UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q
(Mark One)

         [X]      Quarterly Report pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934

         For the quarterly period ended: August 31, 2005 or

         [ ]      Transition report pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934

         For the transition period from ______________ to _______________

                         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.)

25 Christopher Way, Eatontown, New Jersey                           07724
-----------------------------------------                        ----------
(Address of principal executive offices)                         (Zip Code)

                                 (732) 544-5544
               ---------------------------------------------------
              (Registrant's telephone number, including area code)

                                       N/A
              ----------------------------------------------------
               Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report


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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares of the registrant's common stock outstanding on September
28, 2005: 16,732,829.

<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                                    FORM 10-Q

                      For the Quarter Ended August 31, 2005

                                      INDEX

                                                                            Page
Part I. Financial Information

        Item 1.  Financial Statements

                 Condensed Consolidated Balance Sheets as of
                   August 31, 2005 and November 30, 2004...................... 1

                 Condensed Consolidated Statements of Operations for the
                   Three and Nine Months Ended August 31, 2005 and 2004....... 2

                 Condensed Consolidated Statements of Comprehensive Income
                   for the Three and Nine Months Ended August 31, 2005
                   and 2004................................................... 3

                 Condensed Consolidated Statements of Stockholders' Equity
                   for the Nine Months Ended August 31, 2005.................. 4

                 Condensed Consolidated Statements of Cash Flows for the
                   Nine Months Ended August 31, 2005 and 2004................. 5

                 Notes to Condensed Consolidated Financial Statements......... 6

        Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations........................14

        Item 3.  Quantitative and Qualitative Disclosures About Market Risk...20

        Item 4.  Controls and Procedures......................................20

Part II Other Information

        Item 1.  Legal Proceedings............................................21

        Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds..21

        Item 3.  Defaults Upon Senior Securities..............................21

        Item 4.  Submission of Matters to a Vote of Security Holders..........21

        Item 5.  Other Information............................................21

        Item 6.  Exhibits.....................................................22

Signature ....................................................................23

Certifications ...............................................................24

<PAGE>
<TABLE>
<CAPTION>
Part I.
Item 1.  Financial Statements

                                           QMED, INC. AND SUBSIDIARIES
                                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                August 31,          November 30,
                                                                                   2005                 2004
                                                                             ---------------      ---------------
SETS                                                                            (unaudited)
<S>                                                                          <C>                  <C>
Current assets
Cash and cash equivalents                                                    $     1,796,176      $     3,292,571
Investments                                                                       20,610,567            2,097,362
Accounts receivable, net of allowances of  $38,445 and $52,690,                    3,773,704            2,750,507
respectively
Inventory, net of reserve                                                             36,186               38,355
Due from arbitration settlement                                                      500,000                    -
Prepaid expenses and other current assets                                            367,938              440,620
                                                                             ---------------      ---------------
                                                                                  27,084,571            8,619,415

Property and equipment, net of accumulated depreciation                            1,064,855            1,180,050
Product software development costs, net                                            1,067,127              858,022
Acquired intangibles, net                                                            489,945                    -
Other assets                                                                         499,368              132,136
Investment in joint ventures                                                          41,968               47,854
                                                                             ---------------      ---------------
                                                                             $    30,247,834      $    10,837,477
                                                                             ===============      ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses                                        $     1,480,024      $       817,234
Leases payable, current portion                                                      137,138              119,757
Accrued salaries and commissions                                                     472,409              416,382
Fees reimbursable to health plans                                                     29,535              161,178
Contract billings in excess of revenues                                            2,501,029            1,245,862
Deferred warranty revenue                                                             16,713               23,652
Income taxes payable                                                                  14,210               16,000
                                                                             ---------------      ---------------
                                                                                   4,651,058            2,800,065

Leases payable - long term                                                           119,310              146,742
                                                                             ---------------      ---------------
                                                                                   4,770,368            2,946,807

Commitments and Contingencies                                                              -                    -
Stockholders' equity
  Common stock $.001 par value; 40,000,000 shares authorized; 16,739,189 and
    15,150,054 shares issued and 16,717,189 and 15,128,054 outstanding,
     respectively                                                                     16,739               15,150
Paid-in capital                                                                   50,820,827           35,961,800
Accumulated deficit                                                              (25,265,286)         (28,004,017)
Accumulated other comprehensive income
  Unrealized loss on securities available for sale                                   (19,189)              (6,638)
                                                                             ---------------      ---------------
                                                                                  25,553,091            7,966,295

Less treasury stock at cost, 22,000 common shares                                    (75,625)             (75,625)
                                                                             ---------------      ---------------
Total stockholders' equity                                                        25,477,466            7,890,670
                                                                             ---------------      ---------------
                                                                             $    30,247,834      $    10,837,477
                                                                             ===============      ===============


                      See Accompanying Notes to Condensed Consolidated Financial Statements

                                                       1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                           QMED, INC. AND SUBSIDIARIES
                                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                   (Unaudited)


                                                 For the Three     For the Three     For the Nine       For the Nine
                                                 Months Ended      Months Ended      Months Ended       Months Ended
                                                August 31, 2005   August 31, 2004   August 31, 2005    August 31, 2004
                                                 --------------    --------------    --------------     --------------
<S>                                              <C>               <C>               <C>                <C>
Revenue
   Disease management services                   $    5,457,173    $    3,205,583    $   15,582,065     $   10,612,374
   Medical equipment                                     47,461            67,500           140,952            178,410
                                                 --------------    --------------    --------------     --------------
                                                      5,504,634         3,273,083        15,723,017         10,790,784
                                                 --------------    --------------    --------------     --------------

Cost of revenue
   Disease management services                        1,772,489         2,341,253         5,366,341          6,954,692
   Medical equipment                                     54,824            38,923           132,979            117,627
                                                 --------------    --------------    --------------     --------------
                                                      1,827,313         2,380,176         5,499,320          7,072,319
                                                 --------------    --------------    --------------     --------------

Gross profit                                          3,677,321           892,907        10,223,697          3,718,465
                                                 --------------    --------------    --------------     --------------

Selling, general and
  administrative expenses                             2,062,529         1,772,054         5,853,627          5,623,117
Research and development expenses                       347,434           209,032           924,286            707,322
                                                 --------------    --------------    --------------     --------------

Income (loss) from operations                         1,267,358        (1,088,179)        3,445,784         (2,611,974)

Interest expense                                         (6,967)           (8,610)          (21,052)           (24,334)

Interest income                                         140,371             3,023           261,653             51,906

Loss in operations of
  joint ventures                                       (334,825)          (83,130)         (792,103)          (287,880)

Other income                                                  -                 -             2,849              8,703
                                                 --------------    --------------    --------------     --------------

Income (loss) before income tax
  provision                                           1,065,937        (1,176,896)        2,897,131         (2,863,579)

Provision for income taxes                              (73,000)           (4,000)         (158,400)           (12,000)
                                                 --------------    --------------    --------------     --------------

Net income (loss)                                $       992,937   $   (1,180,896)   $    2,738,731     $   (2,875,579)
                                                 ===============   ==============    ==============     ==============

Basic earnings (loss) per share
   Weighted average shares outstanding               16,687,769        14,763,466        16,370,175         14,718,292
                                                 --------------    --------------    --------------     --------------

   Basic earnings (loss) per share               $          .06    $         (.08)   $          .17     $         (.20)
                                                 ==============    ==============    ==============     ==============

Diluted earnings (loss) per share
  Weighted average shares outstanding                18,559,698        14,763,466        18,343,191         14,718,292
                                                 --------------    --------------    --------------     --------------

  Diluted earnings (loss) per share              $          .05    $         (.08)   $          .15     $         (.20)
                                                 ==============    ==============    ==============     ==============


                       See Accompanying Notes to Condensed Consolidated Financial Statements

                                                       2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   QMED, INC. AND SUBSIDIARIES
                                    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                           (Unaudited)




                                                 For the Three      For the Three      For the Nine       For the Nine
                                                 Months Ended       Months Ended       Months Ended       Months Ended
                                                August 31, 2005    August 31, 2004    August 31, 2005    August 31, 2004
                                                 --------------     --------------     --------------     --------------
<S>                                              <C>                <C>                <C>                <C>
Net income (loss)                                $      992,937     $   (1,180,896)    $    2,738,731     $   (2,875,579)

Other comprehensive income
  Unrealized loss on securities
    available for sale
                                                         (5,348)            (7,309)           (19,135)           (11,217)

Less: reclassification adjustment for
  (gains) losses included in net income
  (loss)                                                      -            (11,995)             6,584              8,914
                                                 --------------     --------------     --------------     --------------

Comprehensive income (loss)                      $      987,589     $   (1,176,210)    $    2,726,180     $   (2,877,882)
                                                 ==============     ==============     ==============     ==============


                              See Accompanying Notes to Condensed Consolidated Financial Statements

                                                               3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   QMED, INC. AND SUBSIDIARIES
                                    CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                            For the Nine Months Ended August 31, 2005
                                                           (Unaudited)


                                                                                      Accumulated  Common Stock Held
                                       Common Stock                                      Other        in Treasury
                                   -------------------     Paid-in      Accumulated  Comprehensive -----------------
                                     Shares     Amount     Capital        Deficit       Income     Shares    Amount       Total
                                   ----------  -------   -----------   ------------    ---------   ------   --------  -------------
<S>                                <C>         <C>       <C>           <C>             <C>         <C>      <C>       <C>
Balance - November 30, 2004        15,150,054  $15,150   $35,961,800   $(28,004,017)   $  (6,638)  22,000   $(75,625) $   7,890,670

Exercise of stock options and
  warrants                            200,326      200       664,167                                                        664,367

Issuance in connection with
  Directors Equity Plan                 2,545        3        28,229                                                         28,232

Amortization of non-employee
  stock options                                               49,167                                                         49,167

Issuance of common stock and
  investment rights through
  private placement for cash
  (net of expense)                  1,349,839    1,350    13,817,500                                                     13,818,850

Issuance of common stock in
  connection with acquisition          36,425       36       299,964                                                        300,000

Net income for the nine months
  ended August 31, 2005                                                   2,738,731                                       2,738,731

Change in unrealized holding
  losses on securities available
  for sale                                                                               (12,551)                           (12,551)
                                   ----------  -------   -----------   ------------    ---------   ------   --------  -------------

Balance - August 31, 2005          16,739,189  $16,739   $50,820,827   $(25,265,286)   $ (19,189)  22,000   $(75,625) $  25,477,466
                                   ----------  -------   -----------   ------------    ---------   ------   --------  -------------

                              See Accompanying Notes to Condensed Consolidated Financial Statemnts

                                                               4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                           QMED, INC. AND SUBSIDIARIES
                                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   (Unaudited)


                                                                            For the Nine           For the Nine
                                                                            Months Ended           Months Ended
                                                                           August 31, 2005       August 31, 2004
<S>                                                                        <C>                   <C>
Cash flows from operating activities:
  Net income (loss)                                                        $    2,738,731        $   (2,875,579)

Adjustments to reconcile net income (loss) to net cash provided
  by (used in) operating activities:
    Loss on sale of investments                                                     6,584                 8,914
    Loss in operations of joint ventures                                          792,103               287,880
    Depreciation and amortization                                                 440,270               352,358
    Provision for loss on accounts receivable                                      18,800                     -
    Provision for slow-moving inventory                                             9,632                     -
    Stock compensation expense                                                     28,232                20,439
    Amortization of non-employee stock options                                     49,167                40,150
    Amortization of bond discounts and premiums                                   (43,746)              109,460
    (Increase) decrease in
      Accounts receivable                                                      (1,415,094)               (4,123)
      Inventory                                                                    (7,463)                5,151
      Due from arbitration settlement                                            (500,000)                    -
      Prepaid expenses and other current assets                                    72,682               117,875
    Increase (decrease) in
      Accounts payable and accrued liabilities                                     77,174               333,260
      Contract billings in excess of revenues and deferred revenue              1,248,228              (966,571)
      Other, net                                                                  (32,485)               19,015
                                                                           --------------        --------------
     Total adjustments                                                            744,084               323,808
                                                                           --------------        --------------
     Net cash provided by (used in) operating activities                        3,482,815            (2,551,771)
                                                                           --------------        --------------

Cash flows from investing activities:
  Proceeds from sale of securities available for sale                           6,121,012             9,039,860
  Purchases of securities available for sale                                  (24,609,606)           (5,765,567)
  Capital expenditures                                                           (394,494)             (589,098)
  Cash paid for acquisition                                                      (200,000)                    -
  Investment in joint venture                                                    (276,217)             (452,555)
                                                                           --------------        --------------
  Net cash (used in) provided by investing activities                         (19,359,305)            2,232,640
                                                                           --------------        --------------

Cash flows from financing activities:
  Payments for capital leases                                                    (103,122)              (99,758)
  Proceeds from issuance of common stock and investment rights                 13,818,850                     -
  Proceeds from issuance of common stock                                          664,367               420,712
                                                                           --------------        --------------
  Net cash provided by financing activities                                    14,380,095               320,954
                                                                           --------------        --------------

Net (decrease) increase in cash and cash equivalents                           (1,496,395)                1,823
Cash and cash equivalents at beginning of period                                3,292,571             1,638,271
                                                                           --------------        --------------

Cash and cash equivalents at end of period                                 $    1,796,176        $    1,640,094
                                                                           ==============        ==============

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
    Interest                                                               $       21,052        $       24,334
    Income taxes                                                                  160,190                     -

Non-cash investing activities:
  Issuance of 36,425 shares of common stock in connection
    with acquisition                                                       $      300,000        $            -


                      See Accompanying Notes to Condensed Consolidated Financial Statemnts

                                                       5
</TABLE>
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Interim Financial Reporting

The accompanying unaudited condensed consolidated financial statements of QMed,
Inc. and its subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, these financial statements do not include all of the information
and footnotes required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended August 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending
November 30, 2005. These condensed consolidated financials statements include
the accounts of QMed, Inc., its wholly owned subsidiaries, Interactive Heart
Management Corp. ("IHMC"), QMedCare, Inc. and Health E Monitoring Inc., and
QMed, Inc.'s majority owned (83%) inactive subsidiary HeartMap, Inc. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended November 30, 2004.

Note 2 - Revenue Recognition-Disease Management

The Company enters into contractual arrangements with health plans to provide
disease management services. Fees under the Company's health plan contracts are
generally determined by multiplying a contractually negotiated rate per health
plan member per month ("PMPM") by the number of health plan members covered by
the Company's services during the month. The PMPM rates usually differ between
contracts due to the various types of health plan product groups (e.g. PPO, HMO,
Medicare Advantage). These contracts are generally for terms of one to three
years with provisions for subsequent renewal, and typically provide that all or
a portion of the Company's fees may be "performance-based". Performance-based
contracts have varying degrees of risk associated with the Company's ability to
deliver the guaranteed financial cost savings. In most cases, the Company
guarantees a percentage reduction of disease costs compared to a prior baseline
year determined by actuarial analysis and other estimates used as a basis to
measure performance objectives. The measurement of the Company's performance
against the base year information is a data intensive and time-consuming process
that is typically not completed until six to eight months after the end of the
contract year. The Company bills its customers each month for the entire amount
of the fees contractually due based on previous months membership, which always
includes the amount, if any that may be subject to refund for member
retroactivity and a shortfall in performance. The Company adjusts or defers
revenue for contracts where it believes performance is short of contractual
obligations, possibly resulting in a refund of fees or where fees generated may
be subject to further retroactive adjustment associated with a contract or
plan's decision to completely terminate its coverage in a geographic market as
well as general membership changes. For example, general terminations can be due
to death, member change of health plan, etc. Adjustments for shortfalls in
performance targets under the terms of the contract or other factors affecting
revenue recognition are accrued on an estimated basis in the period the services
are provided and are adjusted in future periods when final settlement is
determined. The Company reviews these estimates periodically and makes
adjustments, as interim information is available.

The Company determines its level of performance at interim periods based on
medical claims data, achievement of enrollment targets or other data supplied by
the health plan. In the event these interim performance measures indicate that
performance targets are not being met or sufficient data is unavailable, fees
subject to refund are not recorded as revenues but rather are recorded as a
current liability entitled "contract billings in excess of revenues." Under
performance based arrangements, the ability to make estimates at interim periods
can be challenging due to the inherent nature of the medical claims process and
the claims lag time associated with it. In most cases, paid claims data is not
available until up to six months after claims are incurred. Although interim
data measurement is indicative of performance objectives, actual results could
differ from those estimates. As of August 31, 2005, based on information and
data available, the Company has deferred approximately $2,501,000 of revenue,
which may be subject to refund. This deferral has been reflected as contract
billings in excess of revenues on the balance sheet.

The majority of contract billings in excess of revenues on the balance sheet are
subject to reconciliation at future periods. If future reconciliations provide
positive results, revenue will be recorded at that time. The Company believes
these estimates adequately provide for any potential adjustments that may be
applied to revenues from these contracts. During the three and nine months ended
August 31, 2005, approximately 66% and 65% of disease management services,
respectively, were derived from three customers that each comprised more than
10% of the Company's revenues.

                                       6
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 3 - Impairment of Intangible Assets


In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we
review intangible assets for impairment on an annual basis or more frequently
whenever events or circumstances indicate that the carrying value may not be
recoverable.

We amortize other identifiable intangible assets, such as acquired technologies,
customer contracts, and other intangibles, on the straight-line method over
their estimated useful lives, except for trade names, which have an indefinite
life and are not subject to amortization. We review intangible assets not
subject to amortization on an annual basis or more frequently whenever events or
circumstances indicate that the assets might be impaired. We assess the
potential impairment of intangible assets subject to amortization whenever
events or changes in circumstances indicate that the carrying values may not be
recoverable.

If we determine that the carrying value of other identifiable intangible assets
may not be recoverable, we calculate any impairment using an estimate of the
asset's fair value based on the projected net cash flows expected to result from
that asset, including eventual disposition.

Future events could cause us to conclude that impairment indicators exist and
that acquired intangible assets are impaired. Any resulting impairment loss
could have a material adverse impact on our financial condition and results of
operations.

Note 4 - Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of deferral, 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.

Note 5 - Investments in Securities

Investment in securities available-for-sale as of August 31, 2005 were as
follows:
<TABLE>
<CAPTION>
                                                             Market       Unrealized
                                             Cost             Value       Gain (Loss)
                                          ------------    ------------   ------------
<S>                                       <C>             <C>            <C>
Corporate debt securities                 $ 13,222,477    $ 13,221,108   $     (1,369)
Certificate of deposits                        100,000          99,636           (364)
U.S. Government short term obligations       7,307,279       7,289,823        (17,456)
                                          ------------    ------------   ------------
                                          $ 20,629,756    $ 20,610,567   $    (19,189)
                                          ============    ============   ============
</TABLE>

Note 6 - Accounts Receivable

Accounts receivable primarily represent fees that are contractually due in the
ordinary course of providing a service, net of contractual adjustments and the
allowance for doubtful accounts.

                                       7
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 7 - Inventory

Inventories, consisting of finished units and raw materials, are stated at the
lower of cost (determined on a moving weighted average method) or market.
Inventories consist of the following:
                                                  August 31,
                                                     2005         November 30,
                                                 (Unaudited)          2004
                                                ------------      ------------
          Raw materials (component parts)       $    117,886      $    120,533
          Finished units                              29,360            19,250
                                                ------------      ------------
               Total inventory                  $    147,246      $    139,783
          Reserve for slow moving inventory         (111,060)         (101,428)
                                                ------------      ------------
          Net inventory                         $     36,186      $     38,355
                                                ============      ============


Note 8 - Product Software Development Costs

During the three and nine months ended August 31, 2005, the Company capitalized
approximately $187,000 and $333,000, respectively, in product software
development costs. These costs are being amortized over a five-year useful life.

During the three months ended August 31, 2005 and 2004 amortization expense
related to product software development costs was approximately $44,000 and
$29,000, respectively. During the nine months ended August 31, 2005 and 2004
amortization expense related to product software development costs was
approximately $123,000 and $88,000, respectively.

Note 9 - Investment in Joint Ventures

The Company has a 50% interest in HeartMasters, L.L.C. ("HM"). The management
agreement provides for profits and losses to be allocated based on the Company's
50% interest. As of August 31, 2005, the Company has recorded losses to date of
approximately $1,569,000 bringing the investment in the joint venture to zero.
This joint venture is not a variable interest entity and therefore is not
required to be consolidated under the provisions of FIN 46.

The Company has a 33.33% interest in HealthSuite Partners, LLC ("HSP"). The
management agreement provides for profits and losses to be allocated based on
the Company's 33.33% interest. As of August 31, 2005, the Company has recorded
losses to date of approximately $136,000 bringing its investment in this joint
venture to approximately $41,000. This joint venture is not a variable interest
entity and therefore is not required to be consolidated under the provisions of
FIN 46. Included in accounts receivable as of August 31, 2005 is approximately
$1,121,000 due from this joint venture, of which $856,000 represents a withhold
against performance guarantees.

Note 10 - Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses include the following:

                                                   August 31,
                                                      2005        November 30,
                                                   (Unaudited)         2004
                                                  -----------     -----------
         Account payable trade                    $   702,513     $   278,319
         Insurance premiums payable                    95,923          71,720
         Professional fees payable                    300,388         209,503
         Due to joint venture                         285,056         156,056
         Other accrued expenses - none in
           excess of 5% of current liabilities         96,144         101,636
                                                  -----------     -----------
                                                  $ 1,480,024     $   817,234
                                                  ===========     ===========

                                       8
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 11 - Fees Reimbursable to Health Plans

Health plans utilizing the disease management program of the Company pay
participating physicians fees for their services related to use of the program.
Such fees are additional costs to the health plan, which in some cases are
deducted from fees paid to the Company. As of August 31, 2005 and November 30,
2004 there were $29,535 and $161,178 outstanding under these provisions,
respectively.

Note 12 - Business Segment Information

The Company presents segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which
established reporting and disclosure standards for an enterprise's operating
segments. Operating segments are defined as components of an enterprise for
which separate financial information is available and regularly reviewed by the
Company's senior management.

The Company segments are organized into two business units, disease-management
services and medical equipment sales, which are considered reportable segments.
The segments are managed separately and the Company evaluates performance on
operating profits of the respective segments. The Company supports both segments
with shared human resources, clinical, marketing and information technology
resources. The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies in Note 1.
Income (loss) before income taxes by operating segment excludes interest income,
interest expense and general corporate expenses.

Summarized financial information by operating segment for three and nine months
ended August 31, 2005 and 2004, is as follows:
<TABLE>
<CAPTION>
                                                            Three Months Ended August 31,
                                                                     (unaudited)
                                                         ------------------------------------
                                                               2005                  2004
                                                         ---------------      ---------------
         <S>                                             <C>                  <C>
         Revenue
            Disease management services                  $     5,457,173      $     3,205,583
            Medical equipment sales                               47,461               67,500
                                                         ---------------      ---------------
                                                         $     5,504,634      $     3,273,083
                                                         ===============      ===============

         Income (loss) before income taxes:
            Disease management services                  $     1,633,489      $      (477,823)
            Medical equipment sales                               (7,363)              28,577
                                                         ---------------      ---------------
         Total segments                                        1,626,126             (449,246)
         General corporate expenses - net                       (560,189)            (727,650)
                                                         ---------------      ---------------
                                                         $      1,065,937     $    (1,176,896)
                                                         ================     ===============

<CAPTION>
                                                             Nine Months Ended August 31,
                                                                      (unaudited)
                                                         ------------------------------------
                                                               2005                  2004
                                                         ---------------      ---------------
         <S>                                             <C>                  <C>
         Revenue
            Disease management services                  $    15,582,065      $    10,612,374
            Medical equipment sales                              140,952              178,410
                                                         ---------------      ---------------
                                                         $    15,723,017      $    10,790,784
                                                         ===============      ===============

         Income (loss) before income taxes:
            Disease management services                  $     4,782,190      $      (887,579)
            Medical equipment sales                                7,973               60,812
                                                         ---------------      ---------------
         Total segments                                        4,790,163             (826,767)
         General corporate expenses - net                     (1,893,032)          (2,036,812)
                                                         ---------------      ---------------
                                                         $     2,897,131      $    (2,863,579)
                                                         ===============      ===============

                                               9
</TABLE>
<PAGE>


                           QMED, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 13 - Stock-Based Compensation

The Company accounts for its stock options issued to employees and outside
directors pursuant to Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and has adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", and
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123". Accordingly, no
compensation expense has been recognized in connection with the issuance of
stock options.

The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation.
<TABLE>
<CAPTION>
                                               Three Months Ended                          Nine Months Ended
                                     --------------------------------------      --------------------------------------
                                      August 31, 2005       August 31, 2004       August 31, 2005       August 31, 2004
                                     ----------------      ----------------      ----------------      ----------------
                                        (unaudited)           (unaudited)           (unaudited)           (unaudited)
    <S>                              <C>                   <C>                   <C>                   <C>
    Net income (loss), as
      reported                       $        992,937      $     (1,180,896)     $      2,738,731      $     (2,875,579)

    Deduct: Total stock-based
      employee compensation
      expense determined under
      fair value based method
      for all awards, net of
      related tax effects                     258,204               302,548               829,850               871,548
                                     ----------------      ----------------      ----------------      ----------------

    Pro forma net income (loss)      $        734,733      $     (1,483,444)     $      1,908,881      $     (3,747,127)
                                     ================      ================      ================      ================

    Weighted average common
     shares outstanding                    16,687,769            14,763,466            16,370,175            14,718,292

    Dilutive effect of stock
      options and warrants                  1,871,929                     -             1,973,016                     -
                                     ----------------      ----------------      ----------------      ----------------

    Diluted shares outstanding             18,559,698            14,763,466            18,343,191            14,718,292
                                     ================      ================      ================      ================

    Income (loss) per share:

    Basic, as reported               $            .06      $           (.08)     $            .17      $           (.20)
                                     ================      ================      ================      ================

    Diluted, as reported             $            .05      $           (.08)     $            .15      $           (.20)
                                     ================      ================      ================      ================

    Basic, pro forma                 $            .04      $           (.10)     $            .12      $           (.25)
                                     ================      ================      ================      ================

    Diluted, pro forma               $            .04      $           (.10)     $            .10      $           (.25)
                                     ================      ================      ================      ================

                                       10
</TABLE>
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 13 - Stock-Based Compensation - (continued)

Potentially dilutive options and warrants to purchase 1,901,740 and 2,151,053
shares of the common stock were outstanding for the three and nine months ending
August 31, 2004, respectively, but were not included in the computation of
diluted loss per share because the effect of their inclusion would have been
anti-dilutive. Additionally, options to purchase 7,344 and 139,491 shares of
common stock were outstanding as of August 31, 2005 and 2004, respectively, but
were also not included in the computation of diluted earnings (loss) per share
for the three months ended August 31, 2005 and 2004 and options to purchase
97,343 and 50,000 shares of common stock were outstanding as of August 31, 2005
and 2004, respectively, but were also not included in the computation of diluted
earnings per share for the nine months ended August 31, 2005 and 2004 because
the options exercise price was greater than the average market price of the
common shares.

The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS 123 and the Emerging Issues Task Force ("EITF") Issue No.
96-18, "Accounting for Equity Instruments that are Issued to other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services."
Under SFAS 123, the cost is measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured.

Note 14 - Line of Credit

In September 2001, the Company entered into a loan agreement with Wachovia Bank,
National Association, formerly First Union National Bank, for a $1 million line
of credit. The annual interest rate is the lower of the bank's reference rate
minus 1% or the LIBOR Market Index Rate plus 1.5%. The line is collateralized by
securities owned by the Company and expired on September 1, 2005. Management is
currently in process of renewing this agreement. Borrowings under this line of
credit were $-0- at August 31, 2005 and November 30, 2004.

Note 15 - Stockholders' Equity

Private Placement Equity Transactions
On December 6, 2004, the Company issued to institutional investors 571,428
shares of the Company's common stock, together with additional investment rights
to acquire up to an additional 142,856 shares of common stock at a price of $11
per share, for $6,000,000. The fair value of these investment rights was
estimated at $207,000 and was included in additional paid-in capital. These
investment rights were exercised on February 14, 2005 for $1,572,000.

On February 14, 2005, the Company issued to institutional investors 635,555
shares of the Company's common stock, together with additional investment rights
to acquire up to an additional 158,888 shares of common stock at a price of
$11.75 per share, for $7,150,000. The fair value of these investment rights was
estimated at $174,000 and was included in additional paid-in capital. These
investment rights expired on June 1, 2005, thirty days after the registration
statement was declared effective by the US Securities and Exchange Commission.

Note 16 - Acquired Intangibles

In April 2005 the Company acquired all of the outstanding common stock of Health
E Monitoring, Inc. ("HEM"). HEM has developed a comprehensive weight management
program. The aggregate purchase price was $500,000, which consisted of $200,000
in cash and $300,000 of common stock. In addition, transaction costs were
approximately $30,000. As additional consideration under the purchase agreement,
the company would be obligated to release an additional 60,709 shares of common
stock upon certain targets being achieved in fiscal 2006. Pursuant to FAS No.
141 the direct costs to acquire HEM have been allocated to the assets acquired
based upon an independent appraisal and the contingent consideration will be
recorded if and when it becomes due and payable. The following table summarizes
the estimated fair value of the assets acquired:

                                       11
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 16 - Acquired Intangibles - (continued)

                                                           August 31,
                                                              2005
                                                          (unaudited)
                                                       ---------------
          Covenant not to compete                      $       483,363
          Acquired technology                                   46,307
                                                       ---------------
          Total purchase price                         $       529,670
                                                       ===============

The costs of both the covenant not to compete and the acquired technology are
being amortized over their useful life of 5 years. During the three and nine
months ended August 31, 2005 amortization expense related to the covenant not to
compete and developed technology was $26,483 and $39,725, respectively.

Note 17 - Commitments and Contingencies

Litigation
----------
On June 15, 2004, the Company entered into an agreement to settle its dispute
with The Regence Group, including all issues surrounding the HeartMasters LLC's
arbitration. The settlement agreement provided QMed, Inc. and IHMC with releases
from any and all claims related to Regence and the Regence contract in exchange
for a financial guarantee of certain payments from HeartMasters LLC to Regence.
The amount of the financial guarantee could have ranged between $0 and
$2,300,000 and was contingent upon the outcome of a separate arbitration being
pursued by Regence and HeartMasters LLC against the insurer, Centre Insurance.
The Company made an advance payment on this guarantee of $1,150,001 on June 15,
2004. The advance payment, and any subsequent payment, were subject to refund
based upon certain recovery targets under the Centre Insurance arbitration, if
successful.

The dispute with Centre over the insurance coverage on all of the relevant
Regence disease management plans, for which coverage was purchased, was the
subject of an arbitration proceeding. Initially, the Company sued Centre over
the nonpayment of the policies; the court determined that this must be resolved
in the arbitration with Centre.

On August 18, 2005, HeartMasters LLC and The Regence Group entered into a
settlement agreement with Centre, resolving the dispute. The settlement resulted
in the elimination of any further contingent liability for the Company, under
the guarantee to Regence. The Company received $500,000 on September 15, 2005,
which has been reflected as revenue for the period ended August 31, 2005.

The Company is subject to claims and legal proceedings covering a wide range of
matters that arise in the ordinary course of business. Although management of
the Company cannot predict the ultimate outcome of these legal proceedings with
certainty, it believes that their ultimate resolution, including any additional
amounts we may be required to pay will not have a material effect on the
financial statements.

Sales Guarantees
----------------
Typically, the Company's fees or incentives are higher in contracts with
increased financial risk such as those contracts with performance-based fees or
guarantees against cost increases. The failure to achieve targeted cost
reductions could, in certain cases, render a contract unprofitable and could
have a material negative impact on the Company's results of operations.

                                       12
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 17 - Commitments and Contingencies - (continued)

Purchase Commitments
--------------------
The Company is obligated to purchase heart-monitoring equipment under various
orders from one supplier, all of which are expected to be fulfilled with no
adverse consequences material to the companies operations or financial
condition. As of August 31, 2005 total open commitments under these purchase
orders are approximately $292,000.

Note 18 - Recently Issued Accounting Standards

Share-Based Payment
-------------------
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation."
Statement 123(R) supersedes Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement
of Cash Flows." Generally, the approach in Statement 123(R) is similar to the
approach described in Statement 123. However, Statement 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. The Statement is effective for fiscal
years beginning after June 15, 2005.

Statement 123(R) permits public companies to adopt its requirements using one of
two methods:

A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of Statement
123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of Statement 123 for all awards granted to employees
prior to the effective date of Statement 123(R) that remain unvested on the
effective date.

A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate, based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures, either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.

We plan to adopt Statement 123(R) on December 1, 2005 using the modified
prospective method.

As permitted by Statement 123, we currently account for share-based payments to
employees using Opinion 25's intrinsic value method and, as such, generally
recognize no compensation cost for employee stock options. Accordingly, the
adoption of Statement 123(R)'s fair value method will have a significant impact
on our results of operations, although it will have no impact on our overall
financial position. We cannot predict the impact of adopting Statement 123(R) at
this time because it will partially depend on levels of share-based payments
granted in the future. However, had we adopted Statement 123(R) in prior
periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and
earnings per share in Note 13 to our consolidated financial statements.

Exchange of Nonmonetary Assets
------------------------------
In December 2004, the FASB issued Statement No. 153 "Exchanges of Nonmonetary
Assets, an Amendment of APB Opinion No. 29" ("Statement No. 153"). Statement No.
153 is effective for nonmonetary asset exchanges occurring in our fiscal quarter
beginning September 1, 2005. Statement No. 153 requires that exchanges of
productive assets be accounted for at fair value unless fair value cannot be
reasonably determined or the transaction lacks commercial substance. Statement
No. 153 is not expected to have a material impact on our financial statements.

                                       13
<PAGE>

            Item 2. Management's Discussion and Analysis of Financial
                       Condition and Results of Operations

Overview

QMed(R), Inc. was incorporated in New Jersey in 1983 and reincorporated in
Delaware in 1987. Interactive Heart Management Corp. ("IHMC(R)") is a wholly
owned subsidiary of QMed, which was incorporated in 1995. IHMC developed and
often co-markets with QMed health care information and communication services to
health plans, governments and private companies. The services of QMed include
"ohms|cvd(R)"(Online Health Management System for Cardiovascular Disease) which
is an integrated cardiovascular disease management system. ohms|cvd includes
related systems to assist health plans, government organizations and employer
groups in managing the care, and cost of diabetes, cardiovascular conditions,
including coronary artery disease, stroke, heart failure, hypertension,
hyperlipidemia and the cardiovascular complications of diabetes. These systems
are designed to aid health care physicians in the optimal use of "evidence
based" medical management for patients with these conditions including
co-morbidities, as well as those at high risk of developing these conditions.
The net impact of this approach is the improvement in health and the associated
reduction in mortality, morbidity and cost. As of August 31, 2005, we had 2
contracts to provide these services to two Medicare demonstration projects and
12 licensed health plans in 11 states covering approximately 1.1 million health
plan members.

Our disease management program is for members identified with chronic disease
conditions as well as being at high risk for significant and costly episodes of
care. The program is supported by technology that is designed to deliver the
best clinical and financial outcomes to our customers.

Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements, which are based upon current
expectations and involve a number of risks and uncertainties. In order for us to
utilize the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, investors are hereby cautioned that these statements may be
affected by the important factors, among others, set forth below, and
consequently, actual operations and results may differ materially from those
expressed in these forward-looking statements. The important factors include:

         o        our ability to renew and/or maintain contracts with our
                  customers under existing terms or restructure these contracts
                  on terms that would not have a material negative impact on our
                  results of operations;
         o        our ability to execute new contracts for health plan disease
                  management services;
         o        the risks associated with a significant concentration of our
                  revenues with a limited number of health plan customers;
         o        the timing and costs of implementation, and the effect, of
                  regulatory rules and interpretations relating to the Medicare
                  Prescription Drug, Improvement, and Modernization Act 2003;
         o        our ability to effect estimated cost savings and clinical
                  outcome improvements under health plan disease management
                  contracts and reach mutual agreement with customers with
                  respect to cost savings, or to effect such savings and
                  improvements within the timeframes contemplated by us;
         o        the ability of our health plan customers to provide timely,
                  complete and accurate data that is essential to the operation
                  and measurement of our performance under the terms of our
                  health plan contracts and our accurate analysis of such data;
         o        our ability to resolve favorably contract billing and
                  interpretation issues with our health plan customers;
         o        our ability to effectively integrate new technologies into our
                  care management information technology platform;
         o        our ability to obtain adequate financing to provide the
                  capital that may be needed to support the growth of our health
                  plan operations and financing or insurance to support our
                  performance under new health plan contracts;
         o        unusual and unforeseen patterns of healthcare utilization by
                  individuals within the health plans with chronic conditions,
                  including coronary artery disease ("CAD"), stroke, heart
                  failure ("HF"), hypertension, hyperlipidemia and the
                  cardiovascular complications of diabetes with which we have
                  executed disease management contracts;
         o        the impact of the introduction of new technologies;
         o        the ability of the health plans to maintain the number of
                  covered lives enrolled in the plans during the terms of the
                  agreements between the health plans and us;
         o        our ability to attract and/or retain and effectively manage
                  the employees required to implement our agreements with health
                  plan organizations;

                                       14
<PAGE>

         o        the impact of future state and federal healthcare legislation
                  and regulations on our ability to deliver services;
         o        the financial health of our customers and their willingness to
                  purchase our services;
         o        the impact of litigation or arbitration;
         o        our ability to accurately estimate our performance and revenue
                  recognition under the terms of our contracts;
         o        our ability to develop new products and deliver outcomes on
                  those products;
         o        our ability to implement our strategy within expected cost
                  estimates;
         o        general economic conditions

We undertake no obligation to update or revise any such forward-looking
statements.

Critical Accounting Estimates

Our accounting policies are described in Note 2 of the condensed consolidated
financial statements included in this Report on Form 10-Q for the quarter ended
August 31, 2005. The condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America, which 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.

We consider the following estimates to be the most critical in understanding the
judgments involved in preparing the financial statements and the uncertainties
that could impact our results of operations, financial condition and cash flows.

Revenue Recognition

We enter into contractual arrangements with health plans and government agencies
to provide disease management services. Fees under our health plan contracts are
generally determined by multiplying a contractually negotiated rate per health
plan member per month ("PMPM") by the number of health plan members covered by
our services during the month. The PMPM rates usually differ between contracts
due to the various types of health plan product groups (e.g. PPO, HMO, Medicare
Advantage). These contracts are generally for terms of one to three years with
provisions for subsequent renewal, and typically provide that all or a portion
of our fees may be "performance-based". Performance-based contracts have varying
degrees of risk associated with our ability to deliver the guaranteed financial
cost savings. In most cases we guarantee a percentage reduction of disease costs
compared to a prior baseline year determined by actuarial analysis and other
estimates used as a basis to measure performance objectives. The measurement of
our performance against the base year information is a data intensive and
time-consuming process that is typically not completed until six to eight months
after the end of the contract year. We bill our customers each month for the
entire amount of the fees contractually due based on previous months membership,
which always includes the amount, if any, that may be subject to refund for
retroactive member terminations and a shortfall in performance. We adjust or
defer revenue for contracts where we believe performance is short of contractual
obligations, possibly resulting in a refund of fees or where fees generated may
be subject to further retroactive adjustment associated with a contract or
plan's decision to completely terminate its coverage in a geographic market as
well as general membership changes. For example, general terminations can be due
to death, member change of health plan, etc. We recognize revenue, in accordance
with SEC Staff Accounting Bulletins No. 101 and No. 104, as follows: (1) we
recognize the fixed portion of our monthly fee as revenue during the period we
perform the services; (2) we recognize the performance - based portion of the
monthly fees based on indicators of performance to date in the contract year;
and (3) we recognize previously recorded deferred revenue upon final settlement
of the contract measurement year. Adjustments for shortfalls in performance
targets under the terms of the contract or other factors affecting revenue
recognition are accrued on an estimated basis in the period the services are
provided and are adjusted in future periods when final settlement is determined.
We assess our estimates by analyzing various information including but not
limited to, medical claims data, prior performance under the contract and review
of physician and patient participation levels. We review these estimates
periodically and make adjustments, as interim information is available.

We determine our level of performance at interim periods based on medical claims
data, achievement of physician and patients participation levels or other data
supplied by the health plan. In the event these interim performance measures
indicate that performance targets are not being met or sufficient data is
unavailable, fees, which could be subject to refund, are not recorded as revenue
but rather are recorded as a current liability entitled "contract billings in
excess of revenues." Under performance based arrangements, the ability to make
estimates at interim periods can be challenging due to the inherent nature of

                                       15
<PAGE>

the medical claims process and the lag time associated with it. In most cases,
complete paid claims data is not available until up to six months after claims
are incurred. Although interim data measurements are indicative of performance
objectives, actual results could differ from our estimates.

The settlement process under a contract, which includes the settlement of any
performance-based fees and involves reconciliation of health-care claims and
clinical data, is generally not completed until sometime after the end of the
contract year. Data reconciliation differences between the Company and the
customer can arise due to health plan data deficiencies, omissions and/or data
discrepancies, for which the Company negotiates with the plan until agreement is
reached with respect to identified issues.

During the three and nine months ended August 31, 2005, approximately 66% and
65% of disease management services, respectively, were derived from three
customers that each comprised more than 10% of the Company's revenues.

Impairment of Intangible Assets

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we
review intangible assets for impairment on an annual basis or more frequently
whenever events or circumstances indicate that the carrying value may not be
recoverable.

We amortize other identifiable intangible assets, such as acquired technologies,
customer contracts, and other intangibles, on the straight-line method over
their estimated useful lives, except for trade names, which have an indefinite
life and are not subject to amortization. We review intangible assets not
subject to amortization on an annual basis or more frequently whenever events or
circumstances indicate that the assets might be impaired. We assess the
potential impairment of intangible assets subject to amortization whenever
events or changes in circumstances indicate that the carrying values may not be
recoverable.

If we determine that the carrying value of other identifiable intangible assets
may not be recoverable, we calculate any impairment using an estimate of the
asset's fair value based on the projected net cash flows expected to result from
that asset, including eventual disposition.

Future events could cause us to conclude that impairment indicators exist and
that acquired intangible assets are impaired. Any resulting impairment loss
could have a material adverse impact on our financial condition and results of
operations.

                                       16
<PAGE>

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 our
Condensed Consolidated Statements of Operations.
<TABLE>
<CAPTION>
                                                                                              For the         For the
                                                                                               Three           Nine
                                                                                               Months         Months
                               For the Three Months Ended         For the Nine Months           Ended         Ended
                                       August 31,                  Ended August 31,            August 31,    August 31,
                                      (unaudited)                    (unaudited)             (unaudited)    (unaudited)
                             --------------------------   ----------------------------     -------------   -------------
                                                                                              2005 vs.        2005 vs.
                                2005            2004          2005             2004            2004            2004
                             ------------   -----------    -----------     -----------     -------------   -------------
<S>                            <C>             <C>            <C>              <C>            <C>             <C>
Revenue                        100.0  %        100.0  %       100.0  %         100.0  %        68.2  %          45.7   %
Cost of revenue                 33.2            72.7           35.0             65.5          (23.2)           (22.2)
                              ---------        -------        --------       --------
Gross Profit                    66.8            27.3           65.0             34.5          311.8            174.9
Selling general and
 administrative                 37.5            54.1           37.2             52.1           16.4              4.1
Research and development         6.3             6.4            5.9              6.6           66.2             30.7
                              ---------        -------        --------       --------
Income (loss) from
 operations                     23.0           (33.2)          21.9            (24.2)            *                *
Interest expense                (0.1)           (0.3)          (0.1)            (0.2)         (19.1)           (13.5)
Interest income, net             2.5             0.1            1.6              0.5         4543.6            404.1
Loss on operations of joint
 venture                        (6.1)           (2.5)          (5.0)            (2.7)         302.8            175.2
Other income                      -               -              -               0.1             *                *
                              ---------        -------        --------       --------

Income (loss) before tax
 (provision) benefit            19.3           (36.0)          18.4            (26.5)            *                *
Income tax (provision)
 benefit                        (1.3)           (0.1)          (1.0)            (0.1)        1725.0           1220.0
                              ---------        -------        --------       --------
Net income (loss)               18.0           (36.1)          17.4            (26.6)            *               *
                              =========        =======        ========       ========
</TABLE>
* Not meaningful

Three Months Ended August 31, 2005 Compared to Three Months Ended August 31,
2004

Revenue for the three months ended August 31, 2005 increased approximately $2.2
million or 68.2% over the three months ended August 31, 2004. This increase is
attributable to (i) an increase of approximately $1.0 million of revenue related
to the increase in enrollment in four contracts entered into during the first
six months of fiscal year 2004 and one new contract entered into since August
31, 2004; (ii) the recognition of approximately $260,000 of revenue related to
increased enrollment in existing contracts; (iii) an increase in revenue of
$500,000 representing a return of funds previously paid under the guarantee in
connection with the settlement of its arbitration with The Regence Group and
Centre Insurance; and (iv) the recognition of a $750,000 reserve in the third
quarter of fiscal year 2004 as a result of the reconciliation process for one of
our smaller health plans that indicated reductions in utilization as well as
gross savings. These increases were offset by a reduction in revenue of
approximately $260,000 related to the termination of one disease management
program.

Gross profit margins for the three months ended August 31, 2005 increased to
66.8% from 27.3% for the three months ended August 31, 2004. This increase is
related to (i) an increase in revenue attributable to an increase in enrollment
in contracts entered into in fiscal year 2004 (while direct costs associated
with the initial implementation costs on these contracts were incurred in fiscal

                                       17
<PAGE>

year 2004), the incremental costs associated with the increased enrollment in
fiscal year 2005 were not as significant as the initial implementation costs
incurred in fiscal year 2004; (ii) an increase in revenue in fiscal year 2005 of
$500,000, without a corresponding decrease in costs, representing a return of
funds previously paid under the guarantee in connection with the settlement of
its arbitration with The Regence Group and Centre Insurance; and (iii)
approximately $480,000 of labor and related cost reductions associated with
efficiencies related to enhancements in our programs. The increase in gross
profit margins was offset by an increase of approximately $138,000 related to
the outsourcing of certain call center services for our disease management
programs.

Selling, general and administrative expenses for the three months ended August
31, 2005 increased by approximately $290,000 over the three months ended August
31, 2004. The increase was attributable to (i) an increase of approximately
$100,000 in salaries primarily related to two new executives for QMedCare, Inc.
and Health E Monitoring, Inc.; (ii) an increase of $112,000 of legal fees
related to general corporate matters and (iii) an increase in depreciation and
amortization of $45,000 primarily attributable to the intangibles associated
with the acquisition of Health E Monitoring in the second quarter of fiscal year
2005. Included within selling, general and administrative expenses for the three
months ended August 31, 2005 was approximately $154,000 of costs incurred as
implementation costs of QMedCare Inc. relating to the SNP project in South
Dakota. We anticipate enrollment of the first SNP patient in early 2006.
Additionally, approximately $156,000 of costs for the three months ended August
31, 2005, of which $128,000 was included within selling, general and
administrative expenses, were incurred as implementation costs of Health E
Monitoring Inc. We anticipate recording revenue from Health E Monitoring, Inc.
in the fourth quarter of fiscal year 2005. We expect to continue to incur
implementation costs for both QMedCare Inc. and Health E Monitoring Inc. during
the remainder of fiscal year 2005 and into early fiscal year 2006 and anticipate
these costs to increase during this time period. These increases were offset by
a decrease of approximately $46,000 in commissions relating to a contract that
was executed in the third quarter of fiscal year 2004.

Research and development expenses for the three months ended August 31, 2005
increased approximately $138,000 or 66.2% over the three months ended August 31,
2004. Our accounting policies are to capitalize certain costs during development
and amortize them upon implementation. Subsequent to implementation any further
costs (i.e. maintenance costs) are expensed as incurred. During the first
quarter of fiscal year 2005, we completed the primary development of one of our
new systems and therefore all subsequent costs are being expensed, which
accounts for the increase during the three months ended August 31, 2005. We
continue to focus our efforts on the development of new, advanced software
programs to assist in the identification and evaluation of patients who are at
risk for developing various disease conditions. These programs incorporate state
of the art telecommunications, data management, and security and information
technology. Certain costs associated with the development of new product
software to be incorporated into our disease management programs are capitalized
and amortized over a 5-year useful life. We intend to continue to improve and
expand the capabilities of all of our technologies.

Interest income for the three months ended was approximately $140,000 as
compared to $3,000 for the three months ended August 31, 2004. This increase is
attributable to the investment of the funds that were primarily generated by the
private placements in the first six months of fiscal year 2005 along with the
cash generated from operations.

Loss on operations of joint ventures for the three months ended August 31, 2005
increased approximately $252,000 over the three months ended August 31, 2004.
The expense for the three months ended August 31, 2005 primarily represents
legal fees for the arbitration and settlement with The Regence Group and Centre
Insurance and costs related to a joint venture entered into with two partners to
provide services under a disease management contract in Minnesota.

Nine Months Ended August 31, 2005 Compared to Nine Months Ended August 31, 2004

Revenue for the nine months ended August 31, 2005 increased approximately $4.9
million or 45.7% over the nine months ended August 31, 2004. This increase is
attributable to (i) an increase of approximately $4.9 million of revenue related
to the increase in enrollment in four contracts entered into during the first
six months of fiscal year 2004 and one new contract entered into since August
31, 2004; (ii) the recognition of approximately $235,000 of revenue related to a
bonus earned and the previously deferred revenue under a contract with a
customer in Ohio; (iii) an increase in revenue of $500,000 representing a return
of funds previously paid under the guarantee in connection with the settlement
of its arbitration with The Regence Group and Centre Insurance; (iv) a reduction
of revenue in fiscal year 2004 of approximately $353,000 representing an
increase in management's deferred revenue estimate in connection with its
settlement with The Regence Group; and (v) a $560,000 reserve established in
fiscal year 2004 as a result of the reconciliation process for one of our
smaller health plans that indicated reductions in utilization as well as gross
savings. These increases were offset by a reduction in revenue of approximately

                                       18
<PAGE>

$1.6 million related to market exits and reductions in membership under existing
disease management programs and the termination of one disease management
program.

Gross profit margins for the nine months ended August 31, 2005 increased to 65%
from 34.5% for the nine months ended August 31, 2004. This increase is related
to (i) an increase in revenue attributable to an increase in enrollment in
contracts entered into in fiscal year 2004 (while direct costs associated with
the initial implementation costs on these contracts were incurred in fiscal year
2004), the incremental costs associated with the increased enrollment in fiscal
year 2005 were not as significant as the initial implementation costs incurred
in fiscal year 2004); (ii) an increase in revenue in fiscal year 2005 of
$500,000, without a corresponding decrease in costs, representing a return of
funds previously paid under the guarantee in connection with the settlement of
its arbitration with The Regence Group and Centre Insurance; (iii) a decrease in
revenue in fiscal year 2004 of approximately $353,000, without a corresponding
decrease in costs, which represented an increase in management's deferred
revenue estimate in connection with its settlement with The Regence Group; (iv)
the recognition of approximately $235,000 of revenue, without a corresponding
increase in costs, related to a bonus earned and the recognition of previously
deferred revenue under a contract with a customer in Ohio; and (v) approximately
$1.5 million in labor and related cost reductions associated with efficiencies
related to enhancements in our programs. The increase in gross profit margins
was offset by an increase of approximately $145,000 related to the outsourcing
of certain call center services and $90,000 in equipment costs for our disease
management programs.

Selling, general and administrative expenses for the nine months ended August
31, 2005 increased by approximately $231,000 over the nine months ended August
31, 2004. The increase was attributable to (i) an increase of approximately
$230,000 in salaries primarily related to two new executives for QmedCare, Inc.
and Health E Monitoring, Inc.; (ii) a $96,000 increase in consulting services;
(iii) a $94,000 increase in depreciation and amortization primarily attributable
to the intangibles associated with the acquisition of Health E Monitoing in the
second quarter of fiscal year 2005; and (iv) a $98,000 increase in accounting
fees for compliance services. These increases were offset by a decrease of
approximately $194,000 in commissions related to new contracts with health plans
entered into in fiscal year 2004 and a decrease in insurance costs of $68,000.
Included within selling, general and administrative expenses was approximately
$415,000 of costs incurred as implementation costs of QMedCare Inc. relating to
the SNP project in South Dakota. We anticipate enrollment of the first SNP
patient in early 2006. Additionally, approximately $204,000 of costs, of which
$176,000 were included within selling, general and administrative expenses, were
incurred as implementation costs of Health E Monitoring Inc. We anticipate
recording revenue from Health E Monitoring, Inc. in the fourth quarter of fiscal
year 2005. We expect to continue to incur implementation costs for both QMed
Care Inc. and Health E Monitoring Inc. for the remainder of fiscal year 2005 and
into early fiscal year 2006 and anticipate these costs to increase during this
time period.

Research and development expenses for the nine months ended August 31, 2005
increased approximately $217,000 or 30.7% over the nine months ended August 31,
2004. Our accounting policies are to capitalize certain costs during development
and amortize them upon implementation. Subsequent to implementation any further
costs (ie. maintenance costs) are expenses as incurred. During the first quarter
of fiscal year 2005, we completed the primary development of one of our new
systems and therefore all subsequent costs are being expensed, which accounts
for the increase. We continue to focus our efforts on the development of new,
advanced software programs to assist in the identification and evaluation of
patients who are at risk for developing various disease conditions. These
programs incorporate state of the art telecommunications, data management, and
security and information technology. Certain costs associated with the
development of new product software to be incorporated into our disease
management programs are capitalized and amortized over a 5-year useful life. We
intend to continue to improve and expand the capabilities of all of our
technologies.

Interest income for the nine months ended was approximately $262,000 as compared
to $52,000 for the nine months ended August 31, 2004. This increase is
attributable to the investment of the funds that were primarily generated by the
private placements in the first six months of fiscal year 2005 along with the
cash generated from operations.

Loss on operations of joint ventures for the nine months ended August 31, 2005
increased approximately $504,000 over the nine months ended August 31, 2004. The
expense for the nine months ended August 31, 2005 primarily represents legal
fees for the arbitration and settlement with The Regence Group and Centre
Insurance and costs related to a joint venture entered into with two partners to
provide services under a disease management contract in Minnesota.

                                       19
<PAGE>

Liquidity and Capital Resources

To date, our principal sources of working capital have been the proceeds from
public and private placements of securities. Since our inception, sales of
securities, including the proceeds from the exercise of outstanding options and
warrants, have generated approximately $47,300,000 less applicable expenses.

We had working capital of approximately $22.4 million at August 31, 2005
compared to approximately $5.8 million at November 30, 2004 and ratios of
current assets to current liabilities of 5.8:1 as of August 31, 2005 and 3.1:1
as of November 30, 2004. The working capital increase of approximately $16.6
million was due to two private placement equity transactions during the first
half of fiscal year 2005, whereby the company sold common stock for
approximately $13.8 million, net of expenses, proceeds from the sale of common
stock through the exercise of outstanding options and warrants of approximately
$0.7 million and cash flow from operations of approximately $3.5 million. These
increases were offset by an increase in the deferred revenue of approximately
$1.2 million, cash payment on purchase of Health E Monitoring Inc. of $0.2
million, funding of joint ventures of approximately $0.3 million, payments under
capital leases of $0.1 million and other capital expenditures of $0.4 million.
In September 2001, we entered into a $1,000,000 line of credit agreement with
Wachovia Bank, National Association. The agreement is collateralized by
securities owned by the Company and expires on September 1, 2005. Management is
currently in process of renewing this agreement. Outstanding balances under the
loan bear interest at an annual rate equal to the lower of the bank's reference
rate minus 1% or LIBOR plus 1.5%. As of August 31, 2005, no debt was outstanding
and the entire $1,000,000 was available under this credit line.

We anticipate that funds generated from operations, together with cash and
investments, and availability under our credit line will be sufficient to fund
our current level of growth and our existing commitments. However, to the extent
the expansion of our operations requires significant additional resources or
certain forms of financial guarantees to assure our performance under the terms
of new health plan contracts, we may be required to seek additional financing.
No assurance can be given that such financing would be available on terms that
would be acceptable to us.

Material Commitments

The following schedule summarizes our contractual cost obligation as of August
31, 2005 in the periods indicated.
<TABLE>
<CAPTION>
                Contractual
                Obligations                                            Payments Due by Period
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
                                               Total      Less than 1 year    1-3 years      4-5 years    After 5 years
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
<S>                                        <C>            <C>               <C>             <C>           <C>
  Long-Term Debt                           $           -  $            -    $            -  $          -  $           -
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
  Capital Lease Obligations                      279,000         152,000           127,000             -              -
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
  Operating Leases                               885,000         370,000           504,000        11,000              -
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
  Unconditional Purchase Obligations             292,000         292,000                 -             -              -
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
  Other Long-Term Obligations                    404,000         404,000                 -             -              -
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
  Total Contractual Cash Obligations       $   1,860,000  $    1,218,000    $      631,000  $     11,000  $           -
  ---------------------------------------- -------------- ----------------- --------------- ------------- --------------
</TABLE>

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk for changes in interest rates relates primarily to
the increase or decrease in the amount of interest income we can earn on our
available funds for investment. We ensure the safety and preservation of our
invested principal funds by limiting default risk, market risk and reinvestment
risk. We mitigate default risk by investing in short term high-credit quality
securities.

Item 4.  Evaluation of Disclosure Controls and Procedure

We have established disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to the officers who certify the Company's financial reports and to
other members of senior management and the Board of Directors.

Based on their evaluation as of August 31, 2005, the principal executive officer
and principal financial officer of the Company have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective to ensure that the
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.

                                       20
<PAGE>

Part II.  Other Information

Item 1.  Legal Proceedings

         On March 28, 2003, HeartMasters LLC, a limited liability company 50%
         owned by our IHMC subsidiary, received a Demand for Arbitration before
         the American Arbitration Association for claims under certain
         terminated disease management agreements. The claims alleged breach of
         disease management agreements between Regence of Washington and Oregon
         and HeartMasters LLC. HeartMasters LLC also received a notice from a
         reinsurer, Centre, denying coverage for the Regence of Oregon HMO first
         year coverage period, asserting that an outside actuarial report
         concerning Regence's claims history and other information, which were
         considered by the reinsurer prior to issuance of coverage, contained
         "grossly incorrect data." HeartMasters LLC denied the claims of Regence
         and asserted counter claims. In addition, HeartMasters demanded payment
         of the insurance coverage. Regence had also asserted, informally, that
         the Company was or could have been liable for certain of these
         obligations, a claim the Company denied.

         On June 15, 2004, the Company entered into an agreement to settle its
         dispute with The Regence Group, including all issues surrounding the
         HeartMasters LLC's arbitration. The settlement agreement provided QMed,
         Inc. and IHMC with releases from any and all claims related to Regence
         and the Regence contract in exchange for a financial guarantee of
         certain payments from HeartMasters LLC to Regence. The amount of the
         financial guarantee could have ranged between $0 and $2,300,000 and was
         contingent upon the outcome of a separate arbitration being pursued by
         Regence and HeartMasters LLC against the insurer, Centre Insurance. The
         Company made an advance payment on this guarantee of $1,150,001 on June
         15, 2004. The advance payment, and any subsequent payment, were subject
         to refund based upon certain recovery targets under the Centre
         Insurance arbitration, if successful.

         The dispute with Centre over the insurance coverage on all of the
         relevant Regence disease management plans, for which coverage was
         purchased, was the subject of an arbitration proceeding. Initially, the
         Company sued Centre over the nonpayment of the policies; the court
         determined that this must be resolved in the arbitration with Centre.

         On August 18, 2005, HeartMasters LLC and The Regence Group entered into
         a settlement agreement with Centre, resolving the dispute. The
         settlement resulted in the elimination of any further contingent
         liability for the Company, under the guarantee to Regence. The Company
         received $500,000 on September 15, 2005.

         The Company is subject to claims and legal proceedings covering a wide
         range of matters that arise in the ordinary course of business.
         Although management of the Company cannot predict the ultimate outcome
         of these legal proceedings with certainty, management believes that
         their ultimate resolution, including any other amounts we may be
         required to pay will not have a material effect on the financial
         statements.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
         (a) Non applicable
         (b) Non applicable
         (c) None

Item 3.  Defaults upon Senior Securities
         None.

Item 4.  Submission of Matters to a Vote of Security Holders
         None

Item 5.  Other Information

         (a)      None
         (b)      There have been no material changes to the procedures by which
                  security holders may recommend nominees to the Company's Board
                  of Directors.

                                       21
<PAGE>

Item 6.  Exhibits

         (a)      The following exhibits are filed as part of this report:

                  31.1     Certification of Chief Executive Officer of Periodic
                           Report pursuant to Rule 13a-14a and Rule 15d-14(a).

                  31.2     Certification of Chief Financial Officer of Periodic
                           Report pursuant to Rule 13a-14a and Rule 15d-14(a).

                  32.1     Certification of Chief Executive Officer and Chief
                           Financial Officer pursuant to 18 U.S.C. - Section
                           1350.

                                       22
<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.


October 4, 2005                       QMed, Inc.



                                      By:  /s/ Michael W. Cox
                                         ---------------------------------------
                                         Michael W. Cox
                                         President and Chief Executive Officer



                                      By: /s/ William T. Schmitt, Jr.
                                         ---------------------------------------
                                         William T. Schmitt, Jr.
                                         Senior Vice President, Chief Financial
                                         Officer and Treasurer

                                       23