FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: November 30, 1997

Commission File Number:  0-11411

                                   Q-MED, INC.

             (Exact Name of Registrant as Specified in its Charter)

         Delaware                                            22-2468665
(State or other jurisdiction of                              (I.R.S Employer
incorporation or organization)                               Identification No.)

100 Metro Park South, Laurence Harbor, New Jersey            08878
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:  (908) 566-2666

Securities registered pursuant to Section 12 (b) of the Act:  None
Securities registered pursuant to

   Section 12 (g) of the Act:  Common Stock, $.001 par value

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  by reference  in Part III of this Form 10-K or any  amendment to the
Form 10-K. [ ]

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]

As of February 19, 1998, the aggregate  value of the  registrant's  voting stock
held by  non-affiliates  was  $46,155,428  (computed  by  multiplying  the  last
reported sale price on February 19, 1998 by the number of shares of common stock
held by persons other than  officers,  directors or by record  holders of 10% or
more of the registrant's  outstanding  common stock.  This  characterization  of
officers,  directors  and 10% or more  beneficial  owners as  affiliates  is for
purposes of computation  only and is not an admission for any purposes that such
person are affiliates of the registrant).


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         As  of  February  19,  1998,   there  were  9,648,519   shares  of  the
registrant's common stock, $.01 par value, issued and outstanding.

         Documents incorporated by reference:

         Document                                            Form 10-K Reference
         --------                                            -------------------
         Portions of the Registrant's Proxy Statement
         for its 1998 Annual Meeting (to be filed                   III
         in  definitive  form  within 120 days of the
         Registrant's Fiscal Year End)


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                                     PART I

ITEM 1. BUSINESS

Forward-Looking Statements

         Certain  matters   discussed  herein  may  constitute   forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and as such may  involve  risks and  uncertainties.  These  forward-looking
statements  relate  to,  among  other  things,   expectations  of  the  business
environment in which the Company  operates,  projections of future  performance,
perceived  opportunities  in the market and  statements  regarding the Company's
mission and vision. The Company's actual results,  performance,  or achievements
may  differ  significantly  from  the  results,   performance,  or  achievements
expressed or implied in such forward-looking  statements.  For discussion of the
factors that might cause such a difference, see "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."

General

         Q-Med,  Inc.  (the  "Company")  is a  Delaware  corporation  and is the
successor  by merger to the  business of a New Jersey  corporation  organized on
February 1, 1983. The Company engages in the development, manufacture, marketing
and  sale  of  advanced  medical  devices  and  systems.  The  Company,  through
Interactive  Heart Management Corp.  ("IHMC"),  a subsidiary  founded during the
year ended  November 30, 1995  ("fiscal  1995"),  developed  and is marketing an
integrated   coronary   artery   disease   management   system  under  the  name
"ohms|cad(R)" to assist managed care  organizations  manage the cost of coronary
artery disease ("CAD").  The Company has historically  focused on producing high
quality  medical  devices that provide  reliable  diagnostic  interpretation  of
certain disease states,  including a line of ambulatory ischemic heart monitors,
an  interpretative  electrocardiograph,  a device for the analysis of heart rate
variability and a device for the measurement of venous blood flow. These systems
are  designed  to  address  the  needs of  primary  health  care  physicians  to
appropriately  manage certain diseases cost effectively.  The Company's products
are uniquely  suited to assist primary health care physicians in discharging the
greater  medical  responsibilities  that are  expected to be placed on them,  as
efforts  are  made to  reduce  the  overall  cost of  health  care.  Each of the
Company's present products, and those which are under development by the Company
as well as products  employing  selectively  acquired  technology  developed  by
others, are designed to provide sophisticated  analysis of physiological data in
near or  real-time  and report  these  analytical  results to the  primary  care
physician  in order to  detect  and  manage  early  signs of  potentially  acute
diseases.   These  technologically  advanced  diagnostic  tools  lead  to  early
detection  and  treatment  thereby  facilitating  cost-effective  management  of
disease  by a primary  care  physician  rather  than  disease  management  in an
expensive acute care facility, such as a hospital.

         The  Company  has  developed  and  markets  a full  line of  ambulatory
computerized  ischemic heart disease  monitors  utilizing  patented  technology.
These   ambulatory   products,   marketed  under  the  name  "Monitor   One(R),"
continuously  analyze  and  interpret  the  discrete  marker of  ischemic  heart
disease, the ST-segment of electrocardiographic ("ECG") signals 


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generated by the heart  utilizing  patented and  proprietary  technology in real
time.  The Company has also  developed  and is marketing an  electronic  medical
device under the name,  Monitor One nDx(R)  ("nDx")  which  analyzes  heart rate
variability.  The loss of  variation  in heart rate may assist the  physician in
making a  diagnosis  and  determining  the  severity  of  autonomic  neuropathy.
Autonomic  neuropathy,  a  deterioration  of the autonomic  nervous  system,  is
associated  with  diabetic  patients  which  may  lead to  complications  in the
functioning of the heart,  respiratory  systems,  digestion,  body  temperature,
metabolism, perspiration and the secretion of certain endocrine glands.

         Utilizing the experience obtained through various drug trials with such
companies as Pfizer,  Ciba Geigy,  ICI and others and the extensive  validations
completed on Monitor One  instruments,  the Company  developed a  comprehensive,
telemedicine  disease  management system for the coronary artery disease ("CAD")
patient which is marketed  under the trade name  ohms|cad by the Company's  IHMC
subsidiary.   This  system  consists  of  Monitor  One  STRx  ambulant  ischemic
technology;  a remote  on-line  diagnostic  center  (The  ohms  Center);  and an
integrated cardiology consultant practice. This entire system non-invasively and
reliably  quantifies  the probable risk of a heart attack,  unstable  angina and
death  and  directs  the  patient  to  appropriate  therapy  with  the  emphasis
throughout on early  detection,  the  modification of  risk-factors  and medical
intervention.  Early treatment,  emphasis on medical  intervention,  appropriate
referrals to the cardiologist  results in an overall lowering of the cost of CAD
care and the improvement in mortality and morbidity rates in populations  having
CAD.

         In April 1996, the Company entered into a Strategic  Alliance Agreement
with SmithKline  Beecham Health Care Services,  a division of SmithKline Beecham
Corporation ("SmithKline Beecham"). Under the agreement,  SmithKline Beecham has
the exclusive right to market and sell the Company's  ohms|cad system to managed
care  companies  in  the  United  States,   together  with  the  Company's  IHMC
subsidiary.  In addition,  SmithKline Beecham's venture capital affiliate,  S.R.
One Limited,  made a $2 million  equity  investment  in the Company and acquired
warrants to acquire an additional  63,492  shares of the Company's  common stock
for $15.75 per share.  The  Company and  SmithKline  Beecham  share  profits and
losses after the Company recovers its costs of operating the ohms|cad system for
clients.

         The Strategic Alliance Agreement, which has an initial term of five
years, permits either the Company or SmithKline, beginning in April 1998, to
terminate the arrangement in certain events, subject to continuing the venture
to provide services contracted for prior to the termination of the venture. The
Company and SmithKline have discussed possibilities for improving the results of
the alliance or terminating the alliance upon mutually beneficial terms.

         The  Company's  executive  offices are located at 100 Metro Park South,
Laurence Harbor, New Jersey 08878 and its telephone number is (908) 566-2666.

ohms|cad System

         ohms|cad is IHMC's  proprietary  "On-line Health Management Service for
Coronary Artery Disease". It is a telecommunications  system designed as a total
disease  management  process for CAD.  It  consists of Monitor One STRx,  IHMC's
Monitor One ambulant  ischemia  technology,  a remote on-line  diagnostic center
(The ohms Center), and an integrated cardiology consultant practice.  The entire
system  noninvasively  and  reliably  quantifies  the  probable  risk of a heart
attack,  unstable  angina  and death  and  rationally  directs  the  patient  to
appropriate  therapy with the accent on early  detection,  the  modification  of
critical risk-factors and medical intervention.


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<PAGE>

         The overall  system  operates as an "expert  system"  emphasizing  best
medical  treatment  options  for  myocardial  ischemia  and  continued  coronary
wellness. The system is an evidence based, relational mechanism,  using coronary
artery disease patient descriptors which include: demographics, medical history,
current medical therapy,  including  aspirin,  lipid and hypertension  profiles,
obesity and life style,  smoking,  glucose  levels and ambulant  ischemia in its
decision making.

         In addition,  each individual patient's  demographics and risk profiles
are simultaneously  entered into the ohms|cad database for secondary  prevention
analysis and  treatment.  Recommendations  for  management  are  relational  and
tailored  to an  individual  patient  for  lipid  and  hypertension  management,
antithrombosis, smoking, exercise, obesity and diabetes.

         Because of centralized,  digital storage of all data, it allows for the
continuous  description  and analysis of  quantifiable  results;  success of the
stratification,  proportion of patients assigned to various therapies, objective
outcomes,  interplay  with  pharmaceutical  and  pharmacy  benefit  managers and
physician and patient compliance.

         For  example,  in its  risk  prevention  mode  (myocardial  infarction,
unstable  angina,  sudden  death),  it  centers  on the  presence  or absence of
ambulant  ischemia as a risk stratifier  utilizing our specialized  non-invasive
STRx technology for evaluation of this phenomena in each patient. This test data
is telecommunicated to the Company's ohms|cad database (The ohms Center),  which
in turn  stratifies  each  individual  patient  into high or low  risk.  It then
proposes to lower patient risk with specific  anti-ischemic medical therapies as
one treatment  option,  or, if necessary,  recommends  further local  cardiology
consultation  leading to possible  invasive  intervention.  If the data indicate
that the  patient  is at low risk,  a message is sent back to the  primary  care
physician  (PCP) site within minutes with  recommendations  for  optimization of
medical  therapy which will  maintain the patient in the low-risk  pool. In both
circumstances,  therapeutic  actions  are guided by IHMC's  proprietary  disease
management algorithm which in turn is based on national practice guidelines. All
of the interactions and data are stored in the ohms|cad diagnostic center, thus,
outcome information is available continuously.

         Because ohms|cad is an active disease management process  emphasizing a
continuum  of care,  derived  from early  detection  of  ambulant  ischemia  and
modification  of patient risk factors,  similar cost effective  improvements  in
cardiac  events can be expected  from its use. The ohms|cad  system  continually
monitors the care process at the primary care level,  thus, results are reported
as outcomes.  Favorable  outcomes increase market share,  decrease economic risk
and increase product differentiation. In the end, it is "coronary wellness" that
counts. It is durable,  measurable and less costly than conventional  care. As a
result,  the early  implementation  of ohms|cad should contribute to significant
savings and patient gains in market share.

         The  Company's  IHMC   subsidiary,   individually   and  together  with
SmithKline as part of the Strategic  Alliance,  entered into three contracts for
the utilization of ohms|cad systems covering  approximately 200,000 members. One
contract has been fully  implemented  and has been  operational  since 1995. The
results of the utilization of ohms|cad to manage CAD patients 


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<PAGE>

was the subject of a  presentation  at the  Scientific  Section of the  American
Heart  Association's  Annual  Meeting  in  November  1997.  The  results  showed
significant health benefits for those patients undergoing ohms|cad management as
compared to patients  receiving usual care.  Implementation  began pursuant to a
contract  with the San Jose Medical Group in August 1997 and IHMC entered into a
contract of ohms|cad services with CIGNA Health Care of Ohio in December 1997.

Ambulatory Ischemic Heart Disease Monitoring

         While ambulatory monitoring for arrhythmias was first introduced in the
early  1960's and has been  broadly  used in medical  practice  as a  diagnostic
monitoring system useful to detect rhythm and rate disturbances of the heart, no
company had developed a novel application  using  solid-state  electronics and a
validated  ischemia  analysis  program to evaluate  the presence and duration of
ambulatory  ischemic heart disease  (Monitor One).  Thus, the medical utility of
Monitor One allows the detection and analysis of reduced  coronary  artery blood
flow during a patient's daily routines (Ambulant  Ischemic Heart Disease).  Such
analysis can result in the early prevention of heart attack, unstable angina and
death.  In addition,  silent heart disease which is prevalent in coronary artery
disease  patients  and  diabetics,  may also be detected  and  evaluated  by the
Monitor  One  technology.  The basic  design of Monitor One to  accomplish  this
special  function,  utilizes  an  on-board  microprocessor  and  an  extensively
clinically  validated  algorithm to analyze ischemic ECG signals and distinguish
between  normal and  abnormal  heart  beats as the patient is wearing the device
throughout  their normal daily routines.  Heightened  recognition  that ischemic
episodes are predominantly  silent and prognosticate  morbid cardiac events such
as heart  attacks,  sudden  death and  unstable  angina  prompted the Company to
develop the Monitor One technology.

         The  Company's  Monitor One systems  utilize  technology  which detects
changes in the ECG signal which may be  associated  with  diseases of the heart.
Monitor One systems store  analyzed ECG wave forms,  statistical  data,  produce
printed  reports  and can  transmit  data  either  directly to a printer or over
telephone lines or to a personal computer for physician analysis, interpretation
and ischemic  intervention.  The Company's  Monitor One,  which may be worn on a
belt or carried in the  patient's  pocket,  is  capable of  interpreting  a wide
variety of ECG signals which may be associated with cardiac conditions.  Monitor
One technology has been independently  validated in controlled  research studies
for the  detection of ischemic  episodes  associated  with  coronary  ST-segment
deviations in patients with diagnosed CAD.

         Each   Monitor  One  system  is  a   computerized   monitor  with  five
high-fidelity electrodes which are either disposable or reusable and attached to
the monitor through a single connector.  The reusable electrodes were originally
developed  by  the  National  Aeronautics  and  Space  Administration  ("NASA").
Monitoring  for periods of greater than 24 hours is possible due to  solid-state
memory and the design of the reusable  electrodes,  which  allows  high-fidelity
signal capture without the need for daily replacement of disposable  electrodes.
The United  States  Patent  Office  abstract  (No.  3,420,223)  for the reusable
electrode  system reports that the electrodes  can be used  continuously  for 28
days without  appreciable  deterioration  of the electrodes or irritation 


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of the wearer.  In practice,  the reusable  electrode  system (which  includes a
plastic  casing and  attached  wiring) is  subjected  to  physical  abuse in its
application and removal from the patients' chests following a 24 hour monitoring
session.  Based upon the  Company's  experience  to date,  it  appears  that the
reusable  electrode system has an average life of six months. The Company offers
extended  one,  two and  three-year  warranties,  at an  additional  cost to the
purchaser, which includes the cost of one set of replacement reusable electrodes
for each year.  The monitor  retains all  information  stored in a  non-volatile
memory driven by a lithium  battery  during  battery pack  replacement or if the
monitor is turned  off for a minimum  of one year.  In  addition,  the  monitors
indicate,  by audible  tone and liquid  crystal  display  ("LCD"),  when battery
replacement is required.

Additional Products

         The  Company  developed  and is  marketing  a  diagnostic  device  that
analyzes heart rate variability  which can provide the physician  information on
the functioning of the Autonomic Nervous System ("ANS").  ANS dysfunction is the
failure of the portion of the body's nervous system to regulate such unconscious
functions as respiration, circulation, digestion, heart-rate, body temperatures,
metabolism,  sweating  and certain  glandular  secretions.  These  symptoms  are
associated with serious  complications of diabetes leading to blindness,  kidney
failure,  and may contribute to diabetic  cardiac  autonomic  neuropathy,  often
associated  with silent heart  disease,  heart attacks and sudden cardiac death.
The  Company's  Monitor One nDx system  ("nDx")  automates the analysis of heart
rate variation  during deep inspiration and forced  expiration,  posture changes
and Valsalva  Maneuvers.  The nDx monitor assists the physician in administering
the test by prompting  the  patient's  breathing  patterns and then  providing a
statistical  analysis.  The  Company  believes  that  this  product  can  assist
physicians in the early detection of neurological disorders related to diabetes,
before other more dangerous symptoms (heart attacks, blindness, impotence, etc.)
are  present  and to help  manage  the  treatment  of their  diagnosed  diabetic
patients. The Company received a U.S. patent for the nDx technology on March 29,
1994 (Patent No. 5299119).

         The Company also  manufactures and markets other  non-invasive  medical
devices.

Marketing

         Pursuant to the Company's  Strategic Alliance Agreement with SmithKline
Beecham,  SmithKline  Beecham is required to provide sales and marketing support
to the Company's ohms|cad sales  organization.  At present,  the Company's sales
team consists primarily of senior management supported by six senior sales staff
persons that formerly  were  involved in the sales of the Company's  Monitor One
products.

         The  marketing  and sales of the  Company's  devices  to  primary  care
physicians,  hospitals and other health care providers are conducted through the
Company's own direct sales force.  Foreign medical product distributors sell the
Company's  products in Europe.  The Company also  participates with unaffiliated
leasing companies in sales promotions involving financing for the end-user.


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         The Company also markets its products  outside of the United  States to
physicians and health care  institutions  through  foreign  distributors.  In an
effort to expand its network of foreign  distributors,  the Company  continually
evaluates  established  medical  product  distributors  and supports  validation
studies of its products by foreign research institutions.  There is no assurance
that such efforts will result in the acceptance of the Company's products by the
medical  community  of countries in which  validation  studies are  performed or
increase the Company's export sales. The Company's international  operations are
subject  to the  usual  risks  of  doing  business  abroad,  including  currency
fluctuations,  government regulations,  and the economic and political stability
of the  countries in which it operates.  In addition to the use of the Company's
products by physicians, its products have been used in clinical drug testing and
other clinical studies.

Warranty

         The Company extends end-users of purchased or leased devices a standard
warranty  and,  at  additional  cost  to  the  end-user,  extended  one-year  to
three-year  warranties.  Extended  warranty sales represented 15.7% and 13.4% of
net sales for fiscal 1997 and 1996,  respectively.  If there has been  equipment
malfunction,  the Company's  warranty  provides for the repair or replacement of
the  equipment.  The average unit cost of repair is minimal.  During fiscal 1997
and 1996, the Company  replaced  approximately  2 and 4 monitors,  respectively,
that could not be repaired pursuant to its warranty programs.

Reimbursement Policies

         The Medicare program is a major payment source for procedures utilizing
the Company's  products.  The Medicare  program is  administered  by the federal
government  through the Health Care Financing  Administration  ("HCFA"),  United
States  Department of Health and Human Services.  Medicare  carriers,  typically
private insurance companies,  acting as agents of the government,  operate under
contract with HCFA to implement  Medicare program policies and process claims in
assigned  geographic  areas.  Consequently,  reimbursement  rates  for the  same
services may vary by geographic area.

         On  January  1,  1992,  a  Medicare  physician  payment  system  became
effective which is designated  "Resource Based Relative Value Scales" ("RBRVS").
RBRVS,  which is administered by the Health Care Financing  Administration,  and
replaced the  "reasonable  charge"  system which was  utilized  since 1965.  The
reasonable  charge system was criticized  because it resulted in wide variations
in the reimbursement  payments for the same services  performed by physicians of
different specialties and geographic locations. The RBRVS system, which is to be
phased in over five years, is intended to provide uniform  reimbursement for the
performance  of  a  service,  regardless  of  the  specialty  of  the  physician
performing the service.  The Company's analysis of the system concludes that the
RBRVS  system  seeks to lower  overall  costs of the delivery of medical care by
rewarding more patient management provided by primary care physicians.

         Although the RBRVS system  described above is mandated by Congressional
action,  there can be no  assurance  that future  Congressional  action will not
result in the general reduction in the 


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rates of  reimbursement.  Nevertheless,  the 1995 RBRVS rates for the  Company's
products were increased between 3-5%. While uncertainty relating to the Medicare
classification of electronic ambulatory cardiac monitors was resolved by HCFA in
October 1988 and adopted by carriers  during fiscal 1989,  the Company  believes
that the overall political climate to reduce fees for all medical services has a
negative impact on medical equipment sales in general and,  therefore,  sales by
the  Company.  In  addition,  uncertainties  created by  proposals to reform the
health care delivery system, in general,  created,  in the Company's opinion, an
environment  in which many  physicians  delay their  decisions  with  respect to
expenditures for capital equipment.  Accordingly,  the Company expects that this
trend had an adverse impact on its equipment  sales.  However,  the Company also
believes that its  experience in designing and marketing  equipment  that offers
high quality results which are medically necessary and cost-effective, places it
in a position to exploit the  evolving  managed  health care and large  practice
group  market which is  consistent  with  efforts to lower  overall  health care
costs. See "Item 7. Management's  Discussion and Analysis of Financial Condition
and Results of Operations."

Principal Customers

         During fiscal 1997 one customer accounted for 18% of net sales.  During
fiscal  1996 and 1995,  no single  customer  accounted  for more than 10% of the
Company's net sales.

Manufacturing

         The Company  contracts with  electronics  companies for the manufacture
and sub-assembly of its products and accessories,  as well as certain components
of its devices and provides these companies with technical  expertise.  Products
undergo  final  testing and  packaging  at the  Company's  engineering  facility
located in Sag  Harbor,  New York.  Although  the  Company  has not  experienced
significant  delays or disruptions in the assembly and delivery of its products,
there  can be no  assurance  that  delays or  disruptions  will not occur in the
future.  A  deterioration  of the Company's  relationship  with its  independent
contract  manufacturers  could subject the Company to substantial  delays in the
delivery of its products to customers.  Such delays would subject the Company to
possible cancellation of orders and the loss of certain customers.

         Whenever possible,  the Company uses multiple sources of supply for its
components.  However,  the Company believes that there are only singular sources
of supply for certain  components  of its products.  There is no assurance  that
these  sources  will  continue  to  supply  those  parts  and,  if  they  become
unavailable,  the Company  would be adversely  affected.  Also,  there can be no
assurance that the Company's contract  manufacturers will maintain an acceptable
level of quality and  capability  for  assembling  the products to the Company's
specifications.  The Company has not  experienced  delays in obtaining  supplies
which affected the Company's ability to deliver finished goods.

Competition

         Monitor  One  ischemia   products  compete  primarily  with  ambulatory
arrhythmia ECG scanning services,  of which there are more than 75 in the United
States, and other ambulatory 


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ECG  monitoring  equipment  manufacturers.  The Company is aware of more than 20
ambulatory  ECG monitoring  equipment  manufacturers  of which five  manufacture
digital  systems.  Certain large  medical  equipment  companies  such as Hewlett
Packard and Marquette Electronics have introduced electronic ambulatory monitors
which  compete  directly  with  those  of  the  Company.  These  companies  have
substantially greater marketing, financial and other resources than those of the
Company  but  management   believes  that  the  Company's  products'  price  and
performance are competitive in this field.

         The Company  believes  that  Monitor One ischemia  monitoring  products
offer certain  advantages over  traditional  ambulatory  arrthymia ECG recording
monitors and  scanning  services.  Monitor One  products can provide  continuous
analysis and  quantification  of ambulant ischemia in real-time as well as other
irregularities  of the ECG signal for a period of time  longer than 24 hours and
have a  programmable  feature  which enables them to emit an audible tone during
the occurrence of certain high-risk  ischemic  episodes.  These  characteristics
permit the use of Monitor One products for the monitoring and regulation of drug
therapy and as a possible warning device for impending ischemic heart attacks.

         The Company's  sales of Interp 1000 EKG systems is not  significant  in
the market  for such  devices.  The market is  dominated  by  companies  such as
Burdick,  Hewlett  Packard  and  Marquette  Electronics,  which have far greater
financial,  marketing and other resources than those of the Company. The Company
believes that its Interp 1000 product  offers certain  advantages,  particularly
its validated accuracy, compact size, portability and pricing.

         The Company is not aware of any commercial  product which competes with
it nDx system which  automates the process of testing for autonomic  dysfunction
nor is it aware of any  comprehensive  CAD management system which competes with
ohms|cad.

         The   Company's   VasoSpect   system,   which  is  designed  to  detect
abnormalities  of venous  blood  flow,  competes  with other older and more well
known  technologies  such as doppler and  ultrasound.  Nevertheless,  management
believes that VasoSpect's unique interpretative  diagnostic capabilities for the
analysis of venous blood flow will allow it to compete  favorably  with existing
technologies.

         The Company  believes that direct  competition  in ambulatory  ischemic
monitors; products for testing autonomic function;  interpretive ECG; and venous
blood  flow  analysis  may,  in  the  future,   come  from  companies  that  are
considerably larger and have greater financial and human resources and marketing
capabilities. Primary competitive factors in the medical device industry include
scientific and  technological  superiority,  price,  service,  product  support,
availability of patent  protection,  access to adequate capital,  the ability to
successfully develop and market products and processes.

Research and Development

         In  fiscal  1997,  1996,  and  1995,  the  Company  expended  $179,519,
$348,840, and $382,244 respectively, for research and 


                                       10
<PAGE>

development.  During these years, research and development was primarily focused
on the  development  of the  ohms|cad  system  for  managed  care such as health
maintenance organizations, preferred provider organizations, and large physician
groups.

         Management  expects to  continue to develop  new  products,  as well as
enhance its existing products and has budgeted 8% to 10% of anticipated  revenue
for such research and development in fiscal 1998.

Patent Protection and Proprietary Information

         The Company  maintains  a policy of seeking  patent  protection  in the
United  States and other  countries in connection  with certain  elements of its
technology when it believes that such  protection will benefit the Company.  The
Company's  Monitor One technology has been granted  patents in the United States
(Patent  No.  4679144),  Canada  (No.  1281081)  and Spain (No.  547040) and has
additional patent applications pending in other countries.  The Company received
a U.S. patent for the nDx technology on March 29, 1994 (Patent No. 5299119). The
Company applied for a patent for the ohms|cad system (Serial No.  08/414,510) on
March 31,  1995 and the Company  was  advised  that a patent  would be issued on
March 3, 1998.  Certain  patents  relating  to the  Company's  technology  begin
expiring in 2004.

         The patent  laws of  foreign  countries  may  differ  from those of the
United  States  as  to  the   patentability  of  the  Company's   products  and,
accordingly,  the degree of  protection  afforded by the pendency or issuance of
foreign  patents may be different  than  protection  afforded  under  associated
United States  patents.  There can be no assurance that patents will be obtained
in foreign  jurisdictions  with  respect to the  Company's  products or that the
United  States  patent and any foreign  patents  will  significantly  protect or
commercially benefit the Company.

         The Company does not intend to rely solely on patent protection for its
proprietary technology.  The Company also relies upon confidentiality agreements
with  employees,  know-how,  expertise  and lead-time to attain and maintain its
competitive  position,  and to the extent it does so,  there can be no assurance
that others may not  independently  develop  similar  technology or that secrecy
will not be breached.

Governmental Regulation

         The  Company's  products,  to the  extent  they may be deemed  "medical
devices,"  are regulated by the Food and Drug  Administration  (the "FDA") under
the  Federal  Food,   Drug  and  Cosmetics  Act  (the  "FDCA")  and  regulations
promulgated thereunder.

         All medical  devices  sold in  interstate  commerce  are subject to FDA
clearance.  The  Company's  products  are  subject  to  pre-market  notification
(510(k)),  pursuant to which the FDA determines whether a new medical product is
"substantially  equivalent" to a product that was on the market prior to May 28,
1976.  Products  found to be  "substantially  equivalent"  to those products may
thereafter be sold. The FDA has the  authority,  which it has not yet exercised,
to issue  performance  standards  for the type of products  manufactured  by the
Company.


                                       11
<PAGE>

         Regulations of the FDA known as Good  Manufacturing  Practices  ("GMP")
provide standards for manufacturing  processes,  facilities,  and record-keeping
requirements  with which the Company and its  contract  manufacturers  must also
comply.  The  Company  believes  that  the  manufacturing  and  quality  control
procedures  employed  by  it  and  its  contract   manufacturers  meet  the  GMP
requirements.  If the FDA should determine that the Company's  products were not
manufactured in accordance with GMP's, it has the authority to order the Company
to cease  production  of its  products  and may  require  the  Company to recall
products  already  sold by the  Company.  In addition,  any  facilities  used to
manufacture or assemble the Company's  products will be subject to inspection by
the FDA at least biannually.

         The FDCA is not the exclusive  source of regulation of medical  devices
and, by its terms,  allows state and local  authorities  to adopt more stringent
regulations for medical devices.

Employees

         The Company,  as of January 31, 1998,  had 39 full time  employees.  Of
these  full  time  employees,  3  were  executives,  3  were  engaged  in  sales
supervisory  capacities,  7 in  sales  and  marketing,  6 in  engineering,  8 in
production,  5 in technical support and 7 in office administration.  None of the
Company's  employees  are  covered by a  collective  bargaining  agreement.  The
Company believes its relations with employees are good.

Item 2. Properties.

         The Company's executive offices occupy  approximately 9,000 square feet
of office  space in Laurence  Harbor,  New  Jersey.  These  facilities  are used
principally  for  administrative  offices,  sales  training,  and marketing.  In
addition,  the Company  leases  approximately  6,000 square feet of space in Sag
Harbor,  New York used  principally for research and  development,  assembly and
quality control.  Management believes that the foregoing facilities are adequate
for the Company's current level of operations.

Item 3. Legal Proceedings.

         The Company is subject to claims and legal proceedings  covering a wide
range  of  matters  that  arise  in  the  ordinary  course  of  business.  It is
management's opinion that the ultimate resolution of these matters will not have
a material effect on the Company's  consolidated  financial position and results
of operations.

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

         None.


                                       12
<PAGE>

                                     PART II

Item 5.  Market for the  Registrant's  Common Stock and Related  Security Holder
         Matters.

         Market  for the  Registrant's  Common  Stock  and  related  stockholder
matters  as set  forth on page 27 of the  Registrant's  1997  Annual  Report  to
Stockholders is incorporated herein by reference.

         On December 18, 1997, the Company sold an aggregate $2,000,000 8%
Convertible Subordinated Notes due December 18, 2002 (the "Notes"), with
discount or premium, in a private placement to three investors led by Galen
Partners III, L.P. The Notes were sold for cash, without any underwriter or
placement agent and no commissions were paid. Interest on the Notes is accrued
monthly compounded annually and will be due at maturity. The Notes are
convertible into shares of the Company's Common Stock at the rate of $5.60 per
share, provided that if the average closing price of shares of the Company's
Common Stock for the 90 trading days following the closing exceeds $7.25, then
the conversion price will increase to $6.00. The Company may redeem the Notes in
the event the average closing price of shares of the Company's Common Stock
equals or exceeds $12.00 for a period of 90 days at the following times with the
following premiums and may elect to pay the redemption price in shares of Common
Stock:

                  Year                          Redemption Price
                  ----                          ----------------
                  1998                                105%
                  1999                                104%
                  2000                                103%
                  2001                                102%
                  2002                                100%

The Company is required to redeem the Notes at higher premiums in the event of a
change of control.

         In connection  with the sale of the Notes,  the Company granted certain
rights to the purchasers, including registration rights and the right to appoint
a member  of the  Company's  board of  directors.  The Note  Purchase  Agreement
prohibits the Company from paying  dividends  until the Notes are paid. The sale
was  made  in  reliance  on the  exemption  contained  in  Section  4(2)  of the
Securities Act of 1933, as amended.

Item 6. Selected Financial Data.

         Selected financial data as set forth on page 5 of the Registrant's 1997
Annual Report to Stockholders is incorporated herein by reference.


                                       13
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

         Management's discussion and analysis of financial condition and results
of  operations  as set forth on pages 6 to 11 of the  Registrant's  1997  Annual
Report to Stockholders is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

         Not applicable.

Item 8.  Financial Statements and Supplementary Data.

         Financial  statements  and  supplementary  data as set  forth  on pages
12 to 26 of the Registrant's  1997 Annual Report to Stockholders is incorporated
herein by reference.

Item 9.  Disagreements on Accounting and Financial Disclosure.

         None.


                                       14
<PAGE>

                                    PART III

Item 10. Directors,   Executive   Officers,   Promoters,   Control  Persons  and
Compliance with Section 16(a) of the Exchange Act of the Registrant.

         Information  with  respect to executive  officers and  directors of the
Company will be set forth in the Company's  definitive  proxy statement which is
expected to be filed  within 120 days of November  30, 1997 and is  incorporated
herein by reference.

Item 11. Executive Compensation.

         Information with respect to executive compensation will be set forth in
the Company's  definitive  proxy  statement which is expected to be filed within
120 days of November 30, 1997 and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

         Information  with respect to the ownership of the Company's  securities
by certain persons will be set forth in the Company's definitive proxy statement
which is  expected  to be filed  within  120 days of  November  30,  1997 and is
incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

          Information  with respect to  transactions  with management and others
will be set forth in the Company's  definitive proxy statement which is expected
to be filed within 120 days of November 30, 1997 and is  incorporated  herein by
reference.


                                       15
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         (a) (1) Financial Statements.

         Description

         Independent Auditors Report

         Consolidated  Balance  Sheets as of November
         30, 1997 and 1996

         Consolidated  Statement  of  Operations  for
         each of the three years ended  November  30,
         1997, 1996 and 1995

         Consolidated   Statement  of   Stockholder's
         Equity  for each of the  three  years  ended
         November 30, 1997, 1996 and 1995

         Consolidated Statement of Cash Flow for each
         of the three years ended  November 30, 1997,
         1996 and 1995

         Notes to Consolidated Financial Statements

         (2) Financial Statement Schedules

         Schedules have been omitted because they are
         not applicable.

         (b) Reports on Form 8-K.

         The  Company  did not file any  reports  on Form  8-K  during  the last
quarter of the fiscal year covered by this report.

         (c) The following Exhibits are filed as part of this report. Where such
filing is made by  incorporation  by  reference  (I/B/R) to a  previously  filed
statement or report, such statement or report is identified in parentheses:


                                       16
<PAGE>

Official                                                              Sequential
Exhibit No.                         Description                         Page No.
-----------                         -----------                       ----------
    2                                       None

    3.1           Amended and restated New Jersey Certificate of
                  Incorporation dated July 6, 1983 (Exhibit 3C to
                  the S-18 Registration Statement 2-86653-NY of the
                  Company effective December 1, 1983)                      I/B/R

    3.2           New Jersey By-Laws as amended on January 16, 1984
                  (Exhibit 3F to the Company's Annual Report on Form
                  10-K for the year ending November 30, 1984)              I/B/R

    3.3           Amended and Restated Delaware Certificate of
                  Incorporation of Q-Med, Inc. as in effect on July
                  11, 1987 (Exhibit 3.3 to the Company's Report on
                  Form 10-Q dated May 31, 1987)                            I/B/R

    3.4           By-Laws  as in  effect  on July 1,  1987  (Exhibit  
                  3.3 to the Company's Report on Form 10-Q dated May 31,   
                  1987)                                                    I/B/R

    3.5*          Amendment to By-Laws dated December 18, 1997

    4.1           Specimen of Stock  Certificate  (Exhibit 4.1 to the
                  Company's Report on Form 10-K dated November 30,
                  1989)                                                    I/B/R

    4.2           Warrant to Purchase Common Stock dated May 6, 1996
                  i/n/o S.R. One Limited (Exhibit 4.2 to the Company's
                  Report on Form 10-K dated November 30, 1996)             I/B/R

    4.3           Note Purchase Agreement between Q-Med, Inc.
                  and Galen Partners III, L.P., Galen Partners 
                  International III, L.P., Galen Employee Fund III, 
                  L.P. dated as of December 18, 1997 (Exhibit 4.1 
                  to the Company's Report on Form 8-K dated 
                  December 18, 1997)                                       I/B/R

    4.4           Form of 8% Convertible  Subordinated  Note 
                  (Exhibit 4.2 to the Company's Report on 
                  Form 8-K dated December 18, 1997)                        I/B/R


                                       17
<PAGE>

    4.5           Registration Rights Agreement between Q-Med, Inc.
                  and Galen Partners III, L.P., Galen Partners 
                  International III, L.P., and Galen Employee 
                  Fund III, L.P. dated as of December 18, 1997 
                  (Exhibit 4.3 to the Company's report
                  on Form 8-K dated December 18, 1997)                     I/B/R

    9             None

   10.1           Q-Med, Inc. 1986 Incentive Stock Option Plan
                  (Exhibit 10N to the Company's Registration

                  Statement No. 33-4499 on Form S-1)                       I/B/R

   10.2           Loan and Security Agreement dated November 1, 1989
                  between First Fidelity Bank, National Association
                  and the Company (Exhibit 10.1 to the Company's
                  report on Form 8-K dated November 27, 1989, as
                  amended by Form 8 dated December 6, 1989)                I/B/R

   10.3           Modification Agreement dated April 16, 1991
                  between the Company and First Fidelity Bank, N.A.
                  New Jersey (Exhibit 10.1 to the Company's Form
                  10-Q Report dated February 28, 1991)                     I/B/R

   10.4           Limited Corporate Guaranty of Heart Map, Inc.
                  dated April 16, 1991 (Exhibit 10.3 to the
                  Company's Form 10-Q Report dated February 28,
                  1991)                                                    I/B/R

   10.5           Security Agreement between Heart Map, Inc. First
                  Fidelity Bank, N.A. New Jersey dated April 16,
                  1991 (Exhibit 10.2 to the Company's Form 10-Q
                  Report dated February 28, 1991)                          I/B/R

   10.6           Term Promissory Note payable to First Fidelity
                  Bank dated March 13, 1992 (Exhibit 25.1 to the
                  Company's Form 8-K Report dated March 13, 1992)          I/B/R

   10.7           Lease dated August 31, 1993 between the Company
                  and Alexandria Atrium Associates (Exhibit 28.1 to
                  the Company's Form 10-QSB Report dated August 31,
                  1993)                                                    I/B/R


                                       18
<PAGE>

   10.8**         Strategic Alliance Agreement effective as of April 1,
                  1996  between  Q-Med,  Inc.  and  SmithKline  Beecham
                  Health  Services,  a division of  SmithKline  Beecham
                  Corporation  (Exhibit 10.8 to the Company's Form 10-K
                  Report dated November 30, 1996, as amended)              I/B/R

   10.9           Securities Purchase Agreement dated May 6, 1996
                  between Q-Med, Inc. and S.R. One Limited (Exhibit
                  10.9 to the Company's Form 10-K Report dated
                  November 30, 1996, as amended)                           I/B/R

   10.10          Registration Rights Agreement dated May 6, 1996
                  between Q-Med, Inc. and S.R. One Limited (Exhibit
                  10.10 to the Company's Form 10-K Report dated
                  November 30, 1996, as amended)                           I/B/R

   10.11*         Q-Med, Inc. 1997 Equity Incentive Plan

   11             None

   13*            Q-Med, Inc. 1997 Annual Report.

   16             None.

   18             None.

   21*            Subsidiaries of Registrant

   22             None.

   23*            Consent of Amper, Politziner & Mattia

   24             None.

   27*            Financial Data Schedule

---------

*  Filed herewith

** Exhibit omits certain information which the Company has filed separately with
the  Commission  pursuant to a confidential  treatment  request under Rule 24b-2
under the Securities Exchange Act of 1934, as amended.


                                       19
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized.

Dated: February 27, 1998                           Q-MED, INC.

                                                   By: /s/ Michael W. Cox
                                                       -------------------------
                                                       Michael W. Cox, President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed on behalf of the Registrant and in capacities and at
the dates indicated:


Signature                               Capacity                      Date
---------                               --------                      ----

/s/ Michael W. Cox              President and Treasurer       February 27, 1998
-------------------------
Michael W. Cox                  (Principal Executive and
                                Financial Officer)

/s/ Richard I. Levin            Director                      February 27, 1998
-------------------------
Richard I. Levin

/s/ Robert A. Burns             Director                      February 27, 1998
-------------------------
Robert A. Burns

/s/ Howard L. Waltman           Director                      February 27, 1998
---------------------
Howard L. Waltman

/s/ Herbert H. Sommer           Director                      February 27, 1998
---------------------
Herbert H. Sommer

/s/ Debra A. Fenton             Controller                    February 27, 1998
-------------------------
Debra A. Fenton


                                       20
<PAGE>

                                  EXHIBIT INDEX

Exhibit                                                               Sequential
  No.                                                                  Page No.
-------                                                               ----------

3.5               Amendment to By-Laws dated December 18, 1997

10.11             Q-Med, Inc. 1997 Equity Incentive Plan

13                Q-Med, Inc. 1996 Annual Report

21                Subsidiaries of Registrant

23                Consent of Amper, Politziner & Mattia

27                Financial Data Schedule

----------

                                       21