FORM 10-Q

                 SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549

                             (Mark One)

   [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
          For the quarterly period ended December 31, 1996

                                 OR

   [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
        For the transition period from _________ to _________

                     Commission File No.  1-13690

                      PolyMedica Industries, Inc.
         (Exact name of registrant as specified in its charter)


      Massachusetts                                                 04-3033368
State or other jurisdiction of                                  (I.R.S. Employer
incorporation or organization                                Identification No.)

11 State Street, Woburn, Massachusetts                                     01801
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code                (617) 933-2020
                                                                  --------------

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

            Securities  registered pursuant to Section 12(g)
                              of the Act:

                 Common Stock, $.01 par value per share
                           (Title of class)

                    Preferred Stock Purchase Rights
                           (Title of class)

         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 _________

         The number of shares  outstanding of the  registrant's  class of Common
Stock as of February 12, 1997 was 8,555,614  which includes  172,559 shares held
in treasury.


                                      - 1 -

<PAGE>



                           POLYMEDICA INDUSTRIES, INC.
                                TABLE OF CONTENTS


                                                                            Page

PART I  -         FINANCIAL INFORMATION

Item 1  -         Financial Statements

                  Consolidated Balance Sheets at
                        December 31, 1996 and March 31, 1996                   3

                  Consolidated Statements of Operations
                        for the three and nine months
                        ended December 31, 1996 and 1995                       5

                  Consolidated Statements of Cash Flows
                        for the nine months ended
                        December 31, 1996 and 1995                             6

                  Notes to Consolidated Financial Statements                   7

Item 2  -         Management's Discussion and Analysis of Financial
                        Condition and Results of Operations                    9


PART II -         OTHER INFORMATION

Item 6  -         Exhibits and Reports on Form 8-K                            18

Signatures                                                                    19

Exhibit Index                                                                 20


                                      - 2 -

<PAGE>



                         PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements

                           POLYMEDICA INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

                                                     Dec. 31,          March 31,
                                                       1996               1996
                                                   (unaudited)

ASSETS

Current assets:
    Cash and cash equivalents                        $14,720            $23,302
    Accounts receivable -- trade (net of
       allowance for doubtful accounts of
       $571 and $82 as of December 31
       and March 31, 1996, respectively)               4,377              2,558
    Inventories                                        4,703              4,163
    Prepaid expenses and other
       current assets                                    880                416
                                                    --------           --------

                Total current assets                  24,680             30,439

Property, plant, and equipment, net                    5,954              6,273
Intangible assets, net                                41,795             35,500
Other assets, net                                        621                361
                                                    --------           --------

                Total assets                         $73,050            $72,573
                                                      ======             ======











         The accompanying notes are an integral part of these unaudited
                       consolidated financial statements.

                                      - 3 -

<PAGE>



                           POLYMEDICA INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

                                                     Dec. 31,          March 31,
                                                      1996               1996
                                                   (unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable -- trade                        $ 1,333            $ 1,288
    Accrued expenses                                   3,004              3,605
    Notes payable                                        625                 --
                                                    --------          ---------

            Total current liabilities                  4,962              4,893

 Senior debt (net of unamortized discount of $556
    and $600 as of December 31 and
    March 31, 1996, respectively)                     24,466             24,400
 Notes payable - long term                               625                 --
                                                    --------         ----------

            Total liabilities                         30,053             29,293

Commitments

Stockholders' equity:
    Preferred stock $.01 par value; 2,000,000 shares
       authorized, none issued or outstanding             --                 --
    Common stock, $.01 par value, 20,000,000
       shares authorized, 8,555,369 and 8,112,635
       issued as of December 31 and March 31, 1996,
       respectively                                       86                 81
    Treasury stock, at cost, (172,559 and 159,905
       shares as of December 31 and March 31, 1996,
       respectively)                                  (1,115)            (1,036)
    Additional paid-in capital                        53,200             54,917
    Accumulated deficit                               (8,596)           (10,105)
    Notes receivable from officers                      (322)              (415)
    Currency translation adjustment                     (256)              (162)
                                                     -------            -------

            Total stockholders' equity                42,997             43,280
                                                      ------             ------

            Total liabilities and stockholders' 
               equity                                $73,050            $72,573
                                                      ======             ======

         The accompanying notes are an integral part of these unaudited
                       consolidated financial statements.

                                      - 4 -

<PAGE>



                           POLYMEDICA INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (In thousands, except per share data)

                                     Three Months Ended      Nine Months Ended
                                     Dec. 31,    Dec. 31,    Dec. 31,   Dec. 31,
                                       1996        1995        1996       1995
Revenues:
  Net product sales                  $ 8,662     $ 6,336     $20,550    $18,840
  Royalties, exclusivity, 
     development and 
     license fees                        349          51         557        344
                                     -------     -------     -------    -------
Total revenues                         9,011       6,387      21,107     19,184

Cost of product sales                  4,328       2,594       8,846      7,433
                                      ------      ------      ------    -------

Total revenues, less cost of 
     product sales                     4,683       3,793      12,261     11,751

Operating expenses:
  Selling, general, and 
     administrative                    3,529       2,135       8,798      6,886
  Research and development               207         175         524        565
                                     -------     -------     -------    -------
                                       3,736       2,310       9,322      7,451
                                      ------      ------     -------    -------
Income from operations                   947       1,483       2,939      4,300

Other income and expense:
  Investment income                      179         233         690        620
  Interest expense                      (703)       (665)     (2,073)    (1,997)
                                      ------      ------      ------     ------
                                        (524)       (432)     (1,383)    (1,377)
                                      ------      ------      ------     ------
Income before income taxes               423       1,051       1,556      2,923
Provision for income taxes                12           5          46         55
                                     -------    --------     -------     ------
Income from continuing operations        411       1,046       1,510      2,868

Loss from discontinued operations         --        (303)         --       (743)

Net income                           $   411     $   743     $ 1,510    $ 2,125
                                      ======      ======      ======     ======

Income (loss) per share of common 
     stock
  Continuing operations              $   .05     $   .14     $   .18    $   .39
  Discontinued operations                 --        (.04)         --       (.10)
                                      ------      ------     -------    -------

Net income                          $    .05     $   .10     $   .18    $   .29

Weighted average number of common
  shares outstanding                   8,567       7,569       8,469      7,330


              The accompanying notes are an integral part of these
                  unaudited consolidated financial statements.

                                      - 5 -
<PAGE>



                           POLYMEDICA INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)
                                                         Nine Months Ended
                                                     Dec. 31,           Dec. 31,
                                                       1996               1995
                                                    ---------          ---------
Cash flows from operating activities:
    Net income                                       $ 1,510            $ 2,125
    Loss from discontinued operations                     --                743
    Adjustments  to  reconcile  net  
     income  to net cash  flows  from  
       operating activities:
         Depreciation and amortization                 2,238              2,018
         Gain on disposal of fixed assets                 --                 (6)
         Provision for bad debts                         222                 37
         Provision for sales allowances                  620                719
         Provision for inventory obsolescence             64                 63
         Changes in assets and liabilities:
             Accounts receivable--trade                 (848)            (1,156)
             Inventories                                (246)               140
             Prepaid expenses and other 
               current assets                           (287)              (119)
             Other assets                                (49)                (2)
             Accounts payable -- trade                (1,065)            (1,037)
             Accrued expenses                           (334)               513
                                                     -------            -------

                 Total adjustments                       315              1,170
                                                     -------            -------

                 Net cash flows from 
                    continuing operations              1,825              4,038
                                                     -------            -------

                 Net cash flows used for 
                    discontinued operations               --               (693)
                                                     -------            -------

                 Net cash flows from operating
                     activities                        1,825              3,345
                                                     -------            -------

Cash flows from investing activities:
    Acquisition, net of cash acquired                 (6,713)                --
    Spinoff of CardioTech                             (3,830)                --
    Purchase of property, plant, and equipment          (465)            (1,392)
    Direct-response advertising                         (304)                --
    Proceeds from sale of equipment                       --                123
                                                     -------            -------

                Net cash flows from investing
                     activities                      (11,312)            (1,269)
                                                     -------            -------

Cash flows from financing activities:
    Net proceeds from issuance of common stock           889              3,869
    Purchase of common stock                             (38)              (173)
                                                     -------            -------
                Net cash flows from financing
                    activities                           851              3,696
                                                     -------            -------
                Net (decrease) increase in cash 
                    and cash equivalents              (8,636)             5,772
                                                     -------            -------
                Effect of exchange rate changes
                    on cash                               54                (17)

                Cash and cash equivalents at 
                    beginning of period               23,302             14,006
                                                     -------            -------
                Cash and cash equivalents at 
                    end of period                    $14,720            $19,761
                                                     =======            =======


              The accompanying notes are an integral part of these
                  unaudited consolidated financial statements.

                                      - 6 -

<PAGE>




                           POLYMEDICA INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1. The unaudited  consolidated  financial  statements  included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the  Securities  and  Exchange   Commission  and  include,  in  the  opinion  of
management,  all  adjustments,  consisting  of  normal,  recurring  adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote  disclosures  normally included in financial statements prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted pursuant to such rules and regulations.  The Company believes,  however,
that  its  disclosures  are  adequate  to make  the  information  presented  not
misleading.  The results for the interim  periods  presented are not necessarily
indicative of results to be expected for the full fiscal year.

   The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 revenue and expenses during the reported
period. Actual results could differ from those estimates.

   The financial  statements  and  the  notes included  herein should be read in
conjunction  with the  financial  statements and notes for the fiscal year ended
March 31, 1996 and with the section entitled "Factors Affecting Future Operating
Results"  included in the  Company's  Annual  Report on Form 10-K for the fiscal
year ended  March 31,  1996,  as well as the section of the same title set forth
herein.

2. Inventories consist of the following:
   (In thousands)
                                                     Dec. 31,          March 31,
                                                       1996              1996
                                                    ----------        ---------

              Raw materials                         $ 1,858             $ 1,465
              Work in process                           788                 902
              Finished goods                          2,057               1,796
                                                     ------               -----
                                                    $ 4,703             $ 4,163
                                                      =====               =====

3.  In   connection   with  the  spinoff  of  CardioTech   International,   Inc.
("CardioTech"),  for  the  three  and  nine  months  ended  December  31,  1996,
CardioTech's  operations  are  accounted for as  discontinued  operations in the
Company's  statement  of  operations,   and  accordingly,   its  operations  are
segregated in the  accompanying  consolidated  statements of operations for that
period.  Net sales,  operating costs and expenses,  and other income and expense
have been reclassified for amounts

                                      - 7 -

<PAGE>



     associated with  CardioTech's  discontinued  operations.  CardioTech's  net
revenues  were  not  material  for  all  periods   presented.   

     4.  Advertising,  promotional,  and other  marketing  costs are  charged to
earnings  in the  period in which  they are  incurred.  Costs  whose  benefit is
expected to assist future sales are expensed as the related  materials are used.
Direct-response  advertising  costs are capitalized and amortized on a declining
basis over a seven year  period,  which  matches the expected  future  stream of
revenues  generated  from new  customers  as a result  of this  advertising.  At
December  31,  1996,  $304,000 of  direct-response  advertising  was reported as
assets and $21,000 was expensed.

     5.  In  January   1997,   PolyMedica   Industries,   Inc.  and   PolyMedica
Pharmaceuticals  (U.S.A.),  Inc. each received a waiver from John Hancock Mutual
Life Insurance  Company  ("Hancock") of certain fiscal 1997 financial  covenants
set forth in the Note and Warrant  Agreement  with  Hancock with which they were
not in  compliance  as of December  31, 1996.

     6.  Certain amounts in the  prior period  financial  statements  have  been
reclassified to conform with the current year presentation.




















                                      - 8 -

<PAGE>



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

Overview

         With the August  1996  acquisition  of Liberty  Medical  Supply,  Inc.,
PolyMedica Industries,  Inc. ("PolyMedica" or the "Company") has grown to become
an  integrated  developer,  manufacturer  and  marketer of more than 200 medical
products.  The Company markets  certain  products which are based on proprietary
technologies that deliver  performance which the Company believes to be superior
to that of competitive products. In addition,  PolyMedica distributes other well
known  medical  products,  particularly  in the field of  diabetes.  The Company
divides  its  businesses  into the Medical  Products,  Consumer  Healthcare  and
Ethical Pharmaceuticals Groups.

         The  Company  generates  revenues  from  sales of medical  devices  and
products,   consisting  of  reimbursable   diabetes-related  products,  consumer
healthcare  products,  wound dressings,  and  prescription and  non-prescription
pharmaceutical  products.  In addition,  it generates  revenues from  royalties,
exclusivity, development and license fees on certain of its products.

         The Company  sells its products  through a combination  of  mail-order,
wholesalers, retail chains and national distributors.  Diabetes-related products
are sold directly to consumers through a mail-order network. Consumer healthcare
and over-the-counter  pharmaceutical products are sold through a network of more
than 100 independent  sales  representatives  and national  wholesalers  such as
McKesson Drug Company, Bergen Brunswig Corporation and FoxMeyer Corporation, and
to retailers  including CVS HC Inc., Jack Eckerd Co., OSCO (American Drug Stores
Inc.) and Rite-Aid Corp.  Advanced wound dressings are sold through  established
exclusive  relationships  with Bristol- Myers Squibb,  Mylan  Laboratories Inc.,
Perstorp AB, Hisamitsu Pharmaceutical Co., Inc., Kuraray Co. Ltd. and others for
use by  institutional  customers,  such as  hospitals,  nursing  homes and other
healthcare  providers,  for patients with chronic wounds.  The Company  promotes
sales of its  products  through  local  print  media,  national  advertising  in
consumer and  professional  publications,  on television and at professional and
trade group meetings, as well as through retail advertising.

         Although certain of the Company's  products are seasonal in nature, the
Company does not believe its net product sales, in the aggregate,  are generally
subject to material  seasonal  fluctuations.  Thermometer sales to consumers are
higher  during the winter cold and flu season.  The  Company's  non-prescription
urological products show higher retail sales during the warmer months, as do the
Company's  over-the-counter  wound care  products,  which are primarily  used to
treat and prevent injuries  associated with outdoor sports activities during the
summer and fall seasons.

         The  Company  has  recently  recruited  and hired an  experienced  Vice
President  of  Marketing  to  train  a team  to  bring  sophisticated  marketing
techniques to its consumer  business.  This will include  market  research and a
subsequent  focus on those  products  with the  greatest  potential.  This is an
expansion of the Company's marketing and distribution  capability.  PolyMedica's
goal  is  to  provide   superior   wound   management  in  each  major  Medicare
reimbursement category and to use its  competitive  edge as an efficient,  

                                      - 9 -

<PAGE>



vertically-integrated  manufacturer  of  wound  care  products  to  offer   high
technology, low-cost wound dressings directly to wholesalers,  distributors  and
buying groups already in its healthcare distribution network.

         The Company operates from manufacturing, distribution, and research and
development  facilities  located in  Massachusetts,  Florida,  Colorado  and the
United Kingdom.  Virtually all of the Company's product sales are denominated in
U.S. dollars. The Company produces proprietary polyurethane materials from which
it manufactures advanced wound dressings. The Company's research and development
activities  are  principally  funded from ongoing  operations and consist of the
design,  development  and  manufacture of  polyurethane-based  medical  products
derived from proprietary technology and manufacturing processes.

         The  Company's  growth  strategy is to continue to develop its existing
businesses  as well as target  acquisition  opportunities  of new  products  and
businesses. The Company has successfully integrated six acquisitions since 1990.

         Period to period  comparisons  of changes in net product  sales are not
necessarily indicative of results to be expected for any future period.

         This Quarterly Report on Form 10-Q contains forward-looking  statements
as that term is defined in the Private Securities Litigation Reform Act of 1995.
Such  forward-looking  statements are subject to risks and uncertainties,  which
could cause actual results to differ  materially  from those  anticipated.  Such
risks  and  uncertainties  include,  but are not  limited  to,  fluctuations  in
customer  demand,  intensity  of  competition  from other  health  care  product
vendors,  timing and acceptance of new product  introductions,  general economic
conditions and regulatory  changes,  as well as other especially  relevant risks
detailed in the Company's  filings with the Securities and Exchange  Commission,
including  the  Company's  Annual  Report on Form 10-K for the fiscal year ended
March 31, 1996 and its Quarterly Reports on Form 10-Q for the periods ended June
30, 1996 and September 30, 1996. The Company assumes no obligation to update the
information  contained in this report.  See "Factors  Affecting Future Operating
Results" set forth herein.

Results of Operations

Three Months Ended December 31, 1996 Compared to Three Months Ended December 31,
1995

         The Company generated record quarterly revenues of $9.01 million in the
three months ended  December 31, 1996, a 41.1%  increase  over the $6.39 million
reported in the three months ended December 31, 1995.

         The Company's net income was $411,000, or $.05 per share, for the three
months  ended  December  31, 1996.  This  performance  compares to net income of
$743,000,  or $.10 per share,  for the three months ended  December 31, 1995. As
further described below, this decrease in net income reflects marketing research
costs  by  a  new  senior  level  marketing  team  to  better position products,

                                     - 10 -

<PAGE>



a significantly increased media advertising campaign in the diabetic market, and
a different mix of margin in overall  product  sales.  In the three months ended
December 31, 1995, income from continuing  operations was $1.05 million,  offset
by a loss  of  $303,000  from  the now  discontinued  operations  of  CardioTech
International,  Inc. ("CardioTech") in connection with CardioTech's spinoff from
the Company.

         Net product sales in the Medical  Products Group  increased by 95.9% to
$3.86 million in the three months ended December 31, 1996 as compared with $1.97
million in the three months ended December 31, 1995.  Included in this group are
sales of diabetes-related products from Liberty Medical (acquired by the Company
on August 30, 1996),  as well as the Company's  advanced wound  dressings to the
chronic wound care market through national  distributors.  This net increase was
primarily due to a full quarter's sales of  diabetes-related  products partially
offset by a reduction in professional wound care sales in the three months ended
December  31,  1996.  During the  quarter,  the Company  continued  its enhanced
promotional  program to allow  Liberty  Medical to take  advantage of its buying
efficiencies and customer service to grow its customer base.

         The  decrease  in wound  dressing  sales is due in part to  changes  in
Medicare reimbursement  methodology for chronic wounds and a resulting switch by
healthcare providers to more frequent and less costly dressing changes using low
technology  textile  dressings and in part to reduced purchases by Bristol-Myers
Squibb.  The  overall  decrease  in total  unit  volume of wound  dressings  was
partially  offset by an approximate 8% increase in average  selling price of all
dressing  sizes,  stated on a 4" x 4" equivalent  basis,  due to a change in the
product mix.

         The Company  expects the uneven  ordering  patterns for its  FLEXZAN(R)
wound care product from its U.S.  distributor will continue for the remainder of
fiscal 1997. The Company believes that the changes in ordering  patterns are due
to inventory  level  adjustments at that  distributor and ongoing changes in the
reimbursement and managed care marketplaces.

         Net product sales in the Consumer  Healthcare  Group increased by 23.4%
to $3.38  million in the three months ended  December 31, 1996 as compared  with
$2.74  million in the three  months ended  December  31, 1995.  Included in this
division  are sales to the  over-the-counter  market  of:  (i)  medical  devices
including  thermometry,  home  healthcare  kits and skin care;  (ii)  urological
remedies,  including  AZO-STANDARD(R)  and  AZO-CRANBERRY(R);  and  (iii)  wound
dressings sold in burn,  abrasion and blister kits. This group  manufactures and
distributes  nearly 100  products  through a network of more than 36,000  retail
stores.  More than half of the increase in net product sales in the three months
ended December 31, 1996 is due to increased  shipments of  thermometry  products
and AZO-STANDARD.

         Major  customers of the Consumer  Healthcare  Group  include the top 20
pharmacy chains, major supermarkets and mass merchandisers.  AZO-STANDARD is the
leading product in the category of urinary-tract analgesics.  The growth in this
product category has attracted Johnson & Johnson to become a category  developer
with its version of AZO-STANDARD, which should expand the market segment.

                                     - 11 -

<PAGE>



         Net product  sales in the Ethical  Pharmaceuticals  Group  decreased by
12.5% to $1.43  million in the three months ended  December 31, 1996 as compared
with $1.63 million in the three months ended December 31, 1995. Included in this
group are branded products used for the treatment of urinary tract infections.

         Royalty,  exclusivity,  development  and license  fees from  continuing
operations  increased  by more than 500% to $349,000 in the three  months  ended
December 31, 1996 as compared  with  $51,000 in the three months ended  December
31,  1995.  This  increase is primarily  due to fees earned from  Perstorp AB in
connection  with the  establishment  of Perstorp as the  exclusive  pan-European
distributor of SPYROSORB(R).

         As a percentage of net product sales,  overall gross margins were 50.0%
in the three months ended December 31, 1996, which compares to 59.1% reported in
the three months ended  December  31,  1995.  Gross  margins in the three months
ended December 31, 1996 decreased  primarily due to the inclusion of significant
sales of  diabetes-related  products,  whose  gross  margins  are lower than the
Company average for other products.

         Selling,   general,  and  administration   expenses  ("SG&A  expenses")
increased by 65.3% in the three months ended  December 31, 1996 to $3.53 million
as compared with $2.14 million  (exclusive of CardioTech  expenses) in the three
months ended December 31, 1995.  Included in SG&A expenses were depreciation and
amortization,  wages, benefit costs, and outside professional  services totaling
$1.92  million in the three  months ended  December  31, 1996,  or 54.4% of SG&A
expenses, as compared with $1.04 million, or 48.6% of SG&A expenses in the three
months ended December 31, 1995. SG&A expenses in the three months ended December
31, 1996 included  costs related to Liberty  Medical  operations  and for market
research for its consumer products.

         Research and development expenses increased by 18.3% to $207,000 in the
three months ended  December 31, 1996,  as compared  with  $175,000 in the three
months ended December 31, 1995.

         Investment  income  decreased  by 23.2% to $179,000 in the three months
ended  December 31, 1996,  as compared  with  $233,000 in the three months ended
December 31, 1995, as the Company earned interest on lower average cash balances
in the three months ended  December 31, 1996.  Interest  expense was $703,000 in
the three months ended  December  31,  1996,  as compared  $665,000 in the three
months ended December 31, 1995, as the Company accrued  interest expense in both
periods on $25 million of Guaranteed  Senior  Secured Notes due January 31, 2003
(the  "Hancock  Notes")  to the  John  Hancock  Mutual  Life  Insurance  Company
("Hancock").  The interest  rate on the Hancock Notes  increased  from 10.65% to
10.90% as a result of a January 1, 1996 amendment.




                                     - 12 -

<PAGE>



Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31, 
1995

         The Company  generated  record  revenues  of $21.1  million in the nine
months ended December 31, 1996, a 10.0% increase over the $19.2 million reported
in the nine months ended December 31, 1995.

         The Company's net income was $1.51 million,  or $.18 per share, for the
nine months ended December 31, 1996. This performance  compares to net income of
$2.13 million,  or $.29 per share,  for the nine months ended December 31, 1995.
This decrease in net income is due to the reasons  described  above. In the nine
months ended  December 31, 1995,  income from  continuing  operations  was $2.87
million,  offset by a loss of $743,000 from the now  discontinued  operations of
CardioTech in connection with CardioTech's spinoff from the Company.

         Net product sales in the Medical  Products Group  increased by 17.0% to
$6.08 million in the nine months ended  December 31, 1996 as compared with $5.19
million in the nine months  ended  December  31,  1995.  This net  increase  was
primarily  due to first  time  sales of  diabetes-related  products  offset by a
reduction in professional wound care sales. The decrease in wound dressing sales
is due to the reasons described above. The overall decrease in total unit volume
of wound dressings was partially offset by an approximate 8% increase in average
selling price of all dressing sizes,  stated on a 4" x 4" equivalent  basis, due
to a change in the product mix.

         Net product sales in the Consumer  Healthcare  Group increased by 18.7%
to $8.33  million in the nine months ended  December  31, 1996 as compared  with
$7.02 million in the nine months ended  December 31, 1995.  Most of the increase
in net  product  sales in the nine  months  ended  December  31,  1996 is due to
increased shipments of thermometry products and AZO-STANDARD.

         Net product  sales in the Ethical  Pharmaceuticals  Group  decreased by
7.3% to $6.14  million in the nine months  ended  December  31, 1996 as compared
with $6.63 million in the nine months ended December 31, 1995.

         Royalty,  exclusivity,  development and license fees increased by 61.9%
to $557,000 in the nine months ended December 31, 1996 as compared with $344,000
in the nine months ended December 31, 1995.  This increase is principally due to
the reasons described above.

         As a percentage of net product sales,  overall gross margins were 57.0%
in the nine months ended December 31, 1996,  which compares to 60.5% reported in
the nine months ended December 31, 1995. The decrease in gross margins is due to
the reasons stated above.

         SG&A expenses  increased by 27.8% in the nine months ended December 31,
1996 to $8.80 million as compared  with $6.89  million  (exclusive of CardioTech
expenses) in the nine months ended December 31, 1995.  Included in SG&A expenses
were   depreciation  and  amortization,   wages,   benefit  costs,  and  outside
professional  services  totaling $4.34 million in the nine months ended December
31, 1996, or 49.3% of SG&A expenses, as compared with $3.25 million or 47.2% of

                                     - 13 -

<PAGE>



SG&A expenses in the nine months ended  December 31, 1995.  SG&A expenses in the
three months ended  December 31, 1996 include costs  related to Liberty  Medical
operations  and for market  research  for its  consumer  products.  The  Company
expects  its  marketing  costs to  increase  in the  future  as a result  of the
marketing initiatives described above.

         Research and development  expenses decreased by 7.3% to $524,000 in the
nine months  ended  December  31, 1996,  as compared  with  $565,000 in the nine
months ended December 31, 1995.

         Investment  income  increased  by 11.3% to  $690,000 in the nine months
ended  December 31,  1996,  as compared  with  $620,000 in the nine months ended
December  31,  1995,  as the  Company  earned  interest on larger  average  cash
balances.  Interest  expense was $2.07 million in the nine months ended December
31, 1996, as compared  $2.00 million in the nine months ended December 31, 1995,
as the Company accrued and paid interest  expense in both periods on the Hancock
Notes.

Liquidity and Capital Resources

         Since its  inception,  the Company has raised  $53.46  million in gross
equity  capital,  of which $7.16  million was from  venture  capital  financings
before the Company's initial public offering, $39.00 million from its March 1992
initial public  offering,  $4.55 million from a November 1995 public offering of
common stock,  and $2.75 million from the sale of its common stock,  pursuant to
Regulation S promulgated  under the Securities Act of 1933. In January 1993, the
Company sold to Hancock $25 million of 10.65%  Guaranteed  Senior  Secured Notes
due January 31, 2003.

         As of December 31, 1996, working capital was $19.72 million,  including
cash and cash equivalents of $14.72 million.

         In January  1997,  certain  officers  of the Company  purchased  in the
aggregate  100,000 shares of the Company's common stock on the open market.  The
purchases were funded by notes made by the officers to the Company.

         In  January   1997,   PolyMedica   Industries,   Inc.  and   PolyMedica
Pharmaceuticals  (U.S.A.),  Inc.  each received a waiver from Hancock of certain
fiscal 1997 financial covenants set forth in the Note and Warrant Agreement with
Hancock with which they were not in compliance as of December 31, 1996.

         The  Company  expects  that  its  current  working  capital  and  funds
generated  from future  operations  will be adequate to meet its  liquidity  and
capital  requirements  for  current  operations.  In the event that the  Company
undertakes to make  acquisitions of  complementary  businesses or products,  the
Company may require  substantial  additional funding beyond currently  available
working capital and funds generated from operations.  Currently,  the Company is
conducting  an active  search for the  strategic  acquisition  of  complementary
businesses  or products.  The Company has no present  commitments  or agreements
with respect to any such acquisition.

                                     - 14 -

<PAGE>



Factors Affecting Future Operating Results

         The Company continues to face many risks and uncertainties  which could
affect its operating  results,  including  without  limitation,  those described
below as well as those set forth in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996.

         Reliance on  Distributors;  Limited  Direct  Marketing  Experience. The
Company has a limited direct marketing and sales  organization and relies on its
current  distributors,   including  primarily  Bristol-Myers  Squibb  and  Mylan
Laboratories  Inc.,  to  sell  its  wound  care  products  in the  institutional
marketplace.  The Company has a limited  direct sales force which it may need to
broaden for certain of its products.  There can be no assurance that the Company
will  establish  such a direct sales force or that any such sales force that may
be established will be able to successfully  market and distribute the Company's
products or to offset any  decline in sales to its  existing  distributors.  The
Company's ability to sell its new products will depend in part on its ability to
enter into marketing and distribution  agreements with  pharmaceutical,  medical
device,  personal  care and other  distributors  in the United  States and other
countries.  If the  Company  enters  into any such  agreements,  there can be no
assurance that the Company's third party distributors will be able to market the
products effectively.

         Acquisitions of Other Businesses. As part of its growth  strategy,  the
Company currently intends to expand through the acquisition of other businesses,
as  well  as  internal  growth  and  strategic  business  alliances  with  other
companies.  The Company regularly  reviews  potential  acquisitions and business
alliances, some of which may be material. The acquisition of other businesses is
integral to the Company's business strategy;  however, there can be no assurance
that the Company will successfully acquire any businesses, or that such acquired
businesses, if any, will be profitable.  The Company does not currently have any
commitments or agreements  with respect to the  acquisition of any businesses or
products.


         Competition and Technological Change. The Company is engaged in rapidly
evolving and highly  competitive  fields.  The Company  competes  with  numerous
companies in the healthcare  industry,  including  Bristol-Myers Squibb which is
also the  exclusive  distributor  of the Company's  MITRAFLEX(R)  product in the
United States.  Competition  from medical device  manufacturers,  pharmaceutical
companies  and other  competitors  is intense and expected to increase.  Many of
these  companies have  substantially  greater  capital  resources,  research and
development   staffs  and  facilities,   and  greater  experience  in  obtaining
regulatory  approvals and in marketing and  distribution  of products,  than the
Company.  Academic  institutions,  hospitals,  governmental  agencies  and other
public and private  research  organizations  are also  conducting  research  and
seeking  patent  protection and may develop  competing  products on their own or
through joint ventures. There can be no assurance that the Company's competitors
will not succeed in developing technologies and products that are more effective
than any that are being developed or sold by the Company.

         Patents and Trade Secrets. The Company's success will depend,  in part,
on its ability to obtain patents,  maintain trade secrets protection and operate
without infringing on the proprietary

                                     - 15 -

<PAGE>



rights of third  parties.  The Company is the owner of five, and the co-owner of
one,  issued  patents  in the  United  States  and has  filed  applications  for
additional  patents in the United  States and abroad.  There can be no assurance
that any pending patent applications will result in issued patents. In addition,
there can be no assurance  that any issued patents will provide the Company with
significant protection against competitors.  Moreover, there can be no assurance
that any patents issued to or licensed by the Company will not be infringed upon
or designed around by others.

         The Company also relies on unpatented  proprietary  technology,  and no
assurance can be given that others will not independently  develop substantially
equivalent  proprietary   information,   techniques  or  processes,   that  such
technology  will not be disclosed or that the Company can  meaningfully  protect
its rights to such unpatented proprietary technology.  There can be no assurance
that the Company's non-disclosure  agreements will provide meaningful protection
for the Company's trade secrets or other proprietary know-how. In the absence of
patent  protection,   the  Company's  business  may  be  adversely  affected  by
competitors who independently develop substantially equivalent technology.

         Moreover,  there can be no  assurance  that the patents  held by others
might not have an adverse  effect on some of the  Company's  products or require
that the Company obtain licenses to continue to test,  manufacture or market the
affected product,  and, if so, there can be no assurance that such licenses will
be available on acceptable terms, if at all.

         Product  Liability. The  testing,  marketing  and  sale of  wound  care
products and other  medical and consumer  products  entail an inherent risk that
product liability claims will be asserted against the Company or its third party
distributors.  A  product  liability  claim or a  product  recall  could  have a
material  adverse effect on the business or financial  condition of the Company.
Certain   manufacturers  of  materials  and/or  implantable  devices  have  been
subjected  to  significant  claims for damages  allegedly  resulting  from their
products.  The Company currently  maintains product liability insurance coverage
which it believes to be adequate for its present  purposes,  but there can be no
assurance  that in the future the Company will be able to maintain such coverage
on acceptable terms or that current insurance or insurance subsequently obtained
will provide adequate coverage against any or all potential claims.

         Healthcare Reimbursement. Political, economic and regulatory influences
are resulting in fundamental  changes in the  healthcare  industry in the United
States.  The Company  anticipates  that  Congress  and state  legislatures  will
continue  to review and  assess  alternative  healthcare  delivery  systems  and
payment  methods and that public debate of these issues will likely  continue in
the future.  Sales of the  Company's  products will depend to some extent on the
availability  of  reimbursement  to certain of the Company's  customers by third
party payors such as government and private insurance plans. No assurance can be
given that such reimbursement will be available.

         Government Regulation.  The  production  and marketing of the Company's
products and its ongoing  research  and  development  activities  are subject to
regulation by numerous governmental authorities in the United States, the United
Kingdom and other countries, and may become subject

                                     - 16 -

<PAGE>



to the  regulations  of  additional  countries.  The  rigorous  preclinical  and
clinical  testing  requirements  and  regulatory  approval  process  required to
introduce new products can take a number of years and require the expenditure of
substantial  resources.  The Company has limited  experience in  conducting  and
managing  preclinical  testing and relies on third  parties to conduct  clinical
testing necessary to obtain government approvals. Delays in obtaining regulatory
approvals  would  adversely  affect the  marketing of products  developed by the
Company and the Company's  ability to receive product revenues or royalties.  In
addition,  the Company cannot predict the extent to which government regulations
or changes  thereto might have an adverse effect on the production and marketing
of the Company's existing or future products. A number of the Company's products
under  development  will require  clearance by the Food and Drug  Administration
("FDA")  in the United  States.  Although  the  Company  believes  each of these
products, if successfully developed, will obtain FDA clearance, no assurance can
be made that each will obtain such  clearance,  or that the process of clearance
will be without undue delay or expense.




                                     - 17 -

<PAGE>



                           PART II - OTHER INFORMATION

                           PolyMedica Industries, Inc.


Item 6.          Exhibits and Reports on Form 8-K

         (a)     See Exhibit Index
         (b)     There were no reports on Form 8-K filed during the three months
                 ended December 31, 1996.





                                     - 18 -

<PAGE>





                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                   PolyMedica Industries, Inc.
                                      (registrant)



                                   /s/ Steven J. Lee
                                   Steven J. Lee
                                   President, Chief Executive Officer,
                                   and Director (Principal Executive
                                   Officer)



                                   /s/ Eric G. Walters
                                   Eric G. Walters
                                   Chief Financial Officer, Treasurer,
                                   and Clerk (Principal Financial and
                                   Accounting Officer)





Dated:  February 12, 1997

                                     - 19 -

<PAGE>



                                  Exhibit Index

                           PolyMedica Industries, Inc.


Exhibit                            Description


4.14     -       Letter Agreement amending the Note and Warrant Agreement  dated
                 January 23, 1997

10.81    -       Form of Promissory Note made in favor of the Company by certain
                 officers of the Company

27       -       Financial Data Schedule





























                                     - 20 -