SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended: February 29, 1996 - Commission file number: 0-11411
Q-Med, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2468665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Metro Park South, Laurence Harbor, New Jersey 08878
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number, including area code) (908) 566-2666
Indicate by check mark whether the registrant (1) has filed all reports required
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 [ ].
The number of shares outstanding of the registrant's common stock on April 9,
1996: 9,185,605
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
February 29, November 30,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,084,937 $ 866,750
Investments 1,008,699 1,711,576
Accounts receivable, net of
allowances of approximately
$200,000 and $142,000
respectively 590,943 848,685
Inventories 1,439,386 1,408,805
Prepaid expenses and other current
assets 120,606 99,745
------------ -----------
Total current assets 4,244,571 4,935,561
Product software development costs 106,747 113,282
Property and equipment, net 350,726 332,136
Cost of technology 416,680 441,679
Other assets 188,314 191,962
------------ -----------
$ 5,307,038 $ 6,014,620
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 300,000 $ 300,000
Accounts payable and accrued expenses 1,147,991 1,266,384
------------ -----------
Total current liabilities 1,447,991 1,566,384
Long-term debt - net of current maturities 25,000 100,000
Leases payable - long term 42,471 50,706
Deferred warranty revenue 43,432 60,303
------------ -----------
Total liabilities 1,558,894 1,777,393
Stockholders' equity
Common stock $.001 par value;
20,000,000 shares authorized;
9,070,342 and 8,948,810 shares
issued and outstanding respectively 9,070 8,950
Paid-in capital 15,314,991 15,138,714
Accumulated deficit (11,490,112) (10,844,685)
------------ -----------
3,833,949 4,302,979
Unrealized (loss) gain on securities available for sale (10,180) 9,873
Less: treasury stock at cost, 22,000
common shares (75,625) (75,625)
------------ -----------
Total stockholders' equity 3,748,144 4,237,227
------------ -----------
$ 5,307,038 $ 6,014,620
============ ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-----------
For the Three For the Three
Months Ended Months Ended
February 29, February 28,
1996 1995
------------- --------------
Sales $1,026,259 $1,428,872
Less sales returns and allowances 125,922 81,320
---------- ----------
Net sales 900,337 1,347,552
Cost of sales 362,584 357,476
---------- ----------
Gross profit 537,753 990,076
Selling, general and administrative expenses 1,104,447 1,253,840
Research and development expenses 100,951 63,150
---------- ----------
Income (loss) from operations (667,645) (326,914)
Interest expense (11,702) (19,233)
Other income 33,920 3,467
Net income (loss) $ (645,427) $ (342,680)
========== ==========
Income (loss) per common share $ (.07) $ (.04)
---------- ----------
Weighted average number of shares
of common stock outstanding 9,024,779 7,784,946
========== ==========
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended February 29, 1996
(Unaudited)
----------
<CAPTION>
Unrealized
Gain
(Loss) on
Common Stock Securities
Common Paid-in Accumulated Held in Treasury Available
Stock Capital Deficit Shares Amount for Sale Total
------ ------- ----------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--November 30, 1995 $8,950 $15,138,714 $(10,844,685) 22,000 $(75,625) $ 9,873 $4,237,227
Exercise of stock options
and warrants 120 176,277 176,397
Net loss for the three months
ended February 29, 1996 (645,427) (645,427)
Unrealized loss on securities
available for sale (20,053) (20,053)
------ ----------- ------------ ------ -------- -------- ----------
Balance--February 29, 1996 $9,070 $15,314,991 $(11,490,112) 22,000 $(75,625) $(10,180) $3,748,144
====== =========== ============ ====== ======== ======== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<CAPTION>
For the Three For the Three
Months Ended Months Ended
February 29, February 28,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (645,427) $(342,680)
---------- ---------
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization 72,826 61,749
Changes in assets and liabilities:
Decrease in accounts receivable 257,742 171,351
(Increase) decrease in inventories (30,581) 6,456
(Decrease) in accounts payable and accrued
liabilities (118,393) (39,802)
(Increase) in prepaid expenses and other assets (20,861) (30,971)
Other, net (27,644) (9,436)
---------- ---------
Total adjustments 133,089 159,347
---------- ---------
Net cash (used in) operating activities $ (512,338) $(183,333)
========== =========
Cash flows from investing activities:
Proceeds from sale of investments 702,877 --
Unrealized loss on securities available for sale (20,053) --
Capital expenditures, net (53,696) (23,226)
---------- ---------
Net cash provided by (used in) investing activities $ 629,128 $ (23,226)
========== =========
Cash flows from financing activities:
Principal (payment) on note payable to bank (75,000) (75,000)
Proceeds from issuance of common stock 176,397 7,000
---------- ---------
Net cash provided by (used in) financing activities $ 101,397 $ (68,000)
========== =========
Net increase (decrease) in cash and cash equivalents 218,187 (274,559)
Cash and cash equivalents at beginning of period 866,750 626,462
---------- ---------
Cash and cash equivalents at end of period $1,084,937 $ 351,903
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 12,243 $ 19,827
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Q-MED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-QSB and Item 310(b)
of Regulation SB. Accordingly, these financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended February 29, 1996
are not necessarily indicative of the results that may be expected for the year
ending November 30, 1996. These consolidated condensed financial statements
should be read in conjunction with the financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended November 30, 1995.
NOTE 1--RESULTS OF OPERATIONS
In the opinion of management, the financial statements for the three months
ended February 29, 1996 and February 28, 1995 include all adjustments and
accruals necessary for a fair presentation. All such adjustments are of a normal
recurring nature. The results of operations for the three months ended February
29, 1996 are not necessarily indicative of the results which may be expected for
the full year ended November 30, 1996.
NOTE 2--INVESTMENTS
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Amount
-------- ---------- ---------- ----- --------
<S> <C> <C> <C> <C> <C>
Available-for-sale
U.S. Treasury securities $998,519 $ -- $(10,180) $1,008,699 $1,008,699
-------- ------- -------- ---------- ----------
$998,519 $ -- $(10,180) $1,008,699 $1,008,699
======== ======= ======== ========== ==========
</TABLE>
NOTE 3--INVENTORIES
Inventories, consisting of finished units and raw materials, are stated at the
lower of cost (determined on a moving weighted average method) or market.
Inventories consist of the following:
February 29, November 30,
1996 1995
----------- ------------
(Unaudited)
Raw materials (component parts) $ 303,079 $ 300,906
Finished units 1,136,307 1,107,899
---------- ----------
$1,439,386 $1,408,805
========== ==========
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
February 29, November 30,
1996 1995
----------- ------------
(Unaudited)
Accounts payable trade $ 454,091 $ 434,250
Deferred warranty revenue 275,895 288,111
Accrued payroll 99,948 170,965
Other accrued expenses 265,817 270,137
Accrued sales commissions 52,240 102,921
---------- ----------
$1,147,991 $1,266,384
========== ==========
NOTE 5 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of qmed, Inc., its
83% owned subsidiary, Heart Map, Inc., and its 100% owned subsidiary,
Interactive Heart Management Corp., which was formed in March, 1995. Interactive
Heart Management Corp. provides coronary artery disease management services to
health care providers throughout the United States. All inter-company accounts
and transactions have been eliminated.
<PAGE>
PART I--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the percentage of total revenues for the periods
indicated and changes from period to period of certain items included in the
Company's Statements of Operations.
<TABLE>
<CAPTION>
For the Three Months Period to Period Percentage Changes
Ended February 29, For the Three Months Ended
and February 28, February 29, and February 28,
1996 1995 1996 vs. 1995
-------- -------- -------------------------------------
<S> <C> <C> <C>
Sales (net) 100.0% 100.0% (33.2)
Cost of sales 40.3 26.5 1.4
Gross profit 59.7 73.5 (45.7)
Selling, general and
administrative 122.6 93.0 (11.9)
Research and development 11.2 4.7 59.8
Loss from continuing
operations (74.1) (24.2) 104.2
Interest expense (1.3) (1.4) (39.2)
Other income (expense) 3.7 .3 878.4
Net loss (71.7) (25.3) 88.3
</TABLE>
THREE MONTHS ENDED FEBRUARY 29, 1996 COMPARED WITH THE THREE MONTHS ENDED
FEBRUARY 28, 1995
Net sales for the three months ended February 29, 1996 decreased 33.2% or
approximately $447,000 when compared to the three months ended February 28,
1995. The decrease was primarily due to a continued decrease in capital
equipment sales to primary care physicians through the Company's domestic sales
force. This slowdown, in management's opinion, is due to the continuing effect
of managed healthcare on the economics of the practice of primary medical care.
Although the Company continues to maintain its domestic sales force in this
marketplace, much of management's efforts were focused on developing and
marketing the Company's ohms | cad technology, a disease management system for
coronary artery disease, to the managed care market. The Company expects that
significant revenue from the sale of ohms | cad services will lag behind
marketing and administrative costs by approximately 18 months.
On April 3, 1996, the Company announced that it had successfully completed a
contract with SmithKline Beecham to jointly market and sell the ohms | cad
system to managed care companies in the United States. In addition, SmithKline
Beecham's venture capital affiliate, S.R. One Limited, has agreed to make an
equity investment of $2,000,000 and will receive a warrant to invest an
additional $1,000,000.
Included in the net loss of approximately ($645,000) was approximately
($334,000) incurred by the Company's 100% owned subsidiary, Interactive Heart
Management Inc., primarily due to the development and marketing of the ohms |
cad system.
<PAGE>
The Company's gross profit margin decreased to 59.7% for the three months ended
February 29, 1996 from 73.5% for the three months ended February 28, 1995. The
decrease was due to the decrease in sales and the increase in the cost of
finished units.
Selling, general and administrative expenses for the three months ended February
29, 1996 decreased by 11.9% or approximately $150,000 when compared to the three
months ended February 28, 1995. The decrease was primarily due to the decrease
in sales-related expenses as well as efforts to reduce administrative expenses
overall.
Research and development expenses for the three month ended February 29, 1996
increased by approximately $38,000 when compared to the three months ended
February 28, 1995. The increase was primarily due to the increased development
of the ohms | cad system. Management expects research and development expenses
to increase as development of the system continues.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's principal sources of working capital have been provided
from operations, proceeds from public and private placements of securities, and
the sale of certain assets. Since the Company's inception, these transactions
have generated approximately $15,000,000 less applicable expenses.
The Company has an installment note payable to a bank in the amount of $625,000
dated March 1, 1995. The Company has been making monthly installments of $25,000
plus interest at 1% over prime rate. The balance as of February 29, 1996 was
$325,000. The prime rate on April 9, 1996 was 8 1/4%.
The Company had working capital of $2,796,580 at February 29, 1996 compared to
$3,369,177 at November 30, 1995 and ratios of current assets to current
liabilities of 2.9:1 and 3.2:1, respectively. The working capital decrease was
primarily due to the net loss of approximately $645,000 for the first quarter.
The Company anticipates that funds generated from operations, together with cash
and cash equivalents, should be sufficient to meet its working capital and
capital requirements. In addition, the Company anticipates receiving $2,000,000
from SR One Limited, SmithKline Beecham's venture capital affiliate, to support
Interactive Heart Management Corp.'s sales efforts and for general working
capital purposes.
The Company maintains a general policy of net 30-day payment terms for
distributors, cash or third-party leasing arrangements with direct sales to
physicians and letters of credit or open account for international sales. In
some instances, the Company has extended payment terms beyond net 30 to selected
distributors. The Company's receivables balances over 90 days past due was 18.1%
of the receivables balance at February 29, 1996 compared to 20.9% at November
30, 1995. The Company is aggressively seeking payment arrangements to be made in
the near future on these overdue balances.
The Company, with its subsidiary, Interactive Heart Management Corp., enters
into contract arrangements with physician groups and managed care organizations
where either a prepayment is made per month or billing is done on a per test
basis. The Company generally holds a security deposit for systems placed in
physicians offices.
The Company offers certain distributors the opportunity upon the introduction of
new or upgraded products to exchange their inventory units. In such cases, the
customer is billed for the net price differential at the time of the product
exchange.
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
No change from previous filing.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Q-Med, Inc.
By: /s/ MICHAEL W. COX
--------------------------------
Michael W. Cox
Chairman of the Board
Principal Executive and
Financial Officer
Dated: April 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> FEB-29-1996
<CASH> 1,084,937
<SECURITIES> 1,008,699
<RECEIVABLES> 790,943
<ALLOWANCES> 200,000
<INVENTORY> 1,439,386
<CURRENT-ASSETS> 4,244,571
<PP&E> 2,026,383
<DEPRECIATION> 1,675,657
<TOTAL-ASSETS> 5,307,038
<CURRENT-LIABILITIES> 1,447,991
<BONDS> 0
0
0
<COMMON> 9,070
<OTHER-SE> 3,739,074
<TOTAL-LIABILITY-AND-EQUITY> 5,307,038
<SALES> 900,337
<TOTAL-REVENUES> 934,257
<CGS> 362,584
<TOTAL-COSTS> 1,104,447
<OTHER-EXPENSES> 100,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,702
<INCOME-PRETAX> (645,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (645,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (645,427)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
