MEDI JECT CORP /MN/, S-1/A, 1996-10-01

MEDI JECT CORP /MN/
S-1/A, 1996-10-01
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996
REGISTRATION NO. 333-6661
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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MEDI-JECT CORPORATION
(Exact name of registrant as specified in its charter)

MINNESOTA 3841 41-1350192
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)

1840 BERKSHIRE LANE
MINNEAPOLIS, MINNESOTA 55441
(612) 553-1102
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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FRANKLIN PASS, M.D.
MEDI-JECT CORPORATION
1840 BERKSHIRE LANE
MINNEAPOLIS, MINNESOTA 55441
(612) 553-1102
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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COPIES TO:

J. ANDREW HERRING JOEL I. PAPERNIK
AMY E. LANGE SQUADRON, ELLENOFF, PLESENT &
DORSEY & WHITNEY LLP SHEINFELD, LLP
220 SOUTH SIXTH STREET 551 FIFTH AVENUE
MINNEAPOLIS, MINNESOTA 55402-1498 NEW YORK, NEW YORK 10176
(612) 340-2600 (212) 661-6500

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH PROPOSED MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) FEE (3)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,750,000 shares $10.00 $27,500,000 $9,483
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Warrants to purchase
Common Stock
to be issued to the
Representatives....... 220,000 warrants $.001 $220 $1
</TABLE>
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(1) Including 330,000 shares of Common Stock issuable upon exercise of an
option which the Underwriters may exercise to cover over-allotments, if
any, and 220,000 shares issuable upon exercise of a Warrant to be issued
to the Representatives in connection with the offering.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(3) Previously paid.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

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

SUBJECT TO COMPLETION, DATED OCTOBER 1, 1996

2,200,000 SHARES

LOGO
COMMON STOCK

All of the 2,200,000 shares of Common Stock offered hereby are being offered
by Medi-Ject Corporation ("Medi-Ject" or the "Company").

Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $5.50 and $6.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "MEDJ."

FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS"
COMMENCING ON PAGE 6 AND "DILUTION" ON PAGE 16.

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

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share
. . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $
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Total (3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $
</TABLE>
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(1) Excludes five-year warrants to purchase 220,000 shares of Common Stock at
an exercise price equal to 120% of the initial public offering price, to be
issued to the Representatives at closing for nominal consideration. The
Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."

(2) Before deducting offering expenses estimated to be $ payable by the
Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 330,000 additional shares of Common Stock solely to cover over-
allotments, if any, on the same terms and conditions as the shares offered
hereby. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

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The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Rodman & Renshaw, Inc., New York, New
York, on or about , 1996.

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RODMAN & RENSHAW, INC. R. J. STEICHEN & COMPANY

The date of this Prospectus is , 1996
<PAGE>

[Picture of Medi-Jector VI-B system with vial, adapter, and disposable front-
end chamber]

FRONT-END
VIAL ADAPTER CHAMBER INJECTOR

The Medi-Jector VI-B system shown above is a hand-held, spring-powered
device that injects drugs from a front-end chamber through the skin without a
needle as a narrow, high pressure stream of liquid approximately 7/1000ths of
an inch in diameter.

[Picture of Medi-Jector VI-B system and
pen-like Medi-Jector system, each held in
hand.]

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

Medi-Jector(R) is a registered trademark of the Company. This Prospectus
also includes trade names, trademarks and registered trademarks of companies
other than the Company.
The picture at left shows both
the Medi-Jector VI-B system and
the Company's future generation
pen-like Medi-Jector system.

The Medi-Jector VI-B system is
an improved version of the
Company's current Medi-Jector VI
system which will include the
disposable plastic front-end
chamber pictured above. The Medi-
Jector VI-B system is expected to
be commercially introduced in
late 1996 or early 1997. Although
the device on the right shows
current plans for the pen-like
system, the design has not yet
been finalized. The actual
system, when and if finally
developed, could differ from the
Company's current plans. There
can be no assurance that this
system will be commercially
introduced, or that the resulting
system will have an appearance
similar to that depicted.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements and notes appearing elsewhere in
this Prospectus. Unless otherwise indicated, all financial and share
information set forth in this Prospectus (i) has been adjusted to reflect the
conversion of all outstanding Convertible Preferred Stock into Common Stock
upon the effectiveness or the closing of this offering, (ii) reflects a 1-for-
1.313 reverse stock split of the Common Stock effected on August 6, 1996, (iii)
assumes an initial public offering price of $5.75 per share, the midpoint of
the range set forth on the cover page of this Prospectus and (iv) assumes no
exercise of the Underwriters' over-allotment option. Unless the context
requires otherwise, all references in this Prospectus to "Medi-Ject" or the
"Company" refer to Medi-Ject Corporation. This Prospectus contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such differences include, but are
not limited to, those discussed under the heading "Risk Factors," which
investors should consider carefully.

THE COMPANY

Medi-Ject Corporation is a drug delivery company focused on developing,
manufacturing and marketing needle-free injection systems for the self-
administration of a wide range of parenteral (injectable) drugs. The Company's
product, the Medi-Jector system, is a hand-held, spring-powered device that
injects drugs from a front-end chamber through the skin without a needle as a
narrow, high pressure stream of liquid approximately 7/1000ths of an inch in
diameter. The Medi-Jector system eliminates the need to pierce the skin with a
sharp needle and manipulate a plunger with the needle inserted through the
skin. Therefore, many people perceive injections with the Medi-Jector system to
be less threatening than injections with a needle. Today's Medi-Jector systems
are smaller, easier to use, less expensive and more comfortable than previous
needle-free injection systems. The Company believes that the key to widespread
market acceptance of its needle-free injection systems depends upon continued
improvements in these areas.

The Company believes that individuals who require self-injection will benefit
from the Medi-Jector system because it (i) eliminates the need to pierce
themselves with needles for each injection, which should lead to increased
compliance with a prescribed injection regimen and consequently reduce health
complications, (ii) provides the ability to inject themselves discreetly and
(iii) eliminates the need for sharps disposal of used needles. In addition,
healthcare industry providers and payors may benefit from the decrease in long-
term costs of patient care which may result from improved patient compliance.
Furthermore, based upon discussions with pharmaceutical companies, the Company
believes that those companies are motivated to provide improved drug delivery
methods in an attempt to differentiate their products in the marketplace and
improve patient compliance, which may result in increased sales and larger
market share.

The Company has entered into licensing and development agreements with multi-
national pharmaceutical and medical device companies covering the design and
manufacture of customized injection systems for specific drug therapies. In
addition to agreements with pharmaceutical companies, including those with
Ferring NV, JCR Pharmaceuticals Co., Ltd., Schwarz Pharma AG, Teva
Pharmaceuticals Co., Ltd. and GeneMedicine, Inc., the Company has entered into
a strategic alliance with Becton Dickinson and Company ("Becton Dickinson").
The goal of this alliance is the joint development and commercialization of
new, less expensive and more user friendly injectors which embody proprietary,
advanced technology. The Company will design and manufacture the injectors, and
Becton Dickinson will design and manufacture the consumable components for the
systems. Becton Dickinson has the right to market the injectors and the
consumable components worldwide for use initially with insulin and potentially
with other drugs. Medi-Ject and Becton Dickinson will collaborate on the
development and manufacture of customized versions of the system and share
revenues from sales of injectors and consumables to pharmaceutical companies
and any revenue generated from licensing milestone payments, development fees
and royalties. See "Business--Collaborative Agreements."

3
<PAGE>

The Company's focus is on the market for the delivery of self-administered
parenteral drugs, the largest, most developed portion of which consists of the
delivery of insulin. In the United States, over 3.2 million people inject
insulin for the treatment of diabetes, resulting in an estimated 2.3 billion
injections annually, and the Company believes that the number of insulin
injections will increase with time as the result of new diabetes management
approaches which recommend more frequent use. Other parenteral drugs that
presently are self-administered and are or may be suitable for injection with
the Medi-Jector system include therapies for the treatment of multiple
sclerosis, migraine headaches, growth retardation, impotence, female
infertility, AIDS and hepatitis. The Company also believes that other existing
parenteral drugs will be self-administered in the future and that additional
parenteral drugs that are under development will be deemed appropriate for
self-administration.

In 1993, the Company hired a new management team with the goal of
revitalizing and redefining the Company's strategic direction. Since that time,
the Company has focused on entering into collaborative arrangements with
pharmaceutical and medical device companies, and has increased its product
development efforts to emphasize ease of use and to reduce the cost of its
products to make them more competitive in the marketplace. The Company's goal
is to establish its needle-free injectors as the drug delivery method of choice
for the self-administration of a wide range of parenteral drugs. The Company's
strategic plan for accomplishing this goal consists of (i) developing improved
proprietary injection systems, (ii) generating an income stream from consumable
components, (iii) collaborating with pharmaceutical and medical device
manufacturers to leverage off of their marketing capabilities and (iv) focusing
on delivery systems for high-priced pharmaceuticals.

The Company's offices are located at 1840 Berkshire Lane, Minneapolis,
Minnesota 55441, and its telephone number is (612) 553-1102. The Company was
incorporated in Minnesota in 1979.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company......... 2,200,000 shares
Common Stock to be Outstanding After the
Offering.................................... 6,925,633 shares (1)
Use of Proceeds............................. For capital expenditures, primarily the
improvement
of the Company's manufacturing and assembly
capability; market development activities;
research and development; and working
capital and other general corporate
purposes.
Proposed Nasdaq National Market Symbol...... "MEDJ"
</TABLE>
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4
<PAGE>

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

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ---------------
1993 1994 1995 1995 1996
------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................... $ 1,058 $ 1,518 $ 1,654 $ 831 $ 814
Licensing and product develop-
ment........................... 125 470 921 410 686
------- -------- -------- ------ -------
Revenues....................... 1,183 1,988 2,575 1,241 1,500
------- -------- -------- ------ -------
Cost of sales................... 409 631 1,049 465 502
Research and development........ 146 401 1,195 607 1,093
General and administrative...... 615 868 978 628 672
Sales and marketing............. 485 1,128 1,146 450 467
------- -------- -------- ------ -------
Operating expenses............. 1,655 3,028 4,368 2,150 2,734
------- -------- -------- ------ -------
Net operating loss.............. (472) (1,040) (1,793) (909) (1,233)
Net other income (expense)...... (28) (26) (89) (21) 49
------- -------- -------- ------ -------
Net loss........................ $ (500) $ (1,066) $ (1,882) $ (930) $(1,184)
======= ======== ======== ====== =======
Pro forma net loss per common $ (0.46) $ (0.22)
share (1)...................... ======== =======
Pro forma weighted average com-
mon shares outstanding (1)..... 4,136 5,310
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED (2)
-------- ---------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 2,233 $ 13,534
Working capital...................................... 1,699 13,000
Total assets......................................... 3,705 15,006
Long-term liabilities, less current maturities....... 54 54
Accumulated deficit.................................. (10,486) (10,486)
Total shareholders' equity (3)....................... 2,544 13,845
</TABLE>
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(1) Computed on the basis described in Note 1 of Notes to Financial Statements.

(2) Adjusted to reflect receipt by the Company of estimated net proceeds from
the issuance of 2,200,000 shares at an assumed public offering price of
$5.75 per share and the application of such proceeds. See "Use of Proceeds"
and "Capitalization."
(3) Reflects the conversion of all outstanding Convertible Preferred Stock into
Common Stock, described in Note 13 of Notes to Financial Statements.

5
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution. In evaluating an
investment in the Common Stock being offered hereby, investors should consider
carefully, among other matters, the following risk factors, as well as the
other information contained in this Prospectus.

UNCERTAINTY OF MARKET ACCEPTANCE; LIMITED CURRENT MARKET FOR NEEDLE-FREE
INJECTION SYSTEMS

The Company's success will depend upon increasing market acceptance of its
needle-free injection systems as an alternative to needle injections. During
the approximately 15 years since their initial commercial introduction, the
Company's needle-free injection systems have had only limited success
competing with traditional needles and syringes because, the Company believes,
of the size, cost and complexity of use and maintenance of the Company's
injectors and the relatively small number of parenteral drugs that have been
self-administered. In order to increase market acceptance, the Company
believes that it must successfully develop improvements in the design and
functionality of future needle-free injection systems that will reduce their
cost and increase their appeal to users, thereby making these systems
desirable despite their premium cost over traditional disposable needles and
syringes. Projected improvements in functionality and design may not
adequately address the actual or perceived complexity of using the Company's
needle-free injection systems or adequately reduce their cost. In addition,
the Company believes that its future success is dependent upon its ability to
enter into additional collaborative agreements with drug and medical device
manufacturers for the use of its needle-free injection systems with new and
existing parenteral drugs. There can be no assurance that the Company will be
successful in these efforts or that its needle-free injection systems will
ever gain sufficient market acceptance to sustain profitable operations. See
"Business--Strategy," "--Target Markets" and "--Products and Technology."

HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY

The Company has had a history of operating losses and, at June 30, 1996, had
an accumulated shareholders' deficit of approximately $10.5 million. Net
losses for the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996 were $500,319, $1,066,462, $1,882,459 and $1,184,178,
respectively. The Company expects to continue to incur net losses at least
through 1997, as it introduces new and improved needle-free injection systems
while undertaking research and development, regulatory approval and commercial
introduction activities related to new uses for its needle-free injection
systems. There can be no assurance that the Company will achieve or sustain
profitability in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RISKS ASSOCIATED WITH DEVELOPING NEW PRODUCTS

The Company believes that its future success is in part dependent upon the
development and commercial introduction of needle-free injection systems that
incorporate improvements in design and functionality to reduce their cost and
increase their appeal to users. In the United States, Japan and certain
European countries, the Company's needle-free Medi-Jector system has been
approved only for the injection of insulin and human growth hormone. The
Company's future success depends to a significant degree on its ability to
obtain regulatory approval for and commercialize the use of its needle-free
injection systems for other parenteral drugs. However, the Company has not yet
completed research and development work or obtained regulatory approval for
such improved systems or for use with any drugs other than insulin and human
growth hormone. There can be no assurance that any development work will
ultimately be successful or that unforeseen difficulties will not occur in
research and development, clinical testing, regulatory submissions and
approval, product manufacturing and commercial scale up, marketing, or product
distribution related to any such improved systems or new uses. Any such
occurrence could materially delay the commercialization of such improved
systems or new uses or prevent their market introduction entirely. See "--Need
to Comply with Government Regulations" and "Business."

6
<PAGE>

RISKS OF RELATIONSHIP WITH BECTON DICKINSON AND COMPANY

The Company's ability to introduce improved and less expensive needle-free
injection systems will depend in part on the success of its collaborative
effort with Becton Dickinson to develop a smaller needle-free injector with a
disposable, single-use front-end chamber. This effort is governed by the terms
of a Development and License Agreement between the Company and Becton
Dickinson (the "Becton Dickinson Agreement"), under which the Company is
responsible for developing the injector body and Becton Dickinson is
responsible for developing the front-end chamber for the system. Until January
1, 1999, Becton Dickinson may terminate the Becton Dickinson Agreement without
cause by providing six months' written notice and after January 1, 1999, by
providing 12 months' written notice. Since the Company expects that the
majority of the funding for its development efforts on the new, smaller
injector will be derived from payments to be made by Becton Dickinson under
the Becton Dickinson Agreement and since responsibility for developing the
front-end chamber lies with Becton Dickinson, any termination of the Becton
Dickinson Agreement would adversely affect the timing and the likelihood of
ultimate success of these development efforts. In addition, under the Becton
Dickinson Agreement, Medi-Ject granted Becton Dickinson the exclusive,
worldwide right to sell a proposed new injector for use with insulin and any
other injector that is not designed or calibrated for use with a specific drug
made by a specific drug company and that is intended to be distributed
primarily through pharmacies for non-professional use. Prior to developing a
system for use with any specific drug, the Company and Becton Dickinson must
mutually agree on whether or not such system will be of the type covered by
Becton Dickinson's exclusive sales rights. See "Business--Collaborative
Agreements," "--Products and Technology" and "Certain Transactions--Becton
Dickinson."

DEPENDENCE ON COLLABORATIVE RELATIONSHIPS

The Company believes that the introduction and broad acceptance of its
systems is in part dependent upon the success of its current and any future
development and licensing arrangements with pharmaceutical and medical device
companies covering the development, manufacture or use of the Medi-Jector
system with specific parenteral drug therapies. The Company anticipates,
consistent with past practice, that under these arrangements the
pharmaceutical or medical device company will assist in the development of
systems for such drug therapies and collect or sponsor the collection of the
appropriate data for submission for regulatory approval of the use of the
Medi-Jector system with the licensed drug therapy. The pharmaceutical or
medical device company also will be responsible for distribution and marketing
of the systems for these drug therapies either worldwide or in specific
territories. The Company currently is a party to seven such agreements. There
can be no assurance that the Company will be successful in executing
additional agreements with pharmaceutical or medical device companies or that
existing or future agreements will result in the sale of the Company's needle-
free injection systems. As a result of these arrangements, the Company is
dependent upon the development, data collection and marketing efforts of such
pharmaceutical and medical device companies. The amount and timing of
resources such pharmaceutical and medical device companies devote to these
efforts are not within the control of the Company, and such pharmaceutical and
medical device companies could make material decisions regarding these efforts
that could adversely affect the Company's future financial condition and
results of operations. In addition, factors that adversely impact the
introduction and level of sales of any drug covered by such licensing
arrangements, including competition within the pharmaceutical and medical
device industries, the timing of FDA or other approvals and intellectual
property litigation (such as that surrounding Bio-Technology General
Corporation's human growth hormone, which has delayed the introduction of the
use of the Medi-Jector system with human growth hormone in the United States),
will also negatively affect the Company's sales of Medi-Jector systems for
those uses. See "Business--Target Markets," "--Collaborative Agreements," "--
Products and Technology" and "--Marketing."

LIMITED MANUFACTURING EXPERIENCE; RISKS ASSOCIATED WITH NEW MATERIALS, NEW
ASSEMBLY PROCEDURES AND INCREASED PRODUCTION LEVELS

The Company's past assembly, testing and manufacturing experience has
related primarily to the assembly of products from machined stainless steel
and composite components in limited quantities. The Company's

7
<PAGE>

planned future needle-free injection systems necessitate significant changes
and additions to the Company's manufacturing and assembly process to
accommodate new plastic components and a new injection power source. These
systems must be manufactured in compliance with regulatory requirements, in a
timely manner and in sufficient quantities while maintaining quality and
acceptable manufacturing costs. In addition, the Company's plans call for
significantly increased levels of production and a shift to performing more
manufacturing functions internally rather than relying on third-party
suppliers, which will require the Company to expand beyond its current
facilities. In the course of these changes and additions to its manufacturing
and production methods, the Company may encounter difficulties, including
problems involving yields, quality control and assurance, product reliability,
manufacturing costs, existing and new equipment, component supplies and
shortages of personnel, any of which could result in significant delays in
production. There can be no assurance that the Company will be able to produce
and manufacture successfully the Company's future needle-free injection
systems. Any failure to do so would negatively impact the Company's business,
financial condition and results of operations. See "Business--Manufacturing."

DEPENDENCE ON THIRD-PARTY DEVELOPMENT EFFORTS

The Company relies heavily on outside consultants for its technology
development and engineering work, and the Company's ability to introduce new
systems and improvements to its existing systems is dependent on their
efforts. There can be no assurance that the Company's current consultants will
produce the necessary work product in a timely fashion or at all, or that the
Company could find suitable replacements if the services of such consultants
were to become unavailable. "Business--Products and Technology."

COMPETITION; RISK OF TECHNOLOGICAL OBSOLESCENCE

The Company's current competition is primarily from traditional hypodermic
needles and syringes which are used for the vast majority of injections
administered today. In order to make needles and syringes easier and safer to
use, certain companies have developed syringes with hidden needles, spring-
powered needle injectors and injectors with sheathed needles. In addition to
competing with these types of traditional hypodermic needles and syringes, the
Company's needle-free injection systems also compete with other needle-free
injection devices. Currently, competition in the needle-free injection market
is limited to small companies with modest financial and other resources, but
the barriers to entry are currently low and additional competitors may enter
the needle-free injection systems market, including companies with
substantially greater resources and experience than the Company. There can be
no assurance that the Company will be able to compete effectively against its
current or potential competitors in the needle-free injection market, or that
such competitors will not succeed in developing or marketing products that
will be more accepted in such market. Competition in this market could also
force the Company to reduce the prices of its systems below currently planned
levels, thereby adversely affecting the Company's revenues and future
profitability.

In general, injection is used only with drugs for which other drug delivery
methods are not possible, in particular with biopharmaceutical proteins (drugs
derived from living organisms, such as insulin and human growth hormone) that
cannot currently be delivered orally, transdermally (through the skin) or
pulmonarily (through the lungs). Many companies, both large and small
(including Becton Dickinson), are engaged in research and development efforts
on novel techniques aimed at delivering such drugs without injection. The
successful development and commercial introduction of such a non-injection
technique would likely have a material adverse effect on the Company's
business, financial condition, results of operations and general prospects.
See "Business--Competition."

NEED TO COMPLY WITH GOVERNMENT REGULATIONS

Government regulation in the United States and certain foreign countries is
a significant factor in the Company's business. In the United States, the Food
and Drug Administration (the "FDA") has principal jurisdiction over products
that are used for human injection. Certain clearances are required from the
FDA before medical devices, such as the Company's needle-free injection
systems and their use with new drug therapies,

8
<PAGE>

can be marketed. The FDA regulatory process in the United States may delay the
marketing of new systems for lengthy periods and impose substantial additional
costs. Moreover, FDA marketing clearance regulations depend heavily on
administrative interpretation, and there can be no assurance that
interpretations made by the FDA or other regulatory bodies, with possible
retroactive effect, will not adversely affect the Company. There can be no
assurance that the Company will be able to obtain clearance of any future
Company systems or any expanded uses of current or future Company systems in a
timely manner or at all. In addition, even if obtained, FDA clearances are
subject to continual review, and if the FDA believes that the Company is not
in compliance with applicable requirements, it can institute proceedings to
detain or seize the Company's systems, require a recall, suspend production,
distribution, marketing and sales, enjoin future violations and assess civil
and criminal penalties against the Company, its directors, officers or
employees. The FDA may also suspend or withdraw market approval for the
Company's systems or require the Company to repair, replace or refund the cost
of any system manufactured or distributed by the Company. The Company must
also demonstrate compliance with current Good Manufacturing Practices ("GMP")
regarding quality control and manufacturing procedures. Compliance with these
requirements requires the Company to expend time, resources and effort in the
areas of production and quality control for itself and for its contract
manufacturers. If violations of the applicable regulations are noted during
FDA inspections, the continued marketing of any systems manufactured by the
Company may be halted or adversely affected.

Sales of medical devices outside the United States are subject to United
States export requirements and foreign regulatory requirements. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time and requirements to obtain approval by a foreign country may
differ substantially from those required for FDA approval. There can be no
assurance that the Company will be able to obtain regulatory approvals or
clearances for its products in foreign countries. See "Business--Government
Regulation" and "--Manufacturing."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The Company anticipates that the proceeds of this offering, together with
cash on hand, interest expected to be earned thereon and anticipated revenues
will be sufficient to finance the Company's operations at least through 1997,
although there can be no assurance that additional capital will not be
required sooner. In order to meet its needs beyond this period, the Company
may be required to raise additional funds through public or private
financings. Such financings may not be available when needed on terms
acceptable to the Company or at all. Moreover, any additional equity
financings may be dilutive to purchasers in this offering, and any debt
financing may involve restrictive covenants. An inability to raise such funds
when needed might require the Company to delay, scale back or eliminate some
or all of its planned system enhancements, market expansion and research and
development activities, and might require the Company to cease operations
entirely. In such event, all expenditures to date as well as expenditures from
the proceeds of this offering might not be recoverable. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."

DEPENDENCE ON PROPRIETARY TECHNOLOGY RIGHTS

The Company's success will depend in part on its ability to protect its
proprietary rights and to operate without infringing on the proprietary rights
of third parties. In appropriate circumstances, the Company may apply for
patent protection for uses, processes, products and systems that it develops.
The Company currently owns two United States patents and one United States
design patent and has filed eight United States patent applications, one of
which has been recently allowed, one Taiwanese patent application and one
Patent Cooperation Treaty application. There can be no assurance that any of
the Company's current or future patent applications will result in issued
patents, that the scope of any current or future patents will prevent
competitors from introducing competitive products or that any of the Company's
current or future patents would be held valid or enforceable if challenged.
Patenting medical devices involves complex legal and factual questions and
there is no consistent policy regarding the breadth of claims which issue
pertaining to such technologies; the ultimate scope and validity of patents
issued to the Company or to its competitors are thus unknown. In addition,

9
<PAGE>

there can be no assurance that measures taken by the Company to protect its
unpatented proprietary rights will be sufficient to protect these rights
against third parties. Likewise, there can be no assurance that others will
not independently develop or otherwise acquire unpatented technologies or
products similar or superior to those of the Company.

There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry and the Company
may in the future be required to defend its intellectual property rights
against infringement, duplication and discovery by third parties or to defend
itself against third-party claims of infringement. Likewise, disputes may
arise in the future with respect to ownership of technology developed by
consultants or under research or development agreements with pharmaceutical
companies, or with respect to the ownership of technology developed by
employees who were previously employed by other companies. Any such disputes
or related litigation could result in substantial costs to, and a diversion of
effort by, the Company. An adverse determination could subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from or pay royalties to third parties or require the Company to develop
appropriate alternative technology. There can be no assurance that any such
licenses would be available on acceptable terms or at all, or that the Company
could develop alternate technology at an acceptable price or at all. Any of
these events could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Products and
Technology" and "--Patents."

RISKS ASSOCIATED WITH THIRD-PARTY REIMBURSEMENT OF END USERS

Sales of the Company's current and proposed systems in certain markets are
dependent in part on the availability of adequate reimbursement from third-
party healthcare payors. Currently, insurance companies and other third-party
payors reimburse the cost of needle-free injectors on a case-by-case basis and
may refuse reimbursement if they do not perceive benefits to their use in a
particular case. Third-party payors are increasingly challenging the pricing
of medical products and services, and there can be no assurance that such
third-party payors will not in the future increasingly reject claims for
coverage of the cost of needle-free injections. In addition, there can be no
assurance that adequate levels of reimbursement will be available to enable
the Company to achieve or maintain market acceptance of its systems or
maintain price levels sufficient to realize profitable operations.
Furthermore, there is a possibility of increased government control or
influence over a broad range of healthcare expenditures in the future. Any
such trend could negatively impact the market for the Company's needle-free
injection systems.

DEPENDENCE ON SINGLE SOURCE SUPPLIERS

The systems currently sold by the Company contain a number of customized
steel components manufactured by third-party suppliers, and the most recently
introduced model Medi-Jector system contains certain plastic components the
molds for which are located at the facilities of the Company's plastics
suppliers. In addition, certain of the Company's planned systems will contain
plastic disposable front-end chambers which Becton Dickinson has the exclusive
right to manufacture for the Company under the Becton Dickinson Agreement.
Regulatory requirements applicable to medical device manufacturing can make
substitution of suppliers costly and time-consuming. In the event that the
Company could not obtain adequate quantities of these components from its
suppliers, there can be no assurance that the Company would be able to access
alternative sources of such components within a reasonable period of time, on
acceptable terms or at all. In particular, if the Company were required to
change suppliers for its current plastic components, it would need either to
move the necessary molds or to obtain new molds, either of which would entail
significant delay. Similarly, if Becton Dickinson declined to supply the
Company with disposable front-end chambers for its proposed systems, while the
Company has the right to obtain a license to use Becton Dickinson's
technology, it is unlikely that the Company could manufacture such components
as inexpensively as Becton Dickinson. The unavailability of adequate
quantities, the inability to develop alternative sources, a reduction or
interruption in supply or a significant increase in the price of components
could have a material adverse effect on the Company's ability to manufacture
and market its products. See "Business--Manufacturing."

10
<PAGE>

RISK OF PRODUCT LIABILITY; LIMITATIONS OF INSURANCE COVERAGE

The Company faces an inherent business risk of exposure to product liability
claims in the event that an end user is adversely affected by use or misuse of
its systems, and the Company has in the past experienced such claims. The
Company currently carries a product liability insurance policy with an
aggregate limit of $5,000,000. As the result either of adverse claim
experience or of medical device or insurance industry trends, however, the
Company may in the future have difficulty in obtaining product liability
insurance or be forced to pay very high premiums, and there can be no
assurance that insurance coverage will continue to be available on
commercially reasonable terms or at all. In addition, there can be no
assurance that insurance will adequately cover any product liability claim
against the Company. A successful product liability or other claim with
respect to uninsured liabilities or in excess of insured liabilities could
have a material adverse effect on the Company's business, financial condition
and operations. See "Business--Liability Insurance."

NO PRIOR PUBLIC MARKET FOR COMMON STOCK

Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market in the Common
Stock will develop or be sustained upon completion of this offering or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives of the
Underwriters and may not be indicative of the prices that will prevail in the
public market. See "Underwriting."

In addition, if the Company fails to maintain qualification for its Common
Stock to trade on the Nasdaq National Market and the price drops below $5.00
per share, the shares may be subject to certain rules of the Securities and
Exchange Commission relating to "penny stocks." Such rules require broker-
dealers to make a suitability determination for purchases and to receive the
purchaser's prior written consent for a purchase transaction. If the Common
Stock is deemed to be a penny stock, additional disclosure would be required
in connection with trades in the Common Stock including the delivery of a
disclosure schedule explaining the nature and risks of the penny stock market.
Such requirements could severely limit the liquidity of the Common Stock and
the ability of purchasers in this Offering to sell their Common Stock in the
secondary market.

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS

The Company's operating results may vary significantly from quarter to
quarter, in part because of changes in consumer buying patterns, aggressive
competition, the timing of the recognition of licensing or development fee
payments and the timing of, and costs related to, any future system or new
drug use introductions. The Company's operating results for any particular
quarter are not necessarily indicative of any future results. The
uncertainties associated with the introduction of any new system or drug use
and with general market trends may limit management's ability to forecast
short-term results of operations accurately. Fluctuations caused by variations
in quarterly operating results or the Company's failure to meet analysts'
projections or public expectations as to results may adversely affect the
market price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

POSSIBLE STOCK PRICE VOLATILITY

The trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to events or factors, many of which are beyond the
Company's control. These could include, without limitation (i) quarter to
quarter variations in the Company's operating results, (ii) announcements by
the Company or its competitors regarding the results of regulatory approval
filings, clinical trials or testing, (iii) developments or disputes concerning
proprietary rights, (iv) technological innovations or new commercial products,
(v) material changes in the Company's collaborative arrangements and (vi)
general conditions in the medical technology industry. Moreover, the stock
market has experienced extreme price and volume fluctuations, which have
particularly affected the market prices of many medical technology and device
companies and which have often been unrelated to the operating performance of
such companies.

11
<PAGE>

RELIANCE ON KEY PERSONNEL

The success of the Company is highly dependent, in part, on its ability to
attract and retain highly qualified personnel, including senior management and
scientific personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be successful in attracting and retaining
key personnel in the future. Any failure to do so could adversely affect the
Company. See "Business--Employees."

CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER PROVISIONS

Upon completion of this offering, certain of the Company's officers,
directors and principal shareholders will beneficially own in the aggregate
approximately 6,078,841 shares of the Company's outstanding Common Stock
(including shares subject to outstanding options and warrants). If these
shareholders vote together as a group, they will be able to substantially
influence the business and affairs of the Company, including the election of
individuals to the Company's Board of Directors (the "Board of Directors"), and
to otherwise affect the outcome of certain actions that require shareholder
approval, including the adoption of amendments to the Company's articles of
incorporation, and certain mergers, sales of assets and other business
acquisitions or dispositions.

Upon completion of this offering, the Company will have authorized 1,000,000
shares of undesignated preferred stock, $.01 par value, which may be issued by
the Board of Directors on such terms, and with such rights, preferences and
designations, as the Board of Directors may determine without further
shareholder action. In addition, upon completion of this offering, the
Company's Board of Directors will be classified and directors will serve for
staggered terms. Finally, the Company is subject to certain provisions of the
Minnesota Business Corporation Act that limit the voting rights of shares
acquired in certain acquisitions and restrict certain business combinations.
Some or all of the foregoing factors could have the effect of discouraging
certain attempts to acquire the Company which could deprive the Company's
shareholders of opportunities to sell their shares of Common Stock at prices
higher than prevailing market prices. See "Principal Shareholders,"
"Description of Capital Stock--Preferred Stock" and "--Anti-Takeover Provisions
of the Minnesota Business Corporation Act."

POSSIBLE ADVERSE MARKET EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price
of the Common Stock or the future ability of the Company to raise capital
through an offering of its equity securities. Of the 6,925,633 shares of Common
Stock to be outstanding upon completion of this offering, the 2,200,000 shares
offered hereby will be eligible for immediate sale in the public market without
restriction unless they are held by "affiliates" of the Company within the
meaning of Rule 144 of the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 4,725,633 shares of Common Stock will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act. Of
these, an aggregate of 4,293,378 shares are owned by the Company's directors,
officers and certain of its shareholders who, together with the Company, have
agreed that they will not sell, directly or indirectly, any Common Stock
without the prior consent of Rodman & Renshaw, Inc. for a period of 180 days
from the date of this Prospectus. Of the shares not subject to this agreement,
125,008 shares will be eligible for immediate sale without restriction pursuant
to Rule 144(k) on the effective date of this offering, 381 shares will be
eligible for sale, subject to compliance with the volume limitations and other
restrictions of Rule 144, 90 days after the effective date of this offering,
and 306,866 shares will become eligible for sale under Rule 144 after the
expiration of the two-year holding periods from the dates of acquisition, which
end between December 29, 1996 and May 31, 1998. Beginning on the 181st day
after the date of this Prospectus, when the agreements not to sell shares
expire, an additional 1,850,562 of the shares may become eligible for sale
without restriction pursuant to Rule 144(k), an additional 929,757 of the
shares will become eligible for sale, subject to compliance with the volume
limitations and other restrictions of Rule 144, and the remaining 1,513,059
shares will become eligible for sale under Rule 144 after the expiration of the
two-year holding periods from the dates of acquisition, which end between
December 29, 1996 and February 28, 1998. In the event the Becton Dickinson
Option is exercised,

12
<PAGE>

there will be an additional 380,808 shares eligible for resale under Rule 144
beginning two years after the closing of this offering. In addition, certain
shareholders and holders of warrants and options, who in the aggregate
beneficially own 5,049,440 shares of Common Stock, have the right, subject to
certain conditions, to include their shares in future registration statements
relating to the Company's securities and to cause the Company to register for
public sale certain Common Stock owned by them. See "Certain Transactions--
Becton Dickinson," "Shares Eligible for Future Sale" and "Underwriting."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of $3.80. Investors
may also experience additional dilution as a result of the exercise of
outstanding stock options and warrants. See "Dilution."

13
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby are estimated to be approximately $11.3 million
($13.1 million if the Underwriters' over-allotment option is exercised in
full), after deducting the underwriting discounts and estimated offering
expenses and assuming an initial public offering price of $5.75 per share.

The Company anticipates that the net proceeds of this offering will be used
to fund approximately (i) $4.0 million of capital expenditures, primarily in
connection with the improvement of the Company's manufacturing and assembly
capability, (ii) $3.0 million of market development activities, including
increased customer service and support for the marketing efforts of
pharmaceutical and medical device companies with which the Company has
collaborative arrangements and (iii) $3.0 million of research and development
dedicated to the development of improved needle-free injector systems.

The balance of the net proceeds will be used for working capital and other
general corporate purposes. The Company may also use a portion of the net
proceeds to acquire technologies, products or businesses compatible with the
Company's existing business, although the Company has no current arrangements,
commitments or understandings in this regard. These amounts are estimates, and
the amount and timing of the expenditures for these purposes will depend upon
numerous factors, including the status of the Company's product development
efforts, the nature and timing of future licensing, development or other
collaborative agreements, the timing of regulatory approvals, competition,
manufacturing activities, market acceptance of the Company's products and other
factors. The Company believes that the net proceeds from this offering,
combined with cash on hand, interest expected to be earned thereon and
anticipated revenues will be sufficient to meet its needs at least through
1997.

Pending the use of the net proceeds, the Company plans to invest the funds in
short-term, interest-bearing, investment grade securities.

DIVIDEND POLICY

The Company has not paid any dividends since its inception and for the
foreseeable future intends to follow a policy of retaining all of its earnings,
if any, to finance the development and continued expansion of its business.
There can be no assurance that the Company will ever pay dividends. The payment
of dividends, if any, in the future will be at the discretion of the Board of
Directors and will depend on the Company's earnings, financial condition,
capital requirements and other relevant factors.

14
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at June 30,
1996 (i) on a pro forma basis giving effect to the conversion of all
outstanding shares of Convertible Preferred Stock into Common Stock and (ii)
on a pro forma as adjusted basis to reflect the issuance and sale of the
2,200,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $5.75 per share and the application of the estimated net
proceeds therefrom.

<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities, less current maturities........... $ 54 $ 54
Shareholders' equity:
Preferred Stock, undesignated as to series, $.01 par
value, 1,000,000 shares authorized pro forma and pro
forma as adjusted; no shares issued and outstanding pro
forma or pro forma as adjusted......................... -- --
Common Stock, $.01 par value, 17,000,000 shares
authorized; 4,725,633 shares issued and outstanding pro
forma; 6,925,633 shares issued and outstanding, pro
forma as adjusted (1) (2).............................. 47 69
Additional paid-in capital.............................. 12,983 24,262
Accumulated deficit..................................... (10,486) (10,486)
-------- --------
Total shareholders' equity............................. 2,544 13,845
-------- --------
Total capitalization................................. $ 2,598 $ 13,899
======== ========
</TABLE>
- --------

(1) Excludes 2,966,810 shares consisting of (i) 481,690 shares issuable upon
exercise of outstanding options granted under the Company's 1993 Stock
Option Plan and (ii) 2,485,120 shares issuable upon exercise of
outstanding options and warrants granted to third parties. See
"Description of Capital Stock."
(2) Reflects the conversion of all outstanding Convertible Preferred Stock
into Common Stock, described in Note 13 of Notes to Financial Statements.

15
<PAGE>

DILUTION

The Company's pro forma net tangible book value as of June 30, 1996 was
$2,226,364, or approximately $0.47 per share. Pro forma net tangible book
value per share as of June 30, 1996, represents total assets, less intangible
assets and total liabilities, divided by the number of shares outstanding,
after giving effect to a subsequent 1-for-1.313 reverse stock split and the
conversion of all outstanding shares of Convertible Preferred Stock into
Common Stock. Without taking into account any changes in such net tangible
book value per share after June 30, 1996, other than to give effect to the
sale of the 2,200,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $5.75 per share and the receipt of the net
proceeds of such sale after deducting underwriting discounts and commissions
and estimated expenses payable by the Company, the pro forma net tangible book
value as of June 30, 1996 would have been $13,527,614, or $1.95 per share.
This represents an immediate increase in net tangible book value of $1.48 per
share to existing shareholders and an immediate dilution to new investors of
$3.80 per share, or 66.1%. The following table sets forth this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $5.75
Pro forma net tangible book value per share at June 30, 1996....... $0.47
Increase per share attributable to new investors................... 1.48
-----
Pro forma net tangible book value per share at June 30, 1996, as
adjusted.......................................................... 1.95
-----
Dilution in net tangible book value per share to new investors..... $3.80
=====
</TABLE>

If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share of Common Stock after this offering would be
$2.11 per share, which would result in dilution to new investors of $3.64 per
share, or 63.3%.

The following table summarizes, as of June 30, 1996, the differences between
existing shareholders and new investors with respect to the total number of
shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid (assuming an initial public offering
price of $5.75 per share).

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders (1). 4,725,633 68.2% $13,030,342 50.7% $2.76
New investors............. 2,200,000 31.8 12,650,000 49.3 5.75
--------- ----- ----------- -----
Total................... 6,925,633 100.0% $25,680,342 100.0%
========= ===== =========== =====
</TABLE>
- --------

16
<PAGE>

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements and notes thereto included elsewhere in this Prospectus.
The statement of operations data for the years ended December 31, 1993, 1994
and 1995, and the balance sheet data at December 31, 1994 and 1995 are derived
from, and are qualified by reference to, the audited financial statements
included elsewhere in this Prospectus and should be read in conjunction with
those financial statements and notes thereto. The balance sheet data at
December 31, 1993 are derived from audited financial statements not included
herein. The statement of operations data for the years ended December 31, 1991
and 1992 and the balance sheet data at December 31, 1991 and 1992 are derived
from unaudited financial statements not included herein. The selected financial
data as of and for the six months ended June 30, 1995 and 1996 have been
derived from unaudited financial statements of the Company which, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial information set
forth therein. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results to be expected for the entire
year ending December 31, 1996.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales ................. $1,067 $1,058 $1,058 $ 1,518 $ 1,654 $ 831 $ 814
Licensing and product -- -- 125 470 921 410 686
development .......... ------ ------ ------ ------- ------- ------ -------
Revenues.............. 1,067 1,058 1,183 1,988 2,575 1,241 1,500
------ ------ ------ ------- ------- ------ -------
Cost of sales.......... 290 356 409 631 1,049 465 502
Research and develop-
ment.................. -- -- 146 401 1,195 607 1,093
General and administra-
tive.................. 480 462 615 868 978 628 672
Sales and marketing.... 345 349 485 1,128 1,146 450 467
------ ------ ------ ------- ------- ------ -------
Operating expenses.... 1,115 1,167 1,655 3,028 4,368 2,150 2,734
------ ------ ------ ------- ------- ------ -------
Net operating loss..... (48) (109) (472) (1,040) (1,793) (909) (1,233)
Net other income (ex- (60) (50) (28) (26) (89) (21) 49
pense)................ ------ ------ ------ ------- ------- ------ -------
Net loss .............. $ (108) $ (159) $ (500) $(1,066) $(1,882) $ (930) $(1,184)
====== ====== ====== ======= ======= ====== =======
Pro forma net loss per
common share $ (0.46) $ (0.22)
(unaudited) (1)....... ======= =======
Pro forma weighted
average common shares
outstanding
(unaudited) (1)....... 4,136 5,310
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------- AT JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................. $ 170 $ 55 $ 649 $ 646 $ 36 $ 2,233
Working capital (defi-
cit).................. (622) (37) 197 108 (650) 1,699
Total assets........... 373 267 894 1,361 1,240 3,705
Long-term liabilities,
less current maturi-
ties.................. -- 363 190 299 136 54
Accumulated deficit.... (5,694) (5,846) (6,353) (7,419) (9,302) (10,486)
Total shareholders' eq-
uity (deficit)........ (548) (329) 119 252 (74) 2,544
</TABLE>
- --------
(1) Computed on the basis described in Note 1 of the Notes to Financial
Statements.

17
<PAGE>

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Selected
Financial Data and the financial statements and notes thereto included
elsewhere in this Prospectus. This Prospectus, including the following
discussion, contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed under the
heading "Risk Factors."

GENERAL

Medi-Ject Corporation designs, manufactures and markets needle-free
injection systems. In 1993, the Company hired a new management team with the
goal of revitalizing and redefining the Company's strategic direction. Since
that time, product development efforts have increased, emphasizing reductions
in the cost of the Company's systems to make them more competitive in the
marketplace. In addition, marketing efforts have been focused on increasing
sales in the domestic insulin market and on expanding the use of needle-free
injection systems for parenteral drugs other than insulin. As part of this
effort to encourage broader use of needle-free injection systems, the Company
began entering into technology and product license agreements to sell the
Medi-Jector system. The licensing and development income from these agreements
has been used primarily to fund increased product development efforts. This
development effort has resulted in a new generation of the Medi-Jector system,
the Medi-Jector VI system, which incorporates molded plastic components rather
than tooled steel components and was introduced in July 1995, and an
innovative needle-free injection technology that is the subject of eight
United States patent applications.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995

Revenues increased to approximately $1,500,000 in the first six months of
1996 from approximately $1,241,000 in the first six months of 1995, an
increase of approximately 21%. This increase was primarily the result of
increased licensing and product development fees. Sales of injectors, parts,
supplies and repairs declined to approximately $814,000 in the first six
months of 1996 from approximately $831,000 in the first six months of 1995, a
decrease of approximately 2%. This decrease resulted from a decrease in the
number of injectors sold (1,512 in the first six months of 1995 and 1,363 in
the first six months of 1996). The average selling price per injector also
decreased from $404 to $389 due to an increase in the number of injectors sold
to pharmacies at wholesale prices. The decrease was partially offset by an
increase in sales of parts, supplies and repairs. Licensing and product
development fees increased to approximately $686,000 in the first six months
of 1996 from $410,000 in the first six months of 1995, an increase of 67%. The
increase in fee income reflects the execution of the Becton Dickinson
Agreement in January 1996. The Company expects that licensing and product
development fee income will tend to fluctuate on a quarter to quarter basis,
depending on a number of factors, including the timing of the execution of new
development and licensing agreements and the timing, nature and size of fee
payments to be made under existing and new agreements. In addition, since the
Company in general does not recognize project-based fee income until related
development work has been performed, quarterly results will fluctuate with the
timing of the Company's research and development efforts.

Cost of sales increased to approximately $502,000 in the first six months of
1996 from approximately $465,000 in the first six months of 1995, an increase
of approximately 8%. The increase in cost of sales was due to an increase in
per unit manufacturing costs and an increase in sales of replacement parts,
supplies and repairs. The Company expects that per injector manufacturing
costs will decrease as volumes increase.

Research and development expenses increased to approximately $1,093,000 in
the first six months of 1996 from approximately $607,000 in the first six
months of 1995, an increase of approximately 80%. This increase

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was primarily attributable to research and development expenditures related to
the Company's collaboration with Becton Dickinson, which is being funded in
large part by Becton Dickinson under the Becton Dickinson Agreement.

General and administrative expenses increased to approximately $672,000 in
the first six months of 1996 from approximately $628,000 in the first six
months of 1995, an increase of approximately 7%. The largest component of this
increase was legal expenses related to the negotiation of the Becton Dickinson
Agreement.

Sales and marketing expenses increased to approximately $467,000 in the
first six months of 1996 from approximately $450,000 in the first six months
of 1995, an increase of approximately 4%. This increase was primarily the
result of a general increase in spending on domestic sales activities.

The Company had net other income of approximately $49,000 in the first six
months of 1996 compared to net other expense of approximately $21,000 in the
first six months of 1995. The change was the result of increased cash on hand
following the sale of equity securities to Becton Dickinson in January 1996.
In addition, the Company realized income of approximately $8,000 in the first
six months of 1996 from the sale of certain equipment.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Revenues increased to approximately $2,575,000 in 1995 from approximately
$1,988,000 in 1994, an increase of approximately 30%. This increase was
primarily the result of a growth in licensing and product development fees.
Sales of injectors, parts, supplies and repairs increased to approximately
$1,654,000 in 1995 from approximately $1,518,000 in 1994, an increase of
approximately 9%. This increase was attributable to an increase in the number
of injectors sold, to 3,110 in 1995 from 2,636 in 1994, largely for use with
human growth hormone, and an increase of approximately $126,000 in sales of
parts, supplies and repairs offset by a decrease in the average unit selling
price from $465 in 1994 to $397 in 1995. Licensing and product development
fees increased to approximately $921,000 in 1995 from $470,000 in 1994, an
increase of approximately 96%. This increase was the result of the additional
license and development agreements entered into during 1995 with Bio-
Technology General Corporation, JCR Pharmaceuticals Co., Ltd. and
GeneMedicine, Inc., and increased revenue earned under license and development
agreements executed in prior periods.

Cost of sales increased to approximately $1,049,000 in 1995 from
approximately $631,000 in 1994, an increase of approximately 66%. This
increase was due in large part to nonrecurring expenses associated with the
commercial introduction of the Medi-Jector VI system and the fact that a
larger number of units were sold.

Research and development expenses increased to approximately $1,195,000 in
1995 from approximately $401,000 in 1994, an increase of approximately 198%.
This increase was the result of an increased number of research and
development projects at the Company.

General and administrative expenses increased to approximately $978,000 in
1995 from approximately $868,000 in 1994, an increase of approximately 13%.
This increase related primarily to increased salary and employee benefits
expenses and expenses relating to a larger support staff.

Sales and marketing expenses increased to approximately $1,146,000 in 1995
from approximately $1,128,000 in 1994, an increase of approximately 2%.

Interest income remained relatively constant at approximately $16,000 in
both 1995 and 1994. Interest and other expense increased to approximately
$106,000 in 1995 from approximately $42,000 in 1994, an increase of
approximately 152%. This increase was largely attributable to a non-cash
expense in 1995 relating to certain modifications to the terms of an investor
option agreement.

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Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

Revenues increased to approximately $1,988,000 in 1994 from approximately
$1,183,000 in 1993, an increase of approximately 68%. Sales increased to
approximately $1,518,000 in 1994 from approximately $1,058,000 in 1993, an
increase of approximately 43%. This increase was the result of an increase in
the number of injectors sold to 2,636 in 1994 from 1,399 in 1993, largely
because the Company decreased the prices of its systems in the domestic
insulin market from an average selling price of $574 in 1993 to $465 in 1994
and began to market its systems in Europe and Japan for use with human growth
hormone. Product development and licensing fees increased to $470,000 in 1994
from $125,000 in 1993, an increase of approximately 276%. This increase was
the result of the license and development agreement entered into during 1994
with Schwarz Pharma AG, and revenue under the Ferring NV license and
development agreement entered into in 1993.

Cost of sales increased to approximately $631,000 in 1994 from approximately
$409,000 in 1993, an increase of approximately 54%. This increase was driven
primarily by the increase in the number of units produced and sold. The cost
to manufacture injectors decreased from 1993 to 1994 as a result of the
increased volume.

Research and development expense increased to approximately $401,000 in 1994
from approximately $146,000 in 1993, an increase of approximately 175%. This
increase was the result of increased research and development work related to
the Medi-Jector VI system (which was introduced in 1995) and to other systems.

General and administrative expenses increased to approximately $868,000 in
1994 from approximately $615,000 in 1993, an increase of approximately 41%.
This increase was attributable primarily to the hiring of additional
management and support personnel and increased rent expenses.

Sales and marketing expenses increased to approximately $1,128,000 in 1994
from approximately $485,000 in 1993, an increase of approximately 133%. This
increase was driven by increased advertising expenditures, the addition of new
sales and marketing personnel and an increase generally in marketing-related
expenditures.

Interest income increased to approximately $16,000 in 1994 from
approximately $3,000 in 1993, an increase of approximately 433%, as a result
of higher average cash balances resulting from private equity financings
completed during the year. Interest and other expense increased to
approximately $42,000 in 1994 from approximately $30,000 in 1993, an increase
of approximately 40%, as a result of debt financings completed in 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations through private sales of equity and
debt securities, loans, revenues from product sales and licensing and
development fees. From September 1993 through the second quarter of 1996, the
Company realized net proceeds of approximately $7.6 million from private sales
of its equity securities. Among other things, these funds were used to
increase sales and marketing and research and development efforts. In January
1996, the Company received gross proceeds of approximately $3.1 million from a
private sale to Becton Dickinson of shares of convertible preferred stock
(which will convert into 761,615 shares of Common Stock upon the closing of
this offering), options to purchase additional shares of convertible preferred
stock (which will convert into an option to purchase 380,808 shares of Common
Stock at an exercise price of $4.60 per share) and warrants to purchase
additional shares of convertible preferred stock (which will convert into
warrants to purchase 1,904,037 shares of Common Stock at $5.91 per share). The
Company intends to use these funds, together with monthly contract development
income from Becton Dickinson and from pharmaceutical company licensees, for
the development of the proposed smaller injector and for the addition of new
drug therapies. See "Business--Products and Technology" and "Certain
Transactions."

The Company's long term capital requirements will depend on numerous
factors, including the status of the Company's collaborative arrangements, the
progress of the Company's research and development programs and

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the receipt of revenues from the sales of the Company's products. Cash and
cash equivalents were $2.2 million at June 30, 1996. The Company believes that
the net proceeds to the Company from this offering, combined with cash on
hand, interest expect to be earned thereon and anticipated revenues, will meet
its needs at least through 1997. In order to meet its needs beyond this
period, the Company may be required to raise additional funds through public
or private financings, including equity financings.

The Company has not generated taxable income through June 30, 1996, and at
such date it had an accumulated deficit of approximately $10.5 million.

INCOME TAX LOSS CARRYFORWARDS

At June 30, 1996, the Company had approximately $10.1 million of net
operating loss carryforwards that may be available to offset future taxable
income for federal income tax purposes. These net operating loss carryforwards
begin to expire in 1996. In addition to its net operating loss carryforwards,
at June 30, 1996, the Company had approximately $117,000 in research and
development tax credit carryforwards which begin to expire in 1997.

Under Section 382 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, a change in ownership of greater than 50% of a company
within a three-year period can result in an annual limitation on such
company's ability to utilize net operating loss carryforwards from tax periods
prior to the change in ownership. The annual limitation may be increased for
any built-in gains recognized within five years of the date of the change in
ownership. The Company's January 1996 sale of capital stock to Becton
Dickinson resulted in a "change in ownership" of the Company, and future
utilization of the Company's net operating loss carryforwards will be limited
to approximately $1.1 million per year. If the Company were to undergo a
further "change in ownership," this limitation might be changed. As a result
of the annual limitation, a portion of the Company's carryforwards may expire
before ultimately becoming available to reduce potential federal income tax
liabilities. See "Certain Transactions."

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BUSINESS

OVERVIEW

Medi-Ject is a drug delivery company focused on developing, manufacturing
and marketing needle-free injection systems for the self-administration of a
wide range of parenteral (injectable) drugs. The Company's product, the Medi-
Jector system, is a hand-held, spring-powered device that injects drugs from a
front-end chamber through the skin without a needle as a narrow, high pressure
stream of liquid approximately 7/1000ths of an inch in diameter. The Medi-
Jector system eliminates the need to pierce the skin with a sharp needle and
manipulate a plunger with the needle inserted through the skin. Therefore many
people perceive injections with the Medi-Jector system to be less threatening
than injections with a needle. Today's Medi-Jector systems are smaller, easier
to use, less expensive and more comfortable than previous needle-free
injection systems. The Company believes that the key to widespread market
acceptance of its needle-free injection systems depends upon continued
improvements in these areas.

The Company believes that individuals who require self-injection will
benefit from the Medi-Jector system because it (i) eliminates the need to
pierce themselves with needles for each injection, which should lead to
increased compliance with a prescribed injection regimen and consequently
reduce health complications, (ii) provides the ability to inject themselves
discreetly and (iii) eliminates the need for sharps disposal of used needles.
In addition, healthcare industry providers and payors may benefit from the
decrease in long-term costs of patient care which may result from improved
patient compliance. Furthermore, based upon discussions with pharmaceutical
companies, the Company believes that those companies are motivated to provide
improved drug delivery methods in an attempt to differentiate their products
in the marketplace and improve patient compliance, which may result in
increased sales and larger market share. Although the single largest
indication for self-injection is the administration of insulin for the
treatment of diabetes, the number of drugs associated with frequent self-
injection is increasing as novel biopharmaceuticals are introduced and
individuals previously managed in the hospital are now cared for in the home.

Medi-Ject was a pioneer in the development of portable needle-free injection
systems. Prior to the development of portable systems, needle-free injection
systems were powered by large air compressors and their use was limited to
mass vaccination by the military or school health programs. These injectors
were painful in comparison to today's injectors. The Company's first
commercial injector was five times as heavy as its current injector, which
weighs eight ounces. Acceptance of the Company's needle-free injection systems
has gradually expanded as functionality and ease of use have improved and the
purchase price has been reduced.

INDUSTRY TRENDS

Historically, with the exception of the self-administration of insulin,
parenteral drug administration was limited to hospitals, doctors' offices and
clinics. Liquid injectable medicines came packaged in single or multi-dose
vials. Healthcare professionals filled disposable syringes with the
medication, injected the patient and discarded the used syringe. Advances in
pharmacology have resulted in an increasing number of drugs that require
frequent injections over long periods of time. These drugs have provided
dramatic therapeutic effects for conditions that in the past resisted more
conventional medications.

Although the availability of these drugs provides new treatment
opportunities, the Company believes that the requirement to inject the drugs
has and will continue to hinder their acceptance and reduce patient
compliance. The Company believes that most individuals view piercing their
skin with a needle as unpleasant. In addition, individuals are often reluctant
to use needles in public because needles are frequently associated with
illegal drug use and cause fear of accidental needle sticks in others. These
and other factors can deter patients from fully complying with their doctor-
prescribed injection regimens. The failure to administer all prescribed
injections can lead to increased health complications for the patient,
decreased drug sales for pharmaceutical companies and increased healthcare
costs for payors. In addition, needles require special disposal and therefore
must be carried after use until they can be discarded in a special sharps
container.

These factors have led pharmaceutical manufacturers to explore many
alternative delivery technologies, including novel needle injectors (for
example, sheathed and spring-powered needle injectors), transdermal

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patches, controlled release oral delivery methods and inhalation devices. In
Western Europe, pharmaceutical and medical product companies, including Becton
Dickinson, market pen-like needle injection systems. Patients have
demonstrated a willingness to pay a premium for these systems over traditional
needles and syringes. The Company believes, however, that injection will
continue as the major delivery method because many of these drugs are protein
biopharmaceuticals which are destroyed in the gastrointestinal tract, do not
readily penetrate the skin or are not effectively absorbed through the lungs.

In addition to the increase in the number of drugs requiring self-injection,
changes in the frequency of insulin injections for the treatment of diabetes
also may contribute to an increase in the number of self-injections. For many
years, standard treatment protocol was for insulin to be administered once or
twice daily for the treatment of diabetes. However, according to a recent
study, tightly controlling the disease by, among other things, administration
of insulin as many as four to six times a day, can decrease its debilitating
effects. The Company believes that as the benefits of tightly controlling
diabetes become more widely known, the number of insulin injections self-
administered by individuals with diabetes will increase. The need to increase
the number of insulin injections given per day may also lead additional
patients to seek an alternative to traditional needles and syringes.

While the Company currently is not pursuing drug applications administered
by healthcare professionals, needle-free injection systems may be attractive
to hospitals, doctors' offices and clinics, and the Company may explore such
applications in the future. The issues raised by accidental needle sticks and
disposal of used syringes have led to the development of syringes with
sheathed needles and have led hospitals to give injections through intravenous
tubing to reduce the number of contaminated needles. The Company believes that
needle-free injection systems may be attractive to healthcare professionals as
a further means to reduce accidental needle sticks and the burdens of
disposing of contaminated needles. Becton Dickinson has the option to
distribute Medi-Jector systems to hospitals worldwide.

MARKET OPPORTUNITY

An estimated nine to 12 billion needles and syringes are sold annually
worldwide according to industry sources. The Company believes that a
significant portion of these are used for the administration of drugs that
could be delivered using the Company's Medi-Jector system but that only a
small percentage of individuals who self-administer drugs currently use
needle-free injection systems.

The Company's focus is on the market for the delivery of self-administered
parenteral drugs, the largest, most developed portion of which consists of the
delivery of insulin. In the United States, over 3.2 million people inject
insulin for the treatment of diabetes, resulting in an estimated 2.3 billion
injections annually, and the Company believes that the number of insulin
injections will increase with time as the result of new diabetes management
approaches which recommend more frequent use. Other parenteral drugs that are
presently self-administered and may be suitable for injection with the Medi-
Jector system include therapies for the treatment of multiple sclerosis,
migraine headaches, growth retardation, impotence, female infertility, AIDS
and hepatitis. The Company also believes that other existing parenteral drugs
will be self-administered in the future and that additional parenteral drugs
that are under development will be deemed appropriate for self-administration.

STRATEGY

The Company's goal is to establish its needle-free injectors as the drug
delivery method of choice for the self-administration of a wide range of
parenteral drugs. The Company believes that the key to this goal is the
development and marketing of a new generation of needle-free injectors that
are less expensive and more user friendly than existing needle-free injection
systems. The Company's strategic plan for accomplishing this goal consists of:

Developing Proprietary Technologies. To address the need for improved
injector systems, the Company initiated a product development program in 1993.
The Company believes that the design improvements resulting

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<PAGE>

from these efforts can reduce production costs and lower sales prices. Central
to this program is a new proprietary injection power source, the gas spring.
The gas spring injectors will be smaller, operate more intuitively and may
give more comfortable injections.

Generating an Income Stream from Consumable Components. In addition to sales
of injectors, the Company intends to generate revenue from the ongoing sale of
disposable front-end chambers, which soon will replace the current stainless
steel chambers.

Collaborating with Pharmaceutical and Medical Device Companies. To achieve
more rapid distribution of and capture a portion of the value added by the
Company's delivery system, the Company has chosen to pursue licensing and
development agreements with pharmaceutical and medical device companies. The
Company anticipates that these pharmaceutical and medical device companies
will promote and sell the Medi-Jector systems. Using this approach will enable
the Company to reduce its marketing expenses and leverage off of the marketing
strength and expertise of the other companies.

Focusing on Proprietary Pharmaceuticals. The Company has focused on entering
into agreements covering high-priced drugs, largely biopharmaceuticals, which
may cost many thousands of dollars per year. The Company believes that
pharmaceutical companies that perceive a problem with patient compliance have
in many instances demonstrated a willingness to fund the development of
alternatives to traditional needle injection. As new injectors become
available at reduced costs, the Company will address distribution strategies
for less expensive drugs.

PRODUCTS AND TECHNOLOGY

Current Needle-Free Injection Systems

The Company's current Medi-Jector system consists of a coil spring
mechanism, a dosage meter, a steel front-end chamber and a plastic adapter.
This injector is used by arming the spring mechanism, filling the medication
chamber and then setting the pressure level for an optimally effective and
comfortable injection. The coil spring is armed by turning the two overlapping
tubes in the power pack to shorten the coil spring. The unit is then filled by
placing a plastic adapter on a drug vial, turning the power pack body in the
opposite direction to pull the medication into the front-end chamber until the
proper dosage is displayed in the dosage window and removing the vial and
adapter assembly. The pressure is adjusted by again turning the winding grip.
An injection is given by holding the Medi-Jector system perpendicular to the
skin in a location appropriate for the injection and pressing the trigger
button. The most common injection sites are the upper arm, upper thigh,
buttocks or the side of the torso. It is recommended that the steel front-end
chamber on current models be cleaned after two weeks of use.

Based in part upon the results of focus group studies performed by the
Company, it believes that injections using a Medi-Jector system are more
comfortable than injections using a needle because there is no need to pierce
the skin with a sharp needle and manipulate a plunger with the needle inserted
through the skin. In addition, the Company believes injections can be
administered more discreetly using a Medi-Jector system than with a needle and
syringe. Although both types of injections can be and are performed in public,
many people are reluctant to use needles in public because needles are
frequently associated with illegal drug use and cause fear of accidental
needle sticks in others.

The first lightweight Medi-Jector system, the Medi-Jector EZ system, was
introduced by the Company in 1987. Although the Medi-Jector EZ system provided
significant advantages over previous needle-free injection systems, it was
fabricated from stainless steel parts, which are expensive to manufacture.

In July 1995, the Company introduced the Medi-Jector VI system which
replaced the stainless steel body of the Medi-Jector EZ system with a
composite plastic body. This change will allow the Company to reduce
manufacturing costs as unit volumes increase. The composite body also provides
a natural lubricity which

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<PAGE>

reduces friction and therefore the effort required to arm the coil spring. The
Medi-Jector VI system, which is approximately 7 3/4 inches long and weighs
approximately eight ounces, also incorporated additional design changes to
improve functionality.

New Product Research and Development

The Company continues to improve its existing products while developing new
products and technology. Specifically, it is now developing a novel injector
power source which it anticipates will form the basis of a new generation of
pen-like injectors. In addition, the Company is customizing its injectors in
collaboration with pharmaceutical and medical device companies for use with a
broader range of parenteral drugs. These development efforts are focused on
making Medi-Jector systems more attractive to users by eliminating the
periodic cleaning requirements, reducing the size of the system, making the
system easier to arm and lowering the cost barrier for new users.

Pen-Like Injectors. The Company believes that a major obstacle to widespread
market acceptance of needle-free injection systems has been the lack of a
suitably compact and easy to use power source. Although the Company has
reduced the size and complexity of its coil spring injectors, the Company
believes further reduction in size or improvement in ease of use of systems
using a coil spring are not feasible. Other companies have developed and
marketed injectors powered by CO/2/ cartridges, but these systems do not
provide any advantage in size and are complex and costly to manufacture.

To overcome this obstacle, the Company is developing a novel and proprietary
power source, the gas spring. The Company's gas spring is a permanently
charged gas cylinder that is smaller than a coil spring with comparable
capabilities, allowing the development of smaller systems. A rubber seal
surrounds a central rod, preventing the gas from escaping and allowing it to
be reused thousands of times. The spring is armed by pushing the rod into the
cylinder and compressing the gas in the cylinder. When the rod is released, it
springs forward with the energy stored from arming. Medi-Ject built its first
prototype gas spring injector in 1994 and filed a patent application shortly
after the successful testing of the technology. Use of the Company's
proprietary gas spring will allow its needle-free injection systems to be
easier to arm and reduced in size (anticipated to be approximately 7 3/4
inches long, seven ounces in weight and 30% smaller in diameter than the Medi-
Jector VI system) and may result in more comfortable injections.

Plastic Front-End Chambers. The Company plans to replace the steel front-end
chamber of the current Medi-Jector system with a multi-use disposable plastic
front-end chamber in its next generation Medi-Jector system, the Medi-Jector
VI-B system, which it expects to introduce in late 1996 or early 1997. The
Company believes that one of the reasons its needle-free injection systems
have not gained widespread market acceptance is the inconvenience of cleaning
the systems every two weeks. The disposable front-end chamber will eliminate
the need to perform this cleaning process and increase ease of use. In
addition, use of this plastic front-end chamber will allow the Company to
further reduce the manufacturing costs of the Medi-Jector system.

The Company expects that each front-end chamber will be labeled for use for
14 injections, subject to FDA approval. The Company currently anticipates that
the retail selling price of the Medi-Jector VI-B unit (excluding the
disposable front-end chamber) will be reduced by 20% to 30% from the price of
the current version (which includes the steel front-end chamber). The total
annual cost to the end user of disposable front-end chambers and related
supplies is anticipated to increase from approximately $50 per year for
disposable supplies used with the current system to approximately $200 to $250
per year, depending upon the final cost per unit (based upon an average of two
injections per day). Although the total cost to use the Medi-Jector VI-B
system over time will be more than with models that do not require disposable
front-end chambers, the Company believes that lowering the initial purchase
price of a Medi-Jector system will encourage more individuals to make the
initial investment in the injector and increase market acceptance.

In addition, the Company plans to introduce a single-use disposable plastic
front-end chamber for use with its new generation pen-like injectors. The
Company believes that the single-use disposable chamber will be priced
competitively but at a premium compared to disposable syringes, and that it
will offer users sterility and increased convenience.

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<PAGE>

The disposable front-end chambers to be used with the Medi-Jector system
should not require special disposal. Because a used front-end chamber will not
pierce the skin, the risk of cross-infection from discarded front-end chambers
is reduced significantly over the risk associated with needles.

Application Specific Systems. In addition to pen-like injectors for insulin,
the Company, in collaboration with Becton Dickinson and other pharmaceutical
and medical device companies, is in the process of developing customized pen-
like needle-free injection systems for specific drug applications. Modified
injectors currently are being developed for use in gene therapy, the treatment
of erectile dysfunction, and the treatment of multiple sclerosis.

Research and Development Programs. The Company manages four outside product
development programs relating to the further development of (i) the gas
spring, (ii) an electronic dosage display, (iii) an electric arming system and
(iv) the miniaturization of its systems. In addition, over the past year, the
Company has expanded its internal development efforts by hiring additional
technical personnel, purchasing laboratory equipment and dedicating facility
space to internal product development efforts. Product development currently
is the largest single category of Company expenditure, in part supported by
fees under license and development agreements. The Company has expended
approximately $146,000, $401,000, $1,195,000 and $1,093,000 on research and
development efforts during fiscal years 1993, 1994 and 1995 and the six month
period ended June 30, 1996, respectively. Of these amounts, approximately
$125,000, $470,000, $921,000 and $686,000, respectively, were funded by third-
party sponsored development programs and licensing fees.

TARGET MARKETS

The Company intends to target the following markets for use of the Medi-
Jector system. To date, the Medi-Jector system has only been approved for use
in the United States, Japan and certain European countries for the
administration of insulin and human growth hormone.

Insulin

Approximately 3.2 million people take insulin daily for the control of high
blood sugar observed in individuals with diabetes according to the National
Institutes of Health. Most of these individuals take two injections daily,
often combining short acting insulin and long acting insulin. In the United
States, the vast majority of insulin users use disposable plastic syringes and
needles, while in Western Europe and Japan, in addition to disposable plastic
syringes, patients use pen-like injectors that hold small vial cartridges of
insulin and use small needles. The management of Type I (insulin dependent)
diabetes has been found to be benefitted by a more disciplined approach to
glucose management, including, among other things, more frequent injections,
which have been proven to reduce long-term complications such as heart
disease, strokes, neuropathy (degeneration of the nervous system), kidney
failure and loss of vision. As a result, some individuals with diabetes take
four to six injections daily. Needle-free injectors have been available to and
used by diabetes patients with a serious aversion to needles for many years
and for these patients, cost and complexity are not significant barriers to
use. The Company believes that another, much larger group of individuals, not
seriously averse to needles yet still reluctant to piercing themselves, find
it difficult to comply with injection regimens and would benefit from the
Company's new, less costly and more user friendly needle-free technology.

Human Growth Hormone

Approximately 52,000 children worldwide receive frequent injections of human
growth hormone for the treatment of growth retardation according to industry
sources. The disease may be diagnosed as early as age three, with injections
administered until bone maturity is reached at age seventeen or beyond. The
hormone drug used for the treatment of this condition costs an estimated
$20,000 or more at the wholesale level annually. Despite the use of pen-like
needle injection systems which are more convenient to use than traditional
needles, compliance with the prescribed injection regimen continues to be a
problem. A study in Germany found that 36% of children on human growth hormone
therapy did not fully comply with the therapy using needle

26
<PAGE>

injections. In addition, a study performed in the Netherlands showed that most
children in the study preferred to have their human growth hormone
administered using a Medi-Jector system rather than a pen-like needle
injector. A small number of pharmaceutical companies currently hold a
significant percentage of the worldwide human growth hormone market. The
Company believes that its needle-free injector system offers a marketing
advantage to the pharmaceutical companies with which it has agreements
relating to human growth hormone.

Erectile Dysfunction

Studies estimate the number of men in the United States suffering from
impotence at over fifteen million. The causes, earlier thought to be mainly
psychogenic, are now thought to be most often a natural result of aging, or a
complication of diabetes, urogenital surgery or other physiological causes.
Over ten years ago, it was observed that penile injections of vasoactive
(blood vessel relaxing) drugs caused temporary erections sufficient to allow
satisfactory sexual intercourse. The first drug approved for such use in the
United States was the generic drug prostaglandin E/1/. However, the Company
believes that use of this drug has been hindered because penile self-injection
is difficult and viewed as unpleasant by most men. As a result, drug companies
are seeking both local and oral alternative drug delivery methods to avoid the
problems of needle injection. The Company believes that its needle-free
injection technology may provide an attractive alternative to needles.

Gene Therapy

Gene therapy involves the injection of replacement genes into the body
instead of biopharmaceutical protein drugs. In recent years, investigators
have been successful in inserting missing genes directly into the body for
therapeutic purposes. For example, theoretically, an intramuscular injection
of genes of Factor VIII (the blood component necessary for proper clotting)
which is missing in individuals with hemophilia, could produce sufficient
levels of Factor VIII to prevent excessive bleeding. Gene therapy is also
being tested as a more effective method of vaccination. At least one published
study suggests that gene delivery with a needle-free injector results in
higher blood levels of the protein drug or antibodies to vaccines in animals.

Multiple Sclerosis

Multiple sclerosis is a progressive neurological disease where, most
commonly, nerve function loss occurs following an acute episode of peripheral
nerve damage. The cause of the disease is obscure, but recent studies have
demonstrated that at least three drugs reduce the number of acute episodes.
Each of the drugs is a protein or mixture of proteins and requires frequent
injections, ranging from daily to weekly. One of these drugs, Betaseron, has
been available in the United States for over one year, and the Company
believes that many individuals using Betaseron are having difficulty with the
prescribed injection regimen due to needle aversion. As a result, the Company
believes that administration of these drugs would benefit from needle-free
injection systems. Approximately 100,000 individuals in the United States are
candidates for treatment with such drugs.

Other Target Markets

The Company has targeted other parenteral drugs that are regularly self-
administered. These include narcotic analgesics, the anticoagulant heparin
used to prevent blood clots, hormones used in the treatment of female
infertility, biopharmaceuticals used to treat hepatitis or to elevate red and
white blood cell production following chemotherapy or for the treatment of
AIDS.

Although the Company has chosen to focus initially on self-injection
opportunities, similar opportunities exist in hospitals, doctors' offices,
clinics, nursing homes and hospices. Certain opportunities may address the
concern for well being, such as the vaccination of small children, and others
may be prompted by the danger of accidental needle sticks in high risk
environments, such as the emergency room of the hospital.

27
<PAGE>

COLLABORATIVE AGREEMENTS

The Company's business development efforts are focused on entering into
collaborative agreements with pharmaceutical companies. The table below
summarizes certain elements of the Company's current agreements.

<TABLE>
<CAPTION>
VOLUME AND
COMPANY MARKET TYPE OF INJECTION
------- ------ --------------------
<S> <C> <C>
Becton Dickinson and Insulin
Company (1)............. 0.5 ml subcutaneous
Ferring NV............... Growth Hormone 0.5 ml subcutaneous
(Worldwide except United States,
Canada, Japan and Korea)
JCR Pharmaceuticals Co., Growth Hormone 0.5 ml subcutaneous
Ltd..................... (Japan)
Bio-Technology General Growth Hormone 0.5 ml subcutaneous
Corporation............. (United States)
Schwarz Pharma AG........ Prostaglandin E/1/ 1.0 ml intrapenile
(Erectile Dysfunction)
GeneMedicine, Inc........ Gene Therapy 0.5 ml intramuscular
Teva Pharmaceutical Copaxone(R) 1.0 ml subcutaneous
Industries Ltd.......... (Multiple Sclerosis)
</TABLE>
- --------
(1) Becton Dickinson has (i) worldwide distribution rights to injectors for
use with insulin and certain other potential future drugs, (ii) an option
for distribution rights for injection systems used by healthcare
professionals and (iii) manufacturing rights to the disposable front-end
chambers for any indication.

Becton Dickinson Agreement

The Company entered into a Development and License Agreement with Becton
Dickinson in January 1996. Under the agreement, Becton Dickinson is required
to pay to the Company periodic development fees for the development of a pen-
sized insulin injector. Becton Dickinson obtained (i) a worldwide license to
distribute the new, smaller pen-like injectors for use with insulin and
potentially certain other drugs and (ii) the exclusive right to manufacture a
disposable front-end chamber for such injector and for injectors to be
developed for use in the administration of such other drugs. Medi-Ject
retained the right to manufacture the injectors. Both companies have certain
rights to share in future revenues generated from injector and disposable
front-end chamber sales. In connection with this transaction, Becton Dickinson
purchased convertible preferred stock and options and warrants to purchase
preferred stock from the Company. See "Certain Transactions--Becton
Dickinson."

Ferring Agreement

The Company entered into an agreement with Ferring NV ("Ferring") in
December 1993. Pursuant to this agreement, the Company developed and granted
Ferring exclusive rights to use, market and distribute a Medi-Jector system to
be used in conjunction with human growth hormone worldwide with the exception
of the United States, Canada, Japan and Korea. Ferring distributes human
growth hormone manufactured by Bio-Technology General Corporation ("Bio-
Technology General") in Europe. The Company received an initial development
fee at the time the agreement was executed and additional licensing fees are
to be paid to the Company by Ferring at the time of regulatory approval of the
product in certain countries. The Company has retained its rights as the
exclusive manufacturer and supplier of the Medi-Jector system as modified
pursuant to this agreement. Ferring first launched the Medi-Jector system in
Germany in October 1994, and subsequently in certain other European countries.
Ferring has purchased injectors from the Company on a regular basis and has
contributed research funding for the modification of the system to meet
certain European regulatory requirements. Approximately 400 children are using
the Medi-Jector system and have received the Medi-Jector system and training
from Ferring without charge. The agreement has a term of ten years from the
date the product is introduced in France, Germany, Italy and Spain and may be
extended at Ferring's option for additional periods of two years. The
agreement may be terminated by Ferring at any time prior to the receipt of all
approvals necessary to market the injector in each of these countries.

28
<PAGE>

JCR Agreement

In February 1995, the Company entered into an exclusive license agreement
with JCR Pharmaceuticals, Ltd. ("JCR") for the use, marketing and distribution
of the Medi-Jector system with human growth hormone in Japan. The Company has
retained the exclusive right to manufacture the Medi-Jector system under the
agreement. Recently, JCR has entered into the human growth hormone market,
after licensing the drug from Bio-Technology General. JCR has distributed
approximately 250 injectors for use with human growth hormone. The agreement
is for a period of ten years, and may be extended at the option of JCR for
additional two year periods.

Bio-Technology General Agreement

The Company entered into an agreement with Bio-Technology General in June
1995. Pursuant to this agreement, the Company developed and granted Bio-
Technology General the exclusive rights to use, market and distribute a Medi-
Jector system to be used in conjunction with its human growth hormone in the
United States in exchange for a licensing fee, research fee payments and
ongoing royalty payments. The Company has retained its rights as the exclusive
manufacturer and supplier of the Medi-Jector system as modified pursuant to
this agreement. The Medi-Jector system was approved for use with the Bio-
Technology General human growth hormone by the FDA in April 1996, but the sale
of Bio-Technology General human growth hormone in the United States is
currently prohibited by a federal injunction issued in late 1995 as a result
of an unresolved patent infringement suit brought by Genentech, Inc. Bio-
Technology General and Medi-Ject are currently considering various options in
connection with the status of this agreement in light of the injunction.

Schwarz Pharma Agreement

The Company entered into an agreement with Schwarz Pharma AG ("Schwarz") in
October 1994. Pursuant to this agreement, the Company is to develop and grant
Schwarz the exclusive right to use, market and distribute a Medi-Jector system
for use in conjunction with prostaglandin of the E series for any human
ailment, and any other drug for the treatment of erectile dysfunction. The
Company received an initial fee at the time the agreement was executed and
additional fees are to be paid at the time of reaching certain milestones in
the development. The preliminary design of an injector for this purpose has
been completed and human clinical testing is expected to begin in 1996. Data
on efficacy, pain and tissue damage will be collected prior to finalizing the
design of the injector. Clinical trials of the injector are planned to
determine the occurrence of any adverse effects which commonly occur as a
result of frequent penile needle usage. The Company has retained its rights as
the exclusive manufacturer and supplier of the Medi-Jector system as modified
pursuant to this agreement. The agreement may be terminated by either party
prior to the first commercial sale of product under the agreement and is
otherwise for a period of five years following the first commercial sale or
until the expiration of all patent coverage for the covered product, and may
be extended for additional three year terms upon mutual agreement of the
parties.

GeneMedicine Agreement

The Company entered into an agreement with GeneMedicine, Inc.
("GeneMedicine") in July 1995. GeneMedicine and the Company agreed to
collaborate in the development of an injector to deliver gene constructs to
muscle and solid tissue in humans. The Company received an initial fee at the
time the agreement was executed and additional funds for research support were
paid to the Company at regular intervals thereafter. GeneMedicine may secure
rights to distribute the injector for certain gene therapies in exchange for
licensing fees, and both companies will share in fees and sales revenues
generated by licenses to other gene therapy companies. The Company has
retained its rights as the exclusive manufacturer and supplier of the Medi-
Jector system as modified pursuant to this agreement. The agreement may be
terminated by either party upon sixty days' written notice.

Teva Agreement

The Company entered into an agreement with Teva Pharmaceutical Industries
Ltd. ("Teva") in May 1996. Teva has obtained a non-exclusive license to
distribute a Medi-Jector system to be modified specifically for the

29
<PAGE>

administration of the Teva drug, Copaxone(R), for the treatment of multiple
sclerosis. Copaxone(R) is the subject of a currently pending FDA new drug
application. Teva has agreed to support the product development work required
to modify the injector for Copaxone(R) administration. The Company has
retained its rights as the exclusive manufacturer and supplier of the Medi-
Jector system as modified pursuant to this agreement. The agreement has an
initial term of ten years and will be extended for additional two year terms
unless either party notifies the other of its intention to terminate the
agreement at least six months prior to the expiration of the current term.

PATENTS

The Company actively seeks, when appropriate, protection for its products
and proprietary information by means of United States and foreign patents and
trademarks. In addition, the Company relies on trade secrets and confidential
contractual agreements to protect certain proprietary information and
products. The Company currently holds two United States patents relating to
the drug vial adapter and the front-end chamber, one United States design
patent relating to the appearance of the Medi-Jector system and has eight
United States patent applications pending, one of which has been recently
allowed, one Patent Cooperation Treaty application and one Taiwanese patent
application relating to the gas spring energy source and aspects of its use.

Much of the Company's technology is being developed on its behalf by
independent outside contractors. To protect the rights of its proprietary
know-how and technology, Company policy requires all employees and consultants
with access to proprietary information to execute confidentiality agreements
prohibiting the disclosure of confidential information to anyone outside of
the Company. These agreements also require disclosure and assignment to the
Company of discoveries and inventions made by such individuals while devoted
to Company sponsored activities. Companies with which the Company has entered
into development agreements have the right to certain technology developed in
connection with such agreements.

The Company has obtained the rights to certain technology and makes
milestone payments to the inventors of certain core technology. See "Risk
Factors--Dependence on Proprietary Technology Rights."

MANUFACTURING

The Company operates a manufacturing facility in compliance with current GMP
established by the FDA. Injector parts are manufactured by third-party
suppliers and assembled at the Company's facility in Plymouth, Minnesota.
Disposable vial adapters are either assembled at the Company's facility or by
third parties. Quality control and final packaging are performed on site. A
strong effort has been directed toward reducing component part costs and
accelerating assembly procedures, and the Company anticipates a need to invest
in automated assembly equipment as volumes increase in the future. Becton
Dickinson has the right to manufacture the disposable plastic components of
the gas spring systems for the Company in exchange for royalty payments and
certain profit sharing arrangements. See "Risk Factors--Dependence on
Relationship with Becton Dickinson," "--Dependence on Single Source Suppliers"
and "Certain Transactions."

MARKETING

The Company's strategy is to leverage off of the marketing strength,
existing distribution systems and expertise of the pharmaceutical and medical
device companies with which it collaborates by relying on them to promote and
sell its needle-free injection systems together with the products they
manufacture. The Company anticipates that under these collaborative
arrangements, it will manufacture and supply the needle-free injection
technology for specific drug applications to the pharmaceutical company which
will market the system for use with its drugs. In some instances
pharmaceutical companies may choose to give the injection systems and
disposable components to users without charge as an inducement to customers to
use their products. Becton Dickinson has informed the Company that it intends
to distribute the insulin injection system to be developed under the Becton
Dickinson Agreement through an existing distribution system.

30
<PAGE>

The Company currently sells most Medi-Jector systems through a pharmacy
distribution system consisting of approximately 3,100 pharmacies and pharmacy
distributors. Pharmacies marketing the Company's products display sales
literature describing the Medi-Jector system. Often, individuals with diabetes
call the Company directly for additional information regarding the product and
its uses. The Company's sales personnel explain the need for a doctor's
prescription and advise on methods of filing for insurance reimbursement.
Additionally, a small national advertising program in lay journals generates
additional inquiries. Such inquiries are either referred by the Company to
local pharmacies, or may result in mail order sales. The Company also sells a
small number of Medi-Jector systems to exclusive distributors outside the
United States.

Training is supported by a video and manual that accompany each product
purchased. However, approximately 75% of buyers seek additional help over the
telephone through the Company's customer service department. The Company
employs two nurses to provide training and support for customers through this
channel. The customer service 800 number is prominently displayed on each
injector. The Company plans, coincident with the introduction of the multi-use
disposable front-end chamber, to enlist diabetes nurse educators to promote
and train prospective users. This program will involve placing demonstrator
injectors in selected clinics with the suggestion that individuals, especially
those just beginning insulin therapy, be presented with the choice of needle-
free drug delivery.

The most common retail price of an injector (which can be used over a period
of several years) is $595, and disposable adapters cost approximately $50
annually. This compares to an annual cost of approximately $140 to use two
syringes with needles daily. The Company anticipates that the retail price of
future generation Medi-Jector systems will be less than the current retail
price, and that additional revenues will be generated by sales of multi-use
and single-use disposable plastic front-end chambers when they are introduced.

COMPETITION

Competition in the drug delivery market is intensifying. The Company faces
competition from traditional needle syringes, newer pen-like and sheathed
needle syringes and other needle-free injection systems as well as alternative
drug delivery methods including oral, transdermal and pulmonary delivery
systems. The vast majority of injections currently are administered using
needles. Because injection is typically only used when other drug delivery
methods are not feasible, the Company's needle-free injection systems may be
made obsolete by the development or introduction of drugs or drug delivery
methods which do not require injection for the treatment of conditions
currently targeted by the Company. In addition, because the Company intends to
enter into collaborative arrangements with pharmaceutical companies, the
Company's competitive position will depend upon the competitive position of
the pharmaceutical company with which it collaborates for each drug
application.

While competition in the needle-free injection market currently is limited
to small companies with modest financial resources, the barriers to entry are
not great and the Company anticipates additional competition from companies
with greater financial, commercial, personnel and development resources in the
future. Two companies, Health-Mor Personal Care Corp. and Vitajet Corporation,
currently sell coil spring injectors to the United States insulin market. The
products of these companies resemble earlier versions of the Medi-Jector
system and sell at prices ranging from $600 to over $800.

Another company, Bioject, Inc., has sold a CO/2/ powered injector since
1993. The injector is designed for and used almost exclusively for
vaccinations in doctors' offices or public clinics. Bioject has announced that
it has a contract with a pharmaceutical company to develop a self-injection
system for use with drugs for the treatment of multiple sclerosis.

Even though the Company expects the needle-free injection market to expand,
improvements continue to be made in needle syringes, including syringes with
hidden needles and pen-like needle injectors. The Company expects that it will
compete with existing needle injection methods as well as new needle injection
methods yet to be developed.

31
<PAGE>

GOVERNMENT REGULATION

The Company's products and manufacturing operations are subject to extensive
government regulations, both in the United States and abroad. In the United
States, the FDA administers the FDA Act and has adopted regulations, including
those governing the introduction of new medical devices, the observation of
certain standards and practices with respect to the manufacturing and labeling
of medical devices, the maintenance of certain records and the reporting of
device-related deaths, serious injuries and certain malfunctions to the FDA.
Manufacturing facilities and certain Company records are also subject to FDA
inspections. The FDA has broad discretion in enforcing the FDA Act and the
regulations thereunder, and noncompliance can result in a variety of
regulatory steps ranging from warning letters, product detentions, device
alerts or field corrections to mandatory recalls, seizures, injunctive actions
and civil or criminal actions or penalties.

Drug delivery systems such as the Company's injectors may be approved or
cleared for sale as a medical device or may be evaluated as part of the drug
approval process in connection with a new drug application ("NDA"). To the
extent permitted under the FDA Act and current FDA policy, the Company intends
to seek the required approvals and clearance for the use of its new injectors,
as modified for use in specific drug applications such as gene therapy, the
treatment of erectile dysfunction, and the treatment of multiple sclerosis,
under the medical device rather than under the new drug provisions of the FDA
Act. There can be no assurance, however, that any of these new injectors will
be classified as medical devices.

Products regulated as medical devices may not be commercially distributed in
the United States unless they have been cleared or approved by the FDA, unless
otherwise exempted. There are two methods for obtaining such clearance or
approvals. Certain products qualify for a premarket notification under Section
510(k) of the FDA Act ("510(k) notification") of the manufacturer's intention
to commence marketing the product. The manufacturer must, among other things,
establish in the 510(k) notification that the product to be marketed is
substantially equivalent to another legally marketed product (that is, that it
has the same intended use and that it is as safe and effective as a legally
marketed device and does not raise questions of safety and effectiveness that
are different from those associated with the legally marketed device).
Marketing may commence when the FDA issues a letter finding substantial
equivalence to such a legally marketed device. The FDA may require, in
connection with a 510(k) notification, that it be provided with animal and/or
human test results. If a medical device does not qualify for the 510(k)
procedure, the manufacturer must file a premarket approval ("PMA") application
under Section 515 of the FDA Act. A PMA must show that the device is safe and
effective and is generally a much more complex submission than a 510(k)
notification, typically requiring more extensive prefiling testing and a
longer FDA review process. The Company believes that its Medi-Jector systems
regulated as medical devices are eligible for clearance through the 510(k)
notification process, although there can be no assurance that the FDA will not
require a PMA in the future.

In addition to submission when a device is being introduced into the market
for the first time, a 510(k) notification is also required when the
manufacturer makes a change or modification to an already marketed device that
could significantly affect safety or effectiveness, or where there is a major
change or modification in the intended use or in the manufacture of the
device. When any change or modification is made in a device or its intended
use, the manufacturer is expected to make the initial determination as to
whether the change or modification is of a kind that would necessitate the
filing of a new 510(k) notification. The FDA's regulations provide only
limited guidance in making this determination.

If the FDA concludes that any or all of the Company's new injectors must be
handled under the new drug provisions of the FDA Act, substantially greater
regulatory requirements and approval times will be imposed. Use of a modified
new product with a previously unapproved new drug will be likely to be handled
as part of the NDA for the new drug itself. Under these circumstances, the
device component will be handled as a drug accessory and will be approved, if
ever, only when the NDA itself is approved. The Company's injector may be
required to be approved as part of the drug delivery system under a
supplemental NDA for use with previously approved drugs. Under these
circumstances, the Company's device could be used with the drug only if and
when the supplemental NDA is approved for this purpose. It is possible that,
for some or even all drugs, the FDA may

32
<PAGE>

take the position that a drug-specific approval must be obtained through a
full NDA or supplemental NDA before the device may be labeled for use with
that drug. There can be no assurance that those approvals will be obtained in
a timely manner or at all.

To the extent that the Company's modified injectors are handled as drug
accessories or part of a drug delivery system, rather than as medical devices,
they are subject to all of the requirements that apply to new drugs. These
include drug GMP requirements, drug adverse reaction reporting requirements,
and all of the restrictions that apply to drug labeling and advertising. In
general, the drug requirements under the FDA Act are more onerous and strict
than medical device requirements. These requirements could have a substantial
adverse impact on the profitability of the Company. Similar requirements apply
to systems regulated as medical devices.

The Company received 510(k) marketing clearance from the FDA allowing the
Company to market the Medi-Jector EZ system in February 1987, the Medi-Jector
V system in October 1988 and for the use of the Medi-Jector system to
administer Bio-Technology General's human growth hormone in April 1996. The
Company determined that a new 510(k) notification was not required in
connection with the commercial introduction of the Medi-Jector VI system which
incorporates a change to a plastic component body, although there can be no
assurance that the FDA will not require a 510(k) notification in the future.

The Company submitted a 510(k) notification regarding the use of plastic
front-end chambers with the Medi-Jector VI-B system in July 1996. In addition,
the Company expects in the future to submit 510(k) notifications with regard
to further device design improvements and uses with additional drug therapies.
There can be no assurance that the FDA will grant timely 510(k) clearance for
any such system or use, or that the FDA will not require the submission of a
PMA with respect to any such system or use.

The FDA Act also regulates the Company's quality control and manufacturing
procedures by requiring the Company and its contract manufacturers to
demonstrate current GMP compliance. These regulations require, among other
things, that (i) the manufacturing process must be regulated and controlled by
the use of written procedures and (ii) the ability to produce devices which
meet the manufacturer's specifications must be validated by extensive and
detailed testing of every aspect of the process. They also require
investigation of any deficiencies in the manufacturing process, the products
produced or record-keeping. Further, the FDA's interpretation and enforcement
of these requirements has been increasingly strict in recent years and seems
likely to be even more stringent in the future. The FDA monitors compliance
with these requirements by requiring manufacturers to register with the FDA
and by conducting periodic FDA inspections of manufacturing facilities. If the
inspector observes conditions that might be violative of the GMP, the
manufacturer must correct those conditions or explain them satisfactorily.
Failure to adhere to GMP requirements would cause the devices produced to be
considered in violation of the FDA Act and subject to FDA enforcement action
that might include physical removal of the Company's devices from the
marketplace.

The FDA's Medical Device Reporting Regulation requires that the Company
provide information to the FDA on the occurrence of any death or serious
injuries alleged to have been associated with the use of the Company's
products, as well as any product malfunction that would likely cause or
contribute to a death or serious injury if the malfunction were to recur. In
addition, FDA regulations prohibit a device from being marketed for unapproved
or uncleared indications. If the FDA believed that the Company was not in
compliance with these regulations, it could institute proceedings to detain or
seize the Company's devices, issue a recall, seek injunctive relief or assess
civil and criminal penalties against the Company or its executive officers,
directors or employees.

The Company is subject to the Occupational Safety and Health Act ("OSHA")
and other federal, state and local laws and regulations relating to such
matters as safe working conditions, manufacturing practices, environmental
protection and disposal of hazardous or potentially hazardous substances.
There can be no assurance that the Company will not be required to incur
significant costs to comply with such laws, regulations or policies in the
future, or that such laws, regulations or policies will not increase the costs
of producing the Companys devices or otherwise have a material adverse effect
upon the Company's ability to do business.

33
<PAGE>

Laws and regulations regarding the manufacture, sale and use of medical
devices are subject to change and depend heavily on administrative
interpretations. There can be no assurance that future changes in regulations
or interpretations made by the FDA, OSHA or other regulatory bodies, will not
adversely affect the Company.

Sales of medical devices outside of the United States are subject to foreign
legal and regulatory requirements. The Company's Medi-Jector EZ systems have
been approved for sale only in certain foreign jurisdictions. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time required to obtain approval by a foreign country may be
longer or shorter than that required for FDA approval, and the requirements
may differ. The Company relies upon the companies marketing its injectors in
foreign countries to obtain the necessary regulatory approvals for sales of
its injectors in those countries. Generally, devices having an effective
510(k) clearance or PMA may be exported without further FDA authorization. FDA
authorization is generally required in order to export other medical devices.

The Company is in the process of implementing ISO 9002, a certification
showing that the Company's procedures and manufacturing facilities comply with
standards for quality assurance and manufacturing process control. Such
certification, along with European Medical Device Directive certification
would evidence compliance with the requirements enabling the Company to affix
the CE Mark to its current products. The CE Mark denotes conformity with
European standards for safety and allows certified devices to be placed on the
market in all European Union ("EU") countries. After June 1998, medical
devices may not be sold in EU countries unless they display the CE Mark. There
is no assurance that the Company will obtain the right to affix the CE Mark
prior to such time.

PROPERTY

The Company leases approximately 9,000 square feet of office, manufacturing
and warehouse space in Plymouth, a suburb of Minneapolis, Minnesota. The lease
expiration date is April 1997. The Company believes its facilities will be
sufficient to meet its requirements through such time and is exploring options
for alternative space.

EMPLOYEES

As of June 30, 1996, the Company employed 30 full-time employees, of whom
six were engaged in administration, eight were engaged in sales and marketing,
four were engaged in research and development, three were engaged in business
development and customer service and nine were engaged in manufacturing. None
of the Company's employees are represented by any labor union or other
collective bargaining unit. The Company believes that its relations with its
employees are good.

LIABILITY INSURANCE

The business of the Company entails the risk of product liability claims.
Although the Company has not experienced any material product liability claims
to date, any such claims could have a material adverse impact on the Company.
The Company maintains product liability insurance with coverage of $1 million
per occurrence and an annual aggregate maximum of $5 million. The Company
evaluates its insurance requirements on an ongoing basis. There can be no
assurance that product liability claims will be covered by such insurance or
will not exceed such insurance coverage limits or that such insurance will be
available on commercially reasonable terms or at all.

34
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Franklin Pass, M.D...... 60 President, Chief Executive Officer and Chairman
of the Board of Directors
Mark S. Derus........... 40 Vice President, Finance, Chief Financial
Officer and Secretary
Todd Leonard............ 37 Vice President, Sales and Marketing
Peter Sadowski, Ph.D. .. 49 Vice President, Product Development
Fred L. Shapiro, M.D. .. 61 Director
Louis C. Cosentino, 52
Ph.D. .................. Director
Kenneth Evenstad........ 52 Director
Geoffrey Guy............ 42 Director
Norman A. Jacobs........ 58 Director
Peter Sjostrand......... 49 Director
</TABLE>

The following is a brief summary of the business experience of each of the
executive officers and directors of the Company:

Franklin Pass, M.D., joined the Company as a director and consultant in
January 1992, and has served as the Company's President, Chief Executive
Officer and Chairman of the Board of Directors since February 1993. From 1990
to 1992, Dr. Pass served as President of International Agricultural
Investments, Ltd., an agricultural technology consulting and investment
company. Dr. Pass, a physician and scientist, was Director of the Division of
Dermatology at Albert Einstein College of Medicine from 1967 to 1973, the
Secretary and Treasurer of the American Academy of Dermatology from 1978 to
1981 and the co-founder and Chief Executive Officer of Molecular Genetics,
Inc., now named MGI Pharma, Inc., from 1979 to 1986. He is the author of more
than 40 published medical and scientific articles. Dr. Pass serves on the
board of directors of Ringer Corporation, a producer of lawn and garden care
products.

Mark S. Derus joined the Company in December 1993 as Vice President,
Finance, Chief Financial Officer and Secretary. Mr. Derus served as a director
of the Company from 1992 until he joined the Company as an employee in 1993.
From 1986 to December 1993, Mr. Derus was Vice President, Finance of Cherry
Tree Investments, Inc., a venture capital company that invests in early stage
ventures.

Todd Leonard joined the Company in April 1993 as Vice President, Business
Development, and has served as Vice President, Sales and Marketing since April
1996. From 1991 to 1993, Mr. Leonard served as a Senior Licensing Specialist
in the Office of Technology Transfer at the National Institutes of Health.

Peter Sadowski, Ph.D., joined the Company in March 1994 as Vice President,
Product Development. From October 1992 to February 1994, Dr. Sadowski served
as Manager, Product Development for GalaGen, Inc., a biopharmaceutical
company. From 1988 to 1992, he was Vice President, Research and Development
for American Biosystems, Inc., a medical device company. Dr. Sadowski holds a
Ph.D. in microbiology.

Fred L. Shapiro, M.D., joined the Board of Directors in September 1992 and
is a member of the Compensation Committee of the Board of Directors. Dr.
Shapiro is currently a consultant to Hennepin Faculty Associates, the Hennepin
County Medical Center faculty's health maintenance organization in
Minneapolis, Minnesota, of which he was President from 1983 to his retirement
in 1995. Dr. Shapiro is a nephrologist who has authored or co-authored more
than 100 published medical and scientific articles. Dr. Shapiro is also a
director and co-founder of Minntech Corporation ("Minntech"), a company that
designs and manufactures dialysis equipment.

35
<PAGE>

Louis C. Cosentino, Ph.D., joined the Board of Directors in January 1995 and
is a member of the Audit Committee of the Board of Directors. Dr. Cosentino
was a co-founder of Minntech in 1975, and has served as its President and
Chief Executive Officer since that time. Dr. Cosentino holds a Ph.D. in
biomedical engineering and has authored or co-authored nine scientific
publications.

Kenneth Evenstad joined the Board of Directors in May 1993. Since 1969 Mr.
Evenstad has been the Chairman and Chief Executive Officer of Upsher-Smith
Laboratories, Inc., a private pharmaceutical company specializing in branded
generic cardiovascular drugs. Mr. Evenstad is trained as a pharmacist.

Geoffrey Guy joined the Board of Directors in November 1993 and is a member
of the Compensation Committee of the Board of Directors. Dr. Guy was a co-
founder in 1985 of Ethical Holdings plc ("Ethical"), a company that develops
new transdermal and oral drug delivery systems and has served as its Chief
Executive Officer since that time. Dr. Guy has been Ethical's Chairman of the
Board since 1992. Dr. Guy holds a Diploma of Pharmaceutical Medicine from the
British Royal College of Physicians.

Norman A. Jacobs joined the Board of Directors in January 1996. Since 1990,
Mr. Jacobs has been the President of Becton Dickinson Transdermal Systems, a
division of Becton Dickinson, and in 1996 he also became President of Becton
Dickinson's Advanced Injection Systems, a recently formed division of Becton
Dickinson. Mr. Jacobs serves on the board of directors of Seragen, Inc., a
biopharmaceutical company.

Peter Sjostrand joined the Board of Directors in December 1995 and is a
member of the Audit and Compensation Committees of the Board of Directors. Dr.
Sjostrand is a board member of Pharma Vision, a Swiss investment company. From
1975 to 1993, he served in various capacities with the Astra Group, a Swedish
pharmaceutical firm, most recently as deputy board member, Executive Vice
President and Chief Financial Officer. Dr. Sjostrand holds a Swedish medical
degree. Dr. Sjostrand also serves on the board of directors of S-E Banken
Fonder AB, a group of Swedish-based investment funds and Tryggh Hansa, a major
insurance company in Sweden.

Under the terms of the Company's Second Amended and Restated Articles of
Incorporation which will become effective upon the closing of this offering,
the directors will be divided into three classes, with the term of one class
expiring each year. As the term of each class expires, the successors to the
directors in that class will be elected for a term of three years. The Company
believes that classification of the Board of Directors will help to ensure the
continuity and stability of the Company's business strategies and policies as
determined by the Board of Directors. The terms of Mr. Evenstad and Dr.
Cosentino will expire at the Annual Meeting of Shareholders in fiscal 1997,
the terms of Drs. Guy and Shapiro will expire at the Annual Meeting of
Shareholders in fiscal 1998, and the terms of Drs. Pass and Sjostrand and Mr.
Jacobs will expire at the Annual Meeting of Shareholders in fiscal 1999.
Vacancies on the Board of Directors and newly created directorships can be
filled by vote of the majority of the directors then in office.

Dr. Guy was elected to the Board of Directors as the designee of Ethical
under an agreement between Ethical and the Company. The relevant section of
the agreement with Ethical will terminate upon the closing of this offering.
Mr. Jacobs was elected as the designee of Becton Dickinson under an agreement
between Becton Dickinson and the Company. The relevant terms of the agreement
with Becton Dickinson provide that, so long as Becton Dickinson controls,
directly or indirectly, not less than 5% of the capital stock of the Company,
the Company shall use its best efforts to nominate and elect to the Board of
Directors a person designated by Becton Dickinson and that the Board of
Directors shall consist of at least a majority of members who are not employed
by the Company. In the event that a person designated by Becton Dickinson
shall not be a member of the Board of Directors, Becton Dickinson shall be
entitled to notice of and to attend all meetings of the Board of Directors and
its committees and shall receive all information distributed to the directors
at the same time as the directors and shall receive the same notice of
meetings as the directors. These provisions of the agreement with Becton
Dickinson will continue in force following the closing of this offering. Both
Dr. Guy and Mr. Jacobs will continue to serve as directors upon completion of
this offering.

The Company's executive officers are elected by the Board of Directors and
serve until the next election of officers or until their successors are
elected or appointed and qualify.

36
<PAGE>

COMMITTEES

The Board of Directors has established an Audit Committee and a Compensation
Committee. The Compensation Committee makes recommendations concerning
executive salaries and incentive compensation for employees of the Company,
subject to ratification by the full Board of Directors, and administers the
Company's 1993 Stock Option Plan and the Company's 1996 Stock Option Plan. The
Audit Committee reviews the results and scope of the audit and other services
provided by the Company's independent auditors, as well as the Company's
accounting principles and its system of internal controls, and reports the
results of its review to the full Board of Directors and to management.

DIRECTORS' COMPENSATION

The Company has not in the past paid cash directors' fees and does not
intend to do so after the closing of this offering. All directors may be
reimbursed for expenses actually incurred in attending meetings of the Board
of Directors and its committees. In the past, the Board of Directors has made
annual discretionary grants of options to purchase shares of Common Stock
under the Company's 1993 Stock Option Plan to all members of the Board of
Directors. The size of these grants has varied from year to year.

EXECUTIVE COMPENSATION

The following table sets forth the cash and noncash compensation awarded to
or earned by the Chief Executive Officer for each of the last three fiscal
years. No other executive officer of the Company earned a salary and bonus in
excess of $100,000 during 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
---------------------------------- ------------
SECURITIES
UNDERLYING
NAME AND STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER (1) OPTIONS COMPENSATION
- ------------------ ---- -------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Franklin Pass, M.D. ... 1995 $175,000 $ -- $5,174 45,697 $ --
President, Chief 1994 150,000 20,000 3,879 -- 1,200(2)
Executive Officer and
Chairman of the Board 1993(3) 103,661 -- -- 76,161 --
of Directors
</TABLE>
- --------
(1) Represents premiums paid for disability and life insurance policies with
coverage limits in excess of those provided under the Company's employee
insurance policy.
(2) Implied compensation associated with a grant of 19,040 shares of Common
Stock.
(3) Dr. Pass became the Company's President, Chief Executive Officer and
Chairman of the Board of Directors in February 1993.

37
<PAGE>

The following table summarizes options granted during the year ended
December 31, 1995 to the Chief Executive Officer.

OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED (1) IN 1995 PER SHARE DATE 5% 10%
- ---- ----------- ---------- --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Franklin Pass, M.D...... 45,697 32.1% $3.28 1/1/00 $ 32,301 $ 69,562
</TABLE>
- --------
(1) Incentive stock option granted pursuant to the 1993 Stock Option Plan on
January 3, 1995. Such option vests as to all shares covered on December
31, 1996.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission (the
"SEC") and do not represent the Company's estimate or projection of the
Company's future Common Stock prices. These amounts represent certain
assumed rates of appreciation only. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock and
overall stock market conditions. The amounts reflected in this table may
not necessarily be achieved.

The following table summarizes the value of options held at December 31,
1995, by the Chief Executive Officer. The Chief Executive Officer did not
exercise any options during 1995.

AGGREGATED OPTION VALUES AT DECEMBER 31, 1995

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1995 AT DECEMBER 31, 1995(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ---------------------------- -------------------------
<S> <C> <C>
Franklin Pass, M.D....... 53,312/68,545 $191,695/$259,327
</TABLE>
- --------

(1) Value is based on the difference between an assumed initial public
offering price of $5.75 per share and the exercise price of such options.

EMPLOYMENT AGREEMENT WITH DR. PASS

In January 1995, the Company entered into an employment agreement with Dr.
Pass (the "Pass Employment Agreement"). The Pass Employment Agreement provides
for a base salary of $175,000 for 1995 and, as to subsequent years, for a base
salary to be mutually agreed upon between the Company and Dr. Pass prior to
the beginning of each year. For 1996, the parties have agreed that Dr. Pass'
base salary is $192,500. The Pass Employment Agreement also contains
provisions regarding participation in benefits plans, repayment of expenses,
participation in projects and ventures involving the Company and third parties
(which is permitted), protection of confidential information and ownership of
intellectual property. In addition, the Pass Employment Agreement contains
covenants that Dr. Pass will not compete with the Company during the term of
his employment and that he will not solicit or interfere with the Company's
customers, suppliers or employees during the term of his employment and for a
period of two years thereafter. The Pass Employment Agreement had an initial
term through December 31, 1995, which term is automatically extended for
successive one-year periods unless either party objects by written notice at
least 90 days prior to the end of the current term. The Pass Employment
Agreement may be terminated prior to the end of the initial term or any
extension thereof if Dr. Pass dies; if the Board of Directors of the Company
determines that Dr. Pass has become disabled (as defined), has breached the
Pass Employment Agreement in any material respect and Dr. Pass has not cured
or cannot cure such breach within 30 days after delivery of written notice of
such breach or has engaged in willful

38
<PAGE>

and material misconduct; or if Dr. Pass is terminated by the Company, with or
without cause, following not less than 90 days' prior written notice.

The Company maintains a $1,000,000 key person life insurance policy on Dr.
Pass, payable to the Company.

EMPLOYEE STOCK OPTION PLANS

Under the Company's 1993 Stock Option Plan, as amended (the "1993 Plan"),
and the Company's 1996 Stock Option Plan, as amended (the "1996 Plan" and,
together with the 1993 Plan, the "Plans"), full- and part-time employees of
the Company or of its future subsidiary corporations and directors,
consultants and independent contractors of the Company or of its future
subsidiary corporations are eligible to receive options to purchase Common
Stock. The 1993 Plan is administered by the Compensation Committee and the
1996 Plan is administered by the Board of Directors. The Plans provide for the
grant of both incentive stock options intended to qualify for preferential tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended,
and nonqualified stock options that do not qualify for such treatment. The
exercise price of all incentive stock options granted under the Plans shall be
as determined by the Compensation Committee, but shall not be less than 100%
of the fair market value of the Common Stock on the date of grant; the
exercise price of nonqualified stock options shall be as determined by the
Compensation Committee. Only employees are eligible for the grant of incentive
stock options.

A total of 495,050 and 500,000 shares of Common Stock have been reserved for
issuance under the 1993 Plan and the 1996 Plan, respectively. As of June 30,
1996, the Company had outstanding options to purchase an aggregate of 481,690
shares with a weighted average exercise price of $2.54 per share under the
1993 Plan and no shares under the 1996 Plan.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Bylaws and the statutes of the State of Minnesota require the
Company to indemnify any director, officer, employee or agent who was or is a
party to any threatened, pending or completed action, suit or proceedings,
whether civil, criminal, administrative or investigative, against certain
liabilities and expenses incurred in connection with the action, suit or
proceeding, except where such persons have not acted in good faith or did not
reasonably believe that the conduct was in the best interests of the Company.

Insofar as indemnification for liabilities arising under the Securities Act
may be available to directors, officers or other persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.

39
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock, as of June 1, 1996, after giving effect to a 1-
for-1.313 reverse stock split effected on August 6, 1996, and the conversion
of the outstanding shares of Convertible Preferred Stock into Common Stock
upon the effectiveness or closing of this offering, before giving effect to
the sale by the Company of the 2,200,000 shares of Common Stock hereby and as
adjusted to reflect such sale, by (i) each person who is known by the Company
to beneficially own more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) the executive officer named in the Summary
Compensation Table above and (iv) all directors and executive officers of the
Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OWNED (1)
AMOUNT AND NATURE OF ------------------------------
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) BEFORE OFFERING AFTER OFFERING
- ------------------------ ------------------------ --------------- --------------
<S> <C> <C> <C>
Franklin Pass, M.D. (2). 177,636 3.7% 2.5%
Fred L. Shapiro, M.D.
(3).................... 67,408 1.4 *
Louis C. Cosentino,
Ph.D. (4).............. 15,234 * *
Kenneth Evenstad (5).... 14,092 * *
Peter Sjostrand (6)..... 7,617 * *
Geoffrey Guy (7)........ 7,618 * *
Norman A. Jacobs (8).... -- -- --
Becton Dickinson and
Company (9)............ 3,046,460 43.5 33.1
Ethical Holdings plc
(10)................... 1,224,198 25.9 17.7
Cherry Tree Ventures I
and II (11)............ 820,810 17.3 11.8
Enskilda
Kapitalforvaltning
(12)................... 542,994 11.5 7.8
All executive officers
and directors as a
group (10 persons)
(13)................... 408,597 8.2% 5.7%
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days of June 1, 1996, are deemed outstanding for computing the
percentage of the person holding such options but are not deemed
outstanding for computing the percentage of any other person. This table
does not reflect any shares that these existing shareholders may acquire
in this offering. Except as indicated by footnote, the Company believes
that the persons named in this table, based on information provided by
such persons, have sole voting and investment power with respect to the
shares of Common Stock indicated.
(2) Includes 68,544 shares of Common Stock issuable to Dr. Pass upon the
exercise of outstanding options.
(3) Includes 14,092 shares of Common Stock issuable to Dr. Shapiro upon the
exercise of outstanding options and 22,851 shares issuable to Dr. Shapiro
upon the exercise of outstanding warrants.
(4) Includes 7,617 shares of Common Stock issuable to Dr. Cosentino upon the
exercise of outstanding options.
(5) Includes 14,092 shares of Common Stock issuable to Mr. Evenstad upon the
exercise of outstanding options.
(6) Dr. Sjostrand is a board member of S-E Banken Fonder AB.
(7) Includes 7,618 shares of Common Stock issuable to Dr. Guy upon the
exercise of outstanding options. Dr. Guy is the Chairman and Chief
Executive Officer and an approximately 11% shareholder of Ethical.
(8) Mr. Jacobs is the President of Becton Dickinson Transdermal Systems and of
Advanced Injection Systems, both of which are divisions of Becton
Dickinson.

(9) Includes 380,808 shares of Common Stock issuable to Becton Dickinson upon
the exercise of outstanding options and 1,904,037 shares of Common Stock
issuable to Becton Dickinson upon the exercise of outstanding warrants.
The address of Becton Dickinson is 1 Becton Drive, Franklin Lakes, NJ
07417.
(10) The address of Ethical is Corpus Christi House, 9 West Street,
Godmanchester, Huntingdon, Cambs., PE18 8HG, United Kingdom.
(11) Includes 581,418 shares of Common Stock held of record by Cherry Tree
Ventures II, L.P. ("Cherry Tree I") and 208,926 shares of Common Stock
held of record by Cherry Tree Ventures I, L.P. ("Cherry Tree II"). Also
includes 30,466 shares of Common Stock issuable to Cherry Tree II upon
the exercise of outstanding warrants. Tony Christianson and Gordon
Stofer, the general partners of each of Cherry Tree I and Cherry Tree II,
share voting and investment power with respect to the shares of Common
Stock indicated. The address for Cherry Tree I and Cherry Tree II is 3800
West 80th Street, Suite 1400, Bloomington, MN 55431.
(12) The address of Enskilda is c/o Skandinaviska Enskilda Banken,
Jakobsbergsgatan 17, Box 16053, 103 21 Stockholm, Sweden. Enskilda
Kapitalforvaltning is a wholly owned subsidiary of S-E Banken Fonder AB.
(13) Includes 242,381 shares of Common Stock issuable to all directors and
executive officers as a group upon the exercise of outstanding options
and warrants.

40
<PAGE>

CERTAIN TRANSACTIONS

CHERRY TREE II

On April 16 and June 4, 1993, Cherry Tree II loaned the Company an aggregate
of $40,000 pursuant to the terms of loan agreements and related 9% Demand
Promissory Notes; in partial consideration for these loans, Cherry Tree II
received warrants to purchase an aggregate of 30,466 shares of Common Stock at
$1.31 per share, which warrants expire on April 16, 1998 and June 3, 1998. The
principal amount of these loans was converted into 30,465 shares of Series A
Convertible Preferred Stock in November 1993 which was in turn converted into
30,465 shares of Common Stock in January 1996; the Company paid Cherry Tree II
an aggregate of $2,017 interest in cash on these loans.

FRED L. SHAPIRO, M.D.

On April 16 and June 4, 1993, Fred L. Shapiro, M.D., a director of the
Company, loaned the Company an aggregate of $20,000 pursuant to the terms of
loan agreements and related 9% Demand Promissory Notes; in partial
consideration for these loans, Dr. Shapiro received warrants to purchase an
aggregate of 15,234 shares of Common Stock at $1.31 per share, which warrants
expire on April 16, 1998 and June 3, 1998. The Company repaid the principal
amount of these loans, together with an aggregate of $747 in interest, on
October 9, 1993. On August 29, 1994, Dr. Shapiro loaned the Company $100,000
pursuant to the terms of a promissory note due August 29, 1995, bearing
interest at 12% per year; Dr. Shapiro also received a warrant to purchase
7,617 shares of Common Stock at $3.28 per share, which warrant expires on
August 31, 1997. In August 1995, the Company and Dr. Shapiro agreed to extend
the term of the loan and to amend the terms of the loan to permit Dr. Shapiro
to convert the principal amount of the loan into shares of Common Stock. On
February 29, 1996, Dr. Shapiro elected to convert the outstanding principal
amount of this loan into 30,465 shares of Common Stock. The Company paid Dr.
Shapiro an aggregate of $18,000 interest in cash on the loan.

ETHICAL

On September 27, 1993, Ethical and the Company entered into a Preferred
Stock Purchase Agreement pursuant to which Ethical purchased 380,808 shares of
Series B Convertible Preferred Stock for a price of $1.31 per share. At the
same time, the Company and Ethical also entered into (i) an Option Agreement
(the "Ethical Option") pursuant to which Ethical obtained the right to
purchase 761,615 shares of Series B Convertible Preferred Stock at a price of
$1.31 per share (subject to adjustment to $2.62 per share upon the occurrence
of certain events) at any time before the first to occur of March 10, 1995, or
the effectiveness of a registration statement under the Securities Act
registering the Common Stock and (ii) a Technology License and Co-Development
Agreement (the "Ethical License Agreement"). In a letter dated December 10,
1993, Ethical and the Company amended the Ethical Option to provide that the
$1.31 per share price should in all events remain valid as to 380,808 shares
through September 30, 1994. On March 24, 1995, pursuant to the terms of the
Ethical Option, the exercise price was adjusted to $2.62 upon the Company
raising in excess of $1,000,000 through the sale of additional shares of
capital stock at a price of at least $2.62 per share. On September 16, 1994,
Ethical and the Company executed a Waiver and Notice of Exercise Agreement
pursuant to which (i) the parties agreed to waive a 380,808 share minimum
exercise amount provision in the Ethical Option, (ii) the parties agreed to a
152,323 share minimum exercise amount for the Ethical Option, (iii) the
parties agreed to extend the $1.31 per share exercise price on 380,808 shares
subject to the Ethical Option through October 31, 1994 and (iv) Ethical
exercised the Ethical Option as to 152,323 shares of Series B Convertible
Preferred Stock for $1.31 per share. On February 10, 1995, in return for a
commitment by Ethical to exercise $100,000 worth of the Ethical Option under
certain circumstances, the Company and Ethical amended the Ethical Option to
extend its term through September 10, 1995. Ethical exercised the Ethical
Option as to 76,161 shares of Series B Convertible Preferred Stock in February
1995, at a price of $1.31 per share. Pursuant to an Agreement dated September
1, 1995, between Ethical and the Company, (i) the parties agreed to waive the
380,808 share minimum exercise increment in the Ethical Option, (ii) the
Company agreed to extend the Ethical Option through February 29, 1996,
provided that Ethical exercise the Ethical Option as to at least 152,323
shares by September 1, 1995, (iii) Ethical exercised the Ethical Option as to
152,323 shares of Series B Convertible Preferred Stock for $1.64 per share
(with the

41
<PAGE>

Company agreeing to such price) and (iv) the parties agreed that the Company
would have the unilateral right to terminate the Ethical License Agreement at
any time. In January 1996, the Company terminated the Ethical License
Agreement.

On December 22, 1995, Ethical and the Company entered into a Loan Agreement
(the "Ethical Loan") pursuant to which the Company borrowed $312,500 from
Ethical in three installments in December 1995 and January 1996; amounts
outstanding under the Ethical Loan bore interest at the rate of 10% per year.
In connection with the Ethical Loan, the Company and Ethical again amended the
Ethical Option to reduce the per share exercise price on 190,404 of the shares
of Series B Convertible Preferred Stock subject to the Ethical Option from
$2.62 to $1.64 and to extend the term of the Ethical Option through the later
of February 29, 1996, or the repayment date of the Ethical Loan. On February
28, 1996, the Company issued 190,404 shares of Series B Convertible Preferred
Stock to Ethical at a price of $1.64 per share in repayment of all principal
amounts advanced under the Ethical Loan and paid $1,301 interest in cash. On
the same date, Ethical exercised the remainder of the Ethical Option and
purchased 190,404 shares of Series B Convertible Preferred Stock for $2.62 per
share.

As the result of certain anti-dilution protections applicable to the Series
B Convertible Preferred Stock sold to Ethical, these shares will convert upon
the effectiveness of this offering into 1,224,198 shares of Common Stock.

ENSKILDA

On December 28, 1993, the Company and Enskilda entered into a Preferred
Stock Purchase Agreement pursuant to which Enskilda purchased 57,121 shares of
Series B Convertible Preferred Stock at a purchase price of $1.31 per share.
At the same time, the Company and Enskilda orally agreed that Enskilda should
be allowed to purchase an additional 399,848 shares of Series B Convertible
Preferred Stock. On February 1, 1994, the Company and Enskilda entered into a
Preferred Stock Agreement pursuant to which Enskilda purchased 399,848 shares
of Non-Voting Series B Convertible Preferred Stock for $1.31 per share. On
December 29, 1994, Enskilda purchased 30,465 shares of Series B Convertible
Preferred Stock for $3.28 per share as part of a private placement of such
shares. On May 31, 1995, Enskilda purchased 22,848 shares of Series B
Convertible Preferred Stock for $3.28 per share as part of a private placement
of such shares.

As the result of certain anti-dilution protections applicable to the Series
B Convertible Preferred Stock sold to Enskilda, these shares will convert upon
the effectiveness of this offering into 542,992 shares of Common Stock.

BECTON DICKINSON

On January 25, 1996, the Company and Becton Dickinson entered into a
Preferred Stock, Option and Warrant Purchase Agreement pursuant to which
Becton Dickinson purchased 761,615 shares of Series C Convertible Preferred
Stock for $3.94 per share. Becton Dickinson also received, for no additional
consideration, an option (the "Becton Dickinson Option") to purchase 380,808
shares of Series D Convertible Preferred Stock at $4.60 per share and
purchased, for $125,000, a warrant (the "Becton Dickinson Warrant") to
purchase 1,904,037 shares of Series E Convertible Preferred Stock at $5.91 per
share. Under their terms, the Becton Dickinson Option and Warrant will expire
on January 25, 2006 or earlier upon certain breaches or terminations of the
Development and License Agreement between the Company and Becton Dickinson.
All shares of Series C convert 1-for-1 into, and the Becton Dickinson Option
and the Becton Dickinson Warrant will become exercisable for, shares of Common
Stock upon the closing of this offering.

At the same time, the Company and Becton Dickinson entered into a
Development and License Agreement relating to the further development of the
Company's needle-free injection systems and Becton Dickinson's development of
certain disposables for use with the Company's systems. The terms of the
Development and License Agreement include the grant to Becton Dickinson during
the term of the agreement of an exclusive, worldwide license to (i) sell and
use certain of the Company's needle-free injection systems that are not
designed or calibrated for use with a specific drug made by a specific drug
company and that are intended to be distributed

42
<PAGE>

primarily through pharmacies for non-professional use and (ii) make, have
made, use, sell and import single- or multiple-use disposable front-end
chambers or other related drug-containing or drug-contacting components for
use with certain of the Company's needle-free injection systems. These
exclusive rights with respect to the injectors will continue for a period of
at least five years from the date of FDA marketing clearance of each such
injector, and for a longer period if Becton Dickinson meets certain minimum
sales goals set in the Becton Dickinson Agreement. During such period, the
Company will not have the right to sell any such injector independently. In
addition to the systems to be sold by Becton Dickinson, the Company and Becton
Dickinson expect to enter into agreements with third-party pharmaceutical
companies, including development, supply and license agreements, governing the
development and commercial sale of needle-free injection systems for use only
with such third-party pharmaceutical company's version of a specific drug.

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering the authorized capital stock of the Company
will consist of 17,000,000 shares of Common Stock, $.01 par value, and
1,000,000 shares of preferred stock, $.01 par value, that are undesignated as
to terms and preferences. As of June 30, 1996, there were 4,725,633 shares of
Common Stock outstanding, which were held of record by approximately 91
shareholders, and no shares of undesignated preferred stock outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors so that the holders of more
than 50% of the outstanding Common Stock can elect all directors. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors of the Company out of funds legally
available therefor and in liquidation proceedings. Holders of Common Stock
have no preemptive or subscription rights and there are no redemption rights
with respect to such shares. The outstanding shares of Common Stock are, and
the shares of Common Stock offered hereby will be, validly issued, fully paid
and nonassessable.

PREFERRED STOCK

All of the Company's outstanding Convertible Preferred Stock will be
converted into Common Stock upon the effectiveness or the closing of this
offering pursuant to its terms. Immediately after the conversion of the
Convertible Preferred Stock into Common Stock, there will be no Convertible
Preferred Stock outstanding and the Company will have authorized 1,000,000
shares of preferred stock that is undesignated as to terms and preferences.
Under Minnesota law and the Company's Second Amended and Restated Articles of
Incorporation to be effective upon the closing of this offering, the Board of
Directors is authorized, without further shareholder action, to issue
preferred stock in one or more classes or series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences, of the preferred stock. Accordingly,
although it has no current intention of doing so, the Board of Directors of
the Company may, without shareholder approval, issue shares of a class or
series of preferred stock with voting and conversion rights which could
adversely affect the voting power and the dividend and other rights of the
holders of Common Stock. In addition, the existence of undesignated preferred
stock may have the effect of discouraging, delaying, deferring or preventing
an attempt, through acquisition of a substantial number of shares of Common
Stock, to acquire control of the Company with a view to effecting a merger,
sale or exchange of assets or a similar transaction. The anti-takeover effects
of the undesignated preferred stock may deny shareholders the receipt of a
premium on their Common Stock and may also have a depressive effect on the
market price of the Common Stock.

WARRANTS AND OPTIONS

As of June 30, 1996, the Company had outstanding options to purchase 481,690
shares of Common Stock that had been issued to employees, directors and
consultants to the Company pursuant to the 1993 Stock Option Plan with a
weighted average exercise price of $2.54 per share. Such options expire
between October 1997 and January 2006. As of June 30, 1996, the Company also
had outstanding warrants and options to purchase a total

43
<PAGE>

of 2,485,120 shares of Common Stock that have been granted to third parties
outside of the 1993 Stock Option Plan with a weighted average exercise price
of $5.35 per share. Such third-party warrants and options are all currently
exercisable and expire on dates ranging from February 1997 to January 2006.
All agreements embodying such outstanding third-party warrants and options
provide for anti-dilution adjustments in the event of certain mergers,
consolidations, reorganizations, recapitalizations, stock dividends, stock
splits or other changes in the corporate structure of the Company. Holders of
third-party warrants and options to purchase approximately 2,287,893 shares of
Common Stock are entitled to certain rights to cause the Company to register
the sale of such shares under the Securities Act. See "Shares Eligible for
Future Sale."

ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT

Certain provisions of Minnesota law described below could have an anti-
takeover effect. These provisions are intended to provide management
flexibility, to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage an unsolicited takeover of the Company if
the Board of Directors determines that such a takeover is not in the best
interests of the Company and its shareholders. However, these provisions could
have the effect of discouraging certain attempts to acquire the Company, which
could deprive the Company's shareholders of opportunities to sell their shares
of Common Stock at prices higher than prevailing market prices.

Section 302A.671 of the Minnesota Business Corporation Act (the "MBCA")
provides that, unless the acquisition of certain new percentages of voting
control of the Company (in excess of 20%, 33 1/3% or 50%) by an existing
shareholder or other person is approved by a majority of the disinterested
shareholders of the Company, the shares acquired above such new percentage
level of voting control will not be entitled to voting rights. The Company is
required to hold a special shareholders' meeting to vote on any such
acquisition within 55 days after the delivery to the Company by the acquirer
of an information statement describing, among other things, the acquirer and
any plans of the acquirer to liquidate or dissolve the Company and copies of
definitive financing agreements for any financing of the acquisition not to be
provided by funds of the acquirer. If any acquirer does not submit an
information statement to the Company within ten days after acquiring shares
representing a new threshold percentage of voting control of the Company, or
if the disinterested shareholders vote not to approve such an acquisition, the
Company may redeem the shares so acquired by the acquirer at their market
value. Section 302A.671 generally does not apply to a cash offer to purchase
all shares of voting stock of the issuing corporation if such offer has been
approved by a majority vote of disinterested board members of the issuing
corporation.

Section 302A.673 of the MBCA restricts certain transactions between the
Company and a shareholder who becomes the beneficial holder of 10% or more of
the Company's outstanding voting stock (an "interested shareholder") unless a
majority of the disinterested directors of the Company have approved, prior to
the date on which the shareholder acquired a 10% interest, either the business
combination transaction suggested by such a shareholder or the acquisition of
shares that made such a shareholder a statutory interested shareholder. If
such prior approval is not obtained, the statute imposes a four-year
prohibition from the statutory interested shareholder's share acquisition date
on mergers, sales of substantial assets, loans, substantial issuances of stock
and various other transactions involving the Company and the statutory
interested shareholder or its affiliates.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar with respect to the Common Stock will be
Norwest Bank, Minnesota, N.A.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of shares by current shareholders could adversely affect the
price of the Company's Common Stock.

Upon completion of this offering, the Company will have outstanding an
aggregate of 6,925,633 shares of Common Stock, assuming the issuance of the
2,200,000 shares of Common Stock offered hereby. Of the total outstanding
shares of Common Stock, the 2,200,000 shares offered hereby will be freely
tradeable without restriction or further registration under the Securities
Act, unless held by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act (whose sales would be subject to certain
volume limitations and other restrictions described below).

44
<PAGE>

The remaining 4,725,633 shares of Common Stock will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act. Of
these, an aggregate of 4,293,378 shares are owned by the Company's directors,
officers and certain of the Company's shareholders who, together with the
Company, have agreed that they will not sell, directly or indirectly, any
Common Stock without the prior consent of Rodman & Renshaw, Inc. for a period
of 180 days from the date of this Prospectus. Of the shares not subject to
this agreement, 125,008 shares will be eligible for immediate sale without
restriction pursuant to Rule 144(k) on the effective date of this offering,
381 shares will be eligible for sale, subject to compliance with the volume
limitations and other restrictions of Rule 144, 90 days after the effective
date of this offering, and 306,866 shares will become eligible for sale under
Rule 144 after the expiration of the two-year holding periods from the dates
of acquisition, which end between December 29, 1996 and May 31, 1998.
Beginning on the 181st day after the date of this Prospectus, when the
agreements not to sell shares expire, an additional 929,757 of the shares may
become eligible for sale without restriction pursuant to Rule 144(k), an
additional 1,850,562 of the shares will become eligible for sale, subject to
compliance with the volume limitations and other restrictions of Rule 144, and
the remaining 1,513,059 shares will become eligible for sale under Rule 144
after the expiration of the two-year holding periods from the dates of
acquisition, which end between December 29, 1996 and February 28, 1998.

In general, under Rule 144, as currently in effect, if at least two years
have elapsed from the date that shares of Common Stock were acquired from the
Company or an affiliate of the Company, then the holder is entitled to sell in
"brokers' transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of (i) one percent of the then outstanding shares
of Common Stock (69,256 shares immediately after this offering) or (ii)
generally, the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale, subject to certain other limitations and restrictions. In addition, a
person who is not deemed to have been an affiliate of the Company at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above.

The Company intends to file registration statements under the Securities
Act, covering 495,050 and 500,000 shares of Common Stock reserved for issuance
under, respectively, the 1993 Stock Option Plan and the 1996 Stock Option
Plan. Such registration statements are expected to be filed soon after the
date of this Prospectus and will automatically become effective upon filing.
Accordingly, shares issued under such registration statements upon the
exercise of options will be available for resale in the open market subject to
the agreements not to sell described above. See "Management--Stock Option
Plans."

In addition, after this offering, the holders of 2,761,547 shares of Common
Stock and warrants and options to purchase 2,287,893 shares of Common Stock
(together, the "Registrable Securities") will be entitled to certain rights to
cause the Company to register the sale of such shares under the Securities
Act. After this offering, if the Company proposes to register any of its
securities under the Securities Act for its own account, holders of
Registrable Securities will be entitled to notice of such registration and
will be entitled to include Registrable Securities therein, subject to certain
conditions and exceptions, including the right of the underwriters of any such
offering to limit the number of shares that may be included in such
registration. Certain of the holders of Registrable Securities have the right
to require the Company to prepare and file a registration statement under the
Securities Act at its expense, and the Company is required to use its best
efforts to effect such registration, subject to certain conditions and
limitations; provided, however, that with respect to certain of the
Registrable Securities, the Company shall not be required to obtain the
effectiveness of any such registration statement until six months after the
date of this Prospectus. Furthermore, the Company's obligation to effect such
shareholder-initiated registrations is limited in number with respect to
certain of the Registrable Securities. Registration of such shares would
result in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. All but 3,048 of
these shares are subject to the agreements not to sell described above.

The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of Common Stock for sale will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public markets or the
perception that such sales will occur could adversely affect the market price
or the future ability to raise capital through an offering of its equity
securities.

45
<PAGE>

UNDERWRITING

The Underwriters below, for whom Rodman & Renshaw, Inc. ("Rodman") and R. J.
Steichen & Company are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company, the number of shares of
Common Stock set forth opposite their names below.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Rodman & Renshaw, Inc...............................................
R. J. Steichen & Company............................................
---------
Total........................................................... 2,200,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other considerations. The nature of obligations is such
that they are committed to purchase and pay for all of the above shares of
Common Stock offered hereby if any are purchased.

The Underwriters, through the Representatives, have advised the Company that
they propose to offer the Common Stock initially at the public offering price
set forth on the cover page of this Prospectus; that the Underwriters may
allow to selected dealers a concession of $ per share and that such dealers
may reallow a concession of $ per share to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriters. The Common Stock has been approved for quotation on the
Nasdaq National Market. The Representatives have advised the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.

The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to an aggregate of 330,000 additional shares of Common Stock,
exercisable at the public offering price less the underwriting discount. If
the Underwriters exercise such over-allotment option, then each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof as the number of shares of
Common Stock to be purchased by it as shown in the above table, bears to the
2,200,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby.

In connection with this offering, the Company has agreed to issue and sell
to the Representatives, for nominal consideration, warrants to purchase a
number of shares of Common Stock equal to 10% of the shares of Common Stock
sold in this offering, exclusive of any shares of Common Stock sold pursuant
to the Underwriters' over-allotment option (the "Representatives' Warrants").
The Representatives' Warrants will be initially exercisable at a price per
share equal to 120% of the public offering price, commencing one year from the
date of this Prospectus, and will continue to be exercisable for a period of
four years after such date. The Representatives' Warrants are restricted from
sale, transfer, assignment or hypothecation for a period of 12 months from the
effective date of this offering, except to officers, partners or successors of
the Representatives. The exercise price of the Representatives' Warrants and
the number of shares of Common Stock issuable upon exercise thereof are
subject to adjustment under certain circumstances. The Representatives'
Warrants grant to the holders thereof certain rights regarding the
registration of the Common Stock issuable upon exercise of the
Representatives' Warrants.

46
<PAGE>

The officers, directors and certain shareholders of the Company, who will
beneficially own 4,293,378 shares of Common Stock after the offering, have
agreed that they will not publicly sell or dispose of any shares of Common
Stock for a period of 180 days after the date on which the Registration
Statement is declared effective by the Commission, without the prior written
consent of Rodman. See "Shares Eligible for Future Sale."

The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined
through negotiations between the Company and the Representatives. Among the
factors considered in determining the initial public offering price were
prevailing market and economic conditions, estimates of the business potential
and prospects of the Company, the present state of the Company's business
operations, an assessment of the Company's management and the consideration of
the above factors in relation to the market valuation of companies in related
businesses.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain
legal matters in connection with the sale of the Common Stock offered hereby
will be passed on for the Underwriters by Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, New York, New York.

EXPERTS

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

On December 29, 1995, on the recommendation of the Audit Committee and with
the approval of the Board of Directors, the Company engaged KPMG Peat Marwick
LLP to audit the consolidated financial statements of the Company for the year
ended December 31, 1995. KPMG Peat Marwick LLP has also conducted a reaudit of
the financial statements as of December 31, 1994, and for each of the years in
the two-year period ended December 31, 1994. There were no disagreements
between the Company and Stirtz Bernards Boyden Surdel & Larter Professional
Association ("Stirtz Bernards"), the Company's prior accountants, (whether
resolved to the satisfaction of Stirtz Bernards or not) on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. The audit opinion of Stirtz Bernards for the
years ended December 31, 1993 and 1994 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified as to uncertainty, audit scope,
or accounting principles.

ADDITIONAL INFORMATION

The Company has filed with the SEC in Washington, D.C. a Registration
Statement on Form S-1, including amendments thereto, with respect to the
shares of Common Stock offered hereby has been filed with the SEC. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information pertaining to the Company and the shares of Common Stock offered
hereby, reference is made to the Registration Statement, including the
exhibits, financial statements and schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or any other
document are not necessarily complete, and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

47
<PAGE>

The Registration Statement, including the exhibits and schedules thereto,
may be inspected, without charge, and copies may be obtained, at prescribed
rates, at the public reference facilities of the SEC maintained at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices at 7 World Trade Center, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement may also be obtained by mail at prescribed rates, from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549.

The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.

48
<PAGE>

MEDI-JECT CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited) and Pro forma Shareholders' Equity as of June 30, 1996
(unaudited).............................................................. F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995 and the Six Months Ended June 30, 1995 and 1996 (unaudited)......... F-4
Statements of Shareholders' Equity (Deficit) for the Years Ended December
31, 1993, 1994 and 1995 and the Six Months Ended June 30, 1996
(unaudited).............................................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and the Six Months Ended June 30, 1995 and 1996 (unaudited)......... F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors Medi-Ject Corporation:

We have audited the accompanying balance sheets of Medi-Ject Corporation
(the Company) as of December 31, 1994 and 1995, and the related statements of
operations, shareholders' equity (deficit), and cash flows for each of the
years in the three-year 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 Medi-Ject Corporation as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Minneapolis, Minnesota
June 7, 1996, except as to Note 13(a) which is as of August 6, 1996

F-2
<PAGE>

MEDI-JECT CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 645,667 $ 35,817 $ 2,232,660
Accounts receivable, less
allowance for doubtful ac-
counts of $1,501 for 1994,
$4,125 for 1995, and $4,000
for June 30, 1996.......... 89,303 176,240 128,218
Inventories................. 170,861 280,229 334,535
Prepaid expenses............ 12,318 35,508 110,941
---------- ---------- -----------
918,149 527,794 2,806,354
---------- ---------- -----------
Equipment, furniture and fix-
tures....................... 907,248 1,027,462 1,144,619
Less accumulated deprecia-
tion........................ (464,654) (550,436) (563,685)
---------- ---------- -----------
442,594 477,026 580,934
---------- ---------- -----------
Patent rights................ 0 235,288 317,901
---------- ---------- -----------
$1,360,743 $1,240,108 $ 3,705,189
========== ========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............ $ 160,018 $ 243,281 $ 235,951
Accrued expenses............ 291,039 398,232 248,630
Deferred revenue............ 110,000 148,563 457,024
Capital lease obligations--
current maturities......... 42,455 45,534 42,350
Notes payable--current matu-
rities..................... 206,324 342,457 123,454
---------- ---------- -----------
809,836 1,178,067 1,107,409
---------- ---------- -----------
Long-term liabilities:
Capital leases, less current
maturities................. 85,326 40,109 20,214
Notes payable, less current
maturities................. 213,554 96,097 33,301
---------- ---------- -----------
298,880 136,206 53,515
---------- ---------- -----------
Shareholders' equity (defi-
cit):
Series C convertible pre-
ferred stock: $.01 par; au-
thorized 761,615 shares: 0;
0; and 761,615 issued and
outstanding at December 31,
1994, 1995, and June 30,
1996, respectively......... -- -- 7,616 $ --
Series B convertible pre-
ferred stock: $.01 par; au-
thorized 3,046,459 shares:
1,488,958; 2,090,633; and
2,471,484 issued and out-
standing at December 31,
1994, 1995 and June 30,
1996, respectively......... 14,890 20,906 24,714 --
Series A convertible pre-
ferred stock: $.01 par; au-
thorized 1,218,584 shares:
1,103,867; 1,103,867; and 0
issued and outstanding at
December 31, 1994, 1995 and
June 30, 1996, respective-
ly......................... 11,039 11,039 -- --
Common stock: $.01 par; au-
thorized 7,616,147 shares:
217,722; 218,864;
1,353,785; and 4,725,633
issued and outstanding at
December 31, 1994, 1995,
June 30, 1996, and June 30,
1996 pro forma, respec-
tively .................... 2,177 2,189 13,538 47,256
Additional paid-in capital.. 7,643,361 9,193,600 12,984,474 12,983,086
Accumulated deficit......... (7,419,440) (9,301,899) (10,486,077) (10,486,077)
---------- ---------- ----------- -----------
Total shareholders' equity
(deficit).................. 252,027 (74,165) 2,544,265 2,544,265
---------- ---------- ----------- -----------
$1,360,743 $1,240,108 $ 3,705,189 $ 3,705,189
========== ========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

MEDI-JECT CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales.................. $1,057,703 $ 1,517,660 $ 1,653,869 $ 831,130 $ 814,244
Licensing and product
development........... 125,000 470,000 920,937 410,000 686,038
---------- ----------- ----------- ---------- -----------
1,182,703 1,987,660 2,574,806 1,241,130 1,500,282
---------- ----------- ----------- ---------- -----------
Operating expenses:
Cost of sales.......... 409,247 630,628 1,048,937 465,277 501,718
Research and develop-
ment.................. 146,061 401,382 1,195,435 606,613 1,093,087
General and administra-
tive.................. 615,035 867,616 977,579 628,046 672,079
Sales and marketing.... 484,939 1,128,232 1,145,894 450,173 466,880
---------- ----------- ----------- ---------- -----------
1,655,282 3,027,858 4,367,845 2,150,109 2,733,764
---------- ----------- ----------- ---------- -----------
Net operating loss...... (472,579) (1,040,198) (1,793,039) (908,979) (1,233,482)
---------- ----------- ----------- ---------- -----------
Other income (expense):
Interest and other in-
come.................. 2,538 15,916 16,486 10,824 69,485
Interest and other ex-
pense................. (30,278) (42,180) (105,906) (31,506) (20,181)
---------- ----------- ----------- ---------- -----------
(27,740) (26,264) (89,420) (20,682) 49,304
---------- ----------- ----------- ---------- -----------
Net loss................ $ (500,319) $(1,066,462) $(1,882,459) $ (929,661) $(1,184,178)
========== =========== =========== ========== ===========
Pro forma per share data
(unaudited) (Note 1):
Net loss per common
share................. $ (0.46) $ (0.22)
=========== ===========
Weighted average common
shares outstanding.... 4,136,453 5,309,973
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

MEDI-JECT CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------------------------------------------
SERIES C SERIES B SERIES A COMMON STOCK ADDITIONAL
-------------- ------------------ -------------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1992......... -- $ -- -- $ -- 1,073,402 $ 10,734 229,216 $ 2,292 $ 5,511,019 $ (5,852,659)
Common stock:
Stock incentive
awards expired.. -- -- -- -- -- -- (97,696) (977) 977 --
Shares issued as
compensation.... -- -- -- -- -- -- 46,078 461 2,467 --
Series A:
Conversion of
notes payable... -- -- -- 30,465 305 -- -- 39,695 --
Series B:
Shares issued
for cash........ -- -- 761,615 7,616 -- -- -- -- 992,385 --
Offering costs.. -- -- -- -- -- -- -- -- (95,274) --
Net loss........ -- -- -- -- -- -- -- -- -- (500,319)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, December
31, 1993......... -- -- 761,615 7,616 1,103,867 11,039 177,598 1,776 6,451,269 (6,352,978)
Common stock:
Shares issued as
compensation.... -- -- -- -- -- -- 37,310 373 2,029 --
Shares issued
for cash........ -- -- -- -- -- -- 2,814 28 200 --
Series B:
Exercise of
stock options... -- -- 552,171 5,522 -- -- -- -- 719,478 --
Shares issued
for cash........ -- -- 175,172 1,752 -- -- -- -- 548,248 --
Offering costs.. -- -- -- -- -- -- -- -- (77,863) --
Net loss........ -- -- -- -- -- -- -- -- -- (1,066,462)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, December
31, 1994......... -- -- 1,488,958 14,890 1,103,867 11,039 217,722 2,177 7,643,361 (7,419,440)
Common stock:
Exercise of
stock options... -- -- -- -- -- -- 1,142 12 1,548 --
Series B:
Exercise of
stock options... -- -- 228,483 2,284 -- -- -- -- 347,716 --
Shares issued
for cash........ -- -- 373,192 3,732 -- -- -- -- 1,221,268 --
Offering costs.. -- -- -- -- -- -- -- -- (65,383) --
Amendments to
investor option
agreement....... -- -- -- -- -- -- -- -- 45,090 --
Net loss........ -- -- -- -- -- -- -- -- -- (1,882,459)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, December
31, 1995......... -- -- 2,090,633 20,906 1,103,867 11,039 218,864 2,189 9,193,600 (9,301,899)
Conversion of
Series A to com-
mon stock (1)... -- -- -- -- (1,103,867) (11,039) 1,103,867 11,039 -- --
Conversion of
note payable
(1)............. -- -- -- -- -- -- 30,465 305 99,695 --
Shares issued
for reverse
stock split (1). -- -- 43 -- -- -- 589 5 (5) --
Series B: (1)
Exercise of
stock options
and conversion
of
note payable.... -- -- 380,808 3,808 -- -- -- -- 809,822 --
Series C: (1)
Shares issued
for cash........ 761,615 7,616 -- -- -- -- -- -- 2,992,384 --
Offering costs.. -- -- -- -- -- -- -- -- (236,022) --
Series E: (1)
Warrant issued
for cash........ -- -- -- -- -- -- -- -- 125,000 --
Net loss (1).... -- -- -- -- -- -- -- -- -- (1,184,178)
------- ------ --------- -------- ---------- -------- --------- ------- ----------- ------------
Balance, June 30,
1996 (1)......... 761,615 $7,616 2,471,484 $ 24,714 -- $ -- 1,353,785 $13,538 $12,984,474 $(10,486,077)
======= ====== ========= ======== ========== ======== ========= ======= =========== ============
<CAPTION>
TOTAL
------------
<S> <C>
Balance, December
31, 1992......... $ (328,614)
Common stock:
Stock incentive
awards expired.. --
Shares issued as
compensation.... 2,928
Series A:
Conversion of
notes payable... 40,000
Series B:
Shares issued
for cash........ 1,000,001
Offering costs.. (95,274)
Net loss........ (500,319)
------------
Balance, December
31, 1993......... 118,722
Common stock:
Shares issued as
compensation.... 2,402
Shares issued
for cash........ 228
Series B:
Exercise of
stock options... 725,000
Shares issued
for cash........ 550,000
Offering costs.. (77,863)
Net loss........ (1,066,462)
------------
Balance, December
31, 1994......... 252,027
Common stock:
Exercise of
stock options... 1,560
Series B:
Exercise of
stock options... 350,000
Shares issued
for cash........ 1,225,000
Offering costs.. (65,383)
Amendments to
investor option
agreement....... 45,090
Net loss........ (1,882,459)
------------
Balance, December
31, 1995......... (74,165)
Conversion of
Series A to com-
mon stock (1)... --
Conversion of
note payable
(1)............. 100,000
Shares issued
for reverse
stock split (1). --
Series B: (1)
Exercise of
stock options
and conversion
of
note payable.... 813,630
Series C: (1)
Shares issued
for cash........ 3,000,000
Offering costs.. (236,022)
Series E: (1)
Warrant issued
for cash........ 125,000
Net loss (1).... (1,184,178)
------------
Balance, June 30,
1996 (1)......... $ 2,544,265
============
</TABLE>
- -----
(1) Unaudited.

See accompanying notes to financial statements.

F-5
<PAGE>

MEDI-JECT CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (500,319) $(1,066,462) $(1,882,459) $ (929,661) $(1,184,178)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation........... 26,324 36,945 85,960 25,422 69,881
Shares issued as
compensation.......... 2,928 2,402 -- -- --
Amendments to investor
option agreement...... -- -- 45,090 -- --
Changes in operating
assets and
liabilities:
Accounts receivable.... (15,455) (20,639) (86,937) (4,539) 48,022
Inventories............ 15,006 (121,547) (109,368) (145,274) (54,306)
Prepaid expenses....... 7,121 3,542 (23,190) (31,028) (75,433)
Accounts payable....... 42,524 16,854 83,263 (49,197) (7,330)
Deferred revenue....... 43,750 66,250 38,563 (35,000) 308,461
Accrued expenses....... 73,907 90,026 107,193 125,042 (149,602)
---------- ----------- ----------- ----------- -----------
Net cash used in
operating activities... (304,214) (992,629) (1,741,885) (1,044,235) (1,044,485)
---------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchases of equipment,
furniture and
fixtures.............. (39,096) (256,622) (120,392) (64,862) (173,789)
Purchase of patent
rights................ -- -- (235,288) (125,853) (82,613)
---------- ----------- ----------- ----------- -----------
Net cash used in
investing activities.. (39,096) (256,622) (355,680) (190,715) (256,402)
---------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Principal payments on
capital lease
obligations........... (7,194) (26,729) (42,138) (20,225) (23,079)
Proceeds from issuance
of common stock....... -- 228 1,560 1,560 101,130
Proceeds from issuance
of convertible
preferred stock....... 1,000,001 1,275,000 1,575,000 980,000 3,812,500
Warrants issued........ -- -- -- -- 125,000
Proceeds from issuance
of notes payable...... 40,000 100,000 125,000 -- 187,500
Principal payments on
notes payable......... -- (24,967) (106,324) (52,507) (469,299)
Offering costs......... (95,274) (77,863) (65,383) (45,571) (236,022)
---------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 937,533 1,245,669 1,487,715 863,257 3,497,730
---------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 594,223 (3,582) (609,850) (371,693) 2,196,843
Cash and cash
equivalents:
Beginning of period.... 55,026 649,249 645,667 645,667 35,817
---------- ----------- ----------- ----------- -----------
End of period.......... $ 649,249 $ 645,667 $ 35,817 $ 273,974 $ 2,232,660
========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

The Company is primarily a manufacturer/distributor of needle-free injection
devices and disposables for the injection of insulin and human growth hormone.
Products are sold throughout the United States, Europe, the Middle East, and
Asia.

Interim Financial Information

The financial information presented for the six months ended June 30, 1996
is unaudited. In the opinion of management, this unaudited financial
information contains all adjustments (which consist only of normal, recurring
adjustments) necessary for a fair presentation. Operating results for the six
months ended June 30, 1996 are not necessarily indicative of results that may
be expected for the full year.

Pro Forma Net Loss Per Share

Pro forma net loss per share is computed by dividing the net loss
attributable to common shareholders by the weighted average number of shares
of common stock and common stock equivalents outstanding, after applying the
treasury stock method and after giving effect to the reverse stock split and
the automatic conversion of all outstanding shares of convertible preferred
stock in accordance with the Company's initial public offering (see Note 13).

Pursuant to certain requirements of the Securities and Exchange Commission,
common stock equivalents include the impact of the issuance of stock, options
and warrants (see Note 8) within one year prior to the date of the initial
filing of the Company's initial public offering ("IPO") (see Note 13) at
exercise prices less than the assumed initial public offering price of $5.75
per share, whether or not the effects are antidilutive.

Cash Equivalents

The Company considers highly liquid debt instruments with remaining
maturities of ninety days or less at time of purchase to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on
a first-in, first-out basis.

Equipment, Furniture, and Fixtures

Equipment, furniture, and fixtures are stated at cost and are depreciated
using the straight-line method over their estimated useful lives.

Sales Recognition

Sales and related costs are recognized upon shipment of product to
customers. Sales are recorded net of provisions for returns and discounts.

F-7
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

Licensing and Product Development Revenue Recognition

Licensing and product development revenue is recognized when underlying
performance criteria for payment have been met and the Company has an
unconditional right to such payment. Depending on a license or product
development agreement's terms, recognition criteria may be satisfied upon
achievement of milestones, passage of time, or product sales by the licensee.
Payments received by the Company in excess of amounts earned are classified as
deferred revenue.

Product Warranty

The Company recognizes the estimated cost of warranty obligations to its
customers at the time the products are shipped.

Research and Development

Company sponsored research and development expenses related to both present
and future products are expensed as incurred.

Income Taxes

Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial carrying
amounts of existing assets and liabilities and their respective tax bases.

Concentration of Credit Risk

Financial instruments that may subject the Company to concentration of
credit risk consist principally of accounts receivable. This risk is mitigated
by the large number of individual customers and long-standing credit
relationships with the Company's major distributors.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

New Accounting Pronouncements

For 1996, the Company is required to adopt Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, and SFAS No. 123, Accounting for Stock-
Based Compensation. SFAS No. 121 prescribes accounting and reporting standards
when circumstances indicate that the carrying amount of an asset may not be
recoverable. Initial application of SFAS No. 121 is not expected to result in
recognition of a cumulative effect of a change in accounting principle by the
Company. SFAS No. 123 prescribes accounting and reporting standards for all
stock-based compensation plans. Since the Company intends to elect continued
recognition of certain stock-based compensation using the intrinsic value
method prescribed under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, no effect on the Company's expense recognition
is expected.

F-8
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

2. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw material................................... $119,316 $145,603 $178,026
Work-in-process................................ 45,878 80,663 76,208
Finished goods................................. 5,667 53,963 80,301
-------- -------- --------
$170,861 $280,229 $334,535
======== ======== ========
</TABLE>

3. EQUIPMENT, FURNITURE AND FIXTURES

Equipment, furniture and fixtures consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, USEFUL
1994 1995 1996 LIVES
-------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Office equipment.................. $222,350 $ 262,847 $ 376,489 3-5 years
Production equipment.............. 674,862 753,319 756,834 3-10 years
Displays.......................... 10,036 11,296 11,296 3-5 years
-------- ---------- ----------
$907,248 $1,027,462 $1,144,619
======== ========== ==========
</TABLE>

4. ACCRUED EXPENSES

Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued product warranty and returns........... $ 95,438 $ 71,620 $ 71,620
Payroll........................................ 18,795 29,787 23,706
Accrued patent rights obligation............... -- 96,500 --
Other.......................................... 176,806 200,325 153,304
-------- -------- --------
$291,039 $398,232 $248,630
======== ======== ========
</TABLE>

F-9
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

5. NOTES PAYABLE

Notes payable consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured notes payable, interest at 10%.. $ -- $ 125,000 $ --
Notes payable, due in aggregate monthly
payments of $11,127 including interest at
10% through October 1997. Notes are
secured by all assets of the Company..... 319,878 213,554 156,755
Unsecured note payable to shareholder/
director, with interest at 12% payable
monthly. Principal is due August 1996.
Convertible into 30,465 shares of common
stock.................................... 100,000 100,000 --
--------- --------- ---------
419,878 438,554 156,755
Current maturities........................ (206,324) (342,457) (123,454)
--------- --------- ---------
Notes payable, less current maturities.... $ 213,554 $ 96,097 $ 33,301
========= ========= =========
Aggregate future maturities are as fol-
lows:
1996..................................... $ 342,457
1997..................................... 96,097
---------
$ 438,554
=========
</TABLE>

6. LEASES

The Company has a noncancelable operating lease for its office and
manufacturing facility that expires in April 1997. This lease requires the
Company to pay all executory costs such as maintenance and insurance.

Rent expense incurred for the years ended December 31, 1993, 1994, and 1995
was $57,924, $102,306, and $107,616, respectively.

The Company is also obligated under noncancelable leases classified as
capital leases. The leases call for aggregate monthly payments of $5,301 with
various expiration dates through September 1999. Equipment, furniture, and
fixtures include $163,506 and $326,186 of cost and $25,791 and $221,341 of
accumulated amortization as of December 31, 1994 and 1995, respectively,
related to these leases.

Future minimum lease payments are as follow as of December 31, 1995:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1996..................................................... $ 57,034 $76,729
1997..................................................... 35,220 --
1998..................................................... 7,070 --
1999..................................................... 1,901 --
-------- -------
$101,225 $76,729
=======
Less amount representing interest (at rates ranging from
12% to 20.9%)............................................. 15,582
--------
Present value of minimum capital lease payments......... 85,643
Less current maturities.................................. 45,534
--------
Obligations under capital leases less current maturi-
ties................................................... $ 40,109
========
</TABLE>

F-10
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

7. INCOME TAXES

The Company incurred losses for both book and tax purposes in each of the
three years in the period ended December 31, 1995 and, accordingly, no income
taxes were provided. Effective tax rates differ from statutory federal income
tax rates in the years ended December 31, 1995, 1994, and 1993 as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Statutory federal income
tax rate............... (34.0)% (34.0)% (34.0)%
Valuation allowance in-
crease................. 36.0 36.0 36.0
State income taxes, net
of federal benefit..... (2.0) (2.0) (2.0)
----- ----- -----
0.0% 0.0% 0.0%
===== ===== =====
</TABLE>

Deferred taxes as of December 31, 1995 and 1994 consist of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory reserve................................. $ 65,100 $ 72,100
Net operating loss carryforward................... 2,462,000 3,123,600
Research credit carryforward...................... 117,000 117,000
Other............................................. 34,900 27,300
----------- -----------
2,679,000 3,340,000
Less valuation allowance........................... (2,679,000) (3,340,000)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>

At December 31, 1995, the Company had net operating loss carryforwards
("NOL") of approximately $9,000,000 for federal income tax purposes, which
begin to expire in 1996. Additionally, the Company had research credit
carryforwards of approximately $117,000, which begin to expire in 1997.

Pursuant to the Tax Reform Act of 1986, use of the Company's NOL will be
limited because of a cumulative "change of ownership" of more than 50%. This
ownership change occurred as a result of the sale of 1,000,000 shares of
Series C convertible preferred stock on January 25, 1996 (see Note 12).

8. SHAREHOLDERS' EQUITY

Series A Convertible Preferred Stock

The Series A convertible preferred stock carries voting rights, has no
dividend preference over the Company's common stock and a liquidation
preference of $0.641. Each Series A share is convertible into one share of
common stock at the option of the holder and is, under certain circumstances,
automatically converted to common stock (see Note 12).

Series B Convertible Preferred Stock

The Series B convertible preferred stock, which carries voting rights, has
dividend preference over Series A convertible preferred and common stock and a
liquidation preference of $1.31. Each Series B share is convertible into one
share of common stock, subject to certain anti-dilution adjustments.

F-11
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

In January 1994, the Board of Directors established a new Series B non-
voting convertible preferred stock and authorized 761,615 shares for this
class of stock. The Series B non-voting ranks on par with the Series B voting
convertible preferred stock, with regard to dividends and liquidation
preference, and is convertible at the option of the holder into common stock.

In October 1994, the Board of Directors established a new Series B, Class
II, voting convertible preferred stock and authorized 304,646 shares for this
class of stock. The Series B-II has a liquidation preference of $3.28 per
share, and otherwise ranks on par with the Series B voting convertible
preferred stock.

In April 1995, the Board of Directors established a new Series B, Class III,
voting convertible preferred stock and authorized 152,323 shares for this
class of stock. The Series B-III has a liquidation preference of $3.28 per
share, and otherwise ranks on par with the Series B voting convertible
preferred stock.

In August 1995, the Board of Directors established a new Series B, Class IV,
voting convertible preferred stock and authorized 761,162 shares for this
class of stock. The Series B-IV has a liquidation preference of $3.28 per
share, and otherwise ranks on par with the Series B voting convertible
preferred stock.

At December 31, 1995, the total number of shares authorized for all classes
of stock was 13,404,420 shares: 7,616,147 common shares; 1,218,584 Series A
preferred shares; 2,284,844 Series B preferred shares; 761,615 nonvoting
Series B preferred shares; and 1,523,230 preferred shares undesignated as to
class.

Stock Options and Warrants

The Company has issued options and warrants for common stock to various
lenders and others. These options and warrants have exercise prices ranging
from $0.79 to $3.28 per share, are fully exercisable, and expire from August
1996 to December 2003.

The Company also has stock options outstanding for 380,808 shares of its
Series B convertible preferred stock issued in connection with a 1993 stock
purchase agreement. This option agreement, as amended, expired on February 29,
1996. The exercise price is $1.64 per share for 190,404 shares and $2.63 for
the remaining 190,404 shares. Amendments during 1995 to the Series B preferred
option agreement resulted in the recognition of $45,090 in expense. This
expense was associated with decreases in the exercise price of certain options
in exchange for a short-term credit facility, and the cancellation of a
technology license and co-development agreement (see Note 12).

Under the terms of the Company's 1993 Stock Option Plan, incentive stock
options and nonqualified options may be granted to officers, directors,
employees, and consultants. Under this plan, 495,050 shares of common stock
have been reserved. At December 31, 1995, 87,891 shares remain available for
grant.

Stock options granted under the 1993 Stock Option Plan become exercisable
over varying periods and expire up to ten years from date of grant. The option
price for incentive stock options cannot be less than fair market value on the
date of the grant. The option price for nonqualified stock options may be set
by the Board of Directors.

F-12
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

Stock option and warrant activity for the three years ended December 31,
1995 and the six months ended June 30, 1996 is summarized as follows:

<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1992...................... 4,570 $26.26-32.83
Granted............................................. 1,038,712 0.79-2.63
Exercised........................................... -- --
Canceled............................................ -- --
--------- ------------
Outstanding at December 31, 1993...................... 1,043,282 0.79-32.83
Granted............................................. 124,995 1.31-1.64
Exercised........................................... (152,323) 1.31
Canceled............................................ (7,236) 0.79-32.83
--------- ------------
Outstanding at December 31, 1994...................... 1,008,718 0.79-1.64
Granted............................................. 214,776 1.31-3.28
Exercised........................................... (229,627) 1.31-1.64
Canceled............................................ (2,057) 3.28
--------- ------------
Outstanding at December 31, 1995...................... 991,810 0.79-3.28
Granted (unaudited)................................. 2,372,677 3.94-5.91
Exercised (unaudited)............................... (380,808) 1.64-2.63
Canceled (unaudited)................................ (16,869) 1.31-2.63
--------- ------------
Outstanding at June 30, 1996 (unaudited).............. 2,966,810 $ 0.79-5.91
========= ============
</TABLE>

As of December 31, 1995 and June 30, 1996, 406,931 and 481,690 (unaudited)
options and 584,879 and 2,485,120 (unaudited) warrants were outstanding,
respectively.

As of December 31, 1995 and June 30, 1996 options for 238,240 and 323,951
(unaudited) shares, and warrants for 584,879 and 2,485,120 (unaudited) shares,
respectively, were exercisable.

9. EMPLOYEE SAVINGS PLAN

The Company has an employee savings plan that covers all employees who have
met minimum age and service requirements. Under the plan, eligible employees
may contribute up to 15% of their compensation into the plan. The Company, at
the discretion of the Board of Directors, may contribute elective amounts to
the plan, allocated in proportion to employee contributions to the plan,
employee's salary, or both. No elective contributions have been made for the
years ended December 31, 1993, 1994, and 1995.

10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

During 1994, the Company entered into capital lease obligations for
equipment of $111,571.

Cash paid for interest during the years ended December 31, 1993, 1994, 1995
and the six months ended June 30, 1996 was $7,119, $67,785, $62,515 and
$20,182 (unaudited), respectively.

On January 25, 1996 and February 29, 1996, notes payable of $312,500 and
$100,000, respectively, were converted into 190,404 shares of Series B
Preferred Stock and 30,465 shares of Common Stock, respectively.

11. SALES

The Company had a foreign customer, a distributor of the Company's products,
who accounted for approximately 0%, 5%, and 18% of sales for the years ended
December 31, 1993, 1994, and 1995, respectively.

F-13
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

Foreign sales by geography were as follows:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Europe (primarily Germany).......................... $ 20,877 $ 14,960 $301,277
Other............................................... 127,629 146,649 319,379
-------- -------- --------
Total............................................. $148,506 $161,609 $620,656
======== ======== ========
</TABLE>

Other consists mainly of sales to Asia and South America.

12. SUBSEQUENT EVENTS

On January 25, 1996, the Company sold 761,615 shares of Series C Junior
convertible preferred stock to Becton Dickinson and Company ("Becton
Dickinson") for $3,000,000. In addition, the Company granted Becton Dickinson
an option to purchase 380,808 shares of Series D Junior preferred stock with
an exercise price of $4.60. These options expire on the tenth anniversary of
the agreement or on the first anniversary of an IPO of the Company's stock if
the per share price is less than $7.88 but more than $6.57, or on the IPO date
if the per share price is greater than or equal to $7.88. Warrants for
1,904,037 shares of Series E Junior convertible preferred stock were also
granted at an exercise price of $5.91 for initial consideration of $125,000.
These warrants expire on the tenth anniversary of the agreement or on the
seventh anniversary following an IPO if the per share price is greater than or
equal to $7.88.

In connection with the above transaction the Company entered into a
licensing agreement with Becton Dickinson, which provides Becton Dickinson
exclusive worldwide rights to certain Medi-Ject technology. In exchange for
granting this exclusive right, the Company will receive $100,000 per month for
24 months beginning January 1996 to develop the technology.

On January 25, 1996, the Company converted an unsecured note payable
totaling $312,500 (of which $125,000 is outstanding at year end) into 190,404
shares of Series B convertible preferred stock. In addition, the holder of the
debt purchased an additional 190,404 shares of Series B convertible preferred
stock for proceeds of $500,000 in connection with a stock option exercise.

On January 31, 1996, the Company converted its Series A convertible
preferred stock into common stock. Automatic conversion into common stock of
the Series A was precipitated by the Company's net worth exceeding $1.0
million.

On February 29, 1996 an unsecured note payable to a shareholder totaling
$100,000, which is outstanding at year end, was converted to 30,465 shares of
common stock.

13. ITEMS SUBSEQUENT TO DATE OF AUDITORS' REPORT

(a) Reverse Stock Split

In connection with the Company's IPO, the Board of Directors and
shareholders approved a 1-for-1.313 reverse stock split of its common stock,
effective August 6, 1996. The effect of the stock split has been retroactively
reflected in the accompanying financial statements and notes thereto.

F-14
<PAGE>

MEDI-JECT CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

DECEMBER 31, 1995
(UNAUDITED AS TO JUNE 30, 1996 DATA)

(b) Initial Public Offering (unaudited)

The Company is in the process of preparing for an IPO of up to 2,530,000
shares of its common stock. Simultaneously with the effective or closing date
of this offering, all outstanding shares of preferred stock (consisting of
2,471,484 shares Series B, and 761,615 shares Series C) will be automatically
converted into an aggregate of 3,371,848 shares of common stock. Included in
the Series B conversion are 138,749 additional shares related to an
antidilution adjustment (see Note 8). The conversion of the Company's
preferred stock to common stock, as described herein, has been reflected in
the pro forma shareholders' equity column of the balance sheet at June 30,
1996.

F-15
<PAGE>

[ART WORK]

Medi-Jector(R) System Operation

- ----
STEP 1: RESET POWER SOURCE
Turn winding grip in
the direction of the arrow to
a complete stop.
- ----

- -----

[Drawing of Medi-Jector system held in
hands with arrow showing direction of
winding.]
- ----

- ----

STEP 2: FILL DRUG CHAMBER
Attach drug vial with adapter and
turn winding grip
until the proper dosage is indicated in the window.
- ----

- -----

[Drawings of Medi-Jector systems held in
hands with arrows showing direction of
winding and vial attachment.]
- ----

- ----

STEP 3: ADJUST PRESSURE AND INJECT
REMOVE DRUG VIAL AND TURN WINDING GRIP TO OPTIMUM COMFORT LEVEL.
INJECT.
- ----

- ----

[Drawing of Medi-Jector system held in
hands with arrow showing direction of
winding.]

[Drawing of Medi-Jector system held against
thigh of individual receiving injection.]
- ----

<PAGE>

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM-
PANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUM-
STANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1996 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURI-
TIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DE-
LIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD AL-
LOTMENTS OR SUBSCRIPTIONS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Dilution.................................................................. 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 22
Management................................................................ 35
Principal Shareholders.................................................... 40
Certain Transactions...................................................... 41
Description of Capital Stock.............................................. 43
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 46
Legal Matters............................................................. 47
Experts................................................................... 47
Additional Information.................................................... 47
Index to Financial Statements............................................. F-1
</TABLE>

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

LOGO

2,200,000 SHARES

COMMON STOCK

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

RODMAN & RENSHAW, INC.

R. J. STEICHEN & COMPANY

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following fees and expenses will be paid by the Company in connection
with the issuance and distribution of the securities registered hereby and do
not include underwriting commissions and discounts. All such expenses, except
for the SEC, NASD and Nasdaq fees, are estimated.

<TABLE>
<S> <C>
SEC registration fee............................................... $ 9,484
NASD filing fee.................................................... 3,030
Nasdaq Stock Market listing fee.................................... 35,639
Legal fees and expenses............................................ 125,000
Accounting fees and expenses....................................... 45,000
Blue Sky fees and expenses......................................... 15,000
Transfer Agent's and Registrar's fees.............................. 5,000
Printing and engraving expenses.................................... 70,000
Directors' and Officers' Insurance................................. 60,000
Miscellaneous...................................................... 31,847
--------
Total........................................................ $400,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 302A.521 of the Minnesota Statutes provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.

Provisions regarding indemnification of officers and directors of the
Company to the extent permitted by Section 302A.521 of the Minnesota Statutes
are contained in the Company's Second Amended and Restated Bylaws as they will
be amended immediately upon closing of the offering (Exhibit 3.4 hereto),
which are incorporated herein by reference.

Under Section 7 of the Underwriting Agreement to be filed as Exhibit 1.1
hereto, the Underwriters have agreed to indemnify, under certain conditions,
the Company, its directors, certain of its officers and persons who control
the Company within the meaning of the Securities Act of 1933, as amended,
against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The information set forth below (i) gives effect to a 1-for-1.313 reverse
split of the Company's capital stock effected on August 6, 1996, and (ii) does
not give effect to the automatic conversion of all shares of Convertible
Preferred Stock into shares of Common Stock prior to or upon the closing of
the offering.

II-1
<PAGE>

Since June 1, 1993, the Company has issued and sold the following securities
that were not registered under the Securities Act of 1933, as amended (the
"Securities Act"):

In June 1993, the Company issued warrants to purchase an aggregate of 53,315
shares of Common Stock at a price of $1.31 per share to three accredited
investors including two existing securityholders, which warrants were issued
in connection with the issuance of 9% Demand Promissory Notes in the aggregate
original principal amount of $80,000.

In September 1993, the Company sold 380,808 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor, at a per
share price of $1.31. In connection with this sale, the Company also issued to
Ethical Holdings plc an option to purchase 761,615 shares of Series B
Convertible Preferred Stock at a price of $1.31 per share (subject to
adjustment to $2.62 per share upon the occurrence of certain events).

In November 1993, the Company issued 381 shares of Common Stock to Lois
Jovanovic Peterson, M.D., a former consultant to the Company, in consideration
of a release and waiver of the Company under a consulting agreement.

In November 1993, the Company sold to Grayson & Associates a warrant to
purchase 19,041 shares of Common Stock at a price of $1.31 per share, which
warrant was sold in consideration of services rendered in connection with the
private placement of shares of Series B Convertible Preferred Stock.

In November 1993, the Company sold 30,465 shares of Series A Convertible
Preferred Stock to Cherry Tree Ventures II, L.P., an accredited investor, in
consideration of conversion of 9% Demand Promissory Notes in the aggregate
principal amount of $40,000.

In November 1993, the Company sold to Physical Sciences, Inc. a warrant to
purchase 33,000 shares of Common Stock at a price of $0.79 per share, which
warrant was issued in consideration of engineering services rendered.

In November and December 1993, the Company sold an aggregate of 380,808
shares of Series B Convertible Preferred Stock to six accredited investors at
a price of $1.31 per share, including 38,081 shares sold in consideration of
conversion of a 9% Demand Promissory Note in the principal amount of $50,000.

In February 1994, the Company sold an aggregate of 399,848 shares of Non-
Voting Series B Convertible Preferred Stock to Enskilda Kapitalforvaltning, an
accredited investor and existing shareholder, for $1.31 per share.

In February 1994, the Company sold to Nordberg Capital, Inc. a warrant to
purchase 22,849 shares of Common Stock at a price of $1.31 per share, which
warrant was sold in consideration of services rendered in connection with the
private placement of shares of Series B Convertible Preferred Stock.

In February 1994, the Company sold to Martha Russell a warrant to purchase
1,905 shares of Common Stock at a price of $1.31 per share, which warrant was
sold in consideration of grant-writing services rendered.

In June 1994, the Company sold 15,233 shares of Non-Voting Series B
Convertible Preferred Stock to Joseph Card, an accredited investor, for $1.64
per share.

In August 1994, the Company sold to Physical Sciences, Inc. a warrant to
purchase 20,314 shares of Common Stock at a price of $1.64 per share, which
warrant was issued in consideration of engineering services rendered.

In August 1994, the Company sold a warrant to purchase 7,617 shares of
Common Stock at a price of $3.28 per share to Fred L. Shapiro, M.D., a
director of the Company, which warrant was issued in connection with a
$100,000 loan from Dr. Shapiro to the Company.

II-2
<PAGE>

In September 1994, the Company sold 152,323 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, at a price of $1.31 per share upon a partial exercise of the
stock option described above.

In November 1994, the Company sold 2,806 shares of Common Stock to Calvert
Social Ventures Partners, L.P., an accredited investor, at a price of $0.081
per share upon the exercise of certain preemptive rights triggered by the
issuance during 1994 of stock grants as compensation to employees of the
Company. In connection with this sale, the Company also issued warrants to
purchase (a) 1,842 shares of Common Stock at a price of $1.31 per share, which
warrant was issued in consideration of $24.18, (b) 567 shares of Common stock
at a price of $3.28 per share, which warrant was issued in consideration of
$7.44, and (c) 1,512 shares of Common Stock at a price of $1.64 per share,
which warrant was issued in consideration of $19.84.

From December 1994 through March 1995, the Company sold an aggregate of
304,665 shares of Series B Convertible Preferred Stock (Class II) to 23
accredited investors, including certain existing shareholders and a director,
at a price of $3.28 per share. In connection with this offering, the Company
issued warrants to purchase an aggregate of 3,048 shares of Common Stock at a
price of $3.28 per share to Delphi Financial Corp. in consideration of its
services as placement agent. (On March 24, 1995, such warrants were
transferred to Robert Fullerton and Michael Trautner, principals of Delphi
Financial Corp.)

In January 1995, the Company sold 762 shares of Common Stock to John L.
Brooks, an employee, at a price of $1.31 per share upon exercise of an
incentive stock option.

In February 1995, the Company sold 381 shares of Common Stock to Deborah A.
Close, an employee, at a price of $1.31 per share upon exercise of an
incentive stock option.

In February 1995, the Company sold 76,161 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, at a price of $1.31 per share upon a partial exercise of the
stock option described above.

In February 1995, the Company sold to Nordberg Capital, Inc. a warrant to
purchase 4,570 shares of Common Stock at a price of $3.28 per share, which
warrant was sold in consideration of $60 and services rendered in connection
with the private placement of shares of Series B Convertible Preferred Stock
(Class II).

In April 1995, the Company sold to Perry Silverman a warrant to purchase 229
shares of Common Stock at a price of $3.28 per share, which warrant was sold
in consideration of $3.00 and services rendered in connection with the private
placement of shares of Series B Convertible Preferred Stock (Class II).

From May 1995 through August 1995, the Company sold an aggregate of 152,335
shares of Series B Convertible Preferred Stock (Class III) to 16 accredited
investors, including existing shareholders, at a price of $3.28 per share.

In September 1995, the Company sold an aggregate of 76,170 shares of Series
B Convertible Preferred Stock (Class IV) to 11 accredited investors, at a
price of $3.28 per share.

In September 1995, the Company sold 152,323 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, at a price of $1.64 per share upon a partial exercise of the
stock option described above.

In January 1996, the Company sold 761,615 shares of Series C Junior
Convertible Preferred Stock to Becton Dickinson and Company, an accredited
investor, at a price of $3.94 per share. In connection with this sale, the
Company granted Becton Dickinson and Company an option to purchase 380,808
shares of Series D Junior Convertible Preferred Stock at a price of $4.60 per
share and the Company sold Becton Dickinson and Company a warrant to purchase
1,904,037 shares of Series E Junior Convertible Preferred Stock at a price of
$5.91 per share for a warrant purchase price of $125,000.

II-3
<PAGE>

In February 1996, the Company sold 30,465 shares of Common Stock to Fred L.
Shapiro, M.D., a director of the Company, in consideration of conversion of a
loan in the principal amount of $100,000.

In February 1996, the Company sold 380,808 shares of Series B Convertible
Preferred Stock to Ethical Holdings plc, an accredited investor and existing
shareholder, 190,404 of which shares had a per share price of $1.64 and were
issued in consideration of conversion of all principal amounts advanced under
a $312,500 loan from Ethical to the Company and 190,404 of which shares were
sold at a price of $2.62 per share; all such shares represented the final
partial exercise of the stock option described above.

In May 1996, the Company sold to William Anderson, an employee, 381 shares
of Common Stock at a price of $1.31 per share and 191 shares of Common Stock
at a price of $3.28 per share upon exercise of incentive stock options.

The shares sold to employees upon the exercise of stock options were issued
pursuant to Rule 701 under the Securities Act. The other sales of capital
stock and of warrants and options to purchase capital stock have been made by
the Company in reliance upon Section 4(2) of the Securities Act and Rule 506
thereunder. The Company has relied upon such exemption because it believed
that each of the purchasers had such knowledge and experience in financial and
business matters that it, he or she, as the case may be, was capable of
evaluating the merits and risks of the prospective investment. With respect to
all of such sales, the Company imprinted a legend on the certificates
representing such securities restricting their transfer.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1(a) Underwriting Agreement.
1.2(a) Form of Representative's Warrant
3.1(a) Amended and Restated Articles of Incorporation of the Company.
3.2(a) Amended Bylaws of the Company.
3.3(a) Second Amended and Restated Articles of Incorporation of the
Company (as proposed to be effective upon completion of the
offering).
3.4(a) Second Amended and Restated Bylaws of the Company (as proposed to
be effective upon completion of the offering).
4.1(a) Form of Certificate for Common Stock.
4.2(a) Stock Warrant, dated January 25, 1996, issued to Becton Dickinson
and Company.
4.3(a) Stock Option, dated January 25, 1996, issued to Becton Dickinson
and Company.
4.4(a) Warrant, dated March 24, 1995, issued to Robert Fullerton.
4.5(a) Warrant, dated March 24, 1995, issued to Michael Trautner.
4.6(a) Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company (filed herewith as Exhibit 10.7).
5.1(a) Opinion of Dorsey & Whitney LLP.
10.1(a) Office/Warehouse/Showroom Lease, dated January 2, 1995, including
amendments thereto.
10.2(a) Promissory Note, dated August 29, 1994, issued to Fred Shapiro.
10.3(a) Security Agreement, dated September 30, 1994, by and between the
Company and Kelsey Lake Limited Partnership and Kerry Lake
Company, a Limited Partnership.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.4(a) Promissory Note, dated September 30, 1994, issued to Kelsey Lake
Limited Partnership.
10.5(a) Promissory Note, dated September 30, 1994, issued to Kerry Lake
Company, a Limited Partnership.
10.6(a) Loan Agreement, dated as of December 22, 1995, by and between
Ethical Holdings, plc and the Company, including the related
Promissory Note, dated December 22, 1995, issued to Ethical
Holdings, plc.
10.7(a) Preferred Stock, Option and Warrant Purchase Agreement, dated
January 25, 1996, between the Company and Becton Dickinson and
Company.
10.8(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Franklin Pass, M.D.
10.9(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Mark Derus.
10.10(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Todd Leonard.
10.11(a) Employment Agreement, dated as of January 3, 1995, between the
Company and Peter Sadowski.
10.12(a) 1993 Stock Option Plan.
10.13(a) Form of incentive stock option agreement for use with 1993 Stock
Option Plan.
10.14(a) Form of nonqualified stock option agreement for use with 1993
Stock Option Plan.
10.15(a) 1996 Stock Option Plan, with form of stock option agreement.
10.16(a) Preferred Stock Purchase Agreement between Enskilda
Kapitalforvaltning and the Company, dated February 1, 1994,
relating to the Company's Non-Voting Series B Convertible
Preferred Stock.
10.17(a) Preferred Stock Purchase Agreement between Enskilda
Kapitalforvaltning and the Company, dated December 28, 1993,
relating to the Company's Series B Convertible Preferred Stock.
10.18(a) Preferred Stock Purchase Agreement between Calvert Social Venture
Partners, L.P. and the Company, dated November 29, 1993,
relating to the Company's Series B Convertible Preferred Stock.
10.19(a) Form of Preferred Stock Purchase Agreement relating to the
Company's Series B Convertible Preferred Stock.
+10.20(a) Development and License Agreement between Becton Dickinson and
Company and the Company, effective January 1, 1996.
11.1 Statement Regarding Computation of Earnings Per Share.
16.1(a) Letter Regarding Change in Certifying Accountant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2(a) Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
24.1(a) Powers of Attorney (included on signature page).
27.1(a) Financial Data Schedule.
</TABLE>
- --------
+ Pursuant to Rule 406 of the Securities Act of 1933, as amended, confidential
portions of Exhibit 10.20 have been deleted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
(a) Previously filed.

II-5
<PAGE>

ITEM 17. UNDERTAKINGS

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

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

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

II-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF MINNEAPOLIS, STATE OF MINNESOTA, ON OCTOBER 1, 1996.

Medi-Ject Corporation

*
By: _________________________________
FRANKLIN PASS, M.D. PRESIDENT AND
CHIEF EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON OCTOBER 1, 1996.

SIGNATURE TITLE

President, Chief Executive Officer and
* Director (principal executive
- ------------------------------------- officer)
FRANKLIN PASS, M.D.

/s/ Mark Derus Vice President of Finance, Chief
- ------------------------------------- Financial Officer (principal
MARK DERUS financial and accounting officer)

* Director
- -------------------------------------
LOUIS COSENTINO

* Director
- -------------------------------------
KENNETH EVENSTAD

* Director
- -------------------------------------
GEOFFREY GUY

* Director
- -------------------------------------
NORMAN JACOBS

* Director
- -------------------------------------
FRED SHAPIRO, M.D.

* Director
- -------------------------------------
PETER SJOSTRAND

/s/ Mark Derus
*By: ________________________________
MARK DERUS,
ATTORNEY-IN-FACT

II-7

<PAGE>

EXHIBIT 11.1

MEDI-JECT CORPORATION
Computation of Earnings per Share
(Not Covered by Independent Auditors' Report)

12 months ended 6 months ended
December 31, June 30,
1995 1996
--------------- --------------
<S> <C> <C>

Net Loss (1,882,459) (1,184,178)

Pro Forma Per Share Data:
Shares of common stock and
common stock equivalents:
Number of common shares
outstanding 3,552,113 4,725,633
Effect of outstanding stock options 113,626 113,626
Effect of incremental shares 470,714 470,714
--------------- --------------
4,136,453 5,309,973
=============== ==============

Pro Forma Net loss per Common share (.46) (.22)

</TABLE>

Note: Shares outstanding and the effect of stock options and warrants and the
incremental effect of shares issued below the IPO price within the past 12
months were calculated pursuant to the rules of Staff Accounting Bulletin 4:D.

<PAGE>

Exhibit 23.1

Consent of Independent Auditors

The Board of Directors
Medi-Ject Corporation

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

/s/KPMG Peat Marwick LLP
------------------------

Minneapolis, Minnesota
October 1, 1996