ROTECH MEDICAL CORP, 424B1, 1995-05-04

ROTECH MEDICAL CORP
424B1, 1995-05-04
HOME HEALTH CARE SERVICES

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<PAGE>

PROSPECTUS
FILED PURSUANT TO
RULE 424(b)(l)
FILE NO: 33-58621

2,000,000 SHARES

[ROTECH LOGO APPEARS HERE]

ROTECH MEDICAL CORPORATION

COMMON STOCK

-----------

Of the 2,000,000 shares of Common Stock offered hereby, 1,700,000 shares are
being offered by RoTech Medical Corporation ("RoTech" or the "Company") and
300,000 shares are being offered by the Selling Shareholder named under
"Selling Shareholder." The Company will not receive any of the proceeds from
the sale of shares by the Selling Shareholder.

The Common Stock of the Company is traded on The Nasdaq National Market
under the symbol ROTC. On May 3, 1995, the last sale price for the Common
Stock as reported by Nasdaq was $32 3/4 per share.

-----------

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.

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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER(2)
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $31.00 $1.53 $29.47 $29.47
- ----------------------------------------------------------------
Total(3) $62,000,000 $3,060,000 $50,099,000 $8,841,000
</TABLE>
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(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company and the Selling
Shareholder, estimated at $195,500 and $34,500, respectively.
(3) The Company and the Selling Shareholder have granted the Underwriters a
30-day option to purchase up to 300,000 additional shares of Common Stock
on the same terms as set forth above solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholder will be $71,300,000, $3,519,000,
$53,046,000 and $14,735,000, respectively. See "Underwriting."

-----------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them, and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about May
10, 1995, at the offices of Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013.

-----------

SMITH BARNEY INC. NEEDHAM & COMPANY, INC.

May 3, 1995
<PAGE>

ROTECH MEDICAL CORPORATION--NUMBER OF LOCATIONS BY STATE

[MAP OF THE UNITED STATES ILLUSTRATING THE NUMBER OF LOCATIONS BY STATE AND THE
TYPE OF BUSINESSES PERFORMED IN SUCH STATES.]

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") are incorporated by
reference in this Prospectus: (1) Annual Report on Form 10-K for the fiscal
year ended July 31, 1994; (2) Quarterly Report on Form 10-Q for the quarter
ended October 31, 1994; (3) Quarterly Report on Form 10-Q for the quarter ended
January 31, 1995; (4) Current Report on Form 8-K as filed with the Commission
on July 14, 1994; (5) Current Report on Form 8-KA as filed with the Commission
on September 10, 1994; (6) Current Report on Form 8-K as filed with the
Commission on March 16, 1995; (7) Quarterly Report on Form 10-QA for the
quarter ended January 31, 1995; and (8) Current Report on Form 8-KA as filed
with the Commission on May 1, 1995. Certain portions of the above-referenced
documents have been modified or superseded by the information contained herein.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
time of the completion of the offering are hereby deemed to be incorporated by
reference. Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus. Any person receiving a
copy of this Prospectus may obtain without charge, upon written or oral
request, a copy of any of the documents incorporated by reference herein,
except for the exhibits to such documents (unless such exhibits are
specifically incorporated by reference into the documents which this Prospectus
incorporates). Written or telephone requests for such copies should be directed
to RoTech Medical Corporation, P.O. Box 536576, Orlando, Florida 32853-6576,
Attention: Rebecca R. Irish, telephone (407) 841-2115.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEM-
BERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANS-
ACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET SYSTEM IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING".

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

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
- -------------------------------------------------------------------------
information and financial statements appearing elsewhere in this prospectus or
- ------------------------------------------------------------------------------
incorporated by reference.
- -------------------------

THE COMPANY

RoTech Medical Corporation ("RoTech" or the "Company") provides comprehensive
home health care and primary care physician services to patients in non-urban
areas. RoTech currently operates 149 home health care locations and 19 primary
care physician practices, employing 26 physicians. The Company's home health
care business provides a diversified range of products and services, with
emphasis on respiratory and home infusion therapies. RoTech has pursued an
aggressive acquisition strategy since 1988 which included in fiscal 1994
acquisitions of 46 locations of smaller home health care companies and the
opening of 19 new locations. Current industry estimates indicate that
approximately half of the nation's home health care industry remains fragmented
and is run by either single operators or small, local chains. These smaller
providers are RoTech's main competition and main acquisition opportunities. The
Company plans to continue to enter new home health care markets through
acquisition or start-up as competitive and pricing pressures encourage
consolidation and economies of scale. In January 1994, the Company expanded
this strategy to include the acquisition of primary care physician practices in
certain markets to enable the ultimate development of an integrated primary
health care delivery system capable of providing a broad range of non-
institutional care to patients in these markets. The Company believes this
system will facilitate managed care concepts and pricing in these markets,
where managed care currently has little penetration, and should prevent the
outmigration of the non-urban population to urban health care facilities and
service providers. The Company's revenues have grown from $18 million for the
fiscal year ended July 31, 1990 to $71 million for the fiscal year ended July
31, 1994 and $59 million for the six months ended January 31, 1995.

Recent data suggests that there is a shortage of health care services in non-
urban markets. According to the United States Census Bureau, in 1990 non-urban
areas of the United States accounted for roughly 25% of the national
population, or approximately 62 million people. However, according to the
American Medical Association, just 11% of physicians, or approximately 75,000
physicians, practice in non-metropolitan markets. This data indicates that
rural markets are underserved, and suggests that there may be opportunities for
improvement in access to primary care physicians, as well as specialty
services. The Company believes that these needs result in significant
opportunities for companies such as RoTech, which can attract, retain and
network physicians in non-urban settings while offering ancillary services such
as home health care, to become a full-service non-institutional based primary
health care provider.

RoTech was founded in 1981 to provide home respiratory and home medical
equipment products and services to patients in Florida. With its founders'
roots in pharmacy and pharmaceutical sales, the Company's marketing directive
has always been to consult with primary care physicians in utilizing home
health care techniques, products and services for their patient base.
Counseling these physicians as to disease management leads to earlier
identification and treatment of patients, enhancing the patient's quality of
life and longevity. The Company has not targeted specialists, as their patients
are more acute and since specialists have historically been tied to the
hospital systems which results in higher hospitalizations. RoTech's philosophy
and practice is to assist in identifying patients of primary care physicians
prior to hospitalization and prior to an acuity level that would require
utilizing a specialist.

3
<PAGE>

The Company's strategy is to develop integrated health care delivery systems
through the acquisition of smaller local home health care companies and primary
care physician practices in non-urban areas. The Company targets non-urban
markets of smaller cities and rural areas, due to the dominance of primary care
physicians in these markets, reduced competition and a tendency to care for
patients in the home setting. The Company believes that acquisitions of home
health care companies will continue to expand the base of relationships with
primary care physicians in these markets. Primary care physicians in these
markets typically have long-standing relationships with loyal patient bases.
These physicians are usually solo practitioners and are the key decision makers
in the treatment of their patients. The Company believes that making home
health care products and services available to these physicians will result in
better, less expensive health care that provides an improved quality of life
for the patients and their caregivers in these communities.

RoTech expanded its strategy in 1994 to acquire primary care physician
practices in two specific markets, northern Mississippi and central Florida,
where it has strong market presence in its home health care business. The
Company believes that networking these acquired primary care physicians, who
are predominantly solo practitioners, will allow economies of scale,
justification for advanced equipment to be shared among physicians, and
standardization of protocols. The Company believes that assertive patient
management at the primary care level, which would include the use of home
health care techniques, should result in patient retention and higher quality
of care. Aggregation of patient lives under the treatment of these physicians
who can comprehensively manage patients is currently attractive to managed care
entities and could eventually enable the Company to provide a managed care
product in non-urban America.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company........................ 1,700,000 shares
The Selling Shareholder............ 300,000 shares
Common Stock outstanding after the
offering........................... 11,367,000 shares
Use of proceeds..................... To repay indebtedness, for working capital
and to finance the Company's expansion
internally and through acquisition of home
health care providers and physician
practices
Nasdaq National Market symbol....... ROTC
</TABLE>

4
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31 JANUARY 31
--------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue....... $18,458 $26,321 $37,122 $48,383 $71,470 $ 29,893 $ 59,305
Operating profit (1).... 2,722 4,014 5,994 8,159 12,843 5,022 9,516
Net income.............. 1,371 2,169 3,686 5,127 8,112 3,222 5,796
Earnings per share:
Net income............. $ .30 $ .43 $ .60 $ .77 $ .99 $ .44 $ .59
Weighted average shares
outstanding........... 4,565 5,090 6,175 6,692 8,147 7,406 9,880
OTHER DATA:
Number of home care op-
erations open at end of
period................. 26 38 48 71 120 90 147
Number of physician
practices at end of pe-
riod................... -- -- -- -- 14 7 18
</TABLE>

<TABLE>
<CAPTION>
JANUARY 31, 1995
-----------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 13,197 $ 63,100
Total assets............................................ 126,962 150,365
Total debt.............................................. 26,498 -- (3)
Shareholders' equity.................................... 91,322 141,226
</TABLE>
- --------
(1) Represents income from operations before interest expense and income taxes.
(2) Adjusted to give effect to the sale of the 1,700,000 shares of Common Stock
offered by the Company hereby and the anticipated use of the net proceeds
therefrom. See "Use of Proceeds."
(3) The Company intends to repay total bank borrowings outstanding upon receipt
of the net proceeds of the sale of the shares of Common Stock offered by
the Company hereby.

QUARTERLY FINANCIAL RESULTS

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31 APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
1993 1993 1993 1994 1994 1994 1994 1995
-------- ------- ---------- ---------- -------- ------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue....... $12,403 $13,471 $14,013 $15,880 $18,138 $23,438 $26,723 $32,582
Operating profit........ 2,162 2,498 2,223 2,795 3,440 4,317 4,271 4,934
Net income.............. 1,388 1,546 1,456 1,799 2,215 2,641 2,691 3,104
Earnings per share...... $ 0.20 $ 0.21 $ 0.20 $ 0.24 $ 0.26 $ 0.28 $ 0.28 $ 0.31
Weighted average shares
outstanding............ 7,092 7,339 7,256 7,478 8,596 9,433 9,666 9,897
</TABLE>

Unless otherwise indicated, the information in this Prospectus assumes (i) no
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exercise of the Underwriters' option to purchase up to 300,000 additional
- -------------------------------------------------------------------------
shares of Common Stock to cover over-allotments, if any, and (ii) no exercise
- -----------------------------------------------------------------------------
of outstanding options to purchase Common Stock.
- -----------------------------------------------

5
<PAGE>

THE COMPANY

The Company's principal executive offices are located at 4506 L.B. McLeod
Road, Suite F, Orlando, Florida 32811; its telephone number is (407) 841-2115.
The Company conducts its business through operating subsidiaries and, unless
the context requires otherwise, the terms "RoTech" and "Company" refer to
RoTech Medical Corporation and its operating subsidiaries.

USE OF PROCEEDS

The net proceeds to RoTech from the sale of the 1,700,000 shares of Common
Stock offered by the Company hereby are estimated to be $49.9 million ($52.9
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use the net proceeds to repay indebtedness, to provide
working capital and to support the expansion of the Company's business
internally and through acquisitions. The Company continually seeks acquisition
opportunities, although it has no specific commitments regarding any future
acquisitions.

The Company expects that approximately $26.5 million of the net proceeds will
be used to reduce debt, due on demand, and with an average interest rate of
approximately 6.72% at January 31, 1995. This debt was incurred principally to
finance acquisitions completed within the last year. Pending utilization of the
net proceeds for expansion and acquisitions, the remaining net proceeds will be
invested in high-grade, short- term interest-bearing obligations.

The Company will not receive any of the proceeds from the sale of any shares
of Common Stock by the Selling Shareholder. See "Selling Shareholder."

CAPITALIZATION

The following table sets forth the capitalization of RoTech at January 31,
1995 and as adjusted to give effect to the sale of the 1,700,000 shares of the
Common Stock offered by the Company hereby and the application of the estimated
net proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
JANUARY 31, 1995
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term notes payable to banks and current portion of
long-term debt(1)........................................ $26,498 $ --
======= ========
Long-term debt, less current portion(1)................... $ -- $ --
Shareholders' equity:
Common stock, $.0002 par value; 50,000,000 shares autho-
rized, 9,660,400 shares issued and outstanding;
11,360,400 shares issued and outstanding as adjusted... 2 2
Treasury stock, at cost................................. (815) (815)
Additional paid-in capital.............................. 66,726 116,630
Retained earnings....................................... 25,409 25,409
------- --------
Total shareholders' equity............................ 91,322 141,226
------- --------
Total long-term capitalization........................ $91,322 $141,226
======= ========
</TABLE>
- --------
(1) See Notes 6 and 13 of Notes to Consolidated Financial Statements of RoTech
for further information regarding its current notes payable and long-term
debt. The Company intends to repay total bank borrowings outstanding upon
receipt of the net proceeds of the sale of the shares of Common Stock
offered by the Company hereby.

6
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data for the five years in the period ended
July 31, 1994, are derived from the respective consolidated financial
statements of RoTech Medical Corporation. The financial data for the six month
periods ended January 31, 1994 and 1995 are derived from unaudited consolidated
financial statements. The unaudited consolidated financial statements include
all adjustments, consisting of normal recurring accruals, which the Company's
management considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the six months ended January 31, 1995 are not necessarily indicative of the
results that may be expected for the entire year ending July 31, 1995. The data
should be read in conjunction with the consolidated financial statements,
related notes, and other financial information included and incorporated by
reference herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31 JANUARY 31
--------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Operating revenue:
Home respiratory and
other medical equip-
ment................. $11,575 $14,688 $15,706 $23,857 $41,579 $ 17,260 $ 38,658
Home infusion therapy. 5,393 10,886 19,959 21,715 25,492 11,601 15,700
Physician practices... 0 0 0 0 3,226 747 4,947
Other................. 1,490 747 1,457 2,811 1,173 285 0
------- ------- ------- ------- ------- -------- --------
Total operating revenue. 18,458 26,321 37,122 48,383 71,470 29,893 59,305
Cost and expenses:
Cost of revenue....... 5,301 5,766 8,434 12,359 17,409 7,612 16,394
Selling, general and
administrative....... 9,254 14,992 20,208 25,064 35,880 15,326 29,534
Depreciation and amor-
tization............. 1,181 1,549 2,486 2,801 5,338 1,932 3,861
Interest.............. 333 610 305 76 67 4 310
------- ------- ------- ------- ------- -------- --------
Total cost and expenses. 16,069 22,917 31,433 40,300 58,694 24,874 50,099
------- ------- ------- ------- ------- -------- --------
Income from operations
before income taxes.... 2,389 3,404 5,689 8,083 12,776 5,019 9,206
Income tax expense...... 1,018 1,235 2,003 2,956 4,664 1,797 3,410
------- ------- ------- ------- ------- -------- --------
Net income.............. $ 1,371 $ 2,169 $ 3,686 $ 5,127 $ 8,112 $ 3,222 $ 5,796
======= ======= ======= ======= ======= ======== ========
Earnings Per Share:
Net income............. $ 0.30 $ 0.43 $ 0.60 $ 0.77 $ 0.99 $ 0.44 $ 0.59
======= ======= ======= ======= ======= ======== ========
Weighted average shares
outstanding........... 4,565 5,090 6,175 6,692 8,147 7,406 9,880
<CAPTION>
JULY 31 JANUARY 31
--------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 2,186 $ 6,621 $ 9,617 $18,203 $27,783 $ 14,119 $ 13,197
Total assets........... 12,294 20,961 25,137 40,019 94,433 52,294 126,962
Long-term debt (less
current portion)(1)... 2,029 1,538 1,053 0 0 0 0
Shareholders' equi-
ty(2)................. 4,463 13,673 17,518 36,197 83,320 42,383 91,322
</TABLE>
- --------
(1) Amounts shown at July 31, 1993 (-0-), January 31, 1994 (4,649), July 31,
1994 (4,098), and January 31, 1995 (26,498) are short term borrowings from
banks; no long-term borrowings were outstanding at these respective dates.
(2) The Company did not pay any dividends for any of the periods shown.

7
<PAGE>

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

RESULTS OF OPERATIONS

The following table presents certain statement of income data as a percentage
of certain items relative to total operating revenue:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JULY 31 JANUARY 31
---------------------- ------------
1992 1993 1994 1994 1995
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Operating revenue:
Home respiratory and other medical
equipment............................. 42.3% 49.3% 58.1% 57.7% 65.2%
Home infusion therapy.................. 53.8 44.9 35.7 38.8 26.5
Physician practices.................... 0.0 0.0 4.5 2.5 8.3
Other.................................. 3.9 5.8 1.7 1.0 0.0
------ ------ ------ ----- -----
Total operating revenue.................. 100.0 100.0 100.0 100.0 100.0
Cost and expenses:
Cost of revenue........................ 22.7 25.5 24.4 25.5 27.7
Selling, general and administrative.... 54.5 51.8 50.2 51.2 49.8
Depreciation and amortization.......... 6.7 5.8 7.5 6.5 6.5
Interest............................... 0.8 0.2 0.1 0.0 0.5
------ ------ ------ ----- -----
Total cost and expenses.................. 84.7 83.3 82.2 83.2 84.5
------ ------ ------ ----- -----
Income before income taxes............... 15.3 16.7 17.8 16.8 15.5
Income tax expense....................... 5.4 6.1 6.5 6.0 5.7
------ ------ ------ ----- -----
Net income............................... 9.9 10.6 11.3 10.8 9.8
====== ====== ====== ===== =====
</TABLE>

FOR THE SIX MONTHS ENDED JANUARY 31, 1995 AND 1994

Operating revenue increased 98% to $59.3 million for the six months ended
January 31, 1995 from $29.9 million for the six months ended January 31, 1994.
The increase in operating revenue is attributable to acquisitions and expanded
product and service lines in existing areas of operation. The Company continues
to employ a single sales force to maintain and develop both the home
respiratory and other medical equipment and home infusion therapy and other
pharmacy related lines of business.

Operating revenue from home respiratory and other medical equipment increased
124% to $38.7 million for the six months ended January 31, 1995 from $17.3
million for the six months ended January 31, 1994. The increase was due mainly
to increases in patient bases throughout the Company's locations and increased
marketing efforts in certain locations acquired during fiscal year 1994 and the
first six months of fiscal year 1995.

Operating revenue from home infusion therapy and pharmacy related services
increased 35% to $15.7 million for the six months ended January 31, 1995 from
$11.6 million for the six months ended January 31, 1994. Growth in this line of
business should continue as the Company expands both its service areas and
available products and services along with coverage for certain home infusion
therapies not previously paid for by the Medicare program.

Operating revenue from physician practices represented 8% of total operating
revenue for the six month period ended January 31, 1995, compared to less than
3% for the six month period ended January 31, 1994. The Company currently owns
18 physician practices and employs 25 primary care physicians. These practices
are clustered in two rural marketplaces. Growth in this line of business should
continue as the Company continues to acquire primary care physician practices.

Cost of revenue as a percentage of operating revenue increased to 28% for the
six months ended January 31, 1995 from 26% for the six months ended January 31,
1994 due to changes in the product mix in

8
<PAGE>

the last year. Selling, general and administrative expenses as a percentage of
operating revenue remained relatively stable at 51% for the six months ended
January 31, 1995 and January 31, 1994, respectively. Changes in the Company's
mix of business affect these categories, for example, physician practices have
no cost of revenue, all expenses are of a selling, general and administrative
nature.

Depreciation and amortization expense increased 99% to $3.9 million for the
six months ended January 31, 1995 from $1.9 million for the six months ended
January 31, 1994. Depreciation and amortization expense as a percentage of
operating revenue was 6.5% for the six months ended January 31, 1995 and for
the six months ended January 31, 1994. The increase was attributable to the
Company's purchase of fixed and intangible assets resulting from various
acquisitions and the fixed assets needed for the increased rentals of
equipment.

Interest expense, net of interest income, increased to $310,000 for the six
months ended January 31, 1995 from $4,000 for the six months ended January 31,
1994. This increase resulted from the Company borrowing monies to fund certain
acquisitions.

Income tax expense was provided at a 37% effective rate, comparable to actual
rates experienced in prior periods.

Net income for the six months ended January 31, 1995 was $5.8 million, an 80%
increase over the same period in fiscal 1994. Net income per share increased
34% to $0.59 for the six months ended January 31, 1995 compared to $0.44 for
the same period in fiscal 1994. The weighted average number of shares increased
33% to 9.9 million at January 31, 1995 from 7.4 million at January 31, 1994,
primarily as a result of the March 1994 public stock offering and shares issued
in conjunction with certain acquisitions.

FOR THE FISCAL YEARS ENDED JULY 31, 1994 AND 1993
-------------------------------------------------

Operating revenue for the fiscal year ended July 31, 1994 increased to $71.5
million from $48.4 million for the fiscal year ended July 31, 1993. The 48%
increase in operating revenue is attributable primarily to the increase from 71
locations to 134 locations in fiscal 1994 with approximately one-third of the
increase resulting from the acquired home respiratory and other medical
equipment companies. The balance of the growth in operating revenue was from
existing locations, inclusion of fiscal 1993 acquisitions for a full year and
locations internally developed in fiscal 1994.

Operating revenue from home respiratory and other medical equipment grew 74%
to $41.6 million for fiscal 1994 from $23.9 million for fiscal 1993. This 74%
increase was due mainly to a continued focus of the Company's sales force
toward home respiratory products and services and acquisitions of companies
predominantly in this line of business.

Operating revenue from home infusion therapy increased 17% to $25.5 million
for fiscal 1994 from $21.7 million for fiscal 1993. The slower growth is due to
the fiscal 1994 direction of the Company's single sales force toward home
respiratory products and services, and unit growth in home infusion therapy
products and services in spite of some pricing pressures experienced during the
year.

Cost of revenue as a percentage of operating revenue decreased to 24.4% for
fiscal 1994 from 25.5% for fiscal 1993. The Company continued to obtain better
volume pricing with the addition of new entities and refocused its acquisition
efforts on the home respiratory and other medical equipment line of business,
which has a lower cost of revenue as a percentage of operating revenue.
Selling, general and administrative expenses as a percentage of operating
revenue decreased to 50.2% from 51.8% for the same two periods.

Depreciation and amortization expense increased 91% to $5.3 million for
fiscal 1994 from $2.8 million for fiscal 1993, and increased as a percentage of
operating revenue during the same periods. This dollar increase is attributable
to the Company's purchases of fixed and intangible assets resulting from
various acquisitions and the fixed assets needed for the increased rentals of
equipment.

9
<PAGE>

Net interest expense decreased to $67,000 for fiscal 1994 from $76,000 for
fiscal 1993. This decrease resulted from the payment of outstanding debt
balances in March 1994 with proceeds from the public offering and lower
interest rates charged on borrowings from banks prior to March 1994. The
decrease was also due to the interest income earned on short-term investments.

The effective tax rate was 36.5% for fiscal 1994, compared to 36.6% for
fiscal 1993.

As a result of the foregoing, net income increased 58% to $8.1 million from
$5.1 million and net income as a percentage of operating revenue increased to
11.3% for fiscal 1994 from 10.6% for fiscal 1993.

The Company was required to adopt Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," in the first quarter of fiscal 1994 as
more fully described in Note 8 of the consolidated financial statements.

FOR THE FISCAL YEARS ENDED JULY 31, 1993 AND 1992
-------------------------------------------------

Operating revenue for the fiscal year ended July 31, 1993 increased to $48.4
million from $37.1 million for the fiscal year ended July 31, 1992. The 30%
increase in operating revenue is attributable primarily to the increase from 48
locations to 71 locations in fiscal 1993 with approximately one-third of this
increase from acquired home respiratory and other medical equipment companies.
The balance of the growth in operating revenue was from existing locations,
inclusion of fiscal 1992 acquisitions for a full year and locations internally
developed in fiscal 1993.

Operating revenue from home respiratory and other medical equipment grew 52%
to $23.9 million for fiscal 1993 from $15.7 million for fiscal 1992. This 52%
increase was due mainly to a renewed focus of the Company's sales force toward
home respiratory products and services and acquisitions of companies
predominantly in this line of business.

Operating revenue from home infusion therapy increased 9% to $21.7 million
for fiscal 1993 from $20.0 million for fiscal 1992. The slower growth is due to
the fiscal 1993 direction of the Company's single sales force toward home
respiratory products and services, and unit growth in home infusion therapy
products and services in spite of some pricing pressures experienced during the
year.

Cost of revenue as a percentage of operating revenue increased to 25.5% for
fiscal 1993 from 22.7% for fiscal 1992 while selling, general and
administrative expenses as a percentage of operating revenue decreased to 51.8%
from 54.5% for the same two periods, resulting in slightly higher margins of
income before income taxes. These offsetting changes in cost of revenue and
selling, general and administrative expenses are largely the result of the
inclusion of a large home infusion therapy entity acquired in mid-fiscal 1992
with a higher cost of revenue as a percentage of operating revenue than the
remainder of the Company.

Depreciation and amortization expense increased 13% to $2.8 million for
fiscal 1993 from $2.5 million for fiscal 1992, yet decreased as a percentage of
operating revenue during the same periods. This dollar increase is attributable
to the Company's purchases of fixed and intangible assets resulting from
various acquisitions and the fixed assets needed for the increased rentals of
equipment.

Net interest expense decreased 75% to $76,000 for fiscal 1993 from $305,000
for fiscal 1992. This decrease resulted from the payment of the outstanding
debt balances in February 1993 with proceeds from the public offering and lower
interest rates charged on borrowings from banks prior to February 1993. The
decrease was also due to the interest income earned on short-term investments.

The effective tax rate was 36.6% for fiscal 1993, compared to 35.2% for
fiscal 1992. The increase is primarily attributable to increased amortization
of non-deductible intangible assets.

As a result of the foregoing, net income increased 39% to $5.1 million from
$3.7 million and net income as a percentage of operating revenue increased to
10.6% for fiscal 1993 from 9.9% for fiscal 1992.

10
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

At January 31, 1995, total current assets were $48.0 million and total
current liabilities were $34.8 million, resulting in working capital of $13.2
million. The Company's current ratio was 1.38 to 1 at January 31, 1995 compared
to 3.68 to 1 at July 31, 1994. Net trade accounts receivable increased $5.9
million in the six months ended January 31, 1995, or 20%. This increase is
attributable to acquisitions of the net assets of many home health care
companies in the first six months and the 98% increase in operating revenue
over the same period in the prior year. As a result, the Company's days revenue
outstanding on net accounts receivable decreased to 100 days at January 31,
1995 from 116 days at July 31, 1994. Acquired receivables remaining outstanding
account for approximately 10 days revenue outstanding at January 31, 1995 and
21 days revenue outstanding at July 31, 1994.

Current liabilities increased $24.4 million in the six months ended January
31, 1995, or 236%, as $22.4 million was borrowed on the working capital line of
credit and the balance of the change was due to the timing of payments to
vendors.

During the six months ended January 31, 1995, the Company generated cash of
$4.3 million from operating activities primarily as a result of net income of
$5.8 million. Advances on the working capital and acquisition line of credit
were utilized to reduce acquired accounts payable, to fund internal expansion
and acquisitions. The Company has been financing its revenue growth and
increased working capital requirements with positive net cash provided by
operating activities and short-term borrowings.

As of January 31, 1995, the Company had a working capital and acquisition
line of credit of $50.0 million, with approximately $23.5 million available for
future borrowing. The working capital and acquisition line of credit carries a
negative pledge on all Company assets, is payable on demand and provides for
interest rates, at the Company's election, of LIBOR plus .75% or prime rate
minus 1% for the first $20.0 million advanced to the Company and LIBOR plus
.875% or prime rate minus 1% for any advances in excess of the first $20.0
million. The Company has obtained an increase in its line of credit to $75.0
million, subject to completion of definitive documents. The line of credit
requires compliance by the Company with certain financial and negative
covenants, including a restriction on dividends. Management believes that the
net proceeds from this offering, in addition to its credit capacity and cash
flow from operations, will be sufficient for the Company's projected growth in
the near future.

For fiscal 1994, the Company's operating activities provided $4.8 million in
cash, compared to $1.6 million in fiscal 1993. The primary component of this
change was an increase in net income to $8.1 million for fiscal 1994, compared
to $5.1 million for fiscal 1993, offset by increased accounts receivable and
decreased amounts payable on operating liabilities. The Company has generated
positive net cash flow from operating activities in each of its last six fiscal
years despite increases in accounts receivable in each period resulting from
the similar growth in operating revenue.

During fiscal 1994, investing activities used $47.1 million in cash, compared
to $6.4 million during fiscal 1993. During fiscal 1994, the Company spent $9.4
million to purchase property and equipment (primarily rental equipment) for
operations and general equipment needs, compared to $4.0 million in fiscal
1993. Purchases of property and equipment typically represent the major
component of the Company's investing activities. The Company paid $38.6 million
to acquire various home health care companies in fiscal 1994. Aside from
increased purchases of home respiratory and other medical equipment to support
its revenue growth in its home respiratory and other medical equipment
operations, the Company does not require significant fixed capital investment.

Financing activities provided $40.0 million in cash during fiscal 1994,
compared to $7.2 million during fiscal 1993. The increase in cash provided by
financing activities resulted from proceeds of the March 23, 1994 stock
offering and bank borrowings, net of amounts used to pay off outstanding debts.
The Company's strategy has been to use net cash flow from operations,
borrowings and equity offerings to finance expansion of its business.

11
<PAGE>

BUSINESS

GENERAL

SALES AND MARKETING

RoTech believes that the sales and marketing skills of its employees have
been instrumental in its growth to date and are critical to its future success.
RoTech emphasizes to its employees the importance of patient base growth and
retention by providing quality service to physicians and their patients.
Approximately 28% of RoTech's employees are actively involved in sales and
marketing. The sales representatives employed by the Company include registered
or certified respiratory therapists, registered pharmacists and registered
nurses who market all of the Company's services and products and are
responsible for maintaining and expanding the Company's relationships with
physicians, targeting primary care physicians in non-urban areas.

RoTech provides formal marketing, training, product and service information
to all of its technical and sales personnel so they can communicate effectively
with physicians about the Company's services and products. These personnel are
instructed on methods of serving the physicians by counseling them on new
procedures and medical technologies. Each technical and sales person must
attend periodic seminars conducted on a Company-wide basis. The Company
emphasizes the cross-marketing of all its products to physicians with which its
salespeople have already developed professional relationships. The Company
believes its marketing approach allows the primary care physician to identify
acute and chronic patients earlier in the disease process. Treatment is done at
the primary care level and accordingly at less cost than the advanced treatment
of the disease by specialists or in a hospital setting.

HOME HEALTH CARE PRODUCTS AND SERVICES

HOME RESPIRATORY CARE AND OTHER HOME MEDICAL EQUIPMENT PRODUCTS AND SERVICES
----------------------------------------------------------------------------

RoTech provides a variety of home respiratory therapy products and services
on a monthly rental or sale basis. Home respiratory care and other home medical
equipment represented 65% of the Company's revenues for the six months ended
January 31, 1995. RoTech focuses on serving patients of primary care physicians
with chronic pulmonary diseases in their pre-acute stages. Early identification
and retention of these patients at the primary care level reduces the cost of
health care and should improve the quality of life of the patients and their
families. RoTech also enjoys patient retention post-hospitalization at the
patient's or

12
<PAGE>

physician's request and does not rely on referrals of patients by hospital
discharge planners or case managers. Overall home respiratory market revenues
were approximately $1.6 billion in 1993.

The Company's home respiratory care product line includes oxygen
concentrators, portable liquid oxygen systems, nebulizers, and ventilator care.
Oxygen concentrators extract oxygen from room air and generally provide the
least expensive supply of oxygen for patients who require a continuous supply
of oxygen, are not ambulatory and who do not require excessive flow rates.
Liquid oxygen systems store oxygen under pressure in a liquid form. The liquid
oxygen is stored in a stationary unit that can be easily refilled at the
patient's home and can be used to fill a portable device that permits greatly
enhanced patient mobility. Nebulizers are devices which aerosolize medications,
allowing them to be inhaled directly into the patient's lungs. Ventilator
therapy is used for the individual that suffers from respiratory failure by
mechanically assisting the individual to breathe. The Company provides
technicians who deliver and/or install the respiratory care equipment, instruct
the patient in its use, refill the high pressure and liquid oxygen systems as
necessary and provide continuing maintenance of the equipment.

RoTech provides a full line of equipment and supplies of home medical
equipment and supplies for convalescents, including custom pieces required for
rehabilitation patients. Provision of home medical equipment enables the
Company to provide a "one-stop shopping" presence in its non-urban markets,
which is required for full patient service satisfaction. These products are
provided on a monthly rental or sale basis and include wheelchairs, hospital
beds, walkers, patient lifts, orthopedic supplies, catheters, syringes and
bathroom aids.

HOME INFUSION THERAPY
---------------------

Home infusion therapy involves the administration of antibiotics, nutrients
or other medications intravenously, intramuscularly, subcutaneously or through
a feeding tube. The Company focuses on providing home infusion therapy to
patients prior to or in lieu of hospitalization, which generally offers
significant cost savings and preferable logistics for patients, their families
and caregivers over hospital-based treatments. RoTech believes that its
marketing methods of consulting with primary care physicians on home infusion
therapies and the continuing evolution of related technological advances should
enable further growth of this portion of the business. Focus on the referring
primary care physician facilitates the identification of patients requiring
sub-acute antibiotic treatments, which constitute 39% of the home infusion
therapy market. Home infusion therapies accounted for 27% of RoTech's revenues
for the six months ended January 31, 1995, which includes the following types
and percentage mix of therapies for the same period:

Antibiotic Therapy, 72% of home infusion therapy revenues. Antibiotic therapy
------------------
requires the infusion of antibiotic drugs into the patient's bloodstream to
treat infections and diseases, such as osteomyelitis (bone infections),
bacterial endocarditis (infection of the lining around the heart), wound
infections, infections associated with HIV/AIDS, and infections of the kidneys
and urinary tract. Antibiotics are generally believed to be more effective when
infused directly into the bloodstream than when taken orally. These treatments
can be prescribed by primary care physicians, are short-term in nature and
recur occasionally.

Enteral Nutrition Therapy, 12% of home infusion therapy revenues. Enteral
-------------------------
nutrition therapy is administered to patients who cannot eat as a result of an
obstruction to the upper gastrointestinal tract or because they are otherwise
unable to be fed orally. As with total parenteral nutrition therapy, enteral
nutrition therapy is often administered over a long period.

Pain Management and Chemotherapy, 6% of home infusion therapy revenues. Pain
--------------------------------
management therapy is the administration of pain controlling drugs to
terminally or chronically ill patients and is often administered in conjunction
with intravenous chemotherapy. Chemotherapy is the continuous or intermittent
intravenous administration of anti-cancer drugs. Chemotherapy generally is
administered periodically for several weeks or months.

Total Parenteral Nutrition Therapy, 5% of home infusion therapy revenues.
----------------------------------
Total parenteral nutrition (TPN) therapy involves the intravenous feeding of
nutrients to patients with impaired digestive tracts due to

13
<PAGE>

gastrointestinal illnesses or conditions, due to underlying conditions
including cancer or HIV/AIDS. TPN is usually longer in duration than other
forms of infusion therapy, and can be lifelong.

Other Therapies. Other therapies and services include therapies such as
---------------
congestive heart failure therapy, hydration therapy and related nursing
services.

The Company's home infusion therapy business is dependent in large measure
upon physicians continuing to prescribe the administration of drugs and
nutrients through intravenous and other infusion methods. Orally administered
drugs and alternative drug delivery systems may have an effect upon the demand
for certain infusion therapies. The Company can predict neither the ultimate
impact of these treatments on the Company's business nor the nature of future
medical advances or their eventual impact on the Company's business.

PRIMARY CARE PHYSICIANS PRACTICES

RoTech believes that acquisitions of primary care physician practices in its
service areas present substantial opportunities. The Company believes that it
will be able to increase the profitability of the individual practices through
economies of scale and greater efficiencies, and that its centralized billing
and reimbursement functions will typically result in lower costs per claim and
quicker reimbursement. Based upon its many years of marketing to primary care
physicians, RoTech believes that the additional training and responsibility of
certain key personnel in a practice, typically a nurse, result in more
efficiency and allow physicians to spend more time practicing medicine. Not
only does this increased efficiency boost profitability, it also usually
results in greater physician satisfaction. In a medical practice owned by
RoTech, RoTech has the opportunity to instill the philosophy of patient
retention whereby primary care physicians can help patients maintain control
over their health care expenditures. The Company believes this increases the
profitability of the primary care physician practice and reduces the total
amount of money spent to treat a patient with no reduction in the overall level
of care. RoTech currently provides home health care products and services to
the patients of more than 2,000 primary care physicians. The Company believes
that many of these physicians could ultimately become part of RoTech through
its acquisitions of such practices. Physician practices currently represent 8%
of the Company's revenues.

RoTech has been a proponent of physician independence and autonomy through
its long-standing marketing to primary care physicians. This position is
counter to the role of the hospitals and managed care organizations who have
historically served to limit access and reimbursement of these physicians. By
partnering with RoTech, primary care physicians are able to obtain purchasing
power, administrative services, management, information systems and capital for
expanded staffing needed to service a larger patient base and improve the
medical practice and quality of life of the physician. As RoTech creates
networks of primary care physicians in these non-urban markets, additional
services can be justified and facilitated such as introduction of specialists
(pulmonologist, cardiologist, oncologist, or obstetrician) or mobile diagnostic
equipment. The Company expects that these specialists will serve to educate,
support and consult with the primary care physician; will be salaried,
contracted or possibly capitated; and will provide hands-on treatment of more
complex cases. The expected economies of scale and information systems strength
will result in a better, more cost effective system for disease management,
including early detection and treatment, preventive care and wellness programs.

14
<PAGE>

REIMBURSEMENT FOR SERVICES

A substantial percentage of RoTech's revenue is attributable to third-party
payors, including private insurers, Medicare and, to a lesser extent, Medicaid.
The Company has substantial expertise at processing claims and continues to
create and improve systems to manage third-party reimbursements, to produce
clean claims and obtain timely reimbursements by third-party payors. RoTech has
an incentive compensation program for its claims collection employees which is
keyed to the percentage of claims reimbursed and the timeliness of the
reimbursement. The Company has developed distinct billing and collection
departments for Medicare and Medicaid reimbursements and for private insurance
company claims which are supported by customized computer systems. These
departments work closely with reimbursement officers at branch locations and
third-party payors and are responsible for the review of patient coverage, the
adequacy and timeliness of documentation and the follow-up with third-party
payors to expedite reimbursement payments. Reimbursement from the Medicare
program as a percentage of RoTech's total operating revenue approximated 36%
for fiscal 1992, 39% for fiscal 1993, 35% for fiscal 1994 and 47% for the six
months ended January 31, 1995.

RoTech has achieved increased operating revenue in home respiratory and other
medical equipment operations despite increased regulation and corresponding
reimbursement reductions. While the increased regulation tends to reduce the
amount of reimbursement from government sources for individual cases, the
Company believes the continued increased regulation also benefits the Company
by reducing the competition from joint ventures and fee revenue sharing
arrangements, which the Company has historically avoided.

The levels of operating revenue and profitability of the Company, like those
of other health care companies, are affected by the continuing efforts of
third-party payors to contain or reduce the costs of health care by lowering
reimbursement rates, increasing case management review of services and
negotiating reduced contract pricing. Home health care, which is generally less
costly to third-party payors than hospital-based care, has benefitted from
those cost containment objectives. However, as expenditures in the home health
care market continue to grow, initiatives aimed at reducing the costs of health
care delivery at non-hospital sites are increasing. Changes in reimbursement
policies by third-party payors, or the reduction in or elimination of such
reimbursement programs, could have a material adverse impact on the Company's
revenues. Various state and federal health reform initiatives may lead to
additional changes in reimbursement programs.

GOVERNMENT REGULATION

The home care industry is subject to extensive government regulation at the
federal level through the Medicare program and at the state level through the
Medicaid program. Medicare is a federally funded health insurance program which
provides health insurance coverage for persons age 65 and older and certain
disabled persons, and generally provides reimbursement at specified rates for
sales and rentals of specified medical equipment and supplies, provided such
equipment and supplies are determined to be medically necessary by the treating
physician. Medicaid is a health insurance program administered by state
governments which provides reimbursements for health care for certain
financially or medically needy persons regardless of age.

The Company is subject to government audits of its Medicare and Medicaid
reimbursement claims and has not, to date, experienced any material loss as a
result of any such government audits. Under existing federal law, the knowing
and willful offer or payment of any remuneration (including any kickback, bribe
or rebate) of any kind to another person to induce the referral of Medicare or
Medicaid beneficiaries for whom medical supplies and services may be reimbursed
by the Medicare or Medicaid programs is prohibited and could subject the
parties to such an arrangement to substantial criminal and civil penalties,
including exclusion from participation in these programs, for Medicare or
Medicaid fraud. The Office of Inspector General of the Department of Health and
Human Services ("OIG") has promulgated regulatory "safe harbors" that describe
certain practices and business arrangements that comply with Medicare and
Medicaid

15
<PAGE>

regulations. The OIG and law enforcement authorities have recently increased
their investigatory efforts to determine whether various business practices
constitute remuneration for, or to induce, referrals. Certain states have also
passed statutes and regulations that prohibit payments for referral of
patients. These laws vary significantly from state to state. Possible sanctions
for violation of these restrictions include loss of licensure, civil and
criminal penalties. The Company has been aware that the OIG has made informal
inquiries, from time to time, about certain business practices which occurred
in 1988 and 1989, as they relate to particular services then offered by one of
the Company's subsidiaries. The Company believes the issue of inquiry to
involve the technical requirements of Medicare billing for certain components
of a diagnostic test. This inquiry was commenced by the Orlando office of the
OIG in mid-1989. In 1993, the Company learned that the OIG had concluded its
inquiry and submitted its findings to the Office of the U.S. Attorney for the
Middle District of Florida for review. After meeting with the U.S. Attorneys
office in early 1994, the Company has not been notified of any further
developments, although there can be no assurance that this matter will not be
pursued further. The Company is confident that it is in compliance with all
material Medicare requirements.

The types of services and products delivered by the Company, the required
quality of such services and products and the manner in which such services and
products are delivered and billed are each subject to significant and complex
regulations promulgated, interpreted and administered by the appropriate
federal or state governmental agency. Although the Company believes that its
products, services and procedures comply in all respects with such regulations
applicable to reimbursement eligibility, the unavailability of advance formal
administrative rulings in most regulated areas subjects the Company to possible
subsequent adverse interpretations and rulings which may affect the eligibility
of some or all of the Company's services and products for reimbursement. Such
an adverse interpretation or ruling could have a substantial adverse impact on
the Company's business.

In addition, the Company is required to obtain federal and state licenses and
permits relating to the distribution of pharmaceutical products, including a
federal Controlled Dangerous Substance Registration Certificate and Florida
State Wholesaler License. The Company is required to obtain similar licenses
from each state in which it does business.

The Company's acquisitions of primary care physician practices are structured
to attempt to comply with federal and state law restrictions on business
relationships between the Company and persons who may be in a position to refer
patients to the Company for the provision of health care related items or
services. Accordingly, the Company endeavors to undertake such acquisitions in
a manner where the consideration offered and paid is consistent with fair
market value in arms-length transactions and is not determined in a manner that
takes into account the volume or value of any referrals or business that might
otherwise be generated between the Company and the physician whose practice to
be acquired and for which payment may be made under Medicare or Medicaid. While
the Company believes that its acquisitions do not entail any form of unlawful
remuneration, there can be no assurances that enforcement authorities will not
attempt to construe the consideration exchanged in certain acquisition
transactions as entailing unlawful remuneration and to challenge such
transactions on such basis.

In many states, the "corporate practice of medicine doctrine" prohibits
business corporations from providing, or holding themselves out as providers
of, medical care through the employment of physicians. Although the two states
in which the Company has acquired practices of primary care physicians, Florida
and Mississippi, have not adopted this prohibition, there can be no assurance
that either state will not adopt this doctrine in the future or that the
Company will not acquire a primary care medical practice in a state that has
enacted or adopted through case law the corporate practice of medicine
doctrine. While the Company intends to structure future acquisitions to comply
with the corporate practice of medicine doctrine where it exists, there can be
no assurance that, given varying and uncertain interpretations of such laws,
the Company would be found to be in compliance with restrictions on the
corporate practice of medicine in all states. Enforcement of such doctrine
could require divestiture of acquired practices or restructuring of physician
relationships.

16
<PAGE>

Health care is an area of extensive and dynamic regulatory change. Changes in
the law or new interpretations of existing laws can have a dramatic effect on
permissible activities, the relative costs associated with doing business, and
the amount of reimbursement by government and third-party payors. The Omnibus
Budget Reconciliation Act of 1987 ("OBRA 1987") created six categories of
durable medical equipment for purposes of reimbursement under the Medicare Part
B program. There is a separate fee schedule for each category. OBRA 1987 also
controls whether durable medical equipment products will be paid for on a
rental or sale basis and established fixed payment rates for oxygen service as
well as a 15-month rental ceiling on certain medical equipment. An interim
final rule implementing the payment methodology under the fee schedules
recently was published in the Federal Register. Payment based on the fee
schedules is effective with covered items furnished on or after January 1,
1989. Generally, Medicare pays 80% of the lower of the supplier's actual charge
for the item or the fee schedule amount, after adjustment for the annual
deductible amount. OBRA 1990 made changes to Medicare Part B reimbursement that
were implemented in 1991. The substantive change was the standardization of
Medicare rates for certain equipment categories. Laws and regulations often are
adopted to regulate new products, services and industries. There can be no
assurances that either the states or the federal government will not impose
additional regulations upon the Company's activities which might adversely
affect the Company's business.

Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation thus far, the
Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery and payment systems and may
in the future propose and adopt legislation effecting fundamental changes in
the health care delivery system. Legislative debate is expected to continue in
the future, and the Company cannot predict what impact the adoption of any
federal or state health care reform measures or future private sector reform
may have on its industry or business.

Pursuant to federal legislation (commonly known as "Stark II") enacted as
part of The Omnibus Budget Reconciliation Act of 1993, and effective January 1,
1995, physicians are prohibited from making referrals to entities in which they
(or immediate family members) have an investment interest or compensation
arrangement, where such referral is for any "designated health service" covered
by Medicare/Medicaid, including parenteral and enteral nutrients, equipment and
supplies, and home health services. Ownership by a physician of investment
securities in a publicly-held corporation with stockholders' equity exceeding
$75 million at the end of the corporation's most recent fiscal year or on
average during the previous three fiscal years is exempt from the investment
prohibition if the securities are traded on the New York, American or a
regional stock exchange, or The Nasdaq National Market. Exemptions from the
compensation arrangement prohibition include (i) amounts paid by an employer to
a physician pursuant to a bona fide employment relationship meeting specified
requirements, including payments being unrelated to referrals and consistent
with the fair market value of the services provided and (ii) other personal
service arrangements if certain requirements are met, including that
compensation be paid over the term of a written agreement with a term of one
year or more, be set in advance, not exceed fair market value, and be unrelated
to referrals. While RoTech intends to structure its acquisitions and operations
to comply with Stark II, there can be no assurance that future interpretations
of that law will not require structural and organizational modifications of the
Company's existing relationships with physicians, nor can assurance be given
that present or future relationships between the Company and physicians will be
found to be in compliance with such law.

INSURANCE

In recent years, participants in the health care market have become subject
to an increasing number of malpractice and product liability lawsuits, many of
which involve large claims and significant defense costs. As a result of the
liability risks inherent in the Company's lines of business, including the risk
of liability due to the negligence of physicians or other health care
professionals employed by or otherwise under contract to the Company, the
Company maintains liability insurance intended to cover such claims. There can
be no assurance that the coverage limits of the Company's insurance policies
will be adequate, or that the Company can obtain liability insurance in the
future on acceptable terms or at all.

17
<PAGE>

The Company currently has in force general liability and products liability
insurance policies, with coverage limits of $2.0 million per occurrence and in
the aggregate annually (with a deductible of $25,000 per occurrence, and a
deductible aggregate of $125,000). The Company also has in force a professional
liability insurance policy, with a coverage limit of $1.0 million per
occurrence and $3.0 million in the aggregate annually. The Company has in
force, with respect to physicians employed by the Company, individual
professional liability insurance policies, with coverage limits ranging from
$250,000 per occurrence to $1 million per occurrence, and ranges from $750,000
in the aggregate annually to $3 million in the aggregate annually. The
Company's insurance policies are subject to annual renewal.

18
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The names and ages of the executive officers and directors of RoTech, and the
positions held by each, are as follows:

<TABLE>
<CAPTION>
HELD OFFICE/
POSITION
NAME AGE POSITION SINCE
---- --- -------- ------------
<C> <S> <C> <C>
William P. Kennedy 51 Chief Executive Officer and Chairman, Board of Directors 1981
Stephen P. Griggs 37 Chief Operating Officer, President and Director 1988
Rebecca R. Irish 33 Chief Financial Officer and Treasurer 1991
William A. Walker II 53 Secretary and Director 1984
Leonard E. Williams 64 Director 1988
Jack T. Weaver 61 Director 1992
</TABLE>

William P. Kennedy is Chairman of the Board of Directors of the Company and
also serves as its Chief Executive Officer. Mr. Kennedy graduated from the
University of South Carolina, School of Pharmacy in 1966 and has been qualified
as a Florida registered pharmacist since that time. Mr. Kennedy is also the
sole owner of Thayer's Colonial Pharmacy, Inc. ("Thayer's") in Orlando,
Florida, and serves as its President, Treasurer and Chairman of its Board of
Directors.

William A. Walker II is the Secretary and a Director of the Company. Mr.
Walker has been an attorney with the Winter Park and Orlando, Florida law firm
of Winderweedle, Haines, Ward & Woodman, P.A., since July, 1967, and is a
shareholder and member in that professional association. Winderweedle, Haines,
Ward & Woodman, P.A. serves as general counsel to the Company.

Stephen P. Griggs is the President, Chief Operating Officer and a Director of
the Company. Mr. Griggs is also the President or Vice President and a Director
of the subsidiaries of the Company. Mr. Griggs is a Certified Public Accountant
with undergraduate degrees in business management from East Tennessee State
University and in accounting from the University of Central Florida. Mr. Griggs
practiced as a Certified Public Accountant before entering private business.

Rebecca R. Irish is the Treasurer and Chief Financial Officer of the Company.
Ms. Irish is also the Secretary, Treasurer and a Director of the subsidiaries
of the Company. Ms. Irish is a Certified Public Accountant and practiced with
Ernst & Young LLP before joining the Company.

Leonard E. Williams is a Director of the Company. Mr. Williams is the
President, Chief Executive Officer and Chairman of the Board of Directors of
Wayne Densch, Inc., President of Leonard E. Williams Company and serves as a
director of First Union National Bank of Orlando.

Jack T. Weaver is a physician and a Director of the Company. Dr. Weaver is
Chairman of the Board of Trustees and Acting President of The University of
Health Sciences College of Osteopathic Medicine in Kansas City, Missouri and
Chairman of Medical Affairs and Academic Committee.

SELLING SHAREHOLDER

The following table sets forth certain information with respect to the
Selling Shareholder as of April 13, 1995, and after giving effect to the sale
of the shares of Common Stock offered hereby. Except as otherwise indicated,
the person named below has sole voting and investment power with respect to the
shares of Common Stock beneficially owned by him.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING AFTER OFFERING
------------------------- -----------------------
NO. OF
SHARES
NO. OF TO BE NO. OF
NAME SHARES PERCENT SOLD SHARES PERCENT
---- ------------- ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
William P. Kennedy... 1,244,048(1) 12.9% 300,000 944,048 8.3%
</TABLE>
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(1) Represents shares owned by Thayer's, of which Mr. Kennedy is the sole
shareholder.

19
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement, each Underwriter named below has severally agreed to purchase, and
the Company and the Selling Shareholder have agreed to sell to each
Underwriter, shares of Common Stock which equal the number of shares set forth
opposite the name of such Underwriter below:

<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Smith Barney Inc. ................................................. 645,000
Needham & Company, Inc. ........................................... 645,000
Bear, Stearns & Co. Inc. .......................................... 50,000
Sanford C. Bernstein & Co., Inc. .................................. 35,000
Branch, Cabell and Company......................................... 35,000
Alex. Brown & Sons Incorporated.................................... 50,000
Crowell, Weedon & Co. ............................................. 35,000
Dean Witter Reynolds Inc........................................... 50,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 50,000
Equitable Securities Corporation................................... 35,000
Hambrecht & Quist LLC.............................................. 50,000
Jensen Securities Co. ............................................. 35,000
McDonald & Company Securities, Inc. ............................... 35,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................. 50,000
Morgan Stanley & Co. Incorporated.................................. 50,000
PaineWebber Incorporated........................................... 50,000
Robertson, Stephens & Company, L.P. ............................... 50,000
Wheat, First Securities, Inc. ..................................... 50,000
---------
Total.............................................................. 2,000,000
=========
</TABLE>

The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc. and Needham & Company, Inc. are
acting as Representatives, have advised the Company that they propose initially
to offer part of the shares of Common Stock directly to the public at the
public offering price set forth on the cover page hereof and part to certain
dealers at a price that represents a concession not in excess of $.90 per share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $.10 per share to certain other
dealers. After the public offering of the shares of Common Stock offered
hereby, the public offering price and such concessions may be changed by the
Underwriters.

The Company and the Selling Shareholder have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an aggregate of 300,000 additional shares of Common Stock at the public
offering price set forth on the cover page hereof less underwriting discounts
and commissions. Of the 300,000 additional shares of Common Stock that may be
purchased by the Underwriters pursuant to this option, up to 200,000 additional
shares may be sold by the Selling Shareholder and up to 100,000 additional
shares may be sold by the Company. If the Underwriters exercise such option,
the additional shares will be purchased from the Selling Shareholder and the
Company on a pro-rata basis based on the number of such additional shares
subject to sale by the Selling Shareholder and the Company. The Underwriters
may exercise such option to purchase additional shares solely for the purpose
of covering over-allotments, if any, incurred in connection with the sale of
the shares offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares in such table.

20
<PAGE>

The Company, the Selling Shareholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

The Company and the Selling Shareholder have agreed that, for a period of
180 days after the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc., sell, offer to sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable for any shares of Common Stock.

In general, the rules of the Commission will prohibit the underwriters from
making a market in the Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The
Commission has, however, adopted exemptions from these rules that permit
passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not
connected with the offering and that its net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, the Underwriters,
selling group members (if any) or their respective affiliates may engage in
passive market making in the Common Stock during the cooling off period.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for RoTech by Winderweedle, Haines, Ward & Woodman, P.A., Winter Park and
Orlando, Florida. William A. Walker II, Secretary, a Director and a
shareholder of the Company, is a shareholder and officer of Winderweedle,
Haines, Ward & Woodman, P.A. Such firm has acted as counsel to the Company,
its subsidiaries, and certain of its affiliates in other matters. Certain
legal matters in connection with the Common Stock offered hereby will be
passed upon for the Underwriters by Dewey Ballantine, New York, New York.

EXPERTS

The consolidated financial statements and the related consolidated financial
statement schedules incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-K at July 31, 1994 and for the year ended
July 31, 1994 have been audited by Deloitte & Touche LLP, independent
certified public accountants, and at July 31, 1993, and for each of the two
years in the period ended July 31, 1993, by Ernst & Young LLP, independent
certified public accountants, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firms given upon their authority as experts in
accounting and auditing.

The financial statements of Taylor Home Health incorporated in this
prospectus by reference from the Company's Current Report on Form 8-KA as
filed on September 10, 1994 at September 30, 1993 and 1992 and for the years
then ended have been audited by Price Waterhouse LLP, independent accountants,
as stated in their report, which is hereby incorporated by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933 with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules filed therewith.
The Registration Statement may be examined without charge, and copies thereof
may be obtained upon payment of a prescribed fee, at the principal office of
the Commission in Washington, D.C.

21
<PAGE>

The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, 7 World Trade
Center, New York, New York 10048; and Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information can also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.

22
<PAGE>

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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THOSE SPECIFICALLY OFFERED HEREBY OR AN OFFER TO SOLICITATION IN ANY JURISDIC-
TION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE OR THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Information by Reference......................... 2
Prospectus Summary........................................................ 3
The Company............................................................... 6
Use of Proceeds........................................................... 6
Capitalization............................................................ 6
Selected Consolidated Financial Data...................................... 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 8
Business.................................................................. 12
Management................................................................ 19
Selling Shareholder....................................................... 19
Underwriting.............................................................. 20
Legal Matters............................................................. 21
Experts................................................................... 21
Available Information..................................................... 21
</TABLE>

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2,000,000 SHARES

[LOGO OF ROTECH MEDICAL CORPORATION APPEARS HERE]

ROTECH MEDICAL CORPORATION

COMMON STOCK

--------
PROSPECTUS
May 3, 1995
--------

SMITH BARNEY INC.

NEEDHAM & COMPANY, INC.

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