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, 2004

              [ ] 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

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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. [ ]

The aggregate market value of the common stock held by non affiliates of the
registrant was approximately $116,190,000 on May 28, 2004, based on the last
reported sales price of the registrant's common stock on the NASDAQ Small Cap
Market on such date. All executive officers, directors and 10% or more
beneficial owners of the registrant's common stock have been deemed, solely for
the purpose of the foregoing calculation, "affiliates" of the registrant.

As of January 24, 2005, there were 15,752,789 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 [X] No [ ]


         Documents incorporated by reference:

         Document                                         Form 10-K Reference

         Portions of the Registrant's Proxy Statement
         for III its 2005 Annual Meeting (to be filed
         in definitive form within 120 days of the
         Registrant's Fiscal Year End)

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                                    PART I

Item 1. Business

Forward-Looking Statements
--------------------------------------------------------------------------------

Certain matters discussed herein may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
as such may involve risks and uncertainties. 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
often co-markets with QMed health care information and communication services to
health plans, governments and private companies. The services of QMed include
"ohms|cvd(R)"(Online Health Management System for Cardiovascular Disease) which
is an integrated cardiovascular disease management system. ohms|cvd includes
related systems to assist health plans, government organizations and employer
groups in managing the care, and cost of diabetes, cardiovascular conditions,
including coronary artery disease ("CAD"), stroke, heart failure ("CHF"),
hypertension, hyperlipidemia and the cardiovascular complications of diabetes.
These systems are designed to aid health care physicians in the optimal use of
"evidence based" medical management for patients with these conditions including
co-morbidities, as well as those at high risk of developing these conditions.
The net impact of this approach is the improvement in health and the associated
reduction in mortality, morbidity and cost. As of November 30, 2004, we had
contracts to provide these services to the Center for Medicare and Medicaid
Services and 13 licensed health plans in 11 states covering approximately 1.1
million health plan members.

QMed Inc is a fully configured, technology integrated and interactive disease
management company that synchronizes the latest scientific evidence to insure
that the right care is received by patients all of the time. QMed is dedicated
to improving clinical outcomes for individuals, providing decision support for
physicians, and reducing costs for payors.

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QMed empowers individuals using tools such as health education, training in
self-monitoring, and personalized coaching by trained professionals. Timely,
clinically validated, actionable "evidence based" information is provided to
physicians to proactively prevent medical episodes that can result in
unnecessary emergency room visits and hospitalizations. QMed has demonstrated
results that our programs reduce hospitalizations and overall medical costs.

QMed's dedicated professionals follow nationally accepted clinical standards of
care to complete their mission. Medical expertise combined with the most current
computer-based technology offers programs that are highly scalable and offer
reliable results.

We also produce, sell and support a line of ischemia assessing 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. The entire system non-invasively 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,
diabetes, diabetic cardiovascular complications and the risk of stroke.

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

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<PAGE>

         o        success of the risk stratification,

         o        proportion of patients assigned to various therapies,

         o        objective outcomes,

         o        interplay with pharmacy use, and pharmacy benefit managers

         o        physician and patient compliance with evidence based medicine.

Our expert medical system, ohms|cvd is an active disease and care management
process emphasizing a continuum of care, including modification of patient risk
factors. Use of this system can result in important cost-effective improvements
in diabetic care, coronary, cerebrovascular and heart failure events,
improvements 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, 2004, we had contracts with the Center for Medicare and Medicaid
Services and 13 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,                         2004           2003             2002
                                        ----           ----             ----
Approximate Members under contract   1,065,000       1,200,000        1,569,000

At November 30, 2004, of the approximately 1.1 million plan members under
contract, we had approximately 800,000commercial members and 300,000 Medicare
Advantage members.

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

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         o        BIPA Medicare 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 millions of Americans. In addition, CMS runs the State Children's
Health Insurance Program (SCHIP) with the Health Resources and Services
Administration, a program that covers millions of 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 billions of dollars a year buying
health care services for beneficiaries of Medicare, Medicaid and SCHIP. CMS
among other things:

         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 under this demonstration 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
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 through January 31,
2006.

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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.

BIPA Medicare 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 BIPA 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 program and pharmacy
services.

PacifiCare Health Systems, Inc., with its subsidiary, Prescription Solutions,
QMed Inc. and Alere Medical, Inc. 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 Health Systems, Inc.,
with its subsidiary, Prescription Solutions, QMed and Alere Medical, Inc, will
operate HeartPartners under a single, coordinated management and operational
construct.

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; and (5) to pursue other opportunities within the healthcare industry.
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

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that significant investments will continue to be made during fiscal 2005 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 which 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 negotiates with the plan 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.

We depend on payments from CMS and health plans, and cost reductions on the
entities may adversely affect our business and results of operations.

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 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 contract
restructurings that reduce the fees paid to us for our services. There can be no

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assurance that these financial pressures will not have a negative impact on our
operations.

Compliance with new federal and state legislation and regulation could adversely
affect our results of operations or may require us to invest substantial amount
acquiring and implementing new information systems or modifying existing
systems.

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 from health plans and CMS
patient identifiable medical information for disease management purposes is
protected in federal regulations governing medical record confidentiality. State
legislation or regulation of this information may be more restrictive. 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 is a relatively new segment of the health-care
industry and, as a result, experiences a lengthy sales cycle for new contracts.

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
disease 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 three health plans, PacifiCare of California,
PacifiCare of Texas, and HealthPartners, Inc. of Minnesota, which collectively
accounted for 45% of our revenues in fiscal 2004. Until we sign and implement
additional significant health plan contracts , 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.

The disease management industry depends on effectively using information systems
and the failure of these systems could adversely affect our business.

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

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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.

We depend on the timely receipt of accurate data from our health plan customers
and our accurate analysis this data.

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.

Our revenue is subject to seasonal pressure resulting from the disenrollment
process of our health plan clients.

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 plan's
decision to exit markets or non-renewal of contracts with its 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, to date, had a material impact on the
company's revenues or results of operations, but could have such an effect in
the future.

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

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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, 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 have given us a key
advantage in identifying patients for the projects. We will continue to promote
these relationships, as they are critical to patient enrollment.

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 revenue represented 0.3%, 0.5%,
and 1.0% of total revenue for fiscal 2004, 2003 and 2002, respectively, and are
not expected to represent a significant portion of revenue in future periods.

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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.

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
disease management, which we consider to be competition.

We believe we have competitive advantages based on the following:

         o        Our clinical platform links the physician, patient and nurse
                  to a coordinated plan of care therefore improving adherence to
                  evidence-based medicine and reducing "gaps in care".

         o        We have a specialty field management team dedicated to working
                  directly with physicians and their office staff to promote the
                  benefits of our disease management program yielding a 75%
                  national active participation rate.

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

         o        Our ischemia assessment 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.

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         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 (Health Plan Employer Data and Information Set)
                  audit, a competitive advantage for each customer.

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

Our ischemia assessment products compete primarily with ambulatory arrhythmia
ECG scanning services. 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
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 2004, 2003 and 2002, we expended approximately $904,000, $905,000, and
$1,000,000 respectively, for research and development. During these years,
research and development was primarily focused on the development of advanced
algorithms which coordinate care more rigorously and cost-effectively, and
systems which improve our patient out-reach capabilities.

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 2005.

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 our 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

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patent for the ohms|cad system (Patent No. 5,724,580) on March 3, 1998. Certain
patents relating to our technology began 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;

         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.

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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 effected.


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.

The cost of complying with our contractual privacy obligations has not, to date,
had a material negative impact on our results of operations and financial
condition. By April 20, 2005, health plans, most health-care providers and
certain other entities will be required to comply with federal security
regulations issued pursuant to HIPAA, which require the use of administrative,
physician and technical safeguards to protect the confidentiality, integrity and
availability of electronic individually-identifiable health information. We will
be contractually required to comply with certain aspects of the security
regulations by the regulatory compliance date.

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.

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

                                       15
<PAGE>

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 managed care errors and omissions, 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. 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 140 employees as of November 30, 2004, none of which are subject to a
collective bargaining agreement. We believe our relations with employees are
good.

                                       16
<PAGE>

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

The following sets forth certain information concerning our executive officers
as of January 26, 2005:

Officer                      Age   Position with the Company
-------                      ---   -------------------------

Michael W. Cox                62   President, Chief Executive Officer and
                                   Director since February 1983.

Jane Murray                   42   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                  55   Senior Vice President - Program
                                   Implementation since January 1, 2002.  Vice
                                   President - Strategic Development since
                                   June 1988.

John Siegel                   48   Senior Vice President - Sales since April 17,
                                   2001. Vice
                                   President - Field
                                   Services since
                                   1998.

William T. Schmitt, Jr., CPA  44   Senior Vice President, Chief Financial
                                   Officer since October 2002 and
                                   Treasurer, since October 2003.

Steven M. Vella               41   Controller since December 2003.

Debra Fenton, CPA             40   Secretary since June 2004.


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 repairs, assembly and product quality
control.

                                       17
<PAGE>

We believe our facilities are suitable and adequate to meet our present needs,
but we may require expansion with increased business.

Item 3. Legal Proceedings.

On March 28, 2003, HeartMasters LLC, a limited liability company 50% owned by
our IHMC subsidiary, received a Demand for Arbitration before the American
Arbitration Association of approximately $13,000,000 plus interest, of which
approximately $6,500,000 related to IHMC, for claims under certain terminated
disease management agreements. The amount of the claim was later increased to
$17,000,000, of which $8.5 million related to IHMC, for claims under certain
terminated disease management agreements. The claims alleged breach of disease
management agreements between Regence of Washington and Oregon and HeartMasters
LLC. HeartMasters LLC also received a notice from a reinsurer, Centre, denying
coverage for the Regence of Oregon HMO first year coverage period asserting that
an outside actuarial report concerning Regence's claims history and other
information, which were considered by the reinsurer prior to issuance of
coverage, contained "grossly incorrect data." HeartMasters LLC denied the claims
of Regence and asserted counter claims. In addition, Heartmasters demanded
payment of the insurance coverage.

On June 15, 2004, the Company entered into an agreement to settle its dispute
with The Regence Group, including all issues surrounding the HeartMasters LLC's
arbitration. The settlement agreement provided QMed, Inc. and IHMC with releases
from any and all claims related to Regence and the Regence contract in exchange
for a financial guarantee of certain payments from HeartMasters LLC to Regence.
The amount of the financial guarantee can range between $0 and $2,300,000 and is
contingent upon the outcome of a separate arbitration being pursued by Regence
and HeartMasters LLC against the reinsurer, Centre Insurance. Based upon
management's estimates, as of May 31, 2004, the Company increased its reserve
estimate to $1,150,001. The Company made an advance payment on this guarantee of
$1,150,001on June 15, 2004. The advance payment, and any subsequent payment,
could be subject to refund based upon certain recovery targets under the Centre
Insurance arbitration, if successful.

The dispute with Centre over the insurance coverage on all of the relevant
Regence disease management plans, for which coverage was purchased, is now the
subject of an arbitration proceeding. Initially, the Company sued Centre over
the nonpayment of the policies; the court determined that this must be resolved
in the arbitration with Centre. 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 other
amounts we may be required to pay will not have a material effect on the
financial statements.

                                       18
<PAGE>

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

         None.



                                       19
<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 transactions.

Fiscal Year Ended November 30, 2004                  High              Low

First Quarter                                    $      12.59     $    9.65
Second Quarter                                          11.94          9.03
Third Quarter                                           10.21          7.57
Fourth Quarter                                          11.55          6.27

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

(b)      Approximate Number of Holders of Common Stock

As of January 24, 2005, the Company's common stock was held of record by 323
persons. Based upon requests from record holders for additional materials for
our 2004 annual meeting, we believe that there are at least 3,300 beneficial
holders of our common stock. On January 24, 2005, the closing price reported was
$9.30.

(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.

                                       20
<PAGE>

(d)      Recent Sales of Unregistered Securities

See the Company's Form 8-K dated October 21, 2004.

Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
                                                          For the Years Ended November 30,
                                                          --------------------------------
                                         2004              2003             2002           2001           2000
                                         ----              ----             ----           ----           ----
<S>                                  <C>               <C>            <C>            <C>             <C>
Results of Operations
Net revenue                          $  15,576,599     $  12,899,361  $  12,744,754  $   8,021,634   $   2,872,205
Cost of revenue                          8,878,104         6,726,867      5,607,563      3,300,526       1,424,779
                                     -------------     -------------  -------------  -------------   -------------
Gross profit                             6,698,495         6,172,494      7,137,191      4,721,108       1,447,426

Selling, general and
administrative expenses                  7,288,783         6,875,834      5,789,730      5,424,183       3,045,052
Research and development expenses          903,921           905,360        999,985        757,355         524,275
Debt conversion expense                                                                                     38,623
Litigation settlement                            -           230,000              -              -               -
                                     -------------     -------------  -------------  -------------   -------------
Income (Loss) from operations           (1,494,209)       (1,838,700)       347,476     (1,460,430)     (2,160,524)

Interest expense                           (33,874)          (25,595)        (9,173)       (16,517)        (33,168)
Interest income                             68,238            90,418        220,014        232,607         133,668
Loss in operations of joint venture       (502,027)         (362,499)       (47,500)       (42,500)       (146,148)

Other income                                 8,703                 -        104,444         24,180          15,406
                                     -------------     -------------  -------------  -------------   -------------
Income (loss) before income tax
benefit (provision)                     (1,953,169)       (2,136,376)       615,261     (1,262,660)     (2,190,766)

  Gain on sale of state tax benefits       229,724                 -        129,885        219,603         309,256
  Provision for state income taxes         (16,000)          (15,000)       (40,000)             -               -
                                     -------------     -------------  -------------  -------------   -------------

Net income (loss)                       (1,739,445)       (2,151,376)       705,146     (1,043,057)     (1,881,510)

Other comprehensive income (loss)
Unrealized gain (loss) on
securities available for sale               (8,553)          (14,725)       (69,617)        32,513               -

Reclassification adjustment for
gains included in net income                 8,914            44,830        (59,598)             -               -
                                     -------------     -------------  -------------  -------------   -------------

Comprehensive income (loss)          $  (1,739,084)    $  (2,121,271) $     575,931  $  (1,010,544)  $  (1,881,510)
                                     -------------     -------------  -------------  -------------   -------------

Per Share Data

Net income (loss) per share -

     Basic                           $        (.12)    $        (.15) $         .05  $        (.08)  $        (.15)
                                     -------------     -------------  -------------  -------------   -------------

     Diluted                         $        (.12)    $        (.15) $         .04  $        (.08)  $        (.15)
                                     -------------     -------------  -------------  -------------   -------------


Balance Sheet Data (at end of periods)

Working capital                      $   5,819,350     $   6,151,367  $   6,718,300  $   5,749,732   $   2,009,012

Total assets                         $  10,837,477     $  12,918,311  $  12,163,181  $   8,167,511   $   3,390,428

Total liabilities                    $   2,946,807     $   5,870,129  $   3,295,191  $   1,472,990   $     739,145

                                       21
<PAGE>

Stockholders' equity                 $   7,890,670     $   7,048,182  $   8,867,990  $   6,694,521   $   2,651,283


<CAPTION>
Selected Quarterly Financial Data (Unaudited)


                                                                   For the Quarters Ending 2004
                                                                   ----------------------------
                                                February 28,       May 31,     August 31      November 30,      Total
                                                ------------     ----------    ---------      ------------  ------------
<S>                                             <C>             <C>           <C>             <C>            <C>
Net revenue                                     $ 3,792,820     $ 3,724,881   $ 3,273,083     $ 4,785,815    $15,576,599
Gross profit                                      1,791,622       1,033,936       892,907       2,980,030      6,698,495
Net income (loss)                                  (262,414)     (1,432,269)   (1,180,896)      1,136,134     (1,739,445)
Income (loss) per share                                (.02)           (.10)         (.08)            .08           (.12)

<CAPTION>
                                                                   For the Quarters Ending 2003
                                                                   ----------------------------
                                                February 28,       May 31,     August 31      November 30,      Total
                                                ------------     ----------    ---------      ------------  ------------
<S>                                             <C>             <C>           <C>             <C>            <C>
Net revenue                                     $ 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)
</TABLE>
                                       22
<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
often co-markets with QMed health care information and communication services to
health plans, governments and private companies. The services of QMed include
"ohms|cvd(R)"(Online Health Management System for Cardiovascular Disease) which
is an integrated cardiovascular disease management system. ohms|cvd includes
related systems to assist health plans, government organizations and employer
groups in managing the care, and cost of diabetes, cardiovascular conditions,
including coronary artery disease ("CAD"), stroke, heart failure ("CHF"),
hypertension, hyperlipidemia and the cardiovascular complications of diabetes.
These systems are designed to aid health care physicians in the optimal use of
"evidence based" medical management for patients with these conditions including
co-morbidities, as well as those at high risk of developing these conditions.
The net impact of this approach is the improvement in health and the associated
reduction in mortality, morbidity and cost. As of November 30, 2004, we had 2
contracts to provide these services to two Medicare demonstration projects and
13 licensed health plans in 11 states covering approximately 1.1 million health
plan members.

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

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

         o        our ability to renew and/or maintain contracts with our
                  customers under existing terms or restructure these contracts
                  on terms that would not have a material negative impact on our
                  results of operations;
         o        our ability to execute new contracts for health plan disease
                  management services;

                                       23
<PAGE>

         o        the risks associated with a significant concentration of our
                  revenues with a limited number of health plan customers;
         o        the timing and costs of implementation, and the effect, of
                  regulatory rules and interpretations relating to the Medicare
                  Prescription Drug, Improvement, and Modernization Act 2003;
         o        our ability to effect estimated cost savings and clinical
                  outcome improvements under health plan disease management
                  contracts and reach mutual agreement with customers with
                  respect to cost savings, or to effect such savings and
                  improvements within the timeframes contemplated by us;
         o        the ability of our health plan customers to provide timely,
                  complete and accurate data that is essential to the operation
                  and measurement of our performance under the terms of our
                  health plan contracts and our accurate analysis of such data;
         o        our ability to resolve favorably contract billing and
                  interpretation issues with our health plan customers;
         o        our ability to effectively integrate new technologies into our
                  care management information technology platform;
         o        our ability to obtain adequate financing to provide the
                  capital that may be needed to support the growth of our health
                  plan operations and financing or insurance to support our
                  performance under new health plan contracts;
         o        unusual and unforeseen patterns of healthcare utilization by
                  individuals within the health plans with chronic conditions,
                  including coronary artery disease ("CAD"), stroke, heart
                  failure ("HF"), hypertension, hyperlipidemia and the
                  cardiovascular complications of diabetes with which we have
                  executed disease management contracts;
         o        the impact of the introduction of new technologies;
         o        the ability of the health plans to maintain the number of
                  covered lives enrolled in the plans during the terms of the
                  agreements between the health plans and us;
         o        our ability to attract and/or retain and effectively manage
                  the employees required to implement our agreements with health
                  plan organizations;
         o        the impact of future state and federal healthcare legislation
                  and regulations on our ability to deliver services;
         o        the financial health of our customers and their willingness to
                  purchase our services;
         o        the impact of litigation or arbitration;
         o        our ability to accurately estimate our performance and revenue
                  recognition under the terms of our contracts;
         o        our ability to develop new products and deliver outcomes on
                  those products;
         o        our ability to implement our strategy within expected cost
                  estimates;
         o        general economic conditions

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

                                       24
<PAGE>

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, 2004. 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.

Revenue Recognition

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

                                       25
<PAGE>

of the contract measurement year. Adjustments for shortfalls in performance
targets under the terms of the contract or other factors affecting revenue
recognition are accrued on an estimated basis in the period the services are
provided and are adjusted in future periods when final settlement is determined.
We assess our estimates by analyzing various information including but not
limited to, medical claims data, prior performance under the contract and review
of physician and patient participation levels. We review these estimates
periodically and make adjustments, as interim information is available.

We determine our level of performance at interim periods based on medical claims
data, achievement of physician and patients participation levels or other data
supplied by the health plan. In the event these interim performance measures
indicate that performance targets are not being met or sufficient data is
unavailable, fees, which could be subject to refund, are not recorded as revenue
but rather are recorded as a current liability entitled "contract billings in
excess of revenues." Under performance based arrangements, the ability to make
estimates at interim periods can be challenging due to the inherent nature of
the medical claims process and the lag time associated with it. In most cases,
complete paid claims data is not available until up to six months after claims
are incurred. Although interim data measurements are indicative of performance
objectives, actual results could differ from our estimates.

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

During the fiscal year ended November 30, 2004, approximately 45% of disease
management services were derived from three health plans that each comprised
more than 10% of the Company's revenues. 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 year ended November 30, 2002, approximately 47% of disease
management services were derived from two health plans that each comprised more
than 10% of the Company's revenues.

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

                                       26
<PAGE>

allowance. Any decrease in the valuation allowance could have a material impact
on net income in the period in which such determination is made.

Health Plan Contracts

Most of our revenues in Fiscal 2001 through 2004 were generated from programs
designed to assist health plans in improving the quality of care for health plan
members with diseases such as diabetes, 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 diabetes, 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 one to three 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

                                       27
<PAGE>

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 plan's
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, 2004, approximately 45% of disease
management services were derived from PacifiCare of California, PacifiCare of
Texas, and HealthPartners, Inc. of Minnesota, each of which comprised more than
10% of the Company's revenues. During the fiscal year ended November 30, 2003,
approximately 57% of disease management services were derived from PacifiCare of
California, PacifiCare of Texas, PacifiCare of Oregon, and PacifiCare of
Colorado, each of which comprised more than 10% of the Company's revenues.
During the fiscal year ended November 30, 2002, approximately 47% of disease
management services were derived from PacifiCare of California and Regence of
Oregon, each of which comprised more than 10% of the Company's revenues.

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; and (5) to pursue other opportunities within the healthcare industry.
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 2005 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 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.

                                       28
<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
                                                          % For Year Ended                           ---------
                                                            November 30,                        2004             2003
                                                            ------------                         vs.              vs.
                                                   2004          2003         2002              2003             2002
                                                   ----          ----         ----              ----             ----
<S>                                               <C>            <C>          <C>               <C>             <C>
Revenue                                           100.0%         100.0%       100.0%            20.8%             1.2%
Cost of revenue                                    57.0           52.1         44.0             32.0             20.0
Gross Profit                                       43.0           47.9         56.0              8.5            (13.5)
Selling, general and administrative                46.8           53.3         45.4              6.0             18.8
Research and development                            5.8            7.0          7.8             (0.2)            (9.5)
Litigation settlement                                              1.8           -                *                *
Loss (income) from operations                      (9.6)         (14.3)         2.7               *                *
Interest expense                                   (0.2)          (0.2)        (0.1)            32.3            179.0
Interest income, net                                0.4            0.7          1.7            (24.5)           (58.9)
Loss on operations of joint venture                (3.2)          (2.8)        (0.4)              *                *
Other income                                        0.1            -            0.8               *                *
(Loss) income before tax (provision) benefit
                                                  (12.5)         (16.6)         4.8             (8.6)              *
Gain on sale of tax benefit                         1.5            -            1.0               *                *
Income tax (provision) benefit                     (0.1)          (0.1)        (0.3)             6.7            (62.5)
Net (loss) income                                 (11.2)         (16.7)         5.5            (19.1)              *
</TABLE>

* Not meaningful

                                       29
<PAGE>

Fiscal 2004 Compared to Fiscal 2003
--------------------------------------------------------------------------------

Revenue for fiscal 2004 increased approximately $2.7 million or 20.8% over the
fiscal 2003. This increase consists of (i) approximately $4.9 million of
additional revenue related to new contracts entered into during fiscal 2004.
This increase was offset by a reduction in revenue of approximately $2.2 million
representing (i) approximately $1.2 million related to market exits and
reductions in membership under existing disease management programs, the
termination of disease management programs under agreements with the Regence
Group and with a customer in Oregon and (ii) a reduction of approximately
$353,000 related an increase in management's deferred revenue estimate related
to its settlement with the Regence Group and $580,000 related to an increase in
management's deferred revenue estimate with a customer in Oregon.

Gross profit margins for fiscal 2004 decreased to 43.0% from 47.9% for fiscal
2003. This decrease was primarily due to (i) a reduction of approximately
$353,000 related an increase in management's deferred revenue estimate related
to its settlement with the Regence Group, (ii) $580,000 related to an increase
in management's deferred revenue estimate with a customer in Oregon and (iii)
implementation costs associated with our expansion into new market places
related to new contracts, including costs associated with one contract totaling
approximately $800,000. Salaries, travel and other direct costs are all factors
in the initial implementation related to any new markets and contracts. 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 2004 increased
approximately $413,000 or 6.0% compared to fiscal 2003. The increase was
primarily due to costs associated with compliance with the provisions under the
Sarbanes-Oxley Act of approximately $250,000, costs associated with negotiating
and signing new disease management services contracts of approximately $247,000,
and an increase in both executive and administrative staff of approximately
$223,000. These increases were partially offset by the reduction of costs
associated with the end of a lease on old corporate office space of
approximately $226,000 and a reduction in insurance costs of approximately
$94,000.

Research and development expenses for fiscal 2004 were flat compared to fiscal
2003. We continue to focus our efforts on the development of new, advanced
software programs to assist in the identification and evaluation of patients who
are at risk for developing various disease conditions. These programs
incorporate state of the art telecommunications, data management, and security
and information technology. Certain costs associated with the development of new
product software to be incorporated into our disease management programs are
capitalized and amortized over a 5-year useful life. We intend to continue to
improve and expand the capabilities of the ohms|cvd system.

                                       30
<PAGE>

Loss on operations of joint ventures for fiscal 2004 increased to approximately
$502,000 from $362,000 in 2003. The expense in 2004 primarily represents legal
fees associated with the arbitration with the Regence Group and startup costs
related to a joint venture entered into with two partners to provide services
under a disease management contract in Minnesota. Loss on operations of joint
venture for fiscal 2003 primarily represents legal fees associated the
arbitration with the Regence Group.

There was no cost of litigation settlements in 2004. In 2003, the litigation
settlement expense of $230,000 represents 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.

Our effective tax rate for fiscal 2003 is a negative 1.0%. 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 and the sale of
certain state tax benefits. Current period income tax expense of $16,000
represents minimum state tax liabilities.

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 versus
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.

                                       31
<PAGE>

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.

The Company incurred a litigation settlement expense of $230,000 in 2003 and no
expense in 2002. 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 increased to approximately
$362,000 from $48,000 in 2002. In 2003, this loss 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.

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

To date, our principal sources of working capital have been the proceeds from
public and private placements of securities. Since our inception, sales of
securities, including the proceeds from the exercise of outstanding options and
warrants, have generated approximately $33,000,000 less applicable expenses.

We had working capital of approximately $5.8 million at November 30, 2004
compared to approximately $5.4 million (net of an approximate $797,000 reserve
related to the settlement with the Regence Group) at November 30, 2003 and
ratios of current assets to current liabilities of 3.1:1 as of November 30, 2004
and 1.9:1 as of November 30, 2003. The working capital increase of approximately
$464,000 was due to a private placement equity transaction on October 21, 2004,
whereby the company sold common stock for approximately $2 million, net of
expenses, and proceeds from the sale of common stock through the exercise of
outstanding options and warrants of approximately $509,000. This increase was
partially offset by a net loss of approximately $1.7 million and capital
expenditures of approximately $641,000. In September 2001 we entered into a
$1,000,000 line of credit agreement with Wachovia Bank, National Association.
The line is collateralized by securities owned by the Company and expires on
September 1, 2005. Outstanding balances under the loan bear interest at an

                                       32
<PAGE>

annual rate equal to the lower of the bank's reference rate minus 1% or LIBOR
plus 1.5%. As of November 30, 2004 no debt was outstanding and the entire
$1,000,000 was available under this credit line.

On December 6, 2004, the Company issued shares of the Company's common stock in
a private placement for approximately $6 million, net of expenses. Had this
transaction been completed on November 30, 2004 working capital would have
increased to approximately $11.8 million.

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

Material Commitments
--------------------------------------------------------------------------------

The following schedule summarizes our contractual cost obligation as of November
30, 2004 in the periods indicated.
<TABLE>
<CAPTION>
-------------------------------------- ----------------------------------------------------------------------------------
             Contractual
             Obligations                                            Payments Due by Period
-------------------------------------- ----------------------------------------------------------------------------------
                                                                                                               After 5
                                            Total        Less than 1 year      1-3 years       4-5 years        years
-------------------------------------- ---------------- ------------------- ---------------- --------------- ------------
<S>                                    <C>              <C>                 <C>              <C>             <C>
Long-Term Debt                         $             -  $              -    $             -  $           -   $          -
Capital Lease Obligations                      292,000           137,000            155,000              -              -
Operating Leases                             1,283,000           490,000            793,000              -              -
Unconditional Purchase Obligations             432,000           432,000                  -              -              -
Other Long-Term Obligations                    706,000           706,000                  -              -              -
Total Contractual Cash Obligations     $     2,713,000  $      1,765,000    $       948,000  $           -   $          -
-------------------------------------- ---------------- ------------------- ---------------- --------------- ------------
</TABLE>


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, and governmental agencies.

Fluctuations in our quarterly operating results may cause volatility in the
price of our common stock. 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 revenue
and operating results have become highly dependent on the timing of contracts

                                       33
<PAGE>

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 revenue, 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 efficiency 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 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:

         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

                                       34
<PAGE>

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.

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

                                       35
<PAGE>

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.

The Company does not issue or invest in financial instruments or derivatives for
trading or speculative purposes. All of the operations of the Company are
conducted in the United States, and, as such, are not subject to material
foreign currency exchange rate risk. At November 30, 2004, the Company had no
outstanding long-term debt. Although the Company's assets included approximately
$3.3 million in cash and cash equivalents and approximately $2.1 of securities
with a maturity of generally less than one year at November 31, 2004, market
rate risk associated with changing interest rates in the United States is not
material. See also Note 2 of the Notes to Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data.

Attached.

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

None.

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.

                                       36
<PAGE>

Management's Report on Internal Control Over Financial Reporting. Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Under the supervision and with the participation of our management, including
our principal executive officer and principle financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control - Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of November 30, 2004. Our management's assessment of the
effectiveness of our internal control over financial reporting as of November
30, 2004 has been audited by Amper, Politziner & Mattia P.C., an independent
registered public accounting firm, as stated in their report which is included
herein.

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.

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.

The overall goals f 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.

In accordance 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.

                                       37
<PAGE>

             Report of Independent Registered Public Accounting Firm


We have audited management's assessment, included in the accompanying
Management's 2004 Annual Report on Internal Controls, that Qmed, Inc. and
Subsidiaries (the Company) maintained effective internal control over financial
reporting as of November 30, 2004, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment, and an opinion on the effectiveness of the company's internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of November 30, 2004, is fairly
stated, in all material respects, based on control criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of November 30, 2004, based on the criteria established
in Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

                                       38
<PAGE>

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Qmed, Inc. and Subsidiaries as of November 30, 2004 and the related consolidated
statements of operations, comprehensive income, stockholders' equity and cash
flows for the year ended November 30, 2004 in our report dated January 25, 2005,
in which we expressed an unqualified opinion.

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

Amper, Politziner & Mattia, P.C.
January 25, 2005
Edison, New Jersey

                                       39
<PAGE>

                           QMED, INC. AND SUBSIDIARIES

                               For the Years Ended
                           November 30, 2004 and 2003





                                                                      Page

Report of Independent Registered Public Accounting Firm                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


                                       40
<PAGE>

             Report of Independent Registered Public Accounting Firm


We have audited the accompanying consolidated balance sheets of QMed, Inc. and
Subsidiaries as of November 30, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years ended November 30, 2004, 2003, and 2002. 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 the standards of the Public Company
Accounting Oversight Board of United States of America. Those standards require
that we plan and perform the audit 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Qmed, Inc. and
Subsidiaries as of November 30, 2004 and 2003, and the results of its operations
and its cash flows for each of the three years ended November 30, 2004, 2003,
and 2002, in conformity with accounting principles generally accepted in the
United States of America.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board of the United States of America, the effectiveness of
Qmed, Inc. and Subsidiaries internal control over financial reporting as of
November 30, 2004, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated January 25, 2005 expressed an unqualified
opinion.


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

Amper, Politziner & Mattia, P.C.
Edison, New Jersey
January 25, 2005

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

                                                             Assets

                                                                                               2004                  2003
                                                                                               ----                  ----
<S>                                                                                     <C>                   <C>
Current assets
    Cash and cash equivalents                                                           $        3,292,571    $       1,638,271
    Investments in securities                                                                    2,097,362            6,213,825
    Accounts receivable, net of allowance for
     doubtful accounts of $52,690 and $2,000, respectively                                       2,750,507            1,315,021
    Inventory, net of reserve                                                                       38,355              146,239
    Prepaid expenses and other current assets                                                      440,620              392,783
                                                                                        ------------------    -----------------
                                                                                                 8,619,415            9,706,139

Property and equipment, net of accumulated depreciation                                          1,180,050            1,133,419
Product software development costs, net                                                            858,022              441,020
Accounts receivable, non-current                                                                         -            1,474,674
Other assets                                                                                       132,136              163,059
Investment in joint ventures                                                                        47,854                   -
                                                                                        ------------------    -----------------
                                                                                        $       10,837,477    $      12,918,311
                                                                                        ==================    =================

                                              Liabilities and Stockholders' Equity

Current liabilities
    Accounts payable and accrued liabilities                                            $          817,234    $         975,724
    Lease payable, current portion                                                                 119,757               73,463
    Accrued salaries and commissions                                                               416,382              565,524
    Fees reimbursable to health plans                                                              161,178              182,359
    Contract billings in excess of revenues                                                      1,245,862            1,717,657
    Deferred warranty revenue                                                                       23,652               33,235
    Income taxes payable                                                                            16,000                6,810
                                                                                        ------------------    -----------------
                                                                                                 2,800,065            3,554,772
Leases payable, long term                                                                          146,742               44,429
Contract billings in excess of revenue, long term                                                        -            2,270,928
                                                                                        ------------------    -----------------
                                                                                                 2,946,807            5,870,129
                                                                                        ------------------    -----------------

Commitments and contingencies

Stockholders' equity
    Common stock, $.001 par value, 40,000,000 shares
     authorized, 15,150,054 and 14,627,384 shares issued
     15,128,054 and 14,605,384 outstanding, respectively                                            15,150               14,627
    Paid-in capital                                                                             35,961,800           33,380,751
    Accumulated deficit                                                                        (28,004,017)         (26,264,572)
    Accumulated other comprehensive income
      Unrealized losses on securities available for sale                                            (6,638)              (6,999)
                                                                                        ------------------    -----------------
                                                                                                 7,966,295            7,123,807
    Less treasury stock at cost, 22,000 common shares                                              (75,625)             (75,625)
                                                                                        ------------------    -----------------
      Total stockholders' equity                                                                 7,890,670            7,048,182
                                                                                        ------------------    -----------------
                                                                                        $       10,837,477    $      12,918,311
                                                                                        ==================    =================



                                          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,


                                                                       2004                   2003                   2002
                                                                       ----                   ----                   ----
<S>                                                            <C>                   <C>                    <C>
Revenue
    Disease management services                                $        15,343,884   $        12,650,406    $       12,324,877
    Medical equipment                                                      232,715               248,955               419,877
                                                               -------------------   --------------------   ------------------
                                                                        15,576,599            12,899,361            12,744,754
                                                               -------------------   --------------------   ------------------

Cost of revenue
    Disease management services                                          8,618,542              6,534,116            5,392,550
    Medical equipment                                                      259,562                192,751              215,013
                                                               -------------------   --------------------   ------------------

Cost of revenue                                                          8,878,104              6,726,867            5,607,563
                                                               -------------------   --------------------   ------------------

Gross profit                                                             6,698,495              6,172,494            7,137,191

Selling, general and administrative expenses                             7,288,783              6,875,834            5,789,730
Research and development expenses                                          903,921                905,360              999,985
Litigation settlement                                                            -                230,000                    -
                                                               -------------------   --------------------   ------------------
(Loss) income from operations                                           (1,494,209)            (1,838,700)             347,476

Interest expense                                                           (33,874)               (25,595)              (9,173)
Interest income, net                                                        68,238                 90,418              220,014
Loss in operations of joint ventures                                      (502,027)              (362,499)             (47,500)
Other income                                                                 8,703                      -              104,444
                                                               -------------------   --------------------   ------------------
(Loss) income before income tax benefit (provision)                     (1,953,169)            (2,136,376)             615,261

    Gain on sale of state tax benefits                                     229,724                      -              129,885
    Provision for state income taxes                                       (16,000)               (15,000)             (40,000)
                                                               -------------------   --------------------   ------------------


Net (loss) income                                              $        (1,739,445)  $         (2,151,376)  $          705,146
                                                               ===================   ====================   ==================

Basic (loss) income per share
    Weighted average shares outstanding                                 14,766,895             14,568,781           14,433,922
                                                               ===================   ====================   ==================

    Basic (loss) earnings per share                            $             (0.12)  $               (.15)  $              .05
                                                               ===================   ====================   ==================

Diluted (loss) income per share
    Weighted average shares outstanding                                 14,766,895             14,568,781           16,587,169
                                                               ===================   ====================   ==================

    Diluted (loss) earnings per share                          $            (0.12)   $              (.15)   $              .04
                                                               ===================   ====================   ==================

                                  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,



                                                                       2004                   2003                   2002
                                                                       ----                   ----                   ----

<S>                                                            <C>                   <C>                    <C>
Net (loss) income                                              $        (1,739,445)  $         (2,151,376)  $          705,146

Other comprehensive (loss) income
    Unrealized (loss) gain on securities
     available for sale                                                     (8,553)               (14,725)             (69,617)


    Reclassification adjustment for losses
     (gains) included in net (loss) income                                   8,914                 44,830              (59,598)
                                                               -------------------   --------------------   ------------------

Comprehensive (loss) income                                    $        (1,739,084)  $         (2,121,271)  $          575,931
                                                               ===================   ====================   ==================


                                  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, 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 of common stock
    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

  Exercise of stock options
    and warrants                     220,639        220        508,833                                                      509,053
  Issuance of common stock
    in connection with
    directors equity plan              3,524          4         28,433                                                       28,437
  Amortization of non-employee
    stock options                                               55,775                                                       55,775
  Issuance of common stock
    through private placement
    for cash                         298,507        299      1,988,008                                                    1,988,307
  Net loss                                                                (1,739,445)                                    (1,739,445)
  Unrealized holding losses
    on securities available
    for sale                                                                                 361                                361
                                  ----------  ---------   ------------  ------------  ----------     ------  ---------  -----------
Balances - November 30, 2004      15,150,054  $  15,150   $ 35,961,800  $(28,004,017) $   (6,638)    22,000  $ (75,625) $ 7,890,670
                                  ==========  =========   ============  ============  ==========     ======  =========  ===========


                                  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,


                                                                              2004               2003                2002
                                                                              ----               ----                ----
<S>                                                                       <C>                 <C>               <C>
Cash flows from operating activities
   Net (loss) income                                                      $  (1,739,445)      $  (2,151,376)    $     705,146
                                                                          -------------       -------------     -------------
   Adjustments to reconcile net loss to
    net cash (used in) provided by operating activities
     Loss (gain) on sale of investments                                           8,914              44,830           (59,598)

     Loss in operations of joint venture                                        502,027             362,499            47,500
     Depreciation and amortization                                              476,753             404,180           258,179
     Provision for loss on accounts receivable                                   51,850                   -                 -
     Provision for slow moving inventory                                        101,428                   -                 -
     Stock compensation expense                                                  28,437              12,813                 -
     Amortization of non-employee stock options                                  55,775              40,950            29,868
     Amortization of bond discounts and premiums                                116,260             100,921                 -
     (Increase) decrease in
       Accounts receivable                                                   (1,487,336)         (2,586,479)          682,813
       Inventory                                                                  6,456              26,807             5,340
       Prepaid expenses and other current assets                                (47,837)            326,576          (184,880)
     Increase (decrease) in
       Accounts payable and accrued liabilities                                (313,944)            205,905           402,958
       Contract billings in excess of revenues                               (1,277,632)          2,202,333         1,380,130
       Other                                                                     21,194             (25,297)          (35,270)
                                                                          -------------       -------------     -------------
Total adjustments                                                            (1,757,655)          1,116,038         2,527,040
                                                                          -------------       -------------     -------------
                                                                             (3,497,100)         (1,035,338)        3,232,186
                                                                          -------------       -------------     -------------

Cash flows from investing activities
   Proceeds from sale of securities available for sale                        9,760,860          15,701,735        16,933,028
   Purchase of securities available for sale                                 (5,769,210)        (15,157,716)      (18,380,248)
   Capital expenditures                                                        (106,331)           (158,865)       (1,115,453)
   Product development software expenditures                                   (534,726)            (79,118)         (238,383)
   Investment in joint venture                                                 (564,750)           (197,572)          (47,500)
                                                                          -------------       -------------     -------------
                                                                              2,785,843             108,464        (2,848,556)
                                                                          -------------       -------------     -------------
Cash flows from financing activities
   Net proceeds from issuance of common stock                                 2,497,360             247,700         1,508,072
   Payments on capital leases                                                  (131,803)            (65,678)          (40,029)
                                                                          -------------       -------------     -------------
                                                                              2,365,557             182,022         1,468,043

Net change in cash and cash equivalents                                       1,654,300            (744,852)        1,851,673

Cash and cash equivalents - beginning                                         1,638,271           2,383,123           531,450
                                                                          -------------       -------------     -------------

Cash and cash equivalents - ending                                        $   3,292,571       $   1,638,271     $   2,383,123
                                                                          =============       =============     =============

Cash paid during the period for:
   Interest                                                               $      33,874       $      25,469     $       9,173
   Income taxes                                                                   6,810              48,190            10,572

Non-cash investing activities:
   Capital leases entered into during the period                          $     280,410       $     100,642     $      66,324


                                  See accompanying notes to consolidated financial statements.

                                                               F-6
</TABLE>
<PAGE>

                           QMED, INC. AND SUBSIDIARIES
                          Notes to Financial Statements

Note 1 - Significant Accounting Policies

Nature of Business
------------------
QMed, Inc. (the "Company") operates in two industry segments: disease-management
services and medical equipment revenue. 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.

Accounts Receivable
-------------------
Accounts receivable primarily represent fees that are contractually due in the
ordinary course of providing a service, net of contractual adjustments. Included
in accounts receivable are unbilled balances totaling approximately $119,000.

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,
net of income taxes.

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

                                      F-7
<PAGE>

Note 1 - Significant Accounting Policies - (continued)

Depreciation and Amortization - (continued)
-------------------------------------------
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.

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, 2004, because of the relative short maturity of these
instruments. The carrying value of leases payable approximated fair value at
November 30, 2004, 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.

Contract Billings in Excess of Revenues
---------------------------------------
Contract billings in excess of revenues represent performance based fees subject
to refund that we do not recognize in revenue because either 1) data from the
customer is insufficient or incomplete to measure performance; or 2) interim
performance measures indicate that we are not meeting performance targets.

Revenue Recognition- Disease Management
---------------------------------------
The Company enters into contractual arrangements with health plans to provide
disease management services. Fees under the Company's health plan contracts are
generally determined by multiplying a contractually negotiated rate per health
plan member per month ("PMPM") by the number of health plan members covered by
the Company's services during the month. The PMPM rates usually differ between
contracts due to the various types of health plan product groups (e.g. PPO, HMO,
Medicare Advantage). These contracts are generally for terms of one to three
years with provisions for subsequent renewal, and typically provide that all or
a portion of the Company's fees may be "performance-based". Performance-based
contracts have varying degrees of risk associated with the Company's ability to
deliver the guaranteed financial cost savings. In most cases, the Company
guarantees a percentage reduction of disease costs compared to a prior baseline
year determined by actuarial analysis and other estimates used as a basis to
measure performance objectives. The measurement of the Company's performance
against the base year information is a data intensive and time-consuming process
that is typically not completed until six to eight months after the end of the
contract year. The Company bills its customers each month for the entire amount
of the fees contractually due based on previous months membership, which always
includes the amount, if any that may be subject to refund for

                                      F-8
<PAGE>

Note 1 - Significant Accounting Policies - (continued)
Revenue Recognition - Disease Management- (continued)
-----------------------------------------------------

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 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, 2004 and 2003, based on information and data available, the Company
has deferred approximately $1,246,000 and $3,989,000 of revenue, respectively,
which may be subject to refund. This deferral has been reflected as contract
billings in excess of revenues on the balance sheet.

The majority of contract billings in excess of revenues on the balance sheet are
subject to reconciliation at future periods. If future reconciliations provide
positive results, revenue will be recorded at that time.

The Company believes these estimates adequately provide for any potential
adjustments that may be applied to revenues from these contracts.

During the fiscal year ended November 30, 2004, approximately 45% of disease
management services were derived from three health plans that each comprised
more than 10% of the Company's revenues. 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 year ended November 30, 2002, approximately 47% of disease
management services were derived from two health plans that each comprised more
than 10% of the Company's revenues.

                                       F-9
<PAGE>

Note 1 - Significant Accounting Policies - (continued)

Revenue Recognition - Medical Equipment
---------------------------------------
Revenue is recognized on equipment revenue when the equipment is shipped and
title passes. Management establishes estimated accruals for returns from
customers, and for allowances granted to customers them at the time of shipment.
For the years ended November 30, 2004, 2003 and 2002, there have been deminimus
sales returns or allowances.

During 2004, 2003 and 2002, 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 weighted 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.

                                          2004           2003            2002
                                          ----           ----            ----
Net (loss) income, as reported      $ (1,739,445)   $ (2,151,376)  $    705,146

Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for all
awards, net of related tax
effects                               (1,231,601)       (887,469)      (982,234)
                                    ------------    ------------   ------------

Pro forma net (loss) income         $ (2,971,046)   $ (3,038,845)  $   (277,088)
                                    ============    ============   ============

Weighted average common
  shares outstanding                  14,766,895      14,568,781     14,433,922

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

Diluted shares outstanding            14,766,895      14,568,781     16,587,169
                                    ============    ============   ============

                                      F-10
<PAGE>

Note 1 - Significant Accounting Policies - (continued)

Stock Based Compensation - (continued)
--------------------------------------
                                      2004             2003             2002
                                      ----             ----             ----
(Loss) earning per share:

     Basic, as reported              $ (.12)          $ (.15)          $  .05
                                     ======           ======           ======
     Basic, pro forma                $ (.20)          $ (.21)          $ (.02)
                                     ======           ======           ======
     Diluted, as reported            $ (.12)          $ (.15)          $  .04
                                     ======           ======           ======
     Diluted, pro forma              $ (.20)          $ (.21)          $ (.02)
                                     ======           ======           ======

Potentially dilutive options and warrants to purchase 2,021,696 shares and
1,792,896 shares of the common stock were outstanding as of November 30, 2004
and 2003, 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 50,000, 287,440, and 31,000 shares of common
stock were outstanding as of November 30, 2004, 2003 and 2002, 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, and would have been anti-dilutive.

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:

                                          2004         2003           2002
                                          ----         ----           ----
Weighted Average
 fair value of options granted during
the year                                  $ 9.30       $ 4.47         $ 4.40

Risk-free interest rate                       5%         5.0%           5.0%
Expected volatility                        65.8%        68.4%          70.0%
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>

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. 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.

New Accounting Pronouncements
-----------------------------

Consolidation of Variable Interest Entities
-------------------------------------------
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN No. 46), which addresses consolidation by
business enterprises of variable interest entities ("VIEs"). FIN No.46 is
applicable immediately for VIEs created after January 31, 2003 and are effective
for reporting periods ending after December 15, 2003, for VIEs created prior to
February 1, 2003. In December 2003, the FASB published a revision to FIN 46
("FIN 46R") to clarify some of the provisions of the interpretation and to defer
the effective date of implementation for certain entities. Under the guidance of
FIN 46R, public companies that have interests in VIE's that are commonly
referred to as special purpose entities are required to apply the provisions of
FIN 46R for periods ending after December 15, 2003. A public company that does
not have any interests in special purpose entities but does have a variable
interest in a VIE created before February 1, 2003, must apply the provisions of
FIN 46R by the end of the first interim or annual reporting period ending after
March 14, 2004. The Company adopted FIN 46 and FIN 46R during the quarter ended
February 29, 2004. The adoption of FIN 46 had no impact on the financial
condition or results of operations since the Company does not have investments
in VIE's.

Share-Based Payment
-------------------
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS
123(R) requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. The compensation cost will
be measured based on the fair value of the equity or liability instruments
issued. The Statement is effective as of the beginning of the first interim or
annual period beginning after June 15, 2005. We will adopt SFAS No. 123(R) on
September 1, 2005 using the modified prospective method. We have disclosed the
pro forma impact of adopting SFAS No. 123(R) on net income and earnings per
share for the year ended November 30, 2004 and 2003 in Note 1, which includes
all share-based payment transactions to date. We do not yet know the impact that
any future share-based payment transactions will have on our financial position
or results of operations.


                                      F-12
<PAGE>

Note 1 - Significant Accounting Policies - (continued)

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

Inventory costs
---------------
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." SFAS 151
amends ARB No. 43, "Inventory Pricing", to clarify the accounting for certain
costs as period expense. The Statement is effective for fiscal years beginning
after June 15, 2005, however, early adoption of this Statement is permitted.
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, 2004 and 2003
were as follows:

                                                     Market       Unrealized
                                     Cost            Value        Gain (Loss)
                                 -----------     -----------     -----------
         2004
         ----
Corporate debt securities        $ 1,381,106     $ 1,378,014     $    (3,092)
Certificate of deposits               84,726          84,153            (573)
Government debt securities           638,168         635,195          (2,973)
                                 -----------     -----------     -----------
                                 $ 2,104,000     $ 2,097,362     $    (6,638)
                                 ===========     ===========     ===========

         2003
         ----
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)
                                 ===========     ===========     ===========


Primarily all of the above securities mature within one year.

During the years ended November 30, 2004 and 2003, the Company sold available
for sale securities for approximately $9,800,000 and $15,700,000, respectively,
resulting in a losses of approximately $9,000 and $45,000, respectively.

Note 3 - Inventory
                                                             November 30,
                                                             ------------
                                                        2004            2003
                                                     ---------      ----------
Raw materials (component parts and supplies)         $ 120,533      $  119,228
Finished units                                          19,250          27,011
                                                     ---------      ----------
         Total Inventory                             $ 139,783      $  146,239
Reserve for Slow moving inventory                     (101,428)              -
                                                     ---------      ----------
Net Inventory                                        $  38,355      $  146,239
                                                     =========      ==========

                                      F-13
<PAGE>

Note 4 - Property and Equipment
                                                            November 30,
                                                            ------------
                                                       2004            2003
                                                       ----            ----
Machinery and equipment                            $ 1,422,585     $ 1,426,835
Loaner equipment                                       244,542         244,542
Furniture and fixtures                               1,076,498       1,076,498
Office equipment                                     1,524,747         986,435
Leasehold improvements                                 123,477         121,477
Equipment held under capital leases                    447,378         600,312
                                                   -----------     -----------
                                                     4,839,227       4,456,099
Less accumulated depreciation and amortization      (3,659,177)     (3,322,680)
                                                   -----------     -----------
Property and equipment - net                       $ 1,180,050     $ 1,133,419
                                                   ===========     ===========

At November 30, 2004 and 2003, the equipment under the capital leases had net
book values of approximately $340,000 and $164,000, respectively.

Depreciation expenses were approximately $339,000, $284,000 and $184,000 for
2004, 2003 and 2002, respectively.

Note 5 - Product Software Development Costs
During the years ended November 30, 2004 and 2003, the Company capitalized
approximately $534,000 and $79,000 in product software development costs,
respectively. These costs are amortized over the five-year estimated useful
life.

During the years ended November 30, 2004, 2003 and 2002, amortization costs
related to product software development costs were approximately $119,000 and
$100,000 and $55,000, 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 had 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 was recorded in other current assets as of November
30, 2003. The full amount of the receivable was collected in 2004.

Note  7 - Investment in Joint Ventures
The Company has a 50% interest in HeartMasters, L.L.C. ("HM"). The management
agreement provides for profits and losses to be allocated based on the Company's
50% interest. As of November 30, 2004, the Company has recorded losses to date
of approximately $1,018,000 bringing the investment in joint venture to zero.
This joint venture is not a variable interest entity and therefore is not
required to be consolidated under the provisions of FIN 46.

                                      F-14
<PAGE>

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:

                                                   November 30,
                                                   ------------
                                            2004                  2003
                                            ----                  ----
Balance Sheet
         Current assets                $  2,423,505            $  2,603,860
         Liabilities                      2,654,573               2,795,216
                                        ------------            ------------
         Capital                       $   (231,068)           $   (191,356)
                                       ===============         ==============

Statements of operations
         Revenues                      $          -            $    639,916
         Operating expenses                 837,544               1,364,913
                                       -------------           -------------
         Net loss                      $   (837,544)           $   (724,997)
                                       ============            ==============

The Company has a 33.33% interest in Healthsuite Partners, LLC ("HSP"). The
management agreement provides for profits and losses to be allocated based on
the Company's 33.33% interest. As of November 30, 2004, the Company has recorded
losses to date of approximately $84,000 bringing its investment in this joint
venture to approximately $48,000. This joint venture is not a variable interest
entity and therefore is not required to be consolidated under the provisions of
FIN 46.

The unaudited summary financial information for HSP as of and for the period
ended November 30, 2004 is as follows:

Balance Sheet
         Assets                                                 $    598,817
         Liabilities                                                   4,050
                                                                ------------
         Capital                                                $    594,767
                                                                ============

Statements of operations
         Revenues                                               $  4,815,770
         Operating expenses                                        5,029,621
                                                                ------------
         Net loss                                               $   (213,851)
                                                                ============

Note  8 - Accounts Payable and Accrued Liabilities

                                                         November 30,
                                                     2004           2003
                                                 ----------      ----------
Accounts payable - trade                         $  278,319      $  479,472
Insurance premiums payable                           71,720         183,243
Professional fees payable                           209,503          59,339
Other accrued   expenses - none in
 excess of 5% of current liabilities                257,692         253,670
                                                 ----------      ----------
                                                 $  817,234      $  975,724
                                                 ==========      ==========

                                      F-15
<PAGE>

Note  9 - Fees Reimbursable to Health Plans
Health plans utilizing the disease management program of the Company pay
participating physicians fees for their services related to use of the program.
Such fees are additional costs to the health plan, which in some cases are
deducted from fees paid to the Company. As of November 30, 2004 and 2003, there
was $161,178 and $182,359 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 and
expires on September 1, 2005. Borrowings under this line of credit were $-0- at
November 30, 2004 and 2003.

Note 11 - Capital Lease Obligations
The Company has entered into various capital leases for equipment expiring
through August 2007, with aggregate monthly payments of approximately $14,000.

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, 2004:

For the Years Ending
     November 30,
         2005                                                 $  137,447
         2006                                                    122,959
         2007                                                     32,107
                                                              ----------
         Total minimum lease payments                            292,513
         Less amount representing interest                       (26,014)
                                                              ----------
         Present value of net minimum lease payments             266,499
         Less current maturities                                 119,757
                                                              ----------
         Long-term maturities                                 $  146,742
                                                              ==========

Note 12 - Income Taxes
Deferred tax attributes resulting from differences between financial accounting
amounts and tax basis of assets and liabilities at November 30, 2004 and 2003,
follow:
                                                             November 30,
                                                         2004            2003
                                                         ----            ----
Current assets and liabilities
    Allowance for doubtful accounts                  $   21,000     $     1,000
    Inventory reserve                                    41,000               -
    Inventory overhead capitalization                    15,000          15,000
    Deferred warranties                                  10,000          13,000
                                                    -----------     -----------
                                                         87,000          29,000
    Valuation allowance                                 (87,000)        (29,000)
                                                    -----------     -----------
Net current deferred tax asset (liability)          $         -     $         -
                                                    ===========     ===========


Note 12 - Income Taxes - (continued)
                                                            November 30,
                                                        2004            2003
                                                    -----------     -----------
Noncurrent assets and liabilities
    Depreciation and amortization                   $   (54,000)    $   (78,000)
    Investments                                         (48,000)              -
    Net operating loss carryforward                   9,829,000       9,644,000
    Research and development credit carryforward         82,000          82,000
    Stock compensation                                  123,000         123,000
    Capital loss carryforward                            18,000               -
                                                    -----------     -----------
                                                      9,950,000       9,771,000
    Valuation allowance                              (9,950,000)     (9,771,000)
                                                    -----------     -----------
Net noncurrent deferred tax asset (liability)       $         -     $         -
                                                    ===========     ===========

                                      F-16
<PAGE>

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 $10,000,000 and $9,800,000 as of November
30, 2004 and 2003, respectively.

The effective tax rate varied from the statutory rate as follows:

                                          2004          2003          2002
                                          ----          ----          ----

Statutory federal income tax rate         34.0%         34.0%          34.0%
State income tax, net of federal
 Benefit                                  (0.6%)        (0.5%)          3.5%
Certain non-deductible expenses           (1.6%)        (0.8%)         (0.5%)
Effect on net operating loss
  carryforward and valuation
  allowance                              (32.8%)       (33.4%)        (31.7%)
                                        -------       -------        ------
                                          (1.0%)        (0.7%)          5.3%
                                        =======       =======        ======

Provision for state income taxes for the years ended November 30, 2004 and 2003
represents minimum state tax liabilities.

As of November 30, 2004, the Company has available the following federal net
operating loss carryforwards for tax purposes:

                  Expiration Date:
                   Years Ending
                   November 30,
                   ------------
                       2005                            $      496,000
                       2006                                         -
                       2007 through 2024                   23,835,000
                                                       --------------
                                                       $   24,331,000
                                                       ==============

                                      F-17
<PAGE>

Note 12 - Income Taxes - (continued)
The Company has net operating loss carryforwards for state tax purposes of
approximately $21,000,000 expiring at various times from fiscal years ending
2005 through 2018. 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, 2004 the Company completed the sale of
approximately $2,900,000 of its New Jersey net operating loss carryforwards and
received approximately $230,000. Proceeds from these transactions are recorded
as a gain on sale of net state tax benefits.

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 October 21, 2004, the Company issued to Quest Diagnostics Venture LLC 298,507
shares of the Company's common stock for approximately $1,988,000, net of
expenses.

2003 Outside Directors Equity Plan
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.

                                      F-18
<PAGE>

Note 13 - Stockholders' Equity - (continued)
Stock Options and Warrants - (continued)
----------------------------------------
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 recorded from stock
options under APB 25 for the year ended November 30, 2002. Effective November
30, 2001, the Company terminated an employment agreement with an employee which
resulted in the immediate vesting of their unvested stock options and a charge
to operations, related to the acceleration of the options, of approximately
$109,000 during fiscal 2002. 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
was amortized over their respective vesting period. Amortization expense
relating to these options for the years ended November 30, 2004, 2003 and 2002
was approximately $0, $15,000 and $30,000, respectively.

During the years ended November 30, 2004 and 2003, the Company granted stock
options to certain board members. 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 periods for these options are
one year. The value of these options for the years ended November 30, 2004 and
2003 was approximately $63,000 and $56,000, respectively, and is being amortized
over their respective vesting period. Amortization expense relating to these
options for the years ended November 30, 2004 and 2003 was approximately $56,000
and $26,000, respectively.

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, 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
</TABLE>
                                      F-19
<PAGE>

Note 13 - Stockholders' Equity - (continued)
Stock Options and Warrants - (continued)
<TABLE>
<CAPTION>
                                         Weighted-Average     Number of      Weighted-Average
                             Options      Exercise Price     Exercisable      Exercise Price
                             -------      --------------     -----------      --------------
<S>                         <C>             <C>               <C>              <C>
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

  Granted                     298,506            9.30
  Exercised                  (158,806)           1.92
  Expirations                 (12,973)           8.95
  Terminated                  (43,379)           9.33
                           ----------

Outstanding
  November 30, 2004         1,637,669       $    5.91         1,163,761            $    5.10
                           ==========       =========        ==========            =========
</TABLE>

         Weighted-average fair value of options granted during the years

                                       2004                       2003
                                      -----                       ----

          Where exercise price
            equals stock price          $ 9.30                     $ 4.47

          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, 2004:
<TABLE>
<CAPTION>
                                  Outstanding Options                       Exercisable Options
                    ------------------------------------------------- ------------------------------
                                        Weighted-
                        Number           Average         Weighted-        Number        Weighted-
Exercise Price       Outstanding        Remaining         Average       Outstanding      Average
     Range           at 11/30/04    Contractual Life  Exercise Price    at 11/30/04  Exercise Price
--------------       -----------    ----------------  --------------    -----------  --------------
<S>                   <C>                  <C>            <C>          <C>             <C>
$  2.75  -  4.03        605,880             3.5              3.08         583,445         3.05
   4.44  -  6.56        198,187             5.3              4.80         148,010         4.72
   6.88  - 10.28        813,916             8.1              8.16         432,306         8.00
  10.95  - 11.44         19,686             9.1             11.17               -            -
----------------     ----------           -----           -------       ---------      -------
$  2.75  - 11.44      1,637,669             6.0           $  5.91       1,163,761      $  5.10
================     ==========           =====           =======       =========      =======
</TABLE>
                                      F-20
<PAGE>

Note 13 - Stockholders' Equity - (continued)
Stock Options and Warrants - (continued)
A summary of the Company's stock warrant activity, and related information for
the years ended November 30, follows:
<TABLE>
<CAPTION>
                                             Weighted-Average           Number of       Weighted-Average
                            Warrants          Exercise Price           Exercisable        Exercise Price
                            --------          --------------           -----------        --------------
<S>                        <C>                   <C>                     <C>                  <C>
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

  Granted                          -                                             -
  Exercised                  (62,500)                3.33                  (62,500)
  Terminated                       -                                             -
                          ----------                                    ----------
Outstanding
  November 30, 2004        1,733,015             $   1.85                1,733,015            $  1.85
                          ==========             ========               ==========            =======

<CAPTION>

Following is a summary of the status of stock warrants outstanding at November
30, 2004:

                              Outstanding Warrants                         Exercisable Warrants
                  ------------------------------------------------ ---------------------------------
                                     Weighted-
                      Number         Average         Weighted-          Number           Weighted-
Exercise Price     Outstanding       Remaining         Average       Outstanding          Average
     Range        at 11/30/04   Contractual Life   Exercise Price    at 11/30/04      Exercise Price
     -----        -----------   ----------------   --------------    -----------      --------------
<C>                 <C>                 <C>            <C>            <C>                 <C>
$  1.67 - 1.67      1,460,339           2.9            $  1.67        1,460,339           $ 1.67
   2.62 - 2.87        271,786           2.9               2.80          271,786             2.80
   3.64 - 3.64            890           2.9               3.64              890             3.34
--------------     ----------          ----            -------       ----------           ------
$  1.67 - 3.64      1,733,015           2.9            $  1.85        1,733,015           $ 1.85
==============     ==========          ====            =======       ==========           ======
</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 2004, 2003
and 2002, the Company matched $.25 for each dollar up to 6% of an employee's
contribution on a monthly basis, which amounted to approximately $80,000,
$55,000 and $46,000, respectively.

                                      F-21
<PAGE>

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 $41,000.

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, 2004.

        For the Years Ending
             November 30,
             ------------
                 2005                                            $   490,000
                 2006                                                474,000
                 2007                                                319,000
                 2008                                                      -
                 2009                                                      -
                 Thereafter                                                -
                                                                 -----------
                 Total minimum payments required                 $ 1,283,000
                                                                 ===========


Rent expense for the years ended November 30, 2004, 2003 and 2002 was
approximately $450,000, $840,000 and 288,000, respectively.

Litigation
----------
On June 15, 2004, the Company entered into an agreement to settle its dispute
with The Regence Group, including all issues surrounding HeartMasters LLC's
arbitration. The settlement agreement provides QMed, Inc. and IHMC with releases
from any and all claims related to Regence and the Regence contract in exchange
for a financial guarantee of certain payments due from HeartMasters LLC to
Regence. The amount of the financial guarantee can range between $0 and
$2,300,000 and is contingent upon the outcome of a separate arbitration being
pursued by Regence and HeartMasters LLC against the reinsurer, Centre Insurance.
Based upon management's estimates, as of May 31, 2004, the Company increased its
reserve estimate to $1,150,001, which has resulted in a reduction in current
year revenue of approximately $353,000. The Company made an advance payment on
this guarantee of $1,150,001on June 15, 2004. The advance payment could be
subject to refund based upon certain recovery targets under the Centre Insurance
arbitration, if successful.

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

This settlement was in response to the following: HeartMasters LLC, a limited
liability company 50% owned by our IHMC subsidiary, had received a Demand for
Arbitration before the American Arbitration Association of approximately
$17,000,000 plus interest, of which approximately $8,500,000 had related to
IHMC, for claims under certain terminated disease

                                      F-22
<PAGE>

Note 15 - Commitments and Contingencies - (continued)
Litigation - continued)

management agreements. The claims had alleged a breach of the disease management
agreements between Regence of Washington and Oregon and HeartMasters LLC.

HeartMasters LLC had received a notice from a reinsurer, Centre, denying
coverage for the Regence of Oregon HMO first year coverage period which had
asserted that the 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 has demanded
payment of the insurance coverage. The dispute with Centre over the insurance
coverage, is now the subject of an arbitration proceeding in which HeartMasters
seeks payment of all policies.

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

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

Major Customer
--------------
The Company had three major customers during 2004, four major customers during
2003 and two major customers during 2002. Major customers were considered to be
those who account for more than 10% of total revenue. The major customers
accounted for approximately 45%, 57% and 47% for 2004, 2003 and 2002,
respectively.

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 30,2004 total open commitments under these purchase
orders are approximately $307,000.

Note 16 - Business Segment Information
The Company presents segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
established reporting and disclosure standards for an enterprise's operating
segments. Operating segments are defined as components of an enterprise for
which separate financial information is available and regularly reviewed by the
Company's senior management.

The Company 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,

                                      F-23
<PAGE>

Note 16 - Business Segment Information - (continued)

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 2004, 2003 and 2002,
is as follows:

                                          2004           2003         2002
                                          ----           ----         ----

Revenue:
     Disease management services     $ 15,343,884   $ 12,650,406   $ 12,324,877
     Medical equipment                    232,715        248,955        419,877
                                     ------------   ------------   ------------
                                     $ 15,576,599   $ 12,899,361   $ 12,744,754
                                     ============   ============   ============

                                          2004           2003         2002
                                          ----           ----         ----

 (Loss) income before income taxes
     Disease management services     $    690,548   $    327,413   $  2,004,808
     Medical equipment                    (26,847)        56,204        204,864
                                     ------------   ------------   ------------
         Total segments                   663,701        383,617      2,209,672
     General corporate expense net     (2,616,870)    (2,519,993)    (1,594,411)
                                     ------------   ------------   ------------
                                     $ (1,953,169)  $ (2,136,376)  $    615,261
                                     ============   ============   ============

Depreciation and amortization
     Disease management services     $    228,917   $    210,274   $    173,646
     Medical equipment                     10,141         16,648         23,642
                                     ------------   ------------   ------------
         Total segments                   239,058        226,922        197,288
     General corporate expense net        237,694        177,258         60,891
                                     ------------   ------------   ------------
                                     $    476,752   $    404,180   $    258,179
                                     ============   ============   ============


Expenditures for long-lived assets
     Disease management services     $    335,927   $    135,127
     Medical equipment                          -              -
                                     ------------   ------------
         Total segments                   335,927        135,127
     General corporate                    305,130        102,856
                                     ------------   ------------
                                     $    641,057   $    237,983
                                     ============   ============


Identifiable assets
     Disease management services     $  4,300,867   $  4,137,316
     Medical equipment                  5,577,659      7,917,663
                                     ------------   ------------
         Total segments                 9,878,526     12,054,979
     General corporate                    958,951        863,332
                                     ------------   ------------
                                     $ 10,837,477   $ 12,918,311
                                     ============   ============

                                      F-24
<PAGE>

Note 17 - Subsequent Events
Private Placement Equity Transaction
------------------------------------
On December 6, 2004, the Company issued to institutional investors 571,428
shares of the Company's common stock, together with additional investment rights
to acquire up to an additional 142,856 shares of common stock at a price of $11
per share, for $6,000,000. These investment rights will expire on February 12,
2005.



Note 18 - Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
                                                 For the Quarters Ending 2004
                                                 ----------------------------
                             February 29,       May 31,       August 31,     November 30,      Total
                             ------------       -------       ---------     ------------      -----
<S>                          <C>            <C>            <C>             <C>            <C>
Net revenue                  $ 3,792,820    $ 3,724,881    $ 3,273,083     $ 4,785,815    $15,576,599
Gross profit                   1,791,622      1,033,936        892,907       2,980,030      6,698,495
Net income (loss)               (262,144)    (1,432,269)    (1,180,896)      1,135,864     (1,739,445)
Income (loss) per share             (.02)          (.10)          (.08)            .08           (.12)

<CAPTION>
                                                 For the Quarters Ending 2003
                                                 ----------------------------
                             February 29,       May 31,       August 31,     November 30,      Total
                             ------------       -------       ---------     ------------      -----
<S>                          <C>            <C>            <C>             <C>            <C>
Net revenue                  $ 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 29,       May 31,       August 31,     November 30,      Total
                             ------------       -------       ---------     ------------      -----
<S>                          <C>            <C>            <C>             <C>            <C>
Net revenue                  $ 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 (loss) income                402,319        447,612       (559,366)        414,581        705,146
(Loss) income per share              .03            .03           (.04)            .03            .05
</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, 2004 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, 2004 and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

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, 2004 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, 2004 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, 2004 and is incorporated herein by
reference.

                                       41
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         (a) (1) Financial Statements.

         Description
         -----------

         Report of Independent Registered Public Accounting Firm

         Consolidated Balance Sheets as of November 30, 2004 and 2003

         Consolidated Statement of Operations for each of the three years ended
         November 30, 2004, 2003 and 2002

         Consolidated Statement of Comprehensive Income for each of the three
         years ended November 30, 2004, 2003 and 2002

         Consolidated Statement of Stockholder's Equity for each of the three
         years ended November 30, 2004, 2003 and 2002

         Consolidated Statement of Cash Flows for each of the three years ended
         November 30, 2004, 2003 and 2002

         Notes to Consolidated Financial Statements

         (a)(2) Financial Statement Schedules:

         II - Valuation and Qualifying Accounts

         Other schedules have been omitted because they are not applicable.

         (a)(3) 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>
                                                                                    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

                                       42
<PAGE>

    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

    4.6           Stock Purchase Agreement between QMed, Inc. and Quest
                  Diagnostics Ventures LLC, dated as of October 21, 2004
                  (Exhibit 10.1 to the Company's report on Form 8-K dated
                  October 21, 2004)                                                     I/B/R

    4.7           Registration Rights Agreement between QMed, Inc. and
                  Quest Diagnostics Ventures LLC, dated as of October
                  21, 2004 (Exhibit 10.2 to the Company's report on
                  Form 8-K dated October 21, 2004).                                     I/B/R

    4.8           Securities Purchase Agreement, dated December 6, 2004
                  (Exhibit 10.1 to the Company's report on Form 8-K dated
                  December 6, 2004)                                                     I/B/R

    4.9           Form of Additional Investment Right (Exhibit 10.2 to the
                  Company's report on Form 8-K dated October 21, 2004).                 I/B/R

                                       43
<PAGE>

    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

                                       44
<PAGE>

   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

   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

                                       45
<PAGE>

   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

   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).                            *

                                       46
<PAGE>

   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

                                       47
<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 on its
behalf by the undersigned, thereunto duly authorized.

Dated: Febuary 11, 2005                     QMED, INC.


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

                                       48
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dates indicated:

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


/s/ Michael W. Cox             President, Chief Executive       Febuary 11, 2005
----------------------------   Officer and Director (Principal
Michael W. Cox                 Executive Officer)


/s/ Jane Murray                Executive Vice President, Chief  Febuary 11, 2005
----------------------------   Operating Officer and Director
Jane Murray


/s/ William T. Schmitt, Jr.    Senior Vice President and Chief  Febuary 11, 2005
----------------------------   Financial Officer
William T. Schmitt, Jr.        (Principal Financial Officer)


/s/  Steven M. Vella           Controller                       Febuary 11, 2005
----------------------------   (Principal Accounting Officer)
Steven M. Vella


/s/ Bruce F. Wesson            Chairman of the Board            Febuary 11, 2005
----------------------------
Bruce F. Wesson


                               Director                         Febuary 11, 2005
----------------------------
A. Bruce Campbell, M.D.


/s/ David Feldman              Director                         Febuary 11, 2005
--------------------
David Feldman


/s/ Richard I. Levin           Director                         Febuary 11, 2005
----------------------------
Richard I. Levin, M.D.


/s/ Lucia L. Quinn             Director                         Febuary 11, 2005
----------------------------
Lucia L. Quinn


/s/ John J. Gargana, Jr.       Director                         Febuary 11, 2005
----------------------------
John J. Gargana, Jr.


/s/ John P. Zanotti            Director                         Febuary 11, 2005
----------------------------
John P. Zanotti.

                                       49
<PAGE>

SEC FILED COPY ONLY - NOT BOUND WITH FINANCIAL
<TABLE>
<CAPTION>
                                                           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                  2002            75,000              -            73,000             2,000
                                                 2003             2,000              -                 -             2,000
                                                 2004             2,000         51,850             1,160            52,690

Reserve for slow moving inventory                2002                 -              -                 -                 -
                                                 2003                 -              -                 -                 -
                                                 2003                 -        101,428                 -           101,428

Deferred tax Valuation allowance                 2002        10,896,000              -           (37,000)       10,859,000
                                                 2003        10,859,000              -        (1,059,000)        9,800,000
                                                 2004         9,800,000        237,000                 -        10,037,000
</TABLE>

                                       50