##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    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. 0-19842
 PolyMedica Corporation
  Massachusetts
    
    04-3033368(State or Other Jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)701 Edgewater Drive, Suite 360, Wakefield, Massachusetts
    
    01880(Address of Principal Executive Offices)
    
    (Zip Code)
 (Registrants Telephone Number, Including Area Code)
 þ o
  þ o o
 o þ




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##### 



POLYMEDICA CORPORATION
TABLE OF CONTENTS
  
 PagePART IItem 1. Financial Statements (unaudited):Consolidated Balance Sheets as of June 30 and March 31, 2007
    
    
    3Consolidated Statements of Income for the three months ended
June 30, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows for the three months ended
June 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART IIItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 6. Exhibits
    
    
    33Signatures
    
    
    34Exhibit Index
    
    
    35EX-10.1.2 PolyMedica Corp. Executive Savings PlanEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEO and CFO
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PolyMedica Corporation
 
 Consolidated Balance Sheets
 (Unaudited)
 (In thousands, except share and per share amounts)
 June 30,
    
    
    March 31,2007
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,969
    
    
    $
    2,093Accounts receivable (net of allowances of
$30,882 and $31,350 as of June 30 and March
31, 2007, respectively)
    
    
    114,714
    
    
    
    117,309Inventories
    
    
    34,061
    
    
    
    37,554Deferred income taxes
    
    
    4,787
    
    
    
    4,787Prepaid expenses and other current assets
    
    
    22,550
    
    
    
    18,344Total current assets
    
    
    180,081
    
    
    
    180,087Property, plant and equipment, net
    
    
    60,831
    
    
    
    61,098Goodwill
    
    
    64,598
    
    
    
    64,598Intangible assets, net
    
    
    42,819
    
    
    
    46,870Direct-response advertising, net
    
    
    103,815
    
    
    
    101,487Notes receivable
    
    
    14,657
    
    
    
    14,433Other assets
    
    
    8,181
    
    
    
    8,873Total assets
    
    $
    474,982
    
    
    $
    477,446
  3




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PolyMedica Corporation
Consolidated Balance Sheets
(Unaudited)  (In thousands, except share and per share amounts)
 June 30,
    
    
    March 31,2007
    
    
    2007LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    19,118
    
    
    $
    26,909Accrued expenses
    
    
    38,707
    
    
    
    34,514Current portion, capital lease obligations
    
    
    664
    
    
    
    804Total current liabilities
    
    
    58,489
    
    
    
    62,227Income taxes payable, capital lease and other obligations
    
    
    5,221
    
    
    
    2,252Credit facility
    
    
    45,900
    
    
    
    58,700Convertible subordinated notes
    
    
    180,000
    
    
    
    180,000Deferred income taxes
    
    
    11,994
    
    
    
    12,351Total liabilities
    
    
    301,604
    
    
    
    315,530Shareholders equity:Preferred stock, $0.01 par value; 2,000,000 shares
authorized, none issued or outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value; 50,000,000 shares
authorized; 22,814,896 and 22,716,294 shares issued
as of June 30 and March 31, 2007
    
    
    228
    
    
    
    227Additional paid-in capital
    
    
    156,471
    
    
    
    150,577Retained earnings
    
    
    16,679
    
    
    
    11,112Total shareholders equity
    
    
    173,378
    
    
    
    161,916Total liabilities and shareholders equity
    
    $
    474,982
    
    
    $
    477,446
  4




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##### Table of Contents



PolyMedica Corporation
 
 Consolidated Statements of Income
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006Net revenues
    
    $
    190,625
    
    
    $
    155,889Cost of sales
    
    
    104,733
    
    
    
    83,556Gross margin
    
    
    85,892
    
    
    
    72,333Selling, general and administrative expenses
    
    
    66,350
    
    
    
    60,264Income from operations
    
    
    19,542
    
    
    
    12,069Other income and expense:Investment income
    
    
    318
    
    
    
    340Interest and other expense
    
    
    (1,782
    )
    
    
    (3,097
    )(1,464
    )
    
    
    (2,757
    )Income from operations before income taxes
    
    
    18,078
    
    
    
    9,312Income tax provision
    
    
    6,689
    
    
    
    3,399Net income
    
    $
    11,389
    
    
    $
    5,913Net income per weighted average share, basic
    
    $
    0.50
    
    
    $
    0.26Net income per weighted average share, diluted
    
    $
    0.49
    
    
    $
    0.25Cash dividend per share
    
    $
    0.15
    
    
    $
    0.15Weighted average shares, basic
    
    
    22,750
    
    
    
    23,111Weighted average shares, diluted
    
    
    23,414
    
    
    
    23,538
  5




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PolyMedica Corporation
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 (In thousands)
 Three Months EndedJune 30,2007
    
    
    2006Operating activities:Net income
    
    $
    11,389
    
    
    $
    5,913Adjustments to reconcile net income to net cash flows:Depreciation and amortization
    
    
    7,383
    
    
    
    4,881Amortization of direct-response advertising
    
    
    13,194
    
    
    
    11,642Direct-response advertising expenditures
    
    
    (15,579
    )
    
    
    (15,396
    )Impairment
of direct-response advertising
    
    
    57
    
    
    
    Provision for bad debts
    
    
    6,326
    
    
    
    5,397Provision for sales allowances/returns
    
    
    4,024
    
    
    
    3,390Stock-based compensation expense
    
    
    3,077
    
    
    
    3,014Tax benefit from exercise of stock options
    
    
    346
    
    
    
    Deferred income taxes
    
    
    433
    
    
    
    (1,100
    )Loss on
disposal of property and equipment
    
    
    1
    
    
    
    16Changes in
assets and liabilities, excluding effects of
acquisitions and dispositions:Accounts receivable
    
    
    (7,755
    )
    
    
    (4,723
    )Income tax receivable
    
    
    
    
    
    
    4,229Inventories
    
    
    3,493
    
    
    
    1,032Prepaid expenses and other assets
    
    
    (3,738
    )
    
    
    (1,257
    )Accounts payable
    
    
    (7,791
    )
    
    
    3,049Accrued expenses and other liabilities
    
    
    4,193
    
    
    
    (3,318
    )Net cash flows provided by operating activities
    
    
    19,053
    
    
    
    16,769Investing activities:Purchase of property, plant and equipment
    
    
    (2,458
    )
    
    
    (444
    )Purchase of intangible assets
    
    
    (608
    )
    
    
    (11,169
    )Net cash flows used for investing activities
    
    
    (3,066
    )
    
    
    (11,613
    )Financing activities:Proceeds from issuance of common and restricted stock
    
    
    2,198
    
    
    
    1,981Net cash paid on line of credit
    
    
    (12,800
    )
    
    
    (10,000
    )Payment of dividends declared on common stock
    
    
    (3,482
    )
    
    
    (3,499
    )Excess tax benefit from exercise of stock options
    
    
    274
    
    
    
    Payment of capital lease obligations
    
    
    (301
    )
    
    
    (151
    )Net cash flows used for financing activities
    
    
    (14,111
    )
    
    
    (11,669
    )Net change in cash and cash equivalents
    
    
    1,876
    
    
    
    (6,513
    )Cash and cash equivalents at beginning of period
    
    
    2,093
    
    
    
    9,101Cash and cash equivalents at end of period
    
    $
    3,969
    
    
    $
    2,588Supplemental disclosure of cash flow information:Disposal of equipment
    
    $
    20
    
    
    $
    336
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PolyMedica Corporation
 
 Notes to Consolidated Financial Statements
 1. Basis of Presentation
 Company
   Accounting
   2. Accounts receivable and revenue
  7




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PolyMedica Corporation
Notes to Consolidated Financial Statements
      3. Inventories
  4. Goodwill and Other Intangible Assets
  June 30,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2007Goodwill:Diabetes
    
    $
    64,598
    
    
    $
    64,598Pharmacy
    
    
    
    
    
    
    Total consolidated goodwill
    
    $
    64,598
    
    
    $
    64,598
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PolyMedica Corporation
Notes to Consolidated Financial Statements
 June 30,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2007Intangible assets:Diabetes patient lists
    
    $
    64,467
    
    
    $
    63,859Diabetes managed care and other contracts
    
    
    8,525
    
    
    
    8,525Pharmacy
    
    
    
    
    
    
    Accumulated amortization
    
    
    (30,173
    )
    
    
    (25,514
    )Total consolidated intangible assets, net
    
    $
    42,819
    
    
    $
    46,870
  June 30, 2007
    
    
    March 31, 2007Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife in
    
    
    Carrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    Book(in thousands)
    
    Years
    
    
    Amount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValuePatient lists
    
    
    4
    
    
    $
    64,467
    
    
    $
    (27,691
    )
    
    $
    36,776
    
    
    $
    63,859
    
    
    $
    (23,406
    )
    
    $
    40,453Other contracts
    
    
    2-9
    
    
    
    8,133
    
    
    
    (2,138
    )
    
    
    5,995
    
    
    
    8,133
    
    
    
    (1,840
    )
    
    
    6,293Covenants not to
compete
    
    
    < 1
    
    
    
    392
    
    
    
    (344
    )
    
    
    48
    
    
    
    392
    
    
    
    (268
    )
    
    
    124Total
    
    
    
    
    
    $
    72,992
    
    
    $
    (30,173
    )
    
    $
    42,819
    
    
    $
    72,384
    
    
    $
    (25,514
    )
    
    $
    46,870
  Remainder of fiscal year 2008
    
    $
    12,682Fiscal year 2009
    
    
    13,949Fiscal year 2010
    
    
    10,115Fiscal year 2011
    
    
    4,2252012 and thereafter
    
    
    1,848Total
    
    $
    42,819
 5. Direct-Response Advertising
  Three Months EndedJune 30,
    
    
    June 30,(in thousands)
    
    2007
    
    
    2006Capitalized direct-response advertising additions
    
    $
    15,579
    
    
    $
    15,396Direct-response advertising amortization
    
    
    (13,194
    )
    
    
    (11,642
    )Impairment of direct-response advertising
    
    
    (57
    )
    
    
    Increase in direct-response advertising asset, net
    
    
    2,328
    
    
    
    3,754Beginning direct-response advertising asset, net
    
    
    101,487
    
    
    
    91,653Ending direct-response advertising asset, net
    
    $
    103,815
    
    
    $
    95,407
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PolyMedica Corporation
Notes to Consolidated Financial Statements
 6. Notes Receivable
  7. Accrued Expenses
  June 30,
    
    
    March 31,(In thousands)
    
    2007
    
    
    2007Compensation
and benefits
    
    $
    7,778
    
    
    $
    4,941Proposed
settlement of class action lawsuit
    
    
    5,500
    
    
    
    5,500Amounts due to Medco
    
    
    6,715
    
    
    
    10,768Income tax payable
    
    
    1,262
    
    
    
    3,245Inventory receipts
    
    
    7,320
    
    
    
    1,695Other
    
    
    10,132
    
    
    
    8,365$
    38,707
    
    
    $
    34,514
  In re: PolyMedica Corp. Securities Litigation.
  8. Credit Facility, Equipment Financing Agreement and Convertible Subordinated Notes
 Credit facility
  10




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PolyMedica Corporation
Notes to Consolidated Financial Statements
  Equipment Financing Agreement
  Convertible subordinated notes
     11




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PolyMedica Corporation
Notes to Consolidated Financial Statements
     9. Commitments and Contingencies
 Contingencies
 Class Action Lawsuit
 In re: PolyMedica Corp. Securities Litigation,
    12




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PolyMedica Corporation
Notes to Consolidated Financial Statements
 Fair Labor Standards Act Litigation
  Proposed Tax Deduction Disallowance
  Commitments
  10. Income Taxes
     13




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PolyMedica Corporation
Notes to Consolidated Financial Statements
 11.
Segment Information
  Diabetes
 Pharmacy
   Three Months EndedJune 30,(in thousands)
    
    2007
    
    
    2006Net revenues:Diabetes
    
    $
    126,596
    
    
    $
    113,783Pharmacy
    
    
    64,029
    
    
    
    42,106Total
    
    $
    190,625
    
    
    $
    155,889Gross margin:Diabetes
    
    $
    74,808
    
    
    $
    63,605Pharmacy
    
    
    11,084
    
    
    
    8,728Total
    
    $
    85,892
    
    
    $
    72,333Reconciliation
of segment gross
margin to income
from operations
before income taxes:Diabetes gross margin
    
    $
    74,808
    
    
    $
    63,605Pharmacy gross margin
    
    
    11,084
    
    
    
    8,728Selling, general and administrative expenses
    
    
    (66,350
    )
    
    
    (60,264
    )Other income and expense
    
    
    (1,464
    )
    
    
    (2,757
    )Income from operations before income taxes
    
    $
    18,078
    
    
    $
    9,312
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PolyMedica Corporation
Notes to Consolidated Financial Statements
 June 30,
    
    
    March 31,2007
    
    
    2007Segment assets:Diabetes
    
    $
    390,933
    
    
    $
    392,503Pharmacy
    
    
    27,846
    
    
    
    31,592Corporate
    
    
    56,203
    
    
    
    53,351Total
    
    $
    474,982
    
    
    $
    477,446
 12. Shareholders Equity
  Balance at March 31, 2007
    
    $
    161,916Three months ended June 30, 2007:Net income
    
    
    11,389Cumulative effect of change in accounting principle
    
    
    (2,340
    )Stock-based compensation
    
    
    3,077Proceeds from the exercise of stock options
    
    
    2,198Tax benefit from exercise of stock options
    
    
    620Dividends paid
    
    
    (3,482
    )Balance at June 30, 2007
    
    $
    173,378
   13. Stock-Based Compensation
    Restricted Stock Awards
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PolyMedica Corporation
Notes to Consolidated Financial Statements
  Weighted AverageGrant DateShares
    
    Par value
    
    Fair ValueNon-vested as of March 31, 2007
    
    
    337,728
    
    
    $
    0.01
    
    
    $
    33.33Granted
    
    
    132,285
    
    
    $
    0.01
    
    
    $
    40.98Vested
    
    
    (4,685
    )
    
    $
    0.01
    
    
    $
    38.56Cancelled
    
    
    
    
    
    
    
    
    
    
    Non-vested as of June 30, 2007
    
    
    465,328
    
    
    $
    0.01
    
    
    $
    35.45
    14. Calculations of Earnings Per Share
  Three Months EndedJune 30,
    
    
    June 30,(In thousands, except per share data)
    
    2007
    
    
    2006Income from operations, net of income taxes
    
    $
    11,389
    
    
    $
    5,913BASIC:Weighted average common stock issued and
outstanding, end of period
    
    
    22,750
    
    
    
    23,111Income from operations, net of income taxes, per
weighted average share, basic
    
    $
    0.50
    
    
    $
    0.26DILUTED:Weighted average common stock issued and
outstanding, end of period
    
    
    22,750
    
    
    
    23,111Weighted average dilutive common stock equivalents
    
    
    664
    
    
    
    427Weighted average common stock and dilutive common
stock equivalents outstanding
    
    
    23,414
    
    
    
    23,538Income from operations, net of income taxes, per
weighted average share, diluted
    
    $
    0.49
    
    
    $
    0.25
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PolyMedica Corporation
Notes to Consolidated Financial Statements
 Potentially Dilutive Common Stock Equivalents
   15. Comprehensive Income
  16. New Accounting Pronouncements
   17. Subsequent Events
  17




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PolyMedica Corporation
Notes to Consolidated Financial Statements
  18




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Future Operating Results
   Overview
  Diabetes
  
    
    Providing efficient delivery of diabetes related products directly to our
patients homes;
    
    billing Medicare, other government agencies or private insurance companies
directly for those diabetes related supplies that are reimbursable;
    
    providing medical call and contact center services and 24-hour telephone
support to patients;
    
    using sophisticated software and advanced order fulfillment systems to
efficiently provide diabetes related products.
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20




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Pharmacy
     Seasonality
   21




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Other
   Results of Operations
 Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
 Net Revenues
  Three Months Ended June 30,2007
    
    
    2006Net
    
    
    % Net
    
    
    Net
    
    
    % Net(in thousands)
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeNet revenues:Diabetes
    
    $
    126,596
    
    
    
    66.4
    %
    
    $
    113,783
    
    
    
    73.0
    %
    
    $
    12,813
    
    
    
    11.3
    %Pharmacy
    
    
    64,029
    
    
    
    33.6
    
    
    
    42,106
    
    
    
    27.0
    
    
    
    21,923
    
    
    
    52.1Total net revenues
    
    $
    190,625
    
    
    
    100.0
    %
    
    $
    155,889
    
    
    
    100.0
    %
    
    $
    34,736
    
    
    
    22.3
    %
   Gross Margin
  Three Months Ended June 30,2007
    
    
    2006Gross
    
    
    Gross
    
    
    Gross
    
    
    Gross(in thousands)
    
    Margin
    
    
    Margin %
    
    
    Margin
    
    
    Margin %
    
    
    $ Change
    
    
    % ChangeGross margin:Diabetes
    
    $
    74,808
    
    
    
    59.1
    %
    
    $
    63,605
    
    
    
    55.9
    %
    
    $
    11,203
    
    
    
    17.6
    %Pharmacy
    
    
    11,084
    
    
    
    17.3
    
    
    
    8,728
    
    
    
    20.7
    
    
    
    2,356
    
    
    
    27.0Total gross margin
    
    $
    85,892
    
    
    
    45.1
    %
    
    $
    72,333
    
    
    
    46.4
    %
    
    $
    13,559
    
    
    
    18.7
    %
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Selling, General and Administrative Expenses
  June 30,
    
    
    June 30,2007
    
    
    2006Employee compensation and benefits
    
    $
    26,079
    
    
    $
    24,359Direct-response advertising amortization
    
    
    13,194
    
    
    
    11,642Depreciation expense
    
    
    2,724
    
    
    
    2,456Amortization of intangible assets
    
    
    4,659
    
    
    
    2,425Provision for doubtful accounts
    
    
    6,326
    
    
    
    5,397Stock-based compensation
    
    
    3,077
    
    
    
    3,014Other
    
    
    10,291
    
    
    
    10,971Selling, general and administrative expenses
    
    $
    66,350
    
    
    $
    60,264Selling, general and administrative expenses as a percentage of net revenues
    
    
    34.8
    %
    
    
    38.7
    %
   23




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Other Income and Expense
  Three Months Ended June 30,(in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeInvestment income
    
    $
    318
    
    
    $
    340
    
    
    $
    (22
    )
    
    
    (6.5
    )%Interest and other expense
    
    $
    1,782
    
    
    $
    3,097
    
    
    $
    (1,315
    )
    
    
    (42.5
    )%
  Income Taxes
  Three Months Ended June 30,(in thousands)
    
    2007
    
    2006Income tax provision
    
    $
    6,689
    
    
    $
    3,399Effective tax rate
    
    
    37.0
    %
    
    
    36.5
    %
  Liquidity and Capital Resources
  Three Months Ended June 30,(in thousands)
    
    2007
    
    
    2006Net cash provided by operating activities
    
    $
    19,053
    
    
    $
    16,769Net cash used for investing activities
    
    
    (3,066
    )
    
    
    (11,613
    )Net cash provided by (used for)
financing activities
    
    
    (14,111
    )
    
    
    (11,669
    )Net change in cash and cash equivalents
    
    $
    1,876
    
    
    $
    (6,513
    )
  24




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Critical Accounting Policies
  25




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New Accounting Pronouncements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Disclosure controls and procedures
  26




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Changes in internal controls
  
 PART II  OTHER INFORMATION
 
 Item 1.  Legal Proceedings
  
 Item 1A.  Risk Factors
  We could experience significantly reduced revenues and profits if payers change, delay or deny
reimbursement
   Our ability to navigate the challenges of the Medicare Prescription Drug Program could negatively
impact our Pharmacy segment
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Competitive bidding for durable medical equipment suppliers could negatively affect our Diabetes
segment
  CMSs application of Inherent Reasonableness authority could negatively affect our Diabetes segment
  We are subject to a corporate integrity agreement
  The profitability of our segments will decrease if we do not receive recurring orders from patients
  We could experience significantly reduced profits from our Diabetes segment if new technologies
that reduce or eliminate the need for consumable testing supplies are developed for glucose
monitoring
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A fundamental change and the provisions in the Notes related to the occurrence of a fundamental
change may adversely affect us
    The convertible note hedge and warrant transactions may affect the value of our common stock
   Conversion of the Notes will dilute the ownership interest of existing stockholders, including
holders who have previously converted their Notes
  Accounting treatment for the Notes is subject to change
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Failure to maintain effective internal control over financial reporting could result in a loss of
investor confidence in our financial reports and have a materially adverse effect on our stock price
  Loss of use of distribution, call center and data storage facilities could significantly reduce
revenues and profits from our businesses
  The market price of our common stock may experience substantial fluctuations for reasons over which
we have little control
  
    
    fluctuations in our quarterly results;
    
    announcements concerning us, our competitors, or manufacturers with whom we have
relationships or the healthcare market;
    
    overall volatility of the stock market;
    
    changes in government regulations;
    
    changes in the financial estimates we provide to the market or estimates by analysts; and
    
    loss of key executives.
  We plan to continue our expansion; if we do not manage our growth successfully, our growth and
profitability may slow or stop
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Our debt may adversely affect our cash flow and may restrict our investment opportunities or limit
our activities.
   Geopolitical events may reduce our ability to obtain favorable advertising rates for our
direct-response advertising efforts, which may increase our expenses and/or lead to a reduction in
revenues
  We could experience a charge to earnings as a result of an impairment of our goodwill,
direct-response advertising or other intangible assets
   We could be liable for harm caused by products that we sell and may incur significant expenses in
connection with the defense of any product liability claims
  We could lose patients and revenues to new or existing competitors
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If we or our suppliers do not comply with applicable government regulations, we may be prohibited
from selling our products or may incur fines and other expenses
  Our quarterly revenues or operating results could vary, which may cause the market price of our
securities to decline
  
    
    changes in reimbursement guidelines and amounts;
    
    changes in regulations affecting the healthcare industry;
    
    changes in suppliers;
    
    the timing of patient orders;
    
    the timing and cost of our advertising campaigns;
    
    the timing of the introduction or acceptance of new products offered by us or our competitors; and
    
    changes in the mix of our products; product costs are significantly influenced by the
product brand chosen by our patients. We provide a wide range of product brand choices to our
patients, purchased at varying costs from suppliers. Our ability to sustain current gross margin
levels is dependent both on our ability to continue securing favorable pricing from suppliers and
on the brand choices of our patients.
 A reduction in working capital, a change in our business or a decision to invest our capital
differently could prevent us from paying dividends to shareholders
  We may make acquisitions that will strain our financial and operational resources
  
    
    diversion of the attention of senior management from important business matters;
    
    amortization of substantial intangible assets;
    
    difficulty in retaining key personnel of an acquired business;
    
    lack of adequate internal control over financial reporting;
    
    failure to assimilate operations of an acquired business;
    
    possible operating losses and expenses of an acquired business;
    
    exposure to legal claims for activities of an acquired business prior to acquisition; and
    
    incurrence of debt and related interest expense.
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We are currently involved in litigation and could experience reduced net income if this litigation
is not resolved in our favor
  Adverse results in tax audits could result in significant cash expenditures or exposure to
unforeseen liabilities
  We may issue preferred stock with rights senior to our common stock
  
 Item 6. Exhibits
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PolyMedica Corporation 
(registrant)/s/ Patrick T. RyanPatrick T. RyanChief Executive Officer and Director
(Principal Executive Officer)/s/ Jonathan A. StarrJonathan A. StarrChief Financial Officer
(Principal Financial and Accounting Officer)  34




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Exhibit Index
 ExhibitNumber
    
    
    
    Description10.1.1
    
    -
    
    PolyMedica Corporation Executive
Savings Plan Amended and Restated May 3, 2007 (1) 10.1.2
    
    -
    
    PolyMedica Corporation Executive
Savings Plan Amended and Restated August 1, 2007 10.2
    
    -
    
    Second Amendment to Employment Agreement  Patrick T. Ryan (2) 10.3
    
    -
    
    First Amendment to Employment Agreement  Stephen C. Farrell (2)10.4
    
    -
    
    First Amendment to Employment Agreement  Keith W. Jones (2) 10.5
    
    -
    
    First Amendment to Employment Agreement  Devin J. Anderson (2) 10.6
    
    -
    
    Employment Agreement  Jonathan A. Starr (2) 31.1
    
    -
    
    Certification by Chief Executive Officer pursuant to Rule
13a14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    -
    
    Certification by Chief Financial Officer pursuant to Rule 13a14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as amended.32.1
    
    -
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated herein by reference to the Companys Current Report on Form 8-K,
filed as of May 8, 2007.(2)
    
    Incorporated herein by reference to the Companys Current Report on Form 8-K,
filed as of July 13, 2007.
    
    Management contract or compensation plan or arrangement. 35