JONES MEDICAL INDUSTRIES INC /DE/, 424A, 1996-03-06

JONES MEDICAL INDUSTRIES INC /DE/
424A, 1996-03-06
PHARMACEUTICAL PREPARATIONS

Previous: AMERICAN FUNDS TAX EXEMPT SERIES I, NSAR-A, 1996-03-06

Next: DREYFUS STRATEGIC INVESTING, 497J, 1996-03-06

<PAGE> 1

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 MARCH 1, 1996

JONES MEDICAL LOGO
2,000,000 SHARES

COMMON STOCK

All of the 2,000,000 shares of Common Stock offered hereby are being issued
and sold by Jones Medical Industries, Inc. ("JMI" or the "Company"). On February
23, 1996 the last reported sale price for the Common Stock, as reported on the
Nasdaq National Market, was approximately $29.50 per share, as adjusted for the
three-for-two stock split discussed below. See "Price Range of Common Stock."
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "JMED."

The Company's Board of Directors recently declared a three-for-two stock
split in the form of a 50% stock dividend to be paid on March 1, 1996 to holders
of record on February 23, 1996. The 2,000,000 shares of Common Stock offered
hereby reflect such stock dividend. Purchasers of Common Stock in this offering
will not be entitled to receive the stock dividend in respect of any shares so
purchased.
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.

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

<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Per Share......................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(2).......................... $ $ $
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>

(1) Before deducting expenses payable by the Company estimated at $310,000.

(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Company will be $ , $ and $ ,
respectively.

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

The Common Stock is offered by the Underwriters as stated 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
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.

ROBERTSON, STEPHENS & COMPANY HAMBRECHT & QUIST

THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 2

PRINCIPAL PHARMACEUTICALS

- ------------------------------------------- Thrombin-JMI and
Thrombinar
[PHOTO] (topical hemostats)

- ------------------------------------------- Brevital (anesthetic)

Liqui-Char (toxin
antidote)
----------------------------------
Therevac (mini-enema)
[PHOTO]
Derma-Scrub (surgical
---------------------------------- scrub)
Thrombin-JMI
---------------------

[PHOTO]

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

Brevital

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

Thrombin-JMI(TM), Thrombinar(R), Brevital(R) Sodium, Bronson(TM), Bronson
Pharmaceutical(TM), MD Pharmaceutical(TM), Liqui-Char(R), Therevac(R),
Derma-Scrub(R), Thyroid Strong(TM), and Westhroid(TM) are trademarks owned by or
under license to the Company. All other trademarks and registered trademarks
used in this Prospectus are the property of their respective owners.
------------------------

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

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

<PAGE> 3

AVAILABLE INFORMATION

The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected, without charge, and copied at
the Public Reference Room of the Commission at Room 1024, 450 Fifth Street, N.W.
Washington, D.C. 20549, and at the Commission's Regional offices located at
Seven World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission at its Washington
address at prescribed rates. The Common Stock is traded on the Nasdaq National
Market and such reports, proxy statements and other information can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N. W., Washington, D. C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following document, which has been filed by the Company with the
Commission pursuant to the Exchange Act, is hereby incorporated by reference in
this Prospectus.

(A) Annual Report on Form 10-K for the fiscal year ended December 31, 1995
filed March 1, 1996.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated by reference or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that the statement is
modified or superseded by any other subsequently filed document which is
incorporated or is deemed to be incorporated by reference herein. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company hereby undertakes to provide without
charge to each person, including any beneficial owner, to whom this Prospectus
has been delivered, on the written or oral request of such person, a copy of any
or all of the documents referred to above which have been or may be incorporated
into this Prospectus and deemed to be part hereof, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents. These documents are available upon request from Judith A. Jones,
Secretary, Jones Medical Industries, Inc., 1945 Craig Road, St. Louis, Missouri
63146, (314) 576-6100.

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

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary........................................ 4
Risk Factors................................... 6
Use of Proceeds................................ 14
Dividend Policy................................ 14
Price Range of Common Stock.................... 15
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19

<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 24
Management..................................... 34
Principal Stockholders......................... 36
Description of Capital Stock................... 38
Underwriting................................... 39
Legal Matters.................................. 40
Experts........................................ 40
Additional Information......................... 40
Index to Consolidated Financial Statements..... F-1
</TABLE>

3
<PAGE> 4

SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus or incorporated herein by
reference.

THE COMPANY

Jones Medical Industries, Inc. is engaged in the manufacture, marketing and
sale of pharmaceuticals and nutritional supplements. Founded in 1981, the
Company markets a wide variety of pharmaceuticals and branded nutritional
supplements under its own trademarks and tradenames. All of the Company's
product lines have been acquired through a series of 13 acquisitions which
complemented or expanded its existing lines of business. The Company intends to
leverage its existing marketing and sales capabilities through additional
strategic acquisitions of complementary products and businesses, by expanding
and increasing the penetration of its existing customer base, and through the
introduction of new formats for pharmaceuticals and new formulations for
nutritional supplements. During 1995, sales of pharmaceuticals and nutritional
supplements accounted for approximately 46% and 54% of the Company's total
sales, respectively.

The Company has capitalized on this trend through the acquisition of its
two principal products, Thrombinar, a topical hemostat (to activate blood
clotting), and Brevital Sodium ("Brevital"), a short-term, rapid onset
anesthetic. The Company has also acquired and markets additional therapeutics,
including a toxin antidote, a mini-enema for rehabilitation therapy, a surgical
scrub, and natural thyroid supplements. These niche products are sold and
distributed to hospitals through a dedicated marketing and sales staff. This
sales force focuses primarily on major hospitals and hospital buying groups
which, in aggregate, control the majority of the purchasing of pharmaceuticals
for private sector hospitals.

JMI's nutritional supplements are sold under two brand names, Bronson
Pharmaceutical and MD Pharmaceutical. Products offered include vitamins,
minerals, antioxidants, herbal formulations and personal care products. The
Company's marketing and sales effort focuses on developing recommendations and
referrals to consumers from health care and nutritional professionals primarily
through direct mail and telemarketing.

The Company has achieved significant increases in sales and net income
since its inception through acquisitions of product lines and businesses and
through internal growth initiatives intended to develop marketing opportunities
with respect to acquired product lines. Sales and net income have increased from
$19.7 million and $2.8 million, respectively, in 1990, to $56.4 million and $9.3
million, respectively, in 1995, representing five-year compound annual growth
rates of approximately 23.4% and 27.0%, respectively.

JMI manufactures pharmaceuticals at its facilities in Canton, Ohio,
Middleton, Wisconsin and St. Louis, Missouri, and manufactures nutritional
supplements at its facilities in Tempe, Arizona. The Company also utilizes its
excess manufacturing capacity as a contract manufacturer of pharmaceuticals and
nutritional supplements for distribution and sale by others under their labels
and tradenames.

The Company was incorporated in Delaware on March 24, 1981, its principal
executive offices are located at 1945 Craig Road, St. Louis, Missouri 63146, and
its telephone number is (314) 576-6100. References in this Prospectus to "JMI"
or the "Company" include Jones Medical Industries, Inc. and its operating
subsidiaries unless otherwise noted.

4
<PAGE> 5

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company.................. 2,000,000 shares
Common Stock Outstanding After the Offering.......... 16,311,400 shares(1)
Use of Proceeds...................................... For repayment of certain indebtedness
and for general corporate purposes,
including the possible acquisition of
product lines or businesses. See "Use
of Proceeds."
Nasdaq National Market Symbol........................ JMED
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................ $20,513 $24,057 $43,215 $47,549 $56,397
Gross profit................................. 10,147 11,704 21,306 22,863 29,231
Operating income............................. 4,694 5,337 9,992 9,365 15,326
Net income(2)................................ $ 3,294 $ 3,732 $ 6,204 $ 5,740 $ 9,328
======= ======= ======= ======= =======
Earnings per share(2)........................ $ 0.24 $ 0.26 $ 0.44 $ 0.40 $ 0.64
======= ======= ======= ======= =======
Weighted average shares outstanding.......... 13,876 14,169 14,257 14,391 14,589
Cash dividends declared per share............ $ 0.04 $ 0.05 $ 0.06 $ 0.06 2/3 $ 0.07 1/3
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 5,411 $ 45,803
Working capital..................................................... 13,449 59,474
Total assets........................................................ 74,697 115,089
Long-term debt...................................................... 9,125 0
Total stockholders' equity.......................................... 49,890 105,040
</TABLE>

- ------------
(1) Based on shares outstanding as of February 15, 1996. Excludes 973,350 shares
of Common Stock issuable upon the exercise of outstanding stock options at a
weighted average exercise price of $10.82 per share. Includes 737 shares of
Common Stock issuable upon conversion of the Company's Preferred Stock,
Series A outstanding at February 15, 1996. See "Capitalization."

(2) Net income and earnings per share in 1993 do not reflect the cumulative
effect of a change in accounting principle of $207,100.

(3) Adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company and the application of the estimated net proceeds therefrom based
upon an assumed public offering price of $29.50 per share.

Except as otherwise specified herein, all information in this Prospectus
(i) has been adjusted to give effect to a three-for-two stock split in the form
of a 50% stock dividend to be paid on March 1, 1996 to holders of record on
February 23, 1996, and (ii) assumes no exercise of the Underwriters'
over-allotment option.

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 cause such
differences include, but are not limited to, those discussed in "Risk Factors."

5
<PAGE> 6

RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.

DEPENDENCE ON SALES OF KEY PHARMACEUTICALS

The Company derives a substantial portion of its revenue from sales of two
pharmaceutical products. The Company's topical hemostat thrombin product line,
Thrombin-JMI and Thrombinar, accounted for 25.8% of total sales and 56.2% of
pharmaceutical sales during 1995. The Company's Brevital line of anesthetics,
acquired on August 31, 1995, accounted for 10.9% of total sales and 22.1% of
pharmaceutical sales during the last four months of 1995. The Company believes
that sales of thrombin products and Brevital will continue to constitute a
significant portion of total sales and pharmaceutical sales for the foreseeable
future. Accordingly, any factor adversely affecting thrombin product sales or
Brevital sales would have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, the pharmaceutical
industry is characterized by rapid product development and technological change.
The Company's pharmaceuticals could be rendered obsolete or uneconomical by the
development of new pharmaceuticals to treat the conditions addressed by the
Company's products, or as a result of either technological advances affecting
the cost of production, or as a result of marketing or pricing pressure from one
or more of the Company's competitors. The Company's business, financial
condition and results of operations could be materially adversely affected by
any one or more of such developments. In addition, the Company has numerous
competitors in the pharmaceutical market, each of which have substantially
greater technical, marketing and financial resources than the Company. There can
be no assurance that the Company will be able to compete effectively, that
additional competitors will not enter the market, or that competition will not
have a material adverse effect on the Company's business, financial condition or
results of operations.

Thrombin Products. Thrombin products must be manufactured in facilities
licensed by the Center for Biologics Evaluation and Research ("CBER"), a
division of the United States Food and Drug Administration (the "FDA").
Thrombin-JMI is presently manufactured at the Company's GenTrac, Inc.
("GenTrac") facility, which is licensed to produce thrombin products to United
States Pharmacopoeia ("U.S.P.") standards. GenTrac also produces proprietary
thrombin products for Johnson & Johnson Medical, Inc. ("Johnson & Johnson") as a
contract manufacturer. Under development and distribution agreements between
GenTrac and Johnson & Johnson entered into prior to the Company's acquisition of
GenTrac, Johnson & Johnson acquired certain rights to new thrombin products and
thrombin product improvements developed by GenTrac. Johnson & Johnson has
notified the Company that it believes that it is entitled to exclusive
distribution rights for Thrombin-JMI and a liquid thrombin product for which FDA
approval is currently pending. Although the Company strongly disagrees with and
will vigorously contest such claims by Johnson & Johnson, any resolution of the
claims in favor of Johnson & Johnson could have a materially adverse effect upon
the Company's business, financial condition and results of operations. See
"Business--Legal Proceedings."

Brevital. The Company recently acquired an exclusive United States license
to Brevital and has only limited experience in marketing and distributing such
product. While the Company believes that its hospital marketing experience will
assist in its efforts to market Brevital, there can be no assurance that
Brevital will be accepted by the market at the rate and in the levels achieved
to date or sufficient to maintain growth.

DEPENDENCE ON ACQUISITION STRATEGY

The Company has achieved significant increases in sales and net income
since inception through a series of strategic acquisitions and related internal
growth initiatives to develop marketing opportunities with respect to the
acquired product lines. The Company's strategy for growth is dependent upon

6
<PAGE> 7

its continued ability to acquire pharmaceuticals targeted at niche markets which
can be promoted through the Company's marketing and distribution channels.
Because the Company does not engage in proprietary research and development of
new products, it must rely upon the willingness of other manufacturers to sell
or license product lines. Other companies, including those with substantially
greater financial, marketing and sales resources, are competing with the Company
to acquire such products. There can be no assurance that the Company will be
able to acquire rights to additional products on acceptable terms, if at all.
The failure of the Company to acquire additional products or to promote or
market commercially successful products would have a material adverse effect on
the Company's future business, financial condition and results of operations.
Further, the marketing strategy, distribution channels and levels and bases of
competition with respect to acquired products, including the Company's proposed
acquisition of a prescription pharmaceutical product, may be different than
those of the Company's current products and there can be no assurance that the
Company will be able to compete favorably in those product categories. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

UNCERTAINTY OF FUTURE FINANCIAL RESULTS; FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS

The Company's results of operations may vary from quarter to quarter due to
a variety of factors including expenditures incurred to acquire or license and
promote additional pharmaceuticals, changing customer base, the availability and
cost of raw materials, interruptions in supply by third-party manufacturers, the
introduction of new products by the Company or its competitors, the mix of
products sold by the Company, changes in sales and marketing expenditures,
competitive pricing pressures and general economic and industry conditions which
affect customer demand. These factors could also affect annual results of
operations. Because the Company's operating expenses are based on anticipated
sales levels and a high percentage of the Company's expenses are relatively
fixed in the short-term, variations in the timing of recognition of revenue
could cause significant fluctuations from quarter to quarter and may result in
unanticipated quarterly earnings shortfalls or losses. There can be no assurance
that the Company will be successful in maintaining or improving its
profitability or avoiding losses in any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

UNCERTAINTY OF ACCESS TO CAPITAL

The Company may need to raise additional funds to acquire or license
additional products, to expand its sales force, to support the marketing and
sales of additional products, and possibly to expand its facilities to
accommodate an expanded sales force or to expand manufacturing capabilities and
capacity. The Company may seek additional funding through public and private
financings, including equity financings. Adequate funds for these purposes,
whether through the financial markets or from other sources, may not be
available when needed or on terms acceptable to the Company. Insufficient funds
may cause the Company to delay, scale back, or abandon some or all of its
product acquisition and licensing programs or marketing and manufacturing
opportunities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity."

RELIANCE ON THIRD-PARTY MANUFACTURERS AND SOLE SOURCE SUPPLIERS

7
<PAGE> 8

that upon expiration of the term of any third-party manufacturing agreement it
may not be able to renew or extend the agreement with the third-party
manufacturer, to obtain an alternative manufacturing source from other third
parties or develop internal manufacturing capabilities on commercially viable
terms, if at all. In such circumstances the Company may be unable to continue to
market its products as planned and could be required to abandon or divest itself
of a product line on terms which would materially adversely affect the Company's
business, financial condition and results of operations.

The Company currently relies on Eli Lilly & Company ("Lilly") for the
manufacture of Brevital. The Company has entered into a 10-year manufacturing
agreement with Lilly, which may be terminated by Lilly at any time after the
first five years by giving at least five years notice to the Company prior to
ceasing the manufacture of Brevital. In the event of such termination, Lilly
must use reasonable efforts to assist the Company in obtaining all the necessary
licenses and approvals to enable the Company or an alternative manufacturer to
manufacture Brevital. There can be no assurance that Lilly will continue to meet
FDA or product specification standards for Brevital or that the Company's
Brevital product demand can be met in a consistent and timely manner. Lilly is
the sole manufacturer of Brevital and any alternative manufacturer would require
regulatory change-in-site qualification to manufacture the product. In the event
of any interruption in the supply of Brevital from Lilly due to regulatory or
other causes, there can be no assurance that the Company could make alternative
manufacturing arrangements on a timely basis, if at all. Such an interruption
would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company relies on certain suppliers of key raw materials to provide an
adequate supply of such materials for production of finished products. Certain
materials are purchased from single sources. In particular, the manufacture of
Brevital is dependent upon Lilly's ability to procure certain raw materials used
in the manufacture of Brevital. Although the Company has no reason to believe
that Lilly will be unable to procure adequate supplies of such raw materials on
a timely basis, disruptions in supplies of Brevital, including delays due to
Lilly's inability to procure raw materials, would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Manufacturing" and "--Principal Customers and
Suppliers."

MANAGING CHANGING BUSINESS

Due to the Company's business strategy to acquire businesses and products,
the Company anticipates that the integration of newly-acquired businesses or
products will require significant management attention. The Company's ability to
manage change will require it to continue to implement and improve its
operational, financial and management information systems and to motivate and
effectively manage an increasing number of employees. If the Company's
management is unable to manage such change effectively, it would materially
adversely affect the Company's business, financial condition and results of
operation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT

The profitability of the Company will depend in part on the availability of
adequate reimbursement for the Company's products from third-party payors, such
as government entities, private health insurers and managed care organizations.
Third-party payors are increasingly challenging the pricing of medical services
and products. There can be no assurance that reimbursement will be available for
the Company's products or that such third-party reimbursement will be adequate.
If adequate reimbursement levels are not provided by government entities and
other third-party payors for the Company's products, the Company's business,
financial condition and results of operations would be materially adversely
affected. Hospital pharmacies, which are the primary customers for many of the
Company's pharmaceuticals, are subject to reimbursement pressures and are
increasingly dependent on joint purchasing organizations to exercise control
over pricing and obtain volume discounts. There can be no assurance that the
Company's products will continue to be included in the purchasing

8
<PAGE> 9

arrangements of hospital buying organizations or that downward pricing pressure
on the industry generally will not have a material adverse effect upon the
Company's business, financial condition and results of operations. Further, a
number of legislative and regulatory proposals aimed at changing the nation's
health care system have been proposed in recent years. While the Company cannot
predict whether any such proposals will be adopted, or the effect that any such
proposal may have on its business, such proposals, if enacted, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE

The manufacture and sale of pharmaceuticals is highly competitive. Many of
the Company's competitors are large well-known pharmaceutical, chemical and
health care companies which have considerably greater financial, sales,
marketing and technical resources than those of the Company. Additionally, many
of the Company's present and potential competitors have research and development
capabilities that may allow such competitors to develop new or improved products
that may compete with the Company's product lines. The pharmaceutical industry
is characterized by rapid product development and technological change. The
Company's pharmaceuticals could be rendered obsolete or uneconomical by the
development of new pharmaceuticals to treat the conditions addressed by the
Company's products, or as the result of technological advances affecting the
cost of production, or as a result of marketing or pricing action by one or more
of the Company's competitors. The Company's business, financial condition and
results of operations could be materially adversely affected by any one or more
of such developments.

The Company's thrombin product lines compete with those produced for and
marketed by Johnson & Johnson and with thrombin products distributed by
Parke-Davis, a division of the Warner-Lambert Company. The Company's thrombin
products also compete with other hemostatic agents, including Gelfoam,
manufactured by Pharmacia & Upjohn, Inc., and Surgicel, manufactured by Johnson
& Johnson. In addition, Brevital faces competition in the intravenous ("I.V.")
anesthetic market from other I.V. anesthetic products, including Diprivan, which
is produced by Stuart Pharmaceuticals, a business unit of Zeneca, Inc., and
Versed, produced and marketed by Roche Labs, a division of Hoffmann-LaRoche,
Inc. Each of these competitors has substantially greater marketing, sales and
financial resources than the Company. There can be no assurance that the Company
will be able to compete effectively, that additional competitors will not enter
the market, or that competition will not have a material adverse effect on the
Company's business, financial condition and results of operations.

The market for nutritional supplements is characterized by extensive
competition, frequent new product introductions, short product life cycles and
changing customer preferences. The Company is subject to competition from the
retail market, as well as the mass-market, direct-mail market, for nutritional
supplements and there can be no assurance that the Company's targeted direct
market approach will remain a viable alternative within the industry or that
other competitors may not enter the targeted direct-mail market and offer
products similar to those offered by the Company. Many of the Company's existing
and potential competitors in the nutritional supplements market have greater
financial, marketing and research capabilities than the Company. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competition will not have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business--Competition."

GOVERNMENT REGULATION

The manufacturing, processing, formulation, packaging, labeling, storage,
promotion, distribution and advertising of the Company's products are subject to
extensive regulation by one or more federal agencies including the FDA, the Drug
Enforcement Administration ("DEA"), the Environmental Protection Agency ("EPA"),
the Federal Trade Commission ("FTC"), the Occupational Safety and Health
Administration ("OSHA"), the Department of Agriculture ("USDA"), the Consumer
Product

9
<PAGE> 10

Safety Commission ("CPC"), the United States Customs Service, and the United
States Postal Service. These activities are also regulated by various agencies
of the states and localities in which the Company's products are manufactured or
sold.

All pharmaceutical manufacturers, including the Company, are subject to
regulation by the FDA. New drugs must be approved by the FDA before they may be
marketed, except for those prescription drugs about which the FDA has knowledge
but for which the FDA is not requiring applications either because of
'grandfather status' under 1938 legislation, 'grandfather status' under 1962
legislation, or for other reasons. The FDA has the authority to revoke existing
approvals, or to review the status of currently exempt pharmaceuticals and may
require application and approval of prescription drugs if new information
reveals that they are not safe or effective and also regulates the advertising
of prescription drugs. The Company's marketing of over-the-counter ("OTC") drugs
is affected by the establishment of FDA monographs, a regulatory system arising
under 1962 legislation. FDA monographs effectively exempt from FDA approval OTC
drugs which are produced and labeled in accordance with the standards set forth
in FDA regulations. The rulemaking process to establish or revise an FDA
monograph allows a 12 month grace period to make appropriate formulation or
label changes following publication of the final monograph. The FTC regulates
advertising of OTC drug products. Drug products must be manufactured, packaged,
and labeled in accordance with their approvals and in conformity with current
good manufacturing practices ("CGMP"). The Company is subject to periodic
inspection by the FDA to assure such compliance. Drugs must be distributed,
sampled and promoted in accordance with FDA requirements. The FDA has extensive
enforcement powers over the activities of pharmaceutical manufacturers,
including authority to commence actions to seize and prohibit the sale of
unapproved or non-complying products, to halt manufacturing operations that are
not in compliance with CGMP, and to impose civil penalties and seek criminal
penalties. The restriction or prohibition on sales of products marketed by the
Company could materially adversely affect the Company's business, financial
condition, and results of operation.

The Company manufactures and distributes biological drugs, including
thrombin, which are also regulated by the FDA. The Company's Thrombin-JMI line
of products has been approved by the FDA, and the Company's GenTrac facility is
licensed by the FDA to produce Thrombin-JMI and Thrombogen, a line of
proprietary thrombin products manufactured for Johnson & Johnson. The Company
has a pending application for a new pre-mixed liquid thrombin formulation
product line. Although the Company believes that this application is in the
final approval phase, additional clinical testing of the product may be required
and there can be no assurance as to when or if favorable FDA action will be
forthcoming. While the Company intends to pursue completion of the application
process, development of the product will depend in part upon the Company's
assessment of market demand for the product and upon satisfactory resolution of
claims by Johnson & Johnson to certain rights in the product. See
"Business--Certain Legal Matters."

The Company also manufactures and sells drugs which are "controlled
substances" as defined in the Controlled Substances Act, which establishes
certain security and recordkeeping requirements administered by the DEA. The
Company has experienced regulatory challenges with respect to compliance with
the foregoing regulations which have been resolved, but no assurance can be
given that restrictions or fines which could have a material adverse effect upon
the Company's business, financial condition and results of operations will not
be imposed upon the Company.

Although the manufacturing and production of nutritional supplements has
historically been subject to less intensive regulation than pharmaceutical
products, government oversight in this area is currently increasing. Under the
Dietary Supplement Health & Education Act of 1994, the FDA may exercise
increased authority over the labeling and sales of vitamin and mineral
supplements. In addition, the United States Postal Service and the FTC regulate
advertising claims with respect to the Company's products sold by solicitation
through the mail.

Recent proposed regulations issued by the FDA require the relabeling of
dietary supplements with regard to nutrition labeling ingredient information and
nutrient content claims. The proposed

10
<PAGE> 11

rules are not due to become effective until January 1997 and may be modified
prior to final adoption. The FDA and other federal authorities are also
reviewing alternative approaches to assure the safety of vitamins, minerals,
herbal formulations and other products sold as nutritional supplements. Although
no current regulatory approval is required prior to or after the introduction of
a new nutritional supplement, the FDA must be notified regarding the use of new
dietary ingredients and future regulation could result in a recall or
discontinuance of certain products.

The Company cannot predict the extent to which it may be affected in the
future by legislative and other regulatory developments concerning its products.
There can be no assurance that future health care legislation or other changes
in health care legislation will not have a material adverse effect on the
Company's business, financial condition or results of operations.

RISK OF PRICE ADJUSTMENTS AND PRODUCT RETURNS

Under contracts with hospitals and hospital buying groups applicable to the
sale and distribution of the Company's pharmaceuticals, final sales prices to
distributors may be subject to retroactive adjustment based on volume or other
contractual discounts provided by the Company. While the Company believes that
it has adequate reserves to cover such adjustments, there can be no assurance
that the Company will not experience price adjustments in the future that
significantly exceed such reserves.

The Company permits customers to return unused pharmaceuticals under
certain conditions. In addition, the Company's nutritional supplements are sold
with an unconditional money-back guarantee permitting a full refund for unused
product within 30 days of purchase. Although product returns to date have been
less than 1% of gross sales, there can be no assurance that actual levels of
returns will not significantly exceed the amounts anticipated by the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE

The Company faces an inherent risk of exposure to product liability claims
in the event that the use of its product is alleged to have resulted in adverse
effects. Such risk exists even with respect to those products that are
manufactured in licensed and regulated facilities or otherwise possess
regulatory approval for commercial sale. While the Company has taken, and
continues to take, what it believes are appropriate precautions, there can be no
assurance that it will avoid significant product liability exposure. The Company
currently has product liability insurance in the amount of $10.0 million per
claim and $10.0 million in the aggregate on a claims-made basis; however, there
can be no assurance that such insurance will be sufficient to cover potential
claims. Further, there can be no assurance that adequate insurance coverage will
be available in the future on commercially reasonable terms, if at all, or that
a product liability claim would not materially adversely affect the Company's
business, financial condition and results of operations. See "Business--Product
Liability Insurance."

RISK OF PRODUCT RECALL

Product recalls may be issued at the discretion of the Company, the FDA,
the FTC or other government agencies having regulatory authority for product
sales and may occur due to disputed labeling claims, manufacturing issues,
quality defects or other reasons. No assurance can be given that product recalls
will not occur in the future. Any product recall could materially adversely
affect the Company's business, financial condition and results of operations.

DEPENDENCE UPON CERTAIN KEY MANAGEMENT

The success of the Company to date has been largely dependent upon the
personal efforts and abilities of Dennis M. Jones, the Company's President and
Chief Executive Officer. Should Mr. Jones cease to be affiliated with the
Company, the Company's strategic direction and performance would be materially
adversely affected. The Company is also dependent upon a number of other key

11
<PAGE> 12

management personnel. The loss of the services of one or more key employees, or
the inability of the Company to attract and retain skilled management and
marketing and sales personnel in the future, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management."

ENVIRONMENTAL REGULATION

The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation
and disposal of toxic, infectious or other hazardous substances used to
manufacture the Company's products. The failure to comply with current or future
regulations could result in the imposition of substantial fines against the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with any such laws and regulations
in the future, or that such laws or regulations will not have a material adverse
effect on the Company's business, financial condition or results of operations.
Any failure by the Company to control the use, disposal, removal or storage of,
or to adequately restrict the discharge of, or assist in the cleanup of,
hazardous chemicals or hazardous, infectious or toxic substances could subject
the Company to significant liabilities, including joint and several liability
under certain statutes. The imposition of such liabilities would have a material
adverse effect on the Company's business, financial condition and results of
operations.

VOLATILITY OF COMMON STOCK PRICE

The market price for the stocks of many publicly traded pharmaceutical
companies and manufacturers and marketers of nutritional supplements, including
the Company, is subject to periods of high volatility. A variety of events, both
concerning and unrelated to the Company and the markets in which it
participates, may have significant negative impact on the market price of the
Common Stock, including regulatory developments in the health care field
generally, the performance of other pharmaceutical or nutritional supplement
companies as well as matters affecting the Company's products, acquisitions and
financial performance. Although the Common Stock trades on the Nasdaq National
Market, trading volume, size of institutional holdings and the number of market
makers has fluctuated and at times has been quite low, and both the price and
volume of trading has been sensitive to the number of analysts reporting on the
Company and such analysts' comments concerning the Company and the industries in
which it participates. The realization of any of the risks described in these
"Risk Factors" could have a dramatic and adverse impact on the price of the
Company's Common Stock. See "Price Range of Common Stock."

MARKET RISK OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock.
Certain directors and officers of the Company, holding in the aggregate as of
February 15, 1996, 4,226,974 shares (25.8% of the shares to be outstanding upon
completion of the offering) have agreed with the Underwriters not to sell or
dispose of any shares of Common Stock for a period of 90 days following
commencement of this offering without the consent of Robertson, Stephens &
Company LLC. Sales by such officers and directors are generally subject to the
provisions of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act") which, as to such persons, requires notice of sale activity
and limits the amount sold on behalf of any such person (including persons
acting in concert with one another) in any 90-day period to the greater of 1% of
the outstanding stock or the average weekly trading volume preceding such
notice. Such persons are also subject to the short-swing trading provisions of
the Exchange Act. See "Underwriting."

12
<PAGE> 13

DILUTION

The market price of the Common Stock offered hereby significantly exceeds
the current tangible book value per share of the Common Stock. The historical
book value of the Company's assets includes a significant value attributable to
intangible assets, substantially all of which is attributable to acquisitions of
product lines and related assets. Certain of these intangible assets are subject
to amortization and will be charged against earnings in future years. As a
result of these factors, purchasers of shares of Common Stock in this offering
will experience immediate and substantial dilution between the offering price
and the resulting net tangible book value per share. In the event that proceeds
from the offering are utilized in the acquisition of one or more additional
product lines it is likely that such proceeds will be used to acquire trademarks
and other intangible assets which will result in increased dilution to such
purchasers. See "Dilution."

ANTI-TAKEOVER EFFECT OF CHARTER PROVISIONS AND DELAWARE LAW

The Company's Certificate of Incorporation authorizes the Board of
Directors to designate and issue, without stockholder approval, Preferred Stock
with voting, conversion and other rights and preferences that could
differentially and adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of Preferred Stock or of rights to
purchase Preferred Stock could be used to discourage an unsolicited acquisition
proposal. In addition, certain provisions of Delaware law applicable to the
Company could also delay or make more difficult a merger, tender offer or proxy
contest involving the Company, including Section 203 of the Delaware Business
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
unless certain conditions are met. The possible issuance of Preferred Stock and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of the Company including, without limitation, discouraging a proxy
contest, making more difficult the acquisition of a substantial block of the
Company's Common Stock or limiting the price that investors might in the future
be willing to pay for shares of the Common Stock.

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby will be approximately $55,150,000
($63,469,000 assuming the Underwriters' over-allotment option is exercised in
full), at an assumed public offering price of $29.50 per share, after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by the Company.

The Company intends to use approximately $14.8 million of such proceeds to
repay outstanding indebtedness incurred primarily in connection with the
Company's acquisition of the exclusive United States license for Brevital from
Lilly. Such indebtedness consists of Lilly financing of $7.0 million bearing
interest at the rate of 7.0% per annum and payable in installments of $4.0
million in August 1996 and $3.0 million in August 1997, and $7.8 million of bank
debt bearing interest at 0.5% below the prime rate and secured by all of the
assets of the Company. The Company intends to use the balance of the net
proceeds of this offering for general corporate purposes, including the possible
acquisition of one or more additional product lines or businesses. Pending such
uses, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.

The Company has completed a total of 13 product or business acquisitions
since inception and, in the normal course of business, evaluates potential
acquisitions of businesses or products that would complement or expand the
Company's business. The Company is negotiating the acquisition of a prescription
pharmaceutical product with annual sales in 1995 of approximately $6.7 million.
The purchase price for the product is expected to be approximately $26.0
million. In addition, it is anticipated that the Company will be obligated to
make royalty payments on future product sales and will enter into a long-term
manufacturing and supply agreement with the seller. Such acquisition, if
completed, would utilize a significant portion of the unallocated net proceeds
of the offering of the shares of Common Stock made hereby, although the Company
believes that it has available alternative sources of financing in the event
such acquisition should occur in the absence of this offering. Although the
Company intends diligently to pursue this acquisition, there can be no assurance
as to whether or when a definitive agreement relating to the transaction will be
reached or that conditions to consummation of the transaction will be satisfied.
Other than the aforementioned acquisition, as of the date of this Prospectus,
the Company has no present commitments or agreements with respect to any such
transaction. There can be no assurance that any future acquisition will be
completed or, if completed, that the Company will realize the same level of
historical sales achieved by a seller or that such acquisition will prove
successful for the Company.

DIVIDEND POLICY

JMI initiated a quarterly cash dividend policy for its Common Stock in
December 1988 and has declared and paid consecutive quarterly dividends since
that date. During 1994 and 1995 cash dividends of $0.06 2/3 and $0.07 1/3 per
share, respectively, were declared. On February 7, 1996, in connection with the
three-for-two split of the outstanding shares of Common Stock, the Company
declared a dividend of $0.025 per share payable on April 1, 1996. It is the
intention of the Company's Board of Directors to continue to pay quarterly cash
dividends; however, the declaration and payment of future dividends and their
amounts will depend upon the earnings, financial condition and capital needs of
the Company and such other factors as are deemed relevant by the Company's Board
of Directors.

14
<PAGE> 15

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "JMED." The following table sets forth the high and low sales prices
for the Common Stock reported by Nasdaq for the periods indicated, as adjusted
to the nearest 1/16 to reflect the three-for-two stock split in the form of a
50% stock dividend to be paid on March 1, 1996 to holders of record as of
February 23, 1996:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C>
1994
First Quarter............................................... $10 5/16 $7 3/4
Second Quarter.............................................. 8 1/2 6 11/16
Third Quarter............................................... 7 3/16 4 5/16
Fourth Quarter.............................................. 6 1/16 4 1/4
1995
First Quarter............................................... 6 1/16 4 3/16
Second Quarter.............................................. 8 5 7/16
Third Quarter............................................... 12 1/16 7 7/16
Fourth Quarter.............................................. 16 1/2 10 11/16
1996
First Quarter (through February 23)......................... 31 1/4 15
</TABLE>

On February 23, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was approximately $29.50 per share. As of such date,
there were approximately 1,000 holders of record and the Company believes
approximately 5,000 non-record beneficial owners of the Common Stock.

15
<PAGE> 16

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1995, and as adjusted to reflect the receipt of the estimated net
proceeds from the sale of the 2,000,000 shares of Common Stock offered hereby at
an estimated public offering price of $29.50 per share and the application of
the estimated net proceeds therefrom:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt (including current portion)(1)........... $14,758 $ 0

Stockholders' equity

Preferred Stock, $0.01 par value; 1,000,000 shares
authorized; 1,056 shares outstanding(2)............ 0 0

Common Stock, $0.04 par value; 30,000,000 shares
authorized; 14,178,129 shares outstanding
(16,178,129 shares as adjusted)(3)................. 567 647

Contributed capital(4)................................ 19,545 74,615

Retained earnings..................................... 29,778 29,778
------- -------

Total stockholders' equity.................... 49,890 105,040
------- -------

Total capitalization..................... $64,648 $105,040
======= =======
</TABLE>

- ------------
(1) Consists of (i) acquisition debt due Lilly aggregating $7.0 million, bearing
interest at 7.0% and due in installments of $4.0 million in August 1996 and
$3.0 million in August 1997, and (ii) a bank loan of $7.8 million bearing
interest at 0.5% below prime and secured by all assets of the Company.

(2) The Preferred Stock is issuable in classes with preferences as designated by
the Board of Directors of the Company. The outstanding Preferred Stock is
convertible into shares of the Common Stock of the Company, at the option of
the holder or the Company, at a ratio of 2.625 shares of Common Stock per
share of Preferred Stock, and bears a quarterly dividend at the annual rate
of $0.16 per share (the current annual dividend rate on the Common Stock
into which the Preferred Stock is convertible is $0.2625 per share).

(3) Does not include options outstanding as of December 31, 1995, to purchase an
aggregate of 583,350 shares of Common Stock at a weighted average exercise
price of $4.14 per share. As a result of option exercises and grants
subsequent to December 31, 1995, there were outstanding as of February 15,
1996, options to purchase an aggregate of 973,350 shares of Common Stock at
a weighted average exercise price of $10.82 per share.

(4) Includes effects of unearned compensation and related amortization.

16
<PAGE> 17

DILUTION

The net tangible book value of the Company as of December 31, 1995 was
approximately $17.0 million, or $1.20 per share of Common Stock. After giving
effect to the sale by the Company of the 2,000,000 shares of Common Stock
offered hereby, at an assumed public offering price of $29.50 per share and the
receipt of the net proceeds therefrom, and assuming that all shares of Preferred
Stock outstanding as of December 31, 1995 had been converted into Common Stock
as of such date, the pro forma net tangible book value of the Company as of
December 31, 1995 would have been approximately $72.1 million or $4.46 per
share. This represents an immediate increase in net tangible book value of $3.26
per share to existing stockholders and an immediate dilution in net tangible
book value per share of $25.04 per share to the new investors purchasing shares
at the assumed public offering price. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price(1)............................... $29.50
------
Net tangible book value before offering(2)................... $1.20
Increase attributable to new investors....................... 3.26
------
Pro forma net tangible book value after offering............... $ 4.46
-------
Dilution to new investors...................................... $25.04
=======
</TABLE>

- ------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.

(2) Net tangible book value per share is equal to total tangible assets of the
Company less total liabilities divided by the number of shares of Common
Stock outstanding.

The historical book value of the Company's assets includes a significant
value attributable to intangible assets, substantially all of which is
attributable to acquisitions of product lines and related assets. At December
31, 1995, these intangible assets included (i) customer lists of $6.1 million,
(ii) distribution systems, trademarks and licenses of $24.3 million, (iii)
restrictive covenants and other intangibles of $3.1 million, and (iv) goodwill
of $4.3 million. These intangible assets are subject to amortization over
periods of 5 to 40 years depending on the nature of the assets. In the event
that proceeds from the offering are utilized, as expected, in the acquisition of
one or more additional product lines, it is likely that such proceeds will be
used to acquire trademarks or other intangible assets which will result in
increased dilution to the purchasers of shares of Common Stock in this offering.
See "Intangible Assets" in Note 2 of Notes to Consolidated Financial Statements.

17
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The statement of operations data set forth below for the years ended
December 31, 1993, 1994 and 1995 and the balance sheet data at December 31, 1994
and 1995, are derived from the consolidated financial statements of the Company
that have been audited by Ernst & Young LLP included elsewhere in this
Prospectus. The Statement of Operations data for the years ended December 31,
1991 and 1992 and the balance sheet data at December 31, 1991, 1992 and 1993,
are derived from other audited consolidated financial statements of the Company
not appearing in this Prospectus which have also been audited by Ernst & Young
LLP. The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes thereto
included elsewhere or incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................................... $20,513 $24,057 $43,215 $47,549 $56,397
Cost of sales.................................. 10,366 12,353 21,909 24,686 27,166
------- ------- ------- ------- -------
Gross profit................................... 10,147 11,704 21,306 22,863 29,231
Selling, general and administrative expenses... 5,453 6,368 11,314 13,498 13,905
------- ------- ------- ------- -------
Operating income............................... 4,694 5,337 9,992 9,365 15,326
Other income (expense)......................... 451 695 (44) (327) (401)
------- ------- ------- ------- -------
Income before taxes............................ 5,145 6,032 9,948 9,038 14,925
Provision for taxes............................ 1,851 2,300 3,744 3,299 5,597
------- ------- ------- ------- -------
Net income(1).................................. $ 3,294 $ 3,732 $ 6,204 $ 5,739 $ 9,328
======= ======= ======= ======= =======
Earnings per share(1).......................... $ 0.24 $ 0.26 $ 0.44 $ 0.40 $ 0.64
======= ======= ======= ======= =======
Weighted average shares outstanding............ 13,876 14,169 14,257 14,391 14,589
Cash dividends declared per share.............. $ 0.04 $ 0.05 $ 0.06 $0.06 2/3 $ 0.07 1/3
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 9,031 $10,528 $ 949 $ 7,032 $ 5,411
Working capital................................ 14,748 15,990 11,995 15,015 13,449
Total assets................................... 33,393 35,185 51,824 54,927 74,697
Long-term debt (less current portion).......... 2,738 500 5,400 3,800 9,125
Total stockholders' equity..................... 26,787 30,121 36,236 41,490 49,890
</TABLE>

- ------------
(1) Net income and earnings per share in 1993 do not reflect the cumulative
effect of a change in accounting principle of $207,100.

18
<PAGE> 19

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

OVERVIEW

The Company was founded in 1981 to market and distribute specialty
pharmaceuticals and nutritional supplements. To date, the Company has completed
13 acquisitions of products and businesses which complement or expand the
Company's business, while adding selected manufacturing capacity to support
certain product lines. The Company has achieved significant increases in sales
and net income through such acquisition activity and through related internal
growth initiatives to develop marketing opportunities with respect to the
acquired product lines. Sales and net income have increased from $19.7 million
and $2.8 million in 1990, respectively, to $56.4 million and $9.3 million in
1995, respectively, representing five-year compounded annual growth rates of
approximately 23.4% in sales and 27.0% in net income.

Sales are reported net of returns during the period in which product is
shipped. These sales are subsequently adjusted for reserves incurred due to
volume or other contractual discounts on certain pharmaceuticals under contracts
with hospitals and hospital buying groups. As of December 31, 1995, the Company
maintained a reserve of $1.5 million for such anticipated discounts. The reserve
was increased from $1.1 million as of year-end 1994 due to higher sales levels
of the products involved. Product returns, both of unused pharmaceuticals and of
nutritional supplements sold to consumers subject to a limited money-back refund
policy, are less than 1% of gross annual sales. Sales are reflected prior to
royalties due on sales of certain pharmaceuticals arising from product line
acquisitions. Such royalties are recorded as a selling expense. Royalty
arrangements typically extend for a fixed period from the date of acquisition
and do not require minimum payments to maintain ownership or any rights to
products.

During the year ending December 31, 1995, sales were $56.4 million
comprised of $25.9 million of pharmaceutical sales and $30.5 million of
nutritional supplement sales. The relative contributions of pharmaceuticals and
nutritional supplements to the Company's sales can be influenced by acquisition
activity in each product category as well as by marketing activity and customer
demand. In 1993 the Company increased its presence in the marketing of
nutritional supplements as a result of its acquisition of the operations of
Bronson Pharmaceuticals ("Bronson"). In the fourth quarter of 1994 and the first
quarter of 1995, sales of certain of its thrombin-based hemostats were adversely
impacted by supply difficulties. In August 1995 the Company acquired domestic
rights to the Brevital pharmaceutical line for $14.0 million and a 10-year
royalty of 5% on net sales of Brevital. During the last four months of 1995,
sales of Brevital represented approximately 10.9% of total Company sales.

The Company intends to seek additional acquisitions of product lines of
niche-market pharmaceuticals to leverage its existing distribution channels and
marketing infrastructure and to market aggressively new formats or formulations
of existing products. The success of the Company's efforts is subject to a
number of risks and uncertainties including its dependence upon key
pharmaceuticals and integration of new product acquisitions, its reliance upon
third-party manufacturers to produce certain key products, its ability to
effectively manage a changing business, uncertainties related to pharmaceutical
pricing and reimbursement and on the uncertainty of competitive forces within
the pharmaceutical and nutritional supplement industries which affect both the
market for its products and the availability of suitable product lines for
acquisition. The future results of operations, both annually and from
quarter-to-quarter, are subject to a variety of factors applicable to the
Company and to the industries and markets in which it operates.

19
<PAGE> 20

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained elsewhere herein. The following table sets forth certain
data as a percentage of net sales for the periods indicated.

<TABLE>
<CAPTION>
PERCENTAGE OF SALES
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0%
Cost of sales..................................... 50.7 51.9 48.2
----- ----- -----
Gross profit...................................... 49.3 48.1 51.8
Selling, general & administrative expenses........ 26.2 28.4 24.7
----- ----- -----
Operating income.................................. 23.1 19.7 27.1
Other income (expenses)
Interest income................................. 0.4 0.2 0.3
Interest expense................................ (0.8) (1.1) (0.8)
Miscellaneous income (expenses)................. 0.3 0.2 (0.2)
----- ----- -----
Income before income tax(1)....................... 23.0 19.0 26.4
----- ----- -----
Net income........................................ 14.4% 12.1% 16.5%
===== ===== =====
</TABLE>

- ------------
(1) Before cumulative effect of change in accounting principle of $207,100 in
1993.

Years Ended December 31, 1995, 1994 and 1993

Sales

Sales for the year ended December 31, 1995 increased 18.6% to $56.4 million
from $47.5 million for the year ended December 31, 1994 and 10.0% to $47.5
million from $43.2 million for the year ended December 31, 1993. The Company's
sales increased in 1995 as the result of unit and dollar growth in both
pharmaceuticals and nutritional supplements and increased in 1994 as the result
of unit and dollar growth in nutritional supplements.

Sales of pharmaceuticals in 1995 grew 18.5% to $25.9 million from $21.9
million in 1994 due primarily to increases in sales of the Company's critical
care pharmaceutical products, including four months of Brevital sales. Sales of
nutritional supplements in 1995 grew 18.9% to $30.5 million from $25.6 million
in 1994 due to a 14.5% increase in Bronson Pharmaceutical product sales and a
102.2% increase in sales of contract manufactured products, offset in part by a
27.5% decline in sales of the MD Pharmaceutical products.

Sales of pharmaceuticals in 1994 grew 3.6% to $21.9 million from $21.1
million in 1993 due primarily to increases in sales of Therevac and Liqui-Char.
Sales of Thrombinar were essentially flat due to the inability of the Company's
supplier to meet fully the Company's requirements. Sales of nutritional
supplements in 1994 increased 16.2% to $25.6 million from $22.0 million in 1993
resulting from the inclusion of a full 12 months of sales of the Bronson
Pharmaceutical product line which was acquired in March 1993.

Gross Profit

Gross profit during 1995 increased 27.9% or $6.4 million to $29.2 million
from $22.9 million in 1994. As a percentage of sales, margins grew to 51.8% in
1995 from 48.1% in 1994 as a result of greater manufacturing efficiencies and
sales increases in higher margin products.

Gross profit during 1994 increased 7.3% or $1.6 million to $22.9 million
from $21.3 million in 1993. As a percentage of sales, margins declined to 48.1%
in 1994 from 49.3% in 1993 as a result of increases in labor and overhead
components in cost of goods.

20
<PAGE> 21

Selling, General and Administrative Expenses

Selling expenses increased 4.8% or $388,000 to $8.4 million in 1995 from
$8.0 million in 1994 primarily as a result of adding five hospital territory
managers in the fourth quarter of 1995 and due to higher direct marketing
expenses associated with larger and more frequent mailings of the Bronson
Pharmaceutical catalogue. As a percentage of sales, these expenses decreased to
15.0% in 1995 from 16.9% in 1994.

Selling expenses increased 25.0% or $1.6 million to $8.0 million in 1994
from $6.4 million in 1993 as a result of the inclusion of a full 12 months of
Bronson Pharmaceutical selling expenses and greater shipping and direct
marketing expenses associated with sales of Bronson Pharmaceutical products.
Additionally, the Company added one major market hospital representative during
1994. Selling expenses as a percentage of sales in 1994 increased to 16.9% from
14.9% in 1993.

General and administrative expenses in 1995 remained essentially unchanged
at approximately $4.0 million, but declined as a percentage of sales to 7.2% in
1995 from 8.4% in 1994.

General and administrative expenses in 1994 increased 18.3% or $619,000 to
$4.0 million from $3.4 million in 1993 primarily due to the inclusion of a full
12 months of Bronson Pharmaceutical expenses and to a lesser extent due to
increases in overhead. As a percentage of sales, these expenses increased to
8.4% in 1994 from 7.8% in 1993 for the same reasons.

Research and development expenses were eliminated in 1995 after declining
to $101,000 in 1994 from $377,000 in 1993 due to the reduction of ongoing
expenses by GenTrac associated with the development of pre-mixed liquid thrombin
formulations.

Amortization expenses associated with intangible assets and included in
selling, general and administrative expenses remained essentially unchanged in
1995 at approximately $1.4 million, as the impact of the Brevital product line
acquisition was substantially offset by declining amortization on other
products. As a percentage of sales these expenses decreased to 2.5% in 1995 from
2.9% in 1994.

Amortization expenses increased 20.8% or $234,000 to $1.4 million in 1994
from $1.1 million in 1993 as a result of the Bronson Pharmaceutical and Derma
System product acquisitions and the corresponding full 12 months of amortization
of the associated intangible assets acquired. As a percent of sales,
amortization expenses increased 2.9% in 1994 from 2.6% in 1993.

Operating Income

Operating income during 1995 increased 63.6% or $6.0 million to $15.3
million from $9.4 million in 1994 and increased as a percentage of sales to
27.1% from 19.7% in 1994, as the result of higher overall gross profits and
marginal increases in operating expenses.

Operating income during 1994 decreased 6.3% or $627,000 to $9.4 million
from $10.0 million in 1993 and decreased as a percentage of sales to 19.7% from
23.1% in 1993, as a result of an increase in cost of sales and in selling,
general and administrative expenses.

Other Income (Expense)

Other income during 1995 reflects a one-time loss of $126,000 associated
with the sale of certain real property which the Company was unable to use and
the reduction in the associated rental income.

Interest and dividends from investing activities decreased to $101,000 in
1994 from $189,000 in 1993 due to lower cash balances resulting from the uses of
cash in 1993 associated with the Company's acquisition program and the purchase
of a 150,000 square foot distribution and headquarters facility. Interest
expense increased to $516,000 in 1994 from $354,000 in 1993 due to borrowings
associated with the acquisitions and facility purchase.

Income Taxes

The provision for income taxes increased to 37.5% of pre-tax income in 1995
compared to 36.5% of pre-tax income in 1994, primarily as the result of a 1%
higher federal tax rate on annual profits exceeding $10 million.

21
<PAGE> 22

The provision for income taxes decreased to 36.5% of pre-tax income in 1994
compared to 37.6% of pre-tax income in 1993. The lower rate was due to lower
effective state income tax rates.

Net Income

Net income increased 62.5% or $3.6 million to $9.3 million in 1995 from
$5.7 million in 1994, and increased as a percentage of sales to 16.5% in 1995
from 12.1% in 1994.

Net income decreased 7.5% or $464,000 to $5.7 million in 1994 from $6.2
million in 1993, and decreased as a percentage of sales to 12.1% in 1994 from
14.4% in 1993 as a result of lower operating and interest income and higher
interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Since inception the Company has financed its operations primarily through
cash flow from operations, public and private sales of equity securities and
borrowings under revolving credit facilities. At December 31, 1995 and 1994,
respectively, the Company had cash and cash equivalents of $5.4 million and $7.0
million, respectively.

Total assets increased $19.8 million to $74.7 million at December 31, 1995
from $54.9 million at December 31, 1994 and total liabilities increased $11.4
million to $24.8 million at December 31, 1995 from $13.4 million at December 31,
1994. Inventories increased to $10.7 million at December 31, 1995 from $8.3
million at December 31, 1994 principally from higher thrombin product
inventories and the acquired Brevital inventories. Accounts receivable increased
to $7.1 million at December 31, 1995 from $4.2 million at December 31, 1994 due
to higher year end sales in 1995. For the same reason, in days outstanding,
accounts receivable increased to 46 days at December 31, 1995 from 33 days at
December 31, 1994. Net property, plant and equipment increased by $2.8 million
to $15.4 million at December 31, 1995, from $12.6 million at December 31, 1994,
primarily due to the expansion of the Company's GenTrac facility.

In August 1995, the Company borrowed $8.7 million to fund its cash
requirements in connection with its acquisition of the exclusive United States
license to sell Brevital and to refinance existing term loan indebtedness of
$1.7 million, with interest thereon at the rate of 0.5% below prime, payable in
equal monthly installments until paid in full in September 2000. Such
indebtedness is secured by substantially all of the Company's assets. The
Company may prepay such indebtedness without penalty. As of December 31, 1995,
the outstanding balance of this term loan was $7.8 million. In addition, the
Company is indebted to Lilly in the principal amount of $7.0 million bearing
interest at 7.0% and due in installments of $4.0 million in August 1996 and $3.0
million in August 1997. The Company plans to use approximately $14.8 million of
the net proceeds from this offering to repay the entire outstanding balance of
such indebtedness.

Under revolving credit and other borrowing lines available to the Company
at January 31, 1996, the Company had an unused line of credit aggregating
approximately $4.0 million. Such line of credit is secured by substantially all
of the Company's assets and contains certain restrictive provisions, including
maintaining a maximum tangible net worth ratio, maintaining a minimum current
ratio, obtaining prior approval of acquisition financings in excess of $3.0
million and limiting the amount of additional borrowings. The Company will be in
default under its revolving credit and borrowing lines if (i) Dennis Jones
ceases to be the Company's Chairman of the Board and Chief Executive Officer, or
(ii) Dennis Jones and Judith Jones, collectively, own less than 15% of the
outstanding shares of Common Stock of the Company, or (iii) a third party
acquires 50% or more of the shares of the Company's capital stock without the
lender's prior approval.

The Company has experienced only moderate raw material and labor price
increases in recent years. While the Company has passed some price increases
along to customers, the Company has primarily benefitted from rapid sales
growth, negating most inflationary pressures.

22
<PAGE> 23

The Company's manufacturing operations are not capital intensive and, as
such, the impact of inflation on the property, plant and equipment and
associated depreciation expense of the Company has been minimal.

The Company believes that the net proceeds from this offering together with
those generated from operations and borrowings available from its revolving
credit facility will be sufficient to finance its working capital requirements
for the foreseeable future. However, in the event the Company makes significant
future acquisitions, it may be required to raise funds through additional
borrowings or the issuance of debt or equity securities. Adequate funds for
these purposes, whether through the financial markets or from other sources, may
not be available when needed or on terms acceptable to the Company. Insufficient
funds may cause the Company to delay, scale back, or abandon some or all of its
product acquisition and licensing programs or marketing and manufacturing
opportunities.

RECENT ACCOUNTING PRONOUNCEMENTS

Adoption of FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the adoption
of FASB Statement No. 123, "Accounting for Stock Based Compensation," which are
effective for the Company in 1996, are not anticipated to have a material effect
on the Company's consolidated financial statements.

Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The cumulative effect of adopting Statement No. 109 as of January 1,
1993 was to increase net income by $207,100. Application of the new income tax
rules for 1993 did not have a significant effect on net income before cumulative
effect of the accounting change.

23
<PAGE> 24

BUSINESS

GENERAL

The Company is engaged in the manufacture, marketing and sale of
pharmaceuticals and nutritional supplements. Founded in 1981, the Company
markets a wide variety of pharmaceuticals and branded nutritional supplements
under its own trademarks and tradenames. All of the Company's product lines have
been acquired through a series of 13 acquisitions which complemented or expanded
its existing lines of business. The Company intends to leverage its existing
marketing and sales capabilities through additional strategic acquisitions of
complementary products and businesses, by expanding and increasing the
penetration of its existing customer base, and through the introduction of new
formats for pharmaceuticals and new formulations for nutritional supplements.
During 1995, sales of pharmaceuticals and nutritional supplements accounted for
approximately 46% and 54% of the Company's total sales, respectively.

INDUSTRY BACKGROUND

The United States Pharmaceutical Market

The annual domestic market for pharmaceuticals was estimated to be in
excess of $77 billion in 1995. While the market is dominated by large
multinational pharmaceutical companies which conduct substantial research and
development on new pharmaceuticals, it is estimated that, within the domestic
market, approximately 34% of sales are derived from individual pharmaceuticals
and product lines, each of which generate less than $50 million of revenues
annually. Industry consolidation and pricing pressures from cost containment
initiatives have raised the threshold level of sales necessary for an individual
product to justify active domestic marketing and promotion from a major
pharmaceutical company. In addition, major pharmaceutical companies have focused
their marketing efforts on new pharmaceuticals to recover development costs. As
a result, sales of established pharmaceuticals may decline or become focused on
a particular market niche. Further, pricing and profit pressures are leading the
major pharmaceutical companies to consider divestitures of small product lines
as a more effective means of deriving revenue from products which are not
strategically important. While most of these products are no longer subject to
patent protection, the cost of establishing manufacturing may prove excessive,
raw materials may be difficult to obtain or the market size may be too small to
warrant competition from generic drug suppliers.

The result of the foregoing factors influencing the major pharmaceutical
companies has been the emergence of marketing-oriented niche pharmaceutical
companies willing to acquire and market established product lines. Products
which are perceived as having potential for acquisition by these emerging
pharmaceutical companies are those which share several, but not necessarily all,
of the following characteristics: (i) products which no longer fit the strategic
focus of the divesting company; (ii) products with annual sales in the range of
$1 to $50 million; (iii) products which receive minimal promotion from the
divesting company but compete in promotion sensitive markets; (iv) products
which have slowly declining or stagnant sales in the hands of the divesting
company; (v) products which have sales levels that are less likely to become
targets of pricing pressure from managed care or third-party payors, or which
have a clear price advantage over alternative treatments; and (vi) products
which can leverage the existing sales force and marketing efforts of the
acquiring company.

The United States Market for Nutritional Supplements

Based on industry sources, the annual retail market for nutritional
supplements, including vitamins, minerals and herbal formulations, exceeded $4.5
billion in 1994. The market has historically expanded due to increasing consumer
awareness of the health benefits of nutritional supplements and due to the
increase in the elderly population. An important factor in the increased
awareness of benefits from nutritional supplements is the increased attention
and importance being given to nutritional supplements by health care and
nutritional professionals.

24
<PAGE> 25

BUSINESS STRATEGY

The Company's business strategy is to acquire specialty product lines or
operations that complement or expand the marketing or distribution of existing
product lines and to develop and apply marketing initiatives to such products.
The key elements of the Company's strategy include:

Acquire and Build Market Share in Specialty Pharmaceuticals. Since
inception, the Company has purchased domestic rights to certain specialty
pharmaceuticals addressing markets such as hemostasis and anesthesia. JMI
intends to continue to seek the rights to products that it believes can benefit
from a focused marketing effort.

Leverage Established Pharmaceutical Marketing and Sales Efforts. JMI
intends to maximize productivity of its sales force through replacement of
existing, lower-volume products with new products with larger market
opportunities. In addition, the Company intends to raise the awareness of
selected products through targeted sales efforts focused on the hospital
pharmacists and health care professionals in the United States.

Expand Marketing Initiatives for Nutritional Supplements to Health Care
Professionals. Since the Company acquired Bronson Pharmaceuticals in early 1993,
monthly orders have grown from 27,000 to over 30,000 as of January 1996, and the
average order has grown from $43 to $62 as of January 1996. JMI intends to
continue to expand its marketing efforts for nutritional supplements by focusing
on developing recommendations and referrals to consumers through health care
professionals and introducing new products to its existing customer base.

Improve Margins Through Focus on High-Margin Products and Cost Control. JMI
intends to increase gross and operating margins by using sales personnel
efficiently, minimizing corporate overhead and focusing on high-margin products.
The Company believes that by focusing on a limited number of products it can
increase sales by maximizing the productivity of its sales force and controlling
overhead costs.

PRINCIPAL PRODUCTS AND PRODUCT LINES

Pharmaceuticals

The Company markets and distributes a variety of branded pharmaceuticals,
which accounted for approximately 36% of the Company's total sales in 1995. The
Company's principal branded pharmaceuticals primarily serve the critical care
segment of the health care industry and are as follows:

Thrombin-JMI and Thrombinar. During invasive surgical procedures, surgeons
typically limit bleeding in order to control blood loss and maintain visibility
of the surgical site. Surgeons may apply pressure bandages, suture severed
vessels and/or use a topical hemostatic agent to maintain the surgical site. In
most cases, collagen, cellulose or thrombin-based hemostatic agents are used
because of their ability to rapidly begin the clotting process. The Company's
products, Thrombin-JMI and Thrombinar, are thrombin-based topical hemostatic
agents derived from bovine blood. The Company's thrombin products offer
advantages over collagen and cellulose products because of faster activity in
the surgical site. Additionally, because of their physical characteristics,
JMI's thrombin products do not need to be removed from the surgical site prior
to closure, whereas non-thrombin competing products need to be removed, often
leading to recurrence of bleeding. Thrombin-JMI was introduced in 1995 and
differs from Thrombinar in that Thrombin-JMI does not require refrigeration, and
is therefore more convenient in the operating room. The topical hemostat market
was estimated to be greater than $80 million in the United States in 1995. The
Company's branded thrombin products accounted for 13.8% of the United States
topical hemostat market and 50.4% of the United States topical bovine thrombin
market in 1995. Thrombin-JMI and Thrombinar accounted for 19.7% of total Company
sales in 1995. The Company's first thrombin product, Thrombinar, was acquired by
JMI from Armour in 1989. Thrombin-JMI is manufactured at the Company's
wholly-owned subsidiary GenTrac. Thrombinar was manufactured by Armour for JMI
until September 1995 when it was replaced by Thrombin-JMI.

25
<PAGE> 26

Brevital. The I.V. anesthetic market is split into segments based on type
and length of therapeutic, diagnostic or surgical procedures. Short-term general
anesthesia is required when performing minor surgical procedures such as dental
surgery, cardioversion and other brief ambulatory surgeries. Long-term general
anesthesia is required when more complex and invasive surgical procedures are
performed. In order to administer long-term general anesthesia, induction agents
are used to begin the anesthetic event and are subsequently followed by another
drug or gas to maintain the anesthesia. The Company's product, Brevital, is a
general I.V. anesthetic agent that addresses both the short-term and long-term
anesthesia markets. Brevital is used in short-term procedures because of its
rapid onset of action and minimal recovery time. Brevital's rapid onset of
action also makes it a useful induction agent for long-term general anesthesia
prior to the administration of another agent to maintain the anesthesia. The
I.V. anesthetic market in the United States is estimated to be $500 million.
Brevital accounted for 4.2% of JMI's sales in 1995. Brevital was introduced by
Lilly in 1961 and exclusively licensed in perpetuity to JMI on August 31, 1995
for sale in the United States.

Other Pharmaceuticals. The Company also manufactures and distributes other
critical care products and other branded pharmaceuticals under numerous
trademarks and tradenames, the most prominent of which are Liqui-Char, a toxin
antidote, Therevac, a mini-enema for rehabilitation therapy, Derma-Scrub, a
surgical scrub, and Thyroid Strong and Westhroid, natural thyroid supplements.
Combined, all other branded pharmaceutical products accounted for 12% of the
Company's total sales in 1995.

Nutritional Supplements

The Company markets and distributes a full line of branded nutritional
supplements, which accounted for approximately 42% of the Company's total sales
in 1995. The Company's branded nutritional supplements are marketed under the
Bronson Pharmaceutical and MD Pharmaceutical tradenames.

Bronson Pharmaceutical. The Bronson Pharmaceutical product line consists of
over 260 branded vitamin, mineral and herbal extract formulations. The products
include multi-vitamins, mineral formulations, individual vitamins, antioxidants,
herbal formulations and personal care products. The Bronson Pharmaceutical
product line accounted for approximately 36% of the Company's total sales in
1995.

MD Pharmaceutical. These products are sold exclusively through military
base retail outlets and consist of a broad line of branded nutritional
supplements which compete with national brands. The products include
multi-vitamins, mineral formulations, individual vitamins and antioxidants. The
MD Pharmaceutical product line accounted for approximately 6% of the Company's
total sales in 1995.

MARKETING AND SALES

The Company markets and promotes its products primarily through a direct
sales force, direct mail, telemarketing and trade publication advertising. The
Company also attends major medical conventions and symposia. The Company
maintains a sales and marketing staff of approximately 40 people, and employs an
additional 10 people devoted to customer service and marketing support. The
Company also utilizes independent sales representatives for marketing certain
products.

Pharmaceuticals

The Company has a 24-person marketing and sales staff for pharmaceuticals
and critical care products which includes 18 field sales personnel (including
three regional managers and 15 hospital territory managers), four marketing
support specialists, a hospital group contract coordinator and a product
manager, all reporting to the Company's Vice President-Sales. Sales activities
are focused on major hospital buying groups which, in the aggregate, manage and
contract for a majority of the purchasing of pharmaceuticals for private sector
hospitals through bid and contract agreements. Although the Company's marketing
efforts focus upon individual hospitals' Directors of Pharmacy as the ultimate
decision-maker, the Company presently has contracts for one or more product
lines with

26
<PAGE> 27

substantially all of the approximately 120 major hospital buying groups and
distributes pharmaceuticals nationally through approximately 320 wholesale
distributors.

Nutritional Supplements

The Company markets the Bronson Pharmaceutical product line directly to
consumers and health care and nutritional professionals through catalogs and
direct mailings to a database that, as of December 31, 1995, included
approximately 18,000 health care and nutritional professionals and 530,000 mail
order and retail customers, of whom approximately 135,000 purchased products
directly from the Company in 1995. The Company does not rent or utilize mailing
lists from other sources, preferring to focus upon generating customers through
professional recommendations and referrals from current customers. The Company
maintains a telemarketing sales force of 16 persons which processes
approximately 29,000 orders per month with an average order of approximately $60
during 1995. Prepaid orders are received through mail order, toll-free telephone
numbers or by facsimile, and are filled at the Company's distribution center in
St. Louis, Missouri, usually within 24 hours of receipt, and are shipped by
United Parcel Service or parcel post. In addition to direct mail sales, the
Bronson Pharmaceutical product line is marketed to approximately 5,000 retail
accounts. The MD Pharmaceutical product line is marketed exclusively through
military outlets by approximately 30 independent sales representatives.

MANUFACTURING

The Company manufactures pharmaceuticals at its facilities in Canton, Ohio,
Middleton, Wisconsin and St. Louis, Missouri, and manufactures and formulates
nutritional supplements at its facilities in Tempe, Arizona.

The Company has manufactured pharmaceuticals at its FDA-registered Canton,
Ohio, facility since March 1984. The Company processes raw materials purchased
from outside sources and produces products in tablet form. Content, shape and
color of such products are produced within the guidelines of FDA regulations
pertaining to over-the-counter drugs or prescription drugs that were marketed
prior to 1938.

In 1991, in connection with the Company's acquisition of GenTrac, the
Company assumed operations of the GenTrac facility located in Middleton,
Wisconsin which is licensed by CBER for the production of therapeutic and
diagnostic thrombin products. Biological products such as Thrombin-JMI must be
produced at a licensed biologic facility specifically licensed to manufacture
that product. The Company's GenTrac facility, which produces Thrombin-JMI, is
licensed for the production of thrombin U.S.P. products and also acts as a
contract manufacturer of Thrombogen, a line of proprietary thrombin products
manufactured for Johnson & Johnson under distribution and development
agreements.

Packaging, as well as warehousing and distribution, for certain
pharmaceuticals and for nutritional supplements, is primarily conducted at the
Company's distribution center and headquarters located in St. Louis, Missouri.
The Company also formulates and produces liquid products such as Liqui-Char and
the Derma-Scrub line at its St. Louis, Missouri facility.

The Company has manufactured nutritional supplements at its facilities in
Tempe, Arizona, since 1984. As in the case of pharmaceuticals, the Company
processes raw materials purchased from outside sources and formulates them into
final dosage form. Although, prior to the acquisition of Bronson by the Company
in March 1993, Bronson functioned solely as a marketer and distributor of its
product line, the Company now manufactures the majority of its Bronson products
at its Tempe, Arizona facilities.

The Company utilizes available excess capacity at its manufacturing
facilities to produce pharmaceuticals and nutritional supplements for other
branded and generic distributors, in bulk or packaged (private label) form. The
Company's marketing efforts with respect to contract manufac-

27
<PAGE> 28

tured products are conducted both internally and through independent
commissioned sales representatives.

With the exception of GenTrac's agreement with Johnson & Johnson, the
Company does not have long-term manufacturing contracts with its customers for
contract manufacturing but instead manufactures products pursuant to purchase
orders as they are received. Contract manufacturing is performed primarily for
generic and private label product distributors which are not involved in
manufacturing and whose products primarily consist of basic generic ethical
drugs, generic over-the-counter drugs and vitamins, and private formulations of
vitamins, prescription and over-the-counter drugs. Notwithstanding the absence
of long-term manufacturing agreements with its contract manufacturing customers,
JMI has long-standing relationships with the majority of its customers for such
products. There can be no assurance, however, that such relationships will
continue in the future.

In 1995, the Company manufactured approximately 80% of its total products
sold and approximately 60% of its branded products sold. However, the Company
anticipates that these historical percentages will change since all production
of thrombin products has been integrated at the GenTrac facility while Brevital
is produced under contract by Lilly.

The Company has historically relied on third-party manufacturers to produce
certain of its products. The Company typically does not enter into long-term
manufacturing contracts with such third-party manufacturers, however, even when
such contracts exist, there can be no assurance that the Company will be able to
obtain adequate supplies of such products in a timely fashion, or at all. For
example, the Company's thrombin products were manufactured for the Company under
a contract with Armour from whom the Thrombinar product line was acquired in
1989. During the fourth quarter of 1994 and first quarter of 1995, Armour was
unable to fully meet the Company's requirements for thrombin products, resulting
in the Company's inability to fill product orders from customers and the loss of
sales and income. The Company also faces the risk that upon expiration of the
term of any third-party manufacturing agreement it may not be able to renew or
extend the agreement with the third-party manufacturer, to obtain an alternative
manufacturing source from other third parties or develop internal manufacturing
capabilities on commercially viable terms, if at all. In such circumstances the
Company may be unable to continue to market its products as planned and could be
required to abandon or divest itself of a product line on terms which would
materially adversely affect the Company's business, financial condition and
results of operations.

Brevital, which accounted for 10.9% of the Company's sales volume during
the last four months of 1995, is manufactured for the Company by Lilly from whom
the product line was acquired as of August 31, 1995. Pursuant to such
acquisition, the Company obtained a perpetual, exclusive license to market and
distribute Brevital in the United States. The Company has entered into a 10-year
manufacturing agreement with Lilly, which may be terminated by Lilly at any time
after the first five years by giving at least five years notice to the Company
prior to ceasing the manufacture of Brevital. In the event of such termination,
Lilly must use reasonable efforts to assist the Company in obtaining all the
necessary licenses and approvals to enable the Company or an alternative
manufacturer to manufacture Brevital. There can be no assurance that Lilly will
continue to meet FDA or product specification standards for Brevital or that the
Company's Brevital product demand can be met in a consistent and timely manner.
Lilly is the sole manufacturer of Brevital and any alternative manufacturer
would require regulatory change-in-site qualification to manufacture the
product. In the event of any interruption in the supply of Brevital from Lilly
due to regulatory or other causes, there can be no assurance that the Company
could make alternative manufacturing arrangements on a timely basis, if at all.
Such an interruption would have a material adverse effect on the Company's
business, financial condition and results of operations.

PRINCIPAL CUSTOMERS AND SUPPLIERS

No one customer accounted for 10% or more of the Company's sales in 1995.
GenTrac's sales of thrombin products to Johnson & Johnson were $3.5 million or
6.1% of the Company's total sales in 1995.

28
<PAGE> 29

The Company has not experienced to date any significant shortages in
supplies of raw materials. The raw materials utilized by the Company in its
manufacturing operations are purchased from a variety of suppliers. The Company
endeavors to maintain multiple suppliers in order to minimize delays or cost
disparities in the event of supplier shortages. For the most part the Company's
ability to manufacture products is not dependent on any particular raw material
supplier except as to thyroid raw materials.

COMPETITION

The manufacture and sale of pharmaceuticals is highly competitive. Many of
the Company's competitors are large well-known pharmaceutical, chemical and
health care companies which have considerably greater financial, sales,
marketing and technical resources than those of the Company. Additionally, many
of the Company's present and potential competitors have research and development
capabilities that may allow such competitors to develop new or improved products
that may compete with the Company's product lines. The pharmaceutical industry
is characterized by rapid product development and technological change. The
Company's pharmaceuticals could be rendered obsolete or uneconomical by the
development of new pharmaceuticals to treat the conditions addressed by the
Company's products or as the result of technological advances affecting the cost
of production, or as a result of marketing or pricing action by one or more of
the Company's competitors. The Company's business, financial condition and
results of operations could be materially and adversely affected by any one or
more of such developments.

The Company's thrombin product lines compete with those produced for and
marketed by Johnson & Johnson and with thrombin products distributed by
Parke-Davis, a division of the Warner-Lambert Company. The Company's thrombin
products also compete with other hemostatic agents, including Gelfoam,
manufactured by Pharmacia & Upjohn, Inc., and Surgicel, manufactured by Johnson
& Johnson. In addition, Brevital faces competition in the I.V. anesthetic market
from other I.V. anesthetic products, including Diprivan, which is produced by
Stuart Pharmaceuticals, a business unit of Zeneca, Inc., and Versed, produced
and marketed by Roche Labs, a division of Hoffmann-LaRoche, Inc. Each of these
competitors has substantially greater marketing, sales and financial resources
than the Company. There can be no assurance that the Company will be able to
compete effectively, that additional competitors will not enter the market, or
that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.

The market for nutritional supplements is characterized by extensive
competition, frequent new product introductions, short product life cycles and
changing customer preferences. The Company is subject to competition from the
retail market, as well as the mass-market, direct-mail market, for nutritional
supplements and there can be no assurance that the Company's targeted
direct-market approach will remain a viable alternative within the industry or
that other competitors may not enter the targeted direct-mail market and offer
products similar to those offered by the Company. Many of the Company's existing
and potential competitors in the nutritional supplements market have greater
financial, marketing and research capabilities than the Company. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competition will not have a material adverse
effect on the Company's business, financial condition or results of operations.

29
<PAGE> 30

TRADEMARKS

The branded products sold by the Company are sold under a variety of
trademarks. While the Company believes that it has valid proprietary interests
in all currently used trademarks, only certain of the trademarks are registered
with the United States government. The Company's license to the Brevital
trademark is limited to the United States and its right to utilize the MD
Pharmaceutical brand name is restricted to the United States military and its
outlets.

GOVERNMENT REGULATION

The manufacturing, processing, formulation, packaging, labeling, storage,
promotion, distribution and advertising of the Company's products are subject to
extensive regulation by one or more federal agencies including the FDA, the DEA,
the EPA, the FTC, OSHA, the USDA, the CPC, the United States Customs Service,
and the United States Postal Service. These activities are also regulated by
various agencies of the states and localities in which the Company's products
are manufactured or sold.

Pharmaceuticals

All pharmaceutical manufacturers, including the Company, are subject to
regulation by the FDA. New drugs must be approved by the FDA before they may be
marketed, except for those prescription drugs about which the FDA has knowledge
but for which the FDA is not requiring applications either because of
'grandfather status' under 1938 legislation, 'grandfather status' under 1962
legislation, or for other reasons. The FDA has the authority to revoke existing
approvals, or to review the status of currently exempt pharmaceuticals and
require application and approval, of prescription drugs if new information
reveals that they are not safe or effective and also regulates the advertising
of prescription drugs. The Company's marketing of OTC drugs is affected by the
establishment of FDA monographs, a regulatory system arising under 1962
legislation. FDA monographs effectively exempt from FDA approval OTC drugs which
are produced and labeled in accordance with the standards set forth in FDA
regulations. The rulemaking process to establish or revise an FDA monograph
allows a 12 month grace period to make appropriate formulation or label changes
following publication of the final monograph. The FTC regulates advertising of
OTC drug products. Drug products must be manufactured, packaged, and labeled in
accordance with their approvals and in conformity with CGMP. The Company is
subject to periodic inspection by the FDA to assure such compliance. Drugs must
be distributed, sampled and promoted in accordance with FDA requirements. The
FDA has extensive enforcement powers over the activities of pharmaceutical
manufacturers, including authority to commence actions to seize and prohibit the
sale of unapproved or non-complying products, to halt manufacturing operations
that are not in compliance with CGMP, and to impose civil penalties and seek
criminal penalties. The restriction or prohibition on sales of products marketed
by the Company could materially adversely affect the Company's business,
financial condition, and results of operation.

30
<PAGE> 31

compliance with the foregoing regulations which have been resolved, but no
assurance can be given that restrictions or fines which could have a material
adverse effect upon the Company's business, financial condition and results of
operations will not be imposed upon the Company.

Nutritional Supplements

Recent proposed regulations issued by the FDA require the relabeling of
dietary supplements with regard to nutrition labeling ingredient information and
nutrient content claims. The proposed rules are not due to become effective
until January 1997 and may be modified prior to final adoption. The FDA and
other federal authorities are also reviewing alternative approaches to assure
the safety of vitamins, minerals, herbal extracts and other products sold as
nutritional supplements. Although no current regulatory approval is required
prior to or after the introduction of a new nutritional supplement, the FDA must
be notified regarding the use of new dietary ingredients and future regulation
could result in a recall or discontinuance of certain products.

The Company believes that it is in material compliance with applicable laws
and regulations concerning nutritional supplements. Moreover, the Company
believes that its experience in the manufacture and sale of pharmaceuticals, and
its use of certain manufacturing processes and controls uniformly across all
product lines, will enable the Company to comply with regulations, record
keeping, testing and manufacturing standards which may be applied to nutritional
supplements. Nevertheless, increased regulatory oversight could subject the
Company and other manufacturers of nutritional supplements to increased
production and compliance costs and possibly require capital expenditures.

The Company cannot predict the extent to which its pharmaceuticals and
nutritional supplement product categories may be affected in the future by
legislative and other regulatory developments concerning its products. There can
be no assurance that future health care legislation or other changes in health
care legislation will not have a material adverse effect on the Company's
business, financial condition or results of operations.

ENVIRONMENTAL STANDARDS

The Company uses certain hazardous substances which require special
handling and disposal as dictated by the EPA. The Company believes that its
manufacturing operations are in compliance with environmental protection and
other government regulations.

CERTAIN LEGAL MATTERS

The Company is not presently involved in any litigation in which it
believes an adverse outcome would materially adversely affect the Company's
business, financial condition or results of operations. However, the Company has
been involved in litigation and is subject to certain claims as set forth below.

L-Tryptophan Claims

Many distributors and marketers of nutritional supplements have been
subjected to claims relating to the manufacture or distribution of L-Tryptophan.
The Company is, and has in the past been, a defendant in such lawsuits filed
throughout the United States.

31
<PAGE> 32

The plaintiffs in these lawsuits generally allege damages resulting from
the ingestion of a product known as L-Tryptophan. In suits involving the
Company, the Company has been one of many defendants, and the manufacturer of
L-Tryptophan, Showa Denko, has agreed to indemnify the Company (including
Bronson) from all costs and damages with respect thereto to the extent that the
product distributed by the Company was produced by Showa Denko. Any such
lawsuits involving Bronson have been tendered to Bronson's insurance carrier
under a policy which does not exclude L-Tryptophan claims. As a result of the
indemnity provided by Showa Denko with respect to these types of lawsuits, and
the product liability insurance maintained by Bronson prior to its acquisition
by the Company, it is not anticipated that the Company will have any material
liability with respect to these types of lawsuits. However, in the event that
Showa Denko is unable to satisfy or fulfill its obligations under the indemnity,
the Company would have to defend such lawsuits and be responsible for damages,
if any, which are awarded against it or for amounts in excess of Bronson's
insurance coverage of $1.0 million per claim and $1.0 million in the aggregate.

Johnson & Johnson Claims

Under development and distribution agreements between GenTrac and Johnson &
Johnson entered into prior to the Company's acquisition of GenTrac, Johnson &
Johnson acquired certain rights to new thrombin products and thrombin product
improvements developed by GenTrac. Johnson & Johnson has notified the Company
that it believes that it is entitled to exclusive distribution rights for
Thrombin-JMI and a liquid thrombin product for which FDA approval is currently
pending. Although the Company strongly disagrees with and will vigorously
contest such claims by Johnson & Johnson, any resolution of the claims in favor
of Johnson & Johnson could have a materially adverse effect on the Company's
business, financial condition or results of operations, notwithstanding
provisions in the development and distribution agreements which would (i)
require Johnson & Johnson to reimburse GenTrac for all development costs
associated with such products, and (ii) provide the Company's GenTrac facility
with the right to manufacture such products for Johnson & Johnson. Even if the
Company is successful in contesting Johnson & Johnson's claim and manufactures
and markets the liquid thrombin product, the Company would be obligated to pay a
royalty to Johnson & Johnson equal to five percent of the Company's net sales of
such product, up to an aggregate maximum royalty payment of $240,000. The
Company and Johnson & Johnson are currently attempting to negotiate an amicable
resolution of such claims.

PRODUCT LIABILITY INSURANCE

The Company maintains product liability insurance coverage of $10.0 million
per occurrence and $10.0 million in the aggregate on a "claims made" basis,
which coverage is substantially less than the risks associated with the
Company's business. There can be no assurance that the Company's present
insurance will cover potential claims which may be asserted against the Company
in the future. Since many of the Company's customers require the Company to
maintain product liability insurance coverage as a condition to their doing
business with the Company, and since the loss of such insurance coverage would
result in a loss of said customers, the Company intends to take all reasonable
steps necessary to maintain such insurance coverage.

EMPLOYEES

At February 1, 1996, the Company had 334 full-time employees: 191 in
manufacturing, 50 in sales, 40 in finance and administration, 29 in quality
assurance and 24 in distribution. The Company believes that its relationship
with its employees is good.

FACILITIES

The Company's distribution operations, including warehousing and shipping
for the Company's branded products, are located in a 150,000 square foot
facility on a 15 acre site in St. Louis, Missouri which was acquired by the
Company in mid-1993. The 24,000 square feet of office space within the

32
<PAGE> 33

facility permit it to serve as corporate headquarters and to house the Company's
administration, sales and marketing, and telemarketing operations. The Company
has centralized packaging operations for its branded nutritional supplements at
this location in addition to certain laboratory and quality assurance
facilities. Liquid products, including Liqui-Char and the Derma-Scrub line, are
also manufactured and packaged at this facility.

The Company owns a facility at Canton, Ohio where its subsidiary,
JMI-Canton Pharmaceuticals, Inc. ("JMI-Canton"), manufactures and packages
pharmaceuticals. The facility is a 25,000 square foot building containing
manufacturing, laboratory and administrative space.

The Company manufactures hemostatic thrombin products in a 40,000 square
foot FDA-licensed sterile fill facility owned by the Company which is located on
an eight acre site in Middleton, Wisconsin.

The Company's subsidiary JMI Phoenix Laboratories, Inc. ("JMI Phoenix")
manufactures the Company's nutritional supplements in two adjacent buildings
owned by the Company consisting of approximately 30,000 total square feet,
located in Tempe, Arizona.

33
<PAGE> 34

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information as of March 1, 1996 with
respect to the directors and executive and senior staff officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Dennis M. Jones........................... 57 Chairman of the Board, President and Chief
Executive Officer
Judith A. Jones(1)........................ 55 Executive Vice President, Secretary,
Treasurer and Director
Michael T. Bramblett...................... 53 Executive Vice President and Director
G. Andrew Franz........................... 43 Senior Vice President-Operations-
Pharmaceuticals and Director
David A. McLaughlin....................... 48 Senior Vice
President-Operations-Nutritionals and
Director
Gerald W. Garner.......................... 60 Vice President-Sales
William L. Brown.......................... 48 Vice President-Finance and Controller
Edward A. Chod(2)......................... 42 Director
Stanley L. Lopata(1)(2)................... 81 Director
Thomas F. Patton(1)....................... 47 Director
L. John Polite, Jr.(1)(2)................. 74 Director
</TABLE>

- ------------
(1) Member of the Audit Committee of the Board of Directors.

(2) Member of the Compensation Committee of the Board of Directors.

Dennis M. Jones, the founder of the Company, has been JMI's Chairman of the
Board, President and Chief Executive Officer since its inception in March 1981.
Mr. Jones has been involved primarily in the pharmaceutical industry since 1964
in various marketing, management and administrative positions. He was a
co-founder of O'Neal, Jones and Feldman Pharmaceuticals, which was acquired by
Chromalloy American Pharmaceuticals, Inc. in 1978 and subsequently acquired by
Forest Laboratories, Inc., a specialty pharmaceutical company, in 1984. Mr.
Jones has been a director of Mark Twain State Bank, a subsidiary of Mark Twain
Bancshares, Inc., since 1988.

Judith A. Jones joined the Company in October 1981 and has been in charge
of the financial affairs and books of the Company since that time. Mrs. Jones
has been a Director of the Company since December 1981, and the Secretary and
Treasurer since April 1982. Mrs. Jones served as Vice President of the Company
from March 1985 to February 1994 and has been Executive Vice President of the
Company since February 1994.

Michael T. Bramblett, a Director of the Company since 1987, served as Vice
President-Marketing of the Company from January 1991 to February 1994 and has
served as Executive Vice President since February 1994. From May 1988 through
December 1990, Mr. Bramblett served as Marketing Director of Carlson Marketing
Group, and from June 1987 until May 1988, he served as Corporate Vice President
of S&H Motivation Company.

G. Andrew Franz, a Director of the Company since 1994, became Senior Vice
President-Operations-Pharmaceuticals for the Company in February 1994. He served
as the Vice President-Operations of JMI-Canton since the facility was acquired
by JMI-Canton from Bowman Pharmaceuticals, Inc. in March 1984 until February
1994. Prior to March 1984, Mr. Franz held various management positions for 14
years within Bowman Pharmaceuticals, Inc., including Chief Chemist and Vice
President-Operations.

David A. McLaughlin, a Director of the Company since 1994, became Senior
Vice President-Operations-Nutritionals in February 1994. He served as the Vice
President-Operations of JMI's

34
<PAGE> 35

subsidiary, American Vitamin Company from May 1988 until that company's merger
into JMI Phoenix in 1993. From April 1986 to May 1988, Mr. McLaughlin was the
Vice President-Sales and Marketing of JMI Phoenix. Prior to that time, Mr.
McLaughlin served as an independent consultant to a number of health food,
chemical and pharmaceutical companies, including JMI Phoenix. From May 1978 to
January 1982 he was a supervisor of packaging and processing for the Searle
Consumer Products Division of G.D. Searle & Company, a chemical company.

Gerald W. Garner, a staff officer employed by the Company since April 1990,
was appointed Vice President-Marketing in 1994 and as Vice President-Sales in
1995. He has spent the last 26 years in the pharmaceutical industry, beginning
his career with Armour where he held the positions of District Manager,
Corporate Manager of Training and Development, and Senior National Accounts
Manager.

William L. Brown, a staff officer employed by the Company since May 1993,
has served as Controller and was appointed Vice President-Finance in January
1996. Mr. Brown is a certified public accountant and served on a part-time basis
as the controller and principal accounting officer of GenTrac prior to its
acquisition by the Company. From 1983 until joining the Company, Mr. Brown was
in private practice as an accountant in Middleton, Wisconsin, as the principal
of Small Business Accounting, Inc.

Edward A. Chod has been a Director since 1991. Mr. Chod is an officer and
shareholder in the law firm of Greensfelder, Hemker & Gale, P.C. which he joined
in 1978 and which has served as counsel to the Company since 1982.

Stanley L. Lopata, a Director since 1988, is the President of Lopata
Research and Development Corp. and has served in that capacity since 1988. Prior
to 1988, Mr. Lopata was the Chairman of the Board of Directors and Chief
Executive Officer of Carboline Corporation, a manufacturer of specialty paint
and coating products, from 1960 through 1988. Mr. Lopata has been a director of
Boatmen's Trust Company, a subsidiary of Boatmen's Bancshares, Inc., since 1983.

Thomas F. Patton, Ph.D., a Director since 1995, is President of the St.
Louis College of Pharmacy and has served in that capacity since June 1994. From
April 1993 until January 1994 and from January 1994 until May 1994, Dr. Patton
served as Executive Director of Pharmaceutical Research and Development and as
Vice President of Pharmaceutical Research and Development, respectively, at
Dupont-Merck Pharmaceutical Co., a pharmaceutical company. From March 1990
through March 1993, Dr. Patton served as Director and Senior Director of
Pharmaceutical Research and Development at Merck and Co., Inc., a pharmaceutical
company. In 1993, Dr. Patton was President of the American Association of
Pharmaceutical Scientists. Dr. Patton's 20 year career also includes tenures as
Professor of Pharmaceutical Chemistry and Pharmacy Practice at the University of
Kansas, Associate Director Control Development at the Upjohn Co., a
pharmaceutical company, and Vice President of Operations at Oread Laboratories,
Inc., a pharmaceutical company.

L. John Polite, Jr., a Director since 1989, is Chairman of Peridot (New
Jersey) Chemicals, Inc., and has served in that capacity since December 1989. He
was the Chairman of the Board, President and Chief Executive Officer of Essex
Chemical Corporation ("Essex") from April 1978 to October 1988 when Essex merged
into Dow Chemical Company, a chemical company. Mr. Polite also serves as a
director of Witco Corporation, a manufacturer and marketer of a wide range of
specialty chemicals, petroleum products and engineered materials.

Dennis M. Jones and Judith A. Jones are husband and wife. G. Andrew Franz
is the son-in-law of Dennis M. and Judith A. Jones.

Directors of the Company are elected by the Company's stockholders and hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified, or until their earlier resignation or removal. All
executive officers are appointed by and serve at the discretion of the Board of
Directors. Executive officers are elected annually by the Board of Directors.
Gerald W. Garner and William L. Brown are staff officers appointed by or with
the consent of the Chief Executive Officer.

35
<PAGE> 36

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 15, 1996, and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each person known
by the Company to be the beneficial owner of 5% or more of the Company's
outstanding shares of Common Stock, (ii) each of the Company's executive
officers, (iii) each of the Company's directors and (iv) all directors and
executive officers as a group. Except as otherwise indicated in the footnotes to
this table, the Company believes that the persons named in this table have sole
voting and investment power with respect to all the shares of Common Stock.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY
OWNED(1)
SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- -------------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Dennis M. Jones(2)(3)......................................... 2,781,840 19.4% 17.1%
Chairman of the Board of Directors and President
Judith A. Jones(2)(4)......................................... 680,625 4.8% 4.2%
Executive Vice President, Secretary, Treasurer and Director
Michael T. Bramblett(5)....................................... 162,576 1.1% 1.0%
Executive Vice President and Director
G. Andrew Franz(6)............................................ 325,183 2.3% 2.0%
Senior Vice President-Operations-Pharmaceuticals and Director
David A. McLaughlin(7)........................................ 82,500 * *
Senior Vice President-Operations-Nutritionals and Director
Stanley L. Lopata(8).......................................... 151,500 1.1% *
Director
900 South Hanley Rd.
St. Louis, MO 63106
L. John Polite, Jr(9)......................................... 25,500 * *
Director
211 Oldwoods Road
Franklin Lakes, NJ 07417
Edward A. Chod(10)............................................ 17,250 * *
Director
10 South Broadway, Suite 2000
St. Louis, MO 63102
Thomas F. Patton, Ph.D. ...................................... -- * *
Director
All Directors and Executive Officers as a Group
(consisting of nine persons)(11).............................. 4,226,974 29.3% 25.8%
</TABLE>

- ------------
* Less than 1%.

(1) The number of shares of Common Stock deemed outstanding prior to the
offering made hereby includes (i) 14,310,663 shares of Common Stock
outstanding as of February 15, 1996, (ii) an aggregate of 737 shares of
Common Stock issuable upon conversion of all of the shares of the Company's
Preferred Stock, Series A outstanding as of February 15, 1996 and (iii)
shares issuable pursuant to options held by the respective person or group
which may be exercised within 60 days of February 15, 1996 ("presently
exercisable stock options"), as set forth below. The number of shares
deemed outstanding after this offering includes an additional 2,000,000
shares of Common Stock which are being offered for sale by the Company in
the offering made hereby.

36
<PAGE> 37

Except as otherwise indicated, the officers and directors of the Company named
in the above table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them and their respective
addresses are 1945 Craig Road, St. Louis, Missouri 63146.

(2) Excludes 90,000 shares owned by the Company's 401(k) Plan (of which Dennis
M. and Judith A. Jones are co-trustees) and with respect to which Dennis M.
and Judith A. Jones disclaim beneficial ownership. In addition to such
holdings, on January 2, 1996, Mr. Jones was granted a non-qualified stock
option covering an aggregate of 360,000 shares and Mrs. Jones was granted a
non-qualified stock option covering an aggregate of 90,000 shares. The
options granted to Mr. and Mrs. Jones provide for an exercise price of
$16.00 per share, and become exercisable as of January 2, 2004. However,
the options may become exercisable in installments on or after the
anniversary of the date of grant in the years 1997 through 2001, if either
for the fifteen consecutive trading days immediately prior to such date or
for a period of fifteen consecutive trading days following such date, the
closing market price per share of the Company's Common Stock is equal to or
above the following respective target prices: $20 for the 1997 installment,
$26.67 for the 1998 installment, $32 for the 1999 installment, $40 for the
2000 installment, and $50 for the 2001 installment.

(3) Only includes shares owned directly by Mr. Jones. Does not include 680,625
shares owned by his spouse, with respect to which he disclaims beneficial
ownership.

(4) Only includes shares owned directly by Mrs. Jones. Does not include
2,781,840 shares owned by her spouse, with respect to which she disclaims
beneficial ownership.

(5) Includes 83,250 shares owned directly by Mr. Bramblett, 2,400 by his IRA,
1,926 shares held by his spouse's IRA and with respect to which he
disclaims beneficial ownership, and 75,000 shares of Common Stock issuable
pursuant to presently exercisable stock options.

(6) Includes 114,007 shares owned directly by Mr. Franz, 154,110 shares owned
by his spouse and with respect to which he disclaims beneficial ownership,
34,560 shares held by his spouse as custodian for his children and with
respect to which he disclaims beneficial ownership, 15,006 shares held by
his spouse as trustee for his children and with respect to which he
disclaims beneficial ownership, and 7,500 shares of Common Stock issuable
pursuant to presently exercisable stock options.

(7) Includes 75,000 shares owned directly by Mr. McLaughlin and 7,500 shares of
Common Stock issuable pursuant to presently exercisable stock options.

(8) Includes 109,500 shares owned directly by Mr. Lopata, 40,500 shares owned
by Mr. Lopata through his spouse's revocable trust and with respect to
which he disclaims beneficial ownership, and 1,500 shares of Common Stock
issuable pursuant to presently exercisable stock options.

(9) Includes 22,500 shares owned directly by Mr. Polite and 3,000 shares of
Common Stock issuable pursuant to presently exercisable stock options.

(10) Includes 15,750 shares owned directly by Mr. Chod and 1,500 shares of
Common Stock issuable pursuant to presently exercisable stock options.

(11) Includes 96,000 shares issuable pursuant to presently exercisable stock
options.

37
<PAGE> 38

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $0.04 per share, and 1,000,000 shares of Preferred
Stock, par value $0.01 per share.

COMMON STOCK

As of February 15, 1996, there were 14,310,663 shares of Common Stock
outstanding and held of record by approximately 1,000 stockholders, and held by
approximately 5,000 non-record beneficial owners. Stockholders are entitled to
one vote for each share of Common Stock on matters to be voted on by the
stockholders of the Company. Stockholders will be entitled to receive dividends
when, as and if declared by the Board of Directors and to share ratably in the
assets of the Company legally available for distribution to its stockholders in
the event of the liquidation, dissolution or winding-up of the Company. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. All of the issued and outstanding shares of Common Stock are, and all
shares of Common Stock to be sold in this offering will be, duly authorized,
validly issued, fully paid and nonassessable.

PREFERRED STOCK

The Company's Board of Directors may without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. The holders of Preferred
Stock would normally be entitled to receive a preference payment in the event of
any liquidation, dissolution or winding-up of the Company before any payment is
made to the holders of the Common Stock.

The ability of the Company's Board of Directors to issue Preferred Stock
could be exercised to render more difficult the accomplishment of mergers or
other takeover or change in control attempts. To the extent that this ability
has this effect, removal of the Company's incumbent Board of Directors and
management may be rendered more difficult. Further, this may have an adverse
impact on the ability of stockholders of the Company to participate in a tender
or exchange offer for the Common Stock and in so doing diminish the market value
of the Common Stock.

At December 31, 1995, an aggregate of 1,056 shares, constituting the
remainder of a series of Preferred Stock designated and issued in connection
with the Company's acquisition of GenTrac, were outstanding. These shares, which
are subject to conversion into shares of Common Stock, at the option of either
the Company or the holders, at the rate of 1.75 shares (2.625 shares after
giving effect to the three-for-two stock split) of Common Stock for each share
of Preferred Stock, are in the process of being so converted.

DELAWARE LAW

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.

38
<PAGE> 39

UNDERWRITING

The Underwriters named below, acting through their representatives
Robertson, Stephens & Company LLC and Hambrecht & Quist LLC (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement to purchase from the Company the number of shares
of Common Stock set forth opposite their respective names below. The
Underwriters are committed to purchase and pay for all such shares if they are
purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
Robertson, Stephens & Company LLC.................................
Hambrecht & Quist LLC.............................................
---------
Total........................................................ 2,000,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 300,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,000,000 shares that the Underwriters have agreed
to purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above tables represents as a percentage of
the 2,000,000 shares offered hereby. If purchased, such additional shares will
be sold by the Underwriters on the same terms as those on which the 2,000,000
shares are being sold.

The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.

Each executive officer and director of the Company has agreed with the
Representatives for a period of 90 days from the date of this Prospectus (the
"Lock-Up Period") not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any option to purchase any shares of Common
Stock, or any securities convertible into, or exchangeable for, or any rights to
purchase or acquire, shares of Common Stock, now owned or hereafter acquired
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of Robertson, Stephens & Company
LLC which may, in its sole discretion and at any time or from time to time,
without notice, release all or any portion of the shares subject to the lock-up
agreements. In addition, the Company has agreed that, during the Lock-Up Period,
the Company will not, without the prior written consent of Robertson, Stephens &
Company LLC, issue, sell, contract to sell or otherwise dispose of any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the issuance of Common Stock upon the exercise of
outstanding options and the Company's grant of options under existing stock
option plans.

39
<PAGE> 40

The offering price for the Common Stock has been determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.

The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Company's
Common Stock during the period immediately preceding the commencement of sales
in the Offerings. The Commission has, however, adopted exemptions from these
rules that permit passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group, if any, to continue
to make a market in the Company's Common Stock subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain Underwriters and other
members of the selling group intend to engage in passive market making in the
Company's Common Stock during such period.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Greensfelder, Hemker & Gale, P.C., St. Louis, Missouri.
Edward A. Chod, an officer and shareholder of Greensfelder, Hemker & Gale, P.C.,
is a director and shareholder of the Company. Greensfelder, Hemker & Gale, P.C.
and certain of its officers other than Mr. Chod owned an aggregate of 32,550
shares of JMI Common Stock as of February 15, 1996.

Certain legal matters related to the offering will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, Boston, Massachusetts.

EXPERTS

The consolidated financial statements of the Company at December 31, 1995,
1994 and 1993 and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere in this Prospectus and Registration Statement, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and the exhibits and schedules thereto, copies of which may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549. Statements contained in this Prospectus as to the contents of any
contract or other document filed, or incorporated by reference, as an exhibit to
the Registration Statement are qualified in all respects by such reference.

40
<PAGE> 41

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Income.................................................... F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>

F-1
<PAGE> 42

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Jones Medical Industries, Inc.

We have audited the accompanying consolidated balance sheets of Jones
Medical Industries, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Jones Medical Industries, Inc. at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.

As discussed in Note 10 to the consolidated financial statements, in 1993,
the Company changed its method of accounting for income taxes.

ERNST & YOUNG LLP

St. Louis, Missouri

February 12, 1996, except for

Note 16 as to which

the date is February 26, 1996

F-2
<PAGE> 43

JONES MEDICAL INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 7,031,765 $ 5,410,601
Accounts receivable, less allowance for doubtful accounts of
$64,794 in 1994 and $128,712 in 1995.......................... 4,242,356 7,132,458
Inventories...................................................... 8,320,590 10,746,630
Deferred income taxes............................................ 652,805 933,790
Other............................................................ 545,843 788,670
----------- -----------
Total current assets.......................................... 20,793,359 25,012,149
Intangible assets:
Customer lists................................................... 6,084,967 6,084,967
Distribution systems, trademarks and licenses.................... 11,836,110 24,336,110
Restrictive covenants and other intangibles...................... 2,208,710 3,142,328
Goodwill......................................................... 4,636,813 4,255,298
----------- -----------
24,766,600 37,818,703
Less accumulated amortization.................................... 4,092,394 4,883,538
----------- -----------
Net intangible assets.............................................. 20,674,206 32,935,165
Net property, plant and equipment.................................. 12,603,165 15,442,617
Other assets....................................................... 856,554 1,306,712
----------- -----------
Total assets.................................................. $54,927,284 $74,696,643
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................ $ 3,639,966 $ 4,775,141
Current portion of long-term debt................................ 1,611,246 5,633,330
Income taxes payable............................................. 292,774 871,401
Dividends payable................................................ 234,758 283,605
----------- -----------
Total current liabilities..................................... 5,778,744 11,563,477
Long-term debt..................................................... 3,799,978 9,124,986
Deferred income taxes.............................................. 3,858,198 4,118,046
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized,
99,919 shares issued and outstanding in 1994 and 1,056 in 1995
($2,248,000 aggregate liquidation preference in 1994 and
$24,000 in 1995).............................................. 999 10
Common Stock, $0.04 par value; 30,000,000 shares authorized,
13,846,519 shares issued and outstanding in 1994 and
14,178,129 in 1995............................................ 553,862 567,126
Contributed capital (including effects of unearned compensation
and related amortization)..................................... 19,454,811 19,544,584
Retained earnings................................................ 21,480,692 29,778,414
----------- -----------
Total stockholders' equity.................................... 41,490,364 49,890,134
----------- -----------
Total liabilities and stockholders' equity.................... $54,927,284 $74,696,643
=========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE> 44

JONES MEDICAL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales.................................................. $43,215,498 $47,548,803 $56,397,095
Cost of sales.......................................... 21,909,428 24,685,826 27,165,896
----------- ----------- -----------
Gross profit........................................... 21,306,070 22,862,977 29,231,199
Selling, general and administrative expenses:
Selling.............................................. 6,436,103 8,043,229 8,430,912
General and administrative........................... 3,372,050 3,990,735 4,044,562
Research and development............................. 377,304 100,683 --
Amortization......................................... 1,128,703 1,362,936 1,429,804
----------- ----------- -----------
Total selling, general and administrative expenses..... 11,314,160 13,497,583 13,905,278
----------- ----------- -----------
Operating income....................................... 9,991,910 9,365,394 15,325,921
Other income (expense):
Interest income...................................... 189,249 101,255 172,709
Interest expense..................................... (354,187) (516,274) (452,097)
Miscellaneous........................................ 120,841 88,132 (121,229)
----------- ----------- -----------
Income before income taxes and cumulative effect of
change in accounting principle....................... 9,947,813 9,038,507 14,925,304
Provision for income taxes............................. 3,744,000 3,299,000 5,597,000
----------- ----------- -----------
Net income before cumulative effect of change in
accounting principle................................. 6,203,813 5,739,507 9,328,304
Cumulative effect of change in accounting principle.... 207,100 -- --
----------- ----------- -----------
Net income............................................. $ 6,410,913 $ 5,739,507 $ 9,328,304
=========== =========== ===========
Earnings per common and common equivalent share before
cumulative effect of change in accounting
principle............................................ $0.44 $0.40 $0.64
Cumulative effect of change in accounting principle.... 0.01 -- --
----- ----- -----
Earnings per common and common equivalent share........ $0.45 $0.40 $0.64
===== ===== =====
</TABLE>

See accompanying notes.

F-4
<PAGE> 45

JONES MEDICAL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995

<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------- PREFERRED COMMON CONTRIBUTED RETAINED
PREFERRED COMMON STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ---------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992..... 241,200 8,817,766 $ 2,412 $352,710 $18,662,385 $11,103,359 $30,120,866
Three-for-two Common Stock
split declared February 7,
1996......................... -- 4,408,883 -- 176,356 (176,356) -- --
Exercise of stock options...... -- 152,891 -- 6,116 402,154 -- 408,270
Restricted stock:
Amortization of unearned
compensation............... -- -- -- -- 132,500 -- 132,500
Conversion of Preferred
Stock........................ (18,494) 48,519 (185) 1,941 (1,756) -- --
Net income..................... -- -- -- -- -- 6,410,913 6,410,913
Cash dividend declared --
Common Stock ($0.06 per
share)....................... -- -- -- -- -- (799,218) (799,218)
Cash dividend declared --
Preferred Stock ($0.16 per
share)....................... -- -- -- -- -- (37,221) (37,221)
------- ---------- ------- -------- ----------- ----------- -----------
Balance at December 31, 1993..... 222,706 13,428,059 2,227 537,123 19,018,927 16,677,833 36,236,110
Exercise of stock options...... -- 96,150 -- 3,846 417,079 -- 420,925
Restricted stock:
Amortization of unearned
compensation............... -- -- -- -- 30,470 -- 30,470
Conversion of Preferred
Stock........................ (122,787) 322,310 (1,228) 12,893 (11,665) -- --
Net income..................... -- -- -- -- -- 5,739,507 5,739,507
Cash dividend declared --
Common Stock ($0.06 2/3 per
share)....................... -- -- -- -- -- (911,718) (911,718)
Cash dividend declared --
Preferred Stock ($0.16 per
share)....................... -- -- -- -- -- (24,930) (24,930)
------- ---------- ------- -------- ----------- ----------- -----------
Balance at December 31, 1994..... 99,919 13,846,519 999 553,862 19,454,811 21,480,692 41,490,364
Exercise of stock options...... -- 187,710 -- 7,508 436,947 -- 444,455
Restricted stock:
Amortization of unearned
compensation............... -- -- -- -- 29,544 -- 29,544
Conversion of Preferred
Stock........................ (54,859) 143,900 (549) 5,756 (5,207) -- --
Return of escrowed Preferred
Stock........................ (44,004) -- (440) (380,837) -- (381,277)
Escrowed preferred dividend.... -- -- -- -- 9,326 -- 9,326
Net income..................... -- -- -- -- -- 9,328,304 9,328,304
Cash dividend declared --
Common Stock ($0.07 1/3 per
share)....................... -- -- -- -- -- (1,026,400) (1,026,400)
Cash dividend declared --
Preferred Stock ($0.16 per
share)....................... -- -- -- -- -- (4,182) (4,182)
------- ---------- ------- -------- ----------- ----------- -----------
Balance at December 31, 1995..... 1,056 14,178,129 $ 10 $567,126 $19,544,584 $29,778,414 $49,890,134
======= ========== ======= ======== =========== =========== ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 46

JONES MEDICAL INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
------------ ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 6,410,913 $ 5,739,507 $ 9,328,304
Noncash adjustments:
Cumulative effect of change in accounting
principle...................................... (207,100) -- --
Depreciation...................................... 652,020 797,867 967,265
Amortization...................................... 1,128,703 1,362,936 1,429,804
Provision for uncollectibles...................... 41,582 7,212 63,918
Deferred income taxes............................. (18,075) (109,156) (21,136)
(Gain)/loss on sale of assets..................... -- (1,471) 126,060
Change in assets and liabilities, net of effects
from acquisitions:
Accounts receivable.......................... (1,282,425) 783,610 (2,954,020)
Inventories.................................. (3,632,610) 1,549,648 (2,426,040)
Other assets................................. (499,164) 278,391 (692,985)
Accounts payable and accrued expenses........ (977,097) (261,227) 1,135,175
Income taxes payable......................... (526,089) 242,023 578,627
------------ ----------- ------------
Net cash from operating activities........ 1,090,658 10,389,340 7,534,972
------------ ----------- ------------
INVESTING ACTIVITIES
Maturity (purchases) of certificates of deposit and
U.S. government obligations....................... (224,565) 1,247,489 --
Sales of marketable equity securities............... 108,755 3,515 --
Additions to property, plant and equipment.......... (4,946,251) (3,178,365) (4,657,596)
Proceeds from sale of assets........................ -- 268,938 766,108
Purchases of intangible assets in product line
acquisitions...................................... (3,542,463) -- (14,072,278)
Purchase of Bronson Pharmaceuticals, Inc., net of
cash acquired..................................... (8,183,542) -- --
------------ ----------- ------------
Net cash used for investing.................. (16,788,066) (1,658,423) (17,963,766)
------------ ----------- ------------
FINANCING ACTIVITIES
Proceeds from long-term debt........................ 8,000,000 -- 14,000,000
Repayment of long-term debt......................... (1,500,006) (2,134,295) (4,652,908)
Payments of cash dividends.......................... (789,749) (934,495) (983,917)
Proceeds from exercise of stock options............. 408,270 420,925 444,455
------------ ----------- ------------
Net cash from (used for) financing........... 6,118,515 (2,647,865) 8,807,630
------------ ----------- ------------
Increase (decrease) in cash and cash equivalents.... (9,578,893) 6,083,052 (1,621,164)
Cash and cash equivalents, beginning of year........ 10,527,606 948,713 7,031,765
------------ ----------- ------------
Cash and cash equivalents, end of year....... $ 948,713 $ 7,031,765 $ 5,410,601
============ =========== ============
</TABLE>

See accompanying notes.

F-6
<PAGE> 47

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995

1. NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION

The Company is engaged in the manufacturing, marketing, and sale of
pharmaceuticals and nutritional supplements. The Company's principal customers
include consumers, retail pharmacies, hospitals (through wholesale drug
distributors), physicians, and the United States government, of which sales to
the United States government totaled approximately $4,600,000, $4,500,000, and
$3,250,000 in 1993, 1994, and 1995, respectively. No one customer accounted for
more than 10% of the Company's consolidated sales in 1993, 1994, or 1995. The
Company's most significant product line is a topical hemostat with sales
totaling approximately $13,126,000, $12,681,000, and $14,573,000 in 1993, 1994,
and 1995, respectively. The Company's only source of supply for this product
line is from GenTrac, Inc. ("GenTrac"), a wholly-owned subsidiary of the
Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Jones Medical
Industries, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

CASH AND CASH EQUIVALENTS

Cash equivalents in short-term money market accounts and other investments
with original maturities of less than three months are stated at cost plus
accrued interest and are considered to be cash equivalents.

INVENTORIES

Inventories are valued at the lower of cost or market with cost determined
on the first-in, first-out basis.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost. Depreciation is computed
by the straight-line method over the useful life of the assets as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
----------------------------------------------------------------- -----------
<S> <C>
Buildings and improvements....................................... 15-40 years
Equipment and furniture.......................................... 5-10 years
Automobiles...................................................... 5 years
</TABLE>

INTANGIBLE ASSETS

The cost of product line or business acquisitions is allocated first to
identifiable assets and liabilities based on estimated fair values. The excess
of cost over identifiable assets and liabilities is

F-7
<PAGE> 48

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recorded as goodwill. Amortization is provided using the straight-line method
over the estimated useful life of the assets as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
----------------------------------------------------------------- -----------
<S> <C>
Customer lists................................................... 20 years
Distribution systems, trademarks, and licenses................... 5-30 years
Restrictive covenants and other intangibles...................... 5-10 years
Goodwill......................................................... 25-40 years
</TABLE>

The Company continually reevaluates the propriety of the carrying amount of
goodwill and other intangibles as well as the related amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying values and/or revised estimates of useful lives. This evaluation is
based on the Company's projection of the undiscounted operating income before
depreciation, amortization, and interest over the remaining lives of the
amortization periods of related goodwill and intangible assets. The projections
are based on the historical trend line of actual results since the commencement
of operations and adjusted for expected changes in operating results. To the
extent such projections indicate that the undiscounted operating income (as
defined above) is not expected to be adequate to recover the carrying amounts of
related intangibles, such carrying amounts are written down by charges to
expense in amounts equal to the excess of the carrying amount of intangible
assets over the respective fair values. At this time, the Company believes that
no significant impairment of the goodwill and other intangibles has occurred and
that no reduction of the estimated useful lives is warranted.

REVENUE RECOGNITION

EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

Earnings per common and common equivalent share are based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during each year (14,256,640 in 1993, 14,391,084 in 1994, and
14,589,150 in 1995) after giving retroactive effect to a three-for-two stock
split declared February 7, 1996. The computation assumes that outstanding stock
options were exercised and the proceeds used to purchase common shares.
Outstanding Preferred Stock was assumed to have been converted to Common Stock
at the issuance date.

STOCK OPTIONS

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's incentive stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

In connection with various nonqualified stock option plans, certain options
have been granted at exercise prices below the fair market value of the Common
Stock at the grant date. Differences

F-8
<PAGE> 49

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

between the option prices and fair market values at the dates of grant are
charged to compensation expense ratably over the future service vesting periods.

DIRECT-RESPONSE ADVERTISING

Costs associated with the production of the Company's direct-response mail
order catalog are capitalized and amortized over the expected period of future
benefit, which typically does not extend beyond six months. At December 31, 1994
and 1995, approximately $181,000 and $392,000, respectively, of capitalized
catalog costs are included in the accompanying balance sheets. Advertising
expense associated with the catalog in 1993, 1994, and 1995 totalled $584,000,
$902,000, and $1,223,000, respectively.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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 those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to the 1995 presentation.

3. COMMON STOCK SPLIT

On February 7, 1996, the Board of Directors declared a three-for-two stock
split effected in the form of a stock dividend to be paid on March 1, 1996 to
holders of record on February 23, 1996. The financial statements, including
stock option, share, per share data, and market prices, have been retroactively
adjusted to reflect the split.

4. ACQUISITIONS

Brevital

On August 31, 1995, the Company entered into a perpetual licensing
agreement with Eli Lilly & Company ("Lilly") for the exclusive United States
marketing rights to the Brevital product line. The purchase price of
approximately $14.0 million was financed with bank debt of $7.0 million and
Lilly financing of $7.0 million. Approximately $13.0 million was allocated to
the perpetual license with an amortizable life of 30 years, and $1.0 million was
allocated to a restrictive covenant with an amortizable life of 10 years.

Bronson Pharmaceuticals

On March 24, 1993, the Company acquired the outstanding stock of Bronson
Pharmaceuticals ("Bronson"), a California subchapter S corporation. The cost of
the acquisition of $10,500,000 has been recorded using the purchase method of
accounting, and the results of Bronson's operations, since the date of
acquisition, have been included in the Company's consolidated financial
statements. The excess of the purchase price over the estimated fair market
value of the net assets acquired of approximately $2,700,000 is being amortized
over 40 years using the straight-line method.

The following summarized unaudited pro forma results of operations for the
year ended December 31, 1993 assume the acquisition occurred as of the beginning
of the respective period. The pro forma results have been prepared for
comparative purposes only and do not purport to be

F-9
<PAGE> 50

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

indicative of the results of operations which actually would have resulted had
the acquisition occurred on the date indicated, or which may result in the
future.

<TABLE>
<CAPTION>
PRO FORMA
1993
-----------
(UNAUDITED)
<S> <C>
Year Ended December 31
Sales........................................................................ $46,717,000
Net income before cumulative effect of change in accounting principle........ $ 6,178,000
Earnings per share before cumulative effect of change in accounting
principle................................................................. $ 0.44
Net income................................................................... $ 6,386,000
Earnings per share........................................................... $ 0.45
</TABLE>

Derma System Professional Skin Care

On February 12, 1993, the Company acquired the Derma System Professional
Skin Care product line for approximately $3,500,000 which was paid in cash. The
entire purchase price was allocated to intangible assets, the majority of which
are being amortized over a useful life of 20 years.

5. SUPPLEMENTAL CASH FLOW INFORMATION

The Company paid the following amounts for interest and income taxes:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest................................... $ 367,812 $ 503,524 $ 299,116
Income taxes............................... $4,230,000 $3,150,000 $5,087,945
</TABLE>

6. INVENTORIES

Inventories at December 31, 1994 and 1995 are comprised of the following:

<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Raw materials........................................ $3,372,142 $ 4,870,595
Work-in-process...................................... 1,030,297 1,099,582
Finished goods....................................... 3,918,151 4,776,453
---------- -----------
Total inventories.................................... $8,320,590 $10,746,630
========== ===========
</TABLE>

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Land................................................ $ 2,178,398 $ 2,158,144
Buildings and improvements.......................... 7,216,650 8,558,253
Equipment and furniture............................. 5,258,169 7,409,091
Leasehold improvements.............................. 63,964 --
Automobiles......................................... 303,689 381,984
----------- -----------
15,020,870 18,507,472
Less accumulated depreciation....................... 2,417,705 3,064,855
----------- -----------
Net property, plant and equipment................... $12,603,165 $15,442,617
=========== ===========
</TABLE>

F-10
<PAGE> 51

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at December 31, 1994 and 1995 are
comprised of the following:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Trade payables....................................................... $1,294,968 $1,071,840
Sales discounts...................................................... 1,050,000 1,500,000
Compensation......................................................... 395,797 635,320
Taxes other than income.............................................. 138,307 114,137
Interest............................................................. 24,000 175,285
Royalties............................................................ 109,483 174,276
Health insurance claims.............................................. 201,083 198,060
Property and equipment purchases..................................... 139,406 203,762
Catalog expenses..................................................... 1,066 163,418
Other................................................................ 285,856 539,043
---------- ----------
Total accounts payable and accrued expenses.......................... $3,639,966 $4,775,141
========== ==========
</TABLE>

9. LONG-TERM DEBT

Long-term debt at December 31, 1994 and 1995 consists of the following:

<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Note payable to bank at bank base rate (8.5% at December 31, 1994),
secured by all corporate assets, payable $133,334 monthly plus
interest; final payment due July 1998............................. $5,399,986 $ --
Note payable to bank at .5% below bank base rate (8.25% at December
31, 1995), secured by all corporate assets, payable $136,111
monthly plus interest; final payment due September 2000........... -- 7,758,316
Note payable to Lilly at 7%; payable in installments of $4,000,000
in August 1996 and $3,000,000 in August 1997...................... -- 7,000,000
Note payable to former shareholder at 5.49% interest; due on
demand............................................................ 11,238 --
---------- -----------
5,411,224 14,758,316
Less current maturities............................................. 1,611,246 5,633,330
---------- -----------
Total long-term debt................................................ $3,799,978 $ 9,124,986
========== ===========
</TABLE>

Approximately $1,167,000 of the $5,399,986 of long-term debt outstanding at
December 31, 1994 was refinanced in connection with the 1995 bank note payable.

Maturities of long-term debt at December 31, 1995 are as follows:

F-11
<PAGE> 52

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On March 16, 1995, the Company increased its available borrowings under the
March 16, 1993 credit arrangement from $2.0 million to $4.0 million. Interest on
outstanding borrowings is based on the bank base rate and is payable monthly.
Borrowings on the line of credit are secured by substantially all of the assets
of the Company. There were no borrowings under the line of credit agreement in
1994 and 1995.

The bank credit agreement including the note payable to bank and the line
of credit arrangement contain certain restrictive provisions including
maintaining a maximum tangible net worth ratio, maintaining a minimum current
ratio, obtaining prior approval of acquisition financings in excess of $3.0
million and limiting the amount of additional borrowings. The Company will be in
default under its revolving credit and borrowing lines if (i) Dennis Jones
ceases to be the Company's Chairman of the Board and Chief Executive Officer, or
(ii) Dennis Jones and Judith Jones, collectively, own less than 15% of the
outstanding shares of Common Stock of the Company, or (iii) a third party
acquires 50% or more of the shares of the Company's capital stock without the
lender's prior approval.

10. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1995 and
1994 are as follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization....................... $3,858,198 $4,118,047
Deferred tax assets:
Accrued sales discounts............................. 388,500 561,135
Deferred compensation on stock options.............. 85,020 85,870
Unicap adjustment on inventory...................... 95,720 143,914
Allowance for doubtful accounts..................... 23,974 48,184
Other............................................... 59,591 94,687
---------- ----------
652,805 933,790
---------- ----------
Net deferred tax liabilities.......................... $3,205,393 $3,184,257
========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $3,311,000 $3,120,000 $5,094,000
State.................................... 393,000 288,000 524,000
---------- ---------- ----------
Total current......................... 3,704,000 3,408,000 5,618,000
---------- ---------- ----------
Deferred:
Federal.................................. 36,000 (98,000) (18,900)
State.................................... 4,000 (11,000) (2,100)
---------- ---------- ----------
Total deferred........................ 40,000 (109,000) (21,000)
---------- ---------- ----------
Total provision for income taxes........... $3,744,000 $3,299,000 $5,597,000
========== ========== ==========
</TABLE>

F-12
<PAGE> 53

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the difference between the United States federal
statutory tax rates and the effective income tax rate as a percentage of net
income before cumulative effect of change in accounting principle is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
United States federal statutory tax rate................... 34.0% 34.0% 35.0%
State income taxes, net of federal tax benefit............. 4.0 3.1 2.5
Other, net................................................. (.4) (.6) --
---- ---- ----
37.6% 36.5% 37.5%
==== ==== ====
</TABLE>

11. PREFERRED STOCK

The Company's Convertible Cumulative Preferred Stock, Series A, bears
dividends at an annual dividend rate of $0.16 per share. Each preferred share
has voting rights equal to one share of Common Stock and is convertible into
1.75 shares (2.625 shares after giving retroactive effect to the three-for-two
stock split declared February 7, 1996) of the Company's Common Stock.

During 1995, the Company reached a settlement regarding a portion of the
contingent purchase price payable to the former stockholders of GenTrac. In
connection with the settlement, 44,004 shares of the Company's Preferred Stock
held in an escrow account, pending final dispute resolution, were released from
escrow and returned to the Company. These shares of Preferred Stock with an
original cost of $381,277 have been canceled by the Company. The accompanying
1995 financial statements reflect the resulting $381,277 reduction of goodwill
associated with the contingent purchase price and reduction in Preferred Stock.

12. STOCK OPTION PLANS

The Company has various incentive stock option ("ISO") plans for executives
and employees. In connection with the ISO plans, options to purchase Common
Stock are granted at option prices not less than the fair market values of the
Common Stock at the time the options are granted and vest ratably over a
five-year period from the grant dates. At December 31, 1995, options for 170,499
shares of Common Stock are available for future grant. There were 479,850
options granted but unexercised under the ISO plans at December 31, 1995, of
which 55,500 were exercised subsequent to December 31, 1995.

In addition, the Company has various nonqualified stock option ("NSO")
plans for certain officers and independent directors. Certain of these options
offer exercise prices below the fair market value of the Common Stock at the
date of grant. In accordance with APB 25, differences between the option prices
and the fair market values at the dates of grant have been accrued ratably over
the five-year vesting periods. Total compensation expense in 1993, 1994, and
1995 related to the NSO plans was $67,000, $122,000, and $123,500, respectively.
At December 31, 1995, there were 103,500 options granted but unexercised under
the NSO plans, of which 75,000 shares were exercised subsequent to December 31,
1995.

F-13
<PAGE> 54

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Option activity for 1993, 1994, and 1995 was as follows:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Outstanding options, January 1.................. 756,000 723,000 648,810
Exercised..................................... (153,000) (96,150) (187,710)
Granted....................................... 163,500 131,250 129,750
Cancelled..................................... (43,500) (109,290) (7,500)
-------- -------- --------
Outstanding options, December 31................ 723,000 648,810 583,350
======== ======== ========
Weighted average price of options exercised..... $3.78 $2.99 $2.37
Weighted average price of options granted....... $6.91 $5.60 $5.50
Weighted average price of options cancelled..... $2.41 $8.06 $4.27
</TABLE>

Outstanding options at December 31, 1995 are exercisable as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION RANGE OF
SHARES PRICE OPTION PRICE
--------- -------- --------------
<S> <C> <C> <C>
1995....................................... 329,400 $ 3.31 $0.33 - $8.50
1996....................................... 61,650 $ 4.89 $3.50 - $10.00
1997....................................... 51,900 $ 5.07 $3.50 - $10.00
1998....................................... 55,800 $ 5.12 $3.50 - $10.00
1999....................................... 49,200 $ 5.55 $4.33 - $10.00
2000....................................... 35,400 $ 5.70 $4.33 - $10.00
-------
583,350 $ 4.14
=======
</TABLE>

Subsequent to December 31, 1995, options to purchase 70,500 shares of
Common Stock were granted to certain employees of the Company under the ISO
plan. The option price of $16 per share represents the fair market value of the
stock on the date the options were granted. The options vest over periods of
five to seven years from the grant date.

In addition, subsequent to December 31, 1995, options to purchase 450,000
shares of Common Stock were granted to certain officers of the Company under
time accelerated stock option agreements pursuant the Company's 1994 Incentive
Stock Plan. The option price of $16 per share represents the fair market value
of the stock on the date the options were granted. The options become
exercisable at the end of eight years from the grant date; however, the options
may become exercisable if certain targeted Common Stock prices are attained as
follows: $20 for the 1997 installment, $26.67 for the 1998 installment, $32 for
the 1999 installment, $40 for the 2000 installment, and $50 for the 2001
installment.

13. EMPLOYEE BENEFIT PLAN

The Company has a defined contribution plan covering substantially all
employees. The plan provides the Company match 100 percent of the employee
voluntary contributions up to a maximum matching contribution of 5 percent of
the employee's compensation. Company contributions in 1993, 1994, and 1995 were
approximately $172,000, $184,000, and $204,000, respectively.

14. CONTINGENCIES AND COMMITMENTS

The Company currently carries product liability coverage of $10,000,000 per
occurrence and $10,000,000 in the aggregate on a "claims made" basis. There is
no assurance that the Company's present insurance will cover any potential
claims that may be asserted in the future. In addition, the Company is subject
to legal proceedings and claims which arise in the ordinary course of its
business.

F-14
<PAGE> 55

JONES MEDICAL INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company currently relies on Lilly for the manufacture of Brevital. The
Company has entered into a 10-year manufacturing agreement with Lilly, which may
be terminated by Lilly at any time after the first five years by giving at least
five years notice to the Company prior to ceasing the manufacture of Brevital.
In the event of such termination, Lilly must use reasonable efforts to assist
the Company in obtaining all the necessary licenses and approvals to enable the
Company or an alternative manufacturer to manufacture Brevital. Lilly is the
sole manufacturer of Brevital and any alternative manufacturer would require
regulatory change-in-site qualification to manufacture the product. In the event
of any interruption in the supply of Brevital from Lilly due to regulatory or
other causes, there can be no assurance that the Company could make alternative
manufacturing arrangements on a timely basis, if at all. Such an interruption
would have a material adverse effect on the Company's business, financial
condition and results of operations.

In connection with certain product line acquisitions, the Company is
obligated to pay royalties of up to 10 percent of certain product sales through
2005. Total royalty expense in 1993, 1994, and 1995 was approximately $621,000,
$636,000, and $593,000, respectively.

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
Net sales................................. $12,141,904 $11,584,608 $12,155,518 $11,666,773
Gross profit.............................. $ 5,944,623 $ 5,700,097 $ 6,176,024 $ 5,155,895
Net income................................ $ 1,604,346 $ 1,206,894 $ 1,602,273 $ 1,325,994
Earnings per share *...................... $ 0.11 $ 0.09 $ 0.11 $ 0.09
Stock prices: *
High.................................... $ 10 5/16 $ 8 1/2 $ 7 3/16 $ 6 1/16
Low..................................... $ 7 3/4 $ 6 11/16 $ 4 5/16 $ 4 1/4
1995
Net sales................................. $11,458,547 $13,282,184 $15,250,201 $16,406,163
Gross profit.............................. $ 6,191,053 $ 6,706,930 $ 7,923,992 $ 8,409,224
Net income................................ $ 2,046,258 $ 2,127,714 $ 2,337,553 $ 2,816,779
Earnings per share *...................... $ 0.14 $ 0.15 $ 0.16 $ 0.19
Stock prices: *
High...................................... $ 6 1/16 $ 8 $ 12 1/16 $ 16 1/2
Low....................................... $ 4 3/16 $ 5 7/16 $ 7 7/16 $ 10 11/16
</TABLE>

- ------------
* Adjusted to reflect the three-for-two stock split declared February 7, 1996.

16. SUBSEQUENT EVENTS

On February 26, 1996, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-3 relating to the offering of
2,300,000 shares of its Common Stock. The proceeds from the equity offering will
be used for repayment of certain indebtedness and for general corporate
purposes, including the possible acquisition of product lines or businesses.

F-15
<PAGE> 56

BRANDED NUTRITIONAL SUPPLEMENTS

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

[PHOTO]

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

The Company's branded nutritional supplements are marketed under the Bronson
Pharmaceutical and MD Pharmaceutical tradenames.
<PAGE> 57

[JONES MEDICAL LOGO]