ITEM 1. BUSINESS
Forward-Looking Statements
Certain matters discussed herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company's mission and vision. The Company's actual results, performance, or achievements may differ significantly from the results, performance, or achievements expressed or implied in such forward-looking statements. For discussion of the factors that might cause such a difference, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
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, through Interactive Heart Management Corp. ("IHMC"), a subsidiary founded during the year ended November 30, 1995 ("fiscal 1995"), developed and is marketing an integrated coronary artery disease management system under the name "ohms|cad(R)" to assist managed care organizations manage the cost of coronary artery disease ("CAD"). The Company has historically focused on producing high quality medical devices that provide reliable diagnostic interpretation of certain disease states, including 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. These systems 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 early signs of potentially acute diseases. 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(R)," 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(R) ("nDx") which analyzes heart rate variability. The loss of variation in 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.
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 developed a comprehensive, telemedicine disease management system for the coronary artery disease ("CAD") patient which is marketed under the trade name ohms|cad by the Company's IHMC subsidiary. This system consists of Monitor One STRx ambulant ischemic technology; a remote on-line diagnostic center (The 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 mortality and morbidity rates in populations having CAD.
In April 1996, the Company entered into a Strategic Alliance Agreement with SmithKline Beecham Health Care Services, a division of SmithKline Beecham Corporation ("SmithKline Beecham"). Under the agreement, SmithKline Beecham has the exclusive right to market and sell the Company's ohms|cad system to managed care companies in the United States, together with the Company's IHMC subsidiary. In addition, SmithKline Beecham's venture capital affiliate, S.R. One Limited, made a $2 million equity investment in the Company and acquired warrants to acquire an additional 63,492 shares of the Company's common stock for $15.75 per share. The Company and SmithKline Beecham share profits and losses after the Company recovers its costs of operating the ohms|cad system for clients.
The Strategic Alliance Agreement, which has an initial term of five years, permits either the Company or SmithKline, beginning in April 1998, to terminate the arrangement in certain events, subject to continuing the venture to provide services contracted for prior to the termination of the venture. The Company and SmithKline have discussed possibilities for improving the results of the alliance or terminating the alliance upon mutually beneficial terms.
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.
ohms|cad System
ohms|cad is IHMC's 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 Monitor One STRx, IHMC's Monitor One ambulant ischemia technology, a remote on-line diagnostic center (The 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 (myocardial infarction, 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 the Company's ohms|cad database (The 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, recommends 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.
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.
The Company's IHMC subsidiary, individually and together with SmithKline as part of the Strategic Alliance, entered into three contracts for the utilization of ohms|cad systems covering approximately 200,000 members. One contract has been fully implemented and has been operational since 1995. The results of the utilization of ohms|cad to manage CAD patients
was the subject of a presentation at the Scientific Section of the American Heart Association's Annual Meeting in November 1997. The results showed significant health benefits for those patients undergoing ohms|cad management as compared to patients receiving usual care. Implementation began pursuant to a contract with the San Jose Medical Group in August 1997 and IHMC entered into a contract of ohms|cad services with CIGNA Health Care of Ohio in December 1997.
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 diabetics, 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. 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. 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 CAD.
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.
Additional Products
The Company developed and is marketing a diagnostic device that analyzes 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 also manufactures and markets other non-invasive medical devices.
Marketing
Pursuant to the Company's Strategic Alliance Agreement with SmithKline Beecham, SmithKline Beecham is required to provide sales and marketing support to the Company's ohms|cad sales organization. At present, the Company's sales team consists primarily of senior management supported by six senior sales staff persons that formerly were involved in the sales of the Company's Monitor One products.
The marketing and sales of the Company's devices 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. 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.
Warranty
The Company extends end-users of purchased or leased devices a standard warranty and, at additional cost to the end-user, extended one-year to three-year warranties. Extended warranty sales represented 15.7% and 13.4% of net sales for fiscal 1997 and 1996, respectively. 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 1997 and 1996, the Company replaced approximately 2 and 4 monitors, respectively, that could not be repaired pursuant to its warranty programs.
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, 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. 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 costs. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Principal Customers
During fiscal 1997 one customer accounted for 18% of net sales. During fiscal 1996 and 1995, no single customer accounted for more than 10% of the Company's net sales.
Manufacturing
The Company contracts with electronics companies for the manufacture and sub-assembly of its products and accessories, as well as certain components of its devices and provides these companies with technical expertise. Products undergo final testing and packaging at the Company's engineering facility located in Sag Harbor, New York. 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 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 Electronics 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 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 systems 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 it 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 1997, 1996, and 1995, the Company expended $179,519, $348,840, and $382,244 respectively, for research and
development. During these years, research and development was primarily focused on the development of the ohms|cad system for managed care such as health maintenance organizations, preferred provider organizations, and large physician groups.
Management expects to continue to develop new products, as well as enhance its existing products and has budgeted 8% to 10% of anticipated revenue for such research and development in fiscal 1998.
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 applied for a patent for the ohms|cad system (Serial No. 08/414,510) on March 31, 1995 and the Company was advised that a patent would be issued on March 3, 1998. Certain patents relating to the Company's technology begin expiring in 2004.
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 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, 1998, had 39 full time employees. Of these full time employees, 3 were executives, 3 were engaged in sales supervisory capacities, 7 in sales and marketing, 6 in engineering, 8 in production, 5 in technical support and 7 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.
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 6,000 square feet of space in Sag Harbor, New York used principally for research and development, assembly and quality control. Management believes that the foregoing facilities are adequate for the Company's current level of operations.
Item 3.
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.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
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 27 of the Registrant's 1997 Annual Report to Stockholders is incorporated herein by reference.
On December 18, 1997, the Company sold an aggregate $2,000,000 8% Convertible Subordinated Notes due December 18, 2002 (the "Notes"), with discount or premium, in a private placement to three investors led by Galen Partners III, L.P. The Notes were sold for cash, without any underwriter or placement agent and no commissions were paid. Interest on the Notes is accrued monthly compounded annually and will be due at maturity. The Notes are convertible into shares of the Company's Common Stock at the rate of $5.60 per share, provided that if the average closing price of shares of the Company's Common Stock for the 90 trading days following the closing exceeds $7.25, then the conversion price will increase to $6.00. The Company may redeem the Notes in the event the average closing price of shares of the Company's Common Stock equals or exceeds $12.00 for a period of 90 days at the following times with the following premiums and may elect to pay the redemption price in shares of Common Stock:
Year Redemption Price ---- ---------------- 1998 105% 1999 104% 2000 103% 2001 102% 2002 100%
The Company is required to redeem the Notes at higher premiums in the event of a change of control.
In connection with the sale of the Notes, the Company granted certain rights to the purchasers, including registration rights and the right to appoint a member of the Company's board of directors. The Note Purchase Agreement prohibits the Company from paying dividends until the Notes are paid. The sale was made in reliance on the exemption contained in Section 4(2) of the Securities Act of 1933, as amended.
Item 6.
Item 6. Selected Financial Data.
Selected financial data as set forth on page 5 of the Registrant's 1997 Annual Report to Stockholders is incorporated herein by reference.
Item 7.
Item 7. 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 6 to 11 of the Registrant's 1997 Annual Report to Stockholders is incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data as set forth on pages 12 to 26 of the Registrant's 1997 Annual Report to Stockholders is incorporated herein by reference.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. 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, 1997 and is incorporated herein by reference.
Item 11.
Item 11. 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, 1997 and is incorporated herein by reference.
Item 12.
Item 12. 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, 1997 and is incorporated herein by reference.
Item 13.
Item 13. 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, 1997 and is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements.
Description
Independent Auditors Report
Consolidated Balance Sheets as of November 30, 1997 and 1996
Consolidated Statement of Operations for each of the three years ended November 30, 1997, 1996 and 1995
Consolidated Statement of Stockholder's Equity for each of the three years ended November 30, 1997, 1996 and 1995
Consolidated Statement of Cash Flow for each of the three years ended November 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedules have been omitted because they are not applicable.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the last quarter of the fiscal year covered by this report.
(c) 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:
Official Sequential Exhibit No. Description Page No. - ----------- ----------- ---------- 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
3.5* Amendment to By-Laws dated December 18, 1997
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 to Purchase Common Stock dated May 6, 1996 i/n/o S.R. One Limited (Exhibit 4.2 to the Company's Report on Form 10-K dated November 30, 1996) I/B/R
4.3 Note Purchase Agreement between Q-Med, Inc. and Galen Partners III, L.P., Galen Partners International III, L.P., Galen Employee Fund III, L.P. dated as of December 18, 1997 (Exhibit 4.1 to the Company's Report on Form 8-K dated December 18, 1997) I/B/R
4.4 Form of 8% Convertible Subordinated Note (Exhibit 4.2 to the Company's Report on Form 8-K dated December 18, 1997) I/B/R
4.5 Registration Rights Agreement between Q-Med, Inc. and Galen Partners III, L.P., Galen Partners International III, L.P., and Galen Employee Fund III, L.P. dated as of December 18, 1997 (Exhibit 4.3 to the Company's report on Form 8-K dated December 18, 1997) I/B/R
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
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 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
10.8** Strategic Alliance Agreement effective as of April 1, 1996 between Q-Med, Inc. and SmithKline Beecham Health Services, a division of SmithKline Beecham Corporation (Exhibit 10.8 to the Company's Form 10-K Report dated November 30, 1996, as amended) I/B/R
10.9 Securities Purchase Agreement dated May 6, 1996 between Q-Med, Inc. and S.R. One Limited (Exhibit 10.9 to the Company's Form 10-K Report dated November 30, 1996, as amended) I/B/R
10.10 Registration Rights Agreement dated May 6, 1996 between Q-Med, Inc. and S.R. One Limited (Exhibit 10.10 to the Company's Form 10-K Report dated November 30, 1996, as amended) I/B/R
10.11* Q-Med, Inc. 1997 Equity Incentive Plan
11 None
13* Q-Med, Inc. 1997 Annual Report.
16 None.
18 None.
21* Subsidiaries of Registrant
22 None.
23* Consent of Amper, Politziner & Mattia
24 None.
27* Financial Data Schedule
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* Filed herewith
** Exhibit omits certain information which the Company has filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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 27, 1998 Q-MED, INC.
By: /s/ Michael W. Cox ------------------------- Michael W. Cox, President
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 President and Treasurer February 27, 1998 - ------------------------- Michael W. Cox (Principal Executive and Financial Officer)
/s/ Richard I. Levin Director February 27, 1998 - ------------------------- Richard I. Levin
/s/ Robert A. Burns Director February 27, 1998 - ------------------------- Robert A. Burns
/s/ Howard L. Waltman Director February 27, 1998 - --------------------- Howard L. Waltman
/s/ Herbert H. Sommer Director February 27, 1998 - --------------------- Herbert H. Sommer
/s/ Debra A. Fenton Controller February 27, 1998 - ------------------------- Debra A. Fenton
EXHIBIT INDEX
Exhibit Sequential No. Page No. - ------- ----------
3.5 Amendment to By-Laws dated December 18, 1997
10.11 Q-Med, Inc. 1997 Equity Incentive Plan
13 Q-Med, Inc. 1996 Annual Report
21 Subsidiaries of Registrant
23 Consent of Amper, Politziner & Mattia
27 Financial Data Schedule
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