. The Company
operates 339 conventional drug stores under the "Big B Drugs" format, 23 deep
discount drug stores under the "Drugs for Less" format, and five stores under
the "Big B Home Health Care Center" format. The Company is the largest drug
store chain in both Alabama and metropolitan Birmingham with 157 and 60 stores,
respectively. Big B also is one of the largest drug store chains in the state of
Georgia with 158 stores, and the Company believes it is the second largest drug
store chain in the metropolitan Atlanta market with 102 stores. The Company also
operates 24 stores in Florida, 21 in Tennessee and seven in Mississippi. The
typical Big B drug store offers pharmacy products and services, health and
beauty aids and other products.

The Company's business strategy is designed to maintain a strong pharmacy
and healthcare related business, increase the Company's market share in each
existing market and improve profitability. In implementing its business
strategy, the Company intends to focus on the Company's pharmacy operations,
emphasize market concentration, continue investment in information systems,
maintain a high level of customer service and convenience and continue
cost-control efforts.

The Company's primary business focus is the sale of prescription drugs.
During fiscal 1995, sales of prescription drugs generated 49.1% of the Company's
net sales, as compared to 41.7% in fiscal 1991. Management expects the
prescription drug business will continue to increase as a percentage of the
Company's sales and profits as a result of increased participation by the
Company in third-party payment plans, the demographic trend towards an aging
population and the continued development of new pharmaceutical products.
Third-party payment plan sales accounted for approximately 56% of the Company's
prescription sales in fiscal 1995, compared to 25% of the Company's prescription
sales in fiscal 1991.

The Company also has initiated other prescription services and programs in
an effort to increase the Company's prescription drug sales. The Company offers
employee prescription benefit programs directly to individual employers or
groups of employers, a mail-order prescription drug program, and a nursing home
pharmacy service. The Company believes there are significant opportunities for
increasing prescription drug sales through these services. The Company's
pharmacy computer system, which the Company plans to upgrade beginning in the
current fiscal year, will also be significant to the success of the Company's
pharmacy operations.

In an effort to increase sales and to take advantage of the available
economies of scale in advertising, distribution and supervision and the
competitive advantages for the Company in marketing to third-party payment
plans, the Company seeks to achieve and maintain a leading market share in each
market in which it operates by developing and acquiring stores at strategic
locations in those markets. The Company has grown from 188 stores at the
beginning of fiscal 1988 to 367 stores at the end of fiscal 1995. The Company
opened 16 drug stores in fiscal 1995 and intends to open approximately 20 to 25
new stores in fiscal 1996 and 25 to 30 new stores in fiscal 1997. The Company
acquired 13 stores in fiscal 1989, 85 stores in fiscal 1990 (including 65 stores
in metropolitan Atlanta), eight stores, primarily in Alabama, in fiscal 1991,
and certain assets of 45 stores located principally in metropolitan Atlanta in
fiscal 1994. Also, the Company acquired the inventory and pharmacy files of 31
drug stores in each of fiscal 1994 and fiscal 1995, respectively, for the
purpose of consolidating the inventory and pharmacy files to increase sales
volume in its existing stores in a cost effective

4
<PAGE> 5

manner. The Company intends to emphasize the development of new stores as its
primary means of expansion, but believes further consolidation of the drug store
industry may result in additional acquisition opportunities.

The Company believes that customer service and convenience are critical to
maintaining the Company's competitive advantage. The Company will continue to
emphasize service and convenience through store location and design,
merchandising programs and operating hours geared to the needs of each store's
particular market. In addition, the Company will continue to emphasize cost
control at all levels of operations. The Company intends to continue to evaluate
and pursue additional cost savings which can be obtained without affecting the
Company's customer service, quality or sales growth potential.

The Company has experienced significant growth in sales and earnings in
recent years. Net sales have increased from $488 million in fiscal 1992 to $668
million in fiscal 1995, representing an 11.1% compound annual growth rate.
Comparable store sales increased 3.1%, 8.3% and 7.1% in fiscal 1993, 1994 and
1995, respectively. Net income and net income per share (fully diluted)
increased from $6.5 million and $0.43, respectively, in fiscal 1992 to $15.1
million and $0.89, respectively, in fiscal 1995. During this period, net income
and net income per share increased at an annual rate of 32.1% and 27.4%,
respectively.

The Company is an Alabama corporation, its principal executive office is
located at 2600 Morgan Road, S.E., Birmingham, Alabama 35023, and its telephone
number is (205) 424-3421.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company................... 2,500,000 shares
Common Stock Offered by the Selling Shareholders...... 205,000 shares
Common Stock to be outstanding after the Offering..... 18,137,229 shares(1)
Use of Proceeds....................................... To repay outstanding bank debt and to
purchase a new pharmacy computer
system. See "Use of Proceeds."
Nasdaq Stock Market Common Stock Symbol............... BIGB
</TABLE>

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

(1) Based on 15,637,229 shares of Common Stock outstanding at April 26, 1995,
and does not include 3,299,180 shares of Common Stock reserved for issuance
upon conversion of the Company's outstanding 6 1/2% convertible
subordinated debentures, 163,700 shares of Common Stock reserved for
issuance upon exercise of stock options granted under the Company's
employee stock option plan or 724,397 shares of Common Stock available for
the future grant of stock options under the Company's employee stock option
plan.

5
<PAGE> 6

SUMMARY FINANCIAL INFORMATION

The Company's fiscal year ends on the Saturday closest to January 31 of
that year. "Fiscal 1991" ended February 2, 1991; "fiscal 1992" ended February 1,
1992; "fiscal 1993" ended January 30, 1993; "fiscal 1994" ended January 29,
1994; "fiscal 1995" ended January 28, 1995 and "fiscal 1996" will end on
February 3, 1996. Fiscal years 1991 through 1995 include results for 52 weeks.
Fiscal 1996 will include results for 53 weeks.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................... $ 463,689 $ 487,890 $ 502,712 $ 595,712 $ 668,205
Gross profit............................ 135,266 146,519 153,118 183,152 207,280
Income from operations.................. 5,068 15,810 17,538 22,448 29,401
Interest expense........................ 7,382 5,660 3,582 3,909 4,435
Income (loss) before income taxes....... (2,561) 10,079 13,950 18,434 23,775
Net income (loss)....................... (1,465) 6,542 9,205 11,752 15,097
Net income (loss) per common share
Primary(1)............................ $ (0.10) $ 0.43 $ 0.60 $ 0.76 $ 0.97
Fully Diluted(2)...................... $ (0.10) $ 0.43 $ 0.60 $ 0.72 $ 0.89
OPERATING DATA(3):
Number of stores at end of period....... 310 304 304 354 367
Average net sales per store(4).......... $ 1,496 $ 1,605 $ 1,654 $ 1,683 $ 1,821
Average gross profit per store(4)....... $ 436 $ 482 $ 504 $ 517 $ 565
Comparable store sales percentage
increase(5)........................... 7.9% 4.6% 3.1% 8.3% 7.1%
Prescription sales as a percentage of
net sales............................. 41.7% 43.4% 44.4% 46.7% 49.1%

</TABLE>

<TABLE>
<CAPTION>
JANUARY 28, 1995
-------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $120,670 $131,945
Total assets......................................................... 273,492 277,767
Long-term debt and capitalized lease obligations..................... 74,268 52,568
Shareholders' investment............................................. 106,733 139,708
</TABLE>

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

(1) Primary net income (loss) per common share was computed by dividing net
income by weighted average number of primary shares of common stock
outstanding during the periods. Outstanding stock options are common stock
equivalents but were excluded from the primary net income per common share
computations as their effect was not material.
(2) Fully diluted net income (loss) per common share was determined on the
assumption that all convertible subordinated debentures were converted and
all stock options outstanding were exercised. Conversion was assumed during
the portion of each period that the debentures and the options were
outstanding. For the debentures, net income was adjusted for interest, net
of the income tax effects; for stock options, outstanding shares were
decreased by the number of shares that could have been purchased with the
proceeds from the exercise, using the end of the period price.
(3) For purposes of calculating operating data, stores include Big B Home Health
Care Centers.
(4) Averages are computed based on the number of stores open at the end of
period.
(5) The comparable store sales percentage increases are computed on the basis of
quarterly sales for stores that were open for full quarters in the
applicable fiscal year and the prior fiscal year.

(6) Adjusted to give effect to the sale of the Common Stock offered hereby by
the Company at an offering price of $14.00 per share and the application of
the net proceeds therefrom. See "Use of Proceeds."

6
<PAGE> 7

USE OF PROCEEDS

The net proceeds from the sale of the 2,500,000 shares offered hereby by
the Company, at an offering price of $14.00 per share, are estimated to be $33.0
million ($38.4 million if the Underwriter's over-allotment option is exercised
in full). The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders.

The Company will use a portion of the net proceeds from this Offering to
repay all indebtedness outstanding under the Company's revolving credit facility
and the Company's line of credit. As of April 26, 1995, $26.7 million was
outstanding under the Company's $50 million revolving credit facility, and the
rate of interest on such borrowings was 6.1% per annum. All amounts outstanding
under the revolving credit facility are due on September 1, 1996. As of April
26, 1995, $10.7 million was outstanding under the Company's $15 million line of
credit, and the rate of interest on such borrowings was 6.25% per annum. The
line of credit expires on June 1, 1995, unless renewed by the parties for
successive one-year terms. The balance of the net proceeds, along with
borrowings under the Company's credit facilities and internally generated cash
flow, will be used to purchase and install the new pharmacy computer system. See
"Business -- Business Strategy -- Invest in Information and Technology." The
cost of the new pharmacy computer system is estimated to be approximately $10
million. Pending such uses, the net proceeds will be invested in short-term,
interest-bearing accounts and securities.

The repayment of indebtedness with a portion of the net proceeds of this
Offering will enhance the Company's financial flexibility and liquidity, and the
Company believes that this enhanced flexibility will facilitate the
implementation of its expansion strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." This expansion may include the opening of new drug stores
and the acquisition of existing drug stores. The Company periodically acquires
operating assets of individual stores in the markets in which it operates. Such
acquisitions are not, either individually or in the aggregate, material to the
Company's results of operations in any given fiscal year. Except for such
acquisitions, the Company currently has no understandings, arrangements or
agreements with respect to the acquisition of any particular existing drug store
locations or drug store chains.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded in the over-the-counter market and is
quoted on The Nasdaq Stock Market under the symbol BIGB. The following table
sets forth, for the fiscal periods indicated, the reported high and low closing
sale prices, as reported by The Nasdaq Stock Market.

<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
FISCAL 1994
First quarter (ended May 8, 1993).......................................... $11 $ 8 3/8
Second quarter (ended July 29, 1993)....................................... 10 3/16 9 1/16
Third quarter (ended October 23, 1993)..................................... 12 3/4 9 3/16
Fourth quarter (ended January 29, 1994).................................... 13 3/8 10 1/2
FISCAL 1995
First quarter (ended May 7, 1994).......................................... 12 1/2 9 7/8
Second quarter (ended July 30, 1994)....................................... 12 1/8 10 5/8
Third quarter (ended October 22, 1994)..................................... 12 1/8 10 3/8
Fourth quarter (ended January 28, 1995).................................... 14 1/2 11 1/2
FISCAL 1996
First quarter (through April 26, 1995)..................................... 15 13 1/4
</TABLE>

On April 26, 1995, the last sale price, as reported on The Nasdaq Stock
Market, for the Company's Common Stock was $14.50 per share. As of April 26,
1995, there were 2,373 holders of record of the Company's Common Stock.

7
<PAGE> 8

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company at January 28, 1995, and as adjusted to give effect to the sale of
the 2,500,000 shares of Common Stock offered by the Company hereby at an
offering price of $14.00 per share and the application of the net proceeds
therefrom. See "Use of Proceeds." The information set forth below should be read
in conjunction with the Financial Statements and Notes thereto included herein
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
<CAPTION>
JANUARY 28, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt and capitalized lease
obligations...................................................... $ 1,028 $ 1,028
Notes payable to banks(1)........................................... 7,000 0
-------- -----------
Total short-term debt....................................... $ 8,028 $ 1,028
======== =========
Long-term debt:
Revolving credit facility(2)........................................ $ 21,700 $ 0
Industrial development revenue bonds................................ 10,800 10,800
Long-term capitalized lease obligations............................. 1,282 1,282
6 1/2% convertible subordinated debentures.......................... 40,250 40,250
Other debt.......................................................... 236 236
-------- -----------
Total long-term debt........................................ 74,268 52,568
-------- -----------
Shareholders' investment:
Common stock, $.001 par value; 40,000,000 shares authorized(3);
15,586,575 shares issued and outstanding(4)...................... 16 18
Paid-in capital..................................................... 35,327 68,300
Retained earnings................................................... 71,390 71,390
-------- -----------
Total shareholders' investment.............................. 106,733 139,708
-------- -----------
Total capitalization........................................ $181,001 $ 192,276
======== =========
</TABLE>

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

(1) As of April 26, 1995, notes payable outstanding under the Company's line of
credit were $10.7 million. The Company's borrowings under its line of
credit vary materially as the Company's cash needs fluctuate.

(2) As of April 26, 1995, $26.7 million was outstanding under the revolving
credit facility.

(3) At the annual meeting of shareholders scheduled for May 30, 1995, the
Company's shareholders will consider the recommendation of the Board of
Directors to increase the Company's authorized shares from 40,000,000 to
100,000,000 shares.
(4) Does not include 3,299,180 shares of Common Stock reserved for issuance upon
conversion of the Company's outstanding 6 1/2% convertible subordinated
debentures, 104,800 shares of Common Stock reserved for issuance upon
exercise of stock options granted under the Company's employee stock option
plan or 824,397 shares of Common Stock available for the future grant of
stock options under the Company's employee stock option plan.

DIVIDEND POLICY

The Company paid dividends of $.03 per share on its Common Stock for each
quarter of fiscal 1994 and $.04 per share on its Common Stock for each of the
first three quarters of fiscal 1995. The Board of Directors has approved the
payment of a dividend of $.04 per share for the fourth quarter of fiscal 1995
payable on April 7, 1995 to shareholders of record on March 24, 1995. The
Company's current revolving credit facility agreement limits the Company's
annual dividends to 50% of net income (as defined in the agreement). The Company
intends to continue its policy of paying quarterly cash dividends. Future cash
dividends, however, will be dependent upon the Company's earnings, financial
condition and other relevant factors.

8
<PAGE> 9

SELECTED FINANCIAL DATA

The following table sets forth selected financial data for each of the
Company's most recent five fiscal years. The selected financial data in the
table are derived from the financial statements of the Company, which have been
audited by Arthur Andersen LLP, independent public accountants. The data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Financial Statements and
Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.............................................. $ 463,689 $ 487,890 $ 502,712 $ 595,712 $ 668,205
Cost of products sold, including warehouse expense..... 328,423 341,371 349,594 412,560 460,925
----------- ----------- ----------- ----------- -----------
Gross profit........................................... 135,266 146,519 153,118 183,152 207,280
Store operating, selling and administrative expenses... 122,971 122,529 127,530 151,072 166,670
Depreciation and amortization.......................... 7,227 8,180 8,050 9,632 11,209
----------- ----------- ----------- ----------- -----------
Income from operations................................. 5,068 15,810 17,538 22,448 29,401
Loss on sale and disposition of property, net.......... 328 210 95 257 1,214
Interest expense....................................... 7,382 5,660 3,582 3,909 4,435
Interest income........................................ (81 ) (139 ) (89 ) (152 ) (23 )
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes...................... (2,561 ) 10,079 13,950 18,434 23,775
Provision (credit) for income taxes.................... (1,096 ) 3,537 4,745 6,682 8,678
----------- ----------- ----------- ----------- -----------
Net income (loss)...................................... $ (1,465 ) $ 6,542 $ 9,205 $ 11,752 $ 15,097
========== ========== ========== ========== ==========
PER COMMON SHARE DATA:
Net income (loss)
Primary(1)........................................... $ (0.10 ) $ 0.43 $ 0.60 $ 0.76 $ 0.97
Fully diluted(2)..................................... $ (0.10 ) $ 0.43 $ 0.60 $ 0.72 $ 0.89
Dividends.............................................. $ 0.06 $ 0.06 $ 0.10 $ 0.12 $ 0.15
Weighted average number of common shares outstanding
Primary(1)........................................... 15,060,442 15,293,706 15,375,766 15,471,402 15,561,205
Fully diluted(2)..................................... 15,060,442 15,293,706 15,375,766 18,301,980 18,921,613
OPERATING DATA(3):
Number of stores at end of period...................... 310 304 304 354 367
Average net sales per store(4)......................... $ 1,496 $ 1,605 $ 1,654 $ 1,683 $ 1,821
Average gross profit per store(4)...................... $ 436 $ 482 $ 504 $ 517 $ 565
Comparable store sales percentage increase(5).......... 7.9 % 4.6 % 3.1 % 8.3 % 7.1 %
Prescription sales as a percentage of net sales........ 41.7 % 43.4 % 44.4 % 46.7 % 49.1 %
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 73,956 $ 61,210 $ 85,277 $ 107,165 $ 120,670
Total assets........................................... 190,449 179,774 181,915 233,100 273,492
Long-term debt and capitalized lease obligations....... 56,098 31,854 40,618 63,476 74,268
Shareholders' investment............................... 67,717 74,297 82,470 93,105 106,733
</TABLE>

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

9
<PAGE> 10

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

GENERAL

The Company was organized in 1972 and operates a chain of 367 stores in the
southeastern United States. The Company operates 339 conventional drug stores
under the "Big B Drugs" format and 23 deep discount drug stores under the "Drugs
for Less" format. The Company also operates five home healthcare stores under
the name "Big B Home Health Care Centers." All of the Company's stores are
served by an approximately 440,000 square foot distribution center located in
Birmingham, Alabama.

The Company has increased net sales primarily in three ways. First, the
Company attempts to achieve sales growth in existing stores by monitoring
product mix, by effective promotional advertising, by marketing to third-party
payment plans and by acquiring the inventory and prescription files of
individual competitor drug stores to be consolidated into the Company's existing
stores. Comparable store sales increased 7.1% in fiscal 1995, 8.3% in fiscal
1994 and 3.1% in fiscal 1993. Second, the Company increases sales through the
opening of new stores. Generally, the Company works with commercial retail
developers who develop the stores and lease them to the Company. The Company
opened 16 new stores in fiscal 1995, ten in fiscal 1994, and six in fiscal 1993.
Third, the Company from time-to-time makes strategic acquisitions of chains of
stores in order to penetrate new markets or to increase concentration in
existing markets. The Company acquired 13 stores in Alabama from the Jack Eckerd
Corporation in fiscal 1989, 85 stores from The Reed Drug Company in fiscal 1990
(including 65 stores in metropolitan Atlanta), eight stores, primarily in
Alabama, from Revco, D.S., Inc. in fiscal 1991, and certain assets of 45
Treasury drug stores located principally in metropolitan Atlanta in fiscal 1994.
Each of these acquisitions has positively impacted the Company's results of
operations, except the Reed acquisition which, as a result of certain
inefficiencies subsequently corrected, negatively impacted fiscal 1990 and
fiscal 1991 results of operations. Historically, the Company has financed its
expansion from internally generated cash flow, the net proceeds of securities
offerings and borrowed funds.

Prescription drug sales have grown as a percentage of net sales, increasing
to 49.1% in fiscal 1995 from 46.7% in fiscal 1994 and 44.4% in fiscal 1993. The
Company believes prescription drug sales as a percentage of total sales will
continue to increase as a result of increased participation by the Company in
third-party payment plans, the demographic trend towards an aging population and
the continued development of new pharmaceutical products. The growth of
third-party payment plans (including insurance companies, HMOs, PPOs, other
managed care providers and government agencies) and the Company's direct
marketing program to employers have put increasing downward pressure on prices
for prescription drugs and, therefore, the Company's gross margin on
prescription drug sales. The Company expects the downward pressure on margins to
be offset by increased sales, buying arrangements, operating efficiencies in the
filling of prescriptions expected from new technology, the automation of
reconciliation and collection of third-party payment plan receivables, and
increased efficiencies at the Company's distribution center.

10
<PAGE> 11

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentages
of net sales represented by certain items in the Company's statements of
operations:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0%
Cost of products sold, including warehouse expense.... 69.5 69.3 69.0
----------- ----------- -----------
Gross profit........................................ 30.5 30.7 31.0
Store operating, selling and administrative
expenses............................................ 25.4 25.4 24.9
Depreciation and amortization......................... 1.6 1.6 1.7
----------- ----------- -----------
Income from operations.............................. 3.5 3.7 4.4
Loss on sale and disposition of property, net......... 0.0 0.0 0.1
Interest expense, net................................. 0.8 0.7 0.7
----------- ----------- -----------
Income before income taxes.......................... 2.7 3.0 3.6
Provision for income taxes............................ 0.9 1.1 1.3
----------- ----------- -----------
Net income.......................................... 1.8% 1.9% 2.3%
======== ======== ========
</TABLE>

Net Sales

Net sales for fiscal 1995 increased 12.2% to $668.2 million from $595.7
million in fiscal 1994. The increase in net sales for the year resulted
primarily from sales increases in existing stores. Of the $668.2 million in
fiscal 1995 sales, $586.3 million were sales by stores operating under the Big B
format, and $79.3 million were sales by stores operating under the Drugs for
Less format. Sales from the Company's Home Health Care Centers were not
material. Gross margins generated by the Drugs for Less stores were slightly
lower than the gross margins for stores operating under the Big B format as a
result of slightly lower prices. Comparable store sales increased 7.1% during
the year ended January 28, 1995. Net sales also were positively impacted by the
addition of new stores. The Company operated 354 stores at January 29, 1994,
compared to 367 stores operated at January 28, 1995.

Net sales increased 18.5% to $595.7 million in fiscal 1994 from $502.7
million in fiscal 1993. The increase in net sales in fiscal 1994 was the result
of an increase in comparable store sales of 8.3% and sales attributable to 55
new stores opened or acquired, including 45 Treasury stores added in fiscal
1994. In fiscal 1993 and 1994, the Company's Big B stores generated $446.2
million and $526.4 million in sales, respectively, and the Drugs for Less stores
generated $54.6 million and $66.9 million in sales respectively. Sales from the
Big B Home Health Care Centers were immaterial in both periods.

Store Costs and Expenses

Cost of products sold, including warehouse expense, as a percentage of net
sales declined slightly to 69.0% in fiscal 1995 from 69.3% in fiscal 1994 and
69.5% in fiscal 1993. The declines in cost of products sold as a percentage of
net sales resulted primarily from improved distribution center efficiencies.

Store operating, selling and administrative expenses as a percentage of net
sales declined to 24.9% in fiscal 1995 from 25.4% in fiscal years 1993 and 1994.
The decrease in fiscal 1995 was due to growth in the Company's net sales and
continued expense controls.

Depreciation and amortization as a percentage of net sales increased
slightly in fiscal 1995 to 1.7% from 1.6% in fiscal years 1994 and 1993. The
slight increase in fiscal 1995 was due to the completion of an enhanced
point-of-sale system at a cost of approximately $9.0 million and modest store
expansion.

Loss on Sale and Disposition of Property

Loss on the disposal of property was $1.2 million, $0.3 million, and $0.1
million in fiscal years 1995, 1994, and 1993, respectively. The increase in
fiscal 1995 was due to the disposal of the old register systems upon the
installation of a new point-of-sale system for all of the Company's stores. The
Company does not expect the installation of the enhanced pharmacy computer
system in fiscal 1996 to result in any significant loss on sale or disposition
of property.

11
<PAGE> 12

Interest Expense

Interest expense during the periods related primarily to a $40.3 million
6 1/2% convertible subordinated debenture offering in fiscal 1994, a revolving
credit facility and a bank line of credit. Interest expense increased to $4.4
million in fiscal 1995 from $3.9 million in fiscal 1994. This increase was due
primarily to higher short term borrowings and generally higher interest rates
during the period. Interest expense remained relatively stable in fiscal 1994 at
$3.9 million compared to fiscal 1993 at $3.6 million.

Provision for Income Taxes

The Company's effective tax rate was 37% in fiscal 1995, 36% in fiscal 1994
and 34% in fiscal 1993. The tax rate in fiscal 1995 and 1994 remained relatively
stable. The increase from fiscal 1993 to fiscal 1994 was due to the Omnibus
Budget Reconciliation Act of 1993 which increased the maximum corporate federal
income tax rate to 35%. This increased the fiscal 1994 tax provision on current
year earnings and also required an additional tax provision to properly state
the cumulative deferred tax liability at the newly enacted rate.

LIQUIDITY AND CAPITAL RESOURCES

The Company's capital requirements relate primarily to opening and stocking
new stores, acquiring stores, and refurbishing existing stores. Capital is also
required to support inventory for the Company's existing stores. Historically,
the Company has been able to lease its store locations and has financed its
expansion and operations from internally generated cash flows, the net proceeds
of securities offerings and borrowed funds. Currently, the Company owns the land
and buildings of only one of its drug stores.

Net cash provided by operations was $13.8 million, $1.1 million, and $12.8
million in fiscal 1995, 1994 and 1993, respectively. These amounts primarily
represent net income adjusted for the non-cash charges of depreciation and
amortization, provisions for losses on receivables and provisions to value
inventories at LIFO cost. The substantial decline for fiscal 1994 resulted from
increases in inventories.

Net cash used in investing activities was $22.6 million, $19.5 million, and
$5.4 million in fiscal 1995, 1994 and 1993, respectively. These amounts
primarily reflect capital expenditures for new stores as well as continued
improvements to existing stores and the Company's distribution center. In fiscal
1994, $16.5 million of the $19.5 million represented the net cash payment for
the Treasury acquisition.

In fiscal 1995, net cash provided by financing activities was $12.4 million
and consisted of $15.6 million in net borrowings under line of credit
agreements, $.3 million in proceeds from the issuance of long-term debt, offset
by $2.3 million of dividends paid, and $1.2 million in principal payments on
long-term debt and capital lease obligations. In fiscal 1994, net cash provided
by financing activities was $17.8 million and consisted of a $40.3 million
6 1/2% convertible subordinated debenture offering, offset by $19.1 million of
net line of credit repayments, $1.8 million of dividends paid, and $1.6 million
in principal payments on long-term debt and capital lease obligations. In fiscal
1993, net cash used in financing activities was $6.6 million and consisted of
$21.9 million in principal payments on long-term debt and capital lease
obligations, $1.5 million in dividends paid, offset by $16.8 million in net
borrowings under line of credit agreements.

In fiscal 1993, certain debt was refinanced from funds borrowed under a new
revolving credit facility. At January 28, 1995, $21.7 million was outstanding
under this facility, which has a maximum borrowing capacity of $50.0 million.
The Company also had $7.0 million outstanding at January 28, 1995 under a $15.0
million unsecured bank line of credit which is renewable annually on June 1.
Borrowings under the Company's credit facilities bear interest at variable
rates. As of January 28, 1995, the interest rates under the revolving credit
facility and bank line of credit were 6.0% and 6.25% per annum, respectively.

The Company plans to open 20 to 25 new stores in fiscal year 1996 and 25 to
30 new stores in fiscal year 1997 at an anticipated aggregate capital outlay of
$8.0 to $10.0 million and $10.0 to $12.0 million, respectively. Most of the new
stores will be Big B Drugs stores. The cost of fixtures, equipment and inventory
to open a new drug store is approximately $400,000 for a Big B Drugs store and
approximately $1.1 million for a Drugs for Less store. Additionally, in fiscal
1996, the Company plans to install an enhanced pharmacy computer system at a
cost of approximately $10.0 million. The Company believes that internally
generated funds, the proceeds from this offering, and borrowings on its line of
credit and revolving credit facility will be adequate to fund the capital
requirements noted above.

12
<PAGE> 13

BUSINESS

GENERAL

The Company operates a chain of 367 stores throughout a five state area in
the southeastern United States. The Company operates its drug stores under the
names "Big B Drugs" and "Drugs for Less". Also, the Company operates five home
healthcare stores under the name "Big B Home Health Care Center." The Company is
one of the largest drug store chains in this five state area with 158 stores in
Georgia, 157 in Alabama, 24 in Florida, 21 in Tennessee and seven in
Mississippi. All of the Company's stores are within a 400 mile radius of its
distribution center in Birmingham, Alabama. In addition to prescription drugs
and services, the Company's drug stores offer a broad range of health and beauty
aids, cosmetics, greeting cards, convenience foods, photo processing services
and other general merchandise. The Company intends to continue to concentrate
its future growth in this five state area to take advantage of the available
economies of scale in advertising, distribution and supervision and the
competitive advantage for the Company in marketing to third-party payment plans.

THE DRUG STORE INDUSTRY

In recent years, the drug store industry has undergone several significant
changes, including: (i) the increase in third-party payment plans for
prescription drugs, (ii) the consolidation within the drug store industry, (iii)
the aging of the United States population and (iv) the increase in competition
from non-traditional retailers of prescription and over-the-counter drugs.

During the last several years, a growing percentage of prescription drug
sales throughout the industry has been accounted for by sales to customers who
are covered by third-party payment plans. According to IMS America, in 1994,
third-party payment plan sales represented approximately 58.3% of total
prescription drug sales in the United States. In a typical third-party payment
plan, the drug store company has a contract with a third-party payor, such as an
insurance company, HMO, PPO, other managed care provider, government agency or
private employer, which agrees to pay for part or all of a customer's eligible
prescription purchases. Although third-party payment plans often provide a high
volume of prescription sales, such sales typically generate lower gross margins
than other prescription sales due principally to the highly competitive nature
of this business and recent efforts by third-party payment plans to contain
costs. The Company believes larger drug store chains, such as the Company, are
better able to service the growing third-party payment plan segment than
independent drug stores and smaller chains as a result of the larger chains'
more sophisticated technology systems, larger number of stores and greater
penetration within their markets.

As a result of the economies of scale from which larger drug store chains
benefit as well as the third-party payment plan trend, the number of independent
drug stores and smaller drug store chains has decreased as a result of
acquisitions by larger drug store chains. This trend is expected to continue
because larger chains are better positioned to handle the increased third-party
payment plan sales, purchase inventory on more advantageous terms and achieve
other economies of scale with respect to their marketing, advertising,
distribution and other expenditures. The Company believes that independent drug
stores and smaller drug store chains may provide significant acquisition
opportunities for larger drug store chains, such as the Company.

Strong demographic trends have also contributed to changes in the drug
store industry, as a significant portion of the United States population ages.
This trend has had, and is expected to continue to have, a marked effect on the
pharmacy business in the United States because consumer prescription and
over-the-counter drug usage generally increases with age. The group of persons
over age 40 is a rapidly growing segment of the U.S. population. According to
industry sources, in 1994, this segment represented approximately 39% of the
population, although it consumed approximately 58% of all prescriptions sold in
the United States. This segment is projected to increase to 43% of the
population by the year 2000. The average per person prescription usage in the
United States is approximately 3.9 prescriptions per year, which increases to
approximately 4.1, 7.4 and 9.1 prescriptions filled per year for persons ages
40-59, 60-74 and 75 and over, respectively.

13
<PAGE> 14

In 1993, drug store chains and independent drug stores represented
approximately 33% and 28%, respectively, of the U.S. retail pharmacy market,
which includes mass merchandisers, food stores, staff model HMOs, clinics, mail
order companies, independent pharmacies and chain pharmacies. In response to a
number of factors, including the aging of the United States population, mass
merchandisers (including discounters and deep discounters), supermarkets,
combination food and drug stores, mail order distributors, hospitals, HMOs and
other managed care providers have entered the pharmacy industry. Supermarkets,
including combination food and drug stores, and mass merchandisers each
represented approximately 9.5% of the retail pharmacy market in the United
States in 1993.

BUSINESS STRATEGY

- Focus on the Company's pharmacy operations;

- Emphasize market concentration;

- Continue investment in information systems;

- Maintain a high level of customer service and convenience; and

- Continue cost-control efforts.

Focus on Pharmacy Operations. The Company's primary business focus is the
sale of prescription drugs. During fiscal 1995, the Company estimates that more
than 13.6 million prescriptions were filled by the Company, compared to an
estimated 10.2 million prescriptions in fiscal 1993. During fiscal 1995, sales
of prescription drugs generated 49.1% of the Company's net sales compared to
41.7% in fiscal 1991. Management expects that the Company's prescription drug
business will continue to represent a significant portion of the Company's sales
and profits as a result of increased participation by the Company in third-party
payment plans, the demographic trend towards an aging population and the
continued development of new pharmaceutical products.

In emphasizing its pharmacy operations, the Company intends to continue to
provide high quality service to the Company's traditional customer base and to
pursue new opportunities for pharmacy growth. For example, the Company intends
to increase its participation in third-party payment plans by aggressively
marketing to all types of third-party payment plans, including insurance
companies, HMOs, PPOs, other managed care providers and government agencies. The
Company believes that the number and concentration of its stores within existing
markets and the Company's experience and reputation in the drug store industry
give the Company advantages over independent drug stores, small drug store
chains, mass merchandisers and food stores in competing for the increasing
amount of third-party payment plan sales. Third-party payment plan sales
accounted for approximately 56% of the Company's prescription sales in fiscal
1995, as compared to 25% of the Company's prescription sales in fiscal 1991.

The Company also offers employee prescription benefit programs directly to
individual employers or groups of employers as a low cost alternative for
pharmaceutical products. The pricing offered by the Company under these direct
programs is similar to the pricing arrangements offered to third-party payment
plans. Sales under direct employer programs accounted for approximately 3% of
the Company's prescription sales in fiscal 1995, as compared to 0.8% of the
Company's prescription sales in fiscal 1994, the first year of operation. The
Company has direct contracts with employers covering over 190,000 lives.

The Company has also initiated other prescription services and programs in
an effort to increase the Company's prescription drug sales. In fiscal 1992, the
Company began a mail-order prescription drug program, which has grown from
approximately $100,000 in prescription drug sales in fiscal 1993, to $1.3
million in fiscal 1995. In fiscal 1993, the Company began its nursing home
pharmacy service, which now provides pharmacy services to nursing homes with
approximately 3,000 beds. The Company believes there are significant
opportunities for increasing prescription drug sales through these services.

14
<PAGE> 15

Emphasize Market Concentration. In an effort to take advantage of the
available economies of scale in advertising, distribution and supervision and
the competitive advantages for the Company in marketing to third-party payment
plans, the Company seeks to achieve and maintain a leading market share in each
market in which it operates by developing and acquiring stores at strategic
locations in those markets. The Company's first store was opened in Birmingham,
Alabama in 1968. Thereafter, the Company expanded to become the largest drug
store chain in Alabama, with its stores concentrated primarily in metropolitan
areas, including Birmingham with 60 stores, Mobile with 18 stores, Huntsville
with 16 stores and Montgomery with 15 stores. Beginning in fiscal 1990, the
Company developed a major presence in the Atlanta, Georgia metropolitan area,
the nation's 9th largest metropolitan area, by acquiring 65 drug stores in
Atlanta from the Reed Drug Company and emphasizing the development of additional
new stores in that market. In fiscal 1993, the Company acquired certain assets
of 45 stores in Atlanta from the Thrift Drug Company (a subsidiary of the J.C.
Penney Company, Inc.). As a result of these acquisitions and the new stores
developed by the Company, the Company is now the second largest drug store chain
in Atlanta, with 102 stores. The Company believes that there is opportunity for
additional expansion, and it will continue to benefit from the economies of
scale associated with expansion in its present market areas.

Invest in Information Systems and Technology. The Company intends to
continue its investment in information systems to improve customer service,
reduce operating costs, provide information to support management decisions and
enhance the Company's competitive position with third-party payment plans. In
fiscal 1995, the Company completed the installation of point-of-sale ("POS")
product scanning equipment in all of its stores. Scanning is a system which
inputs POS information by reading the universal product code of merchandise sold
with either a hand-held or slot scanner to capture information on each specific
item or product (a stock-keeping unit or "SKU"), sales data and pricing
information. The Company's POS system allows management to analyze sales, gross
profits, inventory movement and direct product profitability by category,
department and, in certain instances, SKU. The Company believes that use of the
POS system will improve customer service by decreasing customer checkout time,
provide an opportunity to improve margins by more accurately reflecting the
prices of merchandise, improve adherence to advertised sale or promotional
prices and provide enhanced inventory control and merchandise information.

The Company's pharmacy computer system and customer account records system,
which the Company plans to upgrade beginning in the current fiscal year, is
significant to the success of its pharmacy operations. This system calculates
the prices of all prescriptions filled. The system also maintains current
customer information, including medical history and other information furnished
by the customer and a list of all prescription medicine purchased by the
customer from the Company. Each time a new prescription is filled by the
Company, the patient information is updated and the prescription is analyzed in
an attempt to assure its compatibility with other medication prescribed for the
customer. In addition, the system supplies information concerning drug purchases
to customers for income tax purposes, prepares prescription labels and receipts,
and expedites the collection of amounts due the Company under third-party
payment plans by providing on-line adjudication. On-line adjudication permits
the Company and the third-party payment plans to determine electronically at the
time of sale, customer eligibility, prescription coverage, pricing and
co-payment requirements.

The Company plans to install a new pharmacy computer system in all of its
stores at a cost of approximately $10 million. See "Use of Proceeds." The
installation and testing of the new pharmacy computer system is scheduled to
begin in a limited number of stores in May 1995, and the Company anticipates
that the new pharmacy computer system will be installed in all stores by the end
of fiscal 1996. The Company believes that its new pharmacy computer system will
benefit the Company by providing additional support to pharmacists, meeting the
increasing complexity of third-party payment plans and enhancing the Company's
competitive position through advanced technology. The new pharmacy system is
expected to provide numerous improvements over the Company's existing pharmacy
computer system, including faster prescription processing, chain-wide
prescription transfer capability, capability of direct interfacing with
physician offices for new prescriptions and refill approval, better inventory
control, more accurate sales information and improved capability for on-line
adjudication with third-party payment plan claims.

15
<PAGE> 16

Maintain Customer Service and Convenience. The Company believes that
customer service and convenience are critical to maintaining the Company's
competitive advantage. The Company will continue to emphasize service and
convenience through store location and design, merchandising programs and
operating hours geared to the needs of each store's particular market. The
Company currently has a program underway to improve the efficiency of the store
pharmacies by improving the physical design and layout of those departments and
by training and placing pharmacy technicians in the stores to assist its
pharmacists. The purpose of these efforts is to make the store pharmacists more
available to assist and consult with customers. In addition, the Company has
employee award and recognition programs which recognize excellence in customer
service, and the Company maintains incentive based compensation programs for all
levels of employees based on employee productivity. These programs are designed
to emphasize the importance of the Company's customer service philosophy.

The Company regularly remodels and remerchandises its stores to provide
modern, well-identified stores with convenient parking, and will seek to open
new stores in easily accessible, high traffic locations. The Company tailors its
merchandising to provide the product mix and selection to best serve its
customers. The drug stores are generally open every day of the year except
Christmas. A select number of strategically located stores stay open until
midnight or 24 hours a day.

Continue Cost Control. The Company will continue to emphasize cost control
at all levels of operations. The Company intends to continue to evaluate and
pursue additional cost savings which can be obtained without affecting the
Company's customer service, quality or sales growth potential. The Company
believes that enhanced computer technology being implemented by the Company will
be valuable in enabling the Company to control its costs. There can be no
assurance, however, that these additional cost reductions will be realized.

GROWTH STRATEGY

The Company has grown from 304 stores at the beginning of fiscal 1994 to
367 stores at the end of fiscal 1995. The Company's growth strategy is to
continue to increase sales through expansion, primarily in the Company's
existing markets. The Company believes it's distribution center is capable of
accommodating the Company's foreseeable future expansion. In implementing its
growth strategy, the Company intends to:

- Develop new stores;

- Acquire existing drug store chains and independent drug stores; and

- Acquire the inventory and prescription files of other drug stores for
consolidation into existing Company stores.

Develop New Stores. The Company opened 16 drug stores in fiscal 1995 and
intends to open approximately 20 to 25 new stores in fiscal 1996 and 25 to 30
new stores in fiscal 1997. The Company intends to emphasize the development of
new stores as its primary means of expansion and seeks new sites for future new
store development. Generally, the Company works with commercial retail
developers who develop the stores and lease them to the Company. Prior to
developing a new store, the Company analyzes available market, demographic and
competitive data to evaluate the suitability of the potential site. New store
site selection criteria include, among other factors, market demographics,
traffic counts, visibility, overall retail activity of the area, and lease
terms.

Acquire Existing Stores. The Company from time-to-time makes strategic
acquisitions of existing chains of stores and independent drug stores in order
to penetrate new markets or to increase the concentration in existing markets of
the Company's stores. The Company acquired 13 stores in Alabama from the Jack
Eckerd Corporation in fiscal 1989, 85 stores from The Reed Drug Company in
fiscal 1990 (including 65 stores in metropolitan Atlanta), eight stores,
primarily in Alabama, from Revco, D.S., Inc. in fiscal 1991, and certain assets
of 45 Treasury drug stores located principally in metropolitan Atlanta in fiscal
1994. The Company intends to continue to consider acquisition opportunities as
they arise. The Company believes that further consolidation of the drug store
industry will result in additional acquisition opportunities, both within and
outside the Company's existing markets. The Company periodically acquires
individual stores in the markets

16
<PAGE> 17

in which it operates. Such acquisitions are not, either individually or in the
aggregate, material to the Company's results of operations in any given fiscal
year. Except for individual store acquisitions, the Company currently has no
understandings, arrangements or agreements with respect to the acquisition of
any particular existing drug store locations or drug store chains.

Consolidate Acquired Pharmacy Files. The Company has acquired the
inventory and pharmacy files of other drug stores, for the purpose of
consolidating the inventory and pharmacy files into one of the existing Company
stores located in the same vicinity. These consolidations enable the Company to
increase sales volume in its existing stores in a cost effective manner. The
Company completed 31 such consolidation acquisitions in each of fiscal 1994 and
fiscal 1995 and anticipates completing 25 to 30 in fiscal 1996.

The following table sets forth, for the periods indicated, certain
information concerning the Company's drug stores:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------
JANUARY 30, 1993 JANUARY 29, 1994 JANUARY 28, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Stores open, beginning of period........... 304 304 354
Stores added(1)............................ 6 55 16
Stores closed.............................. 6 5 3
--- --- ---
Stores open, end of period................. 304 354 367
============ ============ ============
</TABLE>

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

(1) In addition to stores opened or acquired by the Company, the Company
completed the acquisitions of inventory and prescription files, for
consolidation into its existing stores, of 14 stores in fiscal 1993, and 31
stores in each of fiscal 1994 and fiscal 1995.

PHARMACY PRODUCTS AND SERVICES

The primary focus of the Company's business is its pharmacy operations,
which offer both brand name and generic prescription drugs. The Company strives
to improve these operations in an effort to build customer loyalty and increase
customer traffic in its stores. The Company believes that its prescription drug
business will continue to represent a significant portion of its sales and
profits due to the demographic trend towards an aging population, the continued
development of new pharmaceutical products and changing trends in the delivery
of healthcare. Prescription sales have grown to 49.1% of the Company's net sales
for fiscal 1995, as compared to 41.7% for 1991.

The Company has contracts with third-party payment plans and is actively
seeking to increase its participation in third-party payment plans. While
third-party payment plans provide an increase in the volume of prescription
sales, these sales typically generate lower gross margins than other sales due
to the highly competitive nature of pricing for this business. The Company
expects its pharmacy operations to benefit from increased sales, buying
arrangements, operating efficiencies in the filling of prescriptions expected
from new technology, the automation of reconciliation and collection of
third-party payment plan receivables, and the increased efficiency of the
distribution center. In fiscal 1995, third-party payment plans represented
approximately 56% of the Company's prescription business, compared to
approximately 25% for fiscal 1991.

The Company is also actively marketing a program under which it offers
employee prescription benefit programs directly to individual employers or
groups of employers. The pricing offered by the Company under these direct
employer programs is similar to the pricing arrangements offered to third-party
payment plans. The Company has contracts directly with employers covering over
190,000 lives.

In addition to its efforts to increase its participation in third-party
payment plans and in its direct employer programs, the Company has also
initiated other prescription services and programs to enhance its prescription
drug sales, including a mail order prescription drug program which has grown
from approximately $100,000 in prescription drug sales in fiscal 1993 to $1.3
million in fiscal 1995 and a nursing home pharmacy service which was started in
fiscal 1992 and now services approximately 3,000 beds.

17
<PAGE> 18

In an effort to make the licensed pharmacists more accessible to customers
for consultation, the Company has implemented a program to train and place in
its stores pharmacy technicians to assist the licensed pharmacists. Also, the
Company is redesigning the layout of the pharmacies in its stores to increase
the efficiency of the pharmacy departments.

OTHER PRODUCTS AND SERVICES

General Merchandise. The Company's typical drug store emphasizes brand
name merchandise and offers a broad range of nonprescription medications and
general merchandise at competitive prices that are generally at or below those
of other conventional drug stores. Major year-round product lines include health
and beauty aids, cosmetics, tobacco products, convenience foods, greeting cards,
toys, small electrical appliances, electronics, photo processing services, books
and magazines, and household items. The Company's drug stores also feature
seasonal merchandise such as Christmas items, holiday greeting cards, special
candies, beach and pool supplies and other seasonal products. The Company
revises and updates the product mix in its stores to suit customer needs and
reflect retail trends.

In addition to brand name merchandise, the Company has a private label
merchandise program which includes health and beauty aids, household products
and nonprescription drugs. The Company's private label merchandise program
offers quality merchandise at prices substantially lower than comparable brand
name merchandise. The Company's private label program does not represent a
material portion of the Company's nonprescription sales.

Photo Processing. The Company offers overnight photo processing services
in all of its stores. During the last fiscal year, the Company began to place
increased emphasis on its photo processing services by installing one-hour photo
processing equipment in many of its stores. At present, the Company has one-hour
photo processing equipment in 25 of its stores and plans to have this equipment
in a total of 50 stores by the end of fiscal 1996 and 100 stores by the end of
fiscal 1997. The Company believes that this equipment will produce revenues for
the stores, not only as a result of photo processing sales, but also as a result
of increased sales of ancillary items, such as film and batteries, and as a
result of increased store traffic, generally. In addition, the Company has begun
offering its overnight processing service on a seven-day-a-week basis and has
begun offering a wider variety of print sizes. The Company markets its photo
processing services directly to commercial accounts in an effort to attract high
volume customers. The Company also offers frequent buyer discount programs and
other sales incentives in promoting its photo processing services.

ADVERTISING

The Company promotes its merchandise primarily through a combination of
newspaper advertising and full color inserts. The Company also uses direct mail
circulars, television advertising and radio advertising. The Company's
concentration of stores within its markets enables it to achieve economies of
scale in advertising and marketing expenditures and also enables the Company to
negotiate favorable rates for advertising time and print production. The Company
believes that its current level of advertising expenditures is appropriate to
support its existing marketing strategies.

PURCHASING AND DISTRIBUTION

The Company centrally purchases most of its merchandise, including
prescription drugs, directly from manufacturers, allowing it to take advantage
of promotional and volume discount programs that certain manufacturers offer to
retailers. During fiscal 1995, approximately 66% of the merchandise purchased by
the Company for its drug stores was received at the Company's distribution
center for redistribution to its drug stores. The balance of store merchandise
is shipped directly to the Company's drug stores from manufacturers and
distributors at prices negotiated at the corporate level. The Company does not
have any long-term contracts with suppliers and believes it has numerous
alternative sources of supply for the merchandise sold in its stores.

Store orders are processed by computer and assembled at the distribution
center for delivery to stores. The Company contracts with a third party to
provide inventory delivery service to all stores. If this agreement

18
<PAGE> 19

was terminated for any reason, the Company believes replacement services are
available so there would be no interruption in delivery of inventory to Company
stores. The distribution center utilizes computer and conveyor systems to
monitor the amount and location of inventory within the distribution center and
to handle the movement of items from the receiving dock, to the racks, to the
loading dock for delivery to the stores. The distribution center's computer
system also assists in planning and monitoring the utilization of distribution
center personnel. The Company's stores typically receive deliveries from the
distribution center weekly.

STORE OPERATIONS

Non-pharmacy operations are the responsibility of the Senior Vice
President -- Store Operations, who supervises the Company's two regional
managers and fifteen district managers. Each district manager is responsible for
the stores in his district and regularly visits those stores to assure quality
of merchandise presentation, appropriate staffing and adherence to the Company's
operating policies. The Company's pharmacy operations are the responsibility of
the Vice President -- Professional Relations who supervises the Company's
pharmacy operations manager and eight pharmacy district managers. The pharmacy
district managers supervise the pharmacy operations in the Company's individual
stores. In an effort to increase employee productivity, improve employee
retention, and enhance customer service, the Company utilizes an incentive
compensation plan with established goals for each level of employees, including
store clerks, under which bonuses are based on these goals. The management staff
of a typical drug store includes a manager, an assistant manager and two
pharmacists, whose incentive compensation is based upon the profitability of the
store.

STORE FORMATS

Big B Drugs. The Company's 339 Big B Drugs stores are generally located in
strip shopping centers or are freestanding and generally range in size from
approximately 7,000 to 12,000 square feet, with an average size of approximately
9,000 square feet. The typical Big B Drugs store is open every day of the year,
except Christmas, generally from 8:00 A.M. until 9:00 P.M. (10:00 A.M. until
7:00 P.M. on Sundays). Stores at selected locations are open until midnight or
on a 24 hour basis, depending upon local market needs. Big B Drugs stores
generally are operated on a self-service basis for non-pharmacy items, with
customer assistance available when required. The pharmacy departments are
staffed by registered pharmacists and in high volume stores, also by pharmacy
technicians.

Drugs for Less. The Company operates 23 deep discount drug stores under
the name "Drugs for Less." Each store contains a pharmacy and emphasizes higher
turnover merchandise such as health and beauty aids, cosmetics, tobacco
products, photo processing services, stationery, household items, greeting
cards, snacks and candies. The Company attempts to achieve higher sales volume
in its Drugs for Less stores by offering its products at every day low prices
competitive with other deep discount operations. The Drugs for Less stores range
in size from approximately 10,000 to 29,000 square feet, with an average size of
approximately 20,000 square feet, and are generally located on major traffic
arteries in the Company's larger metropolitan markets.

Big B Home Health Care Centers. The Company operates five home healthcare
stores under the name "Big B Home Health Care Center." These stores offer home
healthcare products for sale or rent, including oxygen concentrators,
wheelchairs, hospital beds, other convalescent equipment and accessories, and
diabetic supplies. Each store is staffed by trained technicians offering
services ranging from home delivery and set-up of equipment to completion of
necessary forms for insurance and Medicare claims. Many of the products sold by
the home healthcare stores can be purchased at the Company's drug stores, and
all of these products can be ordered by catalog through the Company's drug
stores.

PROPERTIES

The Company owns the furniture and fixtures in each of its stores. However,
with the exception of one store owned by the Company, the Company leases the
land and buildings for all of its stores under leases with terms of typically
between 15 to 20 years and renewal provisions for additional terms. The leases
provide for the payment of either a fixed rental or a fixed rental plus a
percentage of gross sales in excess of a specified amount. Certain of the leases
also provide for the payment by the Company of increases in real estate taxes
and insurance premiums. Big B is continuing to make lease payments under leases
for certain store locations at

19
<PAGE> 20

which the Company's drug stores have been closed. No single lease is material to
the Company's operations. The Company leases its distribution center, located in
Birmingham, Alabama, from the Industrial Development Board of the City of
Bessemer. Upon the expiration of the lease, the Company has the right to
purchase the distribution center for nominal consideration.

REGULATION AND HEALTHCARE REFORM

The Company's pharmacists and pharmacies are required to be licensed by the
appropriate state boards of pharmacy. The Company's drug stores and its
distribution center are also registered with the Federal Drug Enforcement
Administration. Certain of the stores sell beer and wine and are subject to
various state and local licensing requirements. By virtue of these licenses and
registration requirements, the Company is obligated to observe certain rules and
regulations, and a violation of such rules and regulations could result in a
suspension or revocation of the licenses or registrations. Under the Omnibus
Budget Reconciliation Act of 1990, the Company's pharmacists are required to
offer counseling to customers covered by Medicaid about the medication, dosage,
delivery system, common side effects and other information deemed significant by
the pharmacists.

The Company relies on prescription drug sales for a significant portion of
its revenues and profits, and prescription drug sales represent a growing
segment of the Company's business. These revenues are affected by changes within
the healthcare industry, including changes in programs providing for
reimbursement of the cost of prescription drugs by third-party payment plans,
such as government and private plans, and regulatory changes relating to the
approval process for prescription drugs. Between October 1993 and the end of
1994, President Clinton and various U.S. Senators and Representatives introduced
in Congress a number of healthcare reform proposals. The proposals ranged from
the Clinton Administration's comprehensive healthcare reform proposal that would
have restructured the financing and delivery of healthcare services through a
combination of managed competition and mandated employer coverage of employees
to less comprehensive proposals that would have required private health
insurance to be "portable" and eliminated coverage limitations for pre-existing
health conditions. No proposal was adopted by either house of Congress. The
Company anticipates that additional healthcare reform proposals may be
introduced in the current session of Congress. It is difficult to predict
whether any proposal will be adopted or the effect on the Company of any
proposal that does become law. The Company believes, however, that distributors
of pharmaceutical products, like the Company, generally are low on the reform
priority list. A number of states in which the Company has operations have
either adopted or are considering healthcare reform proposals at the state
level. Various reform measures have been adopted in Florida and Tennessee. These
state reform laws have, in many cases, not been fully implemented. The Company
does not expect these state laws to have a material adverse effect on the
operations of the Company.

COMPETITION

The Company's business is highly competitive. In each of its markets, the
Company competes directly with one or more national drug store chains (including
Eckerd's and Revco), regional drug store chains (including K&B and Harco), local
drug store chains, independent drug stores, deep discount drug stores (including
Drug Emporium), supermarkets(including Kroger, Bruno's and Publix), discount
department stores (including Wal-Mart and K-Mart), mass merchandisers and other
retail stores and mail order operations. Certain of these competitors have
financial resources that are substantially greater than those of the Company.
The Company is the largest drug store chain in both Alabama and metropolitan
Birmingham with 157 and 60 stores, respectively. Big B also is one of the
largest drug store chains in the state of Georgia with 158 stores, and the
Company believes it is the second largest drug store chain in the metropolitan
Atlanta market with 102 stores. Competition among drug stores generally takes
the form of price competition, store location, product selection and customer
service. The Home Health Care Center stores compete with certain chain
operations and independent single unit stores.

EMPLOYEES

As of January 28, 1995, the Company employed approximately 5,700 persons.
The Company believes that its relationship with its employees is good.

20
<PAGE> 21

MANAGEMENT

Certain information concerning directors and officers of the Company is set
forth below.

<TABLE>
<CAPTION>
YEAR EMPLOYED
NAME AGE BY COMPANY POSITION WITH THE COMPANY(1)
- ----------------------------------- --- ------------- -------------------------------------
<S> <C> <C> <C>
Joseph S. Bruno.................... 82 (2) Chairman Emeritus of the Board of
Directors
Anthony J. Bruno................... 68 1972 Chairman of the Board of Directors
and Chief Executive Officer
Arthur M. Jones, Sr................ 47 1975 President, Chief Operating Officer
and Director
James A. Bruno..................... 34 1983 Executive Vice President, Secretary
and Director
Vincent J. Bruno................... 52 1972 Senior Vice President --
Merchandising and
Advertising and Director
Bobby W. Little.................... 52 1972 Senior Vice President -- Store
Operations
Timothy N. Burelle................. 48 1990 Vice President -- Professional
Relations
Michael J. Tortorice............... 49 1972 Vice President -- Finance, Treasurer
and Chief Financial Officer
S. Steven Taylor................... 44 1982 Vice President -- Real Estate and
Store Development
Eugene Beckmann.................... 46 1984 Vice President -- Human Resources
Richard Cohn....................... 52 (2) Director
Isaac L. Alderman.................. 75 (2) Director
Charles A. McCallum, D.M.D.,
M.D.............................. 69 (2) Director
</TABLE>

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

(1) Each director and officer serves for a term of one year or until his or her
successor is duly elected and qualified.
(2) Serves in capacity of director of the Company only.

Joseph S. Bruno has served on the Board of Directors of the Company since
1977 and was named Chairman Emeritus in 1993. He is also a member of the Board
of Directors of Bruno's, Inc. Mr. Bruno has served in various capacities with
Bruno's, Inc. since 1959.

Anthony J. Bruno has served on the Board of Directors of the Company since
1979. He served as President from 1977 to 1993 and was elected Chairman and
Chief Executive Officer in January 1993. He is also a member of the Board of
Directors of First Alabama Bank.

Arthur M. Jones, Sr. has served on the Board of Directors of the Company
since 1981 and has served as President and Chief Operating Officer since 1993.
He served as Executive Vice President, Secretary and Treasurer from 1985 to
1993.

James A. Bruno has served on the Board of Directors since 1993 and was
elected Executive Vice President in 1994 and Secretary in 1993. From 1987 to
1994 he served as Vice President of Marketing.

Vincent J. Bruno has served on the Board of Directors of the Company since
1981 and was elected Senior Vice President -- Merchandising and Advertising in
1994. From 1981 until 1994 he served as Vice President -- Merchandising and
Advertising.

Bobby W. Little was elected Senior Vice President -- Store Operations in
1994. From 1984 to 1994 he served as Vice President -- Store Operations.

21
<PAGE> 22

Timothy N. Burelle was elected Vice President -- Professional Relations in
1990. Prior to coming to the Company, Mr. Burelle was Dean of the School of
Pharmacy at Samford University from 1985 to 1990.

Michael J. Tortorice was elected Vice President -- Finance in 1988,
Treasurer in 1993 and Chief Financial Officer in 1994.

S. Steven Taylor was elected Vice President -- Real Estate and Store
Development in 1987.

Eugene A. Beckmann was elected Vice President -- Human Resources in 1987.

Richard Cohn has served on the Board of Directors of the Company since
1981. Since 1967, Mr. Cohn has been a practicing attorney in Birmingham,
Alabama, and a member of the law firm of Sirote & Permutt, P.C., which is
general counsel to the Company. He is also a member of the Board of Directors of
Bruno's, Inc.

Isaac L. Alderman has served on the Board of Directors of the Company since
1981. Mr. Alderman served as a consultant to Dairymen, Inc., a dairy
cooperative, from 1977 to 1992 and retired in 1992.

Charles A. McCallum has served on the Board of Directors of the Company
since 1993. Dr. McCallum is Professor of Medicine and Dentistry at the
University of Alabama at Birmingham of which he served as President from 1987 to
1993.

Joseph S. Bruno and Anthony J. Bruno are brothers, and Vincent J. Bruno is
their nephew. James A. Bruno is the son of Anthony J. Bruno.

SELLING SHAREHOLDERS

The following table sets forth information regarding the ownership of the
Common Stock of the Company as of March 31, 1995, and as adjusted to reflect the
sale of shares in this Offering, by the Selling Shareholders. Unless otherwise
noted in the footnotes in the table, the Selling Shareholders have sole voting
and dispositive power with respect to all shares of Common Stock shown as
beneficially owned. Under the rules of the Commission, a person is deemed to be
a "beneficial owner" of a security if such person has or shares the power to
vote or direct the voting of such security or the power to dispose of or to
direct the disposition of such security. Accordingly, more than one person may
be deemed to be a beneficial owner of the same security. Prior to the Offering,
the Selling Shareholders and James A. Bruno, the son of Anthony J. Bruno,
beneficially own 2,764,141 shares (17.7%) of the Common Stock of the Company
(including an aggregate of 22,000 shares represented by options exercisable
within 60 days by Vincent J. Bruno and James A. Bruno, under the Company's
Employee Stock Option Plan), and after the Offering these shareholders will
beneficially own 2,559,141 shares (16.4%). These shareholders are the only
members of the Bruno family who are officers or directors of the Company.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------- NUMBER OF -------------------
NUMBER OF SHARES BEING NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
- ---------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Joseph S. Bruno(1)............................ 559,122 3.6% 65,000 494,122 2.7%
Anthony J. Bruno(2)........................... 885,504 5.7% 60,000 825,504 5.3%
Vincent J. Bruno(3)........................... 1,226,112 7.8% 80,000 1,146,112 6.3%
</TABLE>

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

(1) Includes 473,522 shares owned directly by Joseph S. Bruno; 70,100 shares
owned by his wife, as to which he may be deemed to share voting and
investment power; and 15,500 shares owned by the Joseph S. Bruno Charitable
Foundation, a private charitable foundation, of which he is a Director,
with respect to which shares he disclaims any beneficial interest, but as
to which he shares voting and investment power.
(2) Includes 791,504 shares owned directly by Anthony J. Bruno; and 67,200
shares owned by his wife, 26,800 shares held in the name of his wife as
custodian for their children, nephew, and grandchild, as to which he may be
deemed to share voting and investment power.
(3) Includes 507,936 shares owned directly by Vincent J. Bruno (of which 18,000
shares are represented by options exercisable within sixty days by him
under the Company's Employee Stock Option Plan);

22
<PAGE> 23

114,100 shares held by him as custodian for his minor children; 391,633
shares held by him as co-trustee of trusts for the benefit of his minor
children, as to which he shares voting and investment power, 1,600 shares
held jointly with his wife, as to which he shares voting and investment
power, 174,964 shares owned by his wife, 16,735 shares held in the name of
his wife as trustee of a trust for the benefit of his minor children, and
10,900 shares held in the names of his minor children, as to which he may
be deemed to share voting and investment power; and 8,244 shares owned by
the Lee Bruno Foundation, a private charitable foundation, of which he is a
Director, with respect to which shares he disclaims any beneficial
interest, but as to which he shares voting and investment power.

DESCRIPTION OF COMMON STOCK

The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, $.001 par value per share. The outstanding shares of Common
Stock are, and the shares of Common Stock to be outstanding upon completion of
this Offering will be, fully paid and non-assessable. Each holder of shares of
Common Stock is entitled to such dividends on the Common Stock as the Board of
Directors may lawfully declare out of funds legally available for such purpose,
and, upon liquidation, to share ratably in all assets available for distribution
to holders of Common Stock. Each holder is also entitled to one vote per share
of Common Stock on all matters submitted to a vote of shareholders. No
shareholder has any preemptive right to subscribe for or purchase any securities
of the Company. The Company's Board of Directors is not classified and all
directors are elected by the shareholders annually. The Common Stock does not
have cumulative voting rights.

UNDERWRITING

Morgan Keegan & Company, Inc. (the "Underwriter") has agreed, subject to
the terms and conditions contained in the Underwriting Agreement, to purchase
2,500,000 shares of Common Stock from the Company and 205,000 shares of Common
Stock from the Selling Shareholders.

The Underwriting Agreement provides that the Underwriter is obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
purchased. The Company and the Selling Shareholders have been advised that the
Underwriter proposes to offer the Common Stock to the public at the offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $.60 per share of Common Stock.
The Underwriter may allow, and such dealers may reallow, a discount not in
excess of $.10 per share to other dealers. The public offering price and the
concessions and discount to dealers may be changed by the Underwriter after the
public offering.

The Company has granted to the Underwriter an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 405,750 additional
shares of Common Stock at the public offering price, less underwriting
discounts, as shown on the cover page of this Prospectus. The Underwriter may
exercise such option solely for the purpose of covering over-allotments incurred
in the sale of the shares of Common Stock offered hereby.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriter or to contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act of 1933, as amended.

Each of the Company, the Selling Shareholders and the Company's officers
and directors have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise dispose (or announce
any offer, sale, grant of any option to purchase or other disposition) of any
additional shares of Common Stock, or any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock, without the prior
written consent of the Underwriter.

The Underwriter makes a market in the Company's Common Stock. During the
two days immediately prior to the offer and sale of the Common Stock,
regulations under the Exchange Act impose restrictions on

23
<PAGE> 24

the market making activities of the Underwriter, including price and volume
limitations. The Underwriter may engage in permitted passive market making
activities during the two business days immediately prior to the offer and sale
of the Common Stock.

EXPERTS

The financial statements of the Company and certain Selected Financial Data
included or incorporated by reference in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto appearing
and incorporated by reference herein, and are included or incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.

LEGAL MATTERS

The validity of the shares being offered hereby will be passed upon for the
Company by Sirote & Permutt, P.C., 2222 Arlington Avenue South, Birmingham,
Alabama 35205, general counsel for the Company. Richard Cohn, a member of that
firm, is a director of the Company. As of April 26, 1995, lawyers of that law
firm who have participated in the preparation of this registration statement
beneficially owned an aggregate of 7,417 shares of Common Stock of the Company
individually or in various fiduciary capacities. Other members of the firm may
also own securities of the Company, but no inquiry as to this has been made.
King & Spalding, Atlanta, Georgia, will pass upon the validity of the shares
being offered hereby for the Underwriter. In rendering such opinion, King &
Spalding will rely upon the opinion of Sirote & Permutt, P.C. as to all matters
of Alabama law.

24
<PAGE> 25

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Investment................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 26

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Big B, Inc.:

We have audited the accompanying consolidated balance sheets of BIG B, INC.
(an Alabama corporation) and subsidiaries as of January 29, 1994 and January 28,
1995 and the related consolidated statements of operations, shareholders'
investment, and cash flows for each of the three fiscal years in the period
ended January 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Big B, Inc. and subsidiaries
as of January 29, 1994 and January 28, 1995 and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
January 28, 1995 in conformity with generally accepted accounting principles.

We have also audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets as of February 2, 1991, February 1,
1992, and January 30, 1993, and the related consolidated statements of
operations, shareholders' investment, and cash flows for each of the two fiscal
years in the period ended February 1, 1992 (none of which are presented herein),
and have expressed unqualified opinions on those financial statements. In our
opinion, the information set forth in "Selected Financial Data" under the
captions "Statements of Operations Data, " "Per Common Share Data" and "Balance
Sheet Data" for each of the five fiscal years in the period ended January 28,
1995, appearing on page 9, is fairly stated, in all material respects, in
relation to the financial statements from which it has been derived.

ARTHUR ANDERSEN LLP

Birmingham, Alabama
March 10, 1995

F-2
<PAGE> 27

BIG B, INC.

CONSOLIDATED BALANCE SHEETS
JANUARY 29, 1994 AND JANUARY 28, 1995

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments........................... $ 419,000 $ 4,076,000
Accounts receivable, net (Notes 1 and 2)...................... 18,332,000 20,317,000
Inventories (Notes 1 and 2)................................... 146,495,000 169,473,000
Prepaid expenses and other.................................... 5,026,000 3,750,000
Deferred income taxes, net (Notes 1 and 9).................... 2,100,000 2,146,000
------------ ------------
Total current assets.................................. 172,372,000 199,762,000
------------ ------------
PROPERTY AND EQUIPMENT (Notes 1 and 2):
Land.......................................................... 958,000 958,000
Buildings..................................................... 7,942,000 9,114,000
Store fixtures and equipment.................................. 65,874,000 81,393,000
Warehouse and office equipment................................ 11,181,000 12,692,000
Leaseholds and leasehold improvements......................... 10,902,000 11,345,000
------------ ------------
96,857,000 115,502,000
Less accumulated depreciation and amortization................ (42,130,000) (49,774,000)
------------ ------------
54,727,000 65,728,000
Investment in property under capital leases, net (Note 3)..... 969,000 1,316,000
------------ ------------
55,696,000 67,044,000
------------ ------------
OTHER ASSETS (Note 1)........................................... 5,032,000 6,686,000
------------ ------------
$233,100,000 $273,492,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt and capitalized lease
obligations (Notes 2 and 3)................................ $ 903,000 $ 1,028,000
Notes payable to banks (Note 2)............................... 2,400,000 7,000,000
Accounts payable.............................................. 48,364,000 56,071,000
Accrued payroll and related expenses.......................... 7,214,000 7,220,000
Other accrued expenses........................................ 5,026,000 6,327,000
Accrued income taxes (Notes 1 and 9).......................... 1,300,000 1,446,000
------------ ------------
Total current liabilities............................. 65,207,000 79,092,000
------------ ------------
NONCURRENT LIABILITIES:
Long-term debt (Note 2)....................................... 62,450,000 72,986,000
Capitalized lease obligations (Note 3)........................ 1,026,000 1,282,000
Deferred income taxes, net (Notes 1 and 9).................... 5,560,000 6,653,000
Deferred compensation (Note 4)................................ 1,079,000 1,205,000
Other......................................................... 4,673,000 5,541,000
------------ ------------
74,788,000 87,667,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4, 6, 7, and 8)
SHAREHOLDERS' INVESTMENT (Notes 1, 2, 5, and 6):
Common stock, $.001 par value; 40,000,000 shares authorized;
15,586,575 shares issued and outstanding in 1995 and
15,503,797 shares issued and outstanding in 1994........... 16,000 16,000
Paid-in capital............................................... 34,462,000 35,327,000
Retained earnings............................................. 58,627,000 71,390,000
------------ ------------
Total shareholders' investment........................ 93,105,000 106,733,000
------------ ------------
$233,100,000 $273,492,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE> 28

BIG B, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JANUARY 30, 1993, JANUARY 29, 1994 AND JANUARY 28,
1995

<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
(52 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Net sales............................................ $502,712,000 $595,712,000 $668,205,000
Cost of products sold, including warehouse expense... 349,594,000 412,560,000 460,925,000
------------ ------------ ------------
Gross profit.................................... 153,118,000 183,152,000 207,280,000
Store operating, selling and administrative
expenses........................................... 127,530,000 151,072,000 166,670,000
Depreciation and amortization........................ 8,050,000 9,632,000 11,209,000
------------ ------------ ------------
Income from operations.......................... 17,538,000 22,448,000 29,401,000
Loss on sale and disposition of property, net........ 95,000 257,000 1,214,000
Interest expense..................................... 3,582,000 3,909,000 4,435,000
Interest income...................................... (89,000) (152,000) (23,000)
------------ ------------ ------------
Income before income taxes...................... 13,950,000 18,434,000 23,775,000
Provision for income taxes (Notes 1 and 9)........... 4,745,000 6,682,000 8,678,000
------------ ------------ ------------
Net income...................................... $ 9,205,000 $ 11,752,000 $ 15,097,000
=========== =========== ===========
Net income per common share (Note 1):
Primary............................................ $ 0.60 $ 0.76 $ 0.97
Fully diluted...................................... 0.60 0.72 0.89
=========== =========== ===========
Average common shares and equivalents outstanding
(Note 1):
Primary............................................ 15,375,766 15,471,402 15,561,205
Fully diluted...................................... 15,375,766 18,301,980 18,921,613
=========== =========== ===========
</TABLE>

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

F-4
<PAGE> 29

BIG B, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE FISCAL YEARS ENDED JANUARY 30, 1993, JANUARY 29, 1994, AND JANUARY 28,
1995

<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, February 1, 1992.................. 7,670,321 $ 77,000 $33,234,000 $40,986,000
Net income............................... 0 0 0 9,205,000
Cash dividends ($.10 per share).......... 0 0 0 (1,537,000)
Exercise of stock options (Note 5)....... 18,089 0 245,000 0
Common stock issued to 401(k) profit
sharing plan (Note 4)................. 20,000 0 260,000 0
---------- --------- ----------- -----------
BALANCE, January 30, 1993.................. 7,708,410 77,000 33,739,000 48,654,000
Net income............................... 0 0 0 11,752,000
Cash dividends ($.12 per share).......... 0 0 0 (1,779,000)
Exercise of stock options (Note 5)....... 33,061 1,000 266,000 0
Common stock issued to 401(k) profit
sharing plan (Note 4)................. 20,000 0 395,000 0
Issuance of shares in connection with a
two-for-one stock split (Note 1)...... 7,742,326 78,000 (78,000) 0
Effect of recapitalization (Note 1)...... 0 (140,000) 140,000 0
---------- --------- ----------- -----------
BALANCE, January 29, 1994.................. 15,503,797 16,000 34,462,000 58,627,000
Net income............................... 0 0 0 15,097,000
Cash dividends ($.15 per share).......... 0 0 0 (2,334,000)
Exercise of stock options (Note 5)....... 27,778 0 267,000 0
Common stock issued to 401(k) profit
sharing plan (Note 4)................. 55,000 0 598,000 0
---------- --------- ----------- -----------
BALANCE, January 28, 1995.................. 15,586,575 $ 16,000 $35,327,000 $71,390,000
========= ========= ========== ==========
</TABLE>

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

F-5
<PAGE> 30

BIG B, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 30, 1993, JANUARY 29, 1994, AND JANUARY 28,
1995

INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
(52 WEEKS) (52 WEEKS) (52 WEEKS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 9,205,000 $ 11,752,000 $ 15,097,000
------------ ------------ ------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 8,050,000 9,632,000 11,209,000
Provision (credit) for deferred income taxes............... 3,000 (532,000) 1,047,000
Provision for losses on receivables........................ 7,266,000 6,211,000 8,713,000
Provision to value inventories at LIFO cost................ 1,368,000 1,449,000 303,000
Loss on sale and disposition of property, net.............. 95,000 257,000 1,214,000
Provision for nonqualified stock options................... 231,000 345,000 433,000
Provision for deferred compensation........................ 273,000 193,000 126,000
Recognition of deferred gains.............................. (29,000) (41,000) (52,000)
Changes in assets and liabilities:
Increase in receivables.................................. (6,810,000) (12,201,000) (10,698,000)
(Increase) decrease in refundable income taxes........... (441,000) 441,000 0
Increase in inventories.................................. (2,513,000) (33,322,000) (23,281,000)
Increase in other assets................................. (890,000) (4,187,000) (796,000)
Increase (decrease) in accounts payable.................. (4,905,000) 15,612,000 7,707,000
Increase (decrease) in accrued income taxes.............. (2,130,000) 1,300,000 146,000
Increase (decrease) in other liabilities................. 4,009,000 4,196,000 2,659,000
------------ ------------ ------------
Total adjustments................................... 3,577,000 (10,647,000) (1,270,000)
------------ ------------ ------------
Net cash provided by operating activities............. 12,782,000 1,105,000 13,827,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (5,459,000) (20,098,000) (22,685,000)
Proceeds from sale of property............................... 18,000 580,000 109,000
------------ ------------ ------------
Net cash used in investing activities................. (5,441,000) (19,518,000) (22,576,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..................... 0 40,250,000 375,000
Borrowings under line of credit agreements................... 169,308,000 184,400,000 230,498,000
Repayments under line of credit agreements................... (152,550,000) (203,458,000) (214,898,000)
Principal payments under long-term debt and capital lease
obligations................................................ (21,871,000) (1,608,000) (1,235,000)
Proceeds from issuance of common stock....................... 12,000 4,000 0
Dividends paid............................................... (1,537,000) (1,779,000) (2,334,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities... (6,638,000) 17,809,000 12,406,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
INVESTMENTS.................................................. 703,000 (604,000) 3,657,000
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR....... 320,000 1,023,000 419,000
------------ ------------ ------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR............. $ 1,023,000 $ 419,000 $ 4,076,000
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................... $ 3,684,000 $ 3,094,000 $ 4,903,000
Income taxes, net of refunds received...................... 7,313,000 5,473,000 7,485,000
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Noncash consideration of stock issued under stock option
plans (Note 5)............................................. $ 233,000 $ 263,000 $ 267,000
Stock issued to benefit plans................................ 260,000 395,000 598,000
Capital lease transactions................................... 191,000 380,000 777,000
============= ============= =============
</TABLE>

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

F-6
<PAGE> 31

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Business

Big B, Inc. and subsidiaries (the "Company") operates a chain of retail
drug stores and stores that sell and rent medical equipment for home use. The
Company's fiscal year ends on the Saturday closest to January 31 of each year.

Principles of Consolidation

The consolidated financial statements of the Company include its accounts
and the accounts of all wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Accounts Receivable

The Company uses the allowance method of accounting for uncollectible
accounts. Accounts receivable are stated net of an allowance for uncollectible
accounts of $975,000 and $987,000 as of January 28, 1995 and January 29, 1994,
respectively. A majority of the Company's accounts receivable are due from third
party providers (various insurance companies and governmental agencies) under
third party payment plans. As is industry practice, these receivables are
uncollateralized.

Inventories

Substantially all inventories are valued at last-in, first-out cost, which
is not in excess of market. Under the first-in, first-out cost method of
accounting, inventories would have been $22,080,000 and $21,777,000 higher than
reported at January 28, 1995 and January 29, 1994, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided on a
straight-line basis over the estimated service lives of depreciable assets (40
years for buildings, 10 years for store fixtures and equipment, and three to 10
years for other equipment) or, in the case of leaseholds and leasehold
improvements, 10 to 15 years or over the lives of the respective leases, if
shorter. Properties included in the financial statements under capital leases
are amortized over the related lease terms. Maintenance and repairs are charged
to expense as incurred; expenditures for renewals and betterments are
capitalized. When assets are retired or otherwise disposed of, the property
accounts are relieved of costs and accumulated depreciation and any resulting
gain or loss is credited or charged to income.

Intangibles

Other assets include an intangible estimated for "pharmacist work force in
place" that is being amortized on a straight-line basis over seven years and
goodwill that is being amortized on a straight-line basis over 40 years.
Intangibles are shown net of accumulated amortization of $1,375,000 and
$1,160,000 as of January 28, 1995 and January 29, 1994, respectively.

Insurance

The company is self insured for its health and dental programs and workers
compensation in certain states. Stop loss insurance coverage is maintained.
Management believes its reserves for claims reported and claims incurred but not
reported is adequate.

Income Taxes

Deferred income taxes for fiscal 1995 and 1994 reflect the impact of
"temporary differences" between the amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by the tax laws and
regulations. Income taxes were provided in fiscal 1994 using the asset and
liability method prescribed by Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which

F-7
<PAGE> 32

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company adopted in 1994. Income taxes provided in years prior to fiscal 1994
using the asset and liability method prescribed by SFAS No. 96 were not
restated. The effect of the change in accounting method on the financial
statements of the Company was not material.

Net Income Per Common Share

Primary net income per common share was computed by dividing net income by
the weighted average number of primary shares of common stock outstanding during
the periods. Outstanding stock options are common stock equivalents but were
excluded from the primary net income per common share computations as their
effect was not material. Fully diluted net income per common share was
determined on the assumption that all convertible subordinated debentures were
converted and all stock options outstanding were exercised. Conversion was
assumed during the portion of each period that the debentures and the options
were outstanding. For the debentures, net income was adjusted for interest, net
of income tax effects; for the stock options, outstanding shares were decreased
by the number of shares that could have been purchased with the proceeds from
the exercise, using the end of the period market price.

Shareholders' Investment Transactions

On September 7, 1993, the Company's Board of Directors declared a
two-for-one stock split in the form of a 100% stock dividend which was
distributed on October 1, 1993 to holders of record on September 17, 1993. The
par value of the additional 7,742,326 shares of common stock issued in
connection with the stock split was credited to common stock and a like amount
charged to paid-in capital. All references in the financial statements to
average common shares and equivalents outstanding and related prices, net income
per common share, dividend amounts per share, and stock option plan data have
been restated to reflect the stock split.

In November 1993, the Company's shareholders approved a Plan of
Recapitalization (the "Recapitalization"). The Recapitalization became effective
November 17, 1993. On the effective date, the number of shares authorized
increased from 20,000,000 shares to 40,000,000 shares and par value was
decreased from $.01 per share to $.001 per share. The Recapitalization
authorized the designation of the outstanding shares of $.01 par value common
stock as $.001 par value common stock until replaced by new $.001 par value
common stock through the ordinary course of reissuance through sales and other
transfers. The decrease in par value of the outstanding shares on the effective
date was charged to common stock and a like amount credited to paid-in capital.

Consolidated Statements of Cash Flows

For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be temporary cash investments.

Fair Value of Financial Instruments

The Company has evaluated fair values of its financial instruments based on
the current interest rate environment and current pricing of debt instruments
with comparable terms and has addressed the fair value of debt in the debt
disclosure (see Note 2). The carrying value of other financial instruments are
considered to approximate fair value.

Prior Year Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year presentation.

F-8
<PAGE> 33

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. DEBT:

Long-term debt consists of the following at January 29, 1994 and January
28, 1995:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Convertible Subordinated Debentures, interest at 6.5%,
principal due on March 15, 2003, interest payable
semiannually on each March 15 and September 15.......... $40,250,000 $40,250,000
Notes payable to commercial banks:
Revolving Credit Facility, interest at variable rates
(ranging from 5.9% to 6.1% at January 28, 1995)
payable monthly, principal due September 1996,
collateralized by receivables and inventories........ 10,700,000 21,700,000

Term loan, interest at 7.3%, payable monthly, principal
due April 1999, collateralized by certain property
and equipment........................................ 0 311,000
Industrial Development Revenue Bonds, Series B, interest
at variable rates (6.1% at January 28, 1995), principal
due on May 1, 2005, interest payable quarterly, secured
by a letter of credit................................... 8,000,000 8,000,000
Industrial Development Revenue Bonds, Series A, interest
at variable rates (5.8% at January 28, 1995), due in
quarterly installments of $175,000 plus interest through
December 1, 1999, secured by a letter of credit......... 4,200,000 3,500,000
----------- -----------
63,150,000 73,761,000
Less current maturities................................... (700,000) (775,000)
----------- -----------
$62,450,000 $72,986,000
========== ==========
</TABLE>

In March 1993, the Company issued unsecured convertible subordinated
debentures (the "Debentures"); net proceeds were $39,043,000. Proceeds of the
issuance were used to reduce existing debt, to fund the acquisition of certain
assets from certain Thrift Drug Company ("Treasury Drug") stores, to fund the
cost of conversion of the Treasury Drug stores to the "Big B" format, and to
fund the enhancement of the Company's point of sale system. The Debentures are
convertible into common stock at any time prior to redemption or final maturity,
initially at the conversion price of $12.20 per share.

The revolving credit facility consists of a $50,000,000 revolving line of
credit supported by a commercial paper program. During fiscal 1995, the Company
borrowed $36,700,000 and repaid $25,700,000 under the revolving credit facility.

The revolving credit facility and both industrial development revenue bond
agreements contain restrictive covenants which require the Company to maintain
certain financial ratios and minimum levels of tangible net worth; limit capital
expenditures, other investments, dividends, stock repurchases and additional
debt; and other covenants generally common to such agreements. The Company was
in compliance with all such covenants at January 28, 1995.

The net book value of land, building, and equipment subject to the
industrial development revenue bond agreements is approximately $10,090,000 and
$11,057,000 at January 28, 1995 and January 29, 1994, respectively.

Long-term debt maturing in each of the next five fiscal years is as
follows: $775,000 in 1996, $22,475,000 in 1997, $775,000 in 1998, $775,000 in
1999, $727,000 in 2000, and $48,234,000 thereafter.

F-9
<PAGE> 34

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has a $15,000,000 unsecured bank line of credit which expires
in June 1995 (subject to renewal), of which $7,000,000 was outstanding at
January 28, 1995. The interest rate on the line of credit was 6.3% at year-end.
The maximum and average amounts of borrowings outstanding under this line of
credit during fiscal 1995 were $17,800,000 and $9,808,000, respectively. The
weighted average interest rate on these borrowings during fiscal 1995 was 5.4%.

The estimated fair value of the Company's debt at January 28, 1995 was
$69,000,000.

3. CAPITALIZED AND OPERATING LEASES:

The Company has a number of leases for store properties, warehouses and
delivery equipment. See Note 7 regarding store leases with related parties. The
initial terms of the real property leases will expire within the next 20 years;
however, most of the leases have options providing for additional lease terms
from five to 25 years at terms substantially the same as the initial terms. It
is expected that the real property leases will be renewed upon expiration. The
leases for the delivery equipment are from six to ten years, and it is expected
that most will be replaced by leases on similar equipment. The Company also
rents various items of machinery and equipment on a monthly basis.

In addition to fixed minimum rentals, many of the Company's leases require
contingent rental payments. Contingent rentals for real property leases are on a
percentage of sales basis. Contingent rentals for delivery equipment are based
on the number of miles driven.

As required by the provisions of SFAS No. 13, the Company has included in
its financial statements those leases which meet the criteria for
capitalization. An analysis of the property under capital leases and the related
capitalized lease obligations included in the January 29, 1994 and January 28,
1995 balance sheets follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Property under capital leases:
Real property........................................... $ 630,000 $ 630,000
Delivery equipment...................................... 1,341,000 1,646,000
---------- ----------
1,971,000 2,276,000
Less accumulated amortization........................... (1,002,000) (960,000)
---------- ----------
$ 969,000 $1,316,000
========= =========
Capitalized lease obligations (interest at 9% to 13.5% on
real property and 10% to 23% on delivery equipment):
Current................................................. $ 203,000 $ 253,000
Noncurrent.............................................. 1,026,000 1,282,000
---------- ----------
$1,229,000 $1,535,000
========= =========
</TABLE>

F-10
<PAGE> 35

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule of future minimum lease payments required under
capital leases, together with the present value of the lease payments, and
operating leases having initial or remaining noncancelable lease terms in excess
of one year at January 28, 1995:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------ ----------
<S> <C> <C>
Fiscal year ending in:
1996.................................................. $ 20,629,000 $ 642,000
1997.................................................. 20,119,000 642,000
1998.................................................. 19,092,000 585,000
1999.................................................. 17,575,000 484,000
2000.................................................. 14,701,000 280,000
Subsequent............................................ 63,648,000 557,000
------------ ----------
Total future minimum lease payments................ $155,764,000 3,190,000
===========
Less estimated executory costs included in total minimum
lease payments........................................ (923,000)
----------
Net minimum lease payments.............................. 2,267,000
Less amount representing interest....................... (732,000)
----------
Present value of net future minimum lease payments...... $1,535,000
=========
</TABLE>

Contingent rentals for the preceding capital leases and rental expense for
the operating leases are as follows:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Contingent rentals on capital leases
Real property................................. $ 63,000 $ 19,000 $ 22,000
Delivery equipment............................ 692,000 774,000 1,059,000
----------- ----------- -----------
$ 755,000 $ 793,000 $ 1,081,000
========== ========== ==========
Rental expense for operating leases:
Real property:
Minimum rentals............................ $17,948,000 $20,241,000 $22,258,000
Contingent rentals......................... 634,000 806,000 896,000
Equipment:
Minimum rentals............................ 439,000 513,000 510,000
----------- ----------- -----------
$19,021,000 $21,560,000 $23,664,000
========== ========== ==========
</TABLE>

4. EMPLOYEE BENEFIT PLANS:

The Company sponsors a defined contribution pension plan known as the Big
B, Inc. 401(k) Profit Sharing Plan. The Plan covers substantially all employees
that meet certain service and age requirements who are not members of a
collective bargaining unit. The Company makes both an annual profit sharing
contribution and an annual 401(k) matching contribution up to specified levels
as approved, each at the discretion of the Board of Directors.

The Company has an unfunded deferred compensation agreement with its key
officers whereby they or their beneficiaries will be provided specific amounts
of annual retirement income for a period of ten years following retirement. The
Company is accruing the present value of such retirement benefits from the date
of the agreement to the normal retirement date. Assuming retirement at the
normal retirement date, the

F-11
<PAGE> 36

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

obligation under this agreement (approximately $8,588,000 in total for all
officers covered) would be paid over the ten year period following the date of
the officer's retirement.

Two of the Company's Stores employ union employees. The Company's union
employees are covered under a multiemployer defined benefit pension plan
administered by the union. The Company is obligated under this plan to make
monthly payments of specified amounts for each union employee as provided in the
labor contract.

The Company has an incentive plan covering store management personnel,
pharmacists and other key employees. The incentive is paid annually based on
achievement of established profit goals.

The expenses applicable to the above plans are as follows:

<TABLE>
<CAPTION>
401(K) DEFERRED
PROFIT COMPENSATION
SHARING PLAN PLAN UNION PLAN INCENTIVE PLAN
------------ ------------ ---------- --------------
<S> <C> <C> <C> <C>
Fiscal years ended:
1995........................... $2,200,000 $126,000 $9,000 $2,397,000
1994........................... 1,800,000 194,000 9,000 2,772,000
1993........................... 1,558,000 273,000 9,000 1,449,000
========= ========== ======== ==========
</TABLE>

5. STOCK OPTIONS:

The Big B, Inc. Employee Stock Option Plan (the "Plan") authorizes the
granting of stock options for the purchase of up to 1,000,000 shares of common
stock. As of January 28, 1995, a total of 824,397 shares of the Company's
authorized and unissued common stock were reserved for future grants under the
Plan and options for 104,800 shares were outstanding at that date. Options may
be granted to officers or key employees at prices determined by the Board of
Directors.

Options granted prior to fiscal 1989 were granted at a price not less than
market value on the date of the grant (incentive) and became exercisable
cumulatively at a rate of 25% each year beginning one year after the date of
grant, and expire ten years from the date of grant.

Options granted in fiscal 1992 and 1994 were granted at a price less than
market value on the date of grant (nonqualified). Options granted in fiscal 1992
became exercisable upon issuance and expired March 13, 1993. Options granted in
fiscal 1994 become exercisable 50% each in February 1994 and February 1995 with
all options expiring in May 1995. Compensation expense of $433,000, $345,000,
and $231,000 was accrued in fiscal 1995, 1994, and 1993, respectively, and
related to the difference in the estimated market value of the stock and the
nonqualified option exercise price, including the related tax bonus. Upon
exercise of stock options, the excess of the proceeds and accruals over par
value is credited to paid-in capital.

The Company received 14,122 shares, 19,451 shares, and 10,411 shares of
stock in lieu of cash for a portion of the exercise price of options exercised
in fiscal years 1995, 1994, and 1993, respectively. These shares were
immediately reissued upon the exercise of other options.

F-12
<PAGE> 37

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information with respect to stock options is summarized as follows:

<TABLE>
<CAPTION>
GRANT DATE
------------------------------------------------
INCENTIVE
NONQUALIFIED ------------------------
--------------------- APRIL
MARCH 1991 MAY 1993 NOVEMBER 1983 1986
---------- -------- ------------- --------
<S> <C> <C> <C> <C>
Market price at date of grant............. $ 4.69 $ 9.38 $ 5.07 $ 7.10
========= ======== =========== ========
Average exercise price per share*......... $ 2.50 $ 5.00 $ 5.07 $ 7.10
========= ======== =========== ========
Shares under options outstanding:
Balance, February 1, 1992............... 36,187 0 17,950 38,000
Exercised............................ (23,500) 0 (5,000) 0
Canceled............................. (1,000) 0 0 (2,000)
---------- -------- ------------- --------
Balance, January 30, 1993............... 11,687 0 12,950 36,000
Granted.............................. 0 48,600 0 0
Effect of two for one stock split.... 0 48,600 11,675 32,000
Exercised............................ (11,687) 0 (23,825) (17,000)
Canceled............................. 0 0 (800) 0
---------- -------- ------------- --------
Balance, January 29, 1994............... 0 97,200 0 51,000
Exercised............................ 0 (29,900) 0 (12,000)
Canceled............................. 0 (1,500) 0 0
---------- -------- ------------- --------
Balance, January 28, 1995............... 0 65,800 0 39,000
========= ======== =========== ========
</TABLE>

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

* Exercise price per share for incentive options equals market price at grant
date, except for 14,000 shares in the April 1986 grant having a per share
exercise price of $7.80 (110% of market price at grant date).

6. STOCK REDEMPTION AGREEMENT:

The Company has agreements with two major shareholders/officers under which
the Company will, if requested, purchase (at fair market value, as defined) up
to a specified maximum amount of the Company's common stock held by them upon
their death. The Company's commitment at January 28, 1995, under these
agreements is $1,500,000. The Company carries insurance on the lives of the
individuals to provide funds with which to meet this commitment.

7. RELATED PARTY TRANSACTIONS:

The Company leases five stores from a major shareholder and one store from
the relative of a major shareholder. Future minimum lease payments under these
net operating leases with noncancelable terms in excess of one year aggregate
$1,816,000. Minimum lease payments were $266,000 in fiscal 1995, $257,000 in
fiscal 1994, and $244,000 in fiscal 1993. No excess rentals were paid in fiscal
1995, 1994, or 1993. In addition, at January 28, 1995, the Company is
contingently liable for future minimum lease payments of $1,329,000 on stores
sold to a related party in a prior year.

8. LITIGATION:

Pending legal proceedings not covered by insurance or other indemnity are
substantially limited to litigation incidental to the business in which the
Company is engaged. In the opinion of management, after consultation with
counsel, the ultimate resolution of these matters will not have a material
effect on the financial statements of the Company.

F-13
<PAGE> 38

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES:

Details of federal and state income tax provisions (credits) are as
follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current.......................................... $4,265,000 $6,581,000 $6,590,000
Deferred*........................................ 3,000 (495,000) 904,000
State:
Current.......................................... 477,000 633,000 1,041,000
Deferred*........................................ 0 (37,000) 143,000
---------- ---------- ----------
Total.................................... $4,745,000 $6,682,000 $8,678,000
========= ========= =========
* Deferred Taxes:
Depreciation and amortization.................... $ 631,000 $ 604,000 $1,229,000
Accrued liabilities.............................. (76,000) (164,000) (51,000)
Reserves for doubtful accounts................... (86,000) 2,000 5,000
Deferred compensation............................ (99,000) (81,000) (46,000)
Deferred gains................................... 0 (283,000) (64,000)
Inventory........................................ 0 (9,000) 0
Other, net....................................... (367,000) (601,000) (26,000)
---------- ---------- ----------
$ 3,000 $ (532,000) $1,047,000
========= ========= =========
</TABLE>

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

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------------------
1993 1994 1995
-------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Statutory Rate....................... $4,743,000 34% $6,452,000 35% $8,321,000 35%
Increase (decrease) resulting from:
Effect of state taxes.............. 315,000 2 387,000 2 752,000 3
Other.............................. (313,000) (2) (157,000) (1) (395,000) (1)
---------- ----- ---------- ----- ---------- -----
$4,745,000 34% $6,682,000 36% $8,678,000 37%
========= ===== ========= ===== ========= =====
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial statement
and income tax purposes, as determined under enacted tax laws and rates. The
financial effect of changes in tax laws or rates is accounted for in the period
of enactment.

F-14
<PAGE> 39

BIG B, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of the Company's current and noncurrrent deferred tax
assets and liabilities, net as of January 29, 1994 and January 28, 1995 were as
follows:

<TABLE>
<CAPTION>
1994 1995
------------------------ ------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Depreciation and amortization......... $ 0 $ 6,195,000 $ 0 $ 7,424,000
Other................................. 0 61,000 0 98,000
---------- ----------- ---------- -----------
Deferred tax liabilities.... 0 6,256,000 0 7,522,000
---------- ----------- ---------- -----------
Accrued liabilities................... 1,359,000 0 1,410,000 0
Reserves for doubtful accounts........ 367,000 0 362,000 0
Deferred compensation................. 0 402,000 0 448,000
Deferred gains........................ 0 283,000 0 219,000
Inventory............................. 374,000 0 374,000 0
Other................................. 0 11,000 0 202,000
---------- ----------- ---------- -----------
2,100,000 696,000 2,146,000 869,000
Less valuation allowance.............. 0 0 0 0
---------- ----------- ---------- -----------
Deferred tax assets......... 2,100,000 696,000 2,146,000 869,000
---------- ----------- ---------- -----------
Deferred tax assets
(liabilities), net........ $2,100,000 $(5,560,000) $2,146,000 $(6,653,000)
========= ========== ========= ==========
</TABLE>

F-15
<PAGE> 40
(INSIDE BACK COVER)

(Photo-top) - Shown is a map of the Company's distribution and marketing area
with different colored dots showing locations of the Company's
different store formats.

(Photo-bottom) - Shown are four tables describing the locations of each of the
Company's stores by city and by format.
<PAGE> 41

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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH 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 HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Available Information.... 3
Documents Incorporated by Reference... 3
Prospectus Summary.................... 4
Use of Proceeds....................... 7
Price Range of Common Stock........... 7
Capitalization........................ 8
Dividend Policy....................... 8
Selected Financial Data............... 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 10
Business.............................. 13
Management............................ 21
Selling Shareholders.................. 22
Description of Common Stock........... 23
Underwriting.......................... 23
Experts............................... 24
Legal Matters......................... 24
Index to Financial Statements......... F-1
</TABLE>

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2,705,000 SHARES

(Big B Inc. Logo)

COMMON STOCK

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

PROSPECTUS

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

MORGAN KEEGAN & COMPANY, INC.

April 27, 1995

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