GULF SOUTH MEDICAL SUPPLY INC, 424B4, 1996-06-07

GULF SOUTH MEDICAL SUPPLY INC
424B4, 1996-06-07
MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES

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<PAGE> 1
Filed Pursuant to
Rule 424(b)(4)
Registration Numbers
333-03073
& 333-05407

PROSPECTUS
3,000,000 SHARES

[GULF SOUTH LOGO]

GULF SOUTH MEDICAL SUPPLY, INC.
COMMON STOCK

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

Of the 3,000,000 shares of Common Stock offered hereby, 2,223,276 shares
are being sold by Gulf South Medical Supply, Inc. ("Gulf South" or the
"Company") and 776,724 shares are being sold by the Selling Stockholders. See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders. The Common Stock
of the Company is traded on The Nasdaq National Market under the symbol "GSMS".
On June 6, 1996, the closing sale price of the Common Stock was $43.375 per
share. See "Price Range of Common Stock."

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

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

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

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

<TABLE>
<Captioin>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $43.25 $1.95 $41.30 $41.30
- --------------------------------------------------------------------------------------------------
Total(3) $129,750,000 $5,850,000 $91,821,299 $32,078,701
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>

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

(2) Before deducting expenses payable by the Company estimated at $325,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 450,000 additional shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $149,212,500, $6,727,500 and
$110,406,299, respectively.

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

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 shares of
Common Stock will be available for delivery on or about June 12, 1996 at the
office of Smith Barney Inc., 14 Wall Street, New York, New York 10005.

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

SMITH BARNEY INC.

WILLIAM BLAIR & COMPANY

MONTGOMERY SECURITIES

June 7, 1996.
<PAGE> 2

The graphic representation omitted is a map of the United States of America
with stars placed to indicate the location of GSMS Distribution Centers and dots
placed to indicate GSMS Customer Locations, and a key explaining the symbols.

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

This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under the
caption "Risk Factors," which could cause actual results to differ materially
from those indicated by such forward-looking statements.

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

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

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

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
See "Underwriting."

THE COMPANY

Gulf South is a leading national distributor of medical supplies and
related products to the long-term care industry. The Company provides products
and services to approximately 8,500 long-term care facilities in all 50 states.
The Company's customers range from independent nursing home operators to large
national chains offering a broad range of healthcare services, such as Beverly
Enterprises and Living Centers of America, as well as home healthcare providers,
hospices and sub-acute, rehabilitative and transitional care providers. Through
its 11 full-service regional distribution centers, the Company offers both
national coverage to multi-facility customers and local service to individual
facilities and independent operators. Gulf South believes that it has achieved
its success to date due to the expertise gained from more than eleven years of
focus on the long-term care industry and its strong commitment to providing
superior service to its customers.

According to the latest industry data available, sales of medical supplies
and related products to the nursing home segment of the long-term care industry
in the United States were more than $1.5 billion in 1993 and the Company
estimates that such sales are growing at an annual rate in excess of 10%. The
Company also believes that the home healthcare and sub-acute care segments are
growing at a faster rate than the nursing home segment of the long-term care
industry. Economic, regulatory, political and demographic factors are causing an
increase in the demand for the services provided by long-term care facilities
and in the need for facility operators to provide patients with a broader
variety of medical supplies on a cost-effective basis. In addition to the aging
of the U.S. population, these factors include cost containment measures
initiated by public and private reimbursement programs and the emergence of
long-term care facilities as an effective non-hospital setting in which
sub-acute medical and rehabilitative care can be provided to medically stable
patients.

The Company believes that its ability to compete in the long-term care
market is enhanced by its emphasis on offering customers a single source for
over 10,000 products at competitive prices, coupled with convenient ordering
procedures, accurate and complete fulfillment of small and "broken case" orders,
and consistent and reliable deliveries. The Company estimates that it ships more
than 95% of all orders received on the same day the order is placed, with a fill
rate of 98%. The Company also provides its customers with value-added services
designed to assist in managing inventory usage and controlling costs. These
services include monthly usage reports, inventory control/ancillary billing
software, next-day invoicing and customized programs such as bar code labelling
and customer-specific ordering guides. In addition, the Company utilizes its
electronic data interface (EDI) capabilities to streamline and simplify the
ordering and invoicing process for certain of its major customers, as well as to
ensure accurate order entry and fulfillment.

The Company's net sales have grown at a compound annual rate of 42.0% over
the past five years, from $32 million in 1991 to $130 million in 1995. Operating
income over this period grew at a compound annual rate of 48.1%, from $3.0
million in 1991 to $13.7 million in 1995. Net sales and operating income for the
three months ended March 31, 1996 were $40.2 million and $3.9 million (before
giving effect to merger costs and expenses of $512,000), respectively. The
Company believes that it is well-positioned to pursue growth opportunities in
the long-term care industry. The Company's principal growth strategies are to
increase its sales to existing customers by continuing to meet their product and
service needs as they grow, to add new customers, including large national
chains and group purchasing organizations, to expand its presence in the home
healthcare and sub-acute, rehabilitative and transitional care segments of the
long-term care industry, and to augment its internal growth with the acquisition
of distributors that serve complementary markets or that supplement the
Company's presence in existing markets.

3
<PAGE> 4

RECENT ACQUISITIONS

The Company's strategy is to augment its internal growth with the
acquisition of medical supply distributors that serve complementary markets or
supplement the Company's presence in existing markets. Since September 1995, the
Company has completed three such acquisitions. On September 25, 1995, the
Company purchased for cash all of the operating assets of L&M Medical, Inc., a
regional medical supply distributor serving the home healthcare markets of
Southern California, Nevada and Arizona. L&M Medical had revenues of
approximately $12.0 million during the twelve-month period prior to its
acquisition. On February 29, 1996, the Company acquired Bayer Medical Service
Systems, Inc., a regional medical supply distributor serving the long-term care
markets of the Ohio Valley and Florida, in a stock-for-stock exchange. Bayer
Medical Service Systems had revenues of approximately $10.0 million during the
twelve-month period prior to its acquisition. On April 1, 1996, the Company
purchased all of the operating assets of Express Care, L.P., a regional medical
supply distributor located in Memphis, Tennessee. Express Care provides
distribution services to long-term care and home health facilities owned, leased
or managed by one of the largest national nursing home chains, as well as other
long-term care customers in the southeastern United States. Express Care had
revenues of approximately $6.5 million during the twelve-month period prior to
its acquisition.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company................. 2,223,276 shares
Common Stock Offered by the Selling Stockholders.... 776,724 shares
Common Stock to be Outstanding After the Offering... 16,183,722 shares(1)
Use of Proceeds..................................... Repayment of bank debt; working capital
and other general corporate purposes,
including possible acquisitions
Nasdaq National Market symbol....................... GSMS
</TABLE>

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

(1) Excludes 715,234 shares of Common Stock reserved for issuance upon exercise
of outstanding options under the Company's 1992 Stock Plan at March 31,
1996. See Note 6 of Notes to Financial Statements.

RISK FACTORS

See "Risk Factors" for a discussion of certain factors related to the
Company and the Common Stock offered hereby.

4
<PAGE> 5

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net sales.......................... $32,028 $44,659 $65,119 $92,151 $130,094 $29,522 $40,235
Gross profit....................... 8,546 11,618 16,762 24,029 32,121 7,379 9,588
Operating income(2)................ 2,954 4,066 6,455 10,116 13,703 3,143 3,887
Net income(3)...................... $ 1,632 $ 1,794 $ 2,630 $ 5,796 $ 8,160 $ 1,901 $ 2,322
Net income per share(4)............ $ .16 $ .19 $ .29 $ .45 $ .58 $ .14 $ .17
SELECTED OPERATING DATA:
Number of orders shipped........... 119,911 165,834 215,425 283,350 384,401
Average order size................. $ 234 $ 238 $ 270 $ 298 $ 313
Number of facilities served........ 3,039 3,699 4,390 6,314 8,555
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA(1):
Working capital.............................................................. $38,707 $130,203
Total assets................................................................. 58,321 140,617
Total debt................................................................... 5,800 --
Stockholders' equity......................................................... 42,552 134,048
</TABLE>

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

(1) Restated to reflect the share exchange with Bayer Medical Service Systems,
Inc. accounted for as a pooling of interests. See Note 2 of Notes to
Financial Statements.

(2) Reflects $512 of merger costs and expenses ($315 after tax, or $.02 per
share) in the three months ended March 31, 1996 incurred in connection with
the acquisition of Bayer Medical Service Systems, Inc. on February 29, 1996.
See Note 2 of Notes to Financial Statements.

(3) The Company elected to be treated as an S corporation for income tax
purposes from January 1, 1989 through June 25, 1992, and accordingly did not
pay federal and state (except in certain states) income taxes during such
periods. The Company distributed S corporation earnings of $1,335 and $998
to its shareholders during 1991 and 1992, respectively. The net income data
reflects a pro forma provision for income taxes during the periods from
January 1, 1991 through June 25, 1992 as if the Company had been subject to
federal and state income taxes. Because the Company has been a C corporation
since June 25, 1992, no pro forma adjustment to net income for periods
subsequent to such date is necessary and, accordingly, the net income data
set forth above for such subsequent periods reflects actual net income.

(4) Computed by dividing net income applicable to Common Stock (net income plus
interest requirements, less tax effects, of the 10% Convertible Subordinated
Debentures due 1997 (the "Convertible Debentures")) by the weighted average
number of shares of Common Stock and equivalents outstanding. The conversion
of the Convertible Debentures was effected upon the closing of the Company's
initial public offering in March 1994. For the year ended December 31, 1991,
the weighted average number of shares of Common Stock and equivalents
outstanding was 10,200,000, for the years ended December 31, 1992, 1993,
1994 and 1995 was 10,200,170, 10,442,066, 13,073,040 and 13,993,595,
respectively, and for the three months ended March 31, 1995 and 1996 was
13,947,724 and 14,047,309, respectively. See Note 1 of Notes to Financial
Statements. Net income per share and weighted average number of shares of
Common Stock and equivalents outstanding for each of the years ended
December 31, 1991, 1992, 1993 and 1994 have been restated to reflect a
two-for-one stock split in the form of a stock dividend effected on May 25,
1995.

(5) Adjusted to give effect to the sale of 2,223,276 shares of Common Stock
offered hereby by the Company and the application of the estimated net
proceeds therefrom. Subsequent to March 31, 1996, the Company incurred
additional indebtedness under its revolving line of credit agreement with
NationsBank of Tennessee, N.A. The foregoing balance sheet data as adjusted
assumes that total debt at the completion of this Offering is approximately
$9,200, all of which will be repaid from the net proceeds of the Offering.
See "Use of Proceeds."
---------------------

The Company originally was incorporated in Mississippi in 1982 under the
name of Gulf South Supply Company of Mississippi ("Gulf South Mississippi") and
changed its name to Gulf South Medical Supply, Inc. in 1988. In 1993, the
Company was reincorporated in Delaware. The Company's principal executive
offices are located at 426 Christine Drive, Ridgeland, Mississippi 39157, and
its telephone number is (601) 856-5900. As used in this Prospectus, the terms
"Gulf South" and the "Company" refer to Gulf South Medical Supply, Inc., a
Delaware corporation, and its predecessor, unless the context otherwise
requires.

5
<PAGE> 6

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby.

INTENSE AND INCREASING COMPETITION.

The Company faces intense competition from a variety of regional, local and
national distributors. Barriers to entry in the long-term care distribution
industry are relatively low, and the risk of new competitors entering the
market, particularly on a local level, is high. In response to competitive
pressures, the Company has in the past lowered, and may in the future lower,
selling prices in order to maintain or increase market share, which has
resulted, and may in the future result, in lower gross margins. Although several
national hospital distributors and healthcare manufacturers presently sell to
the long-term care market, to date the long-term care market has not been a
primary focus for such distributors and manufacturers. However, national
hospital distributors and manufacturers, many of which have substantially
greater capital resources, sales and marketing experience and distribution
capabilities than the Company, may focus their efforts more directly on the
long-term care market. Hospitals that form alliances with long-term care
facilities to create integrated healthcare networks may look to hospital
distributors and manufacturers to furnish products to their long-term care
affiliates. Because the national hospital distributors may have cost advantages
over the Company due to their ability to purchase products in large volumes, the
Company may experience significant pricing pressures from these and other
competitors which could adversely affect the Company's business and operating
results. See "Business -- Competition."

RISKS ASSOCIATED WITH ACQUISITION STRATEGY.

A key element of the Company's growth strategy is to augment its internal
growth with the acquisition of medical supply distributors, and inventory and
facilities of such distributors, that serve complementary markets or that
supplement the Company's presence in existing markets. Certain of these
businesses may be marginally profitable or unprofitable. In order to achieve
anticipated benefits from these acquisitions, the Company must successfully
integrate the acquired businesses with its existing operations, and no assurance
can be given that the Company will be successful in this regard. The Company
incurred $512,000 in merger costs and expenses in the quarter ended March 31,
1996 in connection with the acquisition of Bayer Medical Service Systems, Inc.,
and it is likely that similar one-time merger costs and expenses may be incurred
in connection with any future acquisitions. In addition, attractive acquisitions
are difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the possible need to obtain regulatory
approvals. There can be no assurance that the Company will be able to complete
future acquisitions. In order to finance such acquisitions, it may be necessary
for the Company to raise additional funds either through public or private
financings, including bank borrowings. Any financing, if available at all, may
be on terms which are not favorable to the Company. The Company may also issue
shares of its Common Stock to acquire such businesses, which may result in
dilution to the Company's existing stockholders. See "Business -- Growth
Strategy."

CONCENTRATION OF CUSTOMERS.

The Company depends on a limited number of large customers for a
significant portion of its net sales. Consolidation among long-term care
providers and the growth of the Company's business with large chains could
increase such dependence. In the year ended December 31, 1995 and in the three
months ended March 31, 1996, the Company's largest five customers accounted for
approximately 30.8% and 32.3%, respectively, of net sales. Beverly Enterprises
accounted for 16.6% of net sales for the year ended December 31, 1995. As is
customary in its industry, the Company does not have any long-term contracts
with its customers and sells on a purchase order basis only. Significant
declines in the level of purchases by one or more of these customers would have
a material adverse effect on the Company's business and results of operations.
Although the Company has not to date experienced any failure to collect accounts
receivable from its largest customers, an adverse change in the financial
condition of any of these customers, including as a result of a change in
governmental or private reimbursement programs, could have a material adverse
effect

6
<PAGE> 7

upon the Company's results of operations or financial condition. In addition,
the expansion of the Company's business with large chains has in the past
resulted in competitive pricing pressures and lower operating margins and such
pressure on margins may continue in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Customers."

RISKS OF BUSINESS GROWTH AND CHANGING MARKET CONDITIONS.

A key element of the Company's growth strategy is to increase sales to
existing and new customers, including both large chains and independent
operators, by adding one or more additional distribution centers or expanding
existing distribution centers and by hiring additional direct sales or other
personnel and through national account sales efforts. Such efforts will result
in increased operating expenses. There can be no assurance that the
establishment of new distribution centers, the expansion of existing
distribution centers, the addition of new sales or other personnel or national
account sales efforts will result in additional revenues or operating income.
The Company's growth plans also could place significant demands upon the
Company's management and financial resources. The expansion of the Company's
business with large chains has in the past resulted in competitive pricing
pressures and lower operating margins and such pressure on margins may continue
in the future. As a result of changes occurring in the long-term care market,
both the nature of the Company's customer base as well as the products and
services required by its customers are changing. The failure by the Company's
management to effectively respond to and manage changing business conditions,
including changes in customer requirements and changes to the Company's overall
product mix, could have an adverse effect on the Company's business and results
of operations and on operating margins. See "Business -- Industry Overview" and
"-- Customers." As a result of these factors, the Company could experience
fluctuations in operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON MANAGEMENT.

The continued success of the Company's operations will depend largely upon
the continued services of its executive officers, in particular Thomas G. Hixon,
Guy W. Edwards and Steven L. Richardson, who serve as President, Vice President
of Finance and Vice President of Operations, respectively. The loss of service
of one or more of such executive officers could adversely affect the Company's
business. The Company does not have written employment agreements with any
executive officer but does have noncompetition agreements with such individuals,
which extend for two years after termination of employment. The Company
presently maintains keyman life insurance on Thomas G. Hixon in the amount of
$1,500,000 and on Guy W. Edwards and Steven L. Richardson, each in the amount of
$500,000. The Company's future success will also be dependent, in part, upon the
Company's ability to attract and retain additional qualified managers and
employees.

RELIANCE ON CENTRALIZED BUSINESS SYSTEMS AND ON THIRD PARTIES.

Because the Company believes that its success to date is dependent in part
upon its ability to provide prompt, accurate and complete service to its
customers on a price-competitive basis, any disruption in its day-to-day
operations or material increases in its costs of procuring and delivering
products could have an adverse effect on its results of operations. Any failure
of either its management information system or its telephone system, both of
which are located at the Company's principal distribution center in Jackson,
Mississippi, could adversely affect its ability to receive and process customer
orders and ship products on a timely basis. Any significant expansion of the
Company's business, either through the addition of new customers, expansion of
business with existing customers or through acquisitions, could also result in
the need to increase the capacity and capability of the Company's management
information system or telephone system. Strikes or other service interruptions
affecting United Parcel Service or other common carriers used by the Company to
ship its products could also impair the Company's ability to deliver products on
a timely and cost-effective basis. In addition, because the Company typically
bears the cost of shipment to its customers, any increase in shipping rates
could have an adverse effect on the Company's operating results. See
"Business -- Customer Service/Order Entry and Fulfillment."

7
<PAGE> 8

In order to provide prompt and complete service to its customers, the
Company maintains a significant investment in product inventory (approximately
$18.5 million at March 31, 1996) at its eleven warehouse locations. Although the
Company closely monitors its inventory exposure through a variety of inventory
control procedures and policies, there can be no assurance that such procedures
and policies will continue to be effective or that unforeseen product
developments or price changes will not adversely affect the Company's business
or results of operations. In addition, the Company may assume the inventory of
distributors that it acquires which includes product lines or operating assets
not normally carried or used by the Company. These product lines or assets may
be difficult to sell, resulting in the Company writing off any such unsold
inventory or unused assets in future periods. See "Business -- Products" and
"-- Purchasing" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

NATIONAL HEALTH CARE REFORM.

National health care reform has been the subject of a number of legislative
initiatives by Congress. Although the Company is not itself presently subject to
significant direct federal or state regulation, its customers are highly
regulated, and any legislative or regulatory changes which affect them may also
indirectly affect the Company. Due to uncertainties regarding the ultimate
features of health care reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or what impact they may have
on the Company's customers or on the Company. The actual announcement of reform
proposals and the investment community's reaction to such proposals,
announcements by competitors of their strategies to respond to reform
initiatives and general industry conditions could produce volatility in the
trading and market price of the Company's Common Stock.

UNSPECIFIED USE OF PROCEEDS.

In addition to repayment of outstanding bank indebtedness, the Company
intends to use the net proceeds from this Offering for general corporate
purposes, including the possible acquisition of one or more businesses. However,
a final determination of the use of such proceeds has not been made. See "Use of
Proceeds." Thus, after the Offering has been consummated, management and the
Board of Directors of the Company will be able to determine the specific uses
for such proceeds without first seeking approval from the Company's
stockholders, unless such approval is required by law.

ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK.

The Company's Amended and Restated Certificate of Incorporation and By-Laws
contain various provisions that may make it more difficult for a third party to
acquire, or may discourage acquisition bids for, the Company and could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. In addition, the rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of any
holders of Preferred Stock that may be issued in the future and that may be
senior to the rights of the holders of Common Stock.

8
<PAGE> 9

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,223,276 shares of
Common Stock offered by the Company hereby are estimated to be $91,496,299
($110,081,299 if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discount and estimated offering expenses
payable by the Company. The Company expects to use the net proceeds from this
Offering to repay borrowings outstanding under its bank credit agreement and for
working capital and other general corporate purposes, including the possible
acquisition of one or more medical supply distributors that serve complementary
markets or supplement the Company's presence in existing markets. However, the
Company has no specific agreements or commitments, and is not currently engaged
in any negotiations, with respect to any acquisition. Pending such uses, the net
proceeds of this Offering will be invested in short-term interest-bearing
securities.

The borrowings under the Company's revolving line of credit agreement with
NationsBank of Tennessee, N.A. (the "Credit Agreement"), of which $5.8 million
was outstanding as of March 31, 1996 and $9.2 million is currently outstanding
and is expected to be outstanding immediately prior to the closing of this
Offering, consist of a revolving credit loan that bears interest, at the
Company's option, at prime or at LIBOR plus an amount ranging from 1% to 2.5%
per annum (with a weighted average interest rate of 6.33% at March 31, 1996).
Borrowings outstanding under the Credit Agreement were incurred primarily for
working capital purposes and to finance the acquisition of Express Care, L.P.
After completion of this Offering and the application of the net proceeds
therefrom, the Company will have a continuing $15.0 million commitment under the
Credit Agreement, which it may borrow from time to time in the future. See Note
3 of Notes to Financial Statements.

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

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol GSMS since March 24, 1994, the date of the Company's initial
public offering of Common Stock. Prior to March 24, 1994, there was no public
market for the Company's Common Stock. The following table sets forth for the
periods indicated the high and low closing sale prices for the Common Stock,
which reflect a 2-for-1 stock split effected in the form of a stock dividend on
May 25, 1995.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1994
Second Quarter....................................................... $14 1/4 $ 9 3/4
Third Quarter........................................................ 15 1/4 12 5/8
Fourth Quarter....................................................... 19 3/4 13 3/4
1995
First Quarter........................................................ $20 7/8 $16 1/2
Second Quarter....................................................... 26 18 1/4
Third Quarter........................................................ 32 1/2 23 1/4
Fourth Quarter....................................................... 30 3/4 19
1996
First Quarter........................................................ $39 $25 3/4
Second Quarter (through June 6, 1996)................................ 49 1/2 37
</TABLE>

See the cover page of this Prospectus for a recent closing sale price of
the Company's Common Stock on the Nasdaq National Market. As of April 30, 1996,
there were approximately 31 stockholders of record and an estimated 2,214
additional beneficial holders.

9
<PAGE> 10

DIVIDEND POLICY

The Company has not paid any cash dividends on its capital stock in the
past three fiscal years and does not anticipate paying cash dividends in the
foreseeable future. The Company intends to retain any earnings or other cash
resources to finance future growth of its business. In addition, the Company's
Credit Agreement restricts the payment of dividends on the Company's capital
stock. Any future determinations to pay cash dividends will be at the discretion
of the Company's Board of Directors and will be dependent upon the Company's
results of operations, financial condition and other factors deemed relevant by
the Board of Directors.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the issuance and sale of 2,223,276
shares of Common Stock offered hereby by the Company and the application of the
net proceeds as described under "Use of Proceeds." This table should be read in
conjunction with the financial statements and the notes thereto appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt...................................... $ 5,800 $ --
======= =======
Long-term debt, net of current portion................................. -- --
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized; none
issued............................................................ -- --
Common Stock, $.01 par value, 30,000,000 shares authorized;
13,960,446 shares issued and outstanding and 16,183,722 shares
issued and outstanding, as adjusted(1)............................ 140 162
Additional paid-in capital........................................... 22,327 113,801
Retained earnings.................................................... 20,085 20,085
------- -------
Total stockholders' equity...................................... 42,552 134,048
Total capitalization......................................... $42,552 $ 134,048
======= =======
</TABLE>

(1) Excludes 715,234 shares of Common Stock subject to outstanding options
granted by the Company under the Company's 1992 Stock Plan at a weighted
average exercise price of $14.09 per share and an additional 216,050 shares
reserved for issuance under such Plan as of March 31, 1996.

10
<PAGE> 11

SELECTED FINANCIAL AND OPERATING DATA

The income statement data and balance sheet data presented below for each
of the years ended December 31, 1992, 1993, 1994 and 1995 have been derived from
the Company's financial statements, which have been audited by Ernst & Young
LLP, independent auditors. The income statement data and balance sheet data
presented below for the year ended December 31, 1991, have been derived from the
Company's financial statements, which have been audited by Haddox, Reid, Burkes
& Calhoun, independent auditors. The income statement data and balance sheet
data presented below for each of the three months ended March 31, 1995 and 1996
are derived from unaudited financial statements which, in the opinion of
management of the Company, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. The
results for the three-month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
selected financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the financial statements and the notes thereto and other
financial information appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED
OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net sales........................ $32,028 $44,659 $65,119 $92,151 $130,094 $29,522 $40,235
Cost of sales.................... 23,482 33,041 48,357 68,122 97,973 22,143 30,647
------- ------- ------- ------- -------- ------- -------
Gross profit..................... 8,546 11,618 16,762 24,029 32,121 7,379 9,588
Selling, general and
administrative expenses........ 5,592 7,552 10,307 13,913 18,418 4,236 5,189
Merger costs and expenses........ -- -- -- -- -- -- 512
------- ------- ------- ------- -------- ------- -------
Operating income(2).............. 2,954 4,066 6,455 10,116 13,703 3,143 3,887
Interest expense................. (374) (1,242) (2,206) (629) (199) (31) (52)
Interest income.................. 2 -- -- 186 163 59 --
------- ------- ------- ------- -------- ------- -------
Income before income taxes....... 2,582 2,824 4,249 9,673 13,667 3,171 3,835
Income taxes(3).................. (950) (1,030) (1,619) (3,877) (5,507) (1,270) (1,513)
------- ------- ------- ------- -------- ------- -------
Net income(3).................... $ 1,632 $ 1,794 $ 2,630 $ 5,796 $ 8,160 $ 1,901 $ 2,322
======= ======= ======= ======= ======== ======= =======
Net income per share(4).......... $ .16 $ .19 $ .29 $ .45 $ .58 $ .14 $ .17
======= ======= ======= ======= ======== ======= =======
SELECTED OPERATING DATA:
Number of orders shipped......... 119,911 165,834 215,425 283,350 384,401
Average order size............... $ 234 $ 238 $ 270 $ 298 $ 313
Number of facilities served...... 3,039 3,699 4,390 6,314 8,555
BALANCE SHEET DATA (AT PERIOD
END)(1):
Working capital.................. $ 6,203 $ 9,026 $12,842 $28,469 $ 36,228 $30,278 $38,707
Total assets..................... 11,738 16,519 23,576 41,042 55,021 45,414 58,321
Total debt....................... 4,586 19,247 21,015 1,147 3,803 1,341 5,800
Stockholders' equity (deficit)... 3,393 (8,300) (5,670) 30,502 39,954 32,495 42,552
</TABLE>

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

(1) Restated to reflect the share exchange with Bayer Medical Service Systems,
Inc. accounted for as a pooling of interests. See Note 2 of Notes to
Financial Statements.

(4) Computed by dividing net income applicable to Common Stock (net income plus
interest requirements, less tax effects, of the Convertible Debentures) by
the weighted average number of shares of Common Stock and equivalents
outstanding. The conversion of the Convertible Debentures was effected upon
the closing of the Company's initial public offering in March 1994. For the
year ended December 31, 1991, the weighted average number of shares of
Common Stock and equivalents outstanding was 10,200,000, for the years ended
December 31, 1992, 1993, 1994 and 1995 was 10,200,170, 10,442,068,
13,073,040 and 13,993,595 respectively, and for the three months ended March
31, 1995 and 1996 was 13,947,724 and 14,047,309, respectively. See Note 1 of
Notes to Financial Statements. Net income per share and weighted average
number of shares of Common Stock and equivalents outstanding for each of the
years ended December 31, 1991, 1992, 1993 and 1994 have been restated to
reflect a two-for-one stock split in the form of a stock dividend effected
on May 25, 1995.

11
<PAGE> 12

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

The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
audited financial statements and notes thereto included elsewhere in this
Prospectus.

GENERAL

Gulf South's net sales have grown at a compound annual rate of 42.0% over
the past five years, from $32 million in 1991 to $130 million in 1995. The
Company attributes this increase to both the addition of new long-term care
customers and the increased penetration of existing customer accounts, including
increased sales to providers of home healthcare and sub-acute, rehabilitative
and transitional care. The Company's gross profit has increased from $8.5
million in 1991 to $32.1 million in 1995, while the Company's gross profit as a
percentage of net sales ("gross margin") has ranged from 24.7% to 26.7% within
that period. The Company believes that the decline in gross margin from 26.7% in
1991 to 24.7% in 1995 is primarily attributable to competitive pricing of
products sold by the Company in order to maintain or increase market share,
particularly with respect to the Company's large chain customers.

Management believes that the Company's current gross margins are consistent
with the Company's long-term strategy to expand sales with aggressive pricing
and to increase operating margins through reductions in selling, general and
administrative expenses as a percentage of increased net sales. To date, the
decrease in gross margins has been offset in part by participation in
volume-based rebate programs offered by vendors. Notwithstanding these actions,
there can be no assurance that the Company will be able to increase sales
through aggressive pricing or to increase operating margins through controlling
selling, general and administrative expenses; or that participation in vendor
programs will offset reductions in gross margin to a significant extent.

The Company is actively seeking to attract large chain customers and to the
extent that the Company is successful in attracting such customers, the
Company's operating expenses may increase. In order to effectively serve
additional large chain customers, the Company may be required to increase the
size or number of its distribution facilities, to expand its order processing
and delivery systems and to hire additional personnel. The Company may also be
required to lower prices to attract and maintain such customers. The Company's
selling, general and administrative expenses have decreased as a percentage of
net sales over the last five years, although such expenses have increased in
dollar amount in order to support higher sales volume over this period.
Consequently, operating income over this period grew at a compound annual rate
of 46.2%, from $3.0 million in 1991 to $13.7 million in 1995.

Since September 1995, the Company has completed the acquisition of three
medical supply distributors: L&M Medical, Inc., a regional medical supply
distributor serving the home healthcare markets of Southern California, Nevada
and Arizona; Bayer Medical Service Systems, Inc., a regional medical supply
distributor serving the long-term care markets of the Ohio Valley and Florida;
and Express Care, L.P., a regional medical supply distributor located in
Memphis, Tennessee. The acquisitions of L&M Medical and Express Care each
involved the purchase of operating assets for cash and have been accounted for
by the Company as purchases; the acquisition of Bayer Medical Service Systems
was a share exchange and has been accounted for as a pooling-of-interests. To
augment its internal growth, the Company will consider additional acquisitions
of medical supply distributors that serve complementary markets or that
supplement the Company's presence in existing markets. The Company incurred
merger costs and expenses in connection with the acquisition of Bayer Medical
Service Systems and it is likely that similar one-time merger costs and expenses
may be incurred in connection with any future acquisitions. See "Risk
Factors -- Risks Associated with Acquisition Strategy."

Economic, regulatory, political and demographic pressures, including cost
containment measures from public and private reimbursement sources, are
resulting in an increase in the demand for long-term care facilities to provide
medical services to patients at lower cost than traditional hospital care. See
"Business -- Industry Overview." The Company has experienced, and expects to
continue to experience, increasing

12
<PAGE> 13

demand for its products and services in this market, including from customers in
the home healthcare and sub-acute care segments, which it believes are growing
at a faster rate than the nursing home segment. The Company believes that sales
of enteral feeding, respiratory therapy and wound care supplies to home
healthcare providers and sub-acute care facilities will represent an increasing
proportion of its overall product mix. In order to maintain or increase market
share, particularly with respect to the Company's large chain customers, the
Company offers competitive pricing for its products, which has in the past
resulted in lower gross margins. The Company is actively seeking to attract
large chain customers and to the extent that the Company is successful, such
trend may continue.

Certain of the foregoing statements are forward-looking and involve risks
and uncertainties, and the Company's actual experience may differ materially
from that discussed above. Factors that may cause such a difference include, but
are not limited to, those discussed in "Risk Factors."

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated information
derived from the statements of income of the Company expressed as a percentage
of net sales for such year and the percentage change in such items compared to
the amount for the prior year.

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------- PERCENTAGE CHANGE
THREE MONTHS -------------------------------------
YEARS ENDED ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, 1994 1995 MARCH 31, 1996
------------------------- --------------- OVER OVER OVER
1993 1994 1995 1995 1996 1993 1994 MARCH 31, 1995
----- ----- ----- ----- ----- ----- ----- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 41.5% 41.2% 36.3%
Cost of sales....................... 74.3 73.9 75.3 75.0 76.2 40.9 43.8 38.4
----- ----- ----- ----- -----
Gross profit........................ 25.7 26.1 24.7 25.0 23.8 43.4 33.7 29.9
Selling, general and administration
expenses.......................... 15.8 15.1 14.2 14.4 12.9 35.0 32.4 22.5
Merger costs and expenses........... -- -- -- -- 1.3 -- -- --
----- ----- ----- ----- ----- ----- ----- ------
Operating income.................... 9.9 11.0 10.5 10.6 9.6 56.7 35.5 23.7
Interest expense.................... (3.4) (.7) (.1) (.1) (.1) (71.5) (68.4) 67.7
Interest income..................... -- 0.2 0.1 .2 -- -- (12.4) (100.0)
----- ----- ----- ----- -----
Income before income taxes.......... 6.5 10.5 10.5 10.7 9.5 127.7 41.3 20.9
Income taxes........................ (2.5) (4.2) (4.2) (4.3) (3.7) 139.5 42.0 19.1
----- ----- ----- ----- -----
Net income.......................... 4.0% 6.3% 6.3% 6.4% 5.8% 120.4 40.8 22.2
===== ===== ===== ===== =====
</TABLE>

Three Months Ended March 31, 1996 and 1995

Net sales increased by $10.7 million, or 36.3%, to $40.2 million for the
three months ended March 31, 1996 compared to $29.5 million for the same period
in 1995. This increase was attributable to the addition of new customers,
facility expansion by existing customers and increased sales penetration in
existing customer facilities.

Gross profit increased by $2.2 million, or 29.9%, to $9.6 million for the
three months ended March 31, 1996 compared to $7.4 million for the same period a
year ago, while gross margin decreased to 23.8% from 25.0% over the same period.
The decrease in gross margin was primarily due to a greater mix of higher
volume, large chain customers that require more competitive pricing, but was
offset in part by lower selling and servicing costs. In addition, the reduction
in gross margin was also offset in part by vendor performance incentives earned
by the Company through the achievement of certain predetermined sales and
purchase levels, and the taking of prompt pay discounts with certain vendors.

Selling, general and administrative expenses increased by $1.0 million, or
22.5%, to $5.2 million for the three months ended March 31, 1996 compared to
$4.2 million for the three months ended March 31, 1995, but as a percentage of
net sales decreased to 12.9% from 14.4% over the same period. The increase in
the amount of selling, general and administrative expenses was primarily
attributable to salaries, commissions and other costs associated with increased
staffing levels throughout the Company to support the expansion of the Company's
business during the period, and due in part to costs associated with the
operating activities of L&M Medical, Inc. The decrease in selling, general and
administrative expenses as a percentage of net sales was a result of maintaining
controls over such expenses.

13
<PAGE> 14

The Company incurred merger costs and expenses of $512,000 during the three
months ended March 31, 1996 in connection with the acquisition of Bayer Medical
Service Systems, Inc.

Interest expense increased by $21,000, or 67.7%, to $52,000 for the three
months ended March 31, 1996. This increase was attributable to increased
borrowings under the Company's revolving line of credit agreement for working
capital purposes.

Income taxes increased by $243,000 to $1.5 million for the three months
ended March 31, 1996 compared to $1.3 million for the same period in 1995. This
increase was attributable to higher taxable income, which was partially offset
by a decrease in the effective tax rate of 39.5% for the three months ended
March 31, 1996, as compared to 40.1% for the same period in 1995.

Years Ended December 31, 1995 and 1994

Net sales increased by $37.9 million, or 41.2%, to $130.1 million in 1995
compared to $92.2 million in 1994. The net sales growth in 1995 was attributable
to the addition of new customers, facility expansion by existing customers and
increased sales penetration in existing customer facilities.

Gross profit increased by $8.1 million, or 33.7%, to $32.1 million in 1995
compared to $24.0 million in 1994, while gross margin decreased to 24.7% from
26.1% over the same period. The decrease in gross margin was primarily due to a
greater mix of higher volume, large chain customers that require more
competitive pricing, but was offset in part by lower selling and servicing
costs. Other factors contributing to the decrease in gross margin were cost
increases associated with high volume, commodity items, such as latex exam
gloves and paper and resin products, and the Company's aggressive pricing
strategy. In addition, the reduction in gross margin was also offset in part by
vendor performance incentives earned by the Company through the achievement of
certain predetermined sales and purchase levels, and the taking of prompt pay
discounts with certain vendors.

Selling, general and administrative expenses increased by $4.5 million, or
32.4%, to $18.4 million in 1995 compared to $13.9 million in 1994, and as a
percentage of net sales decreased to 14.2% from 15.1% for the same period. The
increase in the amount of selling, general and administrative expenses was
primarily attributable to salaries, commissions and other costs associated with
increased staffing levels throughout the Company to support the expansion of the
Company's business during 1995. The decrease in selling, general and
administrative expenses as a percentage of net sales was a result of both the
economies associated with the Company's net sales growth, particularly with
large chain customers where support costs were generally lower, and increased
controls over such expenses.

Interest expense decreased by $430,000, or 68.4%, to $199,000 in 1995
compared to $629,000 in 1994. This decrease was a result of a portion of the net
proceeds of the Company's initial public offering in March 1994 being used to
repay the Company's outstanding long-term debt.

Income taxes increased by $1.6 million to $5.5 million in 1995 compared to
$3.9 million in 1994. This increase was attributable to higher taxable income,
offset slightly by a reduction in the effective tax rate from 40.3% to 40.1%.

Years Ended December 31, 1994 and 1993

Net sales increased by $27.0 million, or 41.5%, to $92.1 million in 1994
compared to $65.1 million in 1993. The net sales growth in 1994 was attributable
to the addition of new customers, facility expansion by existing customers and
increased sales penetration in existing customer facilities.

Gross profit increased by $7.3 million, or 43.4%, to $24.0 million in 1994
compared to $16.7 million in 1993, while gross margin increased to 26.1% from
25.7% over the same period. The increase in gross margin was primarily due to
the Company's greater participation in manufacturers' rebate programs and taking
prompt payment discounts.

Selling, general and administrative expenses increased by $3.6 million, or
35.0%, to $13.9 million in 1994 compared to $10.3 million in 1993, and as a
percentage of net sales decreased to 15.1% from 15.8% for the

14
<PAGE> 15

same period. The increase in the amount of selling, general and administrative
expenses was primarily attributable to salaries, commissions and other costs
associated with increased staffing levels throughout the Company to support the
expansion of the Company's business during 1994. The decrease in selling,
general and administrative expenses as a percentage of net sales was a result of
increased controls over such expenses.

Interest expense decreased by $1.6 million, or 71.5%, to $0.6 million in
1994 compared to $2.2 million in 1993. This decrease was a result of a portion
of the net proceeds of the Company's initial public offering in March 1994 being
used to repay the Company's outstanding long-term debt.

Income taxes increased by $2.3 million to $3.9 million in 1994 compared to
$1.6 million in 1993. This increase was attributable to higher taxable income
and an increase in the Company's provision for state income taxes, resulting in
an effective tax rate of 40.3% in 1994, as compared to 38.1% in 1993.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal cash requirement to date has been to fund working
capital in order to support growth of net sales. Through 1995, the Company
funded its working capital requirements principally with cash generated from
operations, proceeds from its bank borrowings and the sale of equity securities.

The Company's working capital was $38.5 million and its current ratio was
3.5 at March 31, 1996 as compared to working capital of $36.2 million and a
current ratio of 3.4 at December 31, 1995.

The Company has a revolving credit facility of $15.0 million, of which $9.2
million was available at March 31, 1996. Borrowings bear interest, at the option
of the Company, at prime or at LIBOR plus an amount ranging from 1% to 2.5% per
annum. A facility fee of 0.125% per annum is charged on the unused portion of
the revolving credit facility. Substantially all of the Company's assets would
collateralize any borrowings in excess of $7.5 million under the revolving
credit facility, which contains numerous restrictive covenants and financial
ratio requirements.

The Company made capital expenditures totaling $146,000 for the three
months ended March 31, 1996 principally to purchase telephone and computer
equipment. The Company expects to make capital expenditures of approximately
$1,500,000 for the balance of the fiscal year principally in connection with
improvements to or expansion of existing facilities and to purchase additional
telephone, computer and warehouse equipment.

The Company expects that available cash, borrowings available under its
existing revolving credit facility and funds generated from operations will be
sufficient to fund its operations through the first quarter of 1997.

The foregoing statements are forward-looking and involve risks and
uncertainties, and the Company's actual experience may differ materially from
that discussed above. Factors that may cause such a difference include, but are
not limited to, those discussed in "Risk Factors" as well as future events that
have the effect of reducing the Company's available cash balances, such as
unanticipated operating losses or capital expenditures related to possible
future acquisitions.

15
<PAGE> 16

QUARTERLY RESULTS (UNAUDITED)

The following table sets forth summary unaudited quarterly financial
information for each quarter in 1994 and 1995 and the first quarter of 1996.
Such summary unaudited quarterly financial information has been restated to
reflect the share exchange with Bayer Medical Service Systems, Inc., accounted
for as a pooling of interests. In the opinion of management, such information
has been prepared on the same basis as the audited financial statements
appearing elsewhere in this Prospectus and reflects all necessary adjustments
(consisting of only normal, recurring adjustments) for a fair presentation of
such unaudited quarterly results when read in conjunction with the audited
financial statements and notes thereto. The operating results for any quarter
are not necessarily indicative of results for any future period and there can be
no assurance that any trends reflected in such results will continue in the
future. The Company does not believe that its business is seasonal.

<TABLE>
<CAPTION>
1996 QUARTER
1994 QUARTER ENDING 1995 QUARTER ENDING ENDING
---------------------------------------- ---------------------------------------- ------------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 DEC 31 MAR 31
------- ------- ------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................ $20,566 $22,067 $23,809 $25,709 $29,523 $31,692 $33,253 $35,626 $ 40,235
Gross profit............. 5,371 5,714 6,209 6,735 7,379 7,901 7,958 8,882 9,588
Selling, general and
administrative
expenses............... 3,247 3,331 3,458 3,877 4,236 4,527 4,453 5,202 5,701
Operating income......... 2,124 2,383 2,751 2,858 3,143 3,374 3,505 3,680 3,887
Net income............... $ 943 $ 1,463 $ 1,667 $ 1,723 $ 1,901 $ 2,030 $ 2,079 $ 2,149 $ 2,322
</TABLE>

16
<PAGE> 17

BUSINESS

GENERAL

Gulf South is a leading national distributor of medical supplies and
related products to the long-term care industry. The Company provides products
and services to approximately 8,500 long-term care facilities in all 50 states.
The Company's customers range from independent nursing home operators to large
national chains offering a broad range of healthcare services, such as Beverly
Enterprises and Living Centers of America, as well as home healthcare providers,
hospices and sub-acute, rehabilitative and transitional care providers. Through
its nine full-service regional distribution centers, the Company offers both
national coverage to multi-facility customers and local service to individual
facilities and independent operators. Gulf South believes that it has achieved
its success to date due to the expertise gained from more than eleven years of
focus on the long-term care industry and its strong commitment to providing
superior service to its customers.

INDUSTRY OVERVIEW

According to the latest industry data available, sales of medical supplies
and related products to the nursing home segment of the long-term care industry
in the United States were more than $1.5 billion in 1993 and the Company
estimates that such sales are growing at an annual rate in excess of 10%. The
Company believes that the home healthcare and sub-acute care segments are
growing at a faster rate than the nursing home segment of the long-term care
industry. Medical supplies and related products are distributed to healthcare
providers through two primary channels of distribution. Distribution to
hospitals and surgical clinics generally is made through several large national
hospital distributors or directly by manufacturers. In contrast, distribution to
long-term care facilities typically is made through many local and regional
distributors as well as several national distributors.

Hospital Distribution. The hospital distribution market is characterized by
customers that have physical plants with large inventory storage capacity and
that serve large numbers of patients primarily with short-term acute-level
medical care. In order to service this market and maintain economies of scale,
the large national hospital distribution companies have established multiple
warehouse facilities near the largest concentrations of customers, generally in
urban or metropolitan areas, with an infrastructure that allows them to deliver
goods in bulk volume with frequent, and in many cases same day, service.
Hospital distributors typically maintain their own trucking fleets to deliver
products. Because of the specialized acute care services performed by hospitals,
hospital distributors must handle an extremely broad and diverse range of
products that focus on the short-term medical and surgical needs of hospital
patients.

Distribution to Long-Term Care Industry. Distributors serving the long-term
care market must address a different set of customer needs. The long-term care
market is highly fragmented, consisting of large numbers of independent
operators, small to mid-sized local and regional chains and several national
chains. Facilities are typically located in suburban and rural areas, often at
considerable distances from one another. Long-term care facilities generally
serve a limited patient population (typically from 20 to 200 beds) and have
relatively small physical plants with limited inventory storage capacity.
Although long-term care facilities do not demand immediate same-day delivery,
they require distributors to deliver products in small quantities (including
"broken case" shipments) on a consistent and reliable basis. Distributors
serving the long-term care market must generally have the capability to tailor
their ordering, shipping and billing processes to suit customers' individualized
needs. Because of the fragmented structure and the specialized service needs of
the long-term care market, long-term care facilities have traditionally been
served by locally- or regionally-based distributors which maintain supply
relationships with a limited number of customers within a finite geographic
area. However, these local and regional distributors are increasingly subject to
intense competitive pressures as a result of the consolidation of independent
long-term care operators by large national chains and a growing trend by
manufacturers to deal with fewer and larger distributors in this market.

Certain Trends Affecting the Long-Term Care Market. Economic, regulatory,
political and demographic pressures are combining to cause significant changes
in the long-term care industry. Cost containment pressures from governmental and
private reimbursement sources have led to a reduction in the length of

17
<PAGE> 18

expensive hospital stays and a resulting increase in the demand for long-term
care facilities to provide such services at a significantly lower cost than
hospitals. This trend has also led to a general increase in the acuity levels of
patients found in traditional long-term care facilities, as well as to the
emergence of sub-acute, rehabilitative, transitional and other specialized
long-term care facilities. Cost containment pressures have also contributed to a
need for greater efficiency by long-term care operators, and have led to some
consolidation among these healthcare providers. In addition, the demographic
pressures of an aging U.S. population have caused continued demand for
traditional custodial long-term care and other long-term care services. Census
Bureau data indicates that the number of persons aged 65 and older is expected
to increase from approximately 31.2 million in 1990 to approximately 34.5
million by the year 2000 and that the number of persons aged 85 years and older,
which is the fastest growing segment of the population and the largest consumer
of long-term care, is expected to increase from 3.1 million in 1990 to
approximately 4.1 million during the same period.

These trends affecting the long-term care industry have created the need
for an increasingly sophisticated distribution system for medical and personal
care products. Rising acuity levels within the patient population require
distributors to handle a broader range of products, including more sophisticated
medical supplies and equipment that are often used in small quantities. Industry
consolidation of long-term healthcare providers into regional and national
chains has created a need for distributors that can service facilities in
different locations with consistent and reliable service. Finally, cost
containment pressures and competitive requirements mandate that distributors
provide products and services to this market on an increasingly cost-effective
basis.

BUSINESS STRATEGY

Gulf South's principal business objective is to enhance its position as a
leading national distributor of medical and personal care products to the
long-term care industry. The Company believes that the following factors have
been of principal importance in its ability to achieve its present market
position:

Focus on Long-Term Care Industry. Since its founding more than eleven
years ago, Gulf South has focused primarily on serving the long-term care
market. Based on its industry experience and expertise, the Company has
developed the necessary distribution systems and services that assist
operators of long-term care facilities to source products, manage inventory
usage and control costs. The Company believes that its long-standing focus
on the needs of the long-term care industry has enabled it to develop and
execute a consistent management strategy and to foster stable, long-term
relationships with its customers.

Consistent and Reliable Customer Service. The Company offers customers
a high level of service and support which it believes differentiates it
from its competitors, particularly small to medium-sized local and regional
distributors. The Company's objective is to enable customers to place
orders easily and conveniently, to fill orders accurately and completely
and to deliver orders with prompt, consistent and reliable service. The
Company estimates that it ships more than 95% of all orders on the same day
the order is placed with a fill rate of 98.5% and that more than 90% of
customer orders are delivered to the customer within two days of receipt.
In addition, the Company offers customers various value-added services,
including monthly usage reports, inventory control/ancillary billing
software programs, next-day invoicing and customized programs designed to
assist customers to manage inventory usage and control costs. The Company
centralizes all customer ordering and invoicing and the delivery of
value-added services through its Jackson facility enabling the Company to
provide consistent levels of customer service to each individual facility
within multi-location chains.

Broad Product Offering at Competitive Prices. Gulf South presently
offers over 10,000 medical supplies and related products and updates its
product offerings regularly to meet its customers' changing needs. The
Company's sales volume, national coverage and stable vendor relationships
enable it to obtain products from suppliers at favorable negotiated prices.
Through the breadth of its product offerings and effective use of its
purchasing leverage with vendors, the Company has the capability to serve
as a competitively priced, single source of supply to a wide variety of
long-term care facilities.

18
<PAGE> 19

National Coverage With a Local Presence. With 11 full-service regional
distribution centers, each supported by a team of direct sales
representatives, the Company is able to provide consistent and reliable
coverage to mid-sized and large chains that operate in different geographic
areas. The Company also maintains a strong local presence in each region to
support independent operators and individual facilities within
multi-location chains.

GROWTH STRATEGY

The Company believes that the continuing implementation of the business
strategies described above, coupled with a focus on the following growth
strategies, will enhance its ability to expand its sales to existing and new
customers:

Emphasis on Attracting New Customers. The Company's strategy is to
increase its emphasis on attracting large regional and national chains as
well as to target both small chains and independent operators. The Company
believes that it can increase sales to large regional and national chains
by adding new distribution centers, expanding its existing distribution
centers and by hiring additional direct sales or other personnel and
through national account sales efforts. The Company believes that it can
increase its penetration of small chains and independent operators,
particularly in rural areas, by increasing its direct sales force,
utilizing group purchase organizations and by adding new distribution
centers. The Company believes that its high levels of customer service and
value-added support, breadth of its product offerings and competitive
pricing afford it a competitive advantage over the regional and local
distributors that typically target these customers.

Increased Penetration of Existing Customer Base. The Company intends
to capitalize on opportunities to expand sales to existing customers. The
Company believes that continuing industry consolidation will result in an
increase in the number of facilities operated by mid-sized and large chains
presently served by the Company. In addition, rising acuity levels within
the patient population of long-term care facilities are expected to
increase the breadth and amount of products required by the Company's
existing customers. The Company also believes that cost containment
pressures will continue to create incentives for facility operators to deal
increasingly with fewer distributors that, like the Company, can provide
inventory management and cost control programs.

Addressing Needs of Emerging Market Segments. The Company intends to
increase its focus on the home healthcare, hospice and sub-acute,
rehabilitative and transitional care segments of the long-term care market.
The Company believes that the home healthcare and sub-acute care segments
are growing at a faster rate than the nursing home segment of the long-term
care industry.

Acquisitions. The Company's strategy is to augment its internal growth
with the acquisition of medical supply distributors that serve
complementary markets or that supplement the Company's presence in existing
markets. On September 25, 1995, the Company purchased the operating assets
of L&M Medical, Inc., a regional medical supply distributor serving the
home healthcare markets of Southern California, Nevada and Arizona. L&M
Medical had revenues of approximately $12.0 million during the twelve-month
period prior to its acquisition. On February 29, 1996, the Company acquired
the stock of Bayer Medical Service Systems, Inc., a regional medical supply
distributor serving the long-term care markets of the Ohio Valley and
Florida. Bayer Medical Service Systems had revenues of approximately $10.0
million during the twelve-month period prior to its acquisition. On April
1, 1996, the Company purchased the operating assets of Express Care, L.P.,
a regional medical supply distributor located in Memphis, Tennessee.
Express Care provides distribution services to long-term care and home
health facilities owned, leased or managed by one of the largest national
nursing home chains, as well as other long-term care customers in the
southeastern United States. Express Care had revenues of approximately $6.5
million during the twelve-month period prior to its acquisition. See "Risk
Factors -- Risks Associated with Acquisition Strategy."

The foregoing discussion contains forward-looking statements which involve
risks and uncertainties, and the Company's actual experience may differ
materially from that discussed above. Factors that may cause such a difference
include, but are not limited to, those discussed in "Risk Factors."

19
<PAGE> 20

CUSTOMERS

The Company's customers range from independent nursing home operators to
large national chains offering a broad range of healthcare services, as well as
providers of home healthcare and sub-acute, rehabilitative and transitional
care. Nursing home operators tend to focus on providing custodial or skilled
nursing care, principally to elderly patients. In addition, many of these
facilities are increasingly setting aside a portion of their beds for sub-acute
care patients. Principal customers of the Company providing this form of
long-term care include Beverly Enterprises, Living Centers of America, National
HealthCorp. and Sun Healthcare Group. Home healthcare providers offer a wide
range of services such as pulmonary and infusion therapy to patients who have
been discharged from hospitals or sub-acute care facilities. Customers of the
Company providing home healthcare include Vitas Healthcare and Apria Healthcare.
Sub-acute, rehabilitative and transitional care providers generally serve
patients who are recovering from major injury, surgery or illness, but no longer
need the full services of a general acute care hospital. Principal customers of
the Company providing sub-acute, rehabilitative and transitional care include
Sun Healthcare Group.

The Company believes that approximately 75% of its 1995 net sales were
attributable to customers that focused primarily on providing custodial, skilled
nursing and sub-acute care, principally through nursing homes. The Company
estimates that large nursing home chains (operating more than 50 facilities) and
mid-sized nursing home chains (operating between 20 and 50 facilities) accounted
for approximately 39% of the facilities served by the Company in 1995 and 53% of
the Company's 1995 net sales. In the year ended December 31, 1995 and in the
three months ended March 31, 1996, the Company's largest five customers
accounted for approximately 38.8% and 32.3%, respectively, of net sales. Beverly
Enterprises accounted for 16.6% of net sales for the year ended December 31,
1995. The Company does not have long-term contracts with any of its customers.
Although the Company has not to date experienced any failure to collect accounts
receivable from its largest customers, an adverse change in the financial
condition of any of these customers, including as a result of a change in
governmental or private reimbursement programs, which would cause the accounts
receivable to become uncollectible or subject to extended payment terms, could
have a material adverse effect upon the Company's results of operations or
financial condition.

CUSTOMER SERVICE/ORDER ENTRY AND FULFILLMENT

The Company is committed to providing high levels of customer service and
support, the principal basis of which is accurate and complete order fulfillment
and reliable, consistent deliveries. As a result of its efficiency in order
entry and order fulfillment, the Company estimates that it ships more than 95%
of all orders on the same day the order is placed with a fill rate of 98%. Since
approximately 85% of customer orders are placed by telephone, the efficient
handling of incoming calls is critical to the Company's business. The Company
offers to its customers a toll-free telephone number and fax line and is
currently using its EDI ordering capability to accept electronically transmitted
orders from several of its major customers. All orders are received by 54
customer service representatives primarily at the Company's Jackson distribution
facility who utilize on-line computer terminals to enter customer orders and to
access information about products, product availability, pricing, promotions and
the customer's purchasing history. Following entry of an order, the order is
electronically transmitted to the distribution center nearest the customer's
facility and a packing slip for the entire order is printed for order
fulfillment. The Company imposes no minimum dollar amount on orders.

The Company believes that the reliable and consistent delivery of complete
and accurate orders is more important to its customers than immediate same-day
delivery. Accordingly, each distribution facility stocks the 4,000 most
frequently ordered products, with the Jackson facility stocking an additional
6,000 products. Product back orders average less than 2% of products ordered.
The Company estimates that approximately 60% of its orders are shipped by United
Parcel Service while the remaining orders are shipped by various common
carriers. The Company generally does not charge customers for shipping costs for
orders of $300 or more. Because the Company seeks to service a customer's entire
order from the distribution center nearest the customer's facility, the Company
estimates that 90% of the customers receive their orders within one or two
business days of the order date and 95% of the customers receive their orders
within three business days.

20
<PAGE> 21

All of the customer service operations of the Company are centralized at
its Jackson facility, enabling the Company to provide consistent levels of
customer service to all customers, including to each individual facility
operated by a large multi-location chain. The Company's customer service
representatives are provided with detailed product knowledge and receive ongoing
training regarding new products and promotions enabling them to provide prompt
and efficient service and accurately answer customer inquiries. From time to
time, the Company arranges for manufacturers to make presentations on new
products both to the customer service representatives and directly to its
customers.

An essential part of the Company's commitment to customer service and
customer relations is the value-added support services developed by the Company
to meet the unique needs of long-term care providers as well as the specialized
needs of individual customers. These services are made available both to large
chains and to independent operators and are generally provided by the Company
without cost to the customer. The principal value-added services currently
provided by the Company include the following:

Monthly Usage Reports. The Company has been producing monthly usage
reports for its customers since the early 1980's and has refined such
reports over time in response to customer needs. The Company believes that
usage reports are critical to managing inventory consumption and
controlling costs. These reports identify each product purchased by a
facility during the month, the quantity purchased, the price per product
and the total price paid and also provide year-to-date totals. The monthly
usage reports enable customers to manage supply requirements, maintain
inventory controls, prepare monthly and yearly forecasts and budgets and
enable operators of multi-facility chains to track product purchases on
either a facility-by-facility or chain-wide basis.

Inventory Control/Ancillary Billing Software Programs. Since 1990, the
Company has offered software programs which allow a customer to maintain a
real time inventory count and order products on a just-in-time basis, as
well as to monitor patients' utilization of products for Medicaid and
Medicare reimbursement purposes. A product identification number is
assigned to each product, and when a product is utilized or distributed
within the facility, the customer enters the product identification number
into its computer system either manually or by use of a bar code scanner.

Next-Day Invoicing. Because the Company's order entry and billing
system is centralized at its Jackson facility and because the Company seeks
to ship each entire order at one time from a single distribution center,
the Company is able to generate and mail a single invoice directly to the
customer within one business day of the order date. As a result, the
customer generally receives the invoice concurrently with or within one day
of receiving the order, facilitating efficient verification of charges and
reducing handling and administrative costs for the customer.

Customized Services. The Company frequently works directly with a
customer to provide services tailored to its specialized needs. The Company
will generate customized invoices for customers upon request. For those
customers that use an inventory control/ancillary billing system, the
Company can provide bar code labels to support the customer's software
program, making the scanning process simple for those customers. To enable
multi-facility chains to better manage costs and control product selection,
the Company provides each of its chain customers with a customized ordering
guide which contains only those products selected by the chain operator in
advance to be offered within each of its facilities. The Company presently
publishes approximately 30 customized ordering guides.

21
<PAGE> 22

PRODUCTS

The Company offers a comprehensive selection of over 10,000 medical
supplies and related products consisting largely of name brand items. The
breadth of the Company's product offerings and its special order capabilities
enable it to provide its customers with the convenience of one-stop shopping.
The following chart sets forth the principal categories of products offered by
the Company and the top selling types of products in each category, if
appropriate, and percentage of 1995 net sales in parenthesis:

<TABLE>
<S> <C>
MEDICAL/SURGICAL SUPPLIES (54.5%) ENTERAL FEEDING SUPPLIES (7.0%)
Wound care supplies Nutritional supplements
Exam gloves Pump sets
Urologicals Tubing
Blood/urine testing supplies
OTC (NON-LEGEND) DRUGS (3.5%)
PERSONAL CARE ITEMS (11.5%)
Soaps and shampoos RESPIRATORY THERAPY SUPPLIES (3.0%)
Personal hygiene items Oxygen Supplies
Paper products Ventilator supplies
Bedside utensils Trach and suction supplies

INCONTINENT SUPPLIES (13.5%) OSTOMY SUPPLIES (1.7%)
Adult diapers and underpads

DURABLE EQUIPMENT (5.3%)
Medical Instruments
</TABLE>

Wound care supplies, adult diapers and underpads and exam gloves were the
Company's top selling product types in 1995, accounting for 17.4%, 12.4% and
11.8%, respectively, of net sales. Some of the product categories which
experienced a growth rate of 50% or more in 1995 included wound care supplies,
exam gloves, enteral feeding supplies and respiratory therapy supplies.

The Company's Product Task Force regularly evaluates customer response to
product offerings and sales results in order to make informed product selections
and pricing decisions. Product selection is mainly a function of customer
preference, and the Company expects to continue to increase its product line
breadth as customer demand warrants. The Company has increased the number of
products offered from approximately 4,800 in 1989 to over 10,000 in 1995.

SALES AND MARKETING

At March 31, 1996, the Company employed a direct sales force of 56
professionals who have primary responsibility for maintaining relationships with
existing customers and identifying and soliciting new customers. Once a customer
relationship is established, the sales force serves primarily to supplement and
support sales through the Company's catalogs. Three sales professionals
concentrate exclusively on national accounts, calling on the corporate offices
of the national long-term care chains. The sales force supports each of the
Company's 11 regional distribution centers, enabling the Company to establish a
local sales presence in the markets served by each center.

The Company trains its sales professionals through an ongoing program of
identifying and solving customer needs, augmenting selling skills and providing
detailed product knowledge. Manufacturers support this program by assisting from
time to time in the training of the Company's sales professionals.

The Company markets its products to customers primarily through a variety
of catalogs. The Company annually publishes its standard catalog (approximately
100 pages in length), which is designed to serve as a basic resource tool for
customers. The standard catalog features approximately 1,600 products and
provides detailed product descriptions, photographs and helpful technical
information relating to products, if appropriate.

22
<PAGE> 23

Approximately twice a year, the Company publishes a standard ordering guide
which contains pricing information and easy-to-follow ordering procedures for
the approximately 750 top selling products carried by the Company. The Company
also publishes for certain of its chain customers customized ordering guides
which contain only those products requested to be included by the chain. In
addition, the Company has introduced specialty ordering guides based on product
category, such as home respiratory therapy supplies. The Company guarantees the
published pricing information for the life of each of its ordering guides
(generally six months).

PURCHASING

The Company believes that effective purchasing is a key element to
providing name brand products at competitive prices. The Company believes that
its high volume purchases have increased its purchasing power with its primary
suppliers, resulting in volume discounts and rebates, favorable return policies
and promotional allowances.

The Company regularly evaluates supplier relationships and considers
alternate sourcing as appropriate to assure competitive costs and quality
standards. No single supplier represented more than 12% of the total cost of the
products purchased by the Company in 1995. The Company's largest suppliers in
1995 were: Kendall Healthcare Products Company, Baxter Healthcare, Inbrand,
Becton, Dickinson & Co., Ross Labs and Bristol-Myers Squibb Company. In 1995,
these suppliers accounted for approximately 30% of the cost of the products
purchased by the Company in 1995. Kendall Healthcare Products Company accounted
for over 10% of the total cost of products purchased by the Company in 1995. As
is customary in the industry, the Company generally does not have any long-term
contracts with its suppliers.

The Company's management information system is used to monitor and manage
its inventory. Generally, the Company has been able to return any unsold or
obsolete inventory to the manufacturer, resulting in negligible inventory
write-offs. At March 31, 1996, the Company maintained an investment in inventory
of approximately $18.5 million, of which approximately $320,000 (less than 2%)
was over 180 days old. The Company turned its inventory approximately seven
times during 1995. The Company also utilizes its management information system
to minimize its inventory out-of-stock position.

DISTRIBUTION FACILITIES

The following table provides certain information about each of the
Company's eleven facilities:

<TABLE>
<CAPTION>
EXPIRATION OF
LOCATION SQUARE FEET LEASED/OWNED LEASE TERM
-------------------------------------- ----------- ------------ --------------
<S> <C> <C> <C>
Jackson, MS........................... 38,000 owned N/A
Sacramento, CA........................ 42,480 leased September 1999
Dallas, TX............................ 43,529 leased February 2001
Harrisburg, PA........................ 31,500 leased November 1996
Los Angeles, CA....................... 31,450 leased July 2001
Stockton, CA.......................... 30,000 leased May 1997
Atlanta, GA........................... 26,000 leased December 1996
Madison, WI........................... 26,000 leased December 1998
Columbus, OH.......................... 23,425 leased January 1997
Phoenix, AZ........................... 19,140 leased April 1999
Orlando, FL........................... 11,700 leased October 1999
</TABLE>

COMPETITION

The Company faces intense competition from many regional and local
distributors in its markets as well as from several companies that distribute
products to long-term care facilities on a national basis. The Company believes
that there are three principal competitors that distribute products to long-term
care facilities on a national basis, General Medical Corporation, Medline
Industries, Inc. and Redline Medical

23
<PAGE> 24

Supply Co. In addition, certain national long-term care chains buy products and
supplies directly from manufacturers and distribute such products directly to
their facilities. Although several national hospital distributors and healthcare
manufacturers presently sell to the long-term care market, to date the long-term
care market has not been a primary focus for such distributors and
manufacturers. Barriers to entry for distribution in the long-term care market
are relatively low, and the risk of new competitors entering the market,
particularly in local areas, is high. Certain of the Company's current
competitors, including many national hospital distributors, have substantially
greater capital resources, sales and marketing experience and distribution
capabilities than the Company. In response to competitive pressures from any of
its current or future competitors, the Company may be required to lower selling
prices in order to maintain or increase market share, and such measures could
adversely affect the Company's operating results.

The Company believes that the principal competitive factors in distributing
products to the long-term care market are the quality and level of customer
service, product pricing, breadth and quality of products offered and
consistency and stability of business relationships with customers. The Company
believes that it competes favorably with respect to each of these factors. In
particular, the Company believes it differentiates itself from the smaller local
and regional distributors with which it competes on account of the breadth of
its product offerings, its ability to acquire goods from suppliers at favorable
prices and its national coverage which enables it to offer consistent and
reliable service to multi-location chains. In addition, the Company believes
that it differentiates itself from most other national distributors in the
long-term care market as a result of its focus on providing services that can be
integrated with customers' internal budgetary and cost containment systems.

GOVERNMENT REGULATION

The Company's business is subject to regulation under the federal Food,
Drug and Cosmetic Act and the Occupational Safety and Health Act, as well as
under certain state regulations, because of its labeling, storage and handling
of certain drugs and medical devices. The Company believes that sales of
products that are subject to such regulation are not material in the aggregate.
The Company believes that it is in substantial compliance with such federal and
state laws and regulations and possesses all material licenses and permits
required for the conduct of its business.

EMPLOYEES

As of March 31, 1996, the Company employed 395 persons (all on a full-time
basis), of whom 80 were engaged in management, administration and accounting, 56
were engaged in direct sales, 87 were engaged in customer service, purchasing
and credit collection and 172 were engaged in warehouse and distribution
operations. Of these employees, 160 were located at the Company's corporate
headquarters and distribution center in Jackson, Mississippi. The Company
considers its employee relations to be excellent. No employees are covered by
collective bargaining agreements.

LEGAL PROCEEDINGS

The Company is a defendant from time to time in lawsuits incidental to its
business. The Company currently is not a party to, and none of its property is
subject to, any material legal proceedings.

24
<PAGE> 25

MANAGEMENT

The following table sets forth certain information with respect to the
directors and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------------------- --- --------------------------------------
<S> <C> <C>
Thomas G. Hixon......................... 52 President, Chief Executive Officer and
Chairman of the Board
Guy W. Edwards.......................... 39 Chief Financial Officer, Senior Vice
President, Treasurer and Director
Steven L. Richardson.................... 37 Vice President of Operations
John C. Piper........................... 59 Vice President of Sales and Marketing
Michael C. Tibbitts..................... 48 Vice President of Business Development
Stanton Keith Pritchard................. 31 Vice President of Corporate
Development, Secretary and General
Counsel
Richard W. Bayer........................ 44 Vice President of Market Development
David L. Bogetz......................... 40 Director
Melvin L. Hecktman...................... 56 Director
William W. McInnes...................... 47 Director
</TABLE>

Thomas G. Hixon has served as President, Chief Executive Officer and
director of the Company since 1985, and Chairman of the Board since March 1995.
Mr. Hixon served as General Manager of the Company from 1985 until March 1995.

Guy W. Edwards has been employed by the Company since 1986, serving as Vice
President of Operations from 1986 to 1991, as Vice President of Finance from
1991 until February 1995, as Senior Vice President from February 1995 to the
present and as Chief Financial Officer from 1991 to the present. Mr. Edwards has
served as a director of the Company since June 1992. Mr. Edwards is a Certified
Public Accountant.

Steven L. Richardson has been employed by the Company since its inception
in 1982, initially as a salesman and, from 1987 to 1991, as director of
operations for the Company's Western Division. Mr. Richardson has served as Vice
President of Operations since 1991.

John C. Piper has been employed by the Company in various sales capacities
since 1982. Mr. Piper became Vice President of Sales and Marketing in 1989.

Michael C. Tibbitts has been employed by Company since 1991 as Vice
President of Business Development. Prior to joining the Company, he was employed
for 19 years by Johnson & Johnson, for two divisions: Sterile Design (which
manufactured and marketed kit packages) and Surgikos (which manufactured and
marketed surgical supplies).

Stanton Keith Pritchard has been employed by the Company since July 1993.
He has been Secretary and General Counsel since March 1995 and Vice President
Corporate Development since April 1996. From 1990 until July 1993, Mr. Pritchard
was employed as Vice President by First Southeast Corporation, a private real
estate and investment management company.

Richard W. Bayer has been employed by the Company since February 1996 as
Vice President of Market Development. Mr. Bayer founded Bayer Medical Service
Systems, Inc. in 1985 and served as its President and Chief Executive Officer
from its incorporation until February 1996, when it was acquired by the Company.

David L. Bogetz has been a director of the Company since May 1993. Since
January 1996, Mr. Bogetz has served as Senior Vice President, Private Equity
Management of The Chicago Corporation. From March 1990 and March 1993 until
December 1995, Mr. Bogetz served as Investment Manager and Portfolio Manager,
respectively, for Sears Investment Management Co., a wholly-owned subsidiary of
Sears, Roebuck and Co., which manages the Sears pension and profit sharing
funds. From 1985 until 1990, Mr. Bogetz served as Vice President of Walnut
Capital Corp., a venture capital firm.

Melvin L. Hecktman has been a director of the Company since May 1993. Mr.
Hecktman was associated with United Stationers, Inc. as an employee or director
for 33 years and served as its Vice Chairman from 1989 to 1993. He is presently
President of Hecktman Management, an investment management and consulting firm
and a partner of Commonwealth Capital Partners, a merchant banking group. From
1985 until

25
<PAGE> 26

February of 1990, Mr. Hecktman also served as Chairman of Joshua Meier Corp., a
manufacturer of presentation products.

William W. McInnes has been a director of the Company since May 1993. Prior
to February 1993, Mr. McInnes was Vice President Finance and Treasurer of
Hospital Corporation of America, where he was employed for 14 years. Mr. McInnes
is currently a director of The Infinity Funds, Inc. and McInnes & Co.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1996 (except as noted),
as adjusted to reflect the sale of the shares offered hereby (i) by each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) by each director of the Company, (iii) by each of
the executive officers of the Company, (iv) by all directors and executive
officers of the Company as a group and (v) by each Selling Stockholder.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE NUMBER OF AFTER THE
OFFERING(1)(2)(3) SHARES TO OFFERING(1)(2)(3)
NAME AND ADDRESS OF ----------------------- BE SOLD IN -----------------------
BENEFICIAL OWNER SHARES PERCENTAGE THE OFFERING SHARES PERCENTAGE
- --------------------------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Thomas G. Hixon........................ 2,198,136 15.7% 500,000 1,698,136 10.5%
1045 NewLand Drive
Jackson, MS 39211
Pilgrim Baxter & Associates, Ltd.(4)... 1,071,700 7.7% -- 1,071,700 6.6%
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Investment Advisors, Inc.(5)........... 736,500 5.3% -- 736,500 4.6%
3700 First Bank Place, Box 357
Minneapolis, MN 55440
William Blair & Company, L.L.C.(4)..... 707,700 5.1% -- 707,700 4.4%
222 West Adams Street
Chicago, IL 60606
The Chase Manhattan Bank, N.A., as
trustee of the Sears Pension Plan.... 120,000 * 80,000 40,000 *
Guy W. Edwards......................... 74,338 * -- 74,338 *
Steven L. Richardson................... 74,338 * -- 74,338 *
John C. Piper.......................... 56,988 * 37,000 19,988 *
Michael C. Tibbitts.................... 37,498 * 25,000 12,498 *
Stanton Keith Pritchard................ 131,400 * 20,000 111,400 *
Richard W. Bayer....................... 151,724 1.1% 96,724 55,000 *
David L. Bogetz........................ 34,000 * -- 34,000 *
Melvin L. Hecktman..................... 25,000 * 10,000 15,000 *
William W. McInnes..................... 17,002 * 8,000 9,002 *
All executive officers and directors as
a group (10 persons)................. 2,800,424 19.7% 696,724 2,103,700 12.8
</TABLE>

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

* Less than 1% of the outstanding Common Stock.

(1) The persons and entities named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by them, except as noted in the footnotes below.

26
<PAGE> 27

(2) The number of shares of Common Stock deemed outstanding prior to this
Offering includes (i) 13,960,446 shares of Common Stock outstanding as of
March 31, 1996 and (ii) shares of Common Stock issuable pursuant to options
held by the respective person which may be exercised within 60 days after
the date of this Prospectus, as set forth below. The number of shares of
Common Stock deemed to be outstanding after this Offering includes an
additional 2,223,276 shares of Common Stock which are being offered for sale
by the Company in this Offering.

(3) Includes options to purchase shares of Common Stock which may be exercised
within 60 days of the date of this Prospectus as follows: Mr. Hixon, 64,840
shares; Mr. Edwards, 17,001 shares; Mr. Richardson, 54,841 shares; Mr.
Piper, 12,001 shares; Mr. Tibbitts, 37,260 shares; Mr. Pritchard, 10,400
shares; Mr. Bogetz, 34,000 shares; Mr. Hecktman, 19,000 shares; and Mr.
McInnes, 17,002 shares.

(4) Reflects ownership as of December 31, 1995.

(5) These shares are owned by various custodian banks for various clients of
Investment Advisors, Inc., a registered investment advisor, which may be
deemed to be the beneficial owner of such shares in its capacity as
investment advisor. None of the individual clients or custodian banks holds
more than 5% or more of the shares. Reflects ownership as of December 31,
1995.

27
<PAGE> 28

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.01 per share and 1,000,000 shares of Preferred
Stock, par value $.01 per share.

COMMON STOCK

As of March 31, 1996, there were 13,960,446 shares of Common Stock
outstanding and held of record by approximately 31 stockholders. The Company
believes that shares of the Company's Common Stock held in bank, money
management, institution and brokerage house "nominee" names may account for at
least an estimated 2,214 additional beneficial holders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
2,223,276 shares of Common Stock offered by the Company hereby, there will be
16,183,722 shares of Common Stock outstanding upon the closing of this offering.

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of holders of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are, and
the shares offered by the Company in this offering will be, when issued and paid
for, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time up
to an aggregate of 1,000,000 shares of Preferred Stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change of control of the Company. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future. The Company has no present plans to issue any shares of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock.

The Company's Amended and Restated Certificate of Incorporation (the
"Charter") provides for the division of the Board of Directors into three
classes as nearly equal in size as possible with staggered three-year terms. See
"Management -- Executive Officers and Directors." Any director may be removed
without cause only by the vote of at least 75% of the shares entitled to vote
for the election of directors.

28
<PAGE> 29

The Charter empowers the Board of Directors, when considering a tender
offer or merger or acquisition proposal, to take into account factors in
addition to potential economic benefits to stockholders. Such factors may
include (i) comparison of the proposed consideration to be received by
stockholders in relation to the then current market price of the Company's
capital stock, the estimated current value of the Company in a freely negotiated
transaction and the estimated future value of the Company as an independent
entity; (ii) the impact of such a transaction on the employees, suppliers and
customers of the Company and its effect on the communities in which the Company
operates; and (iii) the ability of the Company to fulfill its objectives under
applicable statutes and regulations.

The Charter provides that any action required or permitted to be taken by
the stockholders of the Company may be taken only at a duly called annual or
special meeting of the stockholders and that special meetings may be called only
by the Chairman of the Board of Directors or the President of the Company. These
provisions could have the effect of delaying until the next annual stockholders
meeting, stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Company's
Common Stock, because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders meeting, and not by written consent.

The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Charter requires the affirmative vote of the holders of at least 75% of the
outstanding voting stock of the Company to amend or repeal any of the foregoing
Charter provisions, and to reduce the number of authorized shares of Common
Stock and Preferred Stock. An 80% vote is required to amend or repeal the
Company's Amended and Restated By-Laws (the "By-Laws"). The By-Laws may also be
amended ore repealed by a majority vote of the Board of Directors. Such
stockholder vote would be in addition to any separate class vote that might in
the future be required pursuant to the terms of any Preferred Stock that might
be outstanding at the time any such amendments are submitted to stockholders.

The Company's By-Laws provide that for nominations for the Board of
Directors or for other business to be properly brought by a stockholder before a
meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice generally must be delivered not less than 60 days nor more
than 90 days prior to an annual meeting. With respect to special meetings,
notice must be generally be delivered not more than 90 days prior to such
meeting and not later than the later of 60 days prior to such meeting or 10 days
following the date on which public announcement of such meeting is first made by
the Company. The notice must contain, among other things, certain information
about the stockholder delivering the notice and, as applicable, background
information about each nominee or a description of the proposed business to be
brought before the meeting.

The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.

The Charter contains certain provisions permitted under the DGCL relating
to the liability of directors. These provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The By-Laws also contain provision
indemnifying the directors and officers of the Company to the fullest extent
permitted by the DGCL. The Company believes that these provisions will assist
the Company in attracting and retaining qualified individuals to serve as
directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Harris Trust and
Saving Bank, Chicago, Illinois.

29
<PAGE> 30

UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each of the Underwriters (the "Underwriters")
named below have severally agreed to purchase, and the Company and the Selling
Stockholders have agreed to sell to such Underwriter, the number of shares of
Common Stock set forth opposite the name of such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------- ----------
<S> <C>
Smith Barney Inc........................... 700,000
William Blair & Company, L.L.C............. 700,000
Montgomery Securities...................... 700,000
Bear, Stearns & Co. Inc.................... 75,000
J.C. Bradford & Co......................... 45,000
Dean Witter Reynolds Inc................... 75,000
Donaldson, Lufkin & Jenrette
Securities Corporation................... 75,000
A.G. Edwards & Sons, Inc................... 75,000
First of Michigan Corporation.............. 45,000
Goldman, Sachs & Co........................ 75,000
C.L. King & Associates, Inc................ 45,000
McDonald & Company Securities, Inc......... 45,000
Morgan Stanley & Co. Incorporated.......... 75,000
Pennsylvania Merchant Group Ltd............ 45,000
Rauscher Pierce Refsnes, Inc............... 45,000
Raymond James & Associates, Inc............ 45,000
Sutro & Co. Incorporated................... 45,000
Wessels, Arnold & Henderson, L.L.C......... 45,000
Wheat, First Securities, Inc............... 45,000
---------
Total.............................. 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
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., William Blair & Company,
L.L.C. and Montgomery Securities are acting as the Representatives, propose to
offer part of the shares of Common Stock directly to the public at the public
offering price set forth on the cover page of this Prospectus and part of the
shares to certain dealers at a price that represents a concession not in excess
of $1.17 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.

The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the price to public set forth on the cover
page of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.

The Company, its executive officers and directors, and the Selling
Stockholders have agreed that, for a period of 90 days from the date of this
Prospectus, they will not, without the prior consent of Smith Barney Inc.,
offer, sell, contract to sell, or otherwise dispose of, any shares of Common
Stock of the Company or any securities convertible into, or exercisable or
exchangeable for Common Stock of the Company, except, in the case of the
Company, pursuant to the grant or exercise of options under the Company's stock
option plans and shares issuable to acquire assets or businesses.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.

The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Common Stock
during a "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 or other

30
<PAGE> 31

members of the selling group, if any, to continue to make a market in the Common
Stock subject to the condition, 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, certain Underwriters and other members of the selling group, if any,
may engage in passive market making in the Common Stock during the cooling-off
period.

According to ownership records as of December 31, 1995, William Blair &
Company, L.L.C. beneficially owned, prior to this Offering, 5.1% of the
outstanding Common Stock of the Company, and will beneficially own, after this
Offering, 4.4% of the outstanding Common Stock of the Company.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Testa, Hurwitz & Thibeault,
LLP, Boston, Massachusetts. A partner of Testa, Hurwitz & Thibeault, LLP is the
holder of 2,000 shares of Common Stock. Certain legal matters in connection with
this Offering will be passed upon for the Underwriters by Sidley & Austin,
Chicago, Illinois.

EXPERTS

The financial statements of the Company as of December 31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995, appearing
in this Prospectus and in the Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere in this Prospectus and in the Registration Statement, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

ADDITIONAL 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 may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison Street,
Chicago, IL 60621; and Seven World Trade Center, New York, NY 10048. Copies of
such material can be obtained from the Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Company's Common Stock is traded on the Nasdaq National Market, and
such reports, proxy statements and other information may be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information
contained in the Registration Statement. For further information with respect to
the Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any agreement
or other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of such
agreement filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected at the public
reference facilities maintained by the Commission as described above, and copies
of all or any part thereof may be obtained from such facilities upon payment of
the prescribed fees.

31
<PAGE> 32

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference in this
Prospectus:

(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, including portions of the Company's Proxy Statement dated March 15,
1996 for its Annual Meeting of Stockholders held on April 18, 1996; and

(ii) The section entitled "Description of Registrant's Securities to
be Registered" contained in the Company's Registration Statement on Form
8-A filed under the Exchange Act and declared effective March 24, 1994,
including any amendment or reports filed for the purpose of updating such
description.

Each document subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
of the shares of Common Stock made hereby, shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such document. 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 any such person, a copy of any document described
above (other than exhibits). Requests for such copies should be directed to
Stanton Keith Pritchard, Secretary, Gulf South Medical Supply, Inc., 426
Christine Drive, Ridgeland, Mississippi 39157; telephone (601) 856-5900.

Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is 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.

32
<PAGE> 33

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)........ F-3
Statements of Income for the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1995 and 1996 (unaudited).............................. F-4
Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1996 (unaudited).......................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1995 and 1996 (unaudited).............................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 34

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Gulf South Medical Supply, Inc.

We have audited the accompanying balance sheets of Gulf South Medical
Supply, Inc. as of December 31, 1994 and 1995, and the related statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 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 Gulf South Medical Supply,
Inc. as of December 31, 1994, and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Jackson, Mississippi
February 14, 1996, except for Note 2, as to which the date is April 19, 1996.

F-2
<PAGE> 35

GULF SOUTH MEDICAL SUPPLY, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 9,151 $ 2,147 $ 1,087
Trade accounts receivable, less allowance for doubtful
accounts of $1,203 in 1994, $1,717 in 1995 and $1,651
(unaudited) in 1996...................................... 19,266 28,742 31,662
Inventories................................................. 9,438 16,874 18,500
Prepaid income taxes........................................ -- 1,032 --
Prepaid expenses and other.................................. 589 1,836 2,563
Deferred income taxes (Note 4).............................. 565 664 664
------- ------- -------
Total current assets................................ 39,009 51,295 54,476
Property and equipment:
Land........................................................ 567 567 567
Building.................................................... 598 600 600
Equipment................................................... 1,042 1,853 2,002
------- ------- -------
2,207 3,020 3,169
Accumulated depreciation.................................... (623) (882) (973)
------- ------- -------
1,584 2,138 2,196
Other assets:
Goodwill (Note 2)........................................... -- 1,141 1,110
Notes receivable from affiliate (Note 5).................... 413 413 413
Other assets................................................ 36 34 126
------- ------- -------
449 1,588 1,649
------- ------- -------
Total assets........................................ $41,042 $55,021 $58,321
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank........................................ $ 1,147 $ 1,403 $ --
Trade accounts payable...................................... 7,418 9,913 7,927
Accrued expenses and other current liabilities.............. 1,975 1,351 2,042
Current portion of long-term debt........................... -- 2,400 5,800
------- ------- -------
Total current liabilities........................... 10,540 15,067 15,769
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 1,000,000
Issued and outstanding shares -- none
Common stock, $.01 par value:
Authorized shares -- 30,000,000
Issued and outstanding shares -- 13,728,734 in 1994,
13,918,096 in 1995 and 13,960,446 (unaudited) in 1996.... 137 139 140
Paid-in capital............................................. 20,762 22,052 22,327
Retained earnings............................................. 9,603 17,763 20,085
------- ------- -------
Total stockholders' equity.......................... 30,502 39,954 42,552
------- ------- -------
Total liabilities and stockholders' equity.......... $41,042 $55,021 $58,321
======= ======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 36

GULF SOUTH MEDICAL SUPPLY, INC.

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ----------------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $65,119 $92,151 $130,094 $29,522 $40,235
Cost of sales............................. 48,357 68,122 97,973 22,143 30,647
------- ------- -------- ------- -------
Gross profit.............................. 16,762 24,029 32,121 7,379 9,588
Selling, general and administrative
expenses................................ 10,307 13,913 18,418 4,236 5,189
Merger costs and expenses (Note 2)........ -- -- -- -- 512
------- ------- -------- ------- -------
Operating income.......................... 6,455 10,116 13,703 3,143 3,887
Interest expense.......................... (2,206) (629) (199) (31) (52)
Interest income........................... -- 186 163 59 --
------- ------- -------- ------- -------
Income before income taxes................ 4,249 9,673 13,667 3,171 3,835
Income taxes (Note 4)..................... (1,619) (3,877) (5,507) (1,270) (1,513)
Net income................................ $ 2,630 $ 5,796 $ 8,160 $ 1,901 $ 2,322
======= ======= ======== ======= =======
Net income per share...................... $ 0.29 $ 0.45 $ 0.58 $ 0.14 $ 0.17
======= ======= ======== ======= =======
</TABLE>

See accompanying notes.

F-4
<PAGE> 37

GULF SOUTH MEDICAL SUPPLY, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
----------- ------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993............. 10,200,000 $102 $ 3,396 $ 1,000 $(13,000) $ (8,502)
Acquisition -- pooling of interest
(Note 2).......................... 151,724 1 24 177 -- 202
Net income for 1993.................. -- -- -- 2,630 -- 2,630
---------- ---- -------- -------- -------- --------
Balance at December 31, 1993........... 10,351,724 103 3,420 3,807 (13,000) (5,670)
Net income for 1994.................. 5,796 5,796
Public offering of common stock...... 3,240,000 32 23,350 -- -- 23,382
Retirement of treasury stock......... (6,120,000) -- (13,000) -- 13,000 --
Conversion of convertible debentures
into common stock................. 6,120,000 -- 6,500 -- -- 6,500
Issuance of common stock from
exercise of options............... 137,010 2 37 -- -- 39
Tax benefit of stock options
exercised......................... -- -- 455 -- -- 455
---------- ---- -------- -------- -------- --------
Balance at December 31, 1994........... 13,728,734 137 20,762 9,603 -- 30,502
Net income for 1995.................. -- -- -- 8,160 -- 8,160
Issuance of common stock from
exercise of options............... 189,362 2 110 -- -- 112
Tax benefit of stock options
exercised......................... -- -- 1,180 -- -- 1,180
---------- ---- -------- -------- -------- --------
Balance at December 31, 1995........... 13,918,096 139 22,052 17,763 -- 39,954
Net income for three months ended
March 31, 1996 (unaudited)........ 2,322 2,322
Issuance of common stock from
exercise of options (unaudited)... 42,350 1 170 -- -- 171
Tax benefit of stock options
exercised (unaudited)............. -- -- 105 -- -- 105
---------- ---- -------- -------- -------- --------
Balance at March 31, 1996
(unaudited).......................... 13,960,446 $140 $ 22,327 $ 20,085 $ -- $ 42,552
========== ==== ======== ======== ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 38

GULF SOUTH MEDICAL SUPPLY, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ----------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................. $ 2,630 $ 5,796 $ 8,160 $ 1,901 $ 2,322
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization............ 175 223 327 61 119
Deferred income tax credits.............. (262) (173) (99) -- --
Provision for doubtful accounts.......... 505 525 869 217 35
Provision for inventory obsolescence..... 70 -- -- -- --
Changes in operating assets and
liabilities net of assets acquired and
liabilities assumed of L&M Medical,
Inc.:
Increase in trade accounts
receivable.......................... (5,146) (5,798) (8,940) (4,005) (2,955)
Increase in inventories............... (1,533) (2,958) (6,101) (1,526) (1,626)
(Increase) decrease in prepaid income
taxes, prepaid expenses and other... (135) (382) (2,249) 156 305
Increase (decrease) in trade accounts
payable............................. 1,784 1,820 2,495 1,695 (1,986)
Increase in accrued expenses.......... 637 459 56 490 796
------- ------- ------- ------- -------
Net cash used in operating activities...... (1,275) (488) (5,482) (1,011) (2,990)
INVESTING ACTIVITIES
Purchase of L&M Medical, Inc. ............. -- -- (3,749) -- --
Purchases of equipment..................... (238) (359) (539) (235) (146)
(Increase) decrease in other assets........ 7 3 (2) (10) (92)
------- ------- ------- ------- -------
Net cash used in investing activities...... (231) (356) (4,290) (245) (238)
FINANCING ACTIVITIES
Principal payments on long-term debt....... (80) (7,103) -- -- --
Net borrowings (payments) under revolving
line of credit........................... 2,086 (6,927) 2,656 194 1,997
Proceeds from issuance of common stock..... -- 23,382 -- -- --
Proceeds from exercise of stock options.... -- 39 112 92 171
------- ------- ------- ------- -------
Net cash provided by financing
activities............................... 2,006 9,391 2,768 286 2,168
Net increase (decrease) in cash and cash
equivalents.............................. 500 8,547 (7,004) (970) (1,060)
Cash and cash equivalents at beginning of
period................................... 104 604 9,151 9,151 2,147
------- ------- ------- ------- -------
Cash and cash equivalents at end of
period................................... $ 604 $ 9,151 $ 2,147 $ 8,181 $ 1,087
======= ======= ======= ======= =======
NON-CASH TRANSACTIONS:
Conversion of convertible subordinated
debentures............................... $ -- $ 6,500 $ -- $ -- $ --
======= ======= ======= ======= =======
Tax benefit of stock options exercised..... $ -- $ 455 $ 1,180 $ -- $ 105
======= ======= ======= ======= =======
Cash paid for:
Interest................................... $ 2,155 $ 1,026 $ 177 $ 46 $ 29
======= ======= ======= ======= =======
Federal and state income taxes............. $ 1,771 $ 3,518 $ 5,372 $ 189 $ 206
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 39

GULF SOUTH MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. ACCOUNTING POLICIES

Nature of Business

The Company is a national distributor of medical supplies and related
products to the long-term care industry.

Use of Estimates

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

Cash Equivalents

Cash equivalents, which consist of highly liquid investments with
maturities of three months or less when purchased, are stated at cost which
approximates market value.

Inventories

Inventories, which consist primarily of medical supplies and related
products, are stated at the lower of cost (average cost method) or market.

Property and Equipment

Property and equipment is stated at cost. Depreciation of property and
equipment is provided by straight-line and accelerated methods over the
estimated useful lives, which is 31 years for the building and from 3 to 7 years
for the equipment.

Goodwill

The excess of the cost of acquisition over the fair value of the net assets
acquired (goodwill) is amortized on a straight-line basis over its estimated
useful life of 10 years (See Note 2). Management assesses the recoverability of
goodwill based on undiscounted cash flows.

Long-Lived Assets

Effective January 1, 1996, the Company adopted FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. Statement No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The effect
of this adoption was not material to the Company's financial position or
operations.

Revenue Recognition

Revenue is recognized when product is shipped to customers. Credit is
extended based upon an evaluation of the customer's financial condition and
generally does not require collateral. Substantially all of the Company's
accounts receivables are due from companies in the long-term care industry
located throughout the United States. Credit losses are provided for in the
financial statements and have consistently been within management's
expectations.

F-7
<PAGE> 40

GULF SOUTH MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stock Compensation

The Company accounts for its stock compensation arrangements under the
provisions of APB 25, Accounting for Stock Issued to Employees.

Income Taxes

Deferred income taxes, which are provided on the liability method, relate
to temporary differences between assets and liabilities recognized differently
for financial reporting purposes and for income tax purposes.

Net Income Per Common Share

Net income per common share is computed by dividing net income applicable
to common stock (interest expense, net of income taxes, on the 10% convertible
subordinated debentures has been eliminated in 1993 and 1994), based on the
weighted average number of shares outstanding (as restated, see Note 2) during
each period presented (10,442,066 in 1993, 13,073,040 in 1994, 13,993,595 in
1995, and 13,947,724 (unaudited) and 14,047,309 (unaudited) for the three months
ended March 31, 1995 and 1996, respectively). Weighted average shares reflect
the stock split as discussed in note 7. Common equivalent shares include the
conversion of the 10% convertible subordinated debentures in 1993 and 1994.
Common equivalent shares relating to the stock options exercisable at December
31, 1994 and 1995, and March 31, 1995 and 1996 (unaudited) have been calculated
using the treasury stock method based on the average market value of the common
stock during 1994, 1995 and 1996.

2. ACQUISITIONS

On February 29, 1996, the Company completed the acquisition of all of the
outstanding common stock of Bayer Medical Service Systems, Inc. ("Bayer"). The
Company issued 151,724 (unaudited) shares of its common stock in exchange for
the outstanding common stock of Bayer. The share exchange was accounted for as a
pooling of interests and accordingly, the Company's financial statements have
been restated to include accounts and operations of Bayer (unaudited) for all
periods prior to the share exchange. Separate results of operations for the
periods prior to the share exchange with Bayer are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales
Gulf South................................. $58,150 $83,376 $120,287 $27,008 $37,710
Bayer...................................... 6,969 8,775 9,807 2,514 2,525
------- ------- -------- ------- -------
Combined................................... $65,119 $92,151 $130,094 $29,522 $40,235
======= ======= ======== ======= =======
Gross profit
Gulf South................................. $14,518 $21,282 $ 29,752 $ 6,707 $ 9,161
Bayer...................................... 2,244 2,747 2,369 672 427
------- ------- -------- ------- -------
Combined................................... $16,762 $24,029 $ 32,121 $ 7,379 $ 9,588
======= ======= ======== ======= =======
Net income
Gulf South................................. $ 2,481 $ 5,728 $ 8,567 $ 1,914 $ 2,321
Bayer...................................... 149 66 (407) (13) 1
------- ------- -------- ------- -------
Combined................................... $ 2,630 $ 5,796 $ 8,160 $ 1,901 $ 2,322
======= ======= ======== ======= =======
</TABLE>

F-8
<PAGE> 41

GULF SOUTH MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the share exchange, $512 (unaudited) of merger costs and
expenses ($315 after tax, or $.02 per share) were incurred and have been charged
to expense in the quarter ended March 31, 1996. The merger costs and expenses
related to legal, accounting and costs incurred in combining the operations of
the previously separate companies.

Effective September 25, 1995, the Company acquired certain operating assets
and liabilities of L&M Medical, Inc. ("L&M") for $3,749. This acquisition has
been accounted for using the purchase method of accounting. The purchase price
has been allocated on the basis of fair values of the assets acquired and
liabilities assumed. The purchase price was allocated to the assets acquired and
liabilities assumed as follows:

<TABLE>
<S> <C>
Accounts receivable......................................................... $1,405
Inventory................................................................... 1,335
Property and equipment...................................................... 289
Prepaid expenses............................................................ 30
Other assets................................................................ 19
Goodwill.................................................................... 1,171
Accrued expenses............................................................ (500)
------
$3,749
======
</TABLE>

Accordingly, the results of operations of the Company include L&M from the
date acquired. The operations of L&M were not material to the Company's
operations for 1993 and 1994. L&M was a distributor of medical supplies and
related products to the long-term care industry in southern California and
Arizona.

3. CREDIT FACILITIES

The Company has a $15.0 million revolving credit facility which matures
September 25, 1998, of which $12.6 million and $9.2 million (unaudited) were
available at December 31, 1995 and March 31, 1996, respectively. Borrowings bear
interest at prime or at LIBOR plus 1% to 2.5% per annum. A facility fee of .125%
per annum is charged on the unused portion of the revolving credit facility.
Borrowings under the revolving credit facility up to $7.5 million are unsecured.
Substantially all of the Company's assets would collateralize any borrowings in
excess of $7.5 million. The revolving credit facility contains numerous
restrictive covenants and financial ratio requirements.

4. INCOME TAXES

Income tax expense consists of the following:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $1,523 $3,378 $4,561
State.................................................... 358 672 1,045
------ ------ ------
1,881 4,050 5,606
Deferred (credits):
Federal.................................................. (229) (151) (86)
State.................................................... (33) (22) (13)
------ ------ ------
(262) (173) (99)
------ ------ ------
$1,619 $3,877 $5,507
====== ====== ======
</TABLE>

F-9
<PAGE> 42

GULF SOUTH MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The components of deferred income tax assets are as follows:

<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Accounts receivable................................................... $445 $500
Inventory............................................................. 40 80
Accrued expenses...................................................... 80 84
---- ----
Deferred tax assets................................................... $565 $664
==== ====
</TABLE>

The difference between income taxes at the Company's effective tax rate and
income taxes (credits) at the statutory federal tax rate are as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory federal income taxes............ $1,445 $3,288 $4,683 $1,078 $1,304
State income taxes, net................... 214 429 678 120 144
Other..................................... (40) 160 (146) 72 65
------ ------ ------ ------ ------
$1,619 $3,877 $5,507 $1,270 $1,513
====== ====== ====== ====== ======
</TABLE>

5. RELATED PARTY TRANSACTIONS

The Company had the following receivables from a company ("related
company") whose stockholders include the stockholders of the Company. The note
receivable bears interest at 10% per annum and is payable on demand.

<TABLE>
<CAPTION>
1993 1994 1995 1996
---- ---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Account receivable.................................. $160 $163 $332 $ 337
Note receivable..................................... 413 413 413 413
</TABLE>

Sales to the related company were approximately $65 in 1993, $7 in 1994, $3
in 1995, and $3 (unaudited) and $0 (unaudited) for the three months ended March
31, 1995 and 1996, respectively.

F-10
<PAGE> 43

GULF SOUTH MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. STOCK OPTION PLAN

Under the Company's 1992 Stock Plan, 1,300,000 shares of common stock have
been reserved for grant to key management personnel and to members of the Board
of Directors. At December 31, 1995 and March 31, 1996, 416,050 shares and
216,050 shares (unaudited), respectively, were available for grant under the
1992 plan. The options granted vest over terms of either three or five years
from either the date of grant or the first employment anniversary date. Changes
in outstanding options were as follows:

<TABLE>
<CAPTION>
OPTION
SHARES PRICE PER SHARE
------- ---------------
<S> <C> <C>
Outstanding at December 31, 1993............................ 651,950 $ .21 - .49
Granted................................................... 32,000 8.00
Exercised................................................. 137,002 .21 - .42
------- --------------
Outstanding at December 31, 1994............................ 546,948 .21 - 8.00
Granted................................................... 200,000 20.38 - 22.41
Exercised................................................. 189,364 .21 - 20.38
------- --------------
Outstanding at December 31, 1995............................ 557,584 .21 - 22.41
Granted (unaudited)....................................... 200,000 28.50 - 31.35
Exercised (unaudited)..................................... 42,350 .21 - 20.38
------- --------------
Outstanding at March 31, 1996 (unaudited)................... 715,234 $ .21 - 31.35
======= ==============
</TABLE>

Options for 211,442 shares, and 224,728 shares and 284,764 shares
(unaudited) were exercisable at December 31, 1994 and 1995 and March 31, 1996,
respectively. Compensation expense of $54, $54 and $13 (unaudited) has been
accrued applicable to certain options exercisable at December 31, 1994 and 1995
and March 31, 1996, respectively.

7. OTHER MATTERS

One customer accounted for 10.1%, 16.6% and 15.5% (unaudited) and 19.3%
(unaudited) of net sales for the year ended December 31, 1994 and 1995 and March
31, 1995 and 1996, respectively.

The Company leases certain vehicles, computers and office equipment under
operating leases. Lease periods range from two to four years. The Company also
leases warehouse space in Pennsylvania, Texas, California, Georgia and Wisconsin
under operating leases with lease periods ranging from three to five years.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 1995, by year and in
the aggregate, are as follows:

<TABLE>
<S> <C>
1996................................................ $ 874
1997................................................ 387
1998................................................ 239
1999................................................ 107
------
Total minimum lease payments........................ $1,607
======
</TABLE>

Rental expense under the operating leases was $429 in 1993, $680 in 1994,
$1,054 in 1995 and $264 (unaudited) and $301 (unaudited) for the three months
ended March 31, 1995 and 1996, respectively.

The Company is involved from time to time in claims and routine litigation
incidental to its business. Management is of the opinion, based on the advice of
counsel, that the outcome of any presently pending matters will not have a
material adverse effect on the financial position or results of the operation of
the Company.

F-11
<PAGE> 44

GULF SOUTH MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

On May 23, 1995 a two-for-one stock split in the form of a stock dividend
was completed. All share and per share data and the stockholders' equity account
balances for all periods presented in the accompanying financial statements have
been retroactively adjusted to reflect the additional shares outstanding.

8. SUBSEQUENT EVENTS

Subsequent to March 31, 1996, the Company acquired certain operating assets
of Express Care, L.P. for approximately $3.5 million (unaudited). The
transaction will be accounted for using the purchase method of accounting.

The Company intends to file a registration statement with the Securities
and Exchange Commission covering 2,223,276 shares of the common stock to be sold
by the Company in an underwritten public offering.

F-12
<PAGE> 45
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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, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 9
Price Range of Common Stock............ 9
Dividend Policy........................ 10
Capitalization......................... 10
Selected Financial and Operating
Data................................. 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 12
Business............................... 17
Management............................. 25
Principal and Selling Stockholders..... 26
Description of Capital Stock........... 28
Underwriting........................... 30
Legal Matters.......................... 31
Experts................................ 31
Additional Information................. 31
Incorporation of Certain Documents By
Reference............................ 32
Index to Financial Statements.......... F-1
</TABLE>

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3,000,000 SHARES

[GULF SOUTH LOGO]

COMMON STOCK

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

PROSPECTUS

JUNE 7, 1996

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

SMITH BARNEY INC.

WILLIAM BLAIR & COMPANY

MONTGOMERY SECURITIES

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