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: May 31, 1996 Commission file number: 0-11411
Q-Med, 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 executive offices) (Zip Code)
(908) 566-2666
----------------------------------------------------
(Registrant's telephone number, including area code)
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 [ ].
The number of shares outstanding of the registrant's common stock on July 3,
1996: 9,402,815
<PAGE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 1996 November 30,
(Unaudited) 1995
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 1,346,970 $ 866,750
Investments 2,468,384 1,711,576
Accounts receivable, net of
allowances of approximately
$119,000 and $142,000 respectively 645,311 848,685
Inventories 1,276,439 1,408,805
Prepaid expenses and other current assets 172,831 99,745
------------ ------------
Total current assets 5,909,935 4,935,561
Product software development costs 100,211 113,282
Property and equipment, net 390,624 332,136
Cost of technology 391,681 441,679
Other assets 203,961 191,962
------------ ------------
$ 6,996,412 $ 6,014,620
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 250,000 $ 300,000
Accounts payable and accrued expenses 1,088,113 1,266,384
------------ ------------
Total current liabilities 1,338,113 1,566,384
Long-term debt, net of current maturities -- 100,000
Leases payable--long-term 39,359 50,706
Deferred warranty revenue 43,500 60,303
------------ ------------
Total liabilities 1,420,972 1,777,393
Stockholders' equity
Common stock $.001 par value;
20,000,000 shares authorized;
9,398,249 and 8,948,810 shares
issued and 9,376,249 and 8,926,810
shares outstanding respectively 9,398 8,950
Paid-in capital 17,681,118 15,138,714
Accumulated deficit (11,988,799) (10,844,685)
------------ ------------
5,701,717 4,302,979
Unrealized (loss) gain on securities
available for sale (50,652) 9,873
Less: treasury stock at cost,
22,000 common shares (75,625) (75,625)
------------ ------------
Total stockholders' equity 5,575,440 4,237,227
------------ ------------
$ 6,996,412 $ 6,014,620
============ ============
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-----------
<CAPTION>
For the Six For the Three For the Six For the Three
Months Ended Months Ended Months Ended Months Ended
May 31, 1996 May 31, 1996 May 31, 1995 May 31, 1995
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Sales $ 2,085,478 $1,059,219 $2,962,177 $1,533,302
Less sales returns and
allowances 137,316 11,394 201,907 120,587
----------- ---------- ---------- ----------
Net sales 1,948,162 1,047,825 2,760,270 1,412,715
Cost of sales 738,188 375,603 741,053 383,575
----------- ---------- ---------- ----------
Gross profit 1,209,974 672,222 2,019,217 1,029,140
Selling, general and
administrative expenses 2,186,346 1,080,239 2,512,121 1,258,293
Provision for uncollectible
accounts 4,814 4,814 2,562 2,562
Research and development
expenses 208,807 107,855 159,017 95,866
----------- ---------- ---------- ----------
Income (loss) from operations (1,189,993) (520,686) (654,483) (327,581)
Interest expense (18,894) (8,843) (34,438) (15,205)
Other income 64,773 30,853 7,775 4,308
----------- ---------- ---------- ----------
Net (loss) $(1,144,114) $ (498,676) $ (681,146) $ (338,478)
=========== ========== ========== ==========
(Loss) per common
share $ (.13) $ (.05) $ (.09) $ (.04)
----------- ---------- ---------- ----------
Weighted average number of
shares of common stock
outstanding 9,117,697 9,208,617 7,918,869 8,049,880
=========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended May 31, 1996
(Unaudited)
-----------
<CAPTION>
Unrealized
Gain (loss)
Common Stock on 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 270 542,591 542,861
Sale of common stock 178 1,999,813 1,999,991
Net loss for the six months
ended May 31, 1996 (1,144,114) (1,144,114)
Unrealized loss on securities
available for sale (60,525) (60,525)
------ ----------- ------------ ------ -------- -------- ----------
Balance--May 31, 1996 $9,398 $17,681,118 $(11,988,799) 22,000 $(75,625) $(50,652) $5,575,440
====== =========== ============ ====== ======== ======== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
For the Six Months Ended
May 31, 1996 May 31, 1995
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (1,144,114) $(681,146)
------------ ---------
Adjustments to reconcile net income
to cash (used in) operating
activities:
Depreciation and amortization 148,247 124,673
Changes in assets and liabilities:
Decrease in accounts receivable 203,374 142,097
Decrease (increase) in inventories 132,366 (38,262)
(Decrease) increase in accounts payable
and accrued liabilities (178,271) 138,031
(Increase) in prepaid expenses and
other assets (73,086) (72,937)
Other, net (53,062) (101,290)
------------ ---------
Total adjustments 179,568 192,312
------------ ---------
Net cash (used in) operating activities (964,546) (488,834)
============ =========
Cash flows from investing activities:
Purchase of Securities (1,526,333) --
Sale of Securities 709,000 --
Capital expenditures, net (130,753) (67,468)
------------ ---------
Net cash (used in) investing activities (948,086) (67,468)
============ =========
Cash flows from financing activities:
Principal (payment) on note payable
to bank (150,000) (150,000)
Proceeds from issuance of common stock 2,542,852 805,028
------------ ---------
Net cash provided by financing activities 2,392,852 655,028
============ =========
Net increase (decrease) in cash and
cash equivalents 480,220 98,726
Cash and cash equivalents at beginning of period 866,750 626,462
------------ ---------
Cash and cash equivalents at end of period $ 1,346,970 $ 725,188
============ =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 22,217 $ 35,720
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 six month period ended May 31, 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 six and three
months ended May 31, 1996 and May 31, 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 six months ended May 31,
1996 are not necessarily indicative of the results which may be expected for the
full year ending 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 $2,519,036 $ -- $ (50,652) $2,468,384 $2,468,384
---------- ---------- ---------- ---------- ----------
$2,519,036 $ -- $ (50,652) $2,468,384 $2,468,384
========== ========== ========= ========== ==========
</TABLE>
NOTE 3 - Inventories
Inventories, consisting of finished units and raw materials, are stated at the
lower of cost (determined on moving weighted average method) or market.
Inventories consist of the following:
May 31, 1996 November 30, 1995
(Unaudited)
------------ -----------------
Raw materials (component parts) $ 274,909 $ 300,906
Finished units 1,001,530 1,107,899
---------- ----------
$1,276,439 $1,408,805
========== ==========
<PAGE>
NOTE 4 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses include the following:
May 31, 1996 November 30, 1995
------------ -----------------
Accounts payable--trade $ 330,426 $ 434,250
Deferred warranty revenue 290,110 288,111
Accrued payroll 82,686 170,965
Other accrued expenses 326,608 270,137
Accrued sales commissions 58,283 102,921
---------- ----------
$1,088,113 $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.
NOTE 6 - Sale of Stock and Warrants
In May 1996, the Company sold 177,777 shares of common stock and 63,492 warrants
to a private investor resulting in net proceeds of $1,999,991. The warrants
permit the investor to acquire additional shares of common stock for $15.75 per
share for a period of three years.
<PAGE>
PART I - ITEM 2 - 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>
Period to Period Percentage Changes
For the Six Months For the Three Months For the Six Months For the Three Months
Ended May 31, Ended May 31, Ended May 31, Ended May 31,
1996 1995 1996 1995 1996 Vs. 1995 1996 Vs. 1995
---- ---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales (net) 100.0% 100.0% 100.0% 100.0% (29.4) (25.8)
Cost of Sales 37.9 26.8 35.8 27.2 (.4) (2.1)
----- ----- ----- -----
Gross Profit 62.1 73.2 64.2 72.8 (40.1) (34.7)
Selling, general and administrative 112.2 91.0 103.1 89.0 (13.0) (14.2)
Provision for uncollectible accounts .2 .1 .5 .2 87.9 87.9
Research and development 10.7 5.8 10.3 6.8 31.3 12.5
----- ----- ----- -----
(Loss) from continuing operations (61.0) (23.7) (49.7) (23.2) 81.8 58.9
Interest expense (1.0) (1.2) (.8) (1.1) (45.1) (41.8)
Other Income 3.3 .3 2.9 .3 733.1 616.2
----- ----- ----- -----
Net (loss) (58.7) (24.6) (47.6) (24.0) 68.0 47.3
===== ===== ===== =====
</TABLE>
SIX AND THREE MONTHS ENDED MAY 31, 1996 COMPARED WITH THE SIX AND THREE MONTHS
ENDED MAY 31, 1995
Net sales for the six months ended May 31, 1996 decreased by approximately
$812,000 or 29.4% when compared to the corresponding period of the prior year.
Net sales for the three months ended May 31, 1996 decreased approximately
$365,000 or 25.8% when compared to the three months ended May 31, 1995. This
continued decrease is due to a combination of the reduction in capital equipment
sales to primary care physicians of the Company's diagnostic medical equipment
line as well as management's shift toward selling cardiac disease management
services.
On April 3, 1996, the Company completed a contract with SmithKline Beecham to
jointly market and sell the ohms|cad(TM) system to managed care companies
throughout the United States. In addition, SmithKline Beecham's venture capital
affiliate, S.R. One Limited, made an equity investment of $2,000,000 and
purchased a warrant which permits it to make an additional equity investment of
$1,000,000.
Included in the net loss of approximately $(1,144,114) was approximately
$(744,000) incurred by the Company's subsidiary, Interactive Heart Management
Corp. These losses are due to the costs associated with the development and
marketing of the ohms|cad(TM) system. Management expects costs to exceed
revenues during the next year before any significant revenue can be recognized.
The Company's gross profit margin decreased to 62.1% from 73.1% for the six
months ended May 31, 1996 when compared to the six months ended May 31, 1995.
The gross profit margin for the three months ended May 31, 1996 decreased to
64.2% from 72.8% for the three months ended May 31, 1995. This decrease is a
direct result of the decrease in unit sales.
Selling , general and administrative expenses for the six months ending May 31,
1996 decreased approximately $326,000 or 13% when compared to the corresponding
period of the prior year. SG&A expenses also decreased by approximately $178,000
for the three months ending May 31, 1996 when compared to the three months
ending May 31, 1995. The decrease was due to a reduction in sales-related
expenses as well as overall administrative expenses.
<PAGE>
Research and development expenses for the six and three months ended May 31,
1996 increased approximately $50,000 and $12,000 respectively, when compared to
the corresponding periods of the prior year. This increase was primarily due to
the continuing development of the ohms|cad(TM) system.
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 $18,000,000 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 May 31, 1996 was
$250,000. The prime rate on July 9, 1996 was 8 1/4%.
The Company had working capital of $4,571,822 at March 31, 1996 compared to
$3,369,177 at November 30, 1995 and ratios of current assets to current
liabilities of 4.4:1 and 3.2:1, respectively. The working capital increase was
primarily due to the investment of approximately $2,000,000 by SmithKline
Beecham during May, 1996.
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.
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 15.9%
of the receivables balance at May 31, 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.
<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
The Company's Annual Meeting of Stockholders was held on May
28, 1996, pursuant to written notice and the Company's bylaws.
The total number of the Company's shares outstanding on April
12, 1996, the record date of the meeting, was 9,185,605 of
which 7,210,877 were present, in person or by proxy. The
following persons were nominated by management and each was
elected to serve as director until the next annual meeting of
stockholders:
Michael W. Cox
Richard I. Levin
Robert A. Burns
The following matters were submitted to stockholders and
adopted by the requisite vote of a majority of the shares
present at the meeting:
For Against Abstain
--- ------- -------
To ratify the selection
of auditors ........... 7,159,052 9,900 41,925
Item 5. OTHER INFORMATION
On June 12, 1996, Howard L. Waltman was appointed Chairman of
the Board, Michael W. Cox will continue to serve as President
and CEO. On the same day, Herbert H. Sommer was appointed to
serve as a director of the Company.
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:_____________________
Michael W. Cox
Chairman of the Board
Principal Executive and
Financial Officer
Dated: July 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<CASH> 1,346,970
<SECURITIES> 2,468,384
<RECEIVABLES> 764,237
<ALLOWANCES> 118,926
<INVENTORY> 1,276,439
<CURRENT-ASSETS> 5,909,935
<PP&E> 2,103,440
<DEPRECIATION> 1,712,816
<TOTAL-ASSETS> 6,996,412
<CURRENT-LIABILITIES> 1,338,113
<BONDS> 0
0
0
<COMMON> 9,398
<OTHER-SE> 5,566,042
<TOTAL-LIABILITY-AND-EQUITY> 6,996,412
<SALES> 1,948,162
<TOTAL-REVENUES> 2,012,935
<CGS> 738,188
<TOTAL-COSTS> 2,395,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,814
<INTEREST-EXPENSE> 18,894
<INCOME-PRETAX> (1,144,114)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,144,114)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
