FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: November 30, 1995
Commission File Number: 0-11411
QMED, INC.
(Exact Name of Registrant 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 (Zip Code)
executive offices)
Registrant's telephone number, including area code: (908) 566-2666
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
$.001 par value
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements by
reference in Part III of this Form 10-KSB or any amendment to the Form 10-KSB.
[ ]
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 [ ]
As of February 23, 1996, the aggregate value of the registrant's voting
stock held by non-affiliates was $89,151,483 (computed by multiplying
the last reported sale price on February 23, 1996 by the number of shares of
common stock held by persons other than officers, directors or by record holders
of 10% or more of the registrant's outstanding common stock. This
characterization of officers, directors and 10% or more beneficial owners as
affiliates is for purposes of computation only and is not an admission for any
purposes that such persons are affiliates of the registrant).
As of February 23, 1996, there were 9,058,009 shares of the
registrant's common stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Document Form 10-KSB Reference
-------- ---------------------
Portions of the Registrant's Proxy Statement
for its 1996 Annual Meeting (to be filed in
definitive form within 120 days of the
Registrant's Fiscal Year End) III
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PART I
ITEM 1. BUSINESS
GENERAL
Q-Med, Inc. (the "Company") is a Delaware corporation and is the successor
by merger to the business of a New Jersey corporation organized on February 1,
1983. The Company engages in the development, manufacture, marketing and sale of
advanced medical devices and systems. The Company markets a line of ambulatory
ischemic heart monitors, an interpretative electrocardiograph, a device for the
analysis of heart rate variability and a device for the measurement of venous
blood flow. During the year ended November 30, 1995 ("fiscal 1995") the Company,
through a newly founded Interactive Heart Management Corp. subsidiary ("IHMC"),
developed and began marketing an integrated coronary artery disease management
system under the tradename "ohms/cad(TM)" to manage coronary heart disease in
conjunction with health care providers and large physician practice groups. The
Company has historically focused on producing high quality medical devices that
provide reliable diagnostic interpretation of certain disease states. These
devices are designed to address the needs of primary health care physicians to
appropriately manage certain diseases cost effectively. The Company's products
are uniquely suited to assist primary health care physicians in discharging the
greater medical responsibilities that are expected to be placed on them, as
efforts are made to reduce the overall cost of health care. Each of the
Company's present products, and those which are under development by the Company
as well as products employing selectively acquired technology developed by
others are designed to provide sophisticated analysis of physiological
data in near or real-time and report these analytical results to the
primary care physician in order to detect and manage the early signs of
potentially acute disease. These technologically advanced diagnostic tools lead
to early detection and treatment thereby facilitating cost-effective
management of disease by a primary care physician rather than disease management
in an expensive acute care facility, such as a hospital.
The Company has developed and markets a full line of ambulatory
computerized ischemic heart disease monitors utilizing patented technology.
These ambulatory products, marketed under the name "Monitor One," continuously
analyze and interpret the discrete marker of ischemic heart disease, the
ST-segment of electrocardiographic ("ECG") signals generated by the heart
utilizing patented and proprietary technology in real time. The Company has also
developed and is marketing an electronic medical device under the name, Monitor
One nDx ("nDx") which analyzes the heart rate variability. The loss
of variation in the heart rate may assist the physician in making a diagnosis
and determining the severity of autonomic neuropathy. Autonomic neuropathy, a
deterioration of the autonomic nervous system, is associated with diabetic
patients which may lead to complications in the functioning of the heart,
respiratory systems, digestion, body temperature, metabolism, perspiration and
the secretion of certain endocrine glands. The Company also manufactures and
markets a non-invasive system to diagnose Deep Venous Thrombosis and other
venous abnormalities under the tradename "VasoSpect." In addition, the Company
markets, under an exclusive license, a computerized
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interpretative electrocardiograph designed to interpret resting ECG signals
under the name "Interp 1000."
Utilizing the experience obtained through various drug trials with such
companies as Pfizer, Ciba Geigy, ICI and others and the extensive validations
completed on Monitor One instruments, the company has developed a comprehensive,
telemedicine disease management system for the coronary artery disease ("CAD")
patient. This system, referred to as ohm/cad consists of (Monitor One ambulant
ischemic technology), a remote on-line diagnostic center (ohms center); and an
integrated cardiology consultant practice. This entire system non-invasively and
reliably quantifies the probable risk of a heart attack, unstable angina and
death and directs the patient to appropriate therapy with the emphasis
throughout on early detection, the modification of risk-factors and medical
intervention. Early treatment, emphasis on medical intervention, appropriate
referrals to the cardiologist results in an overall lowering of the cost of CAD
care and the improvement in morality and morbidity rates in populations having
CAD.
The Company's executive offices are located at 100 Metro Park South,
Laurence Harbor, New Jersey 08878 and its telephone number is (908) 566-2666.
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AMBULATORY ISCHEMIC HEART DISEASE MONITORING
While ambulatory monitoring for arrhythmias was first introduced
in the early 1960's and has been broadly used in medical practice as a
diagnostic monitoring system useful to detect rhythm and rate disturbances of
the heart, no company had developed a novel application using solid-state
electronics and a validated "ischemia analysis" program to evaluate the presence
and duration of ambulatory ischemic heart disease (Monitor One). Thus, the
medical utility of Monitor One allows the detection and analysis of "reduced
coronary artery blood flow" during a patient's daily routines (Ambulant Ischemic
Heart Disease). Such analysis can result in the early prevention of heart
attack, unstable angina and death. In addition, "silent heart disease" which is
prevalent in coronary artery disease patients and diabeteics, may also be
detected and evaluated by the Monitor One technology. The basic design of
Monitor One to accomplish this special function, utilizes an on-board
microprocessor and an extensively clinically validated algorithm to analyze
ischemic ECG signals and distinguish between normal and abnormal heart beats as
the patient is wearing the device throughout their normal daily routines.
Heightened recognition that ischemic episodes are predominantly silent and
prognosticate morbid cardiac events such as heart attacks, "sudden death" and
unstable angina prompted the Company to develop the Monitor One technology.
The Company's Monitor One systems utilize technology which detects changes
in the ECG signal which may be associated with diseases of the heart. Monitor
One systems store analyzed ECG wave forms, statistical data, produce printed
reports and can transmit data either directly to a printer or over telephone
lines, or to a personal computer for physician analysis, interpretation and
ischemic intervention. Monitor One ischemia monitors have a programmable feature
which permits a physician to adjust the device to an individual's patient's
cardiac condition. The monitor may also be programmed to emit a tone intended to
notify the patient to certain cardiac episodes. This feature enables the patient
to intervene in, and potentially interrupt such serious ischemic episodes,
through the self administration of a physician prescribed medication or the
initiation of contact with emergency medical services. The Company's Monitor
One, which may be worn on a belt or carried in the patient's pocket, is capable
of interpreting a wide variety of ECG signals which may be associated with
cardiac conditions, in addition to reduced blood flow to the heart (myocardial
ischemia), such as certain erratic heartbeats (arrhythmias) and rate
disturbances (bradycardia and tachycardia) and is capable of continuously
monitoring patients for up to eight days. Monitor One technology has been
independently validated in controlled research studies for the detection of
ischemic episodes associated with coronary ST-segment deviations in patients
with diagnosed coronary artery disease ("CAD"). The Company's Monitor One line
consists of seven models. The Monitor One TC Omni model is capable of providing
full disclosure of all ECG wave forms collected during a monitoring session. The
Omni series also forms the foundation of the Company's PC-ECGraph and
Insight-350 monitoring systems, introduced in November 1988 and November 1991
respectively. ECGraph and Insight couples the Monitor One Omni's full disclosure
capabilities with a personal computer to permit the further analysis of ECG
statistical and wave form data, including superimposition scanning and the
analysis of Heart Rate Variability ("HRV"), which may be an independen
predictor of the potential of "sudden cardiac death." All of the
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products utilize the Company's patented Monitor One capabilities, analysis and
data storage technology, and offer a range of features for the analysis and
retrieval of ECG information in various formats. Certain patents relating to the
Company's technology begin expiring in 2004.
Each Monitor One system is a computerized monitor with five high-fidelity
electrodes which are either disposable or reusable and attached to the monitor
through a single connector. The reusable electrodes were originally developed by
the National Aeronautics and Space Administration ("NASA"). Monitoring for
periods of greater than 24 hours is possible due to solid-state memory and the
design of the reusable electrodes, which allows high-fidelity signal capture
without the need for daily replacement of disposable electrodes. The United
States Patent Office abstract (No. 3,420,223) for the reusable electrode system
reports that the electrodes can be used continuously for 28 days without
appreciable deterioration of the electrodes or irritation of the wearer. In
practice, the reusable electrode system (which includes a plastic casing and
attached wiring) is subjected to physical abuse in its application and removal
from the patients' chests following a 24 hour monitoring session. Based upon the
Company's experience to date, it appears that the reusable electrode system has
an average life of six months. The Company offers extended one, two and
three-year warranties, at an additional cost to the purchaser, which includes
the cost of one set of replacement reusable electrodes for each year. The
monitor retains all information stored in a non-volatile memory driven by a
lithium battery during battery pack replacement or if the monitor is turned off
for a minimum of one year. In addition, the monitors indicate, by audible tone
and liquid crystal display ("LCD"), when battery replacement is required.
The Company's ambulatory monitors are capable of informing a patient of the
presence of certain ECG abnormalities by tone and LCD message, if programmed by
a physician. The physician may elect to instruct the patient to take certain
appropriate medication or contact the physician when the tone indicates an
abnormality. In this way, the patient has the opportunity to intervene in and
potentially interrupt a cardiac episode. The monitor may also be programmed by a
physician so that variable thresholds of heart rate and other abnormalities can
be defined for each patient.
An integral part of Monitor One TC and Omni systems developed by the
Company is called the buffered interface module ("BIM"). The BIM permits the
rapid retrieval and storage of data from Monitor One units prior to printing
reports. This permits a physician to remove data stored after a monitoring
session and re-employ the monitor while the report is printing. The BIM also
permits data to be transferred to a microcomputer system base station, either
directly or telephonically. The Company has developed propriety microcomputer
software to store, organize and assist in the analysis of ECG data.
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OHMS/CAD(TM) SYSTEM
ohms/cad is Interactive Heart Management Corp.'s ("IHMC") proprietary
"On-line Health Management Service for Coronary Artery Disease". It is a
telecommunications system designed as a total disease management process for
CAD. It consists of STRx, IHMC's Monitor One ambulant ischemia technology; a
remote on-line diagnostic center (ohms Center); and an integrated cardiology
consultant practice. The entire system noninvasively and reliably quantifies the
probable risk of a heart attack, unstable angina and death and rationally
directs the patient to appropriate therapy with the accent on early detection,
the modification of critical risk-factors and medical intervention.
The overall system operates as an "expert system" emphasizing best medical
treatment options for myocardial ischemia and continued coronary wellness. The
system is an evidence based, relational mechanism, using coronary artery disease
patient descriptors which include: demographics, medical history, current
medical therapy, including aspirin, lipid and hypertension profiles, obesity and
life style, smoking, glucose levels and ambulant ischemia in its decision
making.
In addition, each individual patient's demographics and risk profiles are
simultaneously entered into the ohms/cad database for secondary prevention
analysis and treatment. Recommendations for management are relational, and
tailored to an individual patient for lipid and hypertension management,
antithrombosis, smoking, exercise, obesity and diabetes.
Because of centralized, digital storage of all data, it allows for the
continuous description and analysis of quantifiable results; success of the
stratification, proportion of patients assigned to various therapies, objective
outcomes, interplay with pharmaceutical and pharmacy benefit managers and
physician and patient compliance.
For example, in its risk prevention mode (MI, unstable angina, sudden
death), it centers on the presence or absence of ambulant ischemia as a risk
stratifier utilizing our specialized non-invasive STRx technology for evaluation
of this phenomena in each patient. This test data is telecommunicated to our
ohms/cad database (ohms Center), which in turn stratifies each individual
patient into high or low risk. It then proposes to lower patient risk with
specific anti-ischemic medical therapies as one treatment option, or, if
necessary, recommend further local cardiology consultation leading to possible
invasive intervention. If the data indicate that the patient is at low risk, a
message is sent back to the primary care physician (PCP) site within minutes
with recommendations for optimization of medical therapy which will maintain the
patient in the low-risk pool. In both circumstances, therapeutic actions are
guided by IHMC's proprietary disease management algorithm which in turn is based
on national practice guidelines. All of the interactions and data are stored in
the ohms/cad diagnostic center, thus, outcome information is available
continuously.
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Because ohms/cad is an active disease management process emphasizing a
continuum of care, derived from early detection of ambulant ischemia and
modification of patient risk factors, similar cost effective improvements in
cardiac events can be expected from its use. The ohms/cad system continually
monitors the care process at the primary care level, thus, results are reported
as outcomes. Favorable outcomes increase market share, decrease economic risk
and increase product differentiation. In the end, it is "coronary wellness" that
counts. It is durable, measurable and less costly than conventional care. As a
result, the early implementation of ohms/cad should contribute to significant
savings and patient gains in market share.
ADDITIONAL PRODUCTS
The Company developed and is marketing a diagnostic device that analyszes
heart rate variability which can provide the physician information on the
functioning of the Autonomic Nervous System ("ANS"). ANS dysfunction is the
failure of the portion of the body's nervous system to regulate such unconscious
functions as respiration, circulation, digestion, heart-rate, body temperatures,
metabolism, sweating and certain glandular secretions. These symptoms are
associated with serious complications of diabetes leading to blindness, kidney
failure, and may contribute to diabetic cardiac autonomic neuropathy, often
associated with "silent heart disease," heart attacks and "sudden cardiac
death." The Company's Monitor One nDx system ("nDx") automates the analysis of
heart rate variation during deep inspiration and forced expiration, posture
changes and Valsalva Maneuvers. The nDx monitor assists the physician in
administering the test by prompting the patient's breathing patterns and then
providing a statistical analysis. The Company believes that this product can
assist physicians in the early detection of neurological disorders related to
diabetes, before other more dangerous symptoms (heart attacks, blindness,
impotence, etc.) are present and to help manage the treatment of their diagnosed
diabetic patients. The Company received a U.S. patent for the nDx technology on
March 29, 1994 (Patent No. 5299119).
The Company manufactures and markets a non-invasive device for the
detection and differentiation of venous abnormalities under the trade name
"VasoSpect." VasoSpect non-invasively measures changes in venous circulatory
function in the lower extremities that may indicate the presence of obstructions
such as Deep Veneus Thrombosis (DVT). DVT is associated with high morbidity and
mortality, often requiring long and expensive intensive care hospitalization.
The device detects these changes during a brief non-invasive test during which
the subject wears a sensor on a leg where venous abnormalities are suspected.
The device then measures the time it takes for the blood vessels in the leg to
refill with blood. In general, the shorter the refill time, the greater the
venous abnormality.
The Company also introduced an interpretive electrocardiograph called
"Interp 1000." Interp 1000 utilizes a proprietary technology exclusively
licensed to the Company that was developed at the University of Hanover in
Germany. This technology, referred to as "HES", has been widely described as the
most accurate commercially available interpretive ECG technology developed to
date.
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MARKETING
The Company's marketing and sales efforts to primary care physicians,
hospitals and other health care providers are conducted through the Company's
own direct sales force. Foreign medical product distributors sell the Company's
products in Europe. As of January 31, 1996, the Company maintains a staff of
approximately 40 persons to assist in sales, sales management, marketing and
technical support functions. The Company also participates with unaffiliated
leasing companies in sales promotions involving financing for the end-user.
The Company also markets its products outside of the United States to
physicians and health care institutions through foreign distributors. In an
effort to expand its network of foreign distributors, the Company continually
evaluates established medical product distributors and supports validation
studies of its products by foreign research institutions. There is no assurance
that such efforts will result in the acceptance of the Company's products by the
medical community of countries in which validation studies are performed or
increase the Company's export sales. The Company's international operations are
subject to the usual risks of doing business abroad, including currency
fluctuations, government regulations, and the economic and political stability
of the countries in which it operates. In addition to the use of the Company's
products by physicians, its products have been used in clinical drug testing and
other clinical studies.
The marketing and sale of the Company's ohms | cad system is presently in
the early stages. Accordingly, the Company's marketing efforts to managed care
and large physician practice groups have been carried out by members of the
Company's senior management who draw upon the Company's technical resources as
needed. The Company intends to develop more marketing support staff internally
or form relationships with strategic partners in this venture. The Company is
discussing strategic alliances with several companies but there are no binding
agreements or understandings as to such a venture at the present time.
WARRANTY AND SALES TERMS
The Company extends end-users a standard warranty and, at additional cost
to the end-user, extended one-year to three-year warranties. Extended warranty
sales represented 9.9% of net sales for fiscal 1995. If there has been equipment
malfunction, the Company's warranty provides for the repair or replacement of
the equipment. The average unit cost of repair is minimal. During fiscal 1995
and 1994, the Company replaced approximately 2 and 7 monitors that could not be
repaired, respectively, pursuant to its warranty programs.
The Company maintains a general policy of net 30 days payment terms for
distributors, cash or third party leasing arrangements for direct end user sales
and generally requires letters of credit or other secured terms for
international sales. In some cases, the Company has extended credit beyond 30
days. As a matter of general policy, however, the Company does not enter into
consignment arrangements with end-users or distributors and sales are made
without the right of
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return. From time to time, the Company has offered certain distributors the
opportunity, upon the introduction of new or upgraded products, to exchange
their inventory units as part of its marketing efforts. In such cases, the
customer was billed for the net price differential (generally not significant)
at the time of the product exchange. As of November 30, 1995 and 1994,
approximately 20.9% and 11.7% of the receivable balances, respectively, were
more than 90 days past due. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
REIMBURSEMENT POLICIES
The Medicare program is a major payment source for procedures utilizing the
Company's products. The Medicare program is administered by the federal
government through the Health Care Financing Administration ("HCFA"), United
States Department of Health and Human Services. Medicare carriers, typically
private insurance companies, acting as agents of the government, operate under
contract with HCFA to implement Medicare program policies and process claims in
assigned geographic areas. Consequently, reimbursement rates for the same
services may vary by geographic area.
On January 1, 1992 a Medicare physician payment system became effective
which is designated "Resource Based Relative Value Scales" ("RBRVS"). RBRVS
which is administered by the Health Care Financing Administration, and replaced
the "reasonable charge" system which was utilized since 1965. The reasonable
charge system was criticized because it resulted in wide variations in the
reimbursement payments for the same services performed by physicians of
different specialties and geographic locations. The RBRVS system, which is to be
phased in over five years, is intended to provide uniform reimbursement for the
performance of a service, regardless of the specialty of the physician
performing the service. The Company's analysis of the system concludes that the
RBRVS system seeks to lower overall costs of the delivery of medical care by
rewarding more patient management provided by primary care physicians.
Although the RBRVS system described above is mandated by Congressional
action, there can be no assurance that future Congressional action will not
result in the general reduction in the rates of reimbursement. Nevertheless, the
1995 RBRVS rates for the Company's products were increased between 3-5%. While
uncertainty relating to the Medicare classification of electronic ambulatory
cardiac monitors was resolved by HCFA in October 1988 and adopted by carriers
during fiscal 1989. The Company believes that the overall political climate to
reduce fees for all medical services has a negative impact on medical equipment
sales in general and, therefore, sales by the Company. In addition,
uncertainties created, by proposals to reform the health care delivery system,
in general, has created in the Company's opinion, an environment in which many
physicians delay their decisions with respect to expenditures for capital
equipment. Accordingly, the Company expects that this trend had an adverse
impact on its equipment sales in 1995 and may continue during 1996. However, the
Company also believes that its experience in designing and marketing equipment
that offers high quality results which are medically necessary and
cost-effective, places it in a position to exploit the evolving managed health
care and large practice group market which is consistent with efforts to lower
overall health care
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costs. See "Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
PRINCIPAL CUSTOMERS
During fiscal 1995 and 1994, no single customer accounted for more than 10%
of the Company's net sales.
MANUFACTURING
The Company manufactures and assembles its product line at its Sag Harbor,
New York facility where the final testing and packaging of the Company's
products is performed. It contracts with electronics companies for the
manufacture and sub-assembly of its products and accessories, as well as certain
components of its Monitor One, nDx, Vasospect and Interp 1000 and provides these
companies with technical expertise. Although the Company has not experienced
significant delays or disruptions in the assembly and delivery of its products,
there can be no assurance that delays or disruptions will not occur in the
future. A deterioration of the Company's relationship with its independent
sub-contract manufacturers could subject the Company to substantial delays in
the delivery of its products to customers. Such delays would subject the Company
to possible cancellation of orders and the loss of certain customers.
Whenever possible, the Company uses multiple sources of supply for its
components. However, the Company believes that there are only singular sources
of supply for certain components of its products. There is no assurance that
these sources will continue to supply those parts and, if they become
unavailable, the Company would be adversely affected. Also, there can be no
assurance that the Company's contract manufacturers will maintain an acceptable
level of quality and capability for assembling the products to the Company's
specifications. The Company has not experienced delays in obtaining supplies
which affected the Company's ability to deliver finished goods.
COMPETITION
Monitor One ischemia products compete primarily with ambulatory arrhythmia
ECG scanning services, of which there are more than 75 in the United States, and
other ambulatory ECG monitoring equipment manufacturers. The Company is aware of
more than 20 ambulatory ECG monitoring equipment manufacturers of which five
manufacture digital systems. Certain large medical equipment companies such as
Hewlett Packard and Marquette have introduced electronic ambulatory monitors
which compete directly with those of the Company. These companies have
substantially greater marketing, financial and other resources than those of the
Company but management believes that the Company's products' price and
performance are competitive in this field.
The Company believes that Monitor One ischemia monitoring products offer
certain advantages over traditional ambulatory arrthymia ECG recording monitors
and scanning
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services. Monitor One products can provide continuous analysis and
quantification of ambulant ischemia in real-time as well as other irregularities
of the ECG signal for a period of time longer than 24 hours and have a
programmable feature which enables them to emit an audible tone during the
occurrence of certain high-risk ischemic episodes. These characteristics permit
the use of Monitor One products for the monitoring and regulation of drug
therapy and as a possible warning device for impending ischemic heart attacks.
The Company's sales of Interp 1000 EKG System is not significant in the
market for such devices. The market is dominated by companies such as Burdick,
Hewlett Packard and Marquette Electronics, which have far greater financial,
marketing and other resources than those of the Company. The Company believes
that its Interp 1000 product offers certain advantages, particularly its
validated accuracy, compact size, portability and pricing.
The Company is not aware of any commercial product which competes with its
nDx system which automates the process of testing for autonomic dysfunction nor
is it aware of any comprehensive CAD management system which competes with
ohms/cad.
The Company's VasoSpect system, which is designed to detect abnormalities
of venous blood flow, competes with other older and more well known technologies
such as doppler and ultrasound. Nevertheless, management believes that
VasoSpect's unique interpretative diagnostic capabilities for the analysis of
venous blood flow will allow it to compete favorably with existing technologies.
The Company believes that direct competition in ambulatory ischemic
monitors; products for testing autonomic function; interpretive ECG; and venous
blood flow analysis may in the future, come from companies that are considerably
larger and have greater financial and human resources and marketing
capabilities. Primary competitive factors in the medical device industry include
scientific and technological superiority, price, service, product support,
availability of patent protection, access to adequate capital, the ability to
successfully develop and market products and processes.
RESEARCH AND DEVELOPMENT
In fiscal 1995 and 1994, the Company expended $382,244 and $337,277
respectively, for research and development. During fiscal 1995, research and
development was primarily focused on the development of a new interactive
ischemic device designed for managed care such as health maintenance
organizations, preferred provider organizations, etc.
Management expects to continue to develop new products, as well as enhance
its existing products and has budgeted 5% to 6% of anticipated revenue for such
research and development in fiscal 1996.
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PATENT PROTECTION AND PROPRIETARY INFORMATION
The Company maintains a policy of seeking patent protection in the United
States and other countries in connection with certain elements of its technology
when it believes that such protection will benefit the Company. The Company's
Monitor One technology has been granted patents in the United States (Patent No.
4679144), Canada (No. 1281081) and Spain (No. 547040) and has additional patent
applications pending in other countries. The Company received a U.S. patent for
the nDx technology on March 29, 1994 (Patent No. 5299119). The Company has
applied for a patent for the ohms/cad system (Serial No. 08/414,510) on March
31, 1995.
The patent laws of foreign countries may differ from those of the United
States as to the patentability of the Company's products and, accordingly, the
degree of protection afforded by the pendency or issuance of foreign patents may
be different than protection afforded under associated United States patents.
There can be no assurance that patents will be obtained in foreign jurisdictions
with respect to the Company's products or that the United States patent and any
foreign patents will significantly protect or commercially benefit the Company.
The Company does not intend to rely solely on patent protection for its
proprietary technology. The Company also relies upon confidentiality agreements
with employees, know-how, expertise and lead-time to attain and maintain its
competitive position, and to the extent it does so, there can be no assurance
that others may not independently develop similar technology or that secrecy
will not be breached.
GOVERNMENTAL REGULATION
The Company's products, to the extent they may be deemed "medical devices,"
are regulated by the Food and Drug Administration (the "FDA") under the Federal
Food, Drug and Cosmetics Act (the "FDCA") and regulations promulgated
thereunder.
All medical devices sold in interstate commerce are subject to FDA
clearance. The Company's products are subject to pre-market notification
(510(k)), pursuant to which the FDA determines whether a new medical product is
"substantially equivalent" to a product that was on the market prior to May 28,
1976. Products found to be "substantially equivalent" to those products may
thereafter be sold. The FDA has the authority, which it has not yet exercised,
to issue performance standards for the type of products manufactured by the
Company.
Regulations of the FDA known as Good Manufacturing Practices ("GMP")
provide standards for manufacturing processes, facilities, and record-keeping
requirements with which the Company and its contract manufacturers must also
comply. The Company believes that the manufacturing and quality control
procedures employed by it and its contract manufacturers meet the GMP
requirements. If the FDA should determine that the Company's products were not
manufactured in accordance with GMP's, it has the authority to order the Company
to cease production of its products and may require the Company to recall
products already sold by the
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Company. In addition, any facilities used to manufacture or assemble the
Company's products will be subject to inspection by the FDA at least biannually.
The FDCA is not the exclusive source of regulation of medical devices and,
by its terms, allows state and local authorities to adopt more stringent
regulations for medical devices.
EMPLOYEES
The Company, as of January 31, 1996, had 65 full time employees. Of these
full time employees, three were executives, five were engaged in sales
supervisory capacities, 27 in sales and marketing, six in engineering, eight in
production and 16 in office administration. None of the Company's employees are
covered by a collective bargaining agreement. The Company believes its relations
with employees are good.
ITEM 2. PROPERTIES.
The Company's executive offices occupy approximately 9,000 square feet of
office space in Laurence Harbor, New Jersey. These facilities are used
principally for administrative offices, sales training, and marketing. In
addition, the Company leases approximately 4,000 square feet of space in
Ronkonkoma, New York used principally for research and development and quality
control and 4,884 square feet in Sag Harbor, New York for assembly. Management
believes that the foregoing facilities are adequate for the Company's current
level of operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of business. It is
management's opinion that the ultimate resolution of these matters will not have
a material effect on the Company's consolidated financial position and results
of operations.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Market for the Registrant's Common Stock and related stockholder matters as
set forth on page 15 of the Registrant's 1995 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations as set forth on pages 3 to 5 of the Registrant's 1995 Annual Report
to Stockholders is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data as set forth on pages 6 to 14
of the Registrant's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT.
Information with respect to executive officers and directors of the Company
will be set forth in the Company's definitive proxy statement which is expected
to be filed within 120 days of November 30, 1995 and is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information with respect to executive compensation will be set forth in the
Company's definitive proxy statement which is expected to be filed within 120
days of November 30, 1995 and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to the ownership of the Company's securities by
certain persons will be set forth in the Company's definitive proxy statement
which is expected to be filed within 120 days of November 30, 1995 and is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to transactions with management and others will be
set forth in the Company's definitive proxy statement which is expected to be
filed within 120 days of November 30, 1995 and is incorporated herein by
reference.
15
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following Exhibits are filed as part of this report. Where such filing
is made by incorporation by reference (I/B/R) to a previously filed statement or
report, such statement or report is identified in parentheses:
<TABLE>
<CAPTION>
Official
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
<S> <C> <C>
2 None
3.1 Amended and restated New Jersey Certificate of Incorporation dated
July 6, 1983 (Exhibit 3C to the S-18 Registration Statement 2-86653-NY
of the Company effective December 1, 1983) I/B/R
3.2 New Jersey By-Laws as amended on January 16, 1984 (Exhibit 3F to the
Company's Annual Report on Form 10-K for the year ending November 30,
1984) I/B/R
3.3 Amended and Restated Delaware Certificate of Incorporation of Q-Med,
Inc. as in effect on July 11, 1987 (Exhibit 3.3 to the Company's
Report on Form 10-Q dated May 31, 1987) I/B/R
3.4 By-Laws as in effect on July 1, 1987 (Exhibit 3.3 to the Company's
Report on Form 10-Q dated May 31, 1987) I/B/R
4.1 Specimen of Stock Certificate (Exhibit 4.1 to the Company's Report on
Form 10-K dated November 30, 1989) I/B/R
4.2 Warrant Agreement dated June 20, 1995 (Exhibit 10.1 to From S-8, I/B/R
file No. 33-80091)
4.3 Form of Warrant Agreement dated November 15, 1995 (Exhibit 10.21 to
Form S-8, file No. 33-80091)
9 None
10.1 Q-Med, Inc. 1986 Incentive Stock Option Plan (Exhibit 10N to the
Company's Registration Statement No. 33-4499 on Form S-1) I/B/R
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
10.2 Loan and Security Agreement dated November 1, 1989 between First
Fidelity Bank, National Association and the Company (Exhibit 10.1 to
the Company's report on Form 8-K dated November 27, 1989, as amended
by Form 8 dated December 6, 1989) I/B/R
10.3 Modification Agreement dated April 16, 1991 between the Company and
First Fidelity Bank, N.A. New Jersey (Exhibit 10.1 to the Company's
Form 10-Q Report dated February 28, 1991) I/B/R
10.4 Limited Corporate Guaranty of Heart Map, Inc. dated April 16, 1991
(Exhibit 10.3 to the Company's Form 10-Q Report dated February 28,
1991) I/B/R
10.5 Security Agreement between Heart Map, Inc. First Fidelity Bank, N.A.
New Jersey dated April 16, 1991 (Exhibit 10.2 to the Company's Form
10-Q Report dated February 28, 1991) I/B/R
10.6 Term Promissory Note payable to First Fidelity Bank dated March 13,
1992 (Exhibit 25.1 to the Company's Form 8-K Report dated March 13,
1992) I/B/R
10.7 Lease dated June 1, 1992 between the Company as Lessee and Graphic
Arts Building Co. (Exhibit 10.11 to the Company's Form 10-KSB Report
dated November 30, 1992) I/B/R
10.8 Lease dated August 31, 1993 between the Company and Alexandria Atrium
Associates (Exhibit 28.1 to the Company's Form 10-QSB Report dated
August 31, 1993) I/B/R
10.9 Lease dated October 13, 1993 between the Company and the Equitable
Life Assurance Society (Exhibit 10.9 to the Company's Form 10-KSB
dated November 30, 1993 I/B/R
11 None
13 Q-Med, Inc. 1995 Annual Report.
16 None.
18 None.
21 Subsidiaries of Registrant
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
22 None.
23 Consent of Amper, Politziner & Mattia
24 None.
(b) Reports on Form 8-K
Form 8-K Report dated November 17, 1995 relating to a Private
Placement of the Company's Common Stock
</TABLE>
18
<PAGE>
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 by
the undersigned, thereunto duly authorized.
Dated: February 28, 1996 Q-MED, INC.
By: /s/ Michael W. Cox
------------------------------
Michael W. Cox,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on behalf of the Registrant and in capacities and at
the dates indicated:
SIGNATURE CAPACITY DATE
- --------- -------- ----
/s/ MICHAEL W. COX Chairman of the Board, February 28, 1996
- --------------------------- President and Treasurer
Michael W. Cox (Principal Executive and
Financial Officer)
/s/ RICHARD I. LEVIN Secretary, Director February 28, 1996
- ---------------------------
Richard I. Levin
/s/ROBERT A. BURNS Director February 28, 1996
- ---------------------------
Robert A. Burns
/s/ DEBRA A. FENTON Controller February 28, 1996
- ---------------------------
Debra A. Fenton
19
annual
report
1995
qmed inc.(r)
<PAGE>
PRESIDENT'S MESSAGE
===============================================================================
Dear Shareholder:
During Fiscal 1995, your Company made significant strides toward the goal
of establishing qmed as the leading provider of integrated coronary artery
disease management systems for HMO's, managed health care providers and large
physician group practices. The Company has anticipated that significant changes
in the manner in which health care is financed and paid for in the United
States, that is the elimination of fee-for-service, has every potential to wreak
havoc on the sales of medical equipment to physicians. In response, the
development and marketing of the ohms/cad(TM)* system through Interactive Heart
Management Corp. ("IHMC"), a newly formed subsidiary, was initiated in March of
1995. Management's timely decision has positioned the Company as a unique "pure
play" coronary artery disease manager with attractive synergy's for managed care
plans, pharmacy benefit managers and certain pharmaceutical companies. The
participants in the trading market for qmed's stock have recognized the
potential value of the ohms/cad system and, as I give you this year's report,
the price per share of common stock has risen to $11 3/8 compared to $1 7/8 a
year ago.
Last year I pointed out that the mechanisms of medical care delivery were
rapidly changing, but that these changes represented significant opportunities
for qmed. The development of the ohms/cad system during Fiscal 1995 and its
introduction to the managed care and large group practice marketplace are
significant milestones in our transition from an advanced medical equipment
manufacturer to a provider of health management systems.
ohms/cad is a proprietary "On-line Health Management Service for Coronary
Artery Disease". It is a telecommunications system designed as a total disease
management process for coronary artery disease. It consists of STRx, IHMC's
Monitor One(R) ambulant ischemia technology; a remote on-line diagnostic center
(The ohms Center); and an integrated cardiology consultant practice. The beauty
of the system is its ability to non-invasively and reliably quantify the
probable risk of a heart attack, unstable angina and death and to rationally
direct the patient to appropriate therapy with the accent on early detection,
the modification of critical risk factors and medical intervention. The overall
system operates as an "expert system" emphasizing best medical treatment options
for myocardial ischemia and continued coronary wellness. Because of centralized,
digital storage of all data, it allows for the continuous description and
analysis of quantifiable results; success of stratification, proportion of
patients assigned to various therapies, objective outcomes, including interplay
with pharmaceutical and pharmacy benefit managers and physician and patient
compliance.
Because ohms/cad is an active disease management process emphasizing a
continuum of care, derived from early detection of ambulant ischemia and
modification of patient risk factors, substantial cost effective results can be
expected from its use. Significantly, the ohms/cad system continually monitors
the care process at the primary care physician level, where results are reported
as outcomes. Favorable outcomes increase our market share, decrease our economic
risk and increase our product differentiation from all others in this field. In
the end, it is "coronary wellness" that counts and that is our goal. It is
durable, measurable and less costly than conventional care. As a result, the
early implementation of ohms/cad should contribute to significant savings for
insurers and result in substantial gains in managed care market share.
As our growth continues to be linked to this technologies' promise as a
cost effective alternative for all patients with coronary artery disease, we
will seek the development of strategic alliances within the health care industry
to promote and penetrate large segments of the managed care market.
Very truly yours,
Michael W. Cox
President
- --------------------
* Patent Pending
Annual Report 1995--Page 1
<PAGE>
QMED, INC.
QMED, INC. (the "Company") manufactures and sells a broad line of medical
diagnostic devices, which have been independently validated and established as
safe and effective, to diagnose certain potentially debilitating and life
threatening conditions such as, silent myocardial ischemia, diabetic
complications of neuropathy, venous blood flow insufficiencies and Deep Venous
Thrombosis.
The Company's products are specifically designed to be employed in primary
care physician offices as cost effective diagnostic devices. The Company's
products produce comprehensive and accurate results which may enable primary
care physicians to administer non-invasive in-office medical treatment as
opposed to expensive invasive hospital treatment.
Specifically, the Company's products are marketed and sold under the trade
names Monitor One, Interp-1000, Monitor One nDx ("nDx"), and VasoSpect. MONITOR
ONE has been used by major pharmaceutical firms to establish cardiac drug
efficacy. INTERP-1000, a portable interpretative electrocardiograph, utilizes a
cardiac interpretation program favorably described in a New England Journal of
Medicine article as equivalent in EKG analysis to the accuracy of a
cardiologist. NDX technology is designed to detect the early onset of diabetic
neuropathy, a debilitating destruction of certain autonomic nerves. Finally,
VASOSPECT technology is designed to non-invasively detect blood clots in veins
as well as other venous abnormalities.
INTERACTIVE HEART MANAGEMENT CORP.
Interactive Heart Management Corp. ("IHMC") is a 100% owned subsidiary of
qmed, Inc., which has developed a comprehensive, telemedicine disease management
system for patients with coronary artery disease ("CAD"). This system consists
of the STRx monitor (Monitor One ambulant ischemic technology), a remote on-line
diagnostic center and an integrated cardiology consultant practice. The entire
system quantifies the probable risk of a heart attack, unstable angina and
death, and directs patients to appropriate therapy, emphasizing early detection,
modification of risk factors and medical intervention.
SELECTED FINANCIAL DATA
For the Years Ended November 30:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 5,648,754 $8,369,461 $9,474,661 $10,007,636 $7,739,885
Net Income (loss) $(1,554,653) $ 24,519 $ 286,082 $ 101,473 $ (142,690)
Income (loss) per common and
dilutive common equivalent shares $ (.19) $ .00 $ (.04) $ .01 $ .02
Total Assets $ 6,014,620 $4,399,104 $4,729,195 $ 5,866,766 $4,722,610
Long-term Debt $ 100,000 $ 400,000 $ 700,000 $ 1,000,000 $ --
</TABLE>
Annual Report 1995-Page 2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, and Notes thereto, contained elsewhere in
this report.
RESULTS OF OPERATIONS
The following table presents the percentage of total revenue for the
periods indicated and changes from period to period of certain items included in
the Company's Statements of Operations.
<TABLE>
<CAPTION>
Period -to-Period
% For % Changes
Year Ended -------------------
November 30 1995 1994
-------------------- vs. vs.
1995 1994 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0 100.0 (32.5) (11.7)
Cost of sales 28.0 24.2 (22.1) (16.8)
----- -----
Gross profit 72.0 75.8 (35.8) (9.9)
Selling, general and administrative expenses 91.4 69.4 (11.1) (12.6)
Provisions for uncollectible accounts .4 1.3 (76.3) 179.1
Research and development expenses 6.8 4.0 (13.3) (40.2)
----- -----
(Loss) earnings from operations (26.6) 1.1 * *
Interest expense (1.2) (1.0) (19.3) (9.2 )
----- -----
(Loss) earnings before income taxes (27.8) .1 * *
Income taxes - - * *
----- -----
(Loss) earnings before minority interest (27.8) .1 * *
Minority interest in loss of subsidiary .3 .2 (5.9) *
----- -----
Net (loss) income (27.5) .3 * *
===== =====
<FN>
*Not meaningful
</FN>
</TABLE>
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales for fiscal 1995 decreased approximately 32.5% to $5,648,754 when
compared to $8,369,461 for fiscal 1994. The decrease was primarily due to a
slowdown in unit sales to primary care physicians through the Company's domestic
sales force. This slowdown, in management's opinion, is due to the increased
number of physicians joining large group practices and entering into managed
care contracts where revenues or procedures may be controlled. While the Company
continues to direct its sales force to physicians at the primary care level,
during fiscal 1995 much of its efforts were focused on developing and marketing
the ohms/cad technology, a disease management system for coronary artery
disease, to the managed care market.
During March, 1995, the Company formed a wholly owned subsidiary, HMC to
develop, market and implement ohms/cad (on-line health management system for
coronary artery disease) ohms/cad is a telecommunications system built around
qmed's "Monitor One" technology that includes a remote on-line diagnostic
center, as well as an integrated cardiology consultant practice.
Annual Report 1995-Page 3
<PAGE>
The goal of the system is to provide support to the primary care physician to
optimize the use of medical therapy in treating patients with CAD and by doing
so, improve the quality of care while at the same time reducing costs. Managed
care companies find this approach compelling as it can lead to significant cost
reductions since reliance on the "specialist" is dramatically reduced. The
Company has successfully implemented the ohms/cad system at several sites and
will focus on this approach throughout fiscal 1996. Included in the net loss of
$(1,554,653) for fiscal year ended November 30, 1995, was approximately
($593,000) from Interactive Heart Management Corp.
The Company's gross profit margin decreased from 75.8% to approximately 72%
during fiscal 1995. The decrease was directly related to the decrease in net
sales. Management expects gross margins to continue to be a fairly high
percentage of sales as it transitions its business towards services during 1996.
Selling, general and administrative expenses decreased by approximately
$640,000 due to a reduction in sales-related expenses. While management has cut
administrative expenses as necessary, others have risen in connection with
start-up costs for ohms/cad, such as travel and legal.
The provision for doubtful accounts decreased to less than 1% of sales.
While this decrease is directly related to the decrease in sales, the Company
also maintains strict credit policies.
Research and development expenses remained consistent with prior years.
Management expects research and development expenses to continue to remain
around 7 to 8% of net sales, with emphasis on the development of ohms/cad.
The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). Under this new
standard, a new fair value based method of accounting for stock-based
compensation arrangements with employees is established. Entities may continue
to use the Opinion 25 method or adopt the SFAS No. 123 fair value based method.
If the Company continues to use the Opinion 25 method, SFAS No. 123 requires
footnote disclosure of proforma net income and earnings per share information as
if the fair value based method had been adopted. The Company has not yet
determined which methods it will use. This Statement is effective for financial
statements for fiscal years beginning after December 15, 1995, or for the fiscal
year for which the Statement is initially adopted for recognizing compensation
expenses, whichever comes first.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net sales for fiscal 1994 decreased by approximately 11.7% to $8,369,461
when compared to $9,474,661 for fiscal 1993. The decrease was primarily due to
the continued uncertainty over health care reform throughout the United States.
The Company anticipated a decrease in sales and managed to reduce certain costs
to come closer to expected revenues. The Company's sales force continued to
focus its efforts at the primary care level and to group practices, which are
growing as a result of the evolution of managed care. The Company has been
developing a new "disease management" product which enables physicians to manage
coronary artery disease non-invasively via a telecommunication network. This new
system fills the need for cost saving measures by enabling primary care
physicians to treat the patients out of the hospital through medical management
rather than expensive, invasive procedures involving specialists. Company will
also increase efforts toward the development, marketing and implementation of
this new technology to managed care organization during fiscal 1995.
Gross profit margins increased slightly from 74.3% to 75.8% in fiscal 1994.
The increase was due to a mixture of sales price increases in certain products
and product cost decreases in certain other products.
Selling, general and administrative expenses decreased by approximately
$874,000 or 13.2% when compared to the prior year. The decrease was due to
overall reductions in advertising, sales related expenses and administrative
costs. These reductions were part of management's continued efforts to keep
expenses in line with expected revenues.
The provision for uncollectible accounts increased by approximately $68,500
in fiscal 1994 when compared to fiscal 1993. The increase was the result of
management's decision to reserve for certain accounts after exhaustive
collection measures had taken place. Although the provision increased from the
prior year, it remains only a small percentage (1.3%) of net sales.
Research and development expenses decreased by approximately $226,507 or
40% when compared to the prior year. Most of this reduction was due to the
decrease in operating costs of the facility and small reductions in engineering
personnel. The Company also capitalized approximately $76,000 in product
software development costs during fiscal 1994.
Annual Report 1995-Page 4
<PAGE>
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 November 30,
1995 was $400,000. The prime rate at November 30, 1995 was 8 3/4%.
The Company had working capital of $3,369,177 at November 30, 1995 compared
to $1,827,000 at November 30, 1994 and ratios of current assets to current
liabilities of 3.2:1 and 2.2:1 as of November 30, 1995 and 1994. The working
capital increase was primarily due to the proceeds from private placements of
the Company's stock of approximately $3,300,000 during fiscal 1995.
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. However, the Company intends to seek additional financing
to support Interactive Heart Management Corp.'s sales effort.
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 20.9%
of the receivables balance at November 30, 1995 compared to 11.7% in 1994. The
increase was primarily due to the slow payment on account of several
distributors, however, the Company is aggressively seeking payment arrangements
to be made in the near future.
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.
Annual Report 1995-Page 5
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
November 30,
ASSETS 1995
------------
<S> <C>
Current assets:
Cash and cash equivalents $ 866,750
Investments 1,711,576
Accounts receivable, net of allowance
for doubtful accounts and sales returns
of $142,000 848,685
Inventory 1,408,805
Prepaid expenses and other current assets 99,745
------------
Total current assets 4,935,561
Property and equipment, net of accumulated depreciation 332,136
Product software development costs 113,282
Cost of technology 441,679
Other assets 191,962
------------
$ 6,014,620
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,266,384
Current maturities of long-term debt 300,000
------------
1,566,384
Leases payable, long-term 50,706
Long-term debt - net of current maturities 100,000
Deferred warranty revenue 60,303
------------
1,777,393
Stockholders' equity
Common stock $.001 par value; 20,000,000 shares
authorized; 8,970,810 shares issued and 8,948,810
shares outstanding 8,950
Paid-in capital 15,138,714
Accumulated deficit (10,844,685)
------------
4,302,979
Unrealized gain on securities available for sale 9,873
Less: treasury stock at cost, 22,000 common shares (75,625)
------------
Total stockholders' equity 4,237,227
------------
$ 6,014,620
============
</TABLE>
See accompanying notes to consolidated financial statements
Annual Report 1995-Page 6
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended November 30,
1995 1994
----------- ----------
<S> <C> <C>
Sales $ 6,036,048 $8,943,212
Less: sales returns and allowances 387,294 573,751
----------- ----------
5,648,754 8,369,461
Cost of sales 1,579,196 2,027,090
----------- ----------
Gross profit 4,069,558 6,342,371
Selling, general and administrative expenses 5,164,478 5,806,320
Provision for uncollectible accounts 25,347 106,826
Research and development expenses 382,244 337,277
----------- ----------
(Loss) earnings from operations (1,502,511) 91,948
Interest expense (68,142) (84,429)
----------- ----------
(Loss) earnings before provision for income taxes (1,570,653) 7,519
Provision for income taxes -- --
----------- ----------
(Loss) earnings before minority interest (1,570,653) 7,519
Minority interest in loss of subsidiary 16,000 17,000
----------- ----------
Net (loss) income $(1,554,653) $ 24,519
=========== ==========
Net (loss) income per share $ (.19) $ .00
=========== ==========
Weighted average number of shares
outstanding 8,113,978 7,771,488
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Annual Report 1995-Page 7
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Unrealized
Gain 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>
Balances -
November 30, 1993 $7,757 $11,718,513 $ (9,314,551) 22,000 $(75,625) $ 0 $ 2,336,094
Exercise of stock options 26 19,600 -- -- -- -- 19,626
Net income -- -- 24,519 -- -- -- 24,519
------ ----------- ------------ ------ -------- ------- -----------
Balances -
November 30, 1994 7,783 11,738,113 (9,290,032) 22,000 (75,625) -- 2,380,239
Exercise of stock options 88 93,597 -- -- -- -- 93,685
Issuance of common stock
through private placement for cash 1,079 3,307,004 -- -- -- -- 3,308,083
Net loss -- -- (1,554,653) -- -- -- (1,554,653)
Unrealized gain on securities
available for sale -- -- -- -- -- 9,873 9,873
------ ----------- ------------ ------ -------- ------- -----------
Balances -
November 30, 1995 $8,950 $15,138,714 $(10,844,685) 22,000 $(75,625) $ 9,873 $ 4,237,227
====== =========== ============ ====== ======== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Annual Report 1995-Page 8
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended November 30,
1995 1994
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,554,653) $ 24,519
----------- ---------
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET
CASH (USED) PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 264,272 233,906
(Increase) decrease in:
Accounts receivable 184,502 185,889
Inventory 114,692 240,411
Prepaid expenses and other current assets 34,222 (30,014)
Increase (decrease) in:
Accounts payable and accrued liabilities 76,180 (63,414)
Other, net (92,415) (42,639)
----------- ---------
Total adjustments 581,453 524,139
----------- ---------
Net cash (used) provided by operating activities (973,200) 548,658
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Securities (1,701,703) --
Capital expenditures (186,577) (188,289)
----------- ---------
Net cash used by investing activities (1,888,280) (188,289)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on notes payable to bank (300,000) (300,000)
Proceeds from issuance of common stock 3,401,768 19,626
----------- ---------
Net cash provided (used) by financing activities 3,101,768 (280,374)
----------- ---------
Net increase in cash and cash equivalents 240,288 79,995
Cash and cash equivalents - beginning 626,462 546,467
----------- ---------
Cash and cash equivalents - end $ 866,750 $ 626,462
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID:
Interest $ 69,892 $ 72,908
Income taxes 7,328 --
</TABLE>
See accompanying notes to consolidated financial statements.
Annual Report 1995-Page 9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
QMED, INC. and Subsidiaries (the "Company") operates in one industry
segment, medical equipment sales. Sales are made nationwide through direct sales
to physicians and managed care organizations.
A majority of the Company's revenue is derived from medical equipment
provided to physicians through third-party leasing companies. At November 30,
1995, 23% of accounts receivable represented receivables which arose through
such transactions.
Credit is granted at the discretion of management. The Company generally
does not require collateral.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of QMED, INC.,
its majority (83%) owned subsidiary, Heart Map, Inc., and its wholly (100%)
owned subsidiary INTERACTIVE HEART MANAGEMENT CORP. All intercompany accounts
and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents for financial statement
purposes.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash investments. The Company restricts cash
and cash investments to financial institutions with high credit standings.
INVESTMENTS
Effective December 1, 1994, the Company adopted statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities." This statement requires classification of certain
investments into one of the following three categories based on management's
intention with regard to such securities: held-to-maturity, available-for-sale
and trading. Securities classified as held-to-maturity are recorded at cost
adjusted for the amortization of premiums or accretion of discounts, while those
classified as available-for-sale are recorded at fair value with unrealized
gains or losses reported on a net basis as a separate component of stockholders'
equity. Securities classified as trading are recorded at fair value with
unrealized gains or losses reported on net basis in income.
Realized gains and losses are determined using the specific identification
method.
INVENTORY
Inventory consists of finished units and components and supplies, and is
stated at the lower of cost (determined on a moving weighted average method) or
market.
DEPRECIATION AND AMORTIZATION
Property and equipment is depreciated using the straight-line method for
financial statement purposes over a five year period. Leasehold improvements are
amortized on a straight-line basis over the term of the lease. Repairs and
maintenance costs are expensed, while additions and betterments are capitalized.
The cost and related accumulated depreciation of assets sold or retired are
eliminated from the accounts and any gains or losses are reflected in earnings.
Annual Report 1995-Page 10
<PAGE>
PRODUCT SOFTWARE COSTS
The Company capitalizes certain costs related to the development of
computer software once technological feasibility of the software has been
established. Product software costs are amortized using the straight-line method
over the estimated useful economic life of the software developed, generally 36
months.
COST OF TECHNOLOGY
Cost of acquired technology is stated at the lower of cost or estimated net
realizable value.
Acquired technology is evaluated periodically and future potential revenues
(discounted basis) to be derived from the acquired technology is estimated to
ascertain that unamortized balances may be recovered against these future
revenues. Presently, acquired technology is being amortized on a straight-line
basis over the estimated useful life of 7 years. Amortization was $100,000 in
1995 and 1994.
STOCK OPTIONS AND WARRANTS
The Company records transactions involving its stock options and warrants
under APB Opinion 25.
NET (LOSS) INCOME PER COMMON SHARE
(Loss) income per share is computed on the basis of the weighted average
number of common and common equivalent shares outstanding during each year. It
is assumed that all dilutive stock options are exercised at the beginning of
each year and that the proceeds are used to purchase shares of the Company's
common stock at the average market price during the year. Fully diluted (loss)
income per share amounts are not presented because they are not materially
dilutive. Net (loss) income per share calculations do not give effect to any
common equivalent share where their inclusion would have the effect of
increasing earnings per share or decreasing the loss per share.
REVENUE RECOGNITION
Revenue is recognized on equipment sales when the equipment is shipped and
title passes. The Company does not enter into consignment arrangements with its
customers. Management does, however, allow the return of equipment in certain
situations as an accommodation to the customer, or after exhausting alternative
means of collection of related accounts receivable. Management establishes
estimated accruals for returns from customers and for allowances granted to them
at the time of shipment. The Company has, from time to time, introduced new
products or technologically advanced versions of existing products. The Company
allows certain customers the opportunity, upon the introduction of new or
upgraded products, to exchange their existing units for new units. In such
cases, revenue is recognized and additional funds are received to the extent of
the net price differential at the time of exchange.
The Company enters into contractual arrangements with physician groups and
managed care organizations. Revenue is recognized based on management's
estimates of amounts earned. One contract contains stipulations that, if not
met, would require the Company to refund a portion of prepayments received. It
is management's opinion that the stipulations will be met. At November 30, 1995,
$137,000 from the above such contracts is included in revenue.
The Company sells extended service warranty contracts to consumers usually
with terms of one to three years commencing at the termination of the
manufacturer's warranty. The Company recognizes revenue from the sale of two and
three year contracts over the period of the contracts based on the historical
pattern of costs incurred. Such related costs incurred over contract years one,
two and three are 76%, 17% and 7%. Revenue on one year warranty contracts is
recognized on a straight-line basis.
RESEARCH AND DEVELOPMENT EXPENSES
Costs associated with the development of new products and changes to
existing products are charged to operations as incurred (except Product Software
Development Costs).
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Annual Report 1995-Page 11
<PAGE>
NOTE 2
INVESTMENTS
<TABLE>
<CAPTION>
Amortized Gross Gross Fair Carrying
Cost Unrealized Unrealized Value Amount
Gains Losses
<S> <C> <C> <C> <C> <C>
Available-for-sale
U.S. Treasury securities $1,002,005 $9,873 $ -- $1,011,878 $1,011,878
Corporate equity securities 699,698 -- -- 699,698 699,698
---------- ------ -------- ---------- ----------
$1,701,703 $9,873 $ -- $1,711,576 $1,711,576
========== ====== ======== ========== ==========
</TABLE>
There were no sales of available-for-sale securities for the year ended November
30, 1995.
NOTE 3
INVENTORY
Raw materials
(component parts and supplies) $ 300,906
Finished units 1,107,899
----------
$1,408,805
==========
The Company's inventory is pledged as collateral in connection with an
outstanding note payable (see Note 7.)
NOTE 4
PROPERTY AND EQUIPMENT
Machinery and equipment $ 985,543
Furniture and fixtures 377,179
Office equipment 440,213
Leasehold improvements 43,301
Equipment held under capital lease 126,452
-----------
1,972,688
Less accumulated depreciation and
amortization (1,640,552)
-----------
Property and equipment - net $ 332,136
===========
The Company's property and equipment are pledged as collateral in
connection with an outstanding note payable (see Note 7). At November 30, 1995,
the equipment under the capital lease had a net book value of approximately
$52,000.
Depreciation expense was $131,000 and $123,000 for 1995 and 1994
respectively.
NOTE 5
PRODUCT SOFTWARE DEVELOPMENT COSTS
During the years ended November 30, 1995 and 1994, amortization of costs
related to product software development costs were $17,428 and $-0-,
respectively.
Annual Report 1995-Page 12
<PAGE>
NOTE 6
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts payable - trade $ 434,250
Deferred warranty revenue 288,111
Accrued payroll 170,965
Other accrued expenses 270,137
Accrued sales commissions 102,921
----------
$1,266,384
==========
NOTE 7
LONG TERM DEBT
Long-term debt consists of a term loan which is payable to the bank in
twenty-five monthly installments of $25,000 plus interest at the Bank's Base
Rate plus 1% and is collateralized by substantially all assets of the Company.
$400,000
Less current maturities 300,000
--------
Long-term debt, net of current
maturities $100,000
========
The banks base interest rate at November 30, 1995 was 8.75%.
During 1995 and 1994, the maximum month-end amounts outstanding under this
note payable were $700,000 and $1,000,000, respectively. Average daily amounts
outstanding during 1995 and 1994 were approximately $552,000 and $862,500,
respectively, with weighted average interest rates of 8.81% and 7.63%,
respectively.
NOTE 8
STOCK OPTIONS AND WARRANTS
Under the 1986 stock option plan, options may be granted until March 1996.
700,000 shares of the Company's common stock are reserved for this plan.
The QMED, INC. 1990 Employee Stock Incentive Plan provides for stock
options, stock appreciation rights, restricted stock or deferred stock awards
for up to 1,000,000 shares of the Company's common stock to be granted to
employees of the Company until October 2000. 1,000,000 shares of the Company's
common stock are reserved for this plan. Options granted under this plan must be
at a price per share not less than the fair market value per share of common
stock on the date the option is granted.
Under both the 1986 and 1990 plans, options are exercisable in cumulative
33% increments after the first and each subsequent anniversary of the date of
the grant, except for officers' options which generally are exercisable
immediately. The options expire five and ten years after the date of the grant
for incentive stock options and nonqualifying stock options, respectively.
Annual Report 1995-Page 13
<PAGE>
The following summarizes the stock option transactions for the years ended
November 30, 1995 and 1994:
<TABLE>
<CAPTION>
Number of
Shares Exercise Shares
Under Option Rate Exercisable
------------ --------- -----------
<S> <C> <C> <C>
Outstanding
November 30, 1993 910,992 $ .75 - $ 2.00 685,123
Granted 376,400 1.375 - 1.40 =========
Exercised (26,167) .75 - -
Terminated (112,667) .75 - 2.00
--------- --------------------
Outstanding
November 30, 1994 1,148,558 .75 - 2.00 808,095
Granted 253,450 1.40 - 6.75 =========
Exercised (85,133) .75 - 1.75
Terminated (47,867) .75 - 2.00
--------- --------------------
Outstanding
November 30, 1995 1,269,008 $ .75 - $ 6.75 1,038,328
--------- -------------------- =========
</TABLE>
In April 1992, the Company issued to a Corporation warrants to purchase
20,000 shares of the Company's common stock at an exercise price of $2.00 per
share. The warrants have been extended and are exercisable until March 31, 1996.
During fiscal 1995, the Company issued warrants to various parties to
purchase 435,890 shares of the Company's common stock at exercise prices ranging
from $2.75 - $5.75 per share. The warrants are exercisable over a three year
period.
NOTE 9
INCOME TAXES
Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of assets and liabilities at November 30, 1995
follow:
Current assets and liabilities
Allowance for doubtful accounts $ 34,000
Inventory overhead capitalization 60,000
Deferred Warranties 83,500
----------
177,500
Valuation allowance 177,500
----------
Net current deferred tax asset (liability) $ --
==========
Noncurrent assets and liabilities
Depreciation $ 6,700
Net operating loss carryforward 2,139,000
----------
2,145,700
Valuation allowance 2,145,700
----------
Net noncurrent deferred tax asset (liability) $ --
==========
The valuation reserve has been established for those tax credits, loss
carryforwards and deductible temporary differences which are not presently
considered more likely than not to be realized.
The statutory income tax rate differs from the effective tax rate used in
the financial statements as a result of the current year net operating losses,
the benefit of which is not being recognized in the current year. The valuation
allowance increased $178,000 and $188,000 in 1995 and 1994.
Annual Report 1995-Page 14
<PAGE>
As of November 30, 1995, the Company has the following net operating loss
carryforwards for tax purposes:
Expiration Date:
For the Year Ending
November 30,
-------------------
2000 $ 438,000
2002 915,000
2003 4,340,000
2004 1,500,000
2005 495,000
2007 12,000
2008 357,000
2010 1,260,000
----------
$9,317,000
==========
As of November 30, 1995, the Company has the following general business tax
credit carryforwards for tax purposes:
Expiration Date:
For the Year Ending
November 30,
-------------------
1998 $ 33,000
1999 38,000
2000 58,000
2001 65,000
2002 17,000
--------
$211,000
========
NOTE 10
RETIREMENT PLAN
The Company has a 401(k) plan which allows its employees to set aside a
part of their earnings, tax deferred, to be matched by the Company as determined
each year by resolution of the Board of Directors. There was no employer
contribution for the years ended November 30, 1995 and 1994.
NOTE 11
COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its premises under noncancellable operating leases
expiring June 1995 through August 1998. The approximate future minimum lease
payments are as follows:
For the Years Ending
November 30,
1996 $151,500
1997 133,400
1998 100,000
Rent expense for the years ended November 30, 1995 and 1994 was $213,000
and $219,000, respectively.
LITIGATION
The Company is subject to claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of business. It is
management's opinion that the ultimate resolution of these matters will not have
a material effect on the Company's consolidated financial position and results
of operations.
Annual Report 1995-Page 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
qmed, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of qmed, Inc. and
Subsidiaries as of November 30, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended November 30,
1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 in the first
paragraph present fairly the financial position of qmed, Inc. and Subsidiaries
as of November 30, 1995, and the results of their operations and their cash
flows for each of the two years ended November 30, 1995 in conformity with
generally accepted accounting principles.
AMPER, POLITZINER & MATTIA
January 19, 1996
Edison, New Jersey
Annual Report 1995-Page 16
<PAGE>
MARKET INFORMATION
The Company's Common Stock is traded in the NASDAQ Small-Cap Market, under
symbol "QEKG". The following table sets for the range of high and low bid
quotations for shares of the Company's Common Stock. This information represents
inter-dealer quotations, without retail mark-ups, mark-downs, or commissions,
and does not necessarily represent actual quotations.
Fiscal Year Ended November 30, 1994 High Low
- ----------------------------------- ------- ------
First Quarter $2 1/16 $1 1/2
Second Quarter 1 5/8 1 1/8
Third Quarter 1 3/4 1
Fourth Quarter 1 3/4 1 1/4
Fiscal Year Ended November 30, 1995 High Low
- ----------------------------------- ------- ------
First Quarter $2 1/16 $1
Second Quarter 3 7/16 1 7/8
Third Quarter 3 3/4 2 5/8
Fourth Quarter 8 1/2 3
As of February 22, 1996, the Company's Common Stock was held of record by
approximately 750 persons. On February 22, 1996, the closing price reported was
$11 3/8.
The Company has never paid a cash dividend on its Common Stock. It is the
current policy of the Company's Board of Directors to retain any earnings to
finance the operations and expansion of the Company's business. The payment of
dividends in the future will depend upon the Company's earnings, financial
condition and capital needs and on other factors deemed pertinent by the Board
of Directors.
Annual Report 1995-Page 17
<PAGE>
GENERAL CORPORATE INFORMATION
BOARD OF DIRECTORS
Michael W. Cox
Robert A. Burns
Richard I. Levin, M.D.
OFFICERS
Michael W. Cox
Chairman of the Board,
President and Treasurer
Richard I. Levin, M.D.
Vice President,
Medical Director and Secretary
Teri J. Kraf
Vice President - Strategic Development
Debra A. Fenton, C.P.A.
Controller
CORPORATE HEADQUARTERS
100 Metro Park South
3rd Floor
Laurence Harbor, New Jersey 08878
COUNSEL
Sommer & Schneider LLP
600 Old Country Road, Suite 535
Garden City, New York 11530
AUDITORS
Amper Politzner & Mattia
2015 Lincoln Hwy.
P.O. Box 988
Edison, New Jersey 08818-0988
STOCK LISTING
NASDAQ
Trading Symbol - QEKG
REGISTER AND TRANSFER AGENT
American Stock Transfer &
Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Annual Report 1995-Page 18
EXHIBIT 21
Q-MED, INC.,
A DELAWARE CORPORATION
SCHEDULE OF SUBSIDIARIES
Heart Map, Inc., a Delaware corporation, 100% owned.
Interactive Heart Management Corp., a Delaware corporation, 100% owned.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of qmed, Inc. and Subsidiaries on Form S-8/S-3 and Form S-8 the use of our name
as experts and our report dated January 19, 1996 on our audits of the
consolidated financial statements of qmed, Inc. and Subsidiaries as of November
30, 1995 and for each of the two years ended November 30, 1995 which report is
included in the Annual Report on Form 10-KSB.
AMPER, POLITZINER & MATTIA
February 27, 1996
Edison, New Jersey
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 866,750
<SECURITIES> 1,711,576
<RECEIVABLES> 848,685
<ALLOWANCES> 142,000
<INVENTORY> 1,408,805
<CURRENT-ASSETS> 4,935,561
<PP&E> 332,136
<DEPRECIATION> 1,640,552
<TOTAL-ASSETS> 6,014,620
<CURRENT-LIABILITIES> 1,566,384
<BONDS> 0
<COMMON> 8,950
0
0
<OTHER-SE> 4,228,277
<TOTAL-LIABILITY-AND-EQUITY> 6,014,620
<SALES> 5,648,754
<TOTAL-REVENUES> 5,648,754
<CGS> 1,579,196
<TOTAL-COSTS> 5,572,069
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,142
<INCOME-PRETAX> (1,554,653)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,554,653)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,554,653)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
