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


                                    FORM 10-K

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

                  For the fiscal year ended: November 30, 2003

              [ ] 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)

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

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 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 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. [ ]

<PAGE>

As of May 31, 2003, the aggregate value of the registrant's voting stock held by
non-affiliates was $61,744,563 (computed by multiplying the last reported sale
price on May 31, 2003 ($5.89) 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 people are
affiliates of the registrant).

As of February 25, 2004, there were 14,673,750 shares of the registrant's common
stock, $.001 par value, issued and outstanding.

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


         Documents incorporated by reference:

         Document                                          Form 10-K Reference
         --------                                          -------------------

         Portions of the Registrant's Proxy Statement             III
         for its 2004 Annual Meeting (to be filed in
         definitive form within 120 days of the
         Registrant's Fiscal Year End)

                                       2
<PAGE>

                                     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. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify certain forward-looking statements. These forward-looking
statements relate to, among other things, expectations of the business
environment in which we operate, projections of future performance, perceived
opportunities in the market and statements regarding our mission and vision. Our
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" And other factors described in this Item 1
under "Industry and Other Risk Considerations." We undertake no obligation to
update or revise such forward-looking statements.

General
--------------------------------------------------------------------------------

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 is
co-marketing with QMed health care information and communication services to
health plans, governments and private companies. These services 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 incidence, treatment, and cost of cardiovascular
conditions, including coronary artery disease ("CAD"), stroke, congestive heart
failure ("CHF"), hypertension, hyperlipidemia and the cardiovascular
complications of diabetes. These systems are designed to aid primary health care
physicians in the use of optimal "evidence based" medical management for
patients with these conditions, as well as those at high risk of developing
these conditions. The net impact of this approach is the improvement in
cardiovascular health and the associated reduction in mortality, morbidity and
cost. As of November 30, 2003, we had contracts to provide these services to 12
health plans in 11 states covering approximately 1.2 million health plan
members.

The ohms|cvd system is a comprehensive disease management system developed to
utilize modern prognostic and therapeutic technologies to reduce the utilization
of expensive invasive medical procedures, hospitilizations and encourage the use
of preventative cardiology therapies. The system uses real-time clinical chart
abstracted data, "evidence based" medical recommendations, patient monitoring
and telecommunication technology. It analyzes results, generates reports, and
archives data. The emphasis throughout the process is on early identification
and prevention of cardiovascular events, modification of critical risk factors

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and the optimization of appropriate medicine. Early treatment, with emphasis on
medical intervention results in an overall lowering of morbidity and mortality
the associated cost of cardiovascular disease and its complications.

We also produce, sell and support a line of ischemic heart monitors and a system
that analyzes heart rate variability under the name, Monitor One nDx(R) ("nDx").

Our executive offices are located at 25 Christopher Way, Eatontown, New Jersey
07724 and our telephone number is (732) 544-5544.

We maintain an Internet website at www.qmedinc.com. We make available free of
charge on our website our annual report on Form 10-K, our quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as
soon as practicable after we electronically file such material, or furnish it to
the Securities and Exchange Commission.

ohms|cvd Systems
--------------------------------------------------------------------------------

ohms|cvd is our medical "expert system" designed as a total disease management
process for Heart Failure (HF), Coronary Artery Disease (CAD), Stroke, Diabetic
cardiovascular complications, Hypertension, Hyperlipidemia and other
co-morbidities utilizing "best practice" solutions in the management of these
diseases and conditions. It consists of Monitor One(R) STRx, our ambulant
ischemia technology, a remote on-line diagnostic center (The ohms Center), an
integrated cardiology consultant practice and other patient monitoring systems.
The entire system noninvasively and reliably quantifies the probable risk of a
clinical event most significantly a cardiovascular, cerebrovascular or heart
failure event, and rationally directs the patient to appropriate therapy with
the accent on early detection, the modification of critical risk factors and
medical intervention. The ohms|cvd system expands upon our core technology,
first incorporated in our ohms|cad(R) system, adding the capability to manage
patients that have heart failure, diabetic cardiovascular complications and the
risk of stroke.

All systems are evidence based, relational mechanisms, using patient descriptors
which include:

        o        demographics,
        o        medical history,
        o        current medical therapy, including aspirin,
        o        lipid and hypertension profiles,
        o        obesity and lifestyle,
        o        smoking,
        o        glucose levels,
        o        ambulant ischemia,
        o        weight gain beyond set parameters
        o        rate and rhythm disturbances and other ECG abnormalities.

The systems produce clinical recommendations for the physicians tailored to an
individual patient. Significantly, each individual patient's medical history
inclusive of comorbidities, risk factor profile, current medication and other

                                       4
<PAGE>

relevant patient specific information are entered into the systems' "best
practices" database for primary and secondary prevention analysis and treatment.

The systems' centralized digital storage of each patient's iterative review
affords continuous description and analysis of quantifiable results including:

        o        success of the risk stratification,
        o        proportion of patients assigned to various therapies,
        o        objective outcomes,
        o        interplay with pharmacy benefit managers
        o        physician and patient compliance.

For example, in its risk prevention mode (myocardial infarction, unstable
angina, coronary complications), 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 uploaded in near real-time to our central database (The ohms Center), which
in turn stratifies each individual patient into high or low risk. It then
proposes to lower a high-risk patient's 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 site within minutes with recommendations for optimization of
medical therapy that will maintain the patient in the low-risk pool. In both
circumstances, our proprietary disease management algorithm, which in turn is
based on national practice guidelines, guides therapeutic actions and
evidence-based medicine. Outcome information is available continuously because
all of the interactions and data are stored electronically in The ohms Center.

Our expert medical system, ohms|cvd is an active disease and care management
processes emphasizing a continuum of care, including modification of patient
risk factors. Use of this system can result in important cost-effective
improvements in cardiac, cerebrovascular and heart failure events, which have
been verified by empirical health and cost outcomes. The ohms|cvd system
continuously monitors the care process, and thus, results are reported as
outcomes. Favorable outcomes increase our market share, decrease our economic
risk and increase our product differentiation.

At November 30, 2003, we had contracts with 12 health plans to provide disease
management services in multiple health plan markets in 11 states. The number of
members under contract was as follows:

At November 30,                        2003            2002            2001
---------------                        ----            ----            ----
Members under contract              1,200,039        1,569,176       1,073,046

At November 30, 2003, of the 1,200,039 plan members under contract, we had
1,037,230 commercial members and 162,809 Medicare+Choice members.

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<PAGE>

Disease management contracts require sophisticated management information
systems to enable us to manage the care of large populations of patients with
certain chronic diseases such as CAD, stroke, diabetes, and heart failure as
well as certain other medical conditions. They also require us to assist in
reporting outcomes and costs before and after our involvement with a health
plan's enrollees. We have developed and continually expand and improve our
systems, which we believe meet our information management needs for disease
management. We have installed and utilize the systems for the benefit of
enrollees in all of the health plans, which we contract as customers. The
anticipated expansion and improvements in our information management systems
will continue to require significant investments by us in information technology
software, hardware and our information technology staff.

Medicare Demonstration Projects
--------------------------------------------------------------------------------

The Centers for Medicare and Medicaid Services ("CMS") selected us to
participate in two demonstration projects:

        o        Medicare Coordinated Care Demonstration ("MCCD"); and

        o        Disease Management Demonstration

CMS is a federal agency within the U.S. Department of Health and Human Services.
CMS runs the Medicare and Medicaid programs -- two national health care programs
that benefit about 75 million Americans. In addition, CMS runs the State
Children's Health Insurance Program (SCHIP) with the Health Resources and
Services Administration, a program that is expected to cover many of the
approximately 10 million uninsured children in the United States. CMS also
regulates all laboratory testing (except research) performed on humans in the
United States. CMS, with the Departments of Labor and Treasury, helps millions
of Americans and small companies get and keep health insurance coverage, and
eliminate discrimination based on health status for people buying health
insurance. CMS spends over $360 billion a year buying health care services for
beneficiaries of Medicare, Medicaid and SCHIP. CMS:

         o        assures that the Medicaid, Medicare and SCHIP programs are
                  properly run by its contractors and state agencies;

         o        establishes policies for paying health care providers;

         o        conducts research on the effectiveness of various methods of
                  health care management, treatment, and financing; and

         o        assesses the quality of health care facilities and services
                  and taking enforcement actions as appropriate.

Medicare Coordinated Care Demonstration

We have received a contract award to participate in the Medicare MCCD project.
Our ohms|cad program is the only one that will be evaluated specifically for
management of CAD.

CMS designed MCCD to evaluate the cost-effectiveness of reimbursing disease
management services in the Medicare fee for service model. In accordance with

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<PAGE>

the Balanced Budget Act of 1997, which mandated the demonstration, CMS "... may
issue regulations to implement, on a permanent basis, the components of the
demonstration projects that are proven to be cost-effective for the Medicare
program."

Under the award, we are implementing our ohms|cad disease management technology
in a controlled randomized study of Medicare beneficiaries who have been
diagnosed previously with CAD. Patient enrollment in California commenced in
early 2002. As a result of our success in the initial enrollment stage of the
project, CMS authorized doubling the patient base of the project with
commensurate remuneration. We will receive fees from CMS for up to four years.

MCCD was authorized by the Balanced Budget Act of 1997. It is intended to test
coordinating the care of Medicare beneficiaries with chronic conditions that
represent high costs to the Medicare program, of which heart disease is the
highest cost. Coordinated care programs serving patients with chronic conditions
were solicited and evaluated. Conditions included heart disease, diabetes, liver
and lung diseases, stroke and other vascular diseases, psychotic disorders,
major depressive disorders, drug/alcohol dependence, Alzheimer's or other
dementia, cancer or HIV/AIDS. Participant selection was made through a national
competitive process.

CMS Disease Management Demonstration

On October 23,2002, CMS selected QMed, PacifiCare Health Systems, Inc., with its
subsidiary, Prescription Solutions, and Alere Medical, Inc. - operating jointly
as "Heart Partners" - to participate in its Disease Management Demonstration
Project.

The HeartPartners Program will provide disease management services and a
comprehensive tiered prescription drug plan for up to 15,000 chronically ill
Medicare fee-for-service beneficiaries suffering from congestive heart failure.
The program will also address the significant co-morbidities of coronary artery
disease and diabetes.

The goal of the demonstration project is to provide more comprehensive services
to Medicare beneficiaries and their physicians to better manage their chronic
conditions that will result in improved quality and reduced medical costs,
sufficient to offset the cost of the disease management and pharmacy services.


PacifiCare, QMed and Alere were selected following a national competitive
evaluation process. The HeartPartners program, which commenced in January 2004,
is authorized for three years, and is the largest of the three projects awarded
for the CMS Disease Management Demonstration. PacifiCare, QMed and Alere, will
operate HeartPartners under a single, coordinated management and operational
construct.

                                       7
<PAGE>

Business Strategy
--------------------------------------------------------------------------------

Our strategy is to (1) develop additional CMS contracts (including both large
scale demonstrations for our full suite of interventions as well as providing
other CMS demonstrations with our already successful front-end enrollment
process); (2) add contracts with new health plans to provide disease management
services; (3) to further develop and expand our cardiovascular disease
management business within existing customers; (4) to add disease states to our
platform. We anticipate that we will utilize our medical
information-communication technologies to gain and maintain competitive
advantage in delivering care coordination and its narrower subset, disease
management, services. We anticipate that significant investments will continue
to be made during fiscal 2004 in the development of the clinical programs, the
associated information technology support for these expanded initiatives and
that many of these investments will be made prior to the initiation of revenues
from contracts. It is also anticipated that some of these new capabilities and
technologies may be added through strategic alliances with other entities.

We anticipate that additional disease management contracts that we may sign with
health plans, employer groups and governmental agencies may take one of several
forms, including per member per month payments to us, some form of sharing of
savings of overall enrollee healthcare cost reductions, fee for services for
enrolled members, or some combination of these arrangements. We anticipate that
under most contracts, some portion of our fees will be at risk and subject to
our performance against financial cost savings and clinical improvements. The
Company would defer revenue in those situations in which indicate the interim
performance-to-date data on the contract are below performance obligations.

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 defers revenue until agreement is reached
with respect to identified issues.

Industry and Other Risk Considerations
--------------------------------------------------------------------------------

In the process of executing our business strategy, our operations and financial
condition are subject to certain risks. The primary industry risks are described
below and readers of this Annual Report on Form 10-K should take such risks into
account in evaluating any investment decision involving the company. This
section does not describe all risks applicable to our business and is intended
only as a summary of certain material factors that impact our operations in the
industry in which we operate. More detailed information concerning these and
other risks is contained in other sections of this Annual Report on Form 10-K.

The healthcare industry in which we operate is currently subject to significant
cost reduction pressures as a result of constrained revenues from governmental
and private sources as well as from the increasing underlying cost of medical
care. We believe that these pressures will continue and possibly intensify.
While we believe that our services are geared specifically to assist health
plans, employer groups and governmental agencies in controlling the high costs
associated with the treatment of chronic diseases, the pressures to reduce costs
immediately may have a negative effect in certain circumstances on the ability
of or the length of time required for us to sign new contracts. In addition,
this focus on cost reduction may result in increased focus from health plans on

                                       8
<PAGE>

contract restructurings that reduce the fees paid to us for our services. There
can be no assurance that these financial pressures will not have a negative
impact on our operations.

Health plans and employers are subject to considerable state and federal
government regulation. Many of these regulations are vaguely written and subject
to differing interpretations that may, in certain cases, result in unintended
consequences that may impact our ability to effectively deliver our services.
The current focus on regulatory and legislative efforts to protect the
confidentiality of patient identifiable medical information, as evidenced by the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), is one
such example. We believe that our ability to obtain patient identifiable medical
information for disease management purposes from health plans with which we
contract is protected in federal regulations governing medical record
confidentiality. State legislation or regulation of this information may be more
restrictive and may preempt federal legislation. We are continually determining
the extent to which specific state legislation or regulations govern our health
plan operations. New federal or state legislation or regulation in this area,
which prohibitively restricts the availability of certain critical information
to us, would have a material negative impact on our disease management
operations.

The disease management industry, which is growing rapidly, is a relatively new
segment of the overall healthcare industry and has many entrants marketing
various services and products labeled as "disease management." The generic label
of disease management has been utilized to characterize a wide range of
activities from the sale of medical supplies and drugs to services aimed at
demand management. Because the industry is relatively new, health plan
purchasers of these services have not had significant experience purchasing,
evaluating or monitoring such services which generally results in a lengthy
sales cycle for new health plan contracts. In addition, because the industry is
still relatively new and health plans have only recently entered into disease
management contracts, we have a significant concentration of our revenues
represented by contracts with four health plans, PacifiCare of California
PacifiCare of Texas, PacifiCare of Oregon and PacifiCare of Colorado, which
collectively accounted for 56% of our revenues in fiscal 2003. Until additional
significant health plan contracts are signed and implemented by us, the loss or
a downward restructuring of a contract with a single large health plan customer
would negatively and materially impact our results of operations and financial
condition. Subsequent to November 30, 2003 the company signed an disease
management contract with a heath plan in the southwest covering 1.2 million
lives

The disease management industry is dependent on the effective use of information
technology. While we believe that our state-of-the-art technology provides us
with a competitive advantage in the industry, we expect to continually invest in
updating and expanding technology and, in some cases, will be required to make
systems investments in advance of the generation of revenues from contracts. In
addition, these system requirements expose us to technology obsolescence risks.
Accordingly, we amortize our computer software and hardware over five years.

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The measurement of our performance under our health plan contracts is highly
dependent upon the timely receipt of accurate data from our health plan
customers and the accuracy of the analysis of such data. Data acquisition, data
quality control and data analysis are intense and complex processes subject to
error. Untimely, incomplete or inaccurate data from a customer or flawed
analysis of such data could have a material adverse impact on our revenues from
that contract.

The membership enrollment and disenrollment processes of our health plan
customers can result in a cyclical reduction of lives under management,
especially during our first quarter. Employers typically make decisions about
health insurance carriers at the end of each calendar year. Health plans also
assess the types of markets they service as well as the contractual arrangements
of medical groups within those markets. In any event, all of these factors will
have an effect on membership as of January 1 of each year. A health plans
decision to exit markets or non-renewal of contracts with their medical groups
will result in a loss of covered lives under management as of January 1.
Although these decisions may also result in a gain of members, the process of
identification and enrollment will typically lag by six months or longer. The
result of these cyclical changes has not had a material impact on the company's
revenues or results of operations.

A potential seasonal impact on covered membership could include a decision by a
health plan to withdraw or expand coverage thereby automatically disenrolling
previously covered members or enrolling new members, as would significant shifts
in employer's participation in the plans. In addition, because the disease
management industry is relatively new, the renewal experience for these
contracts is limited. No assurances can be given that results from contract
restructurings and possible terminations at or prior to renewal would not have a
material negative impact on our operations and financial condition.

Share prices of healthcare companies and our share price in particular may be
volatile. The volatility may be influenced by the market's perceptions of the
healthcare sector in general, or other companies believed to be similar to us or
by the market's perception of our operations and future prospects. Many of these
perceptions are beyond our control.

Marketing
--------------------------------------------------------------------------------

We market our disease management services to health plans, large physician
practice groups, employers and governmental agencies through our sales staff. In
addition to marketing through our sales staff, we promote our services at key
conferences throughout the United States where potential clients are present.

A key to our success in marketing our services is the relationships we develop
with providers, physicians and patients. QMed builds the critical links among
them that result in superior patient outcomes and reduced costs.

We have developed a comprehensive Medicare strategy, and we project that a large
portion of our future business will be in contracts with the Government. In our
current Medicare Projects, our relationships with physicians has given us a key
advantage in identifying patients for the projects. We will continue to promote
our relationships as they are critical to patient enrollment.

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Contracting efforts are conducted and coordinated by senior management
personnel, with the aid, where appropriate, of certain independent consultants.
We generally pursue business opportunities through the traditional competitive
process where a Request for Proposals ("RFP") or a Request for Qualifications
("RFQ") is issued by a managed care, employer or government organization, to
which a number of companies respond. We utilize demographic and cost of service
data from the organization as well as statistical information to conduct an
initial cost analysis to determine program feasibility. As part of our sales
efforts, management meets with appropriate personnel from the organization
making the request to best determine the organization's needs. In the RFQ
process, the requesting agency selects a firm it believes is the most qualified
to provide the requested services and then negotiates the terms of the contract
with that firm, including the price at which its services are to be provided.

Warranty
--------------------------------------------------------------------------------

In our medical equipment segment, we extend a standard warranty to end-users of
purchased or leased devices. Extended one-year warranties are available to
end-users at additional cost. Extended warranty sales represented 0.5%, 1.0%,
and 1.7% of total revenue for fiscal 2003, 2002 and 2001, respectively, and are
not expected to represent a significant portion of revenue in future periods.

Manufacturing
--------------------------------------------------------------------------------

We contract with electronics companies for the manufacture and sub-assembly of
devices and accessories and provide these contractors with technical expertise.
These devices undergo final testing and packaging at our facility located in Sag
Harbor, New York. Although we have 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 our relationship with our independent contract manufacturers
could subject us to substantial delays in the delivery of our products to
customers. Such delays could subject us to possible cancellation of orders and
the loss of certain customers.

Whenever possible, we use multiple sources of supply for components. However, we
believe that there are only singular sources of supply for certain components.
There is no assurance that these sources will continue to supply those parts
and, if they become unavailable, we would be adversely affected. Also, there can
be no assurance that our contract manufacturers will maintain an acceptable
level of quality and capability for assembling the products to our
specifications. We have not experienced delays in obtaining supplies which
affected our ability to deliver finished goods or provide equipment used in our
disease management services.

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<PAGE>

Competition
--------------------------------------------------------------------------------

We believe ohms|cvd offers a unique solution for cardiovascular disease
management. However, there are several entities, including pharmaceutical
companies, pharmacy benefit managers and independent companies that are pursuing
management of cardiac conditions, which we consider to be competition.

We believe we have competitive advantages based on the following:

         o        The entire management system and its components are
                  proprietary and patented.

         o        Our ischemia technology has been clinically validated with
                  results appearing in several "peer reviewed" journals.

         o        Health outcomes have been documented and presented at
                  prestigious meetings, such as the American Heart Association
                  Scientific Sessions and cost effective results appear in a
                  peer reviewed journal.

         o        We have an extensive and growing knowledgebase of how specific
                  therapeutic modalities positively affect patients' health.

         o        We have proven successes in actual implementation of our
                  disease management system in the field that demonstrates our
                  ability to produce faster rollouts and faster health and
                  economic outcomes to the plan.

         o        We have created proprietary analytics that define the target
                  population at risk.

         o        We have established an operating infrastructure with
                  integrated resources and processes amplified by corporate
                  expertise.

         o        We have documented improvements for a health plan customer of
                  its HEDIS audit, a competitive advantage for each customer.

         o        We are perhaps the only disease management program in which
                  disease management specialists who work for us see the patient
                  face to face on a regularly scheduled basis.

Competition may increase and such competition could come from companies that are
considerably larger and have greater financial and marketing resources than we
have.

Monitor One ischemia products compete primarily with ambulatory arrhythmia ECG
scanning services, of which there are more than 75 in the United States, and
other ambulatory ECG monitoring equipment manufacturers. In many cases, some of
these companies have substantially greater marketing, financial and other
resources than we have, but management believes that our products' price and
performance are competitive in this field.

We believe that direct competition in ambulatory ischemic monitoring, products
for testing autonomic function and disease management may come from companies

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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 2003, 2002 and 2001, we expended approximately $905,000, $1,000,000
and $757,000 respectively, for research and development. During these years,
research and development was primarily focused on the development of an advanced
version of the ohms|cad system and the ohms|cvd system.

We plan to continue to add new disease states to our platform, as well as
enhance our existing systems and products and have budgeted approximately 10% of
anticipated revenue for such development in fiscal 2004.

Patent Protection and Proprietary Information
--------------------------------------------------------------------------------

We maintain a policy of seeking patent protection in the United States and other
countries in connection with certain elements of its technology. Our Monitor One
technology has been granted patents in the United States (Patent No. 4679144),
Canada (Patent No. 1281081) and Spain (Patent No. 547040). We received a U.S.
patent for the nDx technology on March 29, 1994 (Patent No. 5299119) and a
patent for the ohms|cad system (Patent No. 5,724,580) on March 3, 1998. Certain
patents relating to our technology begin expiring in 2004.

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

We do not intend to rely solely on patent protection for our proprietary
technology. We also rely upon trade secrets, copyright protection,
confidentiality agreements with employees, know-how, expertise and lead-time to
attain and maintain our competitive position. To the extent that we rely upon
these measures, there can be no assurance that others might not independently
develop similar technology or that secrecy will not be breached.

Privacy Issues
--------------------------------------------------------------------------------

Because our applications and services are utilized to transmit and manage highly
sensitive and confidential health information, the security and confidentiality
concerns of our customers and their patients are a primary concern. In order to
enable our applications and services to transmit sensitive and confidential
medical information, we utilize advanced technologies designed to ensure a high
degree of security. These technologies generally include:

         o        security that requires a password to access our systems;

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<PAGE>

         o        user access restrictions that allow our customers to determine
                  the individuals who will have access to data and what level of
                  access each individual will have;

         o        encryption of data relating to our applications and services;
                  and

         o        a mechanism for preventing outsiders from improperly accessing
                  private data resources on our internal network and our
                  applications commonly referred to as a "firewall."

Our customers also implement their own procedures to protect the confidentiality
of information being transferred into and out of their computer network. Despite
these efforts, it is not possible to assure 100% data security.

Internally, we work to ensure the safe handling of confidential data by
employees by:

         o        using individual user names and passwords for each employee
                  handling electronic data; and

         o        requiring each employee to sign an agreement to comply with
                  all company policies, including our policy regarding handling
                  confidential information.

We monitor proposed regulations that might affect our applications and services,
in order to ensure that we are in compliance with such regulations when and if
they are affected.

Government Regulation
--------------------------------------------------------------------------------

HEALTHCARE REGULATION. As a participant in the healthcare industry, our
operations and relationships are subject to regulation by federal and state laws
and regulations and enforcement by federal and state governmental agencies.
Sanctions may be imposed for violation of these laws. We believe our operations
are in substantial compliance with existing laws that are material to our
operations.

HIPAA. In December 2000 and in August 2002, the Department of Health and Human
Services issued final privacy regulations, pursuant to HIPAA, which impose
extensive restrictions on the use and disclosure of individually identifiable
health information by certain entities. We are required to comply with certain
aspects of the regulations, and we successfully implemented the necessary
changes to our business operations by the regulatory compliance date of April
2003.

FDA REGULATION. The Food and Drug Administration, or FDA, generally has the
authority to regulate medical devices, including computer applications, when
devices are indicated, labeled or intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body. We
do not believe that any of our current services are subject to FDA regulation as
medical devices, however, expansion of our application and service offerings
could subject us to FDA regulation.

                                       14
<PAGE>

Our products, to the extent they may be deemed "medical devices," are regulated
by the FDA under the Federal Food, Drug and Cosmetics Act (the "FDCA") and
related regulations.

All medical devices sold in interstate commerce are subject to FDA clearance.
Our monitors 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 monitors manufactured by us.

Regulations by the FDA, known as Good Manufacturing Practices ("GMP"), provide
standards for manufacturing processes, facilities, and record-keeping
requirements with which our contract manufacturers and we must also comply. We
believe that the manufacturing and quality control procedures employed by us and
our contract manufacturers meet the GMP requirements. If the FDA should
determine that our monitors were not manufactured in accordance with GMP's, it
has the authority to order us to cease production and may require us to recall
products already sold by us. In addition, any facilities used to manufacture or
assemble our 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.

REGULATION OF THE INTERNET. Laws and regulations applicable to communications or
commerce over the Internet may be adopted covering user privacy, pricing,
content, copyright, distribution and characteristics and quality of products and
services. In addition, some states or foreign countries could apply existing
laws concerning issues such as property ownership, sales tax, libel and personal
privacy to transactions conducted over the Internet. Additional laws or
regulations or application of laws to transactions over the Internet could
require us to change our operations or increase our cost of doing business.

To our knowledge and other than what we have described in this report and other
than occupational health and safety laws and labor laws which are generally
applicable to most companies, our products are not subject to governmental
regulation by any federal, state or local agencies that would affect the
manufacture, sale or use of our products. We cannot, of course, predict what
sort of regulations of this type may be imposed in the future, but we do not
anticipate any unusual difficulties in complying with governmental regulations
that may be adopted in the future.

Insurance
--------------------------------------------------------------------------------

We maintain professional malpractice, product liability and general liability
insurance for all of our locations and operations. While we believe our
insurance policies to be adequate in amount and coverage for our current
operations, there can be no assurance that coverage is sufficient to cover all
future claims. In recent years, the cost of liability and other forms of
insurance have increased significantly. There is no assurance that such
insurance will continue to be available in adequate amounts or at reasonable
costs. In addition, the claims process depends, in part, on the same timely
receipt of accurate data from our health plan customers and the analysis of such
data. Untimely, incomplete or inaccurate data from a customer or flawed analysis

                                       15
<PAGE>

of such data could have an adverse impact on the timing or validity of a claim.
Our liability insurance coverage provides for certain deductible levels to be
paid by us. We also maintain property and workers compensation insurance for
each of our locations with commercial carriers on relatively standard commercial
terms and conditions.

Employees
--------------------------------------------------------------------------------

We had 142 employees as of November 30, 2003, none of which are subject to a
collective bargaining agreement. We believe our relations with employees are
good.

Executive Officers of the Registrant
--------------------------------------------------------------------------------

The following sets forth certain information concerning our executive officers
as of February 25, 2004:

 Officer                       Age       Position with the Company
 -------                       ---       -------------------------
 Michael W. Cox                62    President, Chief Executive Officer and
                                     Director since February 1983.

 Jane Murray                   41    Executive Vice President, Chief Operating
                                     Officer and Director since January 1, 2002,
                                     Executive Vice President - Operations of
                                     IHMC since December 2000, various other
                                     positions with the company since 1985.

 Teri J. Kraf                  54    Senior Vice President - Program
                                     Implementation since January 1, 2002. Vice
                                     President - Strategic Development since
                                     June 1988.

 John Siegel                   47    Senior Vice President - Sales since
                                     April 17, 2001. Vice President - Field
                                     Services since 1998.

 William T. Schmitt, Jr., CPA  43    Senior Vice President, Chief Financial
                                     Officer since October 2002 and Treasurer,
                                     since October 2003

 Steven M. Vella, CPA          40    Controller since December 2003.

 Herbert H. Sommer, Esq.       46    Secretary and a Director since June 1996.

                                       16
<PAGE>

Item 2. Properties.

Our executive offices occupy approximately 21,000 square feet of office space in
Eatontown, New Jersey, pursuant to a lease agreement, which expires in November,
2007. These facilities are used principally for administrative offices, sales
training, and marketing. We lease approximately 800 square feet of space in Sag
Harbor, New York, used principally for monitor repairs, assembly and quality
control. We also lease approximately 800 square feet in California for sales
support.

We believe our facilities are suitable and adequate to meet our present needs.

Item 3. Legal Proceedings.

We previously disclosed that we brought a patent infringement and unfair
competition action against LifeMasters Supported SelfCare ("LifeMasters"). The
action was brought in the U.S. District Court for the District of New Jersey
under the caption QMed, Inc. v. LifeMasters Supported SelfCare, Inc.
(CV-01-3469). During the year the Company reached an out of court settlement in
this matter.

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 of approximately $13,000,000 plus interest, of which
approximately $6,500,000 relates to IHMC, for claims under certain terminated
disease management agreements. The claims allege 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 has denied the
claims of Regence and asserted counter claims. In addition, Heartmasters has
demanded payment of the insurance coverage. The dispute with Centre over the
insurance coverage is now the subject of an arbitration proceeding. Initially,
the company sued over the nonpayment of the policies; the court determined that
this must be resolved in the arbitration with Centre. At this stage, management
is unable to predict the outcome of these matters.

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 amounts we
may be required to pay will not have a material effect on the financial
statements.

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

         None.

                                       17
<PAGE>

                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters.

(a)      Market Price and Dividend Information

Our common stock is traded in the Nasdaq Small Cap Market, under symbol "QMED".
The following table sets forth the range of high and low bid quotations for our
shares reported by the Nasdaq Small Cap Market. This information represents
inter-dealer quotations, without retail mark-ups, mark-downs, or commissions,
and does not necessarily represent actual quotations.

Fiscal Year Ended November 30, 2003                  High              Low

First Quarter                                    $     7.43       $     4.85
Second Quarter                                         7.75             5.50
Third Quarter                                          8.38             5.85
Fourth Quarter                                        10.23             6.03

Fiscal Year Ended November 30, 2002                  High              Low

First Quarter                                    $    15.56       $     9.98
Second Quarter                                        13.12             8.20
Third Quarter                                          9.65             5.65
Fourth Quarter                                         8.80             5.16

(b)      Approximate Number of Holders of Common Stock

As of February 25, 2004, the Company's common stock was held of record by 287
persons. Based upon requests from record holders for additional materials for
our 2003 annual meeting, we believe that there are at least 3,000 beneficial
holders of our common stock. On February 25, 2004, the closing price reported
was $10.60.

(c)      Dividends

We have never paid a cash dividend on our common stock. It is the current policy
of our Board of Directors to retain any earnings to finance the operations and
expansion of our business. The payment of dividends in the future will depend
upon our earnings, financial condition and capital needs and on other factors
deemed pertinent by the Board of Directors.

(d)      Equity Compensation Plans

Information about our equity compensation plans required by this item will be
set forth in our definitive proxy statement, which is expected to be filed
within 120 days of November 30, 2003 and is incorporated herein by reference.

(e)      Recent Sales of Unregistered Securities

None.

                                       18
<PAGE>

Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
                                                          For the Years Ended November 30,
                                          2003              2002           2001           2000            1999
                                     -------------     -------------  -------------  -------------   -------------
<S>                                  <C>               <C>            <C>            <C>             <C>
Results of Operations
Net sales                            $  12,899,361     $  12,744,754  $   8,021,634  $   2,872,205   $   2,040,520

Cost of sales                            6,726,867         5,607,563      3,300,526      1,424,779       1,167,020
                                     -------------     -------------  -------------  -------------   -------------
Gross profit                             6,172,494         7,137,191      4,721,108      1,447,426         873,500

Selling, general and
 administrative expenses                 6,875,834         5,789,730      5,424,183      3,045,052       2,319,277
Provision for uncollectible
 accounts                                                                                                   74,148

Research and development expenses          905,360           999,985        757,355        524,275         571,449
Debt conversion expense                                                                     38,623         737,135

Litigation settlement                      230,000                 -              -              -               -
                                     -------------     -------------  -------------  -------------   -------------
Income (Loss) from operations           (1,838,700)          347,476     (1,460,430)    (2,160,524)     (2,828,509)

Interest expense                           (25,595)           (9,173)       (16,517)       (33,168)       (143,891)
Interest income                             90,418           220,014        232,607        133,668          68,126
Loss in operations of joint venture       (362,499)          (47,500)       (42,500)      (146,146)              -


Other income                                     -           104,444         24,180         15,406               -
                                     -------------     -------------  -------------  -------------   -------------

Income (loss) before income tax
 benefit (provision)                    (2,136,376)          615,261     (1,262,660)    (2,190,766)     (2,904,274)

Gain on sale of state tax benefits               -           129,885        219,603        309,256               -

Provision for state income taxes           (15,000)          (40,000)             -              -               -
                                     -------------     -------------  -------------  -------------   -------------
Net income (loss)                       (2,151,376)          705,146     (1,043,057)    (1,881,510)     (2,904,274)

Other comprehensive income (loss)
Unrealized gain (loss) on
 securities available for sale             (14,725)          (69,617)        32,513              -               -

Reclassification adjustment for
 gains included in net income               44,830           (59,598)             -              -               -
                                     -------------     -------------  -------------  -------------   -------------

Comprehensive income (loss)          $  (2,121,271)    $     575,931  $  (1,010,544) $  (1,881,510)  $  (2,904,274)
                                     =============     =============  =============  =============   =============
Per Share Data

Net income (loss) per share -
     Basic                           $        (.15)    $         .05  $        (.08) $        (.15)  $        (.25)
                                     =============     =============  =============  =============   =============
     Diluted                         $        (.15)    $         .04  $        (.08) $        (.15)  $        (.25)
                                     =============     =============  =============  =============   =============


Balance Sheet Data (at end of periods)

Working capital                      $   6,151,367     $   6,718,300  $   5,749,732  $   2,009,012   $     691,668

Total assets                         $  12,918,311     $  12,163,181  $   8,167,511  $   3,390,428   $   1,966,050

Total liabilities                    $   5,870,129     $   3,295,191  $   1,472,990  $     739,145   $     824,261

Stockholders' equity                 $   7,048,182     $   8,867,990  $   6,694,521  $   2,651,283   $   1,141,789
</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data (Unaudited)

                                                  For the Quarters Ending 2003
                                                  ----------------------------
                              February 28,       May 31,     August 31,     November 30,       Total
                              ------------       -------     ----------     ------------       -----
<S>                           <C>             <C>           <C>             <C>            <C>
Net sales                     $  3,666,044    $  3,316,701  $  3,164,912    $  2,751,704   $ 12,899,361
Gross profit                     2,071,551       1,685,985     1,423,309         991,649      6,172,494
Net income (loss)                  290,989        (587,451)     (676,054)     (1,178,860)    (2,151,376)
Income (loss) per share                .02            (.04)         (.05)           (.08)          (.15)
<CAPTION>
                                                  For the Quarters Ending 2002
                                                  ----------------------------
                              February 28,       May 31,     August 31,     November 30,       Total
                              ------------       -------     ----------     ------------       -----
<S>                           <C>             <C>           <C>             <C>            <C>
Net sales                     $  3,185,715    $  3,492,321  $  2,491,607    $  3,575,111   $ 12,744,754
Gross profit                     1,893,859       2,123,879     1,074,123       2,045,330      7,137,191
Net income (loss)                  402,319         447,612      (559,366)        414,581        705,146
Income (loss) per share                .03             .03          (.04)            .03            .05
</TABLE>
                                       20
<PAGE>

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

The following discussion should be read in conjunction with our Consolidated
Financial Statements, and Notes thereto, contained elsewhere in this report.

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 is
co-marketing with QMed health care information and communication services to
health plans, governments and private companies. These services 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 incidence, treatment, and cost of cardiovascular
conditions, including coronary artery disease ("CAD"), stroke, heart failure
("HF"), hypertension, hyperlipidemia and the cardiovascular complications of
diabetes. These systems are designed to aid primary health care physicians in
the use of optimal "evidence based" medical management for patients with these
conditions, as well as those at high risk of developing these conditions. The
net impact of this approach is the improvement in cardiovascular health and the
associated reduction in mortality, morbidity and cost. As of November 30, 2003,
we had contracts to provide these services to 12 health plans in 11 states
covering approximately 1.2 million health plan members.

Our disease management program is for members identified 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.

Currently we are under contract to provide services in two Medicare
demonstration project and to 11 health plans nationwide.

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        our ability to effect estimated cost savings and clinical
                  outcome improvements under health plan disease management

                                       21
<PAGE>

                  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 and
                  accurate data that is essential to the operation and
                  measurement of our performance under the terms of our health
                  plan contracts;
         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 cardiovascular
                  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 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;
         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        general economic conditions.

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

Critical Accounting Policies

Our accounting policies are described in Note 1 of the consolidated financial
statements included in this Annual Report on Form 10-K for the fiscal year ended
November 30, 2003. The 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 policies 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.

                                       22
<PAGE>

Revenue Recognition

We enter into contractual arrangements with health plans 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+Choice).
These contracts are generally for terms of three to five 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
member retroactivity and a shortfall in performance. We adjust or defer revenue
for contracts where we believe that there could be an issue of non-performance,
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 non-performance 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 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 enrollment targets or other data required to be 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 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. As of November 30, 2003, based
on information and data available at this time, we deferred approximately
$2,270,000 related to contracts with two Regence health plans, Regence Oregon
and Washington, which may be subject to refund. This deferral has been reflected
as contract billings in excess of revenues on the balance sheet. Services are
provided under these Regence contracts through HeartMasters, a limited liability
company whose members are IHMC and LifeMasters, an unaffiliated private company,
under which we provide coronary artery disease management services and Life
Masters provides services for congestive heart failure. Since these contracts
are performance based, HeartMasters has limited its exposure under these
contracts by purchasing insurance from an unaffiliated insurer in the amount of
approximately $9,800,000. The deferral of approximately $1,800,000 represents

                                       23
<PAGE>

fees in excess of its share of insurance coverage. HeartMasters has submitted an
estimate of claims in the amount of approximately $6,750,000 to the insurer and
the claims are currently under review by the insurer.

The contract billings in excess of revenues on the balance sheet is subject to
reconciliation at future periods, however, since the initial contract year
reconciliation did not provide positive results and enrollment targets have not
improved, all of the revenue from this agreement which is estimated to be
subject to refund is deferred in accordance with our revenue recognition policy.
If future reconciliations provide positive results, revenue will be recorded at
that time.

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 defers revenue until agreement is reached
with respect to identified issues.

We believe these estimates adequately provide for any potential adjustments that
may be applied to revenues from these contracts. Although these contracts are
multi-year agreements, since both parties have been unable to reach a resolution
on certain modifications to the contracts, the Regence Oregon and Washington
contracts terminated as of January 31, 2003.

During the fiscal year ended November 30, 2003, approximately 57% of disease
management services were derived from four health plans that each comprised more
than 10% of the Company's revenues. During the fiscal years ended November 30,
2002, and 2001, approximately 47% and 67%, respectively, of disease management
services were derived from two health plans that each comprised more than 10% of
the Company's revenues. During fiscal 2002, the same two health plans as in 2001
each comprised more than 10% of the Company's revenues. One of these contracts
terminated as of January 31, 2003, which represented approximately 28% of our
membership.

Income Taxes

As part of the process of preparing consolidated financial, statements, the
Company is required to estimate income taxes in each of the jurisdictions in
which it operates. Significant judgment is required in determining the income
tax expense provision. The Company recognizes deferred tax assets and
liabilities based on differences between the financial reporting and tax bases
of assets and liabilities using the enacted tax rates and laws that are expected
to be in effect when the differences are expected to be recovered. The Company
assesses the likelihood of our deferred tax assets being recovered from future
taxable income. The Company then provides a valuation allowance for deferred tax
assets for which the Company does not consider realization of such assets to be
more likely than not. The Company considers future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the valuation
allowance. Any decrease in the valuation allowance could have a material impact
on net income in the period in which such determination is made.

                                       24
<PAGE>

Health Plan Contracts

Most of our revenues in Fiscal 2001 through 2003 were generated from programs
designed to assist health plans in improving the quality of care for health plan
members with diseases such as coronary artery disease, stroke, heart failure,
hypertension, hyperlipidemia and the cardiovascular complications of diabetes.
These programs are designed to improve care and to reduce healthcare costs. We
anticipate that a substantial portion of our future revenue growth will continue
to result from providing disease management services to health plans. We also
believe that a greater portion of our future revenue will be from contracts with
CMS.

We first introduced a coronary artery disease program with a medical group in
1995. Since that time, we added heart failure, stroke, hypertension,
hyperlipidemia and the cardiovascular complications of diabetes to our program.
During fiscal 2001, we were awarded a Medicare Coordinated Care Demonstration
project, which is designed to evaluate the cost-effectiveness of reimbursing
disease management services in the Medicare fee for service model. Enrollment of
patients under this program began in Fiscal 2002. During fiscal 2002, we
received an accreditation by the National Committee on Quality Assurance. In
October 2002, we, together with two other entities, were selected to participate
in a disease management program for the Centers for Medicare and Medicaid
Services. The program commenced in January of 2004.

Our disease management services include the stratification of high-risk
patients, contact with their primary care physicians, review of patient chart
information, contact and assessment with the patient and coordination of care
with the primary care physician. 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). These contracts are generally for terms of three to five years with
provisions for subsequent renewal, and typically provide that all or a portion
of our fees may be "performance-based". We earn performance-based fees upon
achieving a targeted percentage reduction in the customer's healthcare costs, in
addition to clinical and other criteria, compared to a baseline year.

The membership enrollment and disenrollment processes of our health plan
customers can result in a cyclical reduction of lives under management,
especially during our first quarter. Employers typically make decisions about
health insurance carriers at the end of each calendar year. Health plans also
assess the types of markets they service as well as the contractual arrangements
of medical groups within those markets. In any event, all of these factors will
have an effect on membership as of January 1 of each year. A health plans
decision to exit markets or non-renewal of contracts with their medical groups
will result in a loss of covered lives under management as of January 1.
Although these decisions may also result in a gain of members, the process of
identification and enrollment will typically lag by six months or longer. The
result of these cyclical changes has not had a material impact on the company's
revenues or results of operations.

During the fiscal year ended November 30, 2003, approximately 57% of disease
management services were derived from four health plans that each comprised more
than 10% of the Company's revenues. During the fiscal years ended November 30,
2002, and 2001, approximately 47% and 67%, respectively, of disease management
services were derived from two health plans that each comprised more than 10% of

                                       25
<PAGE>

the Company's revenues. During fiscal 2002, the same two health plans as in 2001
each comprised more than 10% of the Company's revenues. One of these contracts
terminated as of January 31, 2003, which represented approximately 28% of our
membership.

Our strategy is to develop additional CMS contracts, business contracts with
health plans to provide disease management services and to further develop and
expand our cardiovascular disease management business. We anticipate that we
will utilize our state-of-the-art medical information technologies to gain a
competitive advantage in delivering disease management services. We anticipate
that significant investments will continue to be made during fiscal 2004 in the
development of the clinical programs, the associated information technology
support for these expanded initiatives, and that many of these investments will
be made prior to the initiation of revenues from contracts. It is also
anticipated that some of these new capabilities and technologies may be added
through strategic alliances with other entities.

We anticipate that additional disease management contracts that we may sign with
health plans, employer groups and governmental agencies may take one of several
forms, including per member per month payments to us, some form of shared
savings of overall enrollee healthcare costs, fee for services for enrolled
members, or some combination of these arrangements. We anticipate that under
most contracts, some portion of our fees will be at risk and subject to our
performance against financial cost savings and clinical improvements. When
appropriate we will defer a portion of this revenue.

Recent Accounting Pronouncements

Refer to note 1 in the accompanying consolidated financial statements

                                       26
<PAGE>

Results of Operations
--------------------------------------------------------------------------------

The following table presents the percentage of total revenue for the periods
indicated and changes from period to period of certain items included in the
Company's Consolidated Statements of Operations.
<TABLE>
<CAPTION>
                                                                                                   Period-to-Period
                                                                                                       % Changes
                                                          % Form Year Ended                        -----------------
                                                              November 30,                        2003          2002
                                                          ------------------                       vs.           vs.
                                                     2003         2002         2001               2002          2001
                                                     ----         ----         ----               ----          ----
<S>                                                 <C>          <C>          <C>                <C>           <C>
Revenue                                             100.0%       100.0%       100.0%               1.2%         58.9%
Cost of revenue                                      52.1         44.0         41.1               20.0          69.9
Gross Profit                                         47.9         56.0         58.9              (13.5)         51.2
Selling general and administrative                   53.3         45.4         67.6               18.8           6.7
Research and development                              7.0          7.8          9.4               (9.5)         32.0
Litigation settlement                                 1.8           -            -                  *             *
Loss (income) from operations                       (14.3)         2.7        (18.2)                *             *
Interest expense                                     (0.2)        (0.1)        (0.2)             179.0         (44.5)
Interest income, net                                  0.7          1.7          2.9              (58.9)         (5.4)
Loss on operations of joint venture                  (2.8)        (0.4)        (0.5)                *           11.8
Other income                                           -           0.8          0.3                 *             *
(Loss) income before tax (provision) benefit
                                                    (16.6)         4.8        (15.7)                *             *
Gain on sale of tax benefit                            -           1.0          2.7                 *             *
Income tax (provision) benefit                       (0.1)        (0.3)          -               (62.5)           *
Net (loss) income                                   (16.7)         5.5        (13.0)                *             *


* Not meaningful
</TABLE>
                                       27
<PAGE>

Fiscal 2003 Compared to Fiscal 2002
--------------------------------------------------------------------------------

Revenue for fiscal 2003 increased approximately $155,000 or 1.2% over fiscal
2002.This increase consists of approximately $5.8 million of additional revenue
related to expansion of existing contracts and a new contract entered into
during fiscal 2003. This increase was offset by a reduction of revenue of
approximately $4.7 million related to market exits under an existing disease
management program in California and the termination of disease management
programs under HeartMasters agreements with Regence of Oregon and Washington,
and approximately $0.8 million related to a difference in estimated verses
actual cost savings measures under a contract with a customer.

Gross profit margins for fiscal 2003 decreased to 47.9% from 56.0% for fiscal
2002. This decrease was due to the increased costs associated with our expansion
into new market places related to new contracts and the difference in estimated
verses actual cost savings measures under a contract with a customer described
above. Salaries, travel and other direct costs are all factors in the initial
implementation related to any new market and contract. The direct costs will
decrease as a percentage of revenue once a marketplace and contract matures with
a significant number of members being enrolled.

Selling, general and administrative expenses for fiscal 2003 increased
approximately $1,086,000 or 18.8% compared to fiscal 2002. The increase was
included costs associated with a retroactive insurance premium of approximately
$156,000. Selling, general and administrative expenses, excluding this insurance
premium, increased approximately $930,000 or 16.1% compared to the prior year
primarily due to an increase in both executive and administrative staff,
professional fees related to general corporate matters and office rent and
depreciation associated with new office furniture and equipment at our new
headquarters in Eatontown..

Research and development expenses for fiscal 2003 decreased approximately
$95,000 or 9.5% compared to fiscal 2002. During the past year we have continued
to focus our efforts on the development of new, advanced software programs to
help us better identify, locate and evaluate 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 are capitalized and amortized over a 5-year useful life. We intend to
continue to improve and expand the capabilities of the ohms|cvd system.

Litigation settlements represent costs associated with settlement of certain
outstanding legal proceedings, which have either reached settlement during the
period or have reached a point at which the outcome can be reasonably estimated.

Loss on operations of joint venture for fiscal 2003 was generated primarily from
legal fees associated the arbitration between Regence of Washington and Oregon
and HeartMasters LLC.

Our effective tax rate for fiscal 2003 is a negative 0.7%. The difference in the
Company's effective tax rate from the federal statutory rate is primarily due to
a 100% valuation allowance provided for all deferred tax assets. Current period
income tax expense of $15,000 represents minimum state tax liabilities.

                                       28
<PAGE>

Fiscal 2002 Compared to Fiscal 2001
--------------------------------------------------------------------------------

Revenues for fiscal 2002 increased $4.7 million or 59% from fiscal 2001 due to
an increase in the number of health plan contracts as well as the increase in
the number of members actually enrolled in our program during the fiscal year
which were previously contracted for. At the end of fiscal 2002 we had
approximately 1,370,480 commercial members and approximately 198,696
Medicare+Choice members compared to approximately 913,627 commercial members and
159,419 Medicare+Choice at the end of fiscal 2001. Approximately $1.5 million of
revenue came from new contracts that were implemented during 2002. The largest
portion of our revenue increase was due to the increased enrollment during this
fiscal year of contracts signed during fiscal 2001. Approximately $2.8 million
was due to increased enrollment in one health plan whose total revenue accounted
for approximately 39% of our total revenue for fiscal 2002. During fiscal 2002,
we sold unused state net operating loss carryforwards for cash by way of the New
Jersey Technology Tax Certificate Transfer Program through our IHMC subsidiary.
We received approximately $130,000 from this transaction.

Cost of revenue for fiscal 2002 increased $2.3 million or 70% compared to fiscal
2001 primarily due to higher staffing levels associated with the increases in
enrollment of our health plan members, associated travel costs, physician's fees
and related expenses. Cost of revenue as a percentage of total revenue increased
to 44.0% in fiscal 2002 from 41.1% in fiscal 2001. This increase was primarily
due to the costs associated with the staffing and continued enrollment of
members in Regence of Oregon and Washington during fiscal 2002 where revenues
from these contracts were not being recognized. We anticipate that the cost of
revenue for fiscal 2003 will increase over fiscal 2002 due to the implementation
of the CMS (Medicare) contract, where revenue will lag implementation costs by
several months.

Selling, general and administrative costs in fiscal 2002 increased by
approximately $366,000 or 6.7% compared to fiscal 2001 primarily due to
increased administrative staff to support our overall growth. Selling general
and administrative expenses as a percentage of revenue decreased from 67.6% in
fiscal 2001 to 45.4% in fiscal 2002 primarily due to our ability to leverage our
selling, general and administrative expenses as a result of the growth in our
health plan operations.

Research and development expenses for fiscal 2002 increased by approximately
$243,000 or 32.0% compared to fiscal 2001. During the past year we have focused
our efforts primarily on the development of new, advanced software programs to
enable us to better identify, locate and evaluate patients who are at risk for
developing various disease conditions. These programs incorporate state of the
art telecommunications, data management, security and information technology. We
intend to continue to improve and expand the capabilities of our systems
ongoing.

                                       29
<PAGE>

Liquidity and Capital Resources
--------------------------------------------------------------------------------

To date, our principal sources of working capital have been provided by proceeds
from public and private placements of securities and the sale of certain assets.
Since our inception, sales of securities and assets have generated approximately
$31,000,000 less applicable expenses.

We had working capital of $6,151,000 at November 30, 2003 compared to $6,718,000
at November 30, 2002 and ratios of current assets to current liabilities of
2.7:1 as of November 30, 2003 and 3.1:1 as of November 30, 2002. During fiscal
2003, the Company reclassified certain account receivable and contract billings
in excess of revenues to non current assets and liabilities. Had the original
classification of these balances been non current assets and liabilities in the
November 30, 2002 balance sheet the working capital would have been $8,245,000
with a ratio of current assets to current liabilities of 5.3:1.The adjusted
working capital decrease of approximately $2.1 million was primarily due to the
net loss of approximately $2.2 million and an increase in contract billings in
excess of revenue of approximately $1.7 million. These decreases were partially
offset by the an increase in accounts receivable of $1.3 million and proceeds
from the sale of common stock through the exercise of outstanding options and
warrants of approximately $0.2 million. In September 2001 we entered into a
$1,000,000 line of credit agreement with First Union National Bank. 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 November 30, 2003
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. However, to the extent the expansion of our
operations requires significant additional resources or certain forms of
financial guarantees to assure its 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 November
30, 2003 in the periods indicated.
<TABLE>
<CAPTION>
                                                                    Payments Due by Period

             Contractual               ---------------- ------------------- ---------------- --------------- ------------
             Obligations                    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                      132,000            84,000             48,000              -             -
Operating Leases                             1,722,000           519,000            957,000        246,000             -
Unconditional Purchase Obligations             298,000           298,000                  -              -             -
Other Long-Term Obligations                  1,231,000           706,000            525,000              -             -
Total Contractual Cash Obligations        $  3,383,000      $  1,607,000       $  1,530,000    $  246,000    $         -
-------------------------------------- ---------------- ------------------- ---------------- --------------- --------------
</TABLE>

                                       30
<PAGE>

Additional Factors That May Affect Future Results
--------------------------------------------------------------------------------

Future Operating Results. Future operating results, which reflect management's
current expectations may be impacted by a number of factors that could cause
actual results to differ materially from those stated herein. These factors
include worldwide economic and political conditions, terrorist's activities,
industry specific factors, our ability to maintain access to external financing
sources and its financial liquidity, the acceptance of our disease management
system by health plan organizations, and our ability to manage expense levels.

Need for Additional Capital. As of November 30, 2003, we had approximately
$7,852,000 cash and short-term investments. Nevertheless, our future success is
highly dependent upon our continued access to capital markets, which we believe
are necessary for the continued support of our growth. In the event we are
unable to maintain access to our existing financing sources, or obtain other
sources of financing, there would be a material adverse effect on our business,
financial position and results of operations.

Fluctuations in our quarterly operating results may cause volatility in the
price of our common stock and the debentures. Given the nature of the markets in
which we participate, we cannot reliably predict future revenue and
profitability. As demand for our services has increased in recent periods, our
quarterly sales and operating results have become highly dependent on the timing
of contracts signed and programs implemented during the quarter, which are
difficult to forecast. In addition, a portion of our operating expenses is
relatively fixed in nature due to our sales, research and development costs.

We are in the process of implementing new information systems, and problems with
the redesign and implementation of these new systems could interfere with our
operations. We are in the process of implementing new information systems to
enhance our current systems in order to improve our operating effectively and
expand the range of disease management services we offer. We may not be
successful in implementing these new systems and transitioning data. As part of
this effort, we are implementing new enterprise resource planning software
applications to manage our business operations. Failure to smoothly and
successfully implement this and other systems could temporarily interrupt our
operations and adversely impact our ability to run our business. In addition,
any failure or significant downtime in our new information systems could prevent
us from efficiently implementing disease management programs, reconciling cost
savings and could harm our business.

If we do not introduce successful new disease management services in a timely
manner, our services will become obsolete, and our operating results will
suffer. Our services are for industries that are characterized by rapid
technological changes, frequent new product and service introductions and
changing industry standards. Without the timely introduction of new products,
services and enhancements, our products and services will become technologically
obsolete over time, in which case our revenue and operating results would
suffer. The success of our new product and service offerings will depend on
several factors, including our ability to:

                                       31
<PAGE>

         o        properly identify customer needs,
         o        innovate and develop new technologies, services and
                  applications,
         o        successfully commercialize new technologies in a timely
                  manner,
         o        differentiate our offerings from our competitors' offerings,
         o        price our services competitively, and
         o        anticipate our competitors' announcements of new products,
                  services or technological innovations

Our business will suffer if we are not able to retain and hire key personnel.
Our future success depends partly on the continued service of our key research,
engineering, sales, marketing, manufacturing, executive and administrative
personnel. If we fail to retain and hire a sufficient number of these personnel,
we will not be able to maintain or expand our business. Although the labor
market has changed dramatically within the past year, and our attrition rate has
dropped, there is still intense competition for certain highly technical
specialties in geographic areas where we continue to recruit.

Acquisitions, strategic alliances, and joint ventures may result in financial
results that are different than expected. We engage in discussions with third
parties relating to possible acquisitions, strategic alliances, and joint
ventures. As a result of such transactions, our financial results may differ
from the investment community's expectations in a given quarter. In addition,
acquisitions and strategic alliances may require us to integrate a different
company culture, management team and business infrastructure. We may have
difficulty developing, manufacturing and marketing the products of a newly
acquired company in a way that enhances the performance of our combined
businesses or product lines to realize the value from expected synergies.
Depending on the size and complexity of an acquisition, our successful
integration of the entity depends on a variety of factors, including:

         o        the retention of key employees,
         o        the management of facilities and employees in separate
                  geographic areas,
         o        the retention of key customers, and
         o        the integration or coordination of different research and
                  development, product manufacturing and sales programs and
                  facilities

All of these efforts require varying levels of management resources, which may
divert our attention from other business operations. If we do not realize the
expected benefits from such transactions, our financial position results and
stock price could be negatively impacted.

We and our customers are subject to various governmental regulations, compliance
with which may cause us to incur significant expenses, and if we fail to
maintain satisfactory compliance with certain regulations, we may be forced to
curtail operations, and we could be subject to civil or criminal penalties. Our
businesses are subject to various significant federal, state and local, health
and safety, health information disclosure, and labor regulations. These
regulations are complex, change frequently and have tended to become more
stringent over time. We may be required to incur significant expenses to comply
with these regulations or to remedy violations of these regulations. Any failure
by us to comply with applicable government regulations could also result in
cessation of our operations or portions of our operations, or impositions of
fines and restrictions on our ability to carry on or expand our operations.

                                       32
<PAGE>

Litigation regarding patents or intellectual property could be costly and time
consuming. Any litigation regarding patents or other intellectual property could
be costly and time consuming and could divert our management and key personnel
from our business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements. However, we may not be able to obtain royalty or
license agreements on terms acceptable to us, or at all. We also may be subject
to significant damages or injunctions against development and sale of certain of
our products.

Third parties may infringe our intellectual property, and we may expend
significant resources enforcing our rights or suffer competitive injury. Our
success depends in large part on our proprietary technology. We rely on a
combination of patents, copyrights, trademarks, trade secrets, confidentiality
provisions and licensing arrangements to establish and protect our proprietary
rights. If we fail to successfully enforce our intellectual property rights, our
competitive position could suffer, which could harm our operating results.

Our pending patent and trademark registration applications may not be allowed,
or competitors may challenge the validity or scope of these patents or trademark
registrations. In addition, our patents may not provide us a significant
competitive advantage.

We may be required to spend significant resources to monitor and police our
intellectual property rights. We may not be able to detect infringement and our
competitive position may be harmed before we do so. In addition, competitors may
design around our technology or develop competing technologies. Intellectual
property rights may also be unavailable or limited in some foreign countries,
which could make it easier for competitors to capture market share.

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

Quantitative and qualitative disclosures about market risk as set forth in Note
2 of the Notes to Consolidated Financial Statement.

Item 8. Financial Statements and Supplementary Data.

Attached.

Item 9. Changes in and Disagreements With Accountants on Accounting and
        Financial Disclosure.

None.

                                       33
<PAGE>

Item 9A. Controls and Procedures

Evaluation of the Company's Disclosure Controls and Internal Controls. We
evaluated the effectiveness of the design and operation of our "disclosure
controls and procedures" as of the end of the period covered by the Annual
Report. This evaluation (the Controls Evaluation) was done under the supervision
and with the participation of management, including our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO). Attached as exhibits to this Annual
Report are certifications of the CEO and the CFO, which are required in
accordance with Rule 13a-14 of the Exchange Act. This "Controls and Procedures"
section includes the information concerning the controls evaluation referred to
in the certifications, and it should be read in conjunction with the
certifications for a more complete understanding of the topics presented.

Disclosure Controls and Internal Controls. Disclosure Controls are procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934
(Exchange Act), such as this Report, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's (SEC) rules and forms. Disclosure Controls are also designed with
the objective of ensuring that such information is accumulated and communicated
to our management, including the CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure. Our Disclosure Controls include
components of our internal control over financial reporting, which consists of
control processes designed to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles in the
U.S. To the extent that components of our internal control over financial
reporting are included within our Disclosure Controls, they are included in the
scope of our quarterly controls evaluation.

Limitations on the Effectiveness of Controls. The company's management,
including the CEO and CFO, does not expect that our Disclosure Controls or our
Internal Controls will prevent all error and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation. The CEO/CFO evaluation of our Disclosure
Controls included a review of the controls' objectives and design, the controls'
implementation by the company and the effect of the controls on the information
generated for use in this Report. In the course of the controls evaluation, we
sought to identify data errors, controls problems or acts of fraud and to
confirm that appropriate corrective action, including process improvements, were
being undertaken. This type of evaluation is performed on a quarterly basis so
that the conclusions concerning controls effectiveness can be reported in our
Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. Our Internal
Controls are also evaluated on an ongoing basis by other personnel in our
finance organization and by our independent auditors in connection with their
audit and review activities.

                                       34
<PAGE>

The overall goals o these various evaluation activities are to monitor our
Disclosure Controls, and to modify them as necessary. Our intent is to maintain
the Disclosure Controls as dynamic systems that change as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were
any "significant deficiencies" or "material weaknesses" in the company's
internal controls, or whether the company had identified any acts of fraud
involving personnel who have a significant role in our internal controls over
financial reporting. This information was important both for the Controls
Evaluation generally and because item 5 of the certifications of the CEO and CFO
require that the CEO and CFO disclose that information to our Board's Audit
Committee and to our independent auditors. In the professional auditing
literature, "significant deficiencies" are referred to as "reportable
conditions"; these are control issues that could have a significant adverse
effect on the ability to record, process, summarize and report financial data in
the financial statements. A "material weakness" is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employees in the normal course of performing their assigned functions. We also
sought to deal with other controls matters in the Controls Evaluation, and in
each case if a problem was identified, we considered what revision, improvement
and/or correction to make in accord with our on-going procedures.

In accord with SEC requirements, the CEO and CFO note that, since the date of
the Controls Evaluation to the date of this Report, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Conclusions. Based upon the Controls Evaluation, our CEO and CFO have concluded
that, subject to the limitations noted above at the end of the period covered by
this Annual Report, our Disclosure Controls are effective to provide reasonable
assurance that material information relating to QMed and its consolidated
subsidiaries is made known to management, including the CEO and CFO,
particularly during the period when our periodic reports are being prepared.

                                       35
<PAGE>

                           QMED, INC. AND SUBSIDIARIES

                               For the Years Ended
                           November 30, 2003 and 2002



                                                                        Page
                                                                        ----

Independent Auditors' Report                                             F-1

Consolidated Balance Sheets                                              F-2

Consolidated Statements of Operations                                    F-3

Consolidated Statements of Comprehensive Income                          F-4

Consolidated Statements of Stockholders' Equity                          F-5

Consolidated Statements of Cash Flows                                    F-6

Notes to Consolidated Financial Statements                           F-7 - F-25


                                       36
<PAGE>

                          Independent Auditors' Report


Board of Directors
QMed, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of QMed, Inc. and
Subsidiaries as of November 30, 2003 and 2002, and the related consolidated
statements of operations, comprehensive income, stockholders' equity and cash
flows for the years ended November 30, 2003, 2002 and 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly in all
material respects the financial position of QMed, Inc. and Subsidiaries as of
November 30, 2003 and 2002, and the results of their operations and their cash
flows for each of the three years ended November 30, 2003, 2002 and 2001, in
conformity with accounting principles generally accepted in the United States of
America.

In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 15. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.


                                            /s/ Amper, Politziner & Mattia, P.C.


                                            AMPER, POLITZINER & MATTIA, P.C.

January 23, 2004
Edison, New Jersey

                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                                                   QMED, INC. AND SUBSIDIARIES
                                                   Consolidated Balance Sheets
                                                          November 30,

                                                             Assets

                                                                                                 2003                2002
                                                                                           ---------------     ---------------
<S>                                                                                        <C>                 <C>
Current assets
    Cash and cash equivalents                                                              $     1,638,271     $     2,383,123
    Investments in securities                                                                    6,213,825           6,873,491
    Accounts receivable, net of allowance for
     doubtful accounts of $2000                                                                  1,315,021             203,216
    Inventory                                                                                      146,239             173,046
    Prepaid expenses and other current assets                                                      392,783             344,667
                                                                                           ---------------     ---------------
                                                                                                 9,706,139           9,977,543

Property and equipment, net of accumulated depreciation                                          1,133,419           1,168,002
Product software development costs, net                                                            441,020             461,261
Accounts receivable, non-current                                                                 1,474,674                   -
Other assets                                                                                       163,059             556,375
Investment in joint venture                                                                             -                    -
                                                                                           ---------------     ---------------
                                                                                           $    12,918,311     $    12,163,181
                                                                                           ===============     ===============


                                              Liabilities and Stockholders' Equity

Current liabilities
    Accounts payable and accrued liabilities                                               $       975,724     $       766,928
    Lease payable, current portion                                                                  73,463              46,980
    Accrued salaries and commissions                                                               565,524             334,642
    Fees reimbursable to health plans                                                              182,359               3,050
    Performance guarantee payable                                                                        -             248,156
    Contract billings in excess of revenues                                                      1,717,657           1,760,620
    Deferred warranty revenue                                                                       33,235              58,867
    Income taxes payable                                                                             6,810              40,000
                                                                                           ---------------     ---------------
                                                                                                 3,554,772           3,259,243
Leases payable, long term                                                                           44,429              35,948
Contract billings in excess of revenue, long term                                                2,270,928                   -
                                                                                           ---------------     ---------------
                                                                                                 5,870,129           3,295,191
                                                                                           ---------------     ---------------
Commitments and contingencies

Stockholders' equity
    Common stock, $.001 par value, 40,000,000 shares
     authorized, 14,627,384 and 14,506,153 shares issued
     14,605,384 and 14,484,153 outstanding, respectively                                            14,627              14,506
    Paid-in capital                                                                             33,380,751          33,079,409
    Accumulated deficit                                                                        (26,264,572)        (24,113,196)
    Accumulated other comprehensive income
      Unrealized (losses) gains on securities available for sale                                    (6,999)            (37,104)
                                                                                           ---------------     ---------------
                                                                                                 7,123,807           8,943,615

    Less treasury stock at cost, 22,000 common shares                                              (75,625)            (75,625)
                                                                                           ---------------     ---------------
      Total stockholders' equity                                                                 7,048,182           8,867,990
                                                                                           ---------------     ---------------
                                                                                           $    12,918,311     $    12,163,181
                                                                                           ===============     ===============


                                  See accompanying notes to consolidated financial statements.
                                                               F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   QMED, INC. AND SUBSIDIARIES
                                              Consolidated Statements of Operations
                                                For the Years Ended November 30,


                                                                        2003                  2002                   2001
                                                                   --------------        --------------        --------------
<S>                                                                <C>                   <C>                   <C>
Sales
    Disease management services                                    $   12,650,406        $   12,324,877        $    7,534,931
    Medical equipment                                                     248,955               419,877               486,703
                                                                   --------------        --------------        --------------
                                                                       12,899,361            12,744,754             8,021,634
                                                                   --------------        --------------        --------------
Cost of sales
    Disease management services                                         6,534,116             5,392,550             3,017,380
    Medical equipment                                                     192,751               215,013               283,146
                                                                   --------------        --------------        --------------

Cost of sales                                                           6,726,867             5,607,563             3,300,526
                                                                   --------------        --------------        --------------

Gross profit                                                            6,172,494             7,137,191             4,721,108

Selling, general and administrative expenses                            6,875,834             5,789,730             5,424,183
Research and development expenses                                         905,360               999,985               757,355
Litigation settlement                                                     230,000                     -                     -
                                                                   --------------        --------------        --------------
(Loss) income from operations                                          (1,838,700)              347,476            (1,460,430)

Interest expense                                                          (25,595)               (9,173)              (16,517)
Interest income, net                                                       90,418               220,014               232,607
Loss in operations of joint venture                                      (362,499)              (47,500)              (42,500)
Other income                                                                    -               104,444                24,180
                                                                   --------------        --------------        --------------

(Loss) income before income tax benefit (provision)                    (2,136,376)              615,261            (1,262,660)

    Gain on sale of state tax benefits                                          -               129,885               219,603
    Provision for state income taxes                                     (15,000)               (40,000)                    -
                                                                   --------------        --------------        --------------

Net (loss) income                                                  $   (2,151,376)       $      705,146        $   (1,043,057)
                                                                   ==============        ==============        ==============

Basic (loss) income per share
    Weighted average shares outstanding                                14,568,781            14,433,922            13,866,216
                                                                   ==============        ==============        ==============

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

Diluted (loss) income per share
    Weighted average shares outstanding                                14,568,781            16,587,169            13,866,216
                                                                   ==============        ==============        ==============

    Diluted (loss) earnings per share                              $         (.15)       $          .04        $         (.08)
                                                                   ==============        ==============        ==============


                                  See accompanying notes to consolidated financial statements.
                                                               F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   QMED, INC. AND SUBSIDIARIES
                                         Consolidated Statements of Comprehensive Income
                                                For the Years Ended November 30,


                                                                        2003                   2002                   2001
                                                                  --------------          --------------        --------------
<S>                                                               <C>                     <C>                   <C>
Net (loss) income                                                 $   (2,151,376)         $      705,146        $   (1,043,057)

Other comprehensive (loss) income
    Unrealized (loss) gain on securities
     available for sale                                                  (14,725)                (69,617)               32,513


    Reclassification adjustment for losses
     (gains) included in net (loss) income                                44,830                 (59,598)                    -
                                                                  --------------          --------------        --------------
Comprehensive (loss) income                                       $   (2,121,271)         $      575,931        $   (1,010,544)
                                                                  ==============          ==============        ==============



                                  See accompanying notes to consolidated financial statements.
                                                               F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   QMED, INC. AND SUBSIDIARIES
                                         Consolidated Statements of Stockholders' Equity
                                                For the Years Ended November 30,



                                                                                     Accumulated     Common Stock
                                      Common Stock                                      Other       Held in Treasury
                                  --------------------   Paid-in       Accumulated  Comprehensive   -----------------
                                    Shares     Amount     Capital        Deficit       Income       Shares    Amount       Total
                                  ----------  --------  ------------  ------------   ---------      ------   --------   -----------
<S>                               <C>         <C>       <C>           <C>            <C>            <C>      <C>        <C>
Balances - November 30, 2000      12,846,631  $ 12,846  $ 26,489,347  $(23,775,285)  $       -      22,000   $(75,625)  $ 2,651,283

 Exercise of stock options
  and warrants                       532,269       532       868,890             -           -           -          -       869,422

 Sale of stock to Galen
  Associates for cash                796,813       797     3,954,361             -           -           -          -     3,955,158

 Stock compensation expense                -         -       199,334             -           -           -          -       199,334

 Amortization of non-employee
  options                                  -         -        29,868             -           -           -          -        29,868

 Net loss                                  -         -             -    (1,043,057)          -           -          -    (1,043,057)

 Unrealized holding gains on
  securities available for sale            -         -             -             -      32,513           -          -        32,513
                                  ----------  --------  ------------  ------------   ---------      ------   --------   -----------
Balances - November 30, 2001      14,175,713    14,175    31,541,800   (24,818,342)     32,513      22,000    (75,625)    6,694,521

 Exercise of stock options
  and warrants                       330,440       331     1,507,741             -           -           -          -     1,508,072

 Amortization of non-employee
  stock options                            -         -        29,868             -           -           -          -        29,868

 Net income                                -         -             -       705,146           -           -          -       705,146

 Unrealized holding losses on
  securities available for sale            -         -             -             -     (69,617)          -          -       (69,617)
                                  ----------  --------  ------------  ------------   ---------      ------   --------   -----------
Balances - November 30, 2002      14,506,153    14,506    33,079,409   (24,113,196)    (37,104)     22,000    (75,625)    8,867,990

 Exercise of stock options           119,401       119       247,581             -           -           -          -       247,700

 Issuance in connection with
  directors equity plan                1,830         2        12,811             -           -           -          -        12,813

 Amortization of non-employee
  stock options                            -         -        40,950             -           -           -          -        40,950

 Net loss                                  -         -             -    (2,151,376)          -           -          -    (2,151,376)

 Unrealized holding losses on
  securities available for sale            -         -             -             -      30,105           -          -        30,105
                                  ----------  --------  ------------  ------------   ---------      ------   --------   -----------
Balances - November 30, 2003      14,627,384  $ 14,627  $ 33,380,751  $(26,264,572)  $  (6,999)     22,000   $(75,625)  $ 7,048,182
                                  ==========  ========  ============  ============   =========      ======   ========   ===========



                                  See accompanying notes to consolidated financial statements.
                                                               F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   QMED, INC. AND SUBSIDIARIES
                                              Consolidated Statements of Cash Flows
                                                For the Years Ended November 30,


                                                                             2003                2002                2001
                                                                        --------------      --------------      --------------
<S>                                                                     <C>                 <C>                 <C>
Cash flows from operating activities
   Net (loss) income                                                    $   (2,151,376)     $      705,146      $   (1,043,057)
                                                                        --------------      --------------      --------------
   Adjustments to reconcile net loss to
    net cash (used) by operating activities
     Loss (gain) on sale of investments                                         44,830             (59,598)            (24,180)
     Loss in operations of joint venture                                       362,499              47,500              42,500
     Depreciation and amortization                                             404,180             258,179             272,601
     Stock compensation expense                                                 12,813                   -             199,334
     Amortization of non-employee stock options                                 40,950              29,868              29,868
     Amortization of bond discounts and premiums                               100,921                   -                   -
      (Increase) decrease in
       Accounts receivable                                                  (2,586,479)            682,813            (800,612)
       Inventory                                                                26,807               5,340              10,277
       Prepaid expenses and other current assets                               326,576            (184,880)             (5,002)
     Increase (decrease) in
       Accounts payable and accrued liabilities                                205,905             402,958             485,071
       Contract billings in excess of revenues                               2,202,333           1,380,130             315,475
       Other                                                                   (25,297)            (35,270)              2,573
                                                                        --------------      --------------      --------------
Total adjustments                                                            1,116,038           2,527,040             527,905
                                                                        --------------      --------------      --------------
                                                                            (1,035,338)          3,232,186            (515,152)
                                                                        --------------      --------------      --------------

Cash flows from investing activities
   Proceeds from sale of securities available for sale                      15,701,735          16,933,028           8,399,747
   Purchase of securities available for sale                               (15,157,716)        (18,380,248)        (12,213,094)
   Capital expenditures                                                       (237,983)         (1,353,836)           (516,967)
   Proceeds from sale of investments                                                 -                   -              85,000
   Investment in joint venture                                                (197,572)            (47,500)            (42,500)
                                                                        --------------      --------------      --------------
                                                                               108,464          (2,848,556)         (4,287,814)
                                                                        --------------      --------------      --------------
Cash flows from financing activities
   Net proceeds from issuance of common
    stock and put options                                                      247,700           1,508,072           4,824,580
   Payments on capital leases                                                  (65,678)            (40,029)            (66,701)
                                                                        --------------      --------------      --------------
                                                                               182,022           1,468,043           4,757,879
                                                                        --------------      --------------      --------------

Net change in cash and cash equivalents                                       (744,852)          1,851,673             (45,087)

Cash and cash equivalents - beginning                                        2,383,123             531,450             576,537
                                                                        --------------      --------------      --------------

Cash and cash equivalents - ending                                      $    1,638,271      $    2,383,123      $      531,450
                                                                        ==============      ==============      ==============

Supplemental disclosure of cash paid
   Interest                                                             $       25,469      $        9,173      $       16,517
   Income taxes                                                         $       48,190      $       10,572      $       10,112


Non-cash investing and financing activities:
On January 8, 2001, the Company received a note receivable in the amount of
$91,059 from an employee for the exercise of stock options. The note was paid on
August 29, 2001.

                                  See accompanying notes to consolidated financial statements.
                                                               F-6
</TABLE>
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies
         -------------------------------
         Nature of Business
         ------------------
         QMed, Inc. (the "Company") operates in two industry segments:
         disease-management services and medical equipment sales. The majority
         of the Company's operations consist of the operations of Interactive
         Heart Management Corp. ("IHMC"), the Company's wholly owned subsidiary.
         The Company and IHMC provide disease management services to health
         plans nationwide.

         Principles of Consolidation
         ---------------------------
         The consolidated financial statements include the accounts of the
         Company, IHMC and the Company's majority-owned (83%) inactive
         subsidiary, Heart Map, Inc. All intercompany accounts and transactions
         have been eliminated in consolidation. Investments in joint ventures
         are accounted for under the equity method.

         Cash and Cash Equivalents
         -------------------------
         The Company considers all highly liquid debt instruments purchased with
         a maturity of three months or less to be cash equivalents for financial
         statement purposes.

         Concentration of Credit Risk
         ----------------------------
         Financial instruments that potentially subject the Company to
         concentrations of credit risk consist of cash and cash investments. The
         Company restricts cash and cash investments to financial institutions
         with high credit standings. The Company has not experienced any losses
         on its deposits of cash and cash equivalents.

         Investments in Securities
         -------------------------
         The Company accounts for investments in securities pursuant to the
         Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
         for Certain Investments in Debt and Equity Securities." Under this
         Statement, the Company's securities with a readily determinable fair
         value have been classified as available for sale and are carried at
         fair value with an offsetting adjustment to Stockholders' Equity. Net
         unrealized gains and losses on marketable securities are credited or
         charged to accumulated other comprehensive income.

         Inventory
         ---------
         Inventory consists of finished units, components and supplies, and is
         stated at the lower of cost (moving weighted-average method) or market.

         Depreciation and Amortization
         -----------------------------
         Property and equipment are carried at cost. Depreciation is computed
         using the straight-line method over a five-year period. Leasehold
         improvements are amortized on a straight-line basis over the term of
         the lease. Repair and maintenance costs are expensed, while additions
         and betterments are capitalized. The cost and related accumulated
         depreciation of assets sold or retired are eliminated from the accounts
         and any gains or losses are reflected in earnings.

                                      F-7
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies - (continued)
         ---------------------------------------------
         Comprehensive Income
         --------------------
         Comprehensive income as defined includes all changes in equity during a
         period from non-owner sources. Accumulated other comprehensive income,
         as presented on the accompanying consolidated balance sheets consists
         of unrealized gains on securities, net of income tax.

         Financial Instruments
         ---------------------
         The carrying amounts of financial instruments, including cash and cash
         equivalents, accounts receivable and accounts payable approximated fair
         value as of November 30, 2003, because of the relative short maturity
         of these instruments. The carrying value of leases payable approximated
         fair value at November 30, 2003, based upon current rates for the same
         or similar instruments.

         Product Software Development Costs

         The Company recognizes Product Software development costs in accordance
         with Statement of Position ("SOP") 98-1, "Accounting for the Costs of
         Computer Software Developed or Obtained for Internal Use." As such, the
         Company expenses all costs incurred that relate to the planning and
         post implementation phases of development. Costs incurred in the
         development phase are capitalized and amortized over the estimated
         useful life of the software developed, which is five years.

         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+Choice). These contracts are generally for terms of three to
         five 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 that there could be an issue of
         non-performance, possibly resulting in a refund of fees or where fees
         generated may be subject to further retroactive adjustment associated

                                      F-8
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies - (continued)
         ---------------------------------------------
         Revenue Recognition - Disease Management- (continued)
         -----------------------------------------------------
         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 non-performance 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 required to be 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 and not covered by reinsurance 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 November 30,
         2003, based on information and data available, the Company has deferred
         approximately $4,000,000 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, however, since
         the initial contract year reconciliation did not provide positive
         results, the revenue from these agreements which are estimated to be
         subject to refund is deferred in accordance with our revenue
         recognition policy. 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. Although the majority of contracts entered into by the
         company are multi-year agreements, the Regence Oregon and Washington
         contracts terminated early, as of January 31, 2003. As of November 30,
         2003, non-current accounts receivable includes approximately $1,500,000
         for services rendered and owed on the Regence Oregon and Washington
         contracts.

         During the fiscal year ended November 30, 2003, approximately 57% of
         disease management services were derived from four health plans that
         each comprised more than 10% of the Company's revenues. During the
         fiscal years ended November 30, 2002, and 2001, approximately 47% and
         67%, respectively, of disease management services were derived from two
         health plans that each comprised more than 10% of the Company's
         revenues.

                                      F-9
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies - (continued)
         ---------------------------------------------
         Revenue Recognition - Medical Equipment
         ---------------------------------------
         Revenue is recognized on equipment sales when the equipment is shipped
         and title passes. Management establishes estimated accruals for returns
         from customers, and for allowances granted to them at the time of
         shipment. For the years ended November 30, 2003, 2002 and 2001, there
         have been no sales returns or allowances.

         During 2003, 2002 and 2001, the Company sold extended one-year service
         warranty contracts to customers. Revenue on one-year warranty contracts
         is recognized on a straight-line basis over the life of the contract.

         Earnings (Loss) Per Share
         -------------------------
         Earnings (loss) per share is reported under SFAS No. 128 "Earnings per
         Share". The presentation of basic earnings per share is based upon
         average common shares outstanding during the period. Diluted earnings
         (loss) per share is based on average common shares outstanding during
         the period plus the dilutive effect of stock options outstanding.

         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>
                                                           2003             2002              2001
                                                       ------------     ------------      ------------
         <S>                                           <C>              <C>               <C>
         Net (loss) income, as reported                $ (2,151,376)    $    705,146      $ (1,043,057)

         Deduct: Total stock-based
         employee compensation
         expense determined under
         fair value based method for all
         awards, net of related tax
         effects                                           (887,469)        (982,234)         (606,498)
                                                       ------------     ------------      ------------

         Pro forma net (loss) income                   $ (3,038,845)    $   (277,088)     $ (1,649,555)
                                                       ============     ============      ============

         Weighted average common
           shares outstanding                            14,568,781       14,433,922         13,866,216

         Dilutive effect of stock options and
           warrants                                               -        2,153,247                  -
                                                       ------------     ------------      ------------

         Diluted shares outstanding                      14,568,781       16,587,169        13,866,216
                                                       ============     ============      ============
</TABLE>

                                      F-10
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies - (continued)
         ---------------------------------------------
         Stock Based Compensation - (continued)
         --------------------------------------
<TABLE>
<CAPTION>
                                                            2003             2002              2001
                                                       ------------     ------------      ------------
         <S>                                              <C>               <C>              <C>
         (Loss) earning per share:

         Basic, as reported                               $ (.15)           $  .05           $ (.08)
                                                          ======            ======           ======
         Basic, pro forma                                 $ (.21)           $ (.02)          $ (.12)
                                                          ======            ======           ======
         Diluted, as reported                             $ (.15)           $  .04           $ (.08)
                                                          ======            ======           ======
         Diluted, pro forma                               $ (.21)           $ .(02)          $ (.12)
                                                          ======            ======           ======
</TABLE>

         Potentially dilutive options and warrants to purchase 1,792,896 shares
         and 3,340,345 shares of the common stock were outstanding as of
         November 30, 2003 and 2001, 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 287,440, 31,000 and 173,546 shares of common stock were
         outstanding as of November 30, 2003, 2002 and 2001, respectively but
         were also not included in the computation of diluted loss per share
         because the options exercise price was greater than the average market
         price of the common shares.

         The estimated weighted average fair values of the options at the date
         of grant using the Black-Scholes option pricing model as promulgated by
         SFAS No. 123 and the related assumptions used to develop the estimates
         are as follows:

                                          2003           2002           2001
                                          ----           ----           ----
         Weighted Average
          fair value of options           $ 4.47         $ 4.40         $ 5.30

         Risk-free interest rate            5.0%           5.0%           5.0%
         Expected volatility               68.4%          70.0%          75.0%
         Dividend yield                       -              -              -
         Expected life                 5.5 years      5.5 years      5.5 years

         See Note 13 for further discussion of the Company's stock options.

         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.

         Research and Development Expenses
         ---------------------------------
         Costs associated with the development of new products and changes to
         existing products are charged to operations as incurred.

                                      F-11
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies - (continued)
         ---------------------------------------------
         Income Taxes
         ------------
         The Company recognizes deferred tax assets and liabilities based on
         differences between the financial reporting and tax basis of assets and
         liabilities using the enacted tax rates and laws that are expected to
         be in effect when the differences are expected to be recovered. The
         Company provides a valuation allowance for deferred tax assets for
         which it does not consider realization of such assets to be more likely
         than not.

         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 has been
         reflected as contract billings in excess of revenues on the balance
         sheet. 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.

         Reclassifications
         -----------------
         Certain reclassifications have been made to prior period's financial
         statements in order to conform to the current year presentation.

         New Accounting Pronouncements
         -----------------------------
         In April 2002, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards No. 145 ("SFAS 145"),
         "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
         Statement No. 13, and Technical Corrections," which is effective for
         fiscal years beginning after May 15, 2002, with earlier application
         encouraged. Under SFAS 145, gains and losses from extinguishment of
         debt will no longer be aggregated and classified as an extraordinary
         item, net of related income tax effect, on the statement of earnings.
         The adoption of SFAS 145 had no impact on its financial position or
         results of operations.

         In June 2002, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for
         Costs Associated with Exit or Disposal Activities," which is effective
         for exit or disposal activities that are initiated after December 31,
         2002, with early application encouraged. SFAS 146 requires recognition
         of a liability for the costs associated with an exit or disposal
         activity when the liability is incurred, as opposed to when the entity
         commits to an exit plan as required under EITF Issue No. 94-3. SFAS 146
         will primarily impact the timing of the recognition of costs associated
         with any future exit or disposal activities. The adoption of SFAS 146
         had no impact on its financial position or results of operations.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock
         Based Compensation", which amends SFAS No. 123 to provide alternative
         methods of transaction for an entity that voluntarily changes to the
         fair value method of accounting for stock based compensation. It also

                                      F-12
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies - (continued)
         --------------------------------------------
         New Accounting Pronouncements- (continued)
         ------------------------------------------
         amends the disclosure provisions of SFAS No. 123 to require prominent
         disclosure about the effects on reported net income of an entity's
         accounting policy decisions with respect to stock based employee
         compensation. Finally, SFAS No. 148 amends APB Opinion No. 28, "Interim
         Financial Reporting", to require disclosure of those effects in interim
         financial statements. SFAS No. 148 is effective for fiscal years ended
         after December 15, 2002, but early adoption is permitted. Accordingly,
         the Company has adopted the applicable disclosure requirements of this
         Statement within this report. The adoption of SFAS No. 148 did not have
         a significant impact on the Company's financial disclosures.

         In November 2002, the FASB issued interpretation No. ("FIN") 45,
         "Guarantor's Accounting and Disclosure Requirements for Guarantees,
         Including Indirect Guarantees of Indebtedness of Others," which
         requires that guarantees within the scope of FIN 45 issued or amended
         after December 31, 2002, a liability for the fair value of the
         obligation undertaken in issuing the guarantee, be recognized at the
         inception of the guarantee. The effective date for this FIN 45 is for
         fiscal years ending after December 15, 2002. The adoption of FIN 45 had
         no impact on its financial position or results of operations.

         In January 2003, the FASB issued FIN 46, "Consolidation of Variable
         Interest Entities," which is effective for interim periods beginning
         after December 15, 2003. This interpretation changes the method of
         determining whether certain entities should be included in the
         Company's consolidated financial statements. An entity is subject to
         FIN 46 and is called a variable interest entity ("VIE") if it has (1)
         equity that is insufficient to permit the entity to finance its
         activities without additional subordinated financial support from other
         parties, or (2) equity investors that cannot make significant decisions
         about the entity's operations or that do not absorb the expected losses
         or receive the expected returns of the entity. All other entities are
         evaluated for consolidation under SFAS No. 94, "Consolidation of All
         Majority-Owned Subsidiaries." A VIE is consolidated by its primary
         beneficiary, which is the party involved with the VIE that has a
         majority of the expected losses or a majority of the expected residual
         returns or both. The Company currently evaluating FIN 46 and believes
         that it will have no impact on its financial position or results of
         operations.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
         133 on Derivative Instruments and Hedging Activities", which amends and
         clarifies accounting for derivative instruments, including certain
         derivative instruments embedded in other contracts, and for hedging
         activities that fall within the scope of SFAS No. 133, "Accounting for
         Derivative Instruments and Hedging Activities". SFAS No. 149 amends
         SFAS No. 133 regarding implementation issues raised in relation to the
         application of the definition of a derivative. The amendments set forth
         in SFAS No. 149 require that contracts with comparable characteristics
         be accounted for similarly. This Statement is effective for contracts
         entered into or modified after June 30, 2003, with certain exceptions,
         and for hedging relationships designated after June 30, 2003. The

                                      F-13
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 1 - Significant Accounting Policies - (continued)
         --------------------------------------------
         New Accounting Pronouncements- (continued)
         ------------------------------------------
         adoption of SFAS No. 149 did not have a material impact on the
         Company's financial position or results of operations.

         On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity." SFAS 150 provides guidance on classification and measurement
         of certain financial instruments with characteristics of both
         liabilities and equity. There was no impact from the adoption of this
         statement.

Note 2 - Investments in Securities
         -------------------------
         Investments in securities available-for-sale as of November 30, 2003
         and 2002 were as follows:
<TABLE>
<CAPTION>
                                                                       Market          Unrealized
                      2003                          Cost                Value          Gain (Loss)
                      ----                          ----               ------          -----------
         <S>                                   <C>                 <C>                <C>
         Corporate debt securities             $    4,593,250      $    4,586,965     $     (6,285)
         Government debt securities                 1,627,574           1,626,860             (714)
                                               --------------      --------------     ------------
                                               $    6,220,824      $    6,213,825     $     (6,999)
                                               ==============      ==============     ============
<CAPTION>

                                                                       Market          Unrealized
                      2002                          Cost                Value          Gain (Loss)
                      ----                          ----               ------          -----------
         <S>                                   <C>                 <C>                <C>
         Corporate debt securities             $    3,324,474      $    3,287,549     $    (36,925)
         Government debt securities                 3,586,121           3,585,942             (179)
                                               --------------      --------------     ------------
                                               $    6,910,595      $    6,873,491     $    (37,104)
                                               ==============      ==============     ============
</TABLE>

         Primarily all of the above securities mature within one year.

         During the year ended November 30, 2003, the Company sold available for
         sale securities for approximately $15,700,000 resulting in a loss of
         approximately $45,000.

         During the year ended November 30, 2002, the Company sold available for
         sale securities for approximately $16,900,000 resulting in a gain of
         approximately $60,000.

Note 3 - Inventory
         ---------
<TABLE>
<CAPTION>
                                                                    November 30,
                                                                    ------------
                                                                2003             2002
                                                                ----             ----
          <S>                                               <C>              <C>
          Raw materials (component parts and supplies)      $    119,228     $    132,425
          Finished units                                          27,011           40,621
                                                            ------------     ------------
                                                            $    146,239     $    173,046
                                                            ============     ============
</TABLE>

                                      F-14
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003



Note 4 - Property and Equipment
         ----------------------
<TABLE>
<CAPTION>
                                                                   November 30,
                                                                   ------------
                                                             2003               2002
                                                             ----               ----
         <S>                                            <C>                <C>
         Machinery and equipment                        $    1,426,835     $    1,425,392
         Loaner equipment                                      244,542            244,542
         Furniture and fixtures                              1,076,498          1,013,553
         Office equipment                                      986,435            901,255
         Leasehold improvements                                121,477            121,477
         Equipment held under capital leases                   600,312            499,671
                                                        --------------     --------------
                                                             4,456,099          4,205,890

         Less accumulated depreciation and
          amortization                                      (3,322,680)        (3,037,888)
                                                        --------------     --------------
         Property and equipment - net                   $    1,133,419     $    1,168,002
                                                        ==============     ==============
</TABLE>

         At November 30, 2003 and 2002, the equipment under the capital leases
         had net book values of approximately $163,780 and $110,000,
         respectively.

         Depreciation expenses were approximately $284,000, $184,000 and
         $220,000 for 2003, 2002 and 2001, respectively.

Note 5 - Product Software Development Costs
         ----------------------------------
         During the years ended November 30, 2003 and 2002, the Company
         capitalized approximately $79,000 and $241,000 in product software
         development costs, respectively. These costs are amortized over a
         five-year useful life.

         During the years ended November 30, 2003, 2002 and 2001, amortization
         costs related to product software development costs were approximately
         $100,000 and $55,000 and $35,000, respectively.

Note 6 - Patent and Deferred Legal Costs
         -------------------------------
         During fiscal 2003, the Company reached an out of court settlement of
         its patent infringement claim against LifeMasters Supported SelfCare,
         Inc. The Settlement resolves the outstanding dispute between the
         parties and includes a license of one of the Company's patents. The
         Company has deferred all legal costs associated with this claim. The
         settlement also includes a reimbursement for legal costs associated
         with this matter. As of November 30, 2003, the Company had incurred
         approximately $391,000 of legal costs related to this matter of which
         approximately $59,000 is currently recorded in other current assets.

Note 7 - Investment in Joint Venture
         ---------------------------
         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 November 30, 2003, the
         Company has recorded losses to date of approximately $599,000 bringing
         the investment in joint venture to zero.

                                      F-15
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 7 - Investment in Joint Venture - (continued)
         ----------------------------------------
         The unaudited summary financial information for HM as of and for the
         period ended November 30, is as follows:
<TABLE>
<CAPTION>
                                                                        November 30,
                                                                        ------------
                                                                  2003                 2002
                                                                  ----                 ----
         <S>                                                 <C>                  <C>
         Balance Sheet
                  Current assets                             $    2,603,860       $    1,147,485
                  Liabilities                                     2,795,216            1,143,342
                                                             --------------       --------------
                  Capital                                    $     (191,356)      $        4,143
                                                             ==============       ==============

         Statements of operations
                  Revenues                                   $      639,916       $    5,862,686
                  Operating expenses                              1,364,913            5,931,729
                                                             --------------       --------------
                  Net loss                                   $     (724,997)      $      (69,043)
                                                             ==============       ==============

Note 8 - Accounts Payable and Accrued Liabilities
         ----------------------------------------
<CAPTION>
                                                                        November 30,
                                                                        ------------
                                                                  2003                 2002
                                                                  ----                 ----
         <S>                                                 <C>                  <C>
         Accounts payable - trade                            $      479,472       $      248,862
         Insurance premiums payable                                 183,243              269,400
         Other accrued expenses - none in
          excess of 5% of current liabilities                       313,009              248,666
                                                             --------------       --------------
                                                             $      975,724       $      766,928
                                                             ==============       ==============
</TABLE>

Note 9 - Fees Reimbursable to Health Plans
         ---------------------------------
         Health plans which utilize 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
         November 30, 2003 and 2002, there was $182,359 and $3,050 outstanding
         under these provisions.

Note 10 - Line of Credit
          --------------
         On September 11, 2001, the Company entered into a loan agreement with
         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. Borrowings under this line of credit
         were $-0- at November 30, 2003 and 2002.

Note 11 - Capital Lease Obligations
          -------------------------
         The Company has entered into various capital leases for equipment
         expiring through November 2006, with aggregate monthly payments of
         approximately $7,600.

                                      F-16
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 11 - Capital Lease Obligations - (continued)
          --------------------------------------
         The following is a schedule by years of future minimum lease payments
         under capital leases together with the present value of the net minimum
         lease payments as of November 30, 2003:

         For the Years Ending
             November 30,
             ------------

                2004                                            $       83,694
                2005                                                    31,554
                2006                                                    16,439
                                                                --------------
                Total minimum lease payments                           131,687
                Less amount representing interest                      (13,795)
                                                                --------------
                Present value of net minimum lease payments            117,892
                Less current maturities                                 73,463
                                                                --------------
                Long-term maturities                            $       44,429
                                                                ==============

Note 12 - Income Taxes
          ------------
         Deferred tax attributes resulting from differences between financial
         accounting amounts and tax basis of assets and liabilities at November
         30, 2003 and 2002, follow:
<TABLE>
<CAPTION>
                                                                                 November 30,
                                                                           2003                2002
                                                                           ----                ----
         <S>                                                           <C>                 <C>
         Current assets and liabilities
             Allowance for doubtful accounts                           $       1,000       $           -
             Inventory overhead capitalization                                15,000              51,000
             Deferred warranties                                              13,000              24,000
                                                                       -------------       -------------
                                                                              29,000              75,000
             Valuation allowance                                             (29,000)            (75,000)
                                                                       -------------       -------------
         Net current deferred tax asset (liability)                    $           -       $           -
                                                                       =============       =============

         Noncurrent assets and liabilities
             Depreciation and amortization                             $     (78,000)      $     (72,000)
             Net operating loss carryforward                               9,644,000          10,639,000
             Research and development credit carryforward                     82,000              82,000
             Stock compensation                                              123,000             123,000
             Capital loss carryforward                                             -              12,000
                                                                       -------------       -------------
                                                                           9,771,000          10,784,000
             Valuation allowance                                          (9,771,000)        (10,784,000)
                                                                       -------------       -------------
         Net noncurrent deferred tax asset (liability)                 $           -      $            -
                                                                       =============       =============
</TABLE>

         The Company has a cumulative pre-tax loss for financial reporting
         purposes. Recognition of deferred tax assets will require generation of
         future taxable income. There can be no assurance that the Company will
         generate earnings in future years. Therefore, the Company established a
         valuation allowance on deferred tax assets of approximately $9,800,000
         and $10,859,000 as of November 30, 2003 and 2002, respectively.

                                      F-17
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 12 - Income Taxes (continued)
          -----------------------
         The effective tax rate varied from the statutory rate as follows:
<TABLE>
<CAPTION>
                                                           2003             2002            2001
                                                           ----             ----            ----
         <S>                                               <C>             <C>             <C>
         Statutory federal income tax rate                 34.0%           34.0%           34.0%
         State income tax, net of federal
          Benefit                                          (0.5%)           3.5%            6.0%
         Certain non-deductible expenses                   (0.8%)          (0.5%)          (4.0%)
         Effect on net operating loss
          carryforward and valuation allowance            (33.4%)         (31.7%)         (36.0%)
                                                         ---------       ---------       --------
                                                           (0.7%)           5.3%              -%
                                                         =========       =========       ========
</TABLE>

         Provision for state income taxes for the year ended November 30, 2003
         represents minimum state tax liabilities.

         As of November 30, 2003, the Company has available the following
         federal net operating loss carryforwards for tax purposes:

             Expiration Date:
         Years Ending November 30,
         -------------------------
                  2004                                $      1,499,000
                  2005                                         496,000
                  2006                                               0
                  2007 through 2022                         22,293,000
                                                      ----------------
                                                      $     24,288,000
                                                      ================

         The Company has net operating loss carryforwards for state tax purposes
         of approximately $22,000,000 expiring at various times from fiscal
         years ending 2004 through 2017, of which approximately $7.7 million
         expire through 2006. The utilization of these net operating loss
         carryforwards may be significantly limited under the Internal Revenue
         Code as a result of ownership changes due to the Company's stock and
         ownership changes.

         During the year ended November 30, 2002 the Company completed the sale
         of approximately $563,000 of its New Jersey net operating loss
         carryforwards and $105,000 of its New Jersey research and development
         tax credits and received approximately $130,000. Proceeds from these
         transactions are recorded as a gain on sale of net state tax benefits.

Note 13 - Stockholders' Equity
          --------------------
         Private Placement Equity Transaction
         ------------------------------------
         On April 4, 2001, the Company sold 796,813 shares to three investors
         led by Galen Partners III, LP for approximately $4,000,000. As part of
         this transaction, the Company extended the terms on all outstanding

                                      F-18
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 13 - Stockholders' Equity - (continued)
          ---------------------------------
         2003 Outside Directors Equity Plan
         ----------------------------------
         warrants to November 12, 2007. All charges related to the change were
         treated as a cost of raising capital and were netted in stockholders'
         equity. The Company has adopted an Outside Directors Equity Plan to
         better enable the retention and attraction of qualified outside
         directors to serve on the Company's Board of Directors. The plan
         requires up to 250,000 shares to be authorized for issuance under the
         plan and is designed to allow outside directors the option to receive a
         portion of their fees in the form of the Company's common stock in lieu
         of cash.

         Stock Options and Warrants
         --------------------------
         The QMed, Inc. 1999 Equity Incentive Plan provides for stock options,
         stock appreciation rights, restricted stock or deferred stock awards up
         to 1,000,000 shares of the Company's common stock to be granted to
         employees and consultants of the Company until September 2009. The Plan
         also provides for Director Non-Qualified stock options to be granted to
         directors of the Company (other than directors who are also officers or
         employees of the Company). The Plan was amended by a vote of
         stockholders on May 22, 2002 to increase the number of shares available
         for awards from 1,000,000 to 2,000,000.

         The QMed, Inc. 1997 Equity Incentive Plan provides for stock options,
         stock appreciation rights, restricted stock or deferred stock awards
         for up to 600,000 shares of the Company's common stock to be granted to
         employees of the Company until May 2007. The Plan also provides for
         director stock options to be granted to directors of the Company (other
         than directors who are also officers or employees of the Company).

         The QMed, Inc. 1990 Employee Stock Incentive Plan provides for stock
         options, stock appreciation rights, restricted stock or deferred stock
         awards for up to 1,000,000 shares of the Company's common stock to be
         granted to employees of the Company until October 2000. 1,000,000
         shares of the Company's common stock are reserved for this plan.

         Under the 1990, 1997 and 1999 plans, most options are exercisable in
         cumulative 33% increments after the first and each subsequent
         anniversary of the date of the grant, except for executive officers'
         options, which generally are exercisable immediately. The incentive and
         nonqualifying stock options expire ten years after the date of the
         grant.

         Options granted under all plans must be at a price per share not less
         than the fair-market value per share of common stock on the date the
         option is granted.

         There was compensation expense of approximately $109,000 and $200,000
         recorded from stock options under APB 25 for the years ended November
         30, 2002 and 2001. Effective November 30, 2001, the Company terminated
         an employment agreement with an employee which resulted in the
         immediate vesting of their unvested stock options. This termination
         resulted in a charge to operations of approximately $109,000 and

                                      F-19
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 13 - Stockholders' Equity
          --------------------
         Stock Options and Warrants - (continued)
         ---------------------------------------
         $200,000 during fiscal 2002 and 2001, respectively, for the
         acceleration of the options. In addition the Company recorded a
         $154,000 charge to operations for severance payments, during the fiscal
         year 2001. The immediate vesting resulted in variable accounting
         treatment for the related options, and accordingly the Company adjusted
         the charge each period through the exercise or expiration of the
         related options. All related options were exercised prior to
         expiration.

         During the year ended November 30, 2000, the Company granted stock
         options to consultants in exchange for services. The fair value of
         these options was estimated at the date of the grant, which was
         determined to be the measurement date, using a Black-Scholes option
         pricing model. The vesting period for these options is three years.

         The value of these options was approximately $90,000 and is being
         amortized over their respective vesting period. Amortization expense
         relating to these options for the years ended November 30, 2003, 2002
         and 2001 was approximately $41,000, $30,000 and $30,000, respectively.

         On January 8, 2001, the Company accepted a promissory note in the
         amount of $91,059 from the Company's president in connection with the
         exercise of stock options which were due to expire on February 1, 2001.
         The note accrued interest at the rate of 7.5% per annum and was due in
         January 2002. The principal amount of this note plus accrued interest
         was paid in full on August 29, 2001.

         A summary of the Company's stock option activity, and related
         information for the years ended November 30, follows:
<TABLE>
<CAPTION>
                                                    Weighted-Average     Number of      Weighted-Average
                                        Options      Exercise Price     Exercisable      Exercise Price
                                        -------      --------------     -----------      --------------
         <S>                           <C>             <C>                <C>              <C>
         Outstanding
           November 30, 2000           1,737,193       $    3.28          1,314,284        $    2.56

             Granted                     271,796            8.02
             Exercised                  (323,219)           1.49
             Terminated                  (13,831)           7.76
                                      ----------
         Outstanding
             November 30, 2001         1,671,939            4.37          1,170,049             3.25

             Granted                     136,000            7.05
             Exercised                  (283,053)           4.43
             Terminated                  (43,379)           7.32
             Expirations                    (364)           8.90
                                      ----------

           Outstanding
             November 30, 2002         1,481,143            4.51          1,149,076             3.75

             Granted                     235,175            7.30
             Exercised                  (119,401)           2.07
             Expirations                 (14,900)           8.55
             Terminated                  (27,696)           9.32
                                      ----------

         Outstanding
           November 30, 2003           1,554,321       $    4.97          1,147,962        $    4.28
                                      ==========       =========         ==========        =========
</TABLE>
                                      F-20
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 13 - Stockholders' Equity - (continued)
          ---------------------------------
         Stock Options and Warrants - (continued)
         ----------------------------------------
         Weighted-average fair
          value of options granted
          during the years                          2003             2002
          ----------------                          ----             ----

                Where exercise price
                 equals stock price              $     4.47        $     4.40

                Where exercise price
                 exceeds stock price                      -                 -

                Where stock price
                 exceeds exercise price                   -                 -

         Following is a summary of the status of stock options outstanding at
         November 30, 2003:
<TABLE>
<CAPTION>
                                         Outstanding Options                        Exercisable Options
                             -----------------------------------------------    -----------------------------
                                               Weighted-
                                Number          Average         Weighted-         Number         Weighted-
            Exercise Price    Outstanding      Remaining         Average        Outstanding       Average
                 Range        at 11/30/03  Contractual Life  Exercise Price     at 11/30/03   Exercise Price
            --------------    -----------  ----------------  --------------     -----------   --------------
         <S>                   <C>                <C>           <C>             <C>             <C>
         $ 1.38  -  1.40         140,500          0.7           $   1.39         140,500        $  1.39
           2.75  -  4.03         609,880          4.4               3.08         577,705           3.04
           4.44  -  6.56         206,734          6.4               4.85         142,317           4.74
           6.88  -  8.90         577,874          8.5               7.65         284,107           7.89
          11.76  - 11.76          19,333          6.3              11.76           3,333          11.76

         $ 1.38  - 11.76       1,554,321          5.9           $   4.97        1,147,962       $  4.28
         ======    =====       =========        =====           ========        =========       =======
<CAPTION>
         A summary of the Company's stock warrant activity, and related
         information for the years ended November 30, follows:

                                                        Weighted-Average    Number of     Weighted-Average
                                              Warrants   Exercise Price    Exercisable     Exercise Price
                                              --------   --------------    -----------     --------------
         <S>                                 <C>          <C>                 <C>           <C>
         Outstanding
          November 30, 2000                  2,051,952    $    1.92           2,051,952     $    1.92

         Granted                                     -                                -
         Exercised                            (210,000)        1.86            (210,000)
         Terminated                                  -                                -
                                            ----------                       ----------
         Outstanding
          November 30, 2001                  1,841,952         1.93           1,841,952          1.93
         Granted                                     -                                -
         Exercised                             (46,437)        3.10             (46,437)
         Terminated                                  -                                -
                                            ----------                       ----------
         Outstanding
          November 30, 2002                  1,795,515         1.90           1,795,515          1.90

         Granted                                     -                                -
         Exercised                                   -                                -
         Terminated                                  -                                -
                                            ----------                       ----------
         Outstanding
          November 30, 2003                  1,795,515    $    1.90           1,795,515     $    1.90
                                            ==========    =========          ==========     =========
</TABLE>
                                      F-21
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 13 - Stockholders' Equity - (continued)
          ---------------------------------
         Stock Options and Warrants - (continued)
         ---------------------------------------
         Following is a summary of the status of stock warrants outstanding at
         November 30, 2003:
<TABLE>
<CAPTION>
                                                   Outstanding Warrants                     Exercisable Warrants
                                       --------------------------------------------     ----------------------------
                                         Number     Weighted-Average    Weighted-         Number         Weighted-
                    Exercise Price     Outstanding      Remaining        Average        Outstanding       Average
                         Range         at 11/30/03  Contractual Life Exercise Price     at 11/30/03   Exercise Price
                    --------------     -----------  ---------------- --------------     -----------   --------------
                    <S>                  <C>                <C>         <C>             <C>             <C>
                    $1.67 - 1.67         1,460,339           3.9        $   1.67        1,460,339       $    1.67
                     2.62 - 3.50           301,786           3.9            2.80          301,786            2.80
                     3.64 - 3.64            33,390           3.9            3.34           33,390            3.34
                    ------------         ---------          ----        --------        ---------       ---------
                    $1.67 - 3.64         1,795,515           3.9        $   1.90        1,795,515       $    1.90
                    ============         =========          ====        ========        =========       =========
</TABLE>

Note 14 - Retirement Plan
          ---------------
         The Company has a 401(k) plan which allows its employees to set aside a
         part of their earnings, tax deferred, to be matched by the Company as
         determined each year by resolution of the Board of Directors. During
         the years ended 2003, 2002 and 2001, the Company matched $.25 for each
         dollar up to 6% of an employee's contribution on a monthly basis, which
         amounted to approximately $55,000, $46,000 and $37,000, respectively.

Note 15 - Commitments and Contingencies
          -----------------------------
         Leases
         ------
         The Company leases office space and equipment under noncancellable
         operating leases expiring through November 2007. Monthly payments under
         the current leases are approximately $45,000.

         The following is a schedule by years of approximate future minimum
         rental payments required under operating leases that have initial or
         remaining noncancelable lease terms in excess of one year as of
         November 30, 2003.

         For the Years Ending
            November 30,
            ------------

                2004                                     $        519,000
                2005                                              485,000
                2006                                              472,000
                2007                                              246,000
                2008                                                    -
                Thereafter                                              -
                                                         ----------------
                Total minimum payments required          $      1,722,000
                                                         ================

         Rent expense for the years ended November 30, 2003, 2002 and 2001 was
         approximately $840,000, 288,000 and $241,000, respectively.

                                      F-22
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 15 - Commitments and Contingencies - (continued)
          ------------------------------------------
         Litigation
         ----------
         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 of approximately $13,000,000 plus
         interest, of which approximately $6,500,000 relates to IHMC, for claims
         under certain terminated disease management agreements. The claims
         allege 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 has
         denied the claims of Regence and asserted counter claims. In addition,
         Heartmasters has demanded payment of the insurance coverage. The
         dispute with Centre over the insurance coverage is now the subject of
         an arbitration proceeding. Initially, the company sued over the
         nonpayment of the policies; the court determined that this must be
         resolved in the arbitration with Centre. At this stage, management is
         unable to predict the outcome of these matters.

         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.

         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, m certain cases,
         render a contract unprofitable and could have a material negative
         impact on the Company's results of operations.

         Major Customer
         --------------
         The Company had four major customers during 2003 and two major
         customers during 2002 and 2001. Major customers were considered to be
         those who account for more than 10% of total revenue. The four major
         customers accounted for approximately 57% of total revenue for the year
         ended November 30, 2003 and two customers accounted for approximately
         47% and 67% of total revenue for the years ended November 30, 2002 and
         2001.

         Reinsurance
         -----------
         The Company has reinsurance contracts with provisions whereby the
         reinsurer has the ability to retroactively adjust premiums as the
         result of certain conditions being met. These adjustments are
         determined subsequent to the end of the policy year. As of November 30,
         2003 management is not able to adequately predict what adjustments, if
         any, may be required under these contracts.

                                      F-23
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 15 - 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 November 30,2003 total open
         commitments under these purchase orders are approximately $298,000.

Note 16 - Business Segment Information
          ----------------------------
         Segment Reporting
         -----------------
         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 is 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.

         Summarized financial information by operating segment for 2003, 2002
         and 2001, is as follows:
<TABLE>
<CAPTION>
                                                      2003                2002                 2001
                                                      ----                ----                 ----
         <S>                                   <C>                 <C>                  <C>
         Revenue:
         Disease management services           $     12,650,406    $      12,324,877    $      7,534,931
         Medical equipment                              248,955              419,877             486,703
                                               ----------------    -----------------    ----------------
                                               $     12,899,361    $      12,744,754    $      8,021,634
                                               ================    =================    ================

         (Loss) income before income taxes
         Disease management services           $        327,413    $       2,004,808    $       (375,192)
         Medical equipment                               56,204              204,864             203,557
                                               ----------------    -----------------    ----------------
                  Total segments                        383,617            2,209,672            (171,635)
         General corporate expense net               (2,519,993)          (1,594,411)         (1,091,025)
                                               ----------------    -----------------    ----------------
                                               $     (2,136,376)   $         615,261    $     (1,262,660)
                                               ================    =================    ================


         Depreciation and amortization
         Disease management services           $        210,274    $         173,646    $        128,706
         Medical equipment                               16,648               23,642              67,032
                                               ----------------    -----------------    ----------------
                  Total segments                        226,922              197,288             195,738
         General corporate expense net                  177,258               60,891              76,863
                                               ----------------    -----------------    ----------------
                                               $        404,180    $         258,179    $        272,601
                                               ================    =================    ================
</TABLE>
                                      F-24
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                      For the Year Ended November 30, 2003


Note 16 - Business Segment Information - (continued)
          -----------------------------------------
         Segment Reporting - (continued)
         ------------------------------
<TABLE>
<CAPTION>
                                                      2003                2002                 2001
                                                      ----                ----                 ----
         <S>                                   <C>                 <C>                  <C>
         Expenditures for long-lived assets
         Disease management services           $        135,127    $         585,119    $        484,985
         Medical equipment                                    -                    -                   -
                                               ----------------    -----------------    ----------------
                  Total segments                        135,127              585,119             484,985
         General corporate                              102,856              768,717              31,982
                                               ----------------    -----------------    ----------------
                                               $        237,983    $       1,353,836    $        516,967
                                               ================    =================    ================

         Identifiable assets
         Disease management services           $      4,137,316    $       2,928,903    $      1,813,887
         Medical equipment                            7,917,663            8,339,994           6,321,642
                                               ----------------    -----------------    ----------------
                  Total segments                     12,054,979           11,268,897           8,135,529
         General corporate                              863,332              894,284              31,982
                                               ----------------    -----------------    ----------------
                                               $     12,918,311    $      12,163,181    $      8,167,511
                                               ================    =================    ================
<CAPTION>
Note 17 - Selected Quarterly Financial Data (Unaudited)
          --------------------------------------------
                                                          For the Quarters Ending 2003
                                                          ----------------------------
                                      February 28,     May 31,       August 31,     November 30,      Total
                                      ------------     -------       ----------     ------------      -----
         <S>                          <C>            <C>            <C>             <C>            <C>
         Net sales                    $ 3,666,044    $ 3,316,701    $ 3,164,912     $ 2,751,704    $12,899,361
         Gross profit                   2,071,551      1,685,985      1,423,309         991,649      6,172,494
         Net income (loss)                290,989       (587,451)      (676,054)     (1,178,860)    (2,151,376)
         Income (loss) per share              .02           (.04)          (.05)           (.08)          (.15)
<CAPTION>
                                                          For the Quarters Ending 2002
                                                          ----------------------------
                                      February 28,     May 31,       August 31,     November 30,      Total
                                      ------------     -------       ----------     ------------      -----
         <S>                          <C>            <C>            <C>             <C>            <C>
         Net sales                    $ 3,185,715    $ 3,492,321    $ 2,491,607     $ 3,575,111    $12,744,754
         Gross profit                   1,893,859      2,123,879      1,074,123       2,045,330      7,137,191
         Net income (loss)                402,319        447,612       (559,366)        414,581        705,146
         Income (loss) per share              .03            .03           (.04)            .03            .05
<CAPTION>

                                                          For the Quarters Ending 2001
                                                          ----------------------------
                                      February 28,     May 31,       August 31,     November 30,      Total
                                      ------------     -------       ----------     ------------      -----
         <S>                          <C>            <C>            <C>             <C>            <C>
         Net sales                    $ 1,207,927    $ 1,654,698    $ 2,129,421     $ 3,029,588    $ 8,021,634
         Gross profit                     809,299        937,690      1,155,768       1,818,351      4,721,108
         Net (loss) income               (283,975)      (516,275)      (382,232)        139,425     (1,043,057)
         (Loss) income per share             (.02)          (.04)          (.03)            .01           (.08)
</TABLE>

                                      F-25
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers 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, 2003 and is incorporated herein by
reference.

Pursuant to General Instruction G(3), information concerning executive officers
is included in Part I of this form under the caption "Executive Officers of the
Registrant."

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, 2003 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, 2003 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, 2003 and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information regarding our relationship with our principal public accountant will
be set forth in the Company's definitive proxy statement which is expected to be
filed within 120 days of November 30, 2003 and is incorporated herein by
reference.

                                       37
<PAGE>

                                     PART IV

Item 15. 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, 2003 and 2002

         Consolidated Statement of Operations for each of the three years ended
         November 30, 2003, 2002 and 2001

         Consolidated Statement of Comprehensive Income for each of the three
         years ended November 30, 2003, 2002 and 2001

         Consolidated Statement of Stockholder's Equity for each of the three
         years ended November 30, 2003, 2002 and 2001

         Consolidated Statement of Cash Flows for each of the three years ended
         November 30, 2003, 2002 and 2001

         Notes to Consolidated Financial Statements

         (2) Financial Statement Schedules:

         II - Valuation and Qualifying Accounts

         Other schedules have been omitted because they are not applicable.

         (b) Reports on Form 8-K.

         On October 17, 2003, QMed furnished a report on Form 8-K relating to
         financial information for QMed for the quarter ended July 31, 2003 and
         forward looking statements relating to QMed's participation in Medicare
         disease management awards.

                                       38
<PAGE>

         (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:
<TABLE>
<CAPTION>
 Official                                                                              Sequential
 Exhibit No.                             Description                                     Page No.
 -----------                             -----------                                   -----------
   <S>            <C>                                                                  <C>
    2             None

    3.1           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

    3.2           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

    3.3           Amendment to By-Laws dated December 18, 1997 (Exhibit 3.5 to
                  the Company's Form 10-K Report dated November 30, 1997)               I/B/R

    3.4           Certificate of Amendment to Restated Certificate of
                  Incorporation of Q-Med, Inc., dated May 22, 2002 (Exhibit 3.1
                  to the Company's Form 10-Q dated May 31, 2002)                        I/B/R

    4.1           Specimen Common Stock Certificate (Exhibit 4.1 to  the
                  Company's Form 10-K Report dated November 30, 2002)                   I/B/R

    4.2           Form of Warrant Agreement dated November 16, 1998
                  (Exhibit 99.6 to the Company's report on Form 8-K dated
                  November 16, 1998)                                                    I/B/R

    4.3           Form of common stock purchase warrants exercisable at
                  $1.67 per share until November 15, 2005 (Exhibit 4.1 to
                  the Company's report on Form 8-K dated May 17, 1999)                  I/B/R

    4.4           Form of common stock purchase warrants exercisable at
                  $2.87 per share until November 15, 2005 (Exhibit 4.2 to
                  the Company's report on Form 8-K dated May 17, 1999)                  I/B/R

    4.5           Form of common stock purchase warrants exercisable at
                  $2.625 per share until November 15, 2005 (Exhibit 4.2 to
                  the Company's report on Form 8-K dated August 25, 1999)               I/B/R

                                       39
<PAGE>
<CAPTION>
 Official                                                                              Sequential
 Exhibit No.                             Description                                     Page No.
 -----------                             -----------                                   -----------
   <S>            <C>                                                                  <C>
    9.1           Form of Shareholder and Voting Rights Agreement
                  between the Company and several stockholders dated
                  as of November 16, 1998 (Exhibit 99.4 to the Company's
                  report on Form 8-K dated November 16, 1998)                           I/B/R

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

   10.3           Q-Med, Inc. 1997 Equity Incentive Plan (Exhibit 10.11
                  to the Company's Form 10-K Report dated November 30, 1998)**          I/B/R

   10.4           Form of Registration Rights Agreement between Q-Med,
                  Inc. and several stockholders dated as of November 15,
                  1998 (Exhibit 99.3 to the Company's report on Form 8-K
                  dated November 16, 1998)                                              I/B/R

   10.5           Q-Med, Inc. 1999 Equity Incentive Plan (Exhibit 4.1  to the
                  Company's Registration Statement on Form S-8 (333-93697)
                  filed December 28, 1999)**                                            I/B/R

   10.6           Limited Liability Agreement of HeartMasters LLC dated
                  April 14, 2000 (Exhibit 99.1 to the Company's Form
                  10-Q Report dated May 31, 2000)                                       I/B/R

   10.7           Trademark and Data License and Services Agreement
                  between Interactive Heart Management Corp. and
                  HeartMasters, LLC dated April 14, 2000 (Exhibit 99.2
                  to the Company's Form 10-Q Report dated May 31, 2000)                 I/B/R

   10.8           Loan Agreement dated September 11, 2001 between
                  First Union National Bank and Q-Med, Inc. (Exhibit 10.1
                  to the Company's Form 10-Q Report dated August 31, 2001)              I/B/R

   10.9           Security Agreement dated September 11, 2001 between
                  First Union National Bank and Q-Med, Inc. (Exhibit 10.2
                  to the Company's Form 10-Q Report dated August 31, 2001)              I/B/R

                                       40
<PAGE>
<CAPTION>
 Official                                                                              Sequential
 Exhibit No.                             Description                                     Page No.
 -----------                             -----------                                   -----------
   <S>            <C>                                                                  <C>
   10.10          Promissory Note dated September 11, 2001 given to
                  First Union National Bank by Q-Med, Inc. (Exhibit 10.3
                  to the Company's Form 10-Q Report dated August 31, 2001)              I/B/R

   10.11          First Amendment to the 1999 Equity Incentive Plan
                  of QMed, Inc. dated May 22, 2002 (Exhibit 10.1 to
                  the Company's Form 10-Q dated May 31, 2002)**                         I/B/R

   10.12          QMed, Inc. 1999 Equity Incentive Plan, as amended
                  November 1, 2002 (Exhibit 10.13 to the Company's
                  Form 10-K Report dated November 30, 2002)**                           I/B/R

   10.13          Employment Agreement dated September 23, 2002
                  between QMed, Inc. and Bill Schmitt (Exhibit 10.1
                  to the Company's Report on Form 10-Q dated August 31, 2002)**         I/B/R

   10.14          Employment Agreement dated as of December 1, 2002
                  between QMed, Inc. and Michael W. Cox (Exhibit 10.15
                  to the Company's Report for the year ended November 30, 2002)**       I/B/R

   10.15          QMed, Inc. 2002 Key Employee Bonus Plan (Exhibit
                  10.16 to the Company's Report for the year ended
                  November 30, 2002)**                                                  I/B/R

   10.16          Real Property Lease between Donato Hi-Tech Holdings IV, Inc.
                  and the Company dated June 19, 2002 (Exhibit 10.2 to the
                  Company's Report on Form 10-Q dated May 31, 2002)                     I/B/R

   10.17          Retainer Agreement between Sommer & Schneider LLP and the
                  Company dated January 8, 2003 (Exhibit 10.18 to the Company's
                  Report for the year ended November 30, 2002)                          I/B/R

   10.18          Waiver of Benefits under the QMed, Inc. 2002 Key Employee
                  Bonus Plan dated February 28, 2003 (Exhibit 10.19 to the
                  Company's Report for the year ended November 30, 2002)**              I/B/R

   10.19          QMed, Inc. 2003 Outside Directors Equity Plan (Exhibit
                  10.1 to the Company's Report on Form 10-Q dated May 31, 2003)**       I/B/R

                                       41
<PAGE>
<CAPTION>
 Official                                                                              Sequential
 Exhibit No.                             Description                                     Page No.
 -----------                             -----------                                   -----------
   <S>            <C>                                                                  <C>
   10.20          Employment Agreement between the Company and Jane Murray dated
                  April 21, 2003 (Exhibit 10.2 to the Company's Report on Form
                  10-Q dated May 31, 2003)**                                            I/B/R

   10.21          Michael W. Cox Waiver of Salary Increase dated June 30, 2003
                  (Exhibit 10.3 to the Company's Report on Form 10-Q dated
                  May 31, 2003)**                                                       I/B/R

   10.22          Jane Murray Waiver of Salary Increase dated June 30, 2003
                  (Exhibit 10.1 to the Company's Report on Form 10-Q dated
                  May 31, 2003)**                                                       I/B/R

   10.23          Indenture of Trust Dated August 8, 2003 Between QMed, Inc.
                  and American Stock Transfer and Trust Company. (Exhibit 10.1
                  to the Company's Report on Form 10-Q dated August 31, 2003)**         I/B/R

   11             None.

   13             None.

   16             None.

   18             None.

   21             Subsidiaries of Registrant                                              *

   22             None.

   23             Consent of Amper, Politziner & Mattia P.C.                              *

   24             None.

   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 pursuant to 18
                  U.S.C. - Section 1350.                                                  *

   32.2           Certification of Chief Financial Officer pursuant to 18
                  U.S.C. - Section 1350.                                                  *
</TABLE>
-------------------
*     Filed herewith
**   Management contract or compensatory plan or arrangement

                                       42
<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: March 1, 2004                     QMED, INC.


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


                                       43
<PAGE>

                                   SIGNATURES

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, Chief Executive Officer     March 1, 2004
--------------------------  and Director (Principal Executive
Michael W. Cox              Officer)


/s/ Jane Murray             Executive Vice President, Chief        March 1, 2004
--------------------------  Operating Officer and Director
Jane Murray


/s/ William T. Schmitt, Jr. Senior Vice President and Chief        March 1, 2004
--------------------------- Financial Officer (Principal
William T. Schmitt, Jr.     Financial Officer)


/s/  Steven M. Vella        Controller                             March 1, 2004
--------------------------- (Principal Accounting Officer)
Steven M. Vella


/s/ Herbert H. Sommer       Secretary and Director                 March 1, 2004
---------------------------
Herbert H. Sommer, Esq.


/s/ Bruce F. Wesson         Chairman of the Board                  March 1, 2004
---------------------------
Bruce F. Wesson


                            Director                               March 1, 2004
---------------------------
A. Bruce Campbell, M.D.


/s/ David Feldman           Director                               March 1, 2004
---------------------------
David Feldman


/s/ Richard I. Levin        Director                               March 1, 2004
---------------------------
Richard I. Levin, M.D.


                            Director                               March 1, 2004
---------------------------
Lucia L. Quinn


                            Director                               March 1, 2004
---------------------------
John J. Gargana, Jr.

                                       44
<PAGE>
<TABLE>
<CAPTION>
SEC FILED COPY ONLY - NOT BOUND WITH FINANCIAL
                                                                                                                    Schedule II


                                                      QMED, INC. AND SUBSIDIARIES
                                                  Valuation and Qualifying Accounts




                                                               Balance at                                            Balance at
                                                              Beginning of                                             End of
                                                                   Year         Additions        Write-offs             Year
                                                              ------------      ---------        ----------          -----------
<S>                                              <C>         <C>                <C>             <C>               <C>
Allowance for doubtful accounts                  2001             42,000           33,000                 -            75,000
                                                 2002             75,000                -            73,000             2,000
                                                 2003              2,000                -                 -             2,000

Deferred tax Valuation allowance                 2001         10,342,000          554,000                 -        10,896,000
                                                 2002         10,896,000                -           (37,000)       10,859,000
                                                 2003         10,859,000                -        (1,059,000)        9,800,000

</TABLE>

                                       45