-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RJTjsA2O3IaKPbzzeVW19N3ZwlWcZySdBCe2fm501LiODqB0BwpQnlp4Y9GmaBcl Z5ZbQFUyNpMMIBAekpDTuQ== 0000950135-99-000251.txt : 19990126 0000950135-99-000251.hdr.sgml : 19990126 ACCESSION NUMBER: 0000950135-99-000251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLYMEDICA CORP CENTRAL INDEX KEY: 0000878748 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 043033368 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13690 FILM NUMBER: 99512138 BUSINESS ADDRESS: STREET 1: 11 STATE ST CITY: WOBURN STATE: MA ZIP: 01801 BUSINESS PHONE: 6179332020 MAIL ADDRESS: STREET 1: 11 STATE STREET CITY: WOBURN STATE: MA ZIP: 01801 FORMER COMPANY: FORMER CONFORMED NAME: POLYMEDICA INDUSTRIES INC DATE OF NAME CHANGE: 19930328 10-Q 1 POLYMEDICA CORPORATION 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 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 outstanding of the registrant's class of Common Stock as of January 22, 1999 was 9,060,654 which includes 78,003 shares held in treasury. 2 POLYMEDICA CORPORATION TABLE OF CONTENTS Page ---- PART I - FINANCIAL INFORMATION Item 1 - Unaudited Financial Statements Consolidated Balance Sheets at December 31 and March 31, 1998 3 Consolidated Statements of Operations for the three and nine months ended December 31, 1998 and 1997 5 Consolidated Statements of Cash Flows for the nine months ended December 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 21 Signatures 22 Exhibit Index 23 2 3 PART I - FINANCIAL INFORMATION ITEM 1. UNAUDITED FINANCIAL STATEMENTS POLYMEDICA CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share amounts)
DEC. 31, MARCH 31, 1998 1998 -------- -------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 9,157 $ 6,440 Accounts receivable -- trade (net of allowances of $6,502 and $3,914 as of December 31 and March 31, 1998, respectively) 29,184 21,207 Inventories 7,064 4,857 Deferred tax asset 2,075 2,075 Prepaid expenses and other current assets 1,780 845 -------- ------- Total current assets 49,260 35,424 Property, plant, and equipment, net 6,847 6,285 Intangible assets, net 37,847 39,555 Direct-response advertising, net 14,157 10,899 Other assets, net 316 238 -------- ------- Total assets $108,427 $92,401 ======== =======
The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 4 POLYMEDICA CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share and per share amounts)
DEC. 31, MARCH 31, 1998 1998 (UNAUDITED) ----------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable -- trade $ 10,276 $ 8,221 Accrued expenses 4,497 3,805 Senior debt and notes payable 2,000 2,329 -------- ------- Total current liabilities 16,773 14,355 Senior debt and notes payable, net 19,644 20,577 Revolving credit facility 5,000 -- Deferred income taxes 7,832 4,541 -------- ------- Total liabilities 49,249 39,473 -------- ------- Commitments Shareholders' equity: Preferred stock $.01 par value; 2,000,000 shares authorized, none issued or outstanding -- -- Common stock $.01 par value; 20,000,000 shares authorized; 9,059,304 and 8,909,718 issued as of December 31 and March 31, 1998, respectively 91 89 Treasury stock, at cost, (78,003 and 129,560 shares as of December 31 and March 31, 1998, respectively) (288) (706) Additional paid-in capital 54,737 54,498 Retained earnings (deficit) 5,359 (164) Notes receivable from officers (721) (789) -------- ------- Total shareholders' equity 59,178 52,928 -------- ------- Total liabilities and shareholders' equity $108,427 $92,401 ======== =======
The accompanying notes are an integral part of these unaudited consolidated financial statements 4 5 POLYMEDICA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED --------------------- --------------------- DEC. 31, DEC. 31, DEC. 31, DEC. 31, 1998 1997 1998 1997 ------- ------- ------- ------- Net product sales $28,791 $20,668 $74,275 $52,269 Cost of product sales 13,965 10,220 35,764 24,927 ------- ------- ------- ------- Gross margin 14,826 10,448 38,511 27,342 Operating expenses: Selling, general, and administrative 11,351 7,838 29,231 20,411 Research and development 43 25 152 236 ------- ------- ------- ------- 11,394 7,863 29,383 20,647 Income from operations 3,432 2,585 9,128 6,695 Other income and expense: Gain on sale of wound care business -- -- 1,597 4,126 Investment income 105 175 358 507 Interest expense (627) (665) (1,877) (2,042) ------- ------- ------- ------- (522) (490) 78 2,591 Income before income taxes 2,910 2,095 9,206 9,286 Income tax provision 1,164 712 3,683 3,157 ------- ------- ------- ------- Net income $ 1,746 $ 1,383 $ 5,523 $ 6,129 ======= ======= ======= ======= Net income per weighted average share, basic $ .20 $ .16 $ .62 $ .71 ======= ======= ======= ======= Net income per weighted average share, diluted $ .18 $ .14 $ .57 $ .63 ======= ======= ======= ======= Weighted average shares, basic 8,933 8,756 8,844 8,609 Weighted average shares, diluted 9,832 9,975 9,774 9,654
The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 6 POLYMEDICA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands)
NINE MONTHS ENDED DEC. 31, ------------------------- 1998 1997 -------- -------- Cash flows from operating activities: Net income $ 5,523 $ 6,129 Adjustments to reconcile net income to net cash flows from operating activities: Gain on sale of wound care business (1,597) (4,126) Depreciation and amortization 2,446 2,439 Amortization of direct-response advertising 3,869 1,450 Direct-response advertising (7,126) (9,573) Deferred income taxes 3,291 3,715 Provision for bad debts 4,628 2,025 Provision for sales allowances 2,302 2,208 Provision for inventory obsolescence -- 25 Changes in assets and liabilities: Accounts receivable--trade (14,908) (14,026) Inventories (2,206) (1,934) Prepaid expenses and other assets (1,018) (127) Accounts payable--trade 2,054 3,514 Accrued expenses 692 3,820 -------- -------- Total adjustments (7,573) (10,590) -------- -------- Net cash flows from operating activities (2,050) (4,461) -------- -------- Cash flows from investing activities: Proceeds from sale of wound care business, net of related expenses 1,597 8,428 Purchase of property, plant, and equipment (1,218) (2,069) -------- -------- Net cash flows from investing activities 379 6,359 -------- -------- Cash flows from financing activities: Borrowings under revolving credit facility 5,000 -- Repayment of senior debt and notes payable (1,329) (1,329) Proceeds from issuance of common stock 656 1,576 Repayment of officer notes receivable 68 110 -------- -------- Net cash flows from financing activities 4,395 357 -------- -------- Net increase in cash and cash equivalents 2,724 2,255 -------- -------- Effect of exchange rate changes on cash (7) 4 Cash and cash equivalents at beginning of period 6,440 11,028 -------- -------- Cash and cash equivalents at end of period $ 9,157 $ 13,287 ======== ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 7 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"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and include, in the opinion of management, all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The results for the interim periods presented are not necessarily indicative of results to be expected for the full fiscal year. 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 year ended March 31, 1998 and its Quarterly Report on Form 10-Q for the periods ended June 30 and September 30, 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. 2. Inventories consist of the following: (In thousands)
DEC. 31, MARCH 31, 1998 1998 ------- -------- Raw materials $ 571 $1,058 Work in process 424 296 Finished goods 6,069 3,503 ------ ------ $7,064 $4,857 ====== ======
3. In accordance with Statement of Position 93-7, direct-response advertising and related costs for all periods presented are capitalized and amortized to selling, general and administrative expense on an accelerated basis during the first two years of a four-year period. The amortization rate is such that 55% of such costs are expensed after two years from the date they are incurred, and the remaining 45% is expensed on a straight line basis over the next two years. Revenues generated from new customers as a result of direct-response advertising have historically resulted in a revenue stream lasting seven years. Management has selected a more conservative four-year amortization period, as described in the "Factors Affecting Future Operating Results - Direct Response Advertising" in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q. 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. 7 8 The Company capitalized direct-response advertising of $1.58 million and $4.48 million in the three months ended December 31, 1998 and 1997, respectively. A total of $1.41 million and $731,000 in direct-response advertising was amortized and charged to selling, general and administrative expense for the three months ended December 31, 1998 and 1997, respectively. A total of $7.13 million and $9.57 million of direct-response advertising was capitalized in the nine months ended December 31, 1998 and 1997, respectively. A total of $3.87 million and $1.45 million in direct-response advertising was amortized and charged to selling, general and administrative expense in the nine months ended December 31, 1998 and 1997, respectively. As of December 31 and March 31, 1998, accumulated amortization was $6.41 million and $2.54 million, which resulted in a net capitalized direct-response advertising asset of $14.16 million and $10.90 million, respectively. 4. As of December 31, 1998, Liberty Medical's gross unbilled receivables included in accounts receivable - trade were $19.25 million. This increase in the unbilled receivables balance as of December 31, 1998 primarily is a result of record shipments by Liberty Medical during the three months ended December 31, 1998. 5. In July 1998, the Company realized $1.6 million in cash from Innovative Technologies Group plc ("IT") pursuant to a prepayment agreement as full and final settlement of a $4 million unsecured promissory note issued to the Company in connection with the July 1997 sale to IT of certain assets related to the Company's wound care business. The $1.6 million cash received, net of related expenses, is recorded as Other Income in the nine months ended December 31, 1998. At the time of the July 1997 sale, the Company recognized $9 million of cash received. Through December 31, 1998, the Company has realized total proceeds of $10.6 million. The Company could realize up to an additional $4.5 million if IT achieves certain milestones, which would bring the total potential value of the sale to $15.1 million. Gain on the sale for the nine months ended December 31, 1998 and 1997, is as follows:
(In thousands, except per share data) Nine Months Ended Dec. 31, 1998 1997 ------ ------ Gain on sale of wound care business $1,597 $4,126 Provision for income taxes related to gain 639 1,403 ------ ------ Gain on sale, net of income taxes $ 958 $2,723 ====== ====== Income per common share, diluted, related to gain on sale of wound care business $ .10 $ .28 ====== ======
6. Promotional and sample costs, whose benefit is expected to assist sales in future interim periods, are allocated among those interim periods based upon the benefit received. The Company capitalized $448,000 of costs as Prepaid Expenses and Other Current Assets as of June 30, 1998 related to contacting and qualifying non-insulin using seniors with diabetes who first became Medicare eligible on July 1, 1998. The balance of such costs as of December 31, 1998, was $149,000, reflecting $299,000 recorded as selling, general and administrative expense during the six 8 9 months ended December 31, 1998. The $149,000 balance will be expensed during the quarter ended March 31, 1999. 7. Calculations of earnings per share are as follows:
(In thousands, except per share data) Three Months Ended Nine Months Ended Dec. 31, Dec. 31, 1998 1997 1998 1997 ------ ------ ------ ------ Net income $1,746 $1,383 $5,523 $6,129 BASIC: Weighted average common stock outstanding, net of treasury stock, end of period 8,933 8,756 8,844 8,609 Net income per common share, basic $ .20 $ .16 $ 0.62 $ 0.71 ====== ====== ====== ====== DILUTED: Weighted average common stock outstanding, net of treasury stock, end of period 8,933 8,756 8,844 8,609 Weighted average common stock equivalents 899 1,219 930 1,045 ------ ------ ------ ------ Weighted average common stock outstanding, net of treasury stock, end of period 9,832 9,975 9,774 9,654 Net income per common share, diluted $ .18 $ .14 $ 0.57 $ 0.63 ====== ====== ====== ====== 8. The Company's total comprehensive income was as follows: (In thousands) Three Months Ended Nine Months Ended Dec. 31, Dec. 31, 1998 1997 1998 1997 ------ ------ ------ ------ Net income $1,746 $1,383 $5,523 $6,129 Other comprehensive expense, net of tax: Currency translation adjustment -- -- -- 225 ------ ------ ------ ------ Total other comprehensive expense -- -- -- 225 ------ ------ ------ ------ Total comprehensive income $1,746 $1,383 $5,523 $6,354
9. During the three months ended December 31, 1998, the Company borrowed $5 million under the Company's $7.5 million collateralized revolving credit facility. Under the terms of this facility, which is collateralized by certain assets of the Company, the Company is required to repay all principal balances on March 31, 2001. The interest rate is tied to the Company's funded debt to EBITDA ratio and averaged 7.75% during the three months ended December 31, 1998. 10. On January 11, 1999, the Company's common stock began trading on the Nasdaq National Market under the symbol PLMD. Previously, the Company's common stock had traded on the American Stock Exchange under the symbol PM. 9 10 11. Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead. If not corrected, those programs could cause date-related transaction failures. The Company is currently addressing this concern. It has performed a detailed assessment of all internal computer systems and, as discussed below, is developing and implementing plans to correct any problems. The Company expects these projects to be successfully completed during the remainder of 1999. Year 2000 problems could affect production, distribution, financial, administrative and communication operations. Systems critical to the Company's business which have been identified as non-Year 2000 compliant are either being replaced or corrected through programming modifications or upgrades. In addition, the Company is addressing Year 2000 readiness from other aspects of the business, including customer order-taking, manufacturing, raw materials supply and plant process equipment. The Company intends to have remediated and replaced systems operational by June 1999 to allow time for testing and verification. In addition to the Company's in-house efforts, the Company is in the process of asking vendors, major customers, service suppliers, communications providers and banks whose systems failures potentially could have a significant impact on operations to verify Year 2000 readiness. The Company is testing such systems where appropriate and possible. The Company does not have any Year 2000 contingency plan. External and internal costs specifically associated with modifying internal use software for Year 2000 compliance are expensed as incurred. To date, expenditures related to the Year 2000 problem have not been material. Such costs do not include normal system upgrades and replacements. The Company does not expect the future costs relating to Year 2000 remediation to have a material effect on its results of operations or financial condition. The above expectations are subject to uncertainties. For example, if the Company is unsuccessful in identifying or fixing all Year 2000 problems in its critical operations, or if it is affected by the inability of suppliers or major customers (such as a large drug wholesaler or distributor) to continue operations due to such a problem, its results of operations or financial condition could be materially impacted. The total costs that the Company incurs in connection with the Year 2000 problems will be influenced by its ability to successfully identify Year 2000 systems' flaws, the nature and amount of programming required to fix the affected programs, the related labor and/or consulting costs for such remediation, and the ability of third parties with whom the Company has business relationships to successfully address their own Year 2000 concerns. These and other unforeseen factors could have a material adverse effect on the results of operations or financial condition. The estimates and conclusions herein contain forward-looking statements and are based on management's best estimates of future events. Risks to completing the plan include the availability of resources, the Company's ability to discover and correct the potential Year 2000 sensitive problems which could have a serious impact on specific facilities, and the ability of suppliers to bring their systems into Year 2000 compliance. 12. Certain amounts in the prior period financial statements have been reclassified to conform with the current year presentation. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Business PolyMedica is a leading provider of targeted medical products and services primarily focused in the diabetes supplies and consumer healthcare markets. PolyMedica sells diabetes supplies through its wholly-owned subsidiary, Liberty Medical Supply, Inc. Liberty Medical is the leading patient-focused, direct to consumer distributor of more than 200 name-brand diabetes products to insulin and non-insulin using, Medicare-eligible seniors with diabetes. PolyMedica also holds a leading position in the over-the-counter urinary health market and distributes a broad range of other medical products, including digital thermometers and compliance products, primarily to food and drug retailers and mass merchandisers nationwide. The Company also markets, manufactures and distributes a line of prescription urological and suppository products. Diabetes Supplies Liberty Medical is the leading direct to consumer distributor of diabetes testing supplies to patients covered by Medicare. Liberty Medical provides a simple, reliable way for seniors to obtain their diabetes testing supplies and the related Medicare and insurance benefits to which they are entitled. Liberty Medical offers a wide array of 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 diabetes-related upfront expense, and offers the convenience of free home delivery of supplies. In July 1998, the Company began shipping diabetes supplies to non-insulin using seniors covered for the first time by Medicare. Many of the customer orders shipped were from the Company's database of seniors who had previously contacted the Company in response to its television advertising. Effective July 1, 1998 and October 1, 1998, Medicare instituted certain changes in Type II coverage and reimbursement policy, respectively. See "Factors Affecting Future Operating Results Healthcare Reimbursement" for further discussion. Consumer Healthcare The Company's consumer healthcare products are focused on three areas: female urinary tract discomfort, digital thermometers and medication compliance products. In the urinary tract discomfort area, the Company's products are AZO-STANDARD(R), which provides relief from urinary tract discomfort, and AZO-CRANBERRY(R), a dietary supplement which helps maintain a healthy urinary tract. In January 1998, the Company introduced AZO Test Strips(TM), an in-home urinary tract infection testing kit. The Company's consumer healthcare products also include digital, digital flexible tip, basal and glass thermometers, as well as approximately 40 other home-use diagnostic and compliance products. PolyMedica has patented and introduced a new Flexible Tip Thermometer with Fever 11 12 Alarm(TM) that first became available for the 1997-1998 cough and cold season. The Company custom manufactures and/or distributes its other consumer healthcare products under private label and under the brand names of BASIS(R), MEDI-AID(R), PolyMedica and PeeDee Dose(TM). Professional Products PolyMedica's professional products represent one of the broadest lines of prescription urology products excluding anti-infectives, available, including 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 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. Other On January 11, 1999, the Company's common stock began trading on the Nasdaq National Market under the symbol PLMD. Previously, the Company's common stock had traded on the American Stock Exchange under the symbol PM. In accordance with Statement of Position 93-7, direct-response advertising and related costs for all periods presented are capitalized and amortized to selling, general and administrative expense on an accelerated basis during the first two years of a four-year period. The amortization rate is such that 55% of such costs are expensed after two years from the date they are incurred, and the remaining 45% is expensed on a straight line basis over the next two years. Revenues generated from new customers as a result of direct-response advertising have historically resulted in a revenue stream lasting seven years. Management has selected a more conservative four-year amortization period. 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. Although the use of certain of the Company's products is somewhat seasonal in nature, the Company does not believe its net product sales, in the aggregate, are generally subject to material seasonal fluctuations. The Company operates from manufacturing and distribution facilities located in Massachusetts, Florida and Colorado. Virtually all of the Company's product sales are denominated in U.S. dollars. The Company's research and development activities are funded from ongoing operations and relate to the manufacture of pharmaceutical products. Period to period comparisons of changes in net product sales are not necessarily indicative of results to be expected for any future period. 12 13 RESULTS OF OPERATIONS Three Months Ended December 31, 1998 Compared to Three Months Ended December 31, 1997 Total net product sales increased by 39.3% to $28.79 million in the three months ended December 31, 1998, as compared with $20.67 million in the three months ended December 31, 1997. This increase is primarily the result of the increase in Liberty Medical sales. Net product sales of diabetes supplies increased by 52.2% to $22.09 million in the three months ended December 31, 1998, as compared with $14.52 million in the three months ended December 31, 1997. This growth is primarily due to larger than anticipated first-time shipments to non-insulin using (Type II) diabetics and increased shipments to existing insulin using (Type I) diabetic customers. Liberty Medical sales gains during the third quarter further strengthened its position as the leading direct to consumer distributor of diabetes testing supplies to seniors. The number of seniors with diabetes covered by Medicare more than doubled on July 1, 1998 when Medicare reimbursement was extended to Type II diabetics, a group of approximately 2 million patients. Net product sales of consumer healthcare products increased by 21.2% to $4.13 million in the three months ended December 31, 1998, as compared with $3.41 million in the three months ended December 31, 1997. Sales of both the AZO product line and advanced thermometry products increased during the three months ended December 31, 1998. The Company added to its product line by introducing AZO Test Strips in January 1998, sales of which were not included in the three months ended December 31, 1997. In the professional products group, there was $45,000 of non-recurring net product sales of the Company's institutional wound care products in the three months ended December 31, 1997. Excluding the wound care product sales, net product sales decreased by 4.7% to $2.57 million in the three months ended December 31, 1998, as compared with $2.69 million in the three months ended December 31, 1997. As a percentage of net product sales, overall gross margins were 51.5% in the three months ended December 31, 1998 and 50.6% in the three months ended December 31, 1997. Gross margins in the three months ended December 31, 1998 increased due to an improved gross margin on sales of diabetes related products. As a percentage of net product sales, selling, general and administration expenses ("SG&A expenses") were 39.4% for the three months ended December 31, 1998 as compared with 37.9% for the three months ended December 31, 1997. SG&A expenses increased by 44.8% in the three months ended December 31, 1998 to $11.35 million as compared with $7.84 million in the three months ended December 31, 1997. This dollar increase is primarily attributable to SG&A expenses related to the expansion of Liberty Medical. Investment income decreased by 40.0% to $105,000 in the three months ended December 31, 1998 as compared with $175,000 in the three months ended December 31, 1997 as the Company earned interest on lower average cash balances due to investments in direct-response advertising and Liberty Medical infrastructure. Interest expense decreased by 5.7% to $627,000 in the three months ended December 31, 1998, as compared with $665,000 in the three months ended December 31, 1997, primarily reflecting lower outstanding principal on the Guaranteed Senior Secured Notes due 13 14 January 31, 2003 (the "Hancock Notes") to the John Hancock Mutual Life Insurance Company ("Hancock"). Pretax income was $2.91 million in the three months ended December 31, 1998, which compares to $2.10 million in the three months ended December 31, 1997. The Company's net income was $1.75 million, or $0.18 per diluted common share, in the three months ended December 31, 1998. This performance compares with net income of $1.38 million, or $0.14 per diluted common share, in the three months ended December 31, 1997. Nine Months Ended December 31, 1998 Compared to Nine Months Ended December 31, 1997 Total net product sales increased by 42.1% to $74.28 million in the nine months ended December 31, 1998, as compared with $52.27 million in the nine months ended December 31, 1997. This increase is primarily the result of the increase in Liberty Medical sales. Net product sales of diabetes supplies increased by 67.8% to $56.51 million in the nine months ended December 31, 1998, as compared with $33.69 million in the nine months ended December 31, 1997. This growth is primarily due to larger than anticipated first-time shipments to non-insulin using (Type II) diabetics since July 1, 1998 and increased shipments to existing insulin using (Type I) diabetic customers. Net product sales of consumer healthcare products increased by 28.6% to $10.55 million in the nine months ended December 31, 1998 as compared with $8.20 million in the nine months ended December 31, 1997. Sales of both the AZO product line and advanced thermometry products increased during the nine months ended December 31, 1998. The Company has added to its product line by introducing AZO Test Strips in January 1998, sales of which were not included in the nine months ended December 31, 1997. In the professional products group, there was $1.07 million non-recurring net product sales of the Company's institutional wound care products in the nine months ended December 31, 1997. Excluding the wound care product sales, recurring net product sales decreased by 22.5% to $7.21 million in the nine months ended December 31, 1998, as compared with $9.31 million in the nine months ended December 31, 1997. Certain assets of the wound care division were sold in July 1997. The decrease in professional products sales is primarily due to additional shipments of URISED in the nine months ended December 31, 1997, which was the result of a reduction in the supply of generic products by the unexpected exit of a major supplier in the marketplace during that period. As a percentage of net product sales, overall gross margins were 51.8% in the nine months ended December 31, 1998 and 52.3% in the nine months ended December 31, 1997. Gross margins in the nine months ended December 31, 1998 decreased due to the inclusion of a higher percentage of diabetes related products, for which gross margins are lower than the company average for products sold in the three months ended December 31, 1998. As a percentage of net product sales, SG&A was 39.4% for the nine months ended December 31, 1998 as compared with 39.1% for the nine months ended December 31, 1997. SG&A expenses increased by 43.2% in the nine months ended December 31, 1998 to $29.23 million as compared with $20.41 million in the nine months ended December 31, 1997. This dollar increase is primarily attributable to SG&A expenses related to the expansion of Liberty Medical. 14 15 Research and development expenses were $152,000 in the nine months ended December 31, 1998 as compared with $236,000 in the nine months ended December 31, 1997. This decrease in research and development costs is a result of the Company's July 1997 sale of certain assets related to its wound care business, which was more research and development intensive than the Company's other businesses. Investment income decreased by 29.4% to $358,000 in the nine months ended December 31, 1998 as compared with $507,000 in the nine months ended December 31, 1997 as the Company earned interest on lower average cash balances due to investments in direct-response advertising and in Liberty Medical infrastructure. Interest expense decreased by 8.1% to $1.88 million in the nine months ended December 31, 1998 as compared with $2.04 million in the nine months ended December 31, 1997, primarily reflecting lower outstanding principal on the Hancock Notes. In July 1998, the Company realized $1.6 million in cash from Innovative Technologies Group plc ("IT") pursuant to a prepayment agreement as full and final settlement of a $4 million unsecured promissory note issued to the Company in connection with the July 1997 sale to IT of certain assets related to the Company's wound care business. The $1.6 million cash received, net of related expenses, is recorded as Other Income in the nine months ended December 31, 1998. The Company recorded $1.60 million and $4.13 million pretax gains from the sale of the wound care business in the nine months ended December 31, 1998 and 1997, respectively. Excluding these gains, pretax income was $7.61 million and $5.16 million in the nine months ended December 31, 1998 and 1997, respectively. Total pretax income was $9.21 million in the nine months ended December 31, 1998, which compares to $9.29 million in the nine months ended December 31, 1997. The Company recorded $958,000 and $2.72 million after-tax gains from the sale of the wound care business in the nine months ended December 31, 1998 and 1997, respectively. Excluding the gain described above, net income was $4.57 million, or $0.47 per diluted common share, in the nine months ended December 31, 1998. This performance compares to net income of $3.41 million, or $0.35 per diluted common share, in the nine months ended December 31, 1997. The Company's total net income was $5.52 million, or $0.57 per diluted common share, in the nine months ended December 31, 1998. This performance compares with net income of $6.13 million, or $0.63 per diluted common share, in the nine months ended December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has raised $53.46 million in gross equity capital, of which $7.16 million was from venture capital financings before the Company's initial public offering, $39.00 million from its March 1992 initial public offering, $4.55 million from a November 1995 public offering of 700,000 shares of common stock, and $2.75 million from the March 1996 sale of 431,937 shares of its common stock pursuant to Regulation S promulgated under the Securities Act of 1933. In January 1993, the Company sold to Hancock the Hancock Notes. As of December 31, 1998, working capital was $32.49 million, as compared with working capital of $21.07 million and $18.42 million as of March 31, 1998 and December 31, 1997, respectively. Cash and cash equivalents were $9.16 million and $6.44 million as of December 31 and March 31, 1998, respectively. 15 16 During the three months ended December 31, 1998, the Company borrowed $5 million under the Company's $7.5 million collateralized revolving credit facility. Under the terms of this facility, the Company is required to repay all principal balances on March 31, 2001. This facility is collateralized by certain assets of the Company. Under this facility, the Company is obligated to maintain certain financial covenants. The interest rate is tied to the Company's funded debt to EBITDA ratio and averaged 7.75% during the three months ended December 31, 1998. Accounts receivable -- trade was $29.18 million and $21.21 million as of December 31 and March 31, 1998, respectively. As of December 31, 1998, Liberty Medical's gross unbilled receivables included in accounts receivable - trade were $19.25 million. This increase in the unbilled receivables balance as of December 31, 1998 is a result of record shipments by Liberty Medical during the three months ended December 31, 1998. The Company expects that its current working capital, revolving credit facility and funds generated from future operations will be adequate to meet its liquidity and capital requirements for current operations. In the event that the Company undertakes to make acquisitions of complementary businesses or products, the Company may require substantial additional funding beyond currently available working capital and funds generated from operations. Currently, the Company is conducting an active search for the strategic acquisition of complementary businesses or products. The Company has no present commitments or agreements with respect to any such acquisition. YEAR 2000 COMPLIANCE The Company has conducted a review of its computer systems to identify the systems that are affected by the year 2000 problem. The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year, which may result in some programs being unable to recognize the year 2000 in date fields, or recognizing it as the year 1900, resulting in malfunctions and system failures. The Company is in the process of upgrading its systems in an effort to make more detailed data available on a system wide basis in a timely manner. Such costs will be capitalized and amortized over the useful life of the new software. The Company believes that with planned modifications to existing software and conversions, the year 2000 issue will not pose significant operational problems for the Company's computer systems. The Company will continue to address any further year 2000 issues and believes that any costs relating to such issues will not be material to the Company's financial condition or results of operations. (See Note 11 in "Notes to Consolidated Financial Statements.") 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 the Company's expectations, hopes, intentions or strategies regarding the future. Forward-looking statements include, among others: statements regarding future benefits from the Company's advertising and promotional expenditures; statements regarding future product revenue levels; statements regarding product development, introduction and marketing; and statements regarding future acquisitions; and statements regarding Year 2000 compliance. All forward-looking statements included in this Report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. 16 17 The future operating results of the Company remain difficult to predict. The Company continues to face many risks and uncertainties which could affect its operating results, including without limitation, those described below. Healthcare Reimbursement Political, economic and regulatory influences are resulting in fundamental changes in the healthcare industry in the United States. The Company anticipates that Congress and state legislatures will continue to review and assess alternative healthcare delivery systems and payment methods. Sales of a large portion of the Company's products depend to a significant extent on the availability of reimbursement to the Company's customers by government and private insurance plans. Any further reduction in the reimbursement provisions currently in effect for the Company's diabetes supplies products which are reimbursable under Medicare would reduce the Company's revenues and earnings. The processing of third-party reimbursements is a labor-intensive effort, and delays in processing claims for reimbursement may increase working capital requirements. Final determination of reimbursements are subject to audit by Medicare. Medicare audits of the Company to date have not resulted in any significant adjustments. Future audits may, however, result in retroactive adjustments for past charges for products and services, and such adjustments could affect the future operations and earnings of the Company. Effective October 1, 1998, new Medicare reimbursement guidelines generally provide that quarterly orders of diabetes supplies to existing customers must be administratively verified before shipment and that all doctors orders for diabetic supplies are valid for a period of six months. In addition, the new regulations require that Type I Medicare diabetic customers who test more frequently than three times per day or Type II Medicare diabetic customers who test more frequently than one time per day visit their physician every six months and maintain a 30-day log book for compliance. The Company's customer service department, as part of its ongoing administrative contact with existing customers to obtain approval documents and answer product questions, will continue to determine testing supply levels and verify compliance testing and the renewal of doctors orders. Management is currently evaluating the effects of implementing these new guidelines. Ability to Manage Growth The Company has expanded its operations rapidly, which has created significant demands on the Company's systems, its administrative, operational, development and financial personnel and its other resources. Additional expansion by the Company may further strain the Company's management, financial and other resources, including its working capital resources, as a result of delays in processing claims for third-party reimbursement. Although the Company has recently upgraded its systems and other steps have been taken to address these issues, there can be no assurance that such steps will be effective. 17 18 Direct-Response Advertising In accordance with Statement of Position 93-7, direct-response advertising and related costs for all periods presented are capitalized and amortized to selling, general and administrative expense on an accelerated basis during the first two years of a four-year period. The amortization rate is such that 55% of such costs are expensed after two years from the date they are incurred. Revenues generated from new customers as a result of direct-response advertising have historically resulted in a revenue stream lasting seven years. Management has selected a more conservative four-year amortization period. 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. The Company can expect fluctuations in its advertising costs to attract and retain new customers. The Company expects that it will continue to incur substantial direct-response advertising and related costs in connection with the further expansion of its diabetes supplies business. Competition The Company is engaged in rapidly evolving and highly competitive fields. Competition from other sellers of diabetes supplies, manufacturers of healthcare products, pharmaceutical companies and other competitors is intense and expected to increase. Many of these companies have substantially greater capital resources, research and development staffs, facilities and experience in marketing and distribution of products than does the Company. There can be no assurance that the Company's competitors will not succeed in developing products and services that are more effective than any that are being developed or sold by the Company. The Company believes that the principal competitive factors in the healthcare products industry include the ability to identify and respond to customer needs, quality and breadth of service and product offerings, price and technical expertise. The Company believes that its ability to compete also depends in part on a number of competitive factors outside its control, including the ability to hire and retain employees, the development by others of products and services that are competitive with the Company's products and services, the price at which others offer comparable products and services and the extent of its competitors' responsiveness to customer needs. Dependence on Reorders - Change in Demand for Diabetes Supplies The Company generally incurs negative cash flow with respect to the first order for its diabetes supplies from a customer due primarily to customer acquisition costs, including advertising and Medicare and secondary insurance compliance costs. Accordingly, the profitability of the Company's diabetes supplies business depends on recurring orders. Reorder rates are inherently uncertain and are subject to several factors, many of which are outside of the Company's control, including customer shifts to nursing homes or other forms of managed care, customer mortality, changing customer preferences, customer approvals of quarterly orders, general economic conditions and customer satisfaction. Furthermore, efforts are underway to improve treatment of, and to seek a cure for, diabetes. Significant developments in either area could substantially reduce or eliminate the demand for the diabetes supplies sold by the Company. 18 19 Dependence on Suppliers The Company purchases several of its consumer healthcare products, including its thermometers, from suppliers based in the People's Republic of China, usually using molds and tooling owned by or committed exclusively to the Company. To date, the Company has not experienced difficulties in obtaining timely delivery from these suppliers. Although the Company believes there are alternate sources available for these products, there can be no assurance that the Company would be able to acquire products from other sources on a timely or cost-effective basis in the event current foreign suppliers were unable to supply these products on a timely basis. Although the Company has three long-term purchase contracts with respect to its diabetes supplies business, it operates principally on a purchase-order basis. Each of the Company's over-the-counter products for urinary tract discomfort and urinary tract health is manufactured by a single supplier. Some of the Company's professional products also are manufactured by single suppliers. PolyMedica is currently taking steps to provide alternate sources of supply for both of these lines of products, but such efforts are not yet complete. Dependence on Single Manufacturing Facility for Professional Products A majority of the Company's professional products are manufactured at its headquarters facility in Woburn, Massachusetts. While the Company maintains business interruption insurance, any prolonged inability to utilize this facility as a result of fire, natural disaster or other event would have a material adverse effect on the Company's business, financial condition and results of operations. The Company complies with Good Manufacturing Practices ("GMP") regulations, prescribed by the Food and Drug Administration ("FDA"), in its internal manufacturing facilities. The FDA enforces the GMP regulations through its plant inspection program. If the Company fails to comply with GMP regulations, the Company could be required to make material expenditures and could experience manufacturing delays to return to compliance. Product Liability The testing, manufacturing, marketing and sale of medical and consumer products entail an inherent risk that product liability claims will be asserted against the Company or its third-party distributors. Certain manufacturers of healthcare products have been subjected to significant claims for damages allegedly resulting from their products. The Company currently maintains product liability insurance coverage which it believes to be adequate for its present purposes, but there can be no assurance that in the future the Company will be able to maintain such coverage on acceptable terms or that current insurance or insurance subsequently obtained will provide adequate coverage against any or all potential claims. Reliance on Distributors for Consumer Healthcare and Professional Products; Limited Direct Marketing Experience The Company has a limited direct marketing and sales organization, and relies on its current distributors, for the sale of consumer healthcare and professional products. The Company's ability to sell its consumer healthcare and professional products will depend in part on its ability to enter into marketing and distribution agreements with pharmaceutical, medical device, personal care and other 19 20 distributors in the United States and other countries. If the Company enters into any such agreements, there can be no assurance that the Company's third-party distributors will be able to market the Company's products effectively. Integration of Other Businesses, Products and Technologies As part of its growth strategy, the Company currently intends to expand through the acquisition of other businesses, products and technologies. The Company regularly reviews such potential acquisitions, some of which may be material. There can be no assurance that the Company will successfully acquire any businesses, products or technologies, or that any such acquired businesses, products or technologies will be profitable. The Company does not currently have any commitments or agreements with respect to any such acquisition. Government Regulation Certain aspects of the Company's business are subject to federal and state regulation. Federal regulation covers, among other things, reimbursement for diabetes testing supplies and the manufacturing, distribution and sale of the Company's drugs and medical devices. The Company believes that its operations comply with applicable federal and state laws and regulations in all material respects. However, changes in the law or new interpretations of existing laws could have a material adverse effect on the market for the Company's products and services on permissible activities of the Company, and the relative costs associated with doing business. 20 21 PART II - OTHER INFORMATION POLYMEDICA CORPORATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index immediately following this report and incorporated herein by reference. (b) There were no reports on Form 8-K filed during the three months ended December 31, 1998. 21 22 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 Chief Financial Officer, Treasurer, and Clerk (Principal Financial and Accounting Officer) Dated: January 25, 1999 22 23 EXHIBIT INDEX POLYMEDICA CORPORATION Exhibit Description - ------- ----------- 10.69 - Letter Agreement dated November 2, 1998 between the Registrant and John Hancock Mutual Life Insurance Company. 27.1 - Financial Data Schedule - Nine Months Ended December 31, 1998. 27.2 - Financial Data Schedule - Restated Nine Months Ended December 31, 1997. EX-10.69 2 LETTER AGREEMENT 1 EXHIBIT 10.69 POLYMEDICA CORPORATION POLYMEDICA PHARMACEUTICALS (U.S.A.), INC. POLYMEDICA PHARMACEUTICALS (PUERTO RICO), INC. 11 State Street Woburn, Massachusetts 01801 November 2, 1998 JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY John Hancock Place P. O. Box 111 Boston, Massachusetts 02117 Ladies and Gentlemen: POLYMEDICA CORPORATION, a Massachusetts corporation (the "Parent"), and POLYMEDICA PHARMACEUTICALS (U.S.A.), INC., a Massachusetts corporation and a Wholly-Owned Subsidiary of the Parent (the "Company"), and POLYMEDICA PHARMACEUTICALS (PUERTO RICO), INC., a Massachusetts corporation and a Wholly-Owned Subsidiary of the Company ("PPR") (the Company and PPR are sometimes collectively referred to as the "Borrowers" and each as a "Borrower"), agree with you as follows: 1. DEFINITIONS. Reference is hereby made to that certain Note and Warrant Agreement dated January 26, 1993, as amended and supplemented by thirteen letter agreements dated April 27, 1993, June 15, 1993, March 29, 1994, June 17, 1994, June 30, 1994, October 27, 1994, June 26, 1995, October 18, 1995, January 1, 1996, June 19, 1996, August 2, 1996, October 30, 1996 and January 23, 1997 (the "Note and Warrant Agreement"). Capitalized terms used herein without definition have the meanings ascribed to them in the Note and Warrant Agreement. 2. AMENDMENT OF SECTION 14.8(b) OF THE NOTE AND WARRANT AGREEMENT. Section 14.8(b) is hereby amended to read in its entirety as follows: (b) The Company will at all times maintain Consolidated Net Worth of not less than the sum of (i) $18,500,000 plus (ii) 50% of the cumulative Consolidated Net Income (but without adjustment for any cumulative deficit) for the period (taken as one accounting period) from and after December 31, 1992 to and including the 2 most recently completed quarterly accounting period of the Company (as set forth in the balance sheet as at the end of such period delivered pursuant to section 7). 3. NO DEFAULT, REPRESENTATIONS AND WARRANTIES, ETC. (a) The Parent and the Borrowers represent and warrant that the representations and warranties contained in the Note and Warrant Agreement and the other Operative Agreements are correct on and as of the date hereof as if made on such date (except to the extent affected by the consummation of transactions permitted by the Note and Warrant Agreement) and that no Default or Event of Default exists. (b) The Parent and the Borrowers each ratify and confirm the Note and Warrant Agreement and each of the other Operative Agreements to which each is a party and agree that each such agreement, document and instrument is in full force and effect, that its obligations thereunder and under this Letter Agreement are its legal, valid and binding obligations enforceable against it in accordance with the terms thereof and hereof and that it has no defense, whether legal or equitable, setoff or counterclaim to the payment and performance of such obligations. (c) The Parent and the Borrowers agree that (I) if any default shall be made in the performance or observance of any covenant, agreement of condition contained in this Letter Agreement or in any agreement, document or instrument executed in connection herewith or pursuant hereto or (II) if any representation or warranty made by the Parent or the Borrowers herein or therein shall prove to have been false or incorrect on the date as of which made, the same shall constitute an Event of Default under the Note and Warrant Agreement and the other Operative Agreements and, in such event, you and each other holder of any of the Notes shall have all rights and remedies provided by law and/or provided or referred to in the Note and Warrant Agreement and the other Operative Agreements. The Parent and the Borrowers further agree that this Letter Agreement is an Operative Agreement and all references in the Note and Warrant Agreement and in any other of the other Operative Agreements referred to therein shall include this Letter Agreement. 4. PAYMENT OF TRANSACTION COSTS. Concurrently with the execution of this Letter Agreement, the Parent and the Borrowers shall pay all reasonable fees and disbursements incurred by you at or prior to such time, including, without limitation, the reasonable fees, expenses and disbursements of your special counsel. 5. GOVERNING LAW. This Letter Agreement, including the validity hereof and the rights and obligations of the parties hereunder, shall be construed in 2 3 accordance with and governed by the domestic substantive laws of The Commonwealth of Massachusetts without giving effect to any choice of law or conflicts of law provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 6. MISCELLANEOUS. The headings in this Letter Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Letter Agreement embodies the entire agreement and understanding among the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. In case any provision in this Letter Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Letter Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts but all such counterparts shall together constitute but one and the same instrument. (The remainder of this page is left blank intentionally) 3 4 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart hereof, whereupon this Letter Agreement shall become a binding agreement under seal among the parties hereto. Please then return one of such counterparts to the Company. Very truly yours, POLYMEDICA CORPORATION. By: /s/ Steven James Lee ------------------------------------ Steven James Lee Chairman and Chief Executive Officer POLYMEDICA PHARMACEUTICALS (U.S.A.), INC. By: /s/ Steven James Lee ------------------------------------ Steven James Lee Chief Executive Officer POLYMEDICA PHARMACEUTICALS (PUERTO RICO), INC. By: /s/ Steven James Lee ------------------------------------ Steven James Lee Director The terms and provisions of the foregoing Letter Agreement are hereby acknowledged and agreed to. POLYMEDICA SECURITIES, INC. POLYMEDICA PHARMACEUTICALS SECURITIES, INC. By: /s/ Steven James Lee By: /s/ Steven James Lee ---------------------------- ----------------------------- Steven James Lee Steven James Lee President President The foregoing is hereby accepted and agreed to: JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: /s/ D. Dana Donovan ---------------------------- D. Dana Donovan Senior Investment Officer 4 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS MAR-31-1999 APR-01-1998 DEC-31-1998 1 9,157 0 29,184 5,668 7,064 49,260 9,162 2,315 108,427 16,773 24,644 0 0 91 59,087 108,427 74,275 74,275 35,764 35,764 29,383 4,418 1,877 9,206 3,683 5,523 0 0 0 5,523 .62 .57
EX-27.2 4 FINANCIAL DATA SCHEDULE (RESTATED)
5 1,000 U.S. DOLLARS 9-MOS MAR-31-1998 APR-01-1997 DEC-31-1997 1 13,287 0 16,233 1,616 5,389 35,708 7,994 1,698 92,270 17,292 21,555 0 0 89 51,323 92,270 52,269 52,269 24,927 24,927 20,647 2,025 2,042 9,286 3,157 6,129 0 0 0 6,129 .71 .63
-----END PRIVACY-ENHANCED MESSAGE-----