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: August 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)
(Registrant's telephone number, including area code) (908) 566-2666
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 October 8,
1996: 9,454,782
<PAGE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
August 31, 1996 November 30, 1995
(Unaudited)
------------ ------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,414,667 $ 866,750
Investments 996,159 1,711,576
Accounts receivable, net of
allowances of approximately
$82,750 and $142,000 respectively 484,484 848,685
Inventories 1,208,471 1,408,805
Prepaid expenses and other current assets 128,379 99,745
------------ ------------
Total current assets 5,232,160 4,935,561
Product software development costs 93,676 113,282
Property and equipment, net 395,804 332,136
Cost of technology 366,682 441,679
Other assets 205,818 191,962
------------ ------------
$ 6,294,140 $ 6,014,620
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 175,000 $ 300,000
Accounts payable and accrued expenses 964,138 1,266,384
------------ ------------
Total current liabilities 1,139,138 1,566,384
Long-term debt, net of current maturities -- 100,000
Leases payable--long-term 32,076 50,706
Deferred warranty revenue 46,509 60,303
------------ ------------
Total liabilities 1,217,723 1,777,393
Stockholders' equity
Common stock $.001 par value;
20,000,000 shares authorized;
9,469,115 and 8,948,810 shares
issued and 9,447,115 and 8,926,810
shares outstanding respectively 9,469 8,950
Paid-in capital 17,818,725 15,138,714
Accumulated deficit (12,619,705) (10,844,685)
------------ ------------
5,208,489 4,302,979
Unrealized (loss) gain on securities
available for sale (56,447) 9,873
Less: treasury stock at cost, 22,000
common shares (75,625) (75,625)
------------ ------------
Total stockholders' equity 5,076,417 4,237,227
------------ ------------
$ 6,294,140 $ 6,014,620
============ ============
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Nine For the Nine For the Three For the Three
Months Ended Months Ended Months Ended Months Ended
August 31, 1996 August 31, 1995 August 31, 1996 August 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 2,914,709 $ 4,551,580 $ 829,231 $1,589,403
Less sales returns and
allowances 185,554 342,494 48,238 140,587
----------- ----------- ---------- ----------
Net sales 2,729,155 4,209,086 780,993 1,448,816
Cost of sales 1,085,306 1,150,342 347,118 409,290
----------- ----------- ---------- ----------
Gross profit 1,643,849 3,058,744 433,875 1,039,526
Selling, general and
administrative expenses 3,214,593 3,869,975 1,028,247 1,357,852
Provision for uncollectible
accounts 11,286 9,120 6,472 6,558
Research and development
expenses 279,741 275,548 70,934 116,534
----------- ----------- ---------- ----------
Income (loss) from operations (1,861,771) (1,095,899) (671,778) (441,418)
Interest expense (27,956) (52,451) (9,062) (18,014)
Other income 114,707 14,281 49,934 6,506
----------- ----------- ---------- ----------
Net (loss) $(1,775,020) $(1,134,069) $ (630,906) $ (452,926)
=========== =========== ========== ==========
(Loss) per common
share $ (.19) $ (.14) $ (.06) $ (.06)
----------- ----------- ---------- ----------
Weighted average number of
shares of common stock
outstanding 9,225,080 8,013,945 9,439,845 8,202,030
=========== =========== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended August 31, 1996
(Unaudited)
<CAPTION>
Unrealized
Common Stock Gain (loss)
Held in Treasury on Securities
Common Paid-in Accumulated --------------------- 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 341 680,198 680,539
Sale of common stock 178 1,999,813 1,999,991
Net loss for the nine months
ended August 31, 1996 (1,775,020) (1,775,020)
Unrealized loss on securities
available for sale (66,320) (66,320)
------ ----------- ------------ ------ -------- -------- ----------
Balance--August 31, 1996 $9,469 $17,818,725 $(12,619,705) 22,000 $(75,625) $(56,447) $5,076,417
====== =========== ============ ====== ======== ======== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
Q-MED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
August 31, 1996 August 31, 1995
--------------- ---------------
Cash flows from operating activities:
Net income (loss) $(1,775,020) $(1,134,069)
----------- -----------
Adjustments to reconcile net income
to cash (used in) operating
activities:
Depreciation and amortization 219,945 192,384
Changes in assets and liabilities:
Decrease in accounts receivable 364,201 144,448
Decrease (increase) in inventories 200,334 (39,007)
(Decrease) increase in accounts payable
and accrued liabilities (302,246) 160,611
(Increase) in prepaid expenses and
other assets (28,634) (31,496)
Other, net (66,143) (49,035)
----------- -----------
Total adjustments 387,457 377,905
----------- -----------
Net cash (used in) operating activities (1,387,563) (756,164)
=========== ===========
Cash flows from investing activities:
Purchase of securities (1,559,903) --
Sale of securities 2,209,000 --
Product software development -- (54,196)
Capital expenditures, net (169,147) (96,572)
----------- -----------
Net cash (used in) investing activities 479,950 (150,768)
=========== ===========
Cash flows from financing activities:
Principal (payment) on note payable
to bank (225,000) (225,000)
Proceeds from issuance of common stock 2,680,530 826,591
----------- -----------
Net cash provided by financing activities 2,455,530 601,591
=========== ===========
Net increase (decrease) in cash and
cash equivalents 1,547,917 (305,341)
Cash and cash equivalents at beginning of period 866,750 626,462
----------- -----------
Cash and cash equivalents at end of period $ 2,414,667 $ 321,121
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 27,956 $ 54,529
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 nine month period ended August 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 nine and three
months ended August 31, 1996 and August 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 nine months ended August 31,
1996 are not necessarily indicative of the results which may be expected for the
full year ending November 30, 1996.
NOTE 2 - INVESTMENTS
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Amount
---------- --------- --------- -------- --------
Available-for-sale
U.S. Treasury
securities $1,052,606 $ -- $ (56,447) $996,159 $996,159
---------- --------- --------- -------- --------
$1,052,606 $ -- $ (56,447) $996,159 $996,159
========== ========= ========= ======== ========
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:
August 31, 1996 November 30, 1995
(Unaudited)
---------- -----------------
Raw materials (component parts) $ 268,708 $ 300,906
Finished units 939,763 1,107,899
---------- ----------
$1,208,471 $1,408,805
========== ==========
<PAGE>
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
August 31, 1996 November 30, 1995
--------------- -----------------
Accounts payable-trade $295,691 $ 434,250
Deferred warranty revenue 248,233 288,111
Accrued payroll 129,380 170,965
Other accrued expenses 248,600 270,137
Accrued sales commissions 42,234 102,921
-------- ----------
$964,138 $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 Nine Months For the Three Months For the Nine Months For the Three Months
Ended August 31, Ended August 31, Ended August 31, Ended August 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% (35.2) (46.1)
Cost of Sales 39.8 27.3 44.4 28.2 (5.6) (15.2)
----- ----- ----- ----
Gross Profit 60.2 72.7 55.6 71.8 (46.3) (58.3)
Selling, general and administrative 117.8 91.9 131.6 93.7 (16.9) (24.3)
Provision for uncollectible accounts .4 .2 .8 .5 23.8 (1.3)
Research and development 10.2 6.6 9.1 8.1 1.5 (39.1)
----- ----- ----- ----
(Loss) from continuing operations (68.2) (26.0) (85.9) (30.5) 69.8 52.2
Interest expense (1.0) (1.2) (1.2) (1.2) (46.7) (49.7)
Other Income 4.2 .3 9.1 .4 703.2 667.5
----- ----- ----- ----
Net (loss) (65.0) (26.9) (78.0) (31.3) 56.5 39.3
===== ===== ===== =====
</TABLE>
NINE AND THREE MONTHS ENDED AUGUST 31, 1996 COMPARED WITH THE NINE AND THREE
MONTHS ENDED AUGUST 31, 1995
Net sales for the nine months ended August 31, 1996 decreased by approximately
$1,480,000 or 35.2% when compared to the corresponding period of the prior year.
Net sales for the three months ended August 31, 1996 decreased approximately
$668,000 or 46.1% when compared to the three months ended August 31, 1995. The
decrease in sales is primarily due to a reduction in capital equipment sales to
primary care physicians of the Company's diagnostic medical equipment line. The
Company's sales force has encountered a reluctance on the part of many
physicians to make capital equipment outlays because of the rapid changes taking
place in managing their own practices. The Company's management is firmly
concentrating on selling cardiac disease management services through its
subsidiary, Interactive Heart Management Corp., to managed care companies and
large group practices.
On April 3, 1996, the Company completed a contract with SmithKline Beecham to
jointly market and sell the ohms | cad 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 has
received a warrant to invest an additional $1,000,000.
Included in the net loss of approximately $(1,775,020) was approximately
$(1,115,370) 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 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 60.2% from 72.7% for the nine
months ended August 31, 1996 when compared to the nine months ended August 31,
1995. The gross profit margin for the three months ended August 31, 1996
decreased to 55.6% from 71.8% for the three months ended August 31, 1995. This
decrease is a direct result of the decrease in unit sales.
Selling, general and administrative expenses for the nine months ending August
31, 1996 decreased approximately $655,000 or 16.9% when compared to the
corresponding period of the prior year. SG&A expenses also decreased by
approximately $330,000 or 24.3% for the three months ending August 31,
<PAGE>
1996 when compared to the three months ending August 31, 1995. The decrease was
due to a reduction in sales-related expenses as well as overall administrative
expenses.
Research and development expenses for the nine months ended August 31, 1996
increased approximately $4,000 when compared to the corresponding period of the
prior year. Research and development expenses for the three months ended August
31, 1996 decreased approximately $46,000 when compared to the three months ended
August 31, 1995. Management expects research and development expenses to
increase slightly with ongoing development of the ohms | cad 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 August 31, 1996 was
$175,000. The prime rate on October 8, 1996 was 8 1/4%.
The Company had working capital of $4,093,022 at August 31, 1996 compared to
$3,369,177 at November 30, 1995 and ratios of current assets to current
liabilities of 4.6:1 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 19.9%
of the receivables balance at August 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
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Q-Med, Inc.
By: /s/ MICHAEL W. COX
------------------------------
Michael W. Cox
President
Principal Executive and
Financial Officer
Dated: October 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> AUG-31-1996
<CASH> 2,414,667
<SECURITIES> 996,159
<RECEIVABLES> 567,238
<ALLOWANCES> 82,754
<INVENTORY> 1,208,471
<CURRENT-ASSETS> 5,232,160
<PP&E> 2,146,505
<DEPRECIATION> 1,750,701
<TOTAL-ASSETS> 6,294,140
<CURRENT-LIABILITIES> 1,139,138
<BONDS> 0
0
0
<COMMON> 9,469
<OTHER-SE> 6,284,671
<TOTAL-LIABILITY-AND-EQUITY> 6,294,140
<SALES> 2,729,155
<TOTAL-REVENUES> 2,843,862
<CGS> 1,085,306
<TOTAL-COSTS> 3,494,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,286
<INTEREST-EXPENSE> 27,956
<INCOME-PRETAX> (1,775,020)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,775,020)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
