<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2001

                                       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. 0-19842

                             PolyMedica Corporation

             (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              (781) 933-2020


     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 issued of the registrant's Common Stock as of November
13, 2001 was 13,284,803, which includes 973,977 shares held in treasury.
<PAGE>
                             POLYMEDICA CORPORATION
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                        Page
                                                                                        ----
<S>                                                                                      <C>
PART I  -      FINANCIAL INFORMATION

Item 1  -      Financial Statements

                  Consolidated Balance Sheets as of
                        September 30 (unaudited) and March 31, 2001                       3

                  Unaudited Consolidated Statements of Operations
                           for the three and six months ended
                           September 30, 2001 and 2000                                    5

                  Unaudited Consolidated Statements of Cash Flows
                           for the six months ended
                           September 30, 2001 and 2000                                    6

                  Notes to Consolidated Financial Statements                              7

Item 2  -      Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                              14

Item 3  -      Quantitative and Qualitative Disclosures About Market Risk                28

PART II -      OTHER INFORMATION

Item 1 -       Legal Proceedings                                                         29

Item 4 -       Submission of Matters to a Vote of Security Holders                       30

Item 6  -      Exhibits and Reports on Form 8-K                                          31

Signatures                                                                               32

Exhibit Index                                                                            33
</TABLE>

                                       2
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                             POLYMEDICA CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                         SEPTEMBER 30,
                                                             2001           MARCH 31,
                                                          (UNAUDITED)        2001
                                                         -------------    -----------
ASSETS

<S>                                                        <C>             <C>
Current assets:
      Cash and cash equivalents                            $ 31,468        $ 39,571
      Accounts receivable (net of allowances of
         $14,275 and $13,729 as of September 30 and
         March 31, 2001, respectively)                       41,090          31,969
      Inventories                                            19,518          22,791
      Deferred tax asset                                      9,558           9,558
      Prepaid expenses and other
         current assets                                       1,675           1,073
                                                           --------        --------

              Total current assets                          103,309         104,962

Property, plant, and equipment, net                          25,809          22,199
Intangible assets, net                                       31,585          32,723
Direct response advertising, net                             47,052          39,940
Other assets                                                  1,396           1,740
                                                           --------        --------

              Total assets                                 $209,151        $201,564
                                                           ========        ========
</TABLE>

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

                                       3
<PAGE>
                             POLYMEDICA CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,
                                                                       2001           MARCH 31,
                                                                    (UNAUDITED)         2001
                                                                   -------------   ------------

<S>                                                                 <C>               <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                $  10,436         $  13,118
    Amounts due to Medicare                                             5,702                --
    Accrued expenses                                                   13,768             8,277
    Current portion, capital lease obligations                            687               587
                                                                    ---------         ---------

              Total current liabilities                                30,593            21,982

Long-term capital lease and other obligations                           1,146             2,576
Deferred income taxes                                                  17,551            17,551
                                                                    ---------         ---------

              Total liabilities                                        49,290            42,109

Minority interest                                                         945               805
Commitments

Shareholders' equity:
      Preferred stock, $0.01 par value; 2,000,000 shares
        authorized, none issued or outstanding                             --                --
      Common stock, $.01 par value; 50,000,000 shares
        authorized; 13,284,803 and 13,275,993 shares issued
        as of September 30 and March 31, 2001, respectively               133               133
      Treasury stock, at cost (963,977 and 205,325 shares as
        of September 30 and March 31, 2001, respectively)             (18,745)           (5,526)
      Additional paid-in capital                                      118,868           118,710
      Retained earnings                                                58,660            45,333
                                                                    ---------         ---------

              Total shareholders' equity                              158,916           158,650
                                                                    ---------         ---------

              Total liabilities and shareholders' equity            $ 209,151         $ 201,564
                                                                    =========         =========
</TABLE>

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

                                       4
<PAGE>
                             POLYMEDICA CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                     SEPT. 30,        SEPT. 30,         SEPT. 30,        SEPT. 30,
                                                       2001              2000             2001              2000
                                                     ---------        ---------         ---------        ---------

<S>                                                 <C>              <C>              <C>               <C>
Net revenues                                        $ 68,851         $ 54,241         $ 131,872         $ 104,609

Cost of sales                                         23,555           19,487            44,820            38,476
                                                    --------         --------         ---------         ---------

Gross margin                                          45,296           34,754            87,052            66,133

Selling, general and administrative
  expenses                                            38,059           23,427            65,964            45,766
                                                    --------         --------         ---------         ---------

Income from operations                                 7,237           11,327            21,088            20,367

Other income and expense:
  Investment income / (loss)                             234              732               774             1,366
  Interest expense                                       (44)             (79)              (87)             (148)
  Other income and expense                                (1)             (77)               (1)              (62)
  Minority interest                                      174             (180)             (140)             (204)
                                                    --------         --------         ---------         ---------

                                                         363              396               546               952

Income before income taxes                             7,600           11,723            21,634            21,319
Income tax provision                                   2,918            4,373             8,307             7,952
                                                    --------         --------         ---------         ---------

Income before cumulative effect of change in
  accounting principle                                 4,682            7,350            13,327            13,367

Cumulative effect of a change in accounting
  principle, net of taxes of $4,121                       --               --                --            (6,926)
                                                    --------         --------         ---------         ---------

Net income                                          $  4,682         $  7,350         $  13,327         $   6,441

Net income per weighted average share
  before cumulative effect of change in
  accounting principle:

    Basic                                           $    .37         $    .56         $    1.04         $    1.02
    Diluted                                         $    .36         $    .54         $    1.02         $     .98

Cumulative effect of change in
  accounting principle:

    Basic                                           $     --         $     --         $      --         $   (0.53)
    Diluted                                         $     --         $     --         $      --         $   (0.51)

Net income per weighted average share:

    Basic                                           $    .37         $    .56         $    1.04         $     .49
    Diluted                                         $    .36         $    .54         $    1.02         $     .47

    Weighted average shares, basic                    12,680           13,182            12,818            13,157

    Weighted average shares, diluted                  12,949           13,622            13,116            13,619
</TABLE>


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


                                       5
<PAGE>
                             POLYMEDICA CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                    SIX MONTHS ENDED
                                                                                       SEPTEMBER 30,

                                                                                     2001               2000
                                                                                   --------         --------
<S>                                                                                <C>              <C>
Cash flows from operating activities:
    Net income                                                                     $ 13,327         $  6,441
    Adjustments to reconcile net income to net cash flows:
        Depreciation and amortization excluding direct-response advertising
           amortization                                                               2,700            2,507
        Amortization of direct-response advertising                                  13,978            8,506
        Direct-response advertising                                                 (21,090)         (16,324)
        Minority interest                                                               140              133
        Provision for bad debts                                                       9,998            6,866
        Provision for sales allowances                                                5,813            5,851
        Provision for inventory obsolescence                                            186            1,740
        Changes in assets and liabilities:
           Accounts receivable                                                      (24,932)               7
           Inventories                                                                3,087           (7,972)
           Prepaid expenses and other assets                                         (1,096)             442
           Accounts payable                                                          (2,682)          (1,734)
           Amounts due to Medicare                                                    5,702               --
           Accrued expenses and other long-term liabilities                           6,096              105
                                                                                   --------         --------

                Total adjustments                                                    (2,100)             127
                                                                                   --------         --------

                Net cash flows from operating activities                             11,227            6,568
                                                                                   --------         --------

Cash flows from investing activities:
    Purchase of marketable securities                                                (5,499)         (20,300)
    Proceeds from sale of marketable securities                                       5,499               --
    Proceeds from sale of certain assets of the healthcare business                      --              300
    Purchase of property, plant and equipment                                        (4,850)          (5,502)
                                                                                   --------         --------

                Net cash flows from investing activities                             (4,850)         (25,502)
                                                                                   --------         --------

Cash flows from financing activities:
    Proceeds from issuance of common and treasury stock                                 295              889
    Repurchase of common stock                                                      (13,357)            (766)
    Contributions to deferred compensation plans                                     (1,103)          (1,329)
    Reduction of obligations under capital leases                                      (315)            (258)
    Repayment of senior debt and notes payable                                           --              (27)
                                                                                   --------         --------

                Net cash flows from financing activities                            (14,480)          (1,491)
                                                                                   --------         --------

                Net decrease in cash and cash equivalents                            (8,103)         (20,425)

                Cash and cash equivalents at beginning of period                     39,571           40,687
                                                                                   --------         --------

                Cash and cash equivalents at end of period                         $ 31,468         $ 20,262

Supplemental disclosure of cash flow information:
    Receipt of long-term note receivable from sale of certain assets of the
       healthcare business                                                         $     --         $  1,125
    Assets purchased under capital lease                                                323              116
</TABLE>



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

                                       6
<PAGE>
                             POLYMEDICA CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       The unaudited consolidated financial statements included herein have
been prepared by PolyMedica Corporation ("PolyMedica" or the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"SEC") 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 results for the interim periods presented are not necessarily
indicative of results to be expected for the full fiscal year. It is suggested
that these interim consolidated financial statements be read in conjunction with
the audited consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 2001, and its unaudited
consolidated financial statements included in the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 2001.

         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. Estimates and judgments are used for, but not limited to, determination
of appropriate Medicare reimbursement rates, the allowance for doubtful accounts
and sales returns, valuation of inventory, accrued expenses and depreciation and
amortization. Actual results could differ from those estimates. In addition,
certain amounts in the prior period financial statements have been reclassified
to conform with the current year presentation.

2.       In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements", subsequently updated by SAB 101A
and SAB 101B ("SAB 101"). SAB 101 summarizes certain areas of the Staff's views
in applying generally accepted accounting principles to revenue recognition in
financial statements. Prior to the implementation of SAB 101, the Company
recognized revenue upon receipt of a customer order and shipment of the related
product, provided that the required verbal authorizations had been received.
Under the new accounting method adopted retroactive to April 1, 2000, revenue
related to product shipments to customers who have placed orders is recognized
upon shipment, provided that risk of loss has passed to the customer and the
Company has received and verified the required written forms, such as an
Authorization of Benefits form and Doctor's Order, to bill Medicare and other
third-party payers. The Company records revenue at amounts expected to be
collected from Medicare, other third-party payers, and directly from customers.

         The Company delays revenue recognition for product shipments for which
the Company has not yet received a written Authorization of Benefits form and
Doctor's Order until the period in which those documents are collected and
verified. The cumulative effect of the change in accounting principle on prior
years resulted in a charge to income of $6.93 million (net of income taxes of
$4.12 million), or $0.51 per diluted common share, which was applied
retroactively as of April 1, 2000 and is included in net income for the six
months ended September 30, 2000.

                                       7
<PAGE>
3.       Approximately $44.35 million and $38.74 million of net revenues for the
three months ended September 30, 2001 and 2000, respectively, were
Medicare-related. Approximately $90.60 million and $75.13 million of net
revenues for the six months ended September 30, 2001 and 2000, respectively,
were Medicare-related.

4.       Sales allowances are recorded for estimated product returns using
historical return trends and are recorded as a reduction of revenue. These
allowances are adjusted to reflect actual returns and collection history. During
the three months ended September 30, 2001 and 2000, the Company provided for
sales allowances at a rate of approximately 3.9% and 5.4% of gross revenues,
respectively. During the six months ended September 30, 2001 and 2000, the
Company provided for sales allowances at a rate of approximately 4.2% and 5.3%
of gross revenues, respectively.

5.       Inventories consist of the following:
         (In thousands)

<TABLE>
<CAPTION>
                     September 30,    March 31,
                         2001           2001
                     -------------  ------------
<S>                    <C>            <C>
Raw materials          $   552        $   685
Work in process            448            783
Finished goods          18,518         21,323
                       -------        -------
                       $19,518        $22,791
                       =======        =======
</TABLE>

         Due to the medical nature of the products the Company provides,
customers sometimes request supplies before the Company has received the
required written forms to bill Medicare and other third-party payers and
recognize revenue. As a result, included in inventories as of September 30 and
March 31, 2001, is $5.06 million and $6.07 million, respectively, of inventory
shipped to customers for which the Company has received an order but has not yet
received the required written documents.

6.       Included in long-term other assets are restricted investments of
$788,000 and $1.63 million as of September 30 and March 31, 2001, respectively,
which represent amounts set aside by the Company under executive deferred
compensation plans (the "Plans"). The related liability is included in capital
lease and other long-term obligations. Changes in the fair value of investments
held in the Plans are recorded as investment income or loss with a corresponding
adjustment to compensation expense, long-term other assets and capital lease and
other long-term obligations. As of September 30, 2001, the fair value of these
investments was not materially different from cost. In the six months ended
September 30, 2001, $1.88 million was paid to certain beneficiaries of the
Plans. Amounts funded to the Plans in the six months ended September 30, 2001
approximated $1.00 million.

         The investments held in the Plans are accounted for pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" and as such, have been
classified as trading, are included in long-term other assets and are recorded
at fair value. At September 30, 2001, the fair value of these investments was
not materially different from cost.

                                       8
<PAGE>
7.       In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart from
goodwill. SFAS No. 142 requires that ratable amortization of goodwill be
replaced with tests of the goodwill's impairment, at various periods,
specifically upon adoption of SFAS No. 142, annually, and as a result of a
specific event or activity, and that intangible assets other than goodwill be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition is after
June 30, 2001. The provisions of SFAS No. 142 will be effective for fiscal years
beginning after December 15, 2001, and will thus be adopted by the Company, as
required, on April 1, 2002. The impact of SFAS No. 141 and SFAS No. 142 on the
Company's financial statements has not yet been determined.

         In August 2001, the FASB issued SFAS No. 143 "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets." The provisions
of SFAS 143 apply to all entities that incur obligations associated with the
retirement of tangible long-lived assets. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002, and will thus
be adopted by the Company, as required, in fiscal year 2004. The impact of SFAS
No. 143 on the Company's financial statements has not yet been determined.

         In October 2001 the FASB issued FASB Statement No. 144 ("FAS 144" or
the "Standard"), Accounting for the Impairment or Disposal of Long-Lived Assets.
FAS 144 provides guidance on the accounting for the impairment on disposal of
long-lived assets. The objectives of FAS 144 are to address significant issues
relating to the implementation of FASB Statement No. 121 (FAS 121), Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and to develop a single model (based on the framework established in FAS
121) for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. FAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001 and thus will be adopted by
the Company, as required, in fiscal 2003. Generally, its provisions are to be
applied prospectively. The impact of FAS 144 on the Company's financial
statements has not yet been determined.

8.       In accordance with Statement of Position 93-7 ("SOP 93-7"), the Company
incurred and capitalized direct-response advertising of $11.78 million and $7.80
million in the three months ended September 30, 2001 and 2000, respectively. The
Company expenses in the period all other advertising incurred. A total of $7.40
million and $4.63 million in direct-response advertising was amortized and
charged to selling, general and administrative expense for the three months
ended September 30, 2001 and 2000, respectively. A total of $21.09 million and
$16.32 million of direct-response advertising was capitalized in the six months
ended September 30, 2001 and 2000, respectively. A total of $13.98 million and
$8.51 million was amortized and charged to selling, general and administrative
expense for the six months ended September 30, 2001 and 2000, respectively.
Management assesses the realizability of the amounts of direct-response
advertising costs reported as assets at each balance sheet date by comparing the
carrying amounts of such assets to the probable remaining future net benefits
expected to result directly from such advertising.

         Any change in existing accounting rules or business change that reduces
revenue or earnings or that shortens or eliminates the amortization period of
our direct-response advertising costs,

                                       9
<PAGE>
currently four years for our diabetes products and two years for our respiratory
products, could result in accelerated charges against our earnings.

9.       In September 2000, the Company sold certain assets of its thermometry
and compliance products business which were included in the Consumer Healthcare
segment. Under the terms of the sale, the purchaser paid the Company $300,000 in
cash and issued to the Company a promissory note in the face amount of $1.12
million at an interest rate of 7%, maturing September 20, 2003. In March 2001,
the Company accepted $900,000 as final settlement of this note in consideration
of the financial position of the borrower.

10.      Amounts due to Medicare of $5.70 million as of September 30, 2001,
represent probable maximum amounts due to Medicare related to a change in
interpretation of the reimbursement formula for albuterol and ipratropium
combinations used in the Company's Professional Products segment. Beginning
September 6, 2001 through November 13, 2001 the Company has received
administrative overpayment notices from one Durable Medical Equipment Regional
Carrier ("DMERC") totaling $845,000 relating to this reimbursement formula.
Since September 1999, PolyMedica has been reimbursed by all four DMERCs based on
its earlier interpretation of the reimbursement formula and previously had
received no administrative overpayment notices disputing that formula. The
liability of $5.70 million is the remaining difference between reimbursement
under the two interpretations of the reimbursement formula for all relevant
transactions and assumes that all four DMERCs issue similar administrative
overpayment notices. The Company is processing administrative overpayment
notices as received and refunds are being issued. Of the $5.70 million
liability, $5.03 million was charged to selling, general and administrative
expenses in the quarter ended September 30, 2001 for billing adjustments prior
to July 1, 2001 and $823,000 represents billing adjustments related to the
quarter ended September 30, 2001. Approximately $150,000 of the total liability
was paid or credited prior to September 30, 2001, resulting in a September 30,
2001 balance of $5.70 million.

11.      Minority interest in the Consolidated Balance Sheets of $945,000 and
$805,000 as of September 30 and March 31, 2001, respectively, represents the
ownership interests in certain subsidiaries of the Company purchased and held by
certain Company executives. The minority interest amounts in the Consolidated
Statements of Operations of $174,000 and ($180,000) for the three months ended
September 30, 2001 and 2000, respectively, and ($140,000) and ($204,000) for the
six months ended September 30, 2001 and 2000, respectively, represent changes in
the value of such ownership interests purchased and held by certain Company
executives.

12.      The Company has three reportable segments:

         Chronic Care - The Company sells diabetes supplies and related products
through its Chronic Care segment. The Company offers a wide array of diabetes
products from a full range of name-brand manufacturers, contacts the patient's
doctor to obtain the required prescription information and written
documentation, files the appropriate insurance forms and bills Medicare and
private insurers directly. This service frees the patient from paying for his or
her chronic disease-related upfront expenses and offers the convenience of free
home delivery of supplies.

         Professional Products - The Company sells respiratory products to
Medicare-eligible seniors and develops, manufactures, and distributes
prescription urology products.

         Consumer Healthcare - The Company offers the AZO line of products which
includes over-the-counter female urinary tract discomfort products and home
medical diagnostic kits; and, until September 2000, was a distributor of
private-label and branded digital thermometers. In September

                                       10
<PAGE>
2000, the Company sold certain assets of its Consumer Healthcare segment. See
Note 9 for information on the sale.

         Depreciation and amortization expense attributable to the Company's
corporate headquarters is allocated to the operating segments according to the
segments' relative percentage of total revenue. However, segment assets
belonging to the Company's corporate headquarters are not allocated, as they are
considered separately for management evaluation purposes. As a result of these
allocations, the segment information may not be indicative of the financial
position or results of operations that would have been achieved had these
segments operated as unaffiliated entities. The depreciation and amortization
amounts below include amortization of direct-response advertising. The Company
does not organize its units geographically, as its products and services are
sold throughout the United States only. There are no intersegment sales for the
periods presented. Information concerning the operations in these reportable
segments is as follows:

<TABLE>
<CAPTION>
                                           Three months ended                Six months ended
                                        Sept. 30,        Sept. 30,       Sept. 30,        Sept. 30,
(In thousands)                           2001             2000            2001             2000
                                      ---------        ---------       ---------        ---------
<S>                                   <C>              <C>              <C>             <C>
NET REVENUES:
Chronic Care                          $ 52,827         $ 40,274         $100,157        $  79,248
Professional Products                   13,883           10,558           27,721           19,206
Consumer Healthcare                      2,141            3,409            3,994            6,155
                                      --------         --------         --------        ---------
Total                                 $ 68,851         $ 54,241         $131,872        $ 104,609
                                      ========         ========         ========        =========

DEPRECIATION AND AMORTIZATION:

Chronic Care                          $  4,627         $  3,661         $  8,941        $   6,987
Professional Products                    4,135            2,252            7,736            4,000
Consumer Healthcare                       --                 11                1               26
                                      --------         --------         --------        ---------
Total                                 $  8,762         $  5,924         $ 16,678        $  11,013
                                      ========         ========         ========        =========

INCOME BEFORE INCOME TAXES:

Chronic Care                          $  8,431         $  9,281         $ 17,822        $  15,988
Professional Products                   (1,860)           3,497            2,075            6,227
Consumer Healthcare                      1,029           (1,055)           1,737             (896)
                                      --------         --------         --------        ---------
Total                                 $  7,600         $ 11,723         $ 21,634        $  21,319
                                      ========         ========         ========        =========
</TABLE>

<TABLE>
<CAPTION>
                                      Sept. 30,         March 31,
                                        2001              2001
                                      ---------         ---------
<S>                                   <C>              <C>
SEGMENT ASSETS:
Chronic Care                          $109,439         $ 97,559
Professional Products                   58,461           56,158
Consumer Healthcare                      2,034            1,611
Corporate Headquarters                  39,217           46,236
                                      --------         --------
Total                                 $209,151         $201,564
                                      ========         ========
</TABLE>

13.      In June 2000, the Company's Board of Directors authorized the
repurchase of up to 1,000,000 shares of the Company's common stock on the open
market, with any shares repurchased to be held in treasury. In August 2001, the
Company's Board of Directors authorized the repurchase of an additional
1,000,000 shares. In the quarter ended September 30, 2001, 639,000 shares were

                                       11
<PAGE>
repurchased under these programs for $10.38 million. As of September 30, 2001,
1,001,000 shares had been cumulatively repurchased under these programs for
$20.00 million. From October 1, 2001 to November 13, 2001, 10,000 shares were
repurchased under the August 2001 authorized share repurchase program for
$167,000. As of November 13, 2001, 1,011,000 shares had been cumulatively
repurchased under these programs for $20.17 million. As of November 13, 2001,
989,000 shares remain authorized for repurchase under the August 2001 authorized
share repurchase program.

14.      In November 2000, the Company filed an amendment to a shelf
registration statement it had originally filed in April 2000, to enable it to
offer from time to time, shares of its common stock having an aggregate value of
up to $100 million. The SEC declared the shelf registration statement effective
during the quarter ended December 31, 2000. No shares of common stock had been
sold under this shelf registration statement as of September 30, 2001.

15.      The Company is subject to risks and uncertainties common to companies
in the healthcare industry, including but not limited to, receipt of third-party
healthcare reimbursement, and compliance with government regulations. The
regulations that govern Medicare reimbursement are complex and our compliance
with those regulations may be reviewed by federal agencies and third-party
reimbursement organizations. The Company's Liberty Medical Supply and Liberty
Home Pharmacy subsidiaries are being investigated by the U.S. Attorney's Office
for the Southern District of Florida with respect to Medicare compliance. One
investigation is of a civil nature and the other is criminal. PolyMedica has
been cooperating fully with both investigations. The SEC is conducting an
inquiry of the Company and the Company is cooperating fully. The Company cannot
accurately predict the outcome of these proceedings at this time.

         The Company and three of its officers are defendants in a lawsuit
alleging violations of certain sections and rules of the Securities Exchange
Act of 1934 (the "Exchange Act"). In addition, there is a derivative action
against the directors of the Company in a Massachusetts state court alleging
certain breaches of fiduciary duty. Finally, there is a derivative action
against the directors of the Company in United States District Court also
alleging certain breaches of fiduciary duty. The Company, the named officers,
and the Board of Directors believe that they have meritorious defenses to the
claims made against them in the actions in which they are defendants and intend
to contest the claims vigorously. Although the Company does not consider an
unfavorable outcome to the various claims probable, it cannot accurately
predict their ultimate disposition. Please see Item 1 of Part II, Legal
Proceedings, for a more complete description of these claims.


                                       12
<PAGE>
16.      The Company's total net income and comprehensive income was $4.68
million and $7.35 million for the three months ended September 30, 2001 and
2000, respectively. For the six months ended September 30, 2001 and 2000, total
net income and comprehensive income was $13.33 million and $6.44 million,
respectively.

17.      Calculations of earnings per share are as follows:

<TABLE>
<CAPTION>
(In thousands, except per share data)                                      Three Months Ended             Six Months Ended
                                                                         Sept. 30,     Sept. 30,      Sept. 30,      Sept. 30,
                                                                           2001           2000           2001           2000
                                                                         ---------     ---------      ---------      ---------

<S>                                                                        <C>            <C>            <C>            <C>
Net income                                                                 $ 4,682        $ 7,350        $13,327        $ 6,441

BASIC:

Weighted average common stock outstanding, net of treasury stock,
     end of period                                                          12,680         13,182         12,818         13,157
Net income per weighted average share, basic                               $   .37        $   .56        $  1.04        $   .49
                                                                           =======        =======        =======        =======

DILUTED:

Weighted average common stock outstanding, net of treasury stock,
     end of period                                                          12,680         13,182         12,818         13,157
Weighted average dilutive common stock equivalents                             269            440            298            462
                                                                           -------        -------        -------        -------
Weighted average common stock and dilutive common stock equivalents
     outstanding, net of treasury stock
                                                                            12,949         13,622         13,116         13,619
Net income per weighted average share, diluted                             $   .36        $   .54        $  1.02        $   .47
                                                                           =======        =======        =======        =======
</TABLE>

         Options to purchase 1,033,456 and 652,500 shares of common stock were
outstanding during the three months ended September 30, 2001 and 2000,
respectively, but were not included in the computation of diluted earnings per
share, because the options' exercise prices were greater than the average market
price of the common shares. During the six months ended September 30, 2001 and
2000, options to purchase 661,370 and 0 shares of common stock, respectively,
were outstanding, but were not included in the computation of diluted earnings
per share, because the options' exercise prices were greater than the average
market price of the common shares.


                                       13
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

BUSINESS

         PolyMedica Corporation is a leading provider of direct-to-consumer
specialty medical products and services, conducting business in the Chronic
Care, Professional Products and Consumer Healthcare markets. We sell diabetes
supplies and related products through our Chronic Care segment. We also provide
direct-to-consumer prescription respiratory supplies and services to
Medicare-eligible seniors suffering from chronic obstructive pulmonary disease
("COPD") and market, manufacture and distribute a line of prescription
urological and suppository products through our Professional Products segment.
Our AZO brand holds a leading position in the over-the-counter ("OTC") urinary
health market. Our AZO products are distributed primarily to food and drug
retailers and mass merchandisers nationwide, through our Consumer Healthcare
segment.

         Under the change in accounting principle for revenue recognition as
described in Note 2 in the financial statements, we recognize revenue upon
shipment for product sales to customers who have placed orders, provided that
risk of loss has passed to the customer and we have received and verified the
required written forms to bill Medicare and other third-party payers. We record
revenue at amounts expected to be collected from Medicare, other third-party
payers, and directly from customers. Revenue recognition is delayed for
shipments for which we have not yet received a written Authorization of Benefits
form and Doctor's Order, until the period in which those documents are collected
and verified. This policy represents a change as of April 1, 2000 from our
previous policy of recognizing revenue, when third-party payers were involved,
upon receipt of a customer order and shipment of the related product, provided
that the required verbal authorizations had been received. The cumulative effect
of this change in accounting principle resulted in a one-time net charge of
$6.93 million included in net income for the six months ended September 30,
2000.

         Expense items include cost of sales and selling, general and
administrative expenses.

         -        Cost of sales consists primarily of purchased finished goods
                  for sale in our markets and, to a lesser extent, materials and
                  overhead costs for products that we manufacture in our
                  facility and shipping and handling fees; and

         -        Selling, general and administrative expenses consist primarily
                  of expenditures for personnel and benefits, as well as
                  allowances for bad debts, rent, amortization of capitalized
                  direct-response advertising costs and other amortization and
                  depreciation.


                                       14
<PAGE>

Chronic Care

         We are a national direct-mail provider of diabetes supplies and related
products through our Chronic Care segment. Since acquiring Liberty in September
1996, we have devoted a large part of our resources to the growth of our Chronic
Care segment, resulting in substantial increases in revenues and earnings
generated from the segment in each of the years since 1996.

         We have a database of over 335,000 active Medicare-eligible diabetes
customers, many of whom suffer from other chronic diseases, to whom we sell
name-brand products. We deliver products to customers' homes and bill Medicare
and private insurance directly for those supplies that are reimbursable. We meet
the needs of seniors suffering from these diseases by:

         -        providing mail order delivery of supplies direct to our
                  customers' homes;

         -        billing Medicare and/or private insurance companies directly;

         -        providing 24-hour telephone support to customers; and

         -        using sophisticated software and advanced order fulfillment
                  systems to provide products and support quickly and
                  efficiently.

         In the United States, there are approximately 6.3 million seniors who
have diabetes. With our database of over 335,000 active Medicare-eligible
diabetes customers, we serve approximately 5.3% of the diabetes marketplace.
While many of the 6.3 million seniors with diabetes are covered by managed care
or reside in extended care facilities, we believe that the balance are potential
customers of ours.

Professional Products

         We are a national direct-mail provider of prescription respiratory
supplies and also market, manufacture, and distribute a broad line of
prescription urological and suppository products through our Professional
Products segment. Similar to the service we provide in our Chronic Care segment,
we deliver products to customers' homes and bill Medicare and private insurance
directly for those prescription respiratory supplies that are reimbursable. As a
participating Medicare provider and third-party insurance biller, we provide a
simple, reliable way for seniors to obtain their supplies for respiratory
disease treatment. As of September 30, 2001, we had over 32,000 active customers
for our respiratory disease supplies.

         We also own one of the broadest lines of branded prescription urology
products (excluding anti-infectives). Our urology products include urinary
analgesics, anti-spasmodics, local anesthetics and suppositories. URISED(R),
CYSTOSPAZ(R) and CYSTOSPAZ-M(R) analgesics and anti-spasmodics provide effective
symptomatic relief for urinary pain, burning and spasms. Many urology

                                       15
<PAGE>
offices, as well as hospitals, purchase the local anesthetic ANESTACON(R) for
use in diagnostic procedures and the catheterization process. B&O(R) and
AQUACHLORAL(R) suppositories are used by patients unable to tolerate oral
dosages of systemic analgesics and sedatives. Our primary customers for these
urology products are large drug wholesalers in the United States.

Consumer Healthcare

         Our Consumer Healthcare products are focused on female urinary tract
discomfort products and, until September 2000, included private-label and
branded digital thermometers. In September 2000, we sold certain assets of our
Consumer Healthcare segment, including our thermometry products. See Note 9 in
the financial statements for information on the sale. Our female urinary tract
discomfort products include AZO-STANDARD(R), which provides relief from urinary
tract discomfort, AZO-CRANBERRY(R), a dietary supplement which helps maintain a
healthy urinary tract and AZO TEST STRIPS(R), an in-home urinary tract infection
testing kit which allows patients to call their doctors with testing results. In
April 1999, we began shipping two new homeopathic botanical products, AZO
MENOPAUSE(TM) and AZO CONFIDENCE(TM). AZO MENOPAUSE offers relief from hot
flashes and related menopausal symptoms. AZO CONFIDENCE is used for the relief
of symptoms of incontinence. An additional two products, AZO YEAST(TM) and AZO
PMS(TM) were introduced in the fiscal year ended March 31, 2000. These products
are designed to provide relief from yeast infections and pre-menstrual syndrome,
respectively.

Growth Strategy

         Our growth strategy includes the following elements:

         -        continue growth in our Chronic Care and Professional Products
                  segments by expanding our customer base and product offerings;

         -        expand non-Medicare initiatives;

         -        add complementary products and businesses.

Other

         We do not believe our net product sales, in the aggregate, are subject
to material seasonal fluctuations.

         In accordance with Statement of Position 93-7, direct response
advertising and associated costs for all periods presented are capitalized and
amortized to selling, general and administrative expenses on an accelerated
basis. Management assesses the realizability of the amounts of direct-response
advertising costs reported as assets at each balance sheet date by comparing the
carrying amounts of such assets to the probable remaining future net benefits
expected to result directly from such advertising.

         Other advertising, promotional, and marketing costs are charged to
earnings in the period in which they are incurred. Promotional and sample costs
whose benefit is expected to assist future sales are expensed as the related
materials are used.

                                       16
<PAGE>
         We operate from manufacturing and distribution facilities located in
Massachusetts and Florida. Virtually all of our product sales are denominated in
U.S. dollars.

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

Investigations

         Our Liberty Medical Supply and Liberty Home Pharmacy subsidiaries are
being investigated by the U.S. Attorney's Office for the Southern District of
Florida with respect to Medicare Compliance. One investigation is of a civil
nature and the other is criminal. We have been cooperating fully with both
investigations. The Securities and Exchange Commission ("SEC") is conducting an
inquiry of us and we are cooperating fully. We cannot accurately predict the
outcome of these proceedings at this time.

                                       17
<PAGE>
RESULTS OF OPERATIONS

Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000

         Total net revenues increased 26.9% to $68.85 million in the three
months ended September 30, 2001, as compared with $54.24 million in the three
months ended September 30, 2000. This increase was primarily the result of the
growth in net revenues from our Chronic Care and Professional Products segments
which increased 31.2% and 31.5%, respectively, in the three months ended
September 30, 2001, as compared with the three months ended September 30, 2000.
Sales allowances recorded in the three months ended September 30, 2001 were
approximately 3.9% of gross revenues, as compared with 5.4% of gross revenues in
the three months ended September 30, 2000, as a result of further automation in
our document collection process and increased customer service efforts. See Note
12 in the financial statements for segment information.

         Net revenues in the Chronic Care segment increased 31.2% to $52.83
million in the three months ended September 30, 2001, as compared with $40.27
million in the three months ended September 30, 2000. This growth was due
primarily to new customer sales as a result of our direct-response advertising
spending and recurring shipments to existing customers. We currently expect our
promotional and direct-response advertising spending to continue in order to
further the expansion of our Chronic Care segment. Revenue growth was aided by a
cost of living adjustment implemented by the government for certain durable
medical equipment products and services under the Medicare, Medicaid and SCHIP
Benefits Improvement and Protection Act of 2000 which added 3.7% to the revenue
of many of our Chronic Care segment products. In addition, due to the late
implementation by the government of the January 1, 2001 cost of living
adjustment, which went into effect July 1, 2001, an incremental 3.28% was
recorded in the quarter ended September 30, 2001. This incremental 3.28% will be
in effect through December 31, 2001.

         Net revenues in the Professional Products segment increased 31.5% to
$13.88 million in the three months ended September 30, 2001, as compared with
$10.56 million in the three months ended September 30, 2000. This increase was
primarily attributable to the growth in shipments of respiratory products in the
three months ended September 30, 2001 as compared with the three months ended
September 30, 2000, due to new customer sales stimulated by direct-response
advertising spending as well as recurring shipments to existing customers. As
with our Chronic Care segment, we currently expect our promotional and
direct-response advertising spending to continue in order to further the
expansion of our Professional Products segment.

         Net revenues from Consumer Healthcare products decreased 37.2% to $2.14
million in the three months ended September 30, 2001, as compared with $3.41
million in the three months ended September 30, 2000, due primarily to the
September 2000 sale of certain assets of our Consumer Healthcare segment.

         As a percentage of total net revenues, overall gross margins were 65.8%
in the three months ended September 30, 2001 and 64.1% in the three months ended
September 30, 2000. This increase was due primarily to a cost of living
adjustment described above which added 6.98% to the revenue of most of our
Chronic Care segment products in the quarter ended September 30, 2001 and
increased sales in our higher margin Professional Products segment, partially
offset by higher product costs and a change in the product mix for our Chronic
Care and Professional Products segments. In addition, gross margins were

                                       18
<PAGE>
affected by a change in interpretation of the reimbursement formula for
albuterol and ipratropium combinations.

         As a percentage of total net revenues, selling, general and
administrative expenses were 55.3% in the three months ended September 30, 2001,
as compared with 43.2% in the three months ended September 30, 2000. Selling,
general and administrative expenses increased by 62.5% in the three months ended
September 30, 2001 to $38.06 million, as compared with $23.43 million in the
three months ended September 30, 2000. This increase was primarily attributable
to unusual legal and related expenses and charges of $5.03 million for probable
maximum amounts due to Medicare, which relate to a change in interpretation of
the reimbursement formula for albuterol and ipratropium combinations used in our
Professional Products segment. We do not expect any further charges to income as
a result of this change. See Note 10 in the financial statements for information
on these charges. The unusual legal and related expenses in the quarter ended
September 30, 2001 are primarily attributable to previously reported
investigations of our Liberty Medical Supply and Liberty Home Pharmacy
subsidiaries. Total legal and related expenses in the three months ended
September 30, 2001 were $2.65 million, as compared with $474,000 in the three
months ended September 30, 2000. Selling, general and administrative expenses
further increased due to an increase in direct-response advertising amortization
of $2.77 million to $7.40 million in the quarter ended September 30, 2001, from
$4.63 million in the quarter ended September 30, 2000.

          Investment income or loss decreased 67.9% to $234,000 in the three
months ended September 30, 2001, as compared with $732,000 in the three months
ended September 30, 2000, due to a lower average cash balance, lower interest
rates, and increased losses on restricted investments held in the executive
deferred compensation plans in the quarter ended September 30, 2001, as compared
with the quarter ended September 30, 2000. Interest expense decreased 44.7% to
$44,000 in the three months ended September 30, 2001, as compared with $79,000
in the three months ended September 30, 2000, due primarily to the elimination
of interest expense on Liberty's Port St. Lucie facility mortgage in the quarter
ended September 30, 2001 as a result of the December 2000 $1.36 million
repayment. Changes in the fair value of investments held in the executive
deferred compensation plans are recorded as investment income or loss with a
corresponding adjustment to compensation expense, long-term other assets and
capital lease and other long-term obligations.

         Net income decreased 36.3% to $4.68 million, or $0.36 per diluted
weighted average share, for the quarter ended September 30, 2001, as compared
with $7.35 million, or $0.54 per diluted weighted average share, for the quarter
ended September 30, 2000. The decrease in net income was primarily attributable
to unusual legal and related expenses and adjustments to earnings for probable
maximum amounts due to Medicare, recorded during the quarter ended September 30,
2001. See note 10 in the financial statements for more information on the
probable maximum amounts due to Medicare.

Six Months Ended September 30, 2001 Compared to Six Months Ended September 30,
2000

         Total net revenues increased 26.1% to $131.87 million in the six months
ended September 30, 2001, as compared with $104.61 million in the six months
ended September 30, 2000. This increase was primarily the result of the growth
in net revenues from our Chronic Care and Professional Products segments which
increased 26.4% and 44.3%, respectively, in the six months ended September 30,
2001, as compared with the six months ended September 30, 2000. Sales allowances
recorded in the six months ended September 30, 2001 were approximately 4.2% of
gross revenues, as compared with 5.3% of gross revenues in the six months ended
September 30, 2000, as a result of further automation in our document collection
process and increased customer service efforts. See Note 12 in the financial
statements for segment information.

                                       19
<PAGE>
         Net revenues in the Chronic Care segment increased 26.4% to $100.16
million in the six months ended September 30, 2001, as compared with $79.25
million in the six months ended September 30, 2000. This growth was due
primarily to new customer sales as a result of our direct-response advertising
spending and recurring shipments to existing customers. We currently expect our
promotional and direct-response advertising spending to continue in order to
further the expansion of our Chronic Care segment. Revenue growth was aided by a
cost of living adjustment implemented by the government for certain durable
medical equipment products and services under the Medicare, Medicaid and SCHIP
Benefits Improvement and Protection Act of 2000 which added 3.7% to the revenue
of most of our Chronic Care segment products. In addition, due to the late
implementation by the government of the January 1, 2001 cost of living
adjustment, which went into effect July 1, 2001, an incremental 3.28% was
recorded in the quarter ended September 30, 2001. This incremental 3.28% will be
in effect through December 31, 2001.

         Net revenues in the Professional Products segment increased 44.3% to
$27.72 million in the six months ended September 30, 2001, as compared with
$19.21 million in the six months ended September 30, 2000. This increase was
primarily attributable to the growth in shipments of respiratory products in the
six months ended September 30, 2001 as compared with the six months ended
September 30, 2000, due to new customer sales as a result of our direct-response
advertising spending, as well as recurring shipments to existing customers. As
with our Chronic Care segment, we currently expect our promotional and
direct-response advertising spending to continue in order to further the
expansion of our Professional Products segment.

         Net revenues from Consumer Healthcare products decreased 35.1% to $3.99
million in the six months ended September 30, 2001, as compared with $6.15
million in the six months ended September 30, 2000, due primarily to the
September 2000 sale of certain assets of our Consumer Healthcare segment.

         As a percentage of total net revenues, overall gross margins were 66.0%
in the six months ended September 30, 2001, and 63.2% in the six months ended
September 30, 2000. This increase was due primarily to a cost of living
adjustment which added 6.98% to the revenue of most of our Chronic Care segment
products in the three months ended September 30, 2001 and increased sales in our
higher margin Professional Products segment, partially offset by higher product
costs and a change in the product mix for our Chronic Care and Professional
Products segments. In addition, gross margins were affected by a change in
interpretation of the reimbursement formula for albuterol and ipratropium
combinations.

         As a percentage of total net revenues, selling, general and
administrative expenses were 50.0% in the six months ended September 30, 2001,
as compared with 43.7% in the six months ended September 30, 2000. Selling,
general and administrative expenses increased by 44.1% in the six months ended
September 30, 2001 to $65.96 million, as compared with $45.77 million in the six
months ended September 30, 2000. This increase was primarily attributable to
unusual legal and related expenses and charges of $5.03 million for probable
maximum amounts due to Medicare, which relate to a change in interpretation of
the reimbursement formula for albuterol and ipratropium combinations used in our
Professional Products segment. We do not expect any further charges to income as
a result of this change. See Note 10 in the financial statements for information
on these charges. The unusual legal and related expenses in the quarter ended
September 30, 2001 are primarily attributable to previously reported
investigations of our Liberty Medical Supply and Liberty Home Pharmacy
subsidiaries. Total legal and related expenses in the six months ended September
30, 2001 were $3.14 million, as compared with $803,000 in the six months ended
September 30, 2000.

                                       20
<PAGE>
Selling, general and administrative expenses further increased due to an
increase in direct-response advertising amortization of $5.47 million to $13.98
million in the six months ended September 30, 2001, from $8.51 million in the
six months ended September 30, 2000.

         Investment income or loss decreased 43.3% to $774,000 in the six months
ended September 30, 2001, as compared with $1.37 million in the six months ended
September 30, 2000, due to a lower average cash balance, lower interest rates,
and increased losses on restricted investments held in the executive deferred
compensation plans in the six months ended September 30, 2001, as compared with
the six months ended September 30, 2000. Interest expense decreased 41.2% to
$87,000 in the six months ended September 30, 2001, as compared with $148,000 in
the six months ended September 30, 2000, due primarily to the elimination of
interest expense on Liberty's Port St. Lucie facility mortgage in the six months
ended September 30, 2001 as a result of the December 2000 $1.36 million
repayment. Changes in the fair value of investments held in the executive
deferred compensation plans are recorded as investment income or loss with a
corresponding adjustment to compensation expense, long-term other assets and
capital lease and other long-term obligations.

         Pretax income before the cumulative effect of a change in accounting
principle was $21.63 million in the six months ended September 30, 2001, a 1.5%
increase as compared with $21.32 million in the six months ended September 30,
2000. The marginal increase was primarily attributable to unusual legal and
related expenses and adjustments to earnings for probable maximum amounts due to
Medicare, recorded in the six months ended September 30, 2001, without which the
increase in pretax income would have been more significant.

         Our income before the cumulative effect of a change in accounting
principle, net of taxes, was $13.33 million, or $1.02 per diluted weighted
average share, for the six months ended September 30, 2001, as compared with
$13.37 million, or $0.98 per diluted weighted average share, for the six months
ended September 30, 2000. Net income was $13.33 million, or $1.02 per diluted
weighted average share, for the six months ended September 30, 2001, as compared
with $6.44 million, or $0.47 per diluted weighted average share, for the six
months ended September 30, 2000.

Liquidity and Capital Resources

         We have generated positive cash flow from operations in each of the
last 11 quarters and have reported positive annual cash flows from operations in
each of the last 3 fiscal years. Our cash and cash equivalents balance decreased
$8.10 million to $31.47 million as of September 30, 2001, as compared with
$39.57 million as of March 31, 2001, due primarily to cash used for investing
and financing activities, including the repurchase of shares of our common
stock, offset by cash flows generated from operations. Cash flows from
operations of $11.23 million for the six months ended September 30, 2001 were
generated by net income of $13.33 million, offset by cash used to fund certain
areas of our operations, such as spending for unusual legal and related expenses
primarily attributable to the reported investigations of our Liberty Medical
Supply and Liberty Home Pharmacy subsidiaries. Spending for direct-response
advertising also increased $4.77 million to $21.09 million in the six months
ended September 30, 2001, as compared with $16.32 million in the six months
ended September 30, 2000, to further expand our customer base, both for diabetes
testing and respiratory supplies. Accrued expenses, payables, and other
liabilities increased $9.12 million primarily as a result of amounts due to
Medicare of $5.70 million recorded in the six months ended September 30, 2001
and shift in timing of the quarterly estimated tax payment to October for the
current fiscal year.

                                       21
<PAGE>
         In the six months ended September 30, 2001 and 2000, we used $4.85
million and $25.50 million of cash for investing activities, respectively. The
$20.65 million decrease in total cash used for investing activities was
primarily due to fewer purchases of marketable securities in the six months
ended September 30, 2001, as compared with the six months ended September 30,
2000, and timing differences in the maturity of such securities. A decrease in
cash used for capital expenditures also contributed to the overall decrease.
Property, plant and equipment purchases totaled $4.85 million and $5.50 million
for the six months ended September 30, 2001 and September 30, 2000,
respectively. Higher spending in the prior year for capital expenditures was
related to the opening of the Company's Port St. Lucie facility.

         In the six months ended September 30, 2001, we used $14.48 million of
cash for financing activities, $13.36 million of which was used to repurchase
764,000 shares of our common stock. In June 2000, the Board of Directors
authorized the repurchase of up to 1,000,000 shares of our common stock on the
open market, with any shares repurchased to be held in treasury. In August 2001,
the Board of Directors authorized the repurchase of an additional 1,000,000
shares. As of September 30, 2001, 1,001,000 shares had been cumulatively
repurchased under these programs for $20.00 million. As of September 30, 2001,
999,000 shares remained authorized for repurchase under the August 2001
authorized share repurchase program. Other financing activities included
proceeds from the issuance of common stock, repayments of capital lease
obligations and funding of executive deferred compensation plans.

         In November 2000, we filed an amendment to a shelf registration
statement we had originally filed in April 2000, to enable us to offer from time
to time, shares of our common stock having an aggregate value of up to $100
million. The Securities and Exchange Commission declared the shelf registration
statement effective during the quarter ended December 31, 2000. No shares of
common stock had been sold under this shelf registration statement as of
September 30, 2001.

         We believe that our cash and cash equivalents balance as of September
30, 2001 of $31.47 million, together with other sources of funds, including cash
flow generated from operations, will be sufficient to meet working capital,
capital expenditure and financing needs for future business operations for the
foreseeable future. In the event that we undertake to make acquisitions of
complementary businesses, products or technologies, we may require substantial
additional funding beyond currently available working capital and funds
generated from operations. We are conducting an active search for the strategic
acquisition of complementary businesses, products or technologies which leverage
our marketing, sales and distribution infrastructure. We currently have no
commitments or agreements with respect to any such acquisition.

         We hold certain investments related to executive deferred compensation
plans, see Note 6, which are accounted for pursuant to Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Investments related to the executive deferred compensation
plans, which have been classified as trading, are included in long-term other
assets and are recorded at fair value. As of September 30, 2001, the fair value
of these investments was not materially different from cost.

                                       22
<PAGE>
Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS N. 142, "Goodwill and Other Intangible Assets." SFAS No.
141 requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with tests of the goodwill's
impairment at various periods, specifically upon adoption of SFAS No. 142,
annually, and as a result of a specific event or activity, and that intangible
assets other than goodwill be amortized over their useful lives. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001 and for
all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 will
be effective for fiscal years beginning after December 15, 2001, and will thus
be adopted, as required, on April 1, 2002. The impact of SFAS No. 141 and SFAS
No. 142 on our financial statements has not yet been determined.

         In August 2001, the FASB issued SFAS No. 143 "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets." The provisions
of SFAS 143 apply to all entities that incur obligations associated with the
retirement of tangible long-lived assets. SFAS 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002, and will thus
be adopted, as required, in fiscal year 2004. The impact of SFAS No. 143 on our
financial statements has not yet been determined.

         In October 2001 the FASB issued FASB Statement No. 144 ("FAS 144" or
the "Standard"), Accounting for the Impairment or Disposal of Long-Lived Assets.
FAS 144 provides guidance on the accounting for the impairment on disposal of
long-lived assets. The objectives of FAS 144 are to address significant issues
relating to the implementation of FASB Statement No. 121 (FAS 121), Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and to develop a single model (based on the framework established in FAS
121) for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. FAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001 and thus will be adopted, as
required, in fiscal 2003. Generally, its provisions are to be applied
prospectively. The impact of FAS 144 on our financial statements has not yet
been determined.

                                       23
<PAGE>
FACTORS AFFECTING FUTURE OPERATING RESULTS

         The statements contained in this Report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, but not limited to, statements regarding our expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include, among others: statements regarding future benefits from our advertising
and promotional expenditures; statements regarding future net revenue levels;
statements regarding product development, introduction and marketing; and
statements regarding future acquisitions. All forward-looking statements
included in this Report are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. It is important to note that our actual results could differ
materially from those in such forward-looking statements.

         Our future operating results remain difficult to predict. We continue
to face many risks and uncertainties which could affect our operating results,
including without limitation, those described below.

We could experience significantly reduced profits if Medicare changes, delays or
denies reimbursement

         Sales of a significant portion of our Chronic Care and Professional
Products supplies will depend on the continued availability of reimbursement of
our customers by government and private insurance plans. Any reduction in
Medicare reimbursement currently available for our products would reduce our
revenues. Without a corresponding reduction in the cost of such products, the
result would be a reduction in our overall profit margin. Similarly, any
increase in the cost of such products would reduce our overall profit margin
unless there was a corresponding increase in Medicare reimbursement. Our profits
could also be affected by the imposition of more stringent regulatory
requirements for Medicare reimbursement. The regulations that govern Medicare
reimbursement are complex and our compliance with those regulations may be
reviewed by federal agencies, including the Department of Health and Human
Services, the Department of Justice, and the Food and Drug Administration. The
Department of Justice is currently conducting investigations of our Liberty
Medical Supply and Liberty Home Pharmacy subsidiaries with respect to Medicare
compliance. One investigation is of a civil nature and the other is criminal. We
have been cooperating fully with both investigations. The SEC is conducting an
inquiry of us and we are cooperating fully. We cannot accurately predict the
outcome of these proceedings at this time. Any failure to comply with required
Medicare reimbursement procedures could result in delays or loss of
reimbursement, fines or penalties, and other sanctions.


We plan to continue our rapid expansion; if we do not manage our growth
successfully, our growth and profitability may slow or stop

         We have expanded our operations rapidly and plan to continue to expand.
This expansion has created significant demand on our administrative, operational
and financial personnel and other resources. Additional expansion in existing or
new markets could strain these resources and increase

                                       24
<PAGE>
our need for capital. Our personnel, systems, procedures, controls and existing
space may not be adequate to support further expansion.

The profitability of our Chronic Care and Professional Products segments will
decrease if we do not receive recurring orders from customers

         We generally incur losses and negative cash flow with respect to the
first order from a new customer for Chronic Care products and respiratory
products, included in our Professional Products segment, due primarily to the
marketing and regulatory compliance costs associated with initial customer
qualification. Accordingly, the profitability of these segments depends, in
large part, on recurring and sustained reorders. Reorder rates are inherently
uncertain due to several factors, many of which are outside our control,
including changing customer preferences, competitive price pressures, customer
transition to extended care facilities, customer mortality and general economic
conditions.

We could experience significantly reduced profits from our Chronic Care segment
if improved technologies that eliminate the need for consumable testing supplies
are developed for glucose monitoring

         The majority of our Chronic Care net revenues are from consumable
testing supplies, used to draw and test small quantities of blood for the
purpose of measuring and monitoring glucose levels. Numerous research efforts
are underway to develop more convenient and less intrusive glucose measurement
techniques. The commercialization and widespread acceptance of new technologies
that eliminate or reduce the need for consumable testing supplies could
negatively affect our Chronic Care business.

We could be liable for harm caused by products that we sell

         The sale of medical products entails the risk that users will make
product liability claims. A product liability claim could be expensive. While
management believes that our insurance provides adequate coverage, no assurance
can be made that adequate coverage will exist for these claims.

We could lose customers and revenues to new or existing competitors who have
greater financial or operating resources

         Competition from other sellers of products offered through our Chronic
Care, Professional Products and Consumer Healthcare segments, manufacturers of
healthcare products, pharmaceutical companies and other competitors is intense
and expected to increase. Many of our competitors and potential competitors are
large companies with well-known names and substantial resources. These companies
may develop products and services that are more effective or less expensive than
any that we are developing or selling. They may also promote and market these
products more successfully than we promote and market our products.

Loss of use of manufacturing or data storage facilities would significantly
reduce revenues and profits from our Consumer Healthcare and Professional
Products businesses

         We manufacture substantially all of our Professional Products and many
of our AZO products at our facility in Woburn, Massachusetts. In addition, we
process and store most of our customer

                                       25
<PAGE>
data in our facility in Port St. Lucie, Florida. If we cannot use any of these
facilities as a result of the FDA, Occupational Safety and Health Administration
or other regulatory action, fire, natural disaster or other event, our revenues
and profits will decrease significantly. We might also incur significant expense
in remedying the problem or securing an alternative manufacturing or data
storage source.

If we or our suppliers do not comply with applicable government regulations, we
may be prohibited from selling our products

         Many of the products that we sell are regulated by the FDA and other
regulatory agencies. If any of these agencies mandate a suspension of production
or sales of our products or mandate a recall, we may lose sales and incur
expenses until we are in compliance with the regulations or change to another
acceptable supplier.

We could have difficulty selling our Consumer Healthcare and Professional
Products if we cannot maintain and expand our sales to distributors

         We rely on third-party distributors to market and sell our Consumer
Healthcare and Professional Products. Our sales of these products will therefore
depend in part on our maintaining and expanding marketing and distribution
relationships with pharmaceutical, medical device, personal care and other
distributors and on the success of those distributors in marketing and selling
our products.

Shortening or eliminating amortization of our direct-response advertising costs
could adversely affect our operating results

         Any change in existing accounting rules or business change that reduces
revenue or earnings or that shortens or eliminates the amortization period of
our direct-response advertising costs, currently four years for our diabetes
products and two years for our respiratory products, could result in accelerated
charges against our earnings.

Our quarterly revenues or operating results could vary, which may cause the
market price of our securities to decline

         We have experienced fluctuations in our quarterly operating results and
anticipate that such fluctuations could continue. Results may vary significantly
depending on a number of factors, including:

         -        changes in reimbursement guidelines and amounts;

         -        changes in regulations affecting the healthcare industry;

         -        changes in the mix or cost of our products;

         -        the timing of customer orders;

         -        the timing and cost of our advertising campaigns; and

         -        the timing of the introduction or acceptance of new products
                  and services offered by us or our competitors.

                                       26
<PAGE>
We may make acquisitions that will strain our financial and operational
resources

         We regularly review potential acquisitions of businesses and products.
Acquisitions involve a number of risks that might adversely affect our financial
and operational resources, including:

         -        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;

         -        failure to assimilate operations of an acquired business;

         -        failure to retain the customers 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.

Our stock price could be volatile, which could result in substantial changes in
share price

         The trading price of our common stock has been volatile and is likely
to continue to be volatile. The stock market in general, and the market for
healthcare-related companies in particular, has experienced extreme volatility.
This volatility has often been unrelated to the operating performance of
particular companies. Investors may not be able to sell their common stock at or
above the price at which they purchased the stock. Prices for the common stock
will be determined in the marketplace and may be influenced by many factors,
including variations in our financial results, changes in earnings estimates by
industry research analysts, investors' perceptions of us and general economic,
industry and market conditions.

We may issue preferred stock with rights senior to the common stock

         Our articles of organization authorize the issuance of up to 2,000,000
shares of preferred stock without stockholder approval. The shares may have
dividend, voting, liquidation and other rights and preferences that are senior
to the rights of the common stock. The rights and preferences of any such class
or series of preferred stock would be established by our Board of Directors in
its sole discretion.

                                       27
<PAGE>
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We own certain money market funds and mutual funds that are sensitive
to market risks as part of our investment portfolio. The investment portfolio is
used to preserve our capital until it is required to fund operations. We do not
own derivative financial instruments in our investment portfolio. We do not
believe that the exposure to market risks in our investment portfolio is
material.

                                       28
<PAGE>
PART II- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         On November 27, 2000, Richard Bowe SEP-IRA filed a purported class
action lawsuit in the United States District Court for the District of
Massachusetts (the "Bowe Complaint") against the Company and one of its
officers. The Bowe Complaint claims violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder and seeks unspecified damages, attorneys' fees and costs.
On December 19, 2000, Trust Advisors Equity Plus LLC filed a purported class
action lawsuit in the United States District Court for the District of
Massachusetts (the "Trust Advisors Complaint") against the Company and one of
its officers. The Trust Advisors Complaint asserts the same claims, makes the
same allegations and seeks the same relief as the Bowe Complaint. On January 26,
2001, the plaintiffs in the Bowe and Trust Advisors Complaints moved to
consolidate the Bowe and Trust Advisors Complaints and to be appointed as lead
plaintiffs in the consolidated action pursuant to the Section 21D(a)(3)(B) of
the Exchange Act. On July 30, 2001 the Court granted these motions and
consolidated the Bowe and Trust Advisor Complaints under the caption In re:
PolyMedica Corp. Securities Litigation, Civ. Act. No. 00-12426-REK.

         Plaintiffs filed a consolidated amended complaint on October 9, 2001.
The consolidated amended complaint extended the class period (the amended class
period is October 26, 1998 through August 21, 2001), and named an additional two
officers as defendants. The Company has until December 10, 2001, to move to
dismiss or otherwise respond to the complaint. The Company believes it has
meritorious defenses to the claims made in the consolidated Complaint and
intends to contest these claims vigorously. Although the Company does not
consider an unfavorable outcome to the existing claims probable, the Company
cannot accurately predict their ultimate disposition.

         Between August 9, 2001 to August 24, 2001, four derivative actions were
filed in Massachusetts Superior Court for Middlesex County against PolyMedica's
Board of Directors: Casden v. Bernstein et al., Civ. Act. No. 01-3446; Vezmar v.
Logerfo et al., Civ. Act. No. 01-3612; Sullivan v. Bernstein et al., Civ. Act.
No. 01-3656; and Messner v. Lee et al. , Civ. Act. No. 01-3697. The Complaints
contain similar allegations that the Directors breached their fiduciary duties
by, among other things, failing to exercise reasonable care in the oversight of
corporate affairs and management with respect to the operations of Liberty and
by acquiescing in alleged misconduct by Liberty. The Complaints seek unspecified
damages, the return of director compensation, and other injunctive relief.

         On August 31, 2001, plaintiff filed a motion to consolidate the first
three actions and to file an amended consolidated complaint within 60 days. The
fourth derivative action was added to the motion to consolidate on October 3,
2001. On October 11, 2001, the Court granted plaintiff's motion to consolidate
all four derivative actions under the caption In re: PolyMedica Corp.
Shareholder Derivative Litigation, Civ. Act. No. 01-3446. Pursuant to the
Court's order, plaintiffs have until December 10, 2001 to file their amended
complaint. The Directors will then have 45 days to move to dismiss or otherwise
respond to the amended consolidated complaint. Although the consolidated amended
complaint has not yet been filed, the Board of Directors believes it has
meritorious defenses to the claims made in the original derivative complaints
and intends to contest the claims vigorously. Although the Company does not
consider an unfavorable outcome to the existing claims probable, the Company
cannot accurately predict their ultimate disposition.

                                       29
<PAGE>
         A shareholder derivative complaint, Minasian v. Bernstein et. al., Civ.
Act. No. 01-11485REK, was filed against PolyMedica's Board of Directors in
United States District Court for the District of Massachusetts on August 17,
2001. The Complaint alleges that the Directors breached their fiduciary duties
by, among other things, failing to exercise reasonable care in the oversight of
corporate affairs and management with respect to the operations of Liberty and
by acquiescing in alleged misconduct by Liberty. The Complaint seeks unspecified
damages, the return of director compensation, and other injunctive relief. On
September 26, 2001, the Court granted defendants' unopposed motion for a 60-day
extension to November 16, 2001 to respond to the complaint. The Board of
Directors believes it has meritorious defenses to the claims made in the
Minasian Complaint and intends to contest the claims vigorously. Although the
Company does not consider an unfavorable outcome to the existing claims
probable, the Company cannot accurately predict their ultimate disposition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          At the Company's Annual Meeting of Stockholders held on September 13,
2001, the following proposals were submitted to a vote of our stockholders:

Proposal

<TABLE>
<CAPTION>
                                                             For                      Against                 Abstain
                                                             ---                      -------                 -------
<S>                                                       <C>                         <C>                         <C>
Election of Directors:
    Marcia J. Hooper                                      11,855,621                                       225,725(1)
    Frank W. LoGerfo                                      11,858,811                                       222,535(1)

To approve an amendment to the
   Company's 2000 Stock Incentive
   Plan ("the Plan")
   increasing from 1,200,000 to
   1,800,000 the number of
   authorized shares of
   common stock available for
   issuance under the Plan                                 7,932,454                4,064,226                 84,666

To approve the adoption of the
   Company's 2001 Employee Stock
   Purchase Plan,
   authorizing the issuance of up
   to 20,000 shares of common stock
   thereunder                                             11,633,313                  381,378                 66,655

Ratification of
   PricewaterhouseCoopers LLP
   as the Company's independent
   public accountants for the fiscal
   year ending March 31, 2002                             11,954,918                   76,009                 50,419
</TABLE>

---------

(1)      Represents votes "withheld" from each respective director.

                                       30
<PAGE>
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      See Exhibit Index immediately following this report, which is
         incorporated herein by reference.

(b)      There were no reports on Form 8-K filed during the three months ended
         September 30, 2001.

                                       31
<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 Corporation
                                                  -------------------------
                                                  (registrant)


                                                  /s/ Steven J. Lee
                                                  -------------------------
                                                  Steven J. Lee
                                                  Chairman and Chief Executive
                                                  Officer
                                                  (Principal Executive Officer)


                                                  /s/ Eric G. Walters
                                                  -------------------------
                                                  Eric G. Walters
                                                  Executive Vice President
                                                  and Clerk
                                                  (Principal Financial Officer)


                                                  /s/ Stephen C. Farrell
                                                  -------------------------
                                                  Stephen C. Farrell
                                                  Chief Financial Officer
                                                  (Principal Accounting Officer)

Dated: November 14, 2001

                                       32
<PAGE>
                                  Exhibit Index

Exhibit                           Description
-------                           -----------

 3.1     -   Restated Articles of Organization of the Registrant, as amended.

 3.2     -   Restated By-laws of the Registrant.

10.38    -   Letter Agreement amendment to Employment Agreement by and between
             the Registrant and Warren K. Trowbridge dated September 24, 2001.

10.39    -   Letter Agreement amendment to Employment Agreement by and between
             the Registrant and Stephen C. Farrell dated September 24, 2001.

10.40    -   Amendment to Employment Agreement by and between the Registrant and
             Steven J. Lee dated September 25, 2001.

10.41    -   Amendment to Employment Agreement by and between the Registrant and
             Dr. Arthur A. Siciliano dated September 25, 2001.

10.42    -   Amendment to Employment Agreement by and between the Registrant and
             Eric G. Walters dated September 25, 2001.

10.43    -   Amendment to Employment Agreement by and between the Registrant and
             Warren K. Trowbridge dated October 4, 2001.

10.44    -   Letter Agreement amendment to Employment Agreement by and between
             the Registrant and Stephen C. Farrell dated October 12, 2001.

                                      -33-