FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

For the fiscal year ended: November 30, 1998

Commission File Number:  0-11411

                                   Q-MED, INC.
             (Exact Name of Registrant as Specified in its Charter)

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

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

Registrant's telephone number, including area code:  (732) 566-2666

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

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

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

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

As of February 23, 1999, the aggregate  value of the  registrant's  voting stock
held by  non-affiliates  was  $24,597,051  (computed  by  multiplying  the  last
reported sale price on February 23, 1999 by the number of shares of common stock
held by persons other than  officers,  directors or by record  holders of 10% or
more of the registrant's  outstanding  common stock.  This  characterization  of
officers,  directors  and 10% or more  beneficial  owners as  affiliates  is for
purposes of computation  only and is not an admission for any purposes that such
person are affiliates of the registrant).


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     As of February 19, 1999,  there were 11,568,989  shares of the registrant's
common stock, $.01 par value, issued and outstanding.

     Documents incorporated by reference:

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

     Portions of the Registrant's  Proxy                            III
     Statement   for  its  1999   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.  These  forward-looking  statements
relate to, among other things, expectations of the business environment in which
the Company operates, projections of future performance, perceived opportunities
in the market and  statements  regarding the Company's  mission and vision.  The
Company's actual results,  performance, or achievements may differ significantly
from the  results,  performance,  or  achievements  expressed or implied in such
forward-looking  statements. For discussion of the factors that might cause such
a difference,  see "Item 7.  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations."

General

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

     Utilizing the  experience  obtained  through  various drug trials with such
pharmaceutical companies as Pfizer, Ciba Geigy, ICI and others and the extensive
validations  completed on "Monitor One(R)" instruments,  the Company developed a
comprehensive, disease management



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system for the coronary  artery disease  ("CAD") patient which is marketed under
the trade name ohms|cad by the Company's IHMC  subsidiary.  This system consists
of Monitor One STRx ambulant ischemic  technology;  a remote on-line  diagnostic
center (The ohms Center); and an integrated cardiology consultant practice. This
entire  system  non-invasively  and reliably  quantifies  the probable risk of a
heart attack,  unstable  angina and death and directs the patient to appropriate
therapy with the emphasis  throughout on early detection,  prevention of cardiac
events,  the  modification of risk-factors and the appropriate  medicine.  Early
detection and  treatment  with  emphasis on medical  intervention  results in an
overall  lowering of the cost of CAD care and the  improvement in patient health
thereby reducing mortality and morbidity rates in populations having CAD.

     In March 1998 the Company and SmithKline  Beecham  Health Care Services,  a
division of SmithKline  Beecham  Corporation  ("SmithKline  Beecham")  agreed to
terminate  their  Strategic  Alliance to market the  ohms|cad  system  which was
formed in April 1996. Under the terms of the termination agreement,  the Company
retained  all future  revenue  from  contracts  executed  during the term of the
alliance and SmithKline Beecham waived its rights to reimbursement of any of its
costs. The termination  permits the Company to pursue other relationships in its
efforts to develop and provide disease  management  products and services.  S.R.
One Limited,  SmithKline  Beecham's  venture capital  affiliate  retained a $2.0
million  equity  investment  in the Company and  continues  to hold  warrants to
acquire an additional 63,492 shares of the Company's Common Stock for $15.75 per
share.

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

     The  Company's  executive  offices  are  located at 100 Metro  Park  South,
Laurence Harbor, New Jersey 08878 and its telephone number is (732) 566-2666.

ohms|cad System

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



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

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

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

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

     Because  ohms|cad is an active  disease  management  process  emphasizing a
continuum  of care,  derived  from early  detection  of  ambulant  ischemia  and
modification  of patient risk factors,  similar cost effective  improvements  in
cardiac  events can be expected  from its use. The ohms|cad  system  continually
monitors the care process at the primary care level,  thus, results are reported
as outcomes.  Favorable  outcomes increase market share,  decrease economic risk
and increase product  differentiation  for the managed care  organization.  As a
result,  the early  implementation  of ohms|cad should contribute to significant
savings and patient gains in market share.

     The results of the  utilization  of ohms|cad to manage CAD patients was the
subject  of a  presentation  at the  Scientific  Section of the  American  Heart
Association's  Annual Meeting in November  1997. The results showed  significant
health benefits for those patients undergoing ohms|cad management as compared to
patients receiving usual care.



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Ambulatory Ischemic Heart Disease Monitoring

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

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

     Each Monitor One system is a computerized  monitor with five  high-fidelity
electrodes  which are either  disposable or reusable and attached to the monitor
through a single connector. The reusable electrodes were originally developed by
the National  Aeronautics  and Space  Administration  ("NASA").  Monitoring  for
periods of greater than 24 hours is possible due to  solid-state  memory and the
design of the reusable  electrodes,  which allows  high-fidelity  signal capture
without the need for daily  replacement  of  disposable  electrodes.  The United
States Patent Office abstract (No.  3,420,223) for the reusable electrode system
reports  that  the  electrodes  can be used  continuously  for 28  days  without
appreciable  deterioration  of the  electrodes or  irritation of the wearer.  In
practice,  the reusable  electrode  system (which  includes a plastic casing and
attached  wiring) is subjected to physical abuse in its  application and removal
from the patients' chests following a 24 hour monitoring session. Based upon the
Company's  experience to date, it appears that the reusable electrode system has
an  average  life of six  months.  The  Company  offers  extended  one,  two and
three-year  warranties,  at an additional cost to the purchaser,  which includes
the  cost of one set of  replacement  reusable  electrodes  for each  year.  The
monitor  retains all  information  stored in a  non-volatile  memory driven by a
lithium battery during battery pack  replacement or if the monitor is turned off
for a minimum of one year. In addition, the monitors



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indicate,  by audible  tone and liquid  crystal  display  ("LCD"),  when battery
replacement is required.

Additional Products

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

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

Marketing

     The Company  directly  markets its ohms|cad  service to health  maintenance
organizations,   large  physician  practice  groups  and  similar  managed  care
organizations  through its sales staff.  At present,  the  Company's  sales team
consists primarily of senior management  supported by senior sales staff persons
that formerly were involved in the sales of the Company's Monitor One products.

     The  marketing  and  sales  of  the  Company's   devices  to  primary  care
physicians,  hospitals and other health care  providers  are  conducted  through
distributors.

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



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products by physicians, its products have been used in clinical drug testing and
other clinical studies.

Warranty

     The Company  extends  end-users of  purchased or leased  devices a standard
warranty  and,  at  additional  cost  to  the  end-user,  extended  one-year  to
three-year  warranties.  Extended  warranty sales represented 13.5% and 15.7% of
net sales for fiscal 1998 and 1997,  respectively.  If there has been  equipment
malfunction,  the Company's  warranty  provides for the repair or replacement of
the  equipment.  The average unit cost of repair is minimal.  During fiscal 1998
and 1997, the Company  replaced  approximately  two monitors per year that could
not be repaired pursuant to its warranty programs.

Reimbursement Policies

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

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

     Although  the RBRVS  system  described  above is mandated by  Congressional
action,  there can be no  assurance  that future  Congressional  action will not
result in the general reduction in the rates of reimbursement. Nevertheless, the
1995 RBRVS rates for the Company's  products were increased  between 3-5%. While
uncertainty  relating to the Medicare  classification  of electronic  ambulatory
cardiac  monitors  was  resolved by HCFA in October 1988 and adopted by carriers
during fiscal 1989, the Company believes that the overall  political  climate to
reduce fees for all medical services has a negative impact on medical  equipment
sales in general and,  therefore,  equipment sales by the Company.  In addition,
uncertainties created by proposals to reform the health care delivery system, in
general,  created,  in the  Company's  opinion,  an  environment  in which  many
physicians  delay  their  decisions  with  respect to  expenditures  for capital
equipment.  Accordingly,  the  Company  expects  that this  trend had an adverse
impact on its equipment sales.



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However,  the  Company  also  believes  that its  experience  in  designing  and
marketing  equipment  that  offers  high  quality  results  which are  medically
necessary  and  cost-effective,  places it in a position to exploit the evolving
managed  health care and large  practice  group market which is consistent  with
efforts to lower overall health care costs. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Principal Customers

     During  fiscal 1998 and 1997 one customer  accounted for 14% and 18% of net
sales  respectively.  During fiscal 1996, no single customer  accounted for more
than 10% of the Company's net sales.

Manufacturing

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

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

Competition

     ohms|cad  is a unique  solution  for CAD  management.  However,  there  are
several CAD management companies,  including pharmaceutical companies,  pharmacy
benefit  managers and independent  vendors that are pursuing CAD management that
could be considered competition.

     To  the  Company's  knowledge,  none  of  these  companies  deal  with  CAD
comprehensively.  Most have  designed  their  programs  to  respond to a cardiac
event, essentially waiting for a patient to have a heart attack or procedure and
follow with post-hospitalization case management. In addition,  manufacturers of
drugs that reduce  cholesterol have designed programs based on high blood lipids
and have developed protocols to emphasize the use of their



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drug(s).  To the Company's  knowledge,  ohms|cad is the only  operating  disease
management  system  that  includes  primary  and  secondary   prevention;   risk
stratifies  the patients into those who are and who are not in danger of adverse
events in the near term and reduces practice  variation and referrals.  No other
CAD management  program has shown  comparable  results with  beneficial  patient
outcomes that lowered overall CAD healthcare costs.

     The Company believes it has competitive advantages based on the following:

     o    The entire  management  system and its components are  proprietary and
          patented:  STRx is covered by U.S. Pat.  #4679144 and ohms|cad by U.S.
          Pat. #5724580.

     o    Clinically validated digital ischemia technology.

     o    Documented outcomes presented at American Heart Association Scientific
          Sessions.

     o    Extensive and growing database of how specific therapeutic  modalities
          affect patients.

     o    1,000 patient-per-day system throughput capability.

     o    Proven success in implementing a CAD disease  management system in the
          field that leads to a faster  rollout and faster  health and  economic
          outcomes to the plan.

     o    Proprietary analytics to define the target population at risk.

     o    Established  infrastructure  with  integrated  resources and processes
          amplified by corporate expertise.

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

     Monitor One ischemia products compete primarily with ambulatory  arrhythmia
ECG scanning services, of which there are more than 75 in the United States, and
other ambulatory ECG monitoring equipment manufacturers. The Company is aware of
more than 20 ambulatory ECG  monitoring  equipment  manufacturers  of which five
manufacture  digital systems.  Certain large medical equipment companies such as
Hewlett Packard and Marquette  Electronics have introduced electronic ambulatory
monitors which compete directly with those of the Company.  These companies have
substantially greater marketing, financial and other resources than those of the
Company  but  management   believes  that  the  Company's  products'  price  and
performance are competitive in this field.

     The Company  believes that Monitor One ischemia  monitoring  products offer
certain advantages over traditional  ambulatory arrthymia ECG recording monitors
and scanning services.  Monitor One products can provide continuous analysis and
quantification of ambulant



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ischemia in  real-time as well as other  irregularities  of the ECG signal for a
period  of time  longer  than 24 hours  and have a  programmable  feature  which
enables them to emit an audible tone during the occurrence of certain  high-risk
ischemic episodes.  These characteristics permit the use of Monitor One products
for the  monitoring  and  regulation  of drug therapy and as a possible  warning
device for impending ischemic heart attacks.

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

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

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

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

Research and Development

     In fiscal 1998, 1997, and 1996, the Company expended $486,843, $551,681 and
$454,268  respectively,  for  research  and  development.  During  these  years,
research  and  development  was  primarily  focused  on the  development  of the
ohms|cad  system  for  managed  care such as health  maintenance  organizations,
preferred provider organizations, and large physician groups.

     Management expects to continue to develop new products,  as well as enhance
its existing  products and has  budgeted 10% to 12% of  anticipated  revenue for
such research and development in fiscal 1999.



                                       11
<PAGE>


Patent Protection and Proprietary Information

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

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

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

Governmental Regulation

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

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

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



                                       12
<PAGE>


Company.  In  addition,  any  facilities  used to  manufacture  or assemble  the
Company's products will be subject to inspection by the FDA at least biannually.

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

Employees

     The Company,  as of January 31, 1999, had 30 full time employees.  Of these
full time  employees,  3 were  executives,  2 were engaged in sales  supervisory
capacities, 3 in sales and marketing, 5 in engineering,  3 in production,  10 in
technical  support  and  4 in  office  administration.  None  of  the  Company's
employees are covered by a collective bargaining agreement. The Company believes
its relations with employees are good.

Item 2. Properties.

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

Item 3. Legal Proceedings.

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

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

     None.



                                       13
<PAGE>


                                     PART II

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

     Market for the Registrant's Common Stock and related stockholder matters as
set forth on page 30 of the  Registrant's  1998 Annual Report to Stockholders is
incorporated herein by reference.

     On November  16, 1998,  the Company  sold an aggregate of 1,926,702  shares
(the  "Shares")  of its  common  stock  $.001 par  value  ("Common  Stock")  for
$3,217,626,  in a private placement to investors led by Galen Partners III, L.P.
The Company  received gross cash proceeds of $2,020,936  from the sale of Shares
and the balance was paid by Galen  Partners III, L.P. and two  affiliated  funds
(the "Galen Funds") by converting  $1,050,000 of $2,000,000  principal amount of
8% Convertible Notes due December 18, 2002 (the "Notes") and accrued interest of
$146,663 into shares of Common Stock. The remaining $950,000 principal amount of
the Notes were amended to increase the  interest  rate to 16% per annum,  and to
grant the Galen Fund a security  interest in substantially  all of the Company's
assets.  In  addition,  in order to induce the Funds to convert a portion of the
Notes and invest an additional  $1,000,000 in cash, the Company issued the Galen
Funds, pro rata, an aggregate of 500,000 seven year warrants (the "Warrants") to
purchase  additional  shares of Common Stock. The exercise price of the Warrants
and the conversion  price of the remaining  Notes will be fixed at a price equal
to the average  closing  price for the ten trading days ending  December 1, 1998
(the "Initial Price"). Interest on the Notes is capitalized annually and will be
due at maturity. The Company may redeem the Notes for cash or Common Stock:

     (i)  in the  event the  average  closing  price of shares of the  Company's
          Common Stock equals or exceeds twice the Initial Price for a period of
          twenty  consecutive  trading  days at the  following  times  with  the
          following premiums:

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


                                       14
<PAGE>


     (ii) at the following times without condition for the following premiums:

          Year                   Redemption Price
          ----                   ----------------
          1998                         112.1%
          1999                         125.6%
          2000                         140.8%
          2001                         157.7%
          2002                         176.8%

The Company is required to redeem the Notes at higher premiums in the event of a
change  of  control.  The Note  Agreement  prohibits  the  Company  from  paying
dividends until the Notes are paid.

     In  connection  with the sale of the Shares,  the Company  granted  certain
rights to the purchasers,  including  registration rights and the right to cause
the Company to purchase the Shares at the  following  prices in certain  events,
such as bankruptcy,  a default in payments or if the Company is no longer listed
on the NASDAQ Small Cap Market at the following prices:

          Year                   Redemption Price
          ----                   ----------------
          1998                       $2.0875
          1999                       $2.0040
          2000                       $1.9205
          2001                       $1.8370
          2002 and thereafter        $1.6700

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

Item 6. Selected Financial Data.

Selected  financial data as set forth on page 7 of the Registrant's  1998 Annual
Report to Stockholders is incorporated herein by reference.

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

     Management's  discussion and analysis of financial condition and results of
operations as set forth on pages 8 to 13 of the Registrant's  1998 Annual Report
to Stockholders is incorporated herein by reference.


                                       15
<PAGE>


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

     Not applicable.

Item 8. Financial Statements and Supplementary Data.

     Financial  statements and supplementary data as set forth on pages 14 to 28
of the Registrant's 1998 Annual Report to Stockholders is incorporated herein by
reference.

Item 9. Disagreements on Accounting and Financial Disclosure.

     None.



                                       16
<PAGE>


                                    PART III

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

     Information with respect to executive officers and directors of the Company
will be set forth in the Company's  definitive proxy statement which is expected
to be filed within 120 days of November 30, 1998 and is  incorporated  herein by
reference.

Item 11. Executive Compensation.

     Information with respect to executive compensation will be set forth in the
Company's  definitive  proxy  statement which is expected to be filed within 120
days of November 30, 1998 and is incorporated herein by reference.

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

     Information  with respect to the ownership of the  Company's  securities by
certain  persons will be set forth in the Company's  definitive  proxy statement
which is  expected  to be filed  within  120 days of  November  30,  1998 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,  1998 and is  incorporated  herein  by
reference.



                                       17
<PAGE>


                                     PART IV

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

     (a) (1) Financial Statements.

     Description

     Independent Auditors Report

     Consolidated Balance Sheets as of November 30, 1998 and 1997

     Consolidated  Statement  of  Operations  for each of the three  years ended
     November 30, 1998, 1997 and 1996

     Consolidated  Statement of Stockholder's Equity for each of the three years
     ended November 30, 1998, 1997 and 1996

     Consolidated  Statement  of Cash  Flow for each of the  three  years  ended
     November 30, 1998, 1997 and 1996

     Notes to Consolidated Financial Statements

     (2) Financial Statement Schedules

     Schedules have been omitted because they are not applicable.

     (b) Reports on Form 8-K.

     Report dated November 16, 1998

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


                                       18
<PAGE>


<TABLE>
<CAPTION>
Official                                                                        Sequential
Exhibit No.                       Description                                    Page No.
-----------                       -----------                                    --------

<S>               <C>                                                              <C>
    2             None

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

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

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

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

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

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

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

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



                                       19
<PAGE>


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

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

    4.6           Form of 16% Convertible Subordinated Note (Exhibit
                  99.2 to the Company's report on Form 8-K dated
                  November 16, 1998)                                               I/B/R

    4.7           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

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

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


                                       20
<PAGE>


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

   10.6           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

   10.7           Amendment dated as of November 15, 1998 to Note
                  Purchase Agreement between Q-Med, Inc. and Galen
                  Partners III, L.P., Galen Partners International III, L.P.,
                  Galen Employee Fund III, L.P. dated as of December 18,
                  1997 (Exhibit 99.1 to the Company's report on Form 8-K
                  dated November 16, 1998)                                         I/B/R

   10.8           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

   10.9           Form of Option Agreement between the Company and
                  several stockholders dated as of November 16, 1998
                  (Exhibit 99.5 to the Company's report on Form 8-K dated
                  November 15, 1998)                                               I/B/R

   10.10*         Termination Agreement and Release dated March 6, 1998
                  between the Company and SmithKline Beecham

   10.11*         Amendment dated December 16, 1998 to Employment
                  Agreement between the Company and Michael W. Cox

   11             None

   13*            Q-Med, Inc. 1998 Annual Report.

   16             None.

   18             None.

   21*            Subsidiaries of Registrant

   22             None.
</TABLE>


                                       21
<PAGE>


   23*            Consent of Amper, Politziner & Mattia

   24             None.

   27*            Financial Data Schedule

---------
*  Filed herewith

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



                                       22
<PAGE>


                                   SIGNATURES

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

Dated: February 26, 1999                     Q-MED, INC.


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

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

<TABLE>
<CAPTION>
Signature                                   Capacity                                    Date
---------                                   --------                                    ----
<S>                                 <C>                                         <C>
/s/ Michael W. Cox                  President and Treasurer  (Principal         February 26, 1999
---------------------------         Executive and Financial Officer)
Michael W. Cox


/s/ Richard I. Levin                Director                                    February 26, 1999
---------------------------
Richard I. Levin


/s/ Robert A. Burns                 Director                                    February 26, 1999
---------------------------
Robert A. Burns


/s/ Howard L. Waltman               Director                                    February 26, 1999
---------------------------
Howard L. Waltman


/s/ Herbert H. Sommer               Director                                    February 26, 1999
---------------------------
Herbert H. Sommer

                                    Director                                    February 26, 1999
---------------------------
A. Bruce Campbell*

/s/ Debra A. Fenton                 Controller                                  February 26, 1999
---------------------------
Debra A. Fenton

----------
*appointment effective after filing
</TABLE>



                                       23
<PAGE>


                                  EXHIBIT INDEX

Exhibit                                                               
  No.                                                                 
-------                                                               
10.10       Termination Agreement and Release dated March 6, 1998
            between the Company and SmithKline Beecham

10.11       Amendment dated December 16, 1998 to Employment
            Agreement between the Company and Michael W. Cox

13          Q-Med, Inc. 1998 Annual Report

21          Subsidiaries of Registrant

23          Consent of Amper, Politziner & Mattia

27          Financial Data Schedule

----------