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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-K

               [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934 [fee required]
                  For the Fiscal Year Ended December 31, 1995

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT OF 1934 [no fee required]
            For the transition period from __________ to __________.

                          Commission File No. 0-15098

                         JONES MEDICAL INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

          Delaware
(State or other jurisdiction of                        43-1229854
incorporation or organization)            (I.R.S. Employer Identification No.)

     1945 Craig Road, St. Louis, MO                      63146
(Address of principal executive offices)               (Zip Code)

       Registrant's telephone number including area code:  (314) 576-6100
          Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                   Name of Each Exchange on which Registered
-------------------                   -----------------------------------------
       None          

          Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.04 par value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                Yes __X__                                No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section  229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 23, 1996, is approximately $300 million.

Number of shares outstanding of registrant's Common Stock as of February 23,
1996: 14,310,663 (as adjusted to reflect the three-for-two stock split effected
in the form of a 50% stock dividend to be paid March 1, 1996 to holders of
record as of February 23, 1996).

The following documents are incorporated by reference in Part III hereof:  None


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                                   PART I


ITEM 1. BUSINESS

     The following discussion contains forward-looking statements that involve
risks and uncertainties.  The Company's actual results may differ significantly
from the results discussed in the forward-looking statements.

GENERAL

     Jones Medical Industries, Inc. ("JMI" or 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 have 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.

     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 Form 10-K are the property of their respective owner.

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.

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     Expand Marketing Initiatives for Nutritional Supplements to Health Care
Professionals.  Since the Company acquired Bronson Pharmaceuticals in early
1993, monthly orders of nutritional supplements 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, the Company 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 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 Pharmaceuticals
("Armour") in 1989.  Thrombin-JMI is manufactured at the Company's wholly-owned
subsidiary GenTrac, Inc. ("GenTrac").  Thrombinar was manufactured by Armour
for JMI until September 1995 when it was replaced by Thrombin-JMI.

     Brevital Sodium.  The intravenous ("I.V.") anesthetic market is split into
segments based on type and length of therapeutic, diagnostic or surgical
procedures.  Short-term general 

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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 Sodium ("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 and 10.9% of the Company's sales during the last four months of 1995. 
Brevital was introduced by Eli Lilly & Company ("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 

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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 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 United States Food and
Drug Administration ("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.

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     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 The Center for Biologics Evaluation and Research
("CBER"), a Division of the FDA, 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 United States Pharmacopoeia ("U.S.P.")
products and also acts as a contract manufacturer of Thrombogen, a line of
proprietary thrombin products manufactured for Johnson & Johnson Medical, Inc.
("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
Pharmaceuticals ("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 manufactured 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.

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     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 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.

     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

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Company's ability to manufacture products is not dependent on any
particular raw material supplier except as to thyroid raw materials.

     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.

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.  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.

     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 

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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.

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 of 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 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 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 current good manufacturing practice ("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 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 

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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 "Item 3.  Legal Proceedings."

     The Company also manufactures and sells drugs which are "controlled
substances" as defined in the Controlled Substances Act, which establishes
certain security and record keeping requirements administered by the Drug
Enforcement Administration ("DEA") of the Department of Justice.  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.

     Nutritional Supplements. 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  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

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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.

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.

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.

ITEM 2. PROPERTIES

     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
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.

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ITEM 3. LEGAL PROCEEDINGS

     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.

     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 product development
agreement 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.


                                     12

<PAGE>   13

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted during the 4th quarter of 1995 to a vote of
security holders of the Company through the solicitation of proxies or
otherwise.

                                     13
<PAGE>   14

                                   PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's common stock ("Common Stock") is traded on the Nasdaq
National Market under the symbol "JMED".  The following table sets forth the
quarterly 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 effected 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
</TABLE>


     As of February 15, 1996, there were approximately 1,000 holders of record
and the Company believes approximately 5,000 non-record beneficial owners of
the Common Stock.

     During 1994 and 1995, cash dividends of $0.06 2/3 and $0.07 1/3 per share,
respectively, were declared with respect to the Common Stock.  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.

     The future declaration and payment of cash dividends is subject to the
discretion of the Board of Directors and will be dependent on many factors,
including the Company's earnings, financial condition and capital needs of the
Company and such other factors as are deemed relevant by the Company's Board of
Directors. The Company anticipates that it will continue to pay a dividend each
quarter; however, the Company's Board of Directors intends to review this
policy from time to time.

                                     14

<PAGE>   15
ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data of the Company for each of the prior
five fiscal years has been derived from the consolidated financial statements
of the Company. The selected financial data should be read in conjunction with
the consolidated financial statements and related notes thereto contained
herein.  The selected financial data set forth below has been adjusted to
reflect the three-for-two stock split effected in the form of a 50% stock
dividend to be paid on March 1, 1996 to holders of record on February 23, 1996.


<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31
                         ----------------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS DATA:               1991              1992              1993              1994              1995
                         ----------------  ----------------  ----------------  ----------------  ----------------
<S>                      <C>               <C>               <C>               <C>               <C>
Sales                         $20,512,826       $24,056,872       $43,215,498       $47,548,803       $56,397,095
Cost of sales                  10,365,530        12,352,520        21,909,428        24,685,826        27,165,896
                         ----------------  ----------------  ----------------  ----------------  ----------------
Gross profit                   10,147,296        11,704,352        21,306,070        22,862,977        29,231,199
Selling, general and
  administrative
  expenses                      5,453,166         6,367,622        11,314,160        13,497,583        13,905,278
                         ----------------  ----------------  ----------------  ----------------  ----------------
Operating income                4,694,130         5,336,730         9,991,910         9,365,394        15,325,921
Other income (expense)            451,271           695,618           (44,097)         (326,887)         (400,617)
                         ----------------  ----------------  ----------------  ----------------  ----------------
Income before taxes             5,145,401         6,032,348         9,947,813         9,038,507        14,925,304
Provision for taxes             1,851,000         2,300,000         3,744,000         3,299,000         5,597,000
                         ----------------  ----------------  ----------------  ----------------  ----------------
Net income(1)                 $ 3,294,401       $ 3,732,348       $ 6,203,813       $ 5,739,507       $ 9,328,304
                         ----------------  ----------------  ----------------  ----------------  ----------------
Weighted average
  shares outstanding           13,875,822        14,168,821        14,256,640        14,391,084        14,589,150
Earnings per common
  and common equivalent
  share(1)                            .24               .26               .44               .40               .64
                         ================  ================  ================  ================  ================
Cash dividends
  declared per share                  .04               .05               .06          .06 2/3            .07 1/3
                         ================  ================  ================  ================  ================


</TABLE>
_______________
(1) Net income and earnings per share in 1993 do not reflect cumulative effect
    of change in accounting principle of $207,100.

                                      15

<PAGE>   16

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31                                
                         ----------------------------------------------------------------------------------------
                                                                                                                 
                               1991              1992              1993              1994              1995      
                         ----------------  ----------------  ----------------  ----------------  ----------------
<S>                      <C>               <C>               <C>               <C>               <C>
BALANCE SHEET
  DATA:
Total assets                  $33,392,783       $35,185,070       $51,823,590       $54,927,284       $74,696,643
Current assets                $18,042,778       $19,730,787       $18,325,578       $20,793,359       $25,012,149
Current liabilities           $ 3,295,228       $ 3,741,253       $ 6,330,082       $ 5,778,744       $11,563,477
Working capital               $14,747,550       $15,989,534       $11,995,496       $15,014,615       $13,448,672
Long-term debt                $ 2,737,804       $   500,000       $ 5,399,986       $ 3,799,978       $ 9,124,986
Shareholders equity           $26,786,800       $30,120,866       $36,236,110       $41,490,364       $49,890,134
Per share book value(2)       $      1.94       $      2.17       $      2.59       $      2.94       $      3.52
Current ratio                       5.5:1             5.3:1             2.9:1             3.6:1             2.2:1
</TABLE>
_______________
(2) Per share book value is computed assuming conversion of the outstanding
    preferred stock.

                                      16

<PAGE>   17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS

     The following discussion contains forward-looking statements that involve
risks and uncertainties.  The Company's actual results may differ significantly
from the results discussed in the forward-looking statements.

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. In the fourth quarter of 1994 and 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 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.


                                      17
<PAGE>   18

     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 of
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.

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 on sales                           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)
  Other miscellaneous income (expenses)          0.3       0.2      (0.2)
                                            --------  --------  --------
Income before income tax*                       23.0      19.0      26.4
                                            --------  --------  --------
Net income*                                    14.4%     12.1%     16.5%
                                            ========  ========  ========
</TABLE>

---------------
*    Before cumulative effect of change in accounting principle of $207,100 in
     1993.


                                      18
<PAGE>   19

Sales

     The following summarizes approximate sales activity by product categories:



<TABLE>
<CAPTION>
Sales by Product
Category                     1993        %        1994        %        1995        %
----------------         ------------  -----  ------------  -----  ------------  -----
<S>                      <C>           <C>    <C>           <C>    <C>           <C>
Pharmaceuticals          $21,168,000   49.0%  $21,925,000  46.1%   $25,936,000  46.0%
Nutritional Supplements   22,047,000   51.0%   25,624,000  53.9%    30,461,000  54.0%
                         -----------  -----  ------------  -----  ------------  -----
Total Sales              $43,215,000   100%   $47,549,000  100%    $56,397,000  100%
</TABLE>

     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.


                                      19
<PAGE>   20

     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.

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.  Also, as a percent
of sales, amortization expenses increased 2.9% in 1994 from 2.6% in 1993.


                                      20
<PAGE>   21

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.

     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.

                                      21
<PAGE>   22

Fourth Quarter

     Sales during the fourth quarter of 1995 increased $4.7 million, or 40.6%,
to $16.4 million from $11.7 million during the fourth quarter of 1994.  Net
income during the fourth quarter of 1995 increased $1.5 million, or 112%, to
$2.8 million from $1.3 million during the fourth quarter of 1994.  Earnings per
share during the fourth quarter of 1995 were $.19, with 14.6 million shares
outstanding, compared to $.09 per share earnings, with 14.4 million average
shares outstanding during the fourth quarter of 1994.  The 1995 increases
resulted from improvements in operations throughout 1995 and a full quarter of 
Brevital sales.

     Sales during the fourth quarter of 1994 decreased $445,000, or 3.7% to
$11.7 million from $12.1 million during the fourth quarter of 1993.  Net income
during the fourth quarter of 1994 decreased $547,000, or 29.2% to $1.3 million
from $1.8 million during the fourth quarter of 1993.  Earnings per share during
the fourth quarter of 1994 were $.09, compared to $.13 during the fourth
quarter of 1993, with an average of 14.4 million shares outstanding during both
periods.  Decreases in sales and net income during the fourth quarter of 1994
were in large part the result of a product shortage of $1.1 million of
Thrombinar which was produced for the Company under contract by Armour.

FINANCIAL CONDITION

Balance Sheet Information

     The Company's current ratio declined to 2.2:1 as of December 31, 1995 from
3.6:1 as of December 31, 1994, working capital decreased to $13.4 million as of
December 31, 1995 from $15.0 million as of December 31, 1994, and debt as a
percentage of equity increased to 29.6% as of December 31, 1995 from 13.0% as
of December 31, 1994, primarily as a result of the August 31, 1995 acquisition
of the Brevital product line and the associated debt incurred in connection
therewith.

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 

                                      22
<PAGE>   23

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.

     Under revolving credit and other borrowing lines available to the Company
at January 31, 1996, the Company had an unused line of credit aggregating $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.

     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.

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.


                                      23
<PAGE>   24

     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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

     Reference is made to the Financial Statements contained in Part IV hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     There were no disagreements with the Company's auditors, Ernst & Young
LLP, on any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.

                                      24
<PAGE>   25

                                   PART III

ITEM 10.    DIRECTORS AND OFFICERS OF THE REGISTRANT

DIRECTORS AND OFFICERS

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


Name                      Age         Position
----                      ---         --------                    

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

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

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

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

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


                                      25

<PAGE>   26
     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 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.

     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 

                                      26
<PAGE>   27

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.

     No employee who is a director receives a director's fee for services
rendered as a director.  However, each non-employee director receives
reimbursement for any expenses incurred in his capacity as a director of the
Company and $2,500 per meeting of the Board of Directors attended by such
non-employee director, subject to a minimum (as of December 31, 1995) of $5,000
per year.  In addition, non-employee directors who are members of the Company's
compensation committee receive $500 per meeting of the compensation committee
attended by such non-employee directors.  Finally, the present non-employee
directors of the Company have been granted stock options pursuant to the
Company's 1994 Formula Stock Option Plan for Non-Management Directors, as set
forth in the table below:


                                      27

<PAGE>   28


<TABLE>
<CAPTION>
                                       No. of Options      Per Share Exercise     Initial Exercise
       Name          Date of Grant       Granted(1)              Price(1)              Date           Expiration Date
-------------------  -------------  --------------------  --------------------  --------------------  ---------------
<S>                  <C>            <C>                   <C>                   <C>                   <C>
Stanley L. Lopata       6/1/94             7,500                         $7.00         6/1/94             6/1/99
L. John Polite, Jr.     6/1/94             7,500                         $7.00         6/1/94             6/1/99
Edward A. Chod          6/1/94             7,500                         $7.00         5/1/95             5/1/00
Thomas F. Patton        6/1/95             7,500                         $6.67         5/1/96             5/1/01
</TABLE>
---------------
(1)  Adjusted to reflect the three-for-two split effected in the form of a 50%
     stock dividend to be paid on March 1, 1996 to holders of record on
     February 23, 1996.

                                      28
<PAGE>   29

ITEM 11.  EXECUTIVE COMPENSATION

Compensation of Executive Officers

     Summary Compensation Table.  The table below sets forth all compensation
received in each of the three fiscal years ended December 31, 1993, 1994 and
1995 for services rendered in all capacities to the Company and its
subsidiaries by the Chief Executive Officer and the other four (4)
highest-compensated Executive Officers of the Company during the fiscal year
ended December 31, 1995 (the "Named Executives").


<TABLE>
<CAPTION>
                                              SUMMARY COMPENSATION TABLE

                                          Annual Compensation                    Long-Term
                             ----------------------------------------------     Compensation
                                                                                ------------
                                                                                    Awards
                                                                             --------------------
                                                                                 Securities
                                                           Other Annual       Underlying Options        All Other
Name and Principal Position  Year    Salary    Bonus     Compensation (1)           (#)                Compensation
---------------------------  -----  --------  -------  --------------------  --------------------  --------------------
<S>                          <C>    <C>       <C>      <C>                   <C>                   <C>
Dennis M. Jones, Chairman    1995   $300,000  $75,000           0                     0                $17,401(2)
of the Board, Director and   1994    250,000   50,000           0                     0                 13,971(2)      
President and Chief          1993    200,000   50,000           0                     0                 15,204(2)      
Executive Officer                                                                                                      
                                                                                                                       
                             
Judith A. Jones, Director,   1995   $150,000  $35,000           0                     0                 $9,719(3)
Executive Vice President,    1994    125,000   25,000           0                     0                 10,023(3)
Secretary and Treasurer      1993    100,000   25,000           0                     0                  8,920(3)
                                                                                                                 
                                                                                                                 
Michael T. Bramblett,        1995   $150,000  $35,000           0                     0                 $6,771(4)
Director and Executive       1994    125,000   25,000           0                     0                  5,990(4)
Vice President               1993    100,000   25,000           0                     0                  5,750(4)      
                                                                                                                       
                                                                                                                       
G. Andrew  Franz, Director   1995   $120,000  $20,000           0                     0                 $5,125(4)
and Senior Vice President    1994     90,000   10,000           0                 37,500(5)              4,813(4)      
- Operations -               1993     72,000    8,000           0                     0                  3,066(4)      
Pharmaceuticals                                                                                                        
                                                                                                                       
                                                                                                                       
David A. McLaughlin,         1995   $120,000  $20,000           0                     0                 $5,125(4)
Director and Senior Vice     1994     90,000   10,000           0                 37,500(5)              4,813(4)      
President  - Operations -    1993     80,000   10,000           0                     0                  4,500(4)      
Nutritionals                 
</TABLE>
---------------
(1)  None of the Named Executives received Other Annual Compensation which is
     required to be reported in this column.


                                      29
<PAGE>   30

(2)  Consists of a Company contribution to a 401(k) plan ($9,240 in 1995,
     $6,264 in 1994 and $8,004 in 1993) and the dollar value of premiums paid
     by the Company for a split-dollar life insurance policy on Mr. Jones, of
     which $8,161, $7,707 and $7,200 constituted his entire economic benefit
     in the years 1995, 1994 and 1993, respectively.

(3)  Consists of a Company contribution to a 401(k) plan ($6,771 in 1995,
     $7,239 in 1994 and $6,160 in 1993) and the dollar value of premiums paid
     by the Company for a split-dollar life insurance policy on Mrs. Jones, of
     which $2,948, $2,784 and $2,760 constituted her entire economic benefit 
     in the years 1995, 1994 and 1993, respectively.

(4)  Consists of a Company contribution to a 401(k) plan.

(5)  As adjusted to reflect the three-for-two stock split effected in the form
     of a 50% stock dividend to be paid on March 1, 1996 to holders of record
     on February 23, 1996.


     Stock Option/SAR Grants.  The Company granted no stock options and no
stock appreciation rights ("SARs") to the Named Executives during the fiscal
year ended December 31, 1995.

     Aggregated Option Exercises in Last Fiscal Year and FY-end Option Values.
The following table provides information with respect to the stock options
exercised during the fiscal year ended December 31, 1995 and the value as of
December 31, 1995 of unexercised in-the-money options held by the Named
Executives.  The value realized on the exercise of options is calculated using
the difference between the option exercise price and the fair market value of
the Company's stock on the date of the exercise.  The value of unexercised
in-the-money options at fiscal year end is calculated using the difference
between the option exercise price and the fair market value of the Company's
stock at fiscal year end, December 31, 1995.  The Named Executives exercised no
SARs during the fiscal year ended December 31, 1995 and held no SARs as of
December 31, 1995.  The information in the following table is adjusted to
reflect the three-for-two stock split effected in the form of a 50% stock
dividend, to be paid on March 1, 1996 to holders of record on February 23,
1996.


<TABLE>
<CAPTION>
                                                                                 Value of
                                                      Number of             Unexercised In-the-
                        Shares                   Unexercised Options         Money Options at
                       Acquired      Value            at FY-End                   FY-end
                      on Exercise  Realized              (#)                        ($)
        Name              (#)         ($)     Exercisable/Unexercisable  Exercisable/Unexercisable
--------------------  -----------  ---------  -------------------------  -------------------------
<S>                   <C>          <C>        <C>                        <C>
Dennis M. Jones            0           0                 0/0                       N.A.
Judith A. Jones            0           0                 0/0                       N.A.
Michael T. Bramblett       0           0              150,000/0                 $2,087,500/0
G. Andrew Franz          6,000       $47,000        7,500/30,000               $80,625/322,500
David A. McLaughlin     60,000      $670,000        7,500/30,000               $80,625/322,500
</TABLE>


                                      30
<PAGE>   31

     Cash or Deferred Profit-Sharing Plan and Trust.  Effective as of January
1, 1987, the Company adopted a Cash or Deferred Profit-Sharing Plan and Trust
known as JMI's Employee Retirement 401(k) Plan ("401(k) Plan").  The 401(k)
Plan has been amended from time-to-time and was amended and restated as of
January 1, 1995.  The 401(k) Plan provides employees with a convenient way to 
save on a regular and long-term basis and encourages employees to make and 
continue careers with the Company. During 1995, the Company made matching 
contributions to the 401(k) Plan of $33,032 to the Named Executives.

     To become eligible to participate in the 401(k) Plan, an employee must
have completed six months of service and have reached his or her eighteenth
birthday ("Eligible Employee").  As of January 1, 1996, the Company had
approximately 275 Eligible Employees, including the directors who are also
Named Executives (Dennis M. Jones, Judith A. Jones, Michael T. Bramblett, G.
Andrew Franz and David A. McLaughlin).  Pursuant to the 401(k) Plan, an
Eligible Employee who participates ("Participant") may direct that a portion 
of his or her compensation be contributed to the 401(k) Plan ("Elective 
Contributions").  The Company will contribute a matching amount determined by
the Company each year (five percent in each of 1993, 1994 and 1995) of the 
Participant's compensation ("Company Contributions").  In addition to matching
contributions, the Company may make a discretionary contribution which is
allocated among Participants in proportion to compensation.  The Participants 
are not allowed to make any voluntary contributions to the 401(k) Plan, other 
than their Elective Contributions.  The Company Contributions are subject to a 
vesting schedule described below and may not be withdrawn from the 401(k) Plan 
until age 59 1/2, retirement, termination of employment, or other condition
specified in the 401(k) Plan.  In addition, Participants may withdraw their 
Elective Contributions to the 401(k) Plan at any time after they are made for
reasons of hardship as described in the 401(k) Plan.  Elective Contributions
are always 100% vested.  Company Contributions become vested according to the 
following schedule:


<TABLE>
                              Years of        Percentage
                              Service           Vested
                            -----------        ----------
                            <S>                 <C>    
                                2............     20%
  
                                3............     40%

                                4............     60%

                                5............     80%

                                6............    100%
</TABLE>


Forfeitures of discretionary Company Contributions will be allocated to the 
accounts of other Participants.  Forfeitures of matching contributions are
allocated in proportion to matching contributions.


                                      31
<PAGE>   32

     The 401(k) Plan Trustee may invest in investments as described in the
401(k) Plan, including stocks, bonds, notes and other property.  Participants 
may not obtain loans from their accounts under any circumstances.  Company 
Contributions have, at times, been invested in shares of the Company's Common 
Stock acquired in the open market.  On February 15, 1996, the 401(k) Plan held 
90,000 shares of Common Stock (as adjusted for the three-for-two stock split 
effected in the form of a 50% stock dividend to be paid March 1, 1996 to 
holders of record as of February 23, 1996).

     The Company is the 401(k) Plan Administrator and currently pays all
expenses of the 401(k) Plan other than audit fees, which are paid by the 401(k)
Plan.  The Company has appointed Dennis M. Jones and Judith A. Jones as
Trustees of the 401(k) Plan.  The 401(k) Plan may be modified by the Board at
any time, provided that no modification shall adversely affect the rights of
the Participants or divert any of the trust fund to purposes other than the
benefit of the Participants.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the record
and beneficial ownership of the Common Stock of the Company on the indicated
date (as adjusted to reflect the three-for-two stock split effected in the form
of a 50% stock dividend to be paid on March 1, 1996 to holders of record on
February 23, 1996) by (i) each director and Named Executive (as such term is
defined in "Executive Compensation -- Summary Compensation Table", above) of
the Company, (ii) all directors and executive officers of the Company as a
group, and (iii) each shareholder owning of record or beneficially five percent
(5%) or more of the outstanding Common Stock:


<TABLE>
<CAPTION>
                                           BENEFICIAL OWNERSHIP AS OF FEBRUARY 15, 1996
Name and Address of Beneficial                                          Percentage of Shares
Owner(1)                            Shares Beneficially Owned(2)        Beneficially Owned(3)
----------------------------------  ----------------------------        ---------------------
<S>                                 <C>                                 <C>
Dennis M. Jones                                  2,781,840(4)(5)                19.4%
Chairman of the Board of
Directors and President                                                         

Judith A. Jones                                    680,625(4)(6)                 4.8%
Executive Vice President, Secretary,
Treasurer and Director                                                           

</TABLE>

                                      32
<PAGE>   33

<TABLE>
<S>                                                <C>                          <C>
Michael T. Bramblett                               162,576(7)                    1.1%
Executive Vice President and
Director

G. Andrew Franz                                    325,183(8)                    2.3%
Senior Vice President - Operations -
Pharmaceuticals and
Director

David A. McLaughlin                                 82,500(9)                     *
Senior Vice President - Operations -                                             
Nutritionals and                                                                
Director                                                                         

Stanley Lopata                                     151,500(10)                    1.1%
Director
900 South Hanley Rd.
St. Louis, MO 63106                                                              1.1%

L. John Polite, Jr                                  25,500(11)                    *
Director                                                                           
211 Oldwoods Rd.                                                                   
Franklin Lakes, NJ 07417                                                           

Edward A. Chod                                      17,250(12)                    *
Director                                                                           
10 South Broadway, Ste. 2000                                                       
St. Louis, MO 63102                                                                

Thomas F. Patton, Ph.D.                               0                           *
Director                                                                          

All Directors and                                4,226,974                      29.3% 
Executive Officers as a Group                                                     
(consisting of nine persons)                                                    
</TABLE>
---------------
*  Less than one percent.

(1)  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 

                                      33
<PAGE>   34

     shown as beneficially owned by them and their respective addresses are     
     1945 Craig Road, St. Louis, Missouri 63146.            

(2)  Includes shares deemed owned as a result of options to purchase 96,000
     shares which are presently or will become exercisable within 60 days of
     February 15, 1996.

(3)  The number of shares of Common Stock deemed outstanding as of February
     15, 1996 includes (i) 14,310,663 shares of Common Stock outstanding, (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 at
     February 15, 1996 (which conversion is presently in progress), and (iii)
     shares of Common Stock issuable pursuant to options held by the directors
     and executive officers that are currently exercisable or will become
     exercisable within 60 days of February 15, 1996 by the person or group in
     question.

(4)  Excludes 90,000 shares owned by the Company's 401(k) Plan (of which
     Dennis and Judith Jones are co-trustees) and with respect to which Dennis
     and Judith Jones disclaim beneficial ownership.

(5)  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.

(6)  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.

(7)  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 vested and unexercised options to
     purchase 75,000 shares of Common Stock pursuant to the Company's 1989
     Incentive Stock Option Plan.

(8)  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 vested and unexercised options to
     purchase 7,500 shares of common stock pursuant to the Company's 1989
     Incentive Stock Option Plan.

(9)  Includes 75,000 shares owned directly by Mr. McLaughlin and vested and
     unexercised options to purchase 7,500 shares of Common Stock pursuant to
     the Company's 1989 Incentive Stock Option Plan.

(10) 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 

                                      34
<PAGE>   35

     ownership, and vested and unexercised options to purchase 1,500 shares of
     Common Stock pursuant to the Company's 1994 Formula Stock Option Plan      
     for Non-Management Directors.          

(11) Includes 22,500 shares owned directly by Mr. Polite and vested and
     unexercised options to purchase 3,000 shares of Common Stock pursuant to
     the Company's 1994 Formula Stock Option Plan for Non-Management Directors.

(12) Includes 15,750 shares owned directly by Mr. Chod and vested and
     unexercised options to purchase 1,500 shares of Common Stock pursuant to
     the Company's 1994 Formula Stock Option Plan for Non-Management Directors.

     Based upon filings with the Securities and Exchange Commission, the
Company is advised that as of December 31, 1995, each of the following
investment advisors held discretionary authority over accounts holding, in the
aggregate, the indicated numbers of shares of the Common Stock (as adjusted to
reflect the three-for-two stock split), in each case representing approximately
5% of the then outstanding shares of Common Stock (as adjusted to reflect the
three-for-two stock split):


<TABLE>
<CAPTION>
           Name & Address of Investment Advisor   Shares
           -------------------------------------  ------------------
           <S>                                    <C>

           Nicholas Applegate Capital Management  715,350 shares
           600 West Broadway, 29th Floor
           San Diego, CA 92101

           Kennedy Capital Management             683,100 shares
           425 N. New Ballas Road, Suite 181
           St. Louis, MO 63141
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Edward A. Chod, director of the Company, is a principal in the law firm of
Greensfelder, Hemker & Gale, P.C., which firm has served as counsel to the
Company since 1982.  The amount of legal fees paid by the Company to
Greensfelder, Hemker & Gale, P.C. during the fiscal year ended December 31,
1995 did not exceed five percent (5%) of such firm's gross revenues for its
applicable fiscal year.


                                      35
<PAGE>   36

                                   PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1. The consolidated financial statements filed as part of this report on
        Form 10-K are listed on the accompanying Index to Consolidated Financial
        Statements and Consolidated Financial Statement Schedule on page F-1.

     2. The consolidated financial statement schedule filed as part of this
        report on Form 10-K is listed on the accompanying Index to
        Consolidated Financial Statements and Consolidated Financial Statement
        Schedule on page F-1.

     3. Exhibits:


        (3.1) Restated Certificate of Incorporation of the Company dated
              June 21, 1988.

        (3.2) Certificate of Amendment of the Certificate of Incorporation of
              the Company dated May 14, 1990.

        (3.3) Certificate of Amendment of the Certificate of Incorporation of
              the Company dated May 30, 1991.

        (3.4) Certificate of Designation of Convertible Preferred Stock,
              Series A, as filed with the Secretary of State of Delaware on 
              May 15, 1991, is incorporated by reference from Form 8-K dated 
              May 29, 1991.

        (3.5) Amended By-Laws of the Company as of June 14, 1988.

        (3.6) Amendment to Section 3.02 of By-Laws of the Company as of April
              1, 1992.

       (10.1) The Company's 1989 Incentive Stock Option Plan.

       (10.2) The Company's Cash or Deferred Profit Sharing Plan and Trust 
              amended and restated as of January 1, 1995 (to be filed by
              amendment).

       (10.3) Agreement and Plan of Reorganization dated as of December 27, 
              1990, as Amended and Restated as of March 15, 1991, between the 
              Company and GenTrac, Inc., is incorporated by reference from Form
              8-K dated May 29, 1991.
 
       (10.4) Asset Purchase Agreement dated as of February 12, 1993,
              between the Company and Tsumura International, Inc., is
              incorporated by reference from Form 8-K dated February 18, 1993.

                                      36
<PAGE>   37

       (10.5) Stock Purchase Agreement dated as of March 22, 1993, among the
              Company and each of the stockholders of Bronson Pharmaceuticals,
              is incorporated by reference from Form 8-K dated April 7, 1993.

       (10.6) The Company's 1994 Incentive Stock Plan effective June 1, 1994, is
              incorporated by reference from the Company's Proxy Statement dated
              April 21, 1995 for the Annual Meeting of Stockholders held May 
              15, 1995.

       (10.7) The Company's 1994 Formula Stock Option Plan for Non-Management
              Directors effective May 25, 1994, is incorporated by reference 
              from the Company's Proxy Statement dated April 21, 1995 for
              the Annual Meeting of Stockholders held May 15, 1995.

       (10.8) Licensing Agreement dated August 31, 1995 between the Company
              and Eli Lilly & Company is incorporated by reference from Form
              8-K dated September 15, 1995.

       (10.9) Manufacturing Agreement dated August 31, 1995 between the Company
              and Eli Lilly & Company, is incorporated by reference from Form
              8-K dated September 15, 1996.

       (11.1) Statement re: computation of per share earnings.

       (21.1) Subsidiaries of the Registrant.

       (23.1) Consent of Ernst & Young LLP.

       (27.1) Financial Data Schedule.

(b)  No reports on Form 8-K were filed by the Company during the last quarter
     of the period covered by this report.


                                      37
<PAGE>   38

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                     JONES MEDICAL INDUSTRIES, INC.     
                                                                        
                                                                        
                                     By:   /s/ Dennis M. Jones          
                                        -----------------------------------
                                           Dennis M. Jones, President         
                                                                        
                                     Date: March 1, 1996
                                          ---------------------------------

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.


        SIGNATURES                  TITLE                  DATE
---------------------------  --------------------  --------------------

/s/ Dennis M. Jones          President, Chief      March 1, 1996
-------------------------    Executive Officer     --------------
Dennis M. Jones              and Director          
                                                   

/s/ Judith A. Jones          Principal Financial   March 1, 1996
-------------------------    and Accounting        --------------
Judith A. Jones              Officer, Executive
                             Vice President,
                             Secretary,
                             Treasurer and
                             Director              

/s/ Michael T. Bramblett     Executive Vice        March 1, 1996
------------------------     President and         --------------
Michael T. Bramblett         Director              



                                      38

<PAGE>   39

/s/ G. Andrew Franz          Senior Vice           March 1, 1996
--------------------------   President -            
G. Andrew Franz              Operations -
                             Pharmaceuticals and
                             Director

/s/ David A. McLaughlin      Senior Vice           March 1, 1996 
--------------------------   President -          
David A. McLaughlin          Operations -
                             Nutritionals and      
                             Director

/s/ Edward A. Chod           Director              March 1, 1996  
--------------------------                         
Edward A. Chod               

/s/ Stanley Lopata           Director              March 1, 1996    
--------------------------                         
Stanley Lopata               

/s/ L. John Polite, Jr.      Director              March 1, 1996  
--------------------------                         
L. John Polite, Jr.

/s/ Thomas F. Patton, Ph.D.  Director              March 1, 1996  
---------------------------                        
Thomas F. Patton, Ph.D.     



                                      39
<PAGE>   40

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                 AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE



                                                   Page
                                                   ----

Report of Ernst & Young LLP, independent auditors  F-2

Consolidated balance sheets as of December 31,     F-3
1994 and 1995                                     

Consolidated statements of income for the years    F-4
ended December 31, 1993, 1994 and 1995            

Consolidated statements of stockholders' equity    F-5
for the years ended December 31, 1993, 1994 and
1995                                              

Consolidated statements of cash flows for the      F-6
years ended December 31, 1993, 1994 and 1995       

Notes to consolidated financial statements         F-7

Consolidated schedule for the years ended
December 31, 1993, 1994 and 1995:

     II.  Valuation and qualifying accounts        F-16

     All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.

                                     F-1
<PAGE>   41
                        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.  Our audits also 
included the financial statement schedule listed in the Index at Item 14(a).  
These financial statements and schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and schedule 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.  Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

        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>   42
 
                         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>   43
 
                         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>   44
 
                         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>   45
 
                         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>   46
 
                         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>   47
 
                         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
 
     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. At December 31, 1995 and 1994, the
Company maintained a reserve of $1,500,000 and $1,050,000, respectively, for
such anticipated discounts.
 
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>   48
 
                         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>   49
 
                         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>   50
 
                         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:
 
<TABLE>
        <S>                                                                 <C>
        1996.............................................................   $ 5,633,330
        1997.............................................................     4,633,330
        1998.............................................................     1,633,330
        1999.............................................................     1,633,330
        2000.............................................................     1,224,996
                                                                            -----------
                                                                            $14,758,316
                                                                            ===========
</TABLE>
 
                                      F-11
<PAGE>   51
 
                         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
 
     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.
 
     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>   52
 
                         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>   53
 
                         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.
 
                                      F-14
<PAGE>   54
 
                         JONES MEDICAL INDUSTRIES, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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.
 
     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.
 
     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>   55
               SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                        JONES MEDICAL INDUSTRIES, INC.


<TABLE>
<CAPTION>
                                                BALANCE AT     CHARGED TO                                           
                                                BEGINNING      COSTS AND       DEDUCTIONS -      BALANCE AT         
              DESCRIPTION                       OF PERIOD       EXPENSES        WRITE-OFFS      END OF PERIOD       
                                               --------------------------------------------------------------      
<S>                                            <C>           <C>              <C>              <C>                  
Year ended December 31, 1995
 Reserves and allowances deducted from
 asset accounts:
  Allowance for doubtful accounts                 $64,794        $63,918                            $128,712
                                               ===============================================================
  Accumulated amortization of intangibles      $4,092,394     $1,429,804         $(638,660)*      $4,883,538
                                               ===============================================================

Year ended December 31, 1994
 Reserves and allowances deducted from 
 asset accounts:
  Allowance for doubtful accounts                 $57,582        $55,807          $(48,595)          $64,794
                                               ===============================================================
  Accumulated amortization of intangibles      $3,653,028     $1,362,935         $(923,569)*      $4,092,394
                                               ===============================================================

Year ended December 31, 1993
 Reserves and allowances deducted from
 asset accounts:
  Allowance for doubtful accounts                 $16,000        $45,697           $(4,115)          $57,582
                                               ===============================================================
  Accumulated amortization of intangibles      $2,524,325     $1,128,703                --        $3,653,028
                                               ===============================================================

</TABLE>

*Write off of fully amortized intangibles in 1995, and 1994.


                                     F-16
<PAGE>   56

                                                    Commission File No: 0-15098

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


                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

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

                                   EXHIBITS

                                      TO

                                  FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

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


                         JONES MEDICAL INDUSTRIES, INC.

             (Exact name of Registrant as specified in its charter)

                                1945 Craig Road
                              St. Louis, MO 63146
                  (Address of Registrant's principal offices)