e10vq

-----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, Reblp4jPfyVLGp+WYQGuPnfHbwtWk8LRWB86/tv4SaQXEaOLjyB1bH97OKEmp/j3 NdbdT+rImmyaxOa9PuewxQ== 0000950135-07-004776.txt : 20070807 0000950135-07-004776.hdr.sgml : 20070807 20070807161257 ACCESSION NUMBER: 0000950135-07-004776 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070807 DATE AS OF CHANGE: 20070807 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: 1934 Act SEC FILE NUMBER: 001-13690 FILM NUMBER: 071031787 BUSINESS ADDRESS: STREET 1: 701 EDGEWATER DRIVE, SUITE 360 CITY: WAKEFIELD STATE: MA ZIP: 01880 BUSINESS PHONE: 781-486-8111 MAIL ADDRESS: STREET 1: 701 EDGEWATER DRIVE, SUITE 360 CITY: WAKEFIELD STATE: MA ZIP: 01880 FORMER COMPANY: FORMER CONFORMED NAME: POLYMEDICA INDUSTRIES INC DATE OF NAME CHANGE: 19930328 10-Q 1 b66147pce10vq.htm POLYMEDICA CORPORATION FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2007


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

For the transition period from to

Commission File No. 0-19842

PolyMedica Corporation

(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.)

701 Edgewater Drive, Suite 360, Wakefield, Massachusetts		01880

(Address of Principal Executive Offices)		(Zip Code)

(781) 486-8111

(Registrant’s Telephone Number, Including Area Code)

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 3, 2007, there were 22,921,612 shares of the registrant’s Common Stock outstanding.

POLYMEDICA CORPORATION
TABLE OF CONTENTS


	Page
PART I

Item 1. Financial Statements (unaudited):

Consolidated Balance Sheets as of June 30 and March 31, 2007		3

Consolidated Statements of Income for the three months ended June 30, 2007 and 2006		5

Consolidated Statements of Cash Flows for the three months ended June 30, 2007 and 2006		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		26

Item 4. Controls and Procedures		26

PART II

Item 1. Legal Proceedings		27

Item 1A. Risk Factors		27

Item 6. Exhibits		33

Signatures		34

Exhibit Index		35
EX-10.1.2 PolyMedica Corp. Executive Savings Plan
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO and CFO

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PolyMedica Corporation

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)


	June 30,		March 31,
	2007		2007
ASSETS

Current assets:
Cash and cash equivalents	$	3,969	$	2,093
Accounts receivable (net of allowances of $30,882 and $31,350 as of June 30 and March 31, 2007, respectively)		114,714		117,309
Inventories		34,061		37,554
Deferred income taxes		4,787		4,787
Prepaid expenses and other current assets		22,550		18,344


Total current assets		180,081		180,087

Property, plant and equipment, net		60,831		61,098
Goodwill		64,598		64,598
Intangible assets, net		42,819		46,870
Direct-response advertising, net		103,815		101,487
Notes receivable		14,657		14,433
Other assets		8,181		8,873


Total assets	$	474,982	$	477,446

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

PolyMedica Corporation
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)


	June 30,		March 31,
	2007		2007
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	19,118	$	26,909
Accrued expenses		38,707		34,514
Current portion, capital lease obligations		664		804


Total current liabilities		58,489		62,227

Income taxes payable, capital lease and other obligations		5,221		2,252
Credit facility		45,900		58,700
Convertible subordinated notes		180,000		180,000
Deferred income taxes		11,994		12,351


Total liabilities		301,604		315,530

Shareholders’ equity:
Preferred stock, $0.01 par value; 2,000,000 shares authorized, none issued or outstanding		—		—
Common stock, $0.01 par value; 50,000,000 shares authorized; 22,814,896 and 22,716,294 shares issued as of June 30 and March 31, 2007		228		227
Additional paid-in capital		156,471		150,577
Retained earnings		16,679		11,112


Total shareholders’ equity		173,378		161,916


Total liabilities and shareholders’ equity	$	474,982	$	477,446

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

PolyMedica Corporation

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended
	June 30,			June 30,
	2007			2006
Net revenues	$	190,625		$	155,889

Cost of sales		104,733			83,556


Gross margin		85,892			72,333

Selling, general and administrative expenses		66,350			60,264


Income from operations		19,542			12,069

Other income and expense:
Investment income		318			340
Interest and other expense		(1,782	)		(3,097	)

		(1,464	)		(2,757	)

Income from operations before income taxes		18,078			9,312
Income tax provision		6,689			3,399


Net income	$	11,389		$	5,913


Net income per weighted average share, basic	$	0.50		$	0.26


Net income per weighted average share, diluted	$	0.49		$	0.25


Cash dividend per share	$	0.15		$	0.15

Weighted average shares, basic		22,750			23,111
Weighted average shares, diluted		23,414			23,538

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

PolyMedica Corporation

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Three Months Ended
	June 30,
	2007			2006
Operating activities:
Net income	$	11,389		$	5,913
Adjustments to reconcile net income to net cash flows:
Depreciation and amortization		7,383			4,881
Amortization of direct-response advertising		13,194			11,642
Direct-response advertising expenditures		(15,579	)		(15,396	)
Impairment of direct-response advertising		57			—
Provision for bad debts		6,326			5,397
Provision for sales allowances/returns		4,024			3,390
Stock-based compensation expense		3,077			3,014
Tax benefit from exercise of stock options		346			—
Deferred income taxes		433			(1,100	)
Loss on disposal of property and equipment		1			16
Changes in assets and liabilities, excluding effects of acquisitions and dispositions:
Accounts receivable		(7,755	)		(4,723	)
Income tax receivable		—			4,229
Inventories		3,493			1,032
Prepaid expenses and other assets		(3,738	)		(1,257	)
Accounts payable		(7,791	)		3,049
Accrued expenses and other liabilities		4,193			(3,318	)


Net cash flows provided by operating activities		19,053			16,769


Investing activities:
Purchase of property, plant and equipment		(2,458	)		(444	)
Purchase of intangible assets		(608	)		(11,169	)


Net cash flows used for investing activities		(3,066	)		(11,613	)


Financing activities:
Proceeds from issuance of common and restricted stock		2,198			1,981
Net cash paid on line of credit		(12,800	)		(10,000	)
Payment of dividends declared on common stock		(3,482	)		(3,499	)
Excess tax benefit from exercise of stock options		274			—
Payment of capital lease obligations		(301	)		(151	)


Net cash flows used for financing activities		(14,111	)		(11,669	)


Net change in cash and cash equivalents		1,876			(6,513	)

Cash and cash equivalents at beginning of period		2,093			9,101


Cash and cash equivalents at end of period	$	3,969		$	2,588


Supplemental disclosure of cash flow information:
Disposal of equipment	$	20		$	336

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

PolyMedica Corporation

Notes to Consolidated Financial Statements

1. Basis of Presentation

Company

PolyMedica Corporation (“us,” “PolyMedica” or the “Company”) was organized in 1988. Today, through our largest segment, Diabetes, under the Liberty brand, we are a leading provider of direct-to-consumer diabetes testing supplies and related products from a broad range of manufacturers, primarily to seniors. We provide a simple and reliable way for our patients to obtain their supplies and medications. Our model is a “high touch” communications model, which helps seniors more easily cope with the complexity of managing diabetes while helping them navigate through the rigors of healthcare insurance paperwork. We communicate directly with our patients and their physicians regarding patients’ prescriptions and testing regimens on a regular basis and we bill Medicare and third-party insurers on behalf of our patients. Through our Pharmacy segment, we sell prescription medications primarily to existing Diabetes patients and their spouses. We also provide healthcare communication services and technology that enhance patient care communications by offering medical call and contact center services and technology solutions focused on electronic patient relationship management.

We attract new patients to our diabetes business through five sources. We communicate directly with potential patients through targeted television, internet and print advertising, as well as direct mail. We serve as a provider to members of commercial health plans. We obtain patients by acquiring competitors. Patients are referred to us by physicians’ offices. Finally, we work to establish relationships with business partners who can assist in our clinical outreach to patients. Our patient service representatives are specifically trained to communicate with patients suffering from diabetes, in particular, seniors, helping them to follow their doctors’ orders, obtain their medications and diabetes testing supplies and manage their chronic disease. Our operating platforms enable us to efficiently collect and process required documents from physicians and patients, and bill and collect amounts due from Medicare, other third party payers and from patients directly. We believe that our proactive approach to diabetes management helps reduce the long-term complications and cost of the disease. Our innovative and effective means of servicing these patients through our patient-centric model has generated a loyal patient base and resulted in strong brand recognition of the Liberty name and significant revenue growth since our acquisition of Liberty Medical Supply, Inc. (“Liberty”) in 1996.

Accounting

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. These consolidated financial statements include the accounts of PolyMedica and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary to fairly present the results as of and for the periods ended June 30, 2007 and 2006. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the entire fiscal year. Accordingly, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended March 31, 2007 which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 29, 2007. Consequently, the interim consolidated financial statements do not include all disclosures normally required by accounting principles generally accepted in the United States of America for annual audited financial statements. As discussed in Note 10, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”) effective April 1, 2007.

2. Accounts receivable and revenue

Approximately $81.68 million and $74.88 million, excluding the co-payment amount due directly from patients,

PolyMedica Corporation
Notes to Consolidated Financial Statements

or 42.8% and 48.0% of consolidated net revenues for the three months ended June 30, 2007 and 2006, respectively, were reimbursable under Medicare Part B for products provided to Medicare beneficiaries.

In the three months ended June 30, 2007 and 2006 approximately $48.05 million and $26.46 million, or 25.2% and 17.0% of consolidated net revenues, respectively, were reimbursable under the Medicare Prescription Drug program (“Part D”), including the co-payment amount due directly from patients.

Accounts receivable allowances consist of an allowance for doubtful accounts, an allowance for product returns, and other sales allowances. As of June 30 and March 31, 2007, accounts receivable allowances were $30.88 million and $31.35 million, respectively, or 21.2% and 21.1% of gross accounts receivable, respectively.

Our accounts receivable are generally due from Medicare, private insurance companies, Medicaid, healthcare providers and payers, and our patients. The collection process is time consuming, complex and typically involves the submission of claims to multiple payers whose payment of claims may be contingent upon the payment of another payer. As a result, our collection efforts may be active up to 18 months from the initial billing date. Balances that are determined to be uncollectible prior to the passage of 18 months from the last billing date are written off as soon as administratively possible after that determination has been made. In accordance with applicable regulatory requirements, we make reasonable and appropriate efforts to collect our accounts receivable, including deductible and co-payment amounts, in a consistent manner for all payer classes. During the three months ended June 30, 2007 and 2006, we provided for allowances for doubtful accounts at a rate of approximately 3.3% and 3.5% of net revenues, respectively. The decrease in the provision for doubtful accounts as a percentage of net revenues this quarter was primarily attributable to the relative increase in Pharmacy revenue where we experience higher collection rates.

Sales allowances are recorded for estimated product returns, as well as estimated claim denials, as a reduction of revenue. We analyze sales allowances using historical data adjusted for significant changes in volume, patient demographics, business conditions and changes in our product return policy. The reserve for sales allowances and the rate at which we provide for such allowances are periodically adjusted to reflect actual returns and claim denials. During the three months ended June 30, 2007 and 2006, we provided for sales allowances at a rate of approximately 2.1% of gross revenues.

3. Inventories

Inventories totaling $34.06 million and $37.55 million as of June 30 and March 31, 2007, respectively, consisted solely of finished goods. Due to the medical nature of the products we provide, patients frequently request supplies before we have received all required written documents to bill Medicare, other third-party payers and patients. Because we do not recognize revenue until we have received and verified such documents, included in inventories as of June 30 and March 31, 2007, is $2.12 million and $2.99 million, respectively, of inventory shipped to patients for which we have received an order, but have not yet received and verified the required documentation to recognize revenue and bill Medicare, other government agencies, third-party payers or patients.

4. Goodwill and Other Intangible Assets

The carrying amounts of goodwill and intangible assets, excluding direct-response advertising, as of June 30 and March 31, 2007, by reportable segment, were as follows:


	June 30,		March 31,
(in thousands)	2007		2007
Goodwill:
Diabetes	$	64,598	$	64,598
Pharmacy		—		—

Total consolidated goodwill	$	64,598	$	64,598

PolyMedica Corporation
Notes to Consolidated Financial Statements


	June 30,			March 31,
(in thousands)	2007			2007
Intangible assets:
Diabetes patient lists	$	64,467		$	63,859
Diabetes managed care and other contracts		8,525			8,525
Pharmacy		—			—
Accumulated amortization		(30,173	)		(25,514	)


Total consolidated intangible assets, net	$	42,819		$	46,870

We purchased $608,000 of intangible assets, consisting of patient lists, in the three months ended June 30, 2007. The patient lists are amortized on an accelerated basis over a four-year period after initial shipment. The amortization rate is such that 32% is expensed over the first year and the remaining 68% is expensed on a straight-line basis over the following 3 years. Intangible assets, all of which are subject to amortization, consist of the following:


			June 30, 2007							March 31, 2007
	Average		Gross					Net		Gross					Net
	Life in		Carrying		Accumulated			Book		Carrying		Accumulated			Book
(in thousands)	Years		Amount		Amortization			Value		Amount		Amortization			Value
Patient lists		4	$	64,467	$	(27,691	)	$	36,776	$	63,859	$	(23,406	)	$	40,453
Other contracts		2-9		8,133		(2,138	)		5,995		8,133		(1,840	)		6,293
Covenants not to compete		< 1		392		(344	)		48		392		(268	)		124

Total			$	72,992	$	(30,173	)	$	42,819	$	72,384	$	(25,514	)	$	46,870

Amortization expense for intangible assets was approximately $4.66 million and $2.42 million for the three months ended June 30, 2007 and 2006, respectively. As of June 30, 2007, amortization expense on existing intangible assets for the next five fiscal years and beyond is as follows (table in thousands):


Remainder of fiscal year 2008	$	12,682
Fiscal year 2009		13,949
Fiscal year 2010		10,115
Fiscal year 2011		4,225
2012 and thereafter		1,848

Total	$	42,819

5. Direct-Response Advertising

We recorded the following activity related to our direct-response advertising asset for the periods presented:


	Three Months Ended
	June 30,			June 30,
(in thousands)	2007			2006
Capitalized direct-response advertising additions	$	15,579		$	15,396
Direct-response advertising amortization		(13,194	)		(11,642	)
Impairment of direct-response advertising		(57	)		—

Increase in direct-response advertising asset, net		2,328			3,754
Beginning direct-response advertising asset, net		101,487			91,653

Ending direct-response advertising asset, net	$	103,815		$	95,407

PolyMedica Corporation
Notes to Consolidated Financial Statements

6. Notes Receivable

On June 29, 2007, we amended the AgaMatrix, Inc. (“AgaMatrix”) supply agreement and related notes receivable (“the AgaMatrix Notes”). We relinquished our rights under the AgaMatrix Notes to convert the principal balances into common stock of AgaMatrix in exchange for favorable future pricing under the supply agreement. In addition, interest on the AgaMatrix Notes’ unpaid balance was adjusted to accumulate at 4% per year, compared with 3% per year under the original agreements. The AgaMatrix Notes were consolidated into a single note (the “New Note”), due March 31, 2010. AgaMatrix may now prepay the New Note at any time, without penalty. If AgaMatrix makes an initial public offering of its shares above a certain size, the New Note shall be due and payable within 90 days. The New Note has been discounted to a market rate, and the Company evaluates the collectibility of the New Note based on the financial position and estimates of future earnings and cash flows of AgaMatrix as well as other relevant qualitative factors.

7. Accrued Expenses

Accrued expenses consist of the following:


	June 30,		March 31,
(In thousands)	2007		2007
Compensation and benefits	$	7,778	$	4,941
Proposed settlement of class action lawsuit		5,500		5,500
Amounts due to Medco		6,715		10,768
Income tax payable		1,262		3,245
Inventory receipts		7,320		1,695
Other		10,132		8,365

	$	38,707	$	34,514

As of June 30 and March 31, 2007, amounts accrued for compensation and benefits consisted primarily of earned, but unpaid employee compensation, bonuses and severance accruals.

On or about October 24, 2006, PolyMedica reached an agreement in principle to settle the Securities Class Action lawsuit In re: PolyMedica Corp. Securities Litigation. The proposed settlement amount would be covered by insurance and is included in prepaid expenses and other current assets. The settlement has not been finalized and is subject to approval by the United States District Court for the District of Massachusetts. Please also see Note 9, Commitments and Contingencies, for a detailed description.

Other accrued expenses consisted primarily of amounts due for audit and tax services, legal services, advertising and marketing, outside consulting, and interest owed on outstanding borrowings from our Credit Facility.

8. Credit Facility, Equipment Financing Agreement and Convertible Subordinated Notes

Credit facility

On April 12, 2005, PolyMedica entered into a loan agreement with Bank of America, N.A. (“Bank of America”), as administrative agent, and several lenders, as subsequently amended in May and November 2005 and then again in March and September 2006 (“Credit Facility”). The Credit Facility currently permits PolyMedica to borrow up to $250 million under a five-year revolving credit facility maturing on March 30, 2011. As of June 30, and March 31, 2007, we had $45.90 million and $58.70 million, respectively, in borrowings outstanding under the Credit Facility. Interest on swing line commitment borrowings is based on the greater of Bank of America’s prime rate or the Federal Funds Rate plus .50% and at an adjusted LIBOR rate option for other borrowings under the facility. The weighted average interest rate for the three months ended June 30, 2007 and 2006 was 7.5% and 6.5%, respectively. The Credit Facility contains several financial and other covenants and is secured by a pledge of the stock of PolyMedica’s wholly-owned subsidiaries. Commitment fees on the unused portion of the facility range from .15% to .25% and are based on PolyMedica’s consolidated leverage ratio for the most recent four fiscal quarters. The Credit Facility limits the amount of

PolyMedica Corporation
Notes to Consolidated Financial Statements

indebtedness we may incur, requires us to maintain certain levels of net worth, leverage ratio and fixed charge ratio, and restricts our ability to materially alter the character of the business. We continue to be in compliance with all of the covenants required by the Credit Facility.

Equipment Financing Agreement

During fiscal 2007, PolyMedica entered into a master equipment financing agreement with Citizens Asset Finance allowing us to borrow up to $5 million, secured by equipment owned by PolyMedica. The initial borrowing under the agreement was $678,000 effective October 1, 2006, with a second borrowing occurring on January 1, 2007 of $831,000. The imputed interest rate on both borrowings is approximately 6.7% for a term of 36 months. Payments totaling $1.33 million are payable monthly through December 2009 on the borrowings.

Convertible subordinated notes

During September 2006, the Company issued in a private placement $180 million aggregate principal amount of convertible subordinated notes due September 15, 2011 (“Notes”). The Notes bear interest at 1.0% per annum, payable semi-annually in arrears in cash on March 15 and September 15 of each year. The Notes are general, unsecured subordinated obligations of the Company and are subordinated in right of payment to all of our existing and future senior debt, including debt under the Credit Facility. The Notes are also effectively subordinated in right of payment to all of our subsidiaries’ obligations (including secured and unsecured obligations) and are subordinated in right of payment to our secured obligations to the extent of the assets securing such obligation.

The Notes are convertible into cash and, if applicable, shares of Common stock, based on an initial conversion rate of 20.8756 shares of Common Stock per $1,000 principal amount of Notes (which is equal to a conversion price of approximately $47.9028 per share and is subject to adjustment). Holders may surrender their Notes for conversion prior to the close of business on April 15, 2011 under the following circumstances: (1) during any calendar quarter commencing after September 19, 2006 (and only during such calendar quarter), if the closing sale price of the common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter preceding the quarter in which the conversion occurs is more than 120% of the conversion price of the Notes on that last trading day, (2) during the ten consecutive trading day period following any five consecutive trading day period in which the trading price for the Notes for each such trading day was less than 98% of the closing sale price of the common stock on such date multiplied by the then current conversion rate, or (3) if we make certain significant distributions to holders of the common stock, we enter into specified corporate transactions or the common stock ceases to be approved for listing on the NASDAQ Global Select Market and is not listed for trading on a U.S. national or regional securities exchange or any similar U.S. system of automated securities price dissemination or traded in the over-the-counter market. Holders may also surrender their Notes for conversion after April 15, 2011 and prior to maturity regardless of whether any of the foregoing conditions have been satisfied.

Upon conversion of the Notes, holders will receive cash and shares of common stock, if any, based on a daily conversion value (as described in the indenture governing the Notes) calculated for each of the 25 trading days beginning on the third trading day immediately following the conversion date, except that for Notes surrendered for conversion after the thirtieth scheduled trading day prior to the maturity date and on or prior to the close of business on the business day immediately preceding maturity, holders will receive a cash payment equal to $1,000 and shares of our common stock, if any, calculated based on the 25 trading days beginning on the trading day following the maturity date. If a fundamental change (as defined in the indenture governing the Notes) occurs prior to maturity, holders may require us to repurchase for cash all or part of their Notes at a price equal to 100% of the principal amount of the Notes repurchased plus accrued and unpaid interest.

In connection with the issuance of the Notes, the Company entered into separate convertible note hedge transactions with Bank of America, N.A. and Deutsche Bank AG London with respect to its obligation to deliver shares of common stock upon conversion of the Notes, which are expected to reduce the potential dilution to our common stock upon any conversion of the Notes. The convertible note hedges give the Company the right to receive, for no additional consideration, the number of shares of common stock that it is obligated to deliver upon

PolyMedica Corporation
Notes to Consolidated Financial Statements

conversion of the Notes (subject to customary antidilution adjustments). The aggregate cost of these convertible note hedges was $47.0 million.

Concurrently with the issuance of the Notes and entering into the convertible note hedge transactions, the Company also entered into separate warrant transactions whereby the Company sold warrants to acquire approximately 3.75 million shares of common stock (the “Warrants”), subject to customary anti-dilution adjustments, at an exercise price of approximately $67.23 per share of common stock. The Company received aggregate proceeds of approximately $20.74 million from the sale of the Warrants.

In accordance with Emerging Issues Task Force Issue (“EITF”) No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF No. 00-19”), SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” the Company recorded both the purchase of the convertible note hedges and the sale of the Warrants as adjustments to additional paid-in capital, and will not recognize subsequent changes in fair value.

In connection with the Notes, we recorded $5.81 million in debt issuance costs, which are amortized over the life of the Notes.

9. Commitments and Contingencies

Contingencies

Class Action Lawsuit

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 against PolyMedica and Steven J. Lee, PolyMedica’s former Chief Executive Officer and Chairman of the Board, on behalf of himself and purchasers of common stock. The lawsuit seeks an unspecified amount of damages, attorneys’ fees and costs and claims violations of Sections 10(b), 10b-5, and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), alleging various statements were misleading with respect to our revenue and earnings based on an alleged scheme to produce fictitious sales. Several virtually identical lawsuits were subsequently filed in the United States District Court for the District of Massachusetts against PolyMedica. On July 30, 2001, the Court granted the plaintiffs’ motion to consolidate the complaints under the caption In re: PolyMedica Corp. Securities Litigation, Civ. Action No. 00-12426-REK.

On or about October 24, 2006, the parties reached an agreement in principle to settle the matter for $5.5 million, which would be fully covered by our insurance policies. The proposed settlement amount is included in accrued expenses and the insurance reimbursement is included in prepaid expenses and other current assets in our consolidated balance sheet as of June 30, 2007. The settlement has not been finalized and is subject to approval by the District Court. On October 25, 2006, the District Court issued an order for administrative closure of the case pending the parties’ submission of settlement documents for Court approval. On May 9, 2007, the parties submitted settlement documents for Court approval. The Court will consider the proposed settlement at a hearing to be held on September 5, 2007.

We believe that we have meritorious defenses to the claims made in the consolidated amended complaint and, should the settlement be rejected by the Court, we intend to continue to contest the claims vigorously.

If the settlement proposal is not accepted by the Court, we would be unable to express an opinion as to the likely outcome of this litigation. An unfavorable outcome that exceeds amounts recoverable through our director and officer insurance coverage could have a materially adverse effect on our financial position and results of operations.

PolyMedica Corporation
Notes to Consolidated Financial Statements

Fair Labor Standards Act Litigation

On March 7, 2007, in connection with a lawsuit filed against the Company by a former employee in February 2005, we announced that the United States District Court for the Southern District of Florida determined that Liberty had violated the Fair Labor Standards Act with respect to its former overtime compensation and lunch break deduction policies. The court in this matter ruled that upon final resolution of the remaining legal issues in the case, it will enter a judgment against the Company, which we plan to appeal to the 11th Circuit Court of Appeals. In response to this decision, the Company recorded an additional reserve in the quarter ended March 31, 2007, of approximately $1.43 million to reflect the potential amount of the judgment, the Company’s legal fees and associated costs, and the legal fees of the plaintiffs that the Company may be required to pay.

Proposed Tax Deduction Disallowance

In connection with an Internal Revenue Service (“IRS”) examination of our fiscal 2005 consolidated federal income tax return, we received a notice from the IRS which proposed to disallow half of the $35 million deduction we claimed in connection with the civil settlement with the Department of Justice (“DOJ”) and the Office of the Inspector General (“OIG”). We believe this deduction was properly recorded on our federal tax return in accordance with applicable tax laws and regulations in effect during the period involved. We are vigorously challenging this proposed disallowance and filed a protest with the appeals division of the IRS. We are unable to express an opinion as to the likely outcome of the proposed disallowance. An unfavorable outcome that exceeds the amount currently reserved could have a materially adverse effect on our results of operations.

Commitments

Please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, filed with the SEC on May 29, 2007, for a description of our contractual obligations, specifically our operating leases, capital leases, and other commitments, and our off-balance sheet arrangements. There were no material developments in these areas during the three months ended June 30, 2007.

10. Income Taxes

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in an enterprise’s financial statements. The interpretation requires that we determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the more likely than not recognition criteria, FIN 48 requires the tax position be measured at the largest amount of benefit greater than 50 percent likely of being realized upon ultimate settlement. This accounting standard was effective for fiscal years beginning after December 15, 2006.

We adopted FIN 48, Accounting for Uncertainty in Income Taxes, as of April 1, 2007. Upon adoption of FIN 48, we increased the liability for unrecognized tax benefits by recording a cumulative effect adjustment to opening retained earnings of $2.34 million and increasing our non-current income taxes payable. We also reclassified $790,000 of income taxes payable from current to non-current liabilities. The total amount of unrecognized tax benefits as of June 30, 2007 was $3.13 million substantially all of which, if ultimately recognized, could favorably affect the effective tax rate in a future period. We have concluded that it is not reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

In accordance with our accounting policy, we recognize interest expense and penalties related to unrecognized tax benefits as part of our provision for income taxes. This policy did not change as a result of the adoption of FIN48. As of April 1, 2007, we had accrued approximately $400,000 for interest and penalties within our liability for unrecognized tax benefits.

IRS examinations of our returns have been completed for years through March 31, 2004, and our tax return for March 31, 2005 has been reviewed and completed, except for the dispute relating to the $17.5 million deduction we claimed in connection with the civil settlement with the Department of Justice (“DOJ”) and the Office of the Inspector General (“OIG”). We believe this deduction was properly recorded on our federal tax return in accordance with applicable tax laws and regulations in effect during the period involved. We are vigorously challenging this proposed disallowance and filed a protest with the appeals division of the IRS. We are also subject to audits by a number of state tax authorities but do not believe that the outcome of any examination will have a material impact on our financial statements.

PolyMedica Corporation
Notes to Consolidated Financial Statements

11. Segment Information

Our reportable segments, Diabetes and Pharmacy, are strategic business units or divisions that offer different products. These units have separate financial information that is evaluated by senior management. In addition, our Corporate assets are managed separately as these assets provide benefits to both reportable segments. Our segments are as follows:

Diabetes — Through our Diabetes segment, we primarily provide diabetes testing supplies and related products to patients suffering from diabetes and related chronic diseases. We offer a wide array of diabetes supplies from a broad range of manufacturers. We additionally provide healthcare communication services and technology that enhance patient care communications by offering medical call and contact center services and technology solutions focused on electronic patient relationship management.

Pharmacy — Through our Pharmacy segment, we provide prescription medications primarily to existing Diabetes patients and their spouses.

Segment assets belonging to Corporate, which included $3.97 million and $2.09 million of cash and cash equivalents as of June 30 and March 31, 2007, respectively, are considered separate from our reportable segments for management evaluation purposes.

As a result of the shared services reported separately, 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. We do not organize our units geographically, as our products 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:


	Three Months Ended
	June 30,
(in thousands)	2007			2006
Net revenues:
Diabetes	$	126,596		$	113,783
Pharmacy		64,029			42,106

Total	$	190,625		$	155,889


Gross margin:
Diabetes	$	74,808		$	63,605
Pharmacy		11,084			8,728

Total	$	85,892		$	72,333


Reconciliation of segment gross margin to income from operations before income taxes:
Diabetes gross margin	$	74,808		$	63,605
Pharmacy gross margin		11,084			8,728
Selling, general and administrative expenses		(66,350	)		(60,264	)
Other income and expense		(1,464	)		(2,757	)


Income from operations before income taxes	$	18,078		$	9,312

PolyMedica Corporation
Notes to Consolidated Financial Statements


	June 30,		March 31,
	2007		2007
Segment assets:
Diabetes	$	390,933	$	392,503
Pharmacy		27,846		31,592
Corporate		56,203		53,351

Total	$	474,982	$	477,446

12. Shareholders’ Equity

Changes to stockholders’ equity consisted of the following activity:


Balance at March 31, 2007	$	161,916
Three months ended June 30, 2007:
Net income		11,389
Cumulative effect of change in accounting principle		(2,340	)
Stock-based compensation		3,077
Proceeds from the exercise of stock options		2,198
Tax benefit from exercise of stock options		620
Dividends paid		(3,482	)

Balance at June 30, 2007	$	173,378

In the quarter ended June 30, 2007, we paid a $0.15 per share cash dividend on 23,212,150 common shares outstanding for a total payment of $3.48 million to our common shareholders of record as of the close of business on May 7, 2007.

We adopted FIN 48 as of April 1, 2007. Please see Note 10, Income Taxes, for a description of the cumulative effect of change in accounting principle included in the table above.

13. Stock-Based Compensation

PolyMedica has stock-based compensation plans for its key employees, directors and others. These plans permit the grant of a variety of stock awards, including restricted stock and stock options, as determined by the Company’s Board of Directors or its Compensation Committee. Generally, restricted stock awards and stock options granted to employees are subject to four year vesting terms, assuming continued employment with the Company, with one year vesting terms for awards granted to members of our Board of Directors. Generally, stock options are awarded with an expiration period of ten years, and upon an optionee’s termination of service or employment, such expiration period may be reduced. For restricted stock awards granted, PolyMedica retains the right to repurchase any unvested shares at par value upon termination of employment or service. Upon a change in control of the Company, all options held by certain employees, regardless of grant date, become immediately exercisable and restricted stock awards granted to such employees cease to be subject to restrictions and the Company’s repurchase rights. Nonqualified and incentive options are granted with exercise prices equal to or above the fair market value of our common stock.

There were no significant grants of stock options during the quarter ended June 30, 2007. The total intrinsic value of options exercised during the quarter ended June 30, 2007 and 2006 was approximately $1.52 million and $951,000, respectively. The intrinsic value is the difference between the market value of the shares on the exercise date and the exercise price of the option.

As of June 30, 2007, there was $10.56 million of total unrecognized compensation cost related to non-vested stock options granted. The cost is expected to be recognized over a weighted average period of 1.98 years.

Restricted Stock Awards — PolyMedica awards to a number of key employees and directors shares of restricted Company common stock. The vesting terms of the awards generally range from 1 to 4 years, assuming continued employment or service, with some exceptions. The fair market value of the award at the time of the grant is amortized to expense over the period of vesting. Recipients of restricted stock have the right to vote such shares and receive dividends. The fair value of restricted stock awards is generally determined based on the number of shares granted and the market value of the Company’s shares on the grant date.

PolyMedica Corporation
Notes to Consolidated Financial Statements

A summary of the status of our restricted stock as of June 30, 2007 and changes during the three months then ended are presented below:


						Weighted Average
						Grant Date
	Shares			Par value		Fair Value
Non-vested as of March 31, 2007		337,728		$	0.01	$	33.33

Granted		132,285		$	0.01	$	40.98
Vested		(4,685	)	$	0.01	$	38.56
Cancelled		—			—		—


Non-vested as of June 30, 2007		465,328		$	0.01	$	35.45

The total fair value of shares vested during the quarter ended June 30, 2007 and 2006 was $181,000 and $600,000, respectively.

Of the total $3.08 million and $3.01 million stock-based compensation expense recorded in the quarters ended June 30, 2007 and 2006, compensation expense related to restricted stock grants totaled $1.09 million and $600,000, respectively.

As of June 30, 2007, there was $11.43 million of total unrecognized compensation cost related to non-vested restricted stock awards granted. The cost is expected to be recognized over a weighted average period of 3.28 years.

14. Calculations of Earnings Per Share

Calculations of earnings per share are as follows:


	Three Months Ended
	June 30,		June 30,
(In thousands, except per share data)	2007		2006
Income from operations, net of income taxes	$	11,389	$	5,913

BASIC:
Weighted average common stock issued and outstanding, end of period		22,750		23,111

Income from operations, net of income taxes, per weighted average share, basic	$	0.50	$	0.26


DILUTED:
Weighted average common stock issued and outstanding, end of period		22,750		23,111
Weighted average dilutive common stock equivalents		664		427


Weighted average common stock and dilutive common stock equivalents outstanding		23,414		23,538
Income from operations, net of income taxes, per weighted average share, diluted	$	0.49	$	0.25

PolyMedica Corporation
Notes to Consolidated Financial Statements

Potentially Dilutive Common Stock Equivalents

Options to purchase shares of common stock with exercise prices in excess of the average market price of common shares are not included in the computation of diluted earnings per share. There were 78,500 and 73,500 outstanding options not included in the diluted earnings per share computation as of June 30, 2007 and 2006, respectively.

Incremental net shares for the Notes and the warrant transactions will be included in future diluted earnings per share calculations for those periods in which the Company’s average common stock price exceeds $47.90 per share in the case of the Notes and $67.23 per share in the case of the warrants. The Notes would be included in the calculation of diluted earnings per share whether or not the contingent requirements have been met for conversion using the treasury stock method if the conversion price of $47.90 is less than the average market price of the Company’s common stock for the period, because upon conversion, the principal amount is settled in cash and only the conversion premium is settled in shares of the Company’s common stock. During the period ended June 30, 2007, the average market price of the Company’s common stock was less than the conversion price of the Notes and the exercise price of the warrants and therefore both are anti-dilutive. The net shares issued upon conversion of the Notes or exercise of the warrants are excluded from the diluted earnings per share calculation. See Note 8 for more information with respect to the convertible note hedges and the warrant transactions.

15. Comprehensive Income

Our total comprehensive income approximates net income for the three months ended June 30, 2007 and 2006. Unrealized gains (losses) on investments were not material for any periods presented.

16. New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied prospectively, except in the case of a limited number of financial instruments that require retrospective application. The Company is in the process of evaluating the effect that SFAS 157 will have on its financial statements, if any.

In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FAS 115” (“FAS 159”). FAS 159 permits companies to measure many financial instruments and certain other items at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the potential impact of FAS 159 on our financial position and results of operations.

17. Subsequent Events

In July 2007, we entered into an agreement with Blue Cross Blue Shield of Florida (“BCBSF”) that reduced the reimbursement for certain medications. The reimbursement rate reduction affects our Pharmacy segment and, in particular, patients covered by the Federal Employees Health Benefit Program (“FEP”) for which BCBSF processes claims. We expect the reduction in reimbursement rates to reduce revenue and operating income by approximately $9 million in fiscal 2008, and, on an annualized basis, $15 million. As a percentage of revenue, patients covered by FEP, comprised approximately 24% and 31% of the Pharmacy segment’s net revenues for the three months ended June 30, 2007 and 2006, respectively.

PolyMedica Corporation
Notes to Consolidated Financial Statements

On July 27, 2007, we announced that our Board declared a $0.15 per share cash dividend to PolyMedica common shareholders of record as of the close of business on August 6, 2007, payable on August 16, 2007.

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

Future Operating Results

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, are made throughout this Quarterly Report on Form 10-Q. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including those detailed in Part II, Item 1A. – Risk Factors.

In addition, any forward-looking statements represent our view only as of the day this Quarterly Report on Form 10-Q was first filed with the Securities and Exchange Commission (the “SEC”) and should not be relied upon as representing our view as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change.

Overview

Diabetes

Through our Diabetes segment we provide diabetes testing supplies and related products to our patients suffering from diabetes. As of June 30, 2007, we served approximately 957,000 active diabetes patients, compared to approximately 888,000 active Diabetes patients as of June 30, 2006. We meet the needs of our diabetes patients by:

	–		Providing efficient delivery of diabetes related products directly to our patients’ homes;

	–		billing Medicare, other government agencies or private insurance companies directly for those diabetes related supplies that are reimbursable;

	–		providing medical call and contact center services and 24-hour telephone support to patients;

	–		using sophisticated software and advanced order fulfillment systems to efficiently provide diabetes related products.

Sales from this segment represented 66.4% and 73.0% of total net revenues for the three months ended June 30, 2007 and 2006, respectively.

Approximately 85% of our Diabetes patients are covered by Medicare. As a result, changes to the Medicare program can impact our revenues and income. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Modernization Act”), which was signed into law on December 8, 2003, froze for the 2004 calendar year the reimbursement rates for diabetes testing supplies at the rates that were in effect for the 2003 calendar year.

The Medicare Modernization Act, section 302(b) further established a program for the competitive acquisition for certain covered items of durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”). On April 2, 2007, the Centers for Medicare and Medicaid Services (“CMS”) issued a final rule relating to the competitive acquisition of certain DMEPOS items (“Competitive Bidding”). The statute requires that Competitive Bidding be rolled out in three phases. The first phase is to occur in ten Competitive Bid Areas (“CBAs”), the second in 80 CBAs and the third to additional CBAs. Also, on April 2, 2007, CMS announced that the product category of diabetes testing supplies (i.e. test strips, lancets, lancing devices, control solution and batteries) would be included as part of the “First Phase,” but would be included as mail order only. CMS has defined mail-order as “items ordered remotely (i.e. by phone, email, internet, or mail) and delivered to the beneficiary’s residence by common carriers (e.g. U.S. postal service, Federal Express, United Parcel Service) and does not include items obtained by beneficiaries from local supplier storefronts.” In calendar year 2010, mail order diabetes testing supplies may be subject to a larger national or regional mail order program. Presently, blood glucose monitors are not included in Competitive Bidding.

Only qualified suppliers that meet defined participation standards specified in the final rule will be permitted to engage in Competitive Bidding. For example, suppliers that wish to submit bids must be a participating Medicare supplier with a durable medical equipment supplier number, be licensed in compliance with relevant state regulations, meet specific quality and financial standards developed by CMS, and be accredited by a CMS-approved accreditation organization.

Generally, CMS will award contracts to bidding suppliers by first determining the “pivotal bid” for each competitively bid product category (i.e., diabetes supplies) in each CBA. CMS defines the pivotal bid as “the lowest composite bid based on all bids submitted by suppliers for a product category that includes a sufficient number of suppliers to meet beneficiary demand for the items in that product category.” Within each CBA, qualified suppliers whose composite bids for each DMEPOS product category are at or lower than the pivotal bid will be offered contracts, subject to certain accreditation and participation standards. For the First Phase, the final rule provides that at least five suppliers will be awarded contracts in each CBA for each competitively bid product category. If CMS implements a national or regional mail order program in 2010, CMS may award contracts to fewer than five suppliers if it determines that fewer than five suppliers can meet beneficiary demand.

Reimbursement rates will be determined by selecting the median bid price for each individual item among the winning bidders in a DMEPOS product category and will be applicable for the duration of each contract period. It is likely that there will be different reimbursement rates for the same DMEPOS items across varying CBAs.

For the First Phase, the bidding window began on May 15, 2007 and, at the time this Form 10-Q was filed, the bidding window was scheduled to end on September 25, 2007. We submitted bids for mail order diabetes supplies in each of the ten CBAs, but are permitted to revise the bid up to the September 25, 2007 deadline. It is anticipated that CMS will conclude the contracting process by February, 2008 for the First Phase, at which point CMS intends to announce the names of the contracted suppliers. CMS intends to conduct extensive beneficiary education about competitive bidding and about the winning contracted suppliers between April and July 2008. The program and new payment rates for the First Phase are scheduled to take effect on July 1, 2008 and contracts for this phase will last until March 31, 2010.

The First Phase of competitive bidding (the first ten CBAs), will affect approximately 60,000 of our diabetes patients, which represents approximately 6% of the total number of our diabetes patients and approximately 4-6% of our total revenue. If CMS chooses to include mail order diabetes testing supplies in the next 70 CBAs in 2009, approximately 40% of our total diabetes patient base, including the patients affected in the First Phase, will be affected. If, instead, CMS chooses to include mail order diabetes testing as part of a national or regional mail order program, it is possible that all of our Medicare Fee-For-Service diabetes patient base will be subject to competitive bidding in 2010. CMS may provide additional guidance that could impact the competitive acquisition of diabetes supplies.

The Medicare Modernization Act also provides CMS additional authority, beginning in 2009, to use pricing information it gathers during the initial competitive bidding phases for the purposes of establishing reimbursement rates in geographic areas not subject to competitive bidding. If CMS elects to use this power, referred to as its “Inherent Reasonableness authority,” it will issue further guidance on how it intends to use it through the formal rule making process.

Concerns about the overall competitive bidding program and about the bidding process itself have been raised by numerous affected DMEPOS suppliers to CMS and to members of Congress. To date, CMS has extended the bidding window for the First Phase three times. Furthermore, additional concerns about competitive bidding have been raised to CMS by members of Congress. It is conceivable that Congress may seek to make changes to the competitive bid program as part of potential health care legislation during the 110th Congress. In addition, a number of mail order diabetes suppliers (not including PolyMedica) filed a lawsuit against CMS to attempt to remedy their concerns with how CMS is implementing competitive bidding. We believe the probability of success is remote. We are thus anticipating and proceeding as if the First Phase of the program will be implemented consistent with the current schedule.

Pharmacy

Through our Pharmacy segment, we market and sell prescription medications primarily to existing Diabetes patients and their spouses. As with our Diabetes segment, we provide delivery to our patients and bill government programs and insurance companies directly on our patient’s behalf.

The Medicare Modernization Act provides for a voluntary prescription drug benefit, the Medicare Prescription Drug program (“Part D”), which gives beneficiaries access to prescription drug coverage beginning January 1, 2006. Prior to the implementation of Part D, sales to our patients were primarily reimbursed by the Federal Employees Health Benefit Program (“FEP”) or other commercial insurance plans, or paid for by patients at the time of purchase. Under Part D, coverage is now also available through both Prescription Drug Plans and MedicareAdvantage-Prescription Drug plans, and benefits will include coverage for prescription drugs, as well as insulin and syringes. Our strategy is to expand our Pharmacy business by focusing our efforts to increase revenues from active patients that order diabetes and pharmacy supplies from us.

During the quarter ended September 30, 2006, we entered into an agreement with Medco Health Solutions, Inc. (“Medco”) whereby Medco provides us with pharmacy fulfillment services. We expect the pharmacy fulfillment services to reduce our need to invest significant capital resources in our dispensing pharmacy. Also, we believe the agreement with Medco provides the Company with the ability to scale operations into the foreseeable future. We have also agreed to work with Medco to develop ways to serve and improve outcomes of our respective diabetes patients. We are unable to assess the potential impact to our business of new joint initiatives with Medco. Since there could be some immaterial disruption in service in the event Medco could not fulfill our patients’ prescription drug needs, we continue to maintain equipment to dispense these prescriptions if necessary.

Seasonality

We do not consider our business to be highly seasonal; however, we generate higher revenues from patients with commercial insurance coverage in our third fiscal quarter ending December 31 and, accordingly, lower revenue in the quarter ending March 31, as a result of their ordering pattern. Patients with commercial insurance coverage typically attempt to maximize their insurance benefits prior to the onset of deductibles commencing each January 1.

In addition, advertising rates may fluctuate during the year, which may affect our acquisition of new patients. We may purchase less advertising when rates are higher, which generally occurs in November and December, or when response rates are lower, typically in July and August. As a result, our acquisition of new patients during these periods is generally lower than other periods, and therefore our net revenues may fluctuate accordingly.

Other

We operate from distribution, administrative and training facilities located in Florida and Virginia, with administrative and training facilities also located in Maine, Texas, Missouri, Tennessee, and New York. Our corporate headquarters is based in Massachusetts.

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.

Results of Operations

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

Net Revenues

The following table presents segment net revenues expressed as a percentage of net revenues for the three months ended June 30, 2007 and 2006.


	Three Months Ended June 30,
	2007					2006
	Net		% Net			Net		% Net
(in thousands)	Revenues		Revenues			Revenues		Revenues			$ Change		% Change
Net revenues:
Diabetes	$	126,596		66.4	%	$	113,783		73.0	%	$	12,813		11.3	%
Pharmacy		64,029		33.6			42,106		27.0			21,923		52.1

Total net revenues	$	190,625		100.0	%	$	155,889		100.0	%	$	34,736		22.3	%

The increase in Diabetes net revenues was due primarily to the 7.8% net growth in our patient base, which grew to 957,000 active patients as of June 30, 2007, from approximately 888,000 as of June 30, 2006. In the twelve months between June 30, 2006 and June 30, 2007, we added approximately 198,000 new patients from direct-response advertising and related marketing programs and 52,000 from patient list acquisitions. The attrition of approximately 181,000 patients in the twelve months ended June 30, 2007, yielded net growth in the Diabetes patient base from the first quarter of fiscal 2007 through the first quarter of fiscal 2008 of approximately 69,000 patients or 7.8%. Also contributing to the increase in Diabetes segment revenue was an increase in revenue per shipment. Diabetes segment revenue per shipment in the three months ended June 30, 2007 was $179 per shipment compared with $170 per shipment in the quarter ended June 30, 2006.

The increase in Pharmacy net revenues was due primarily to patients enrolled into the Liberty Part D (“Part D”) pharmacy program since the inception of the Medicare Prescription Drug program on January 1, 2006. The Company dispensed over 655,000 prescriptions in the quarter ended June 30, 2007 compared with approximately 408,000 prescriptions in the quarter ended June 30, 2006. The increase in prescriptions dispensed was primarily a result of an increase in patients enrolled into the Part D program. The increase in dispensed prescriptions was partially offset by a decrease in the revenue per dispensed prescription from $103 in the quarter ended June 30, 2006 to $98 in the quarter ended June 30, 2007.

Gross Margin

The following table presents segment gross margins and gross margin percentages for the three months ended June 30, 2007 and 2006.


	Three Months Ended June 30,
	2007					2006
	Gross		Gross			Gross		Gross
(in thousands)	Margin		Margin %			Margin		Margin %			$ Change		% Change
Gross margin:
Diabetes	$	74,808		59.1	%	$	63,605		55.9	%	$	11,203		17.6	%
Pharmacy		11,084		17.3			8,728		20.7			2,356		27.0

Total gross margin	$	85,892		45.1	%	$	72,333		46.4	%	$	13,559		18.7	%

Gross margin in the first quarter of fiscal 2008 increased 18.7% to $85.89 million from $72.33 million for the same period last year. The $13.56 million increase in gross margin was due to the increase in revenue in both the Diabetes and Pharmacy segments. Overall gross margin was 45.1% of net revenues compared with 46.4% of net revenues last year. The decrease in the gross margin percentage from last year was primarily attributable to the relative increase in revenue from our lower margin Pharmacy segment.

Diabetes gross margin increased $11.20 million from last year due to the $12.81 million increase in Diabetes revenue and was 59.1% of net revenues in the first quarter of fiscal 2008 as compared with 55.9% of net revenues last year. The increase in gross margin percentage from last year was due to a decrease in the average diabetes test strip and related product costs.

Pharmacy gross margin increased $2.36 million from last year due to the $21.92 million increase in net revenues. However, Pharmacy gross margins as a percentage of net revenue decline to 17.3% of net revenues this quarter as compared with 20.7% of net revenues last year. The decrease in Pharmacy gross margin from last year was due to the growth in net revenues attributable to the Liberty Part D drug benefit program, which generates a lower product gross margin than the historical Pharmacy business.

In July 2007, we entered into an agreement with Blue Cross Blue Shield of Florida (“BCBSF”) that reduced the reimbursement for certain medications. The reimbursement rate reduction affects our Pharmacy segment and, in particular, patients covered by FEP for which BCBSF processes claims. We expect this reduction in reimbursement rates to affect our gross margin percentage during the remainder of fiscal 2008. As a percentage of revenue, patients covered by FEP, comprised approximately 24% and 31% of the Pharmacy segment’s net revenues for the three months ended June 30, 2007 and 2006, respectively. This percentage of revenues generated through FEP has been steadily declining since the inception of Part D. As Part D reimbursements become a larger portion of Pharmacy net revenues and the BCBSF reimbursement rate reductions take effect, we expect this segment’s gross margins as a percentage of net revenue to decline further.

Selling, General and Administrative Expenses

The following table summarizes significant items included in our selling, general and administrative expenses for the three months ended June 30, 2007 and 2006:


	June 30,			June 30,
	2007			2006
Employee compensation and benefits	$	26,079		$	24,359
Direct-response advertising amortization		13,194			11,642
Depreciation expense		2,724			2,456
Amortization of intangible assets		4,659			2,425
Provision for doubtful accounts		6,326			5,397
Stock-based compensation		3,077			3,014
Other		10,291			10,971

Selling, general and administrative expenses	$	66,350		$	60,264


Selling, general and administrative expenses as a percentage of net revenues		34.8	%		38.7	%

The $6.09 million increase in selling, general and administrative expense from last year related primarily to increases in the amortization of direct-response advertising and intangible assets related to higher spending in these areas during the past year. In addition, employee compensation and benefits and provision for doubtful accounts increased as a result of growth in the Company’s diabetes and pharmacy businesses. As a percentage of net revenue, selling, general and administrative expense in the first quarter was 34.8% compared to 38.7% last year and 36.2% last quarter.

Other selling, general and administrative expenses include such expenses as legal expenses, audit fees, communication costs and other operating expenses.

Other Income and Expense

The following table presents interest expense incurred in connection with debt borrowings for the periods presented and investment income earned on our cash, cash equivalents and deferred compensation plan balances.


	Three Months Ended June 30,
(in thousands)	2007		2006		$ Change			% Change
Investment income	$	318	$	340	$	(22	)		(6.5	)%
Interest and other expense	$	1,782	$	3,097	$	(1,315	)		(42.5	)%

The decrease in interest expense incurred in the three months ended June 30, 2007, as compared with the three months ended June 30, 2006, related to a reduction in our overall weighted average interest rate in connection with the convertible notes offering. The overall weighted average interest rate on our Credit Facility and convertible notes was 3.1% in the first quarter and 6.5% in last year’s first quarter, which was prior to the issuance of the convertible notes.

Income Taxes

The following table presents the income tax provision and effective tax rates for the three months ended June 30, 2007 and 2006.


	Three Months Ended June 30,
(in thousands)	2007			2006
Income tax provision	$	6,689		$	3,399
Effective tax rate		37.0	%		36.5	%

The effective tax rates in the three months ended June 30, 2007 and 2006 were higher than the Federal U.S. statutory rates due primarily to state taxes and other permanent differences. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to federal or state tax laws, future expansion into areas with varying state or local income tax rates, and the deductibility of certain costs and expenses by jurisdiction. Please also see Note 9, Commitments and Contingencies, of our financial statements for the description of a proposed tax deduction disallowance.

Liquidity and Capital Resources

The following table summarizes our sources and uses of cash during the three months ended June 30, 2007 and 2006.


	Three Months Ended June 30,
(in thousands)	2007			2006
Net cash provided by operating activities	$	19,053		$	16,769
Net cash used for investing activities		(3,066	)		(11,613	)
Net cash provided by (used for) financing activities		(14,111	)		(11,669	)


Net change in cash and cash equivalents	$	1,876		$	(6,513	)

Our cash and cash equivalents balance increased $1.88 million from $2.09 million as of March 31, 2007 to $3.97 million as of June 30, 2007. The growth of our business is currently funded primarily through cash flow from operations and borrowings under our Credit Facility. For the three months ended June 30, 2007, cash provided by operating activities was $19.05 million compared to $16.77 million in the year earlier period. In the quarter ended June 30, 2007, we were able to repay $12.80 million of Credit Facility borrowings as a result of the strong operating cash flows in the quarter. The Company intends to use cash flows generated from operations to complete acquisitions, repurchase stock or repay amounts outstanding under the Credit Facility.

Contributing to the increase in operating cash flow was a 22.3% increase in net revenues from $155.89 million in the three months ended June 30, 2006 to $190.63 million in the three months ended June 30, 2007. Days sales outstanding for the quarter were 54 days, a decrease of 5 days from 59 days as of March 31, 2007. Inventory days on hand as of June 30, 2007, decreased 6 days to 29 days compared with 35 days as of March 31, 2007, as a result of improved inventory management procedures and our transition of Pharmacy dispensing to Medco. Cash flow generated from operating activities were used to purchase $15.58 million of direct-response advertising in the three months ended June 30, 2007. We will continue to utilize a high level of direct-response advertising throughout the remainder of fiscal 2008, which combined with our proactive approach and high level of service to existing patients, has resulted in consistent revenue growth.

Net cash flows used for investing activities in the three months ended June 30, 2007 was $3.07 million, or a decrease of $8.55 million from the $11.61 million cash used in investing activities in the year ago period. Compared to the year-earlier period, purchases of property, plant and equipment increased $2.01 million from $444,000 in the three months ended June 30, 2006 to $2.46 million in the three months ended June 30, 2007. We are investing in information systems and technology to centralize data across our businesses in our continuing effort to improve patient service and our patient-centric model. During the three months ended June 30, 2007, the Company paid $608,000 to complete two acquisitions of competing diabetes programs. To meet its diabetes growth targets, the Company maintains an active diabetes acquisition program to complement its direct-response advertising programs.

Net cash used for financing activities in the three months ended June 30, 2007 was $14.11 million, an increase of $2.44 million, as compared with $11.67 million used for financing activities in the three months ended June 30, 2006. We repaid $12.80 million in amounts outstanding under our Credit Facility in the three months ended June 30, 2007 compared with $10.0 million repaid in the three months ended June 30, 2006.

As of June 30, 2007, we had $45.90 million outstanding under our revolving Credit Facility. The available Credit Facility balance of $204.10 million will be available to fund acquisitions, stock repurchases, capital expenditures, and for other general corporate purposes.

We believe that our ending cash and cash equivalents balance as of June 30, 2007 of approximately $3.97 million coupled with cash flow generated by operations and available Credit Facility funds, will be sufficient to meet working capital, planned capital expenditure investments, future acquisitions of diabetes competitors, and other investing and financing needs, including the payment of dividends to shareholders. In the event that we undertake to make other acquisitions of complementary businesses, products or technologies, we may require substantial additional funding beyond currently available working capital, available Credit Facility funds, and funds generated from operations.

Other factors which could negatively affect our liquidity include, among other things, a reduction in the demand for our products, an unfavorable outcome of pending litigation, or a reduction in Medicare reimbursement for our products. Sales of a significant portion of our Diabetes and Pharmacy segments depend on the continued availability of Medicare reimbursement.

Please refer to our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, filed with the SEC on May 29, 2007, for a description of our contractual obligations, specifically our operating lease, capital lease, and other commitments, and our off-balance sheet arrangements. There were no material developments regarding such arrangements during the three months ended June 30, 2007.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates.

While all of our accounting policies impact the consolidated financial statements, certain policies are viewed to be critical. Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and that require management’s most subjective or complex judgments and estimates. Management believes the policies that fall within this category are the policies on revenue recognition and accounts receivable, advertising, stock-based compensation, goodwill and other intangible assets. Please refer to the critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, filed with the SEC on May 29, 2007, for a description of all critical accounting policies.

New Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Please refer to Item 7A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, filed with the SEC on May 29, 2007, for our quantitative and qualitative disclosure about market risk. There were no material developments regarding our assessment of these risks during the three months ended June 30, 2007.

Item 4. Controls and Procedures

(1) Disclosure controls and procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2007. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2007, our disclosure controls and procedures were (1) designed to ensure that information required to be disclosed by PolyMedica in the reports that it files or submits under the Exchange Act is accumulated and communicated to PolyMedica’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared to allow timely decisions regarding required disclosure and (2) effective, in that they provide reasonable assurance that information required to be disclosed by PolyMedica in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(2) Changes in internal controls

We continuously seek to improve the efficiency and effectiveness of our operations and internal controls, which results in refinements to processes throughout the organization. However, no change in PolyMedica’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, PolyMedica’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. – Legal Proceedings

Please refer to Item 3 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, filed with the SEC on May 29, 2007, for a complete description of our legal proceedings. There were no material developments regarding these legal proceedings during the three months ended June 30, 2007.

Item 1A. – Risk Factors

Our business is subject to a number of risks. You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this report, before you decide whether to purchase our common stock. The risks set out below are not the only risks we face. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

We could experience significantly reduced revenues and profits if payers change, delay or deny reimbursement

Nearly all of our revenues depend on the continued availability of reimbursement by government and private insurance plans. Any reduction in Medicare or other government program or private plan reimbursements currently available for our products would reduce our revenues. Certain significant reimbursement reductions that became effective January 1, 2005 under the Medicare Modernization Act are discussed in Item 2 of Part I “Overview.” Also included in Item 2 of Part I “Overview” is a description of reimbursement reductions by Blue Cross Blue Shield of Florida for the Federal Employee Health Benefit Program. Other future reimbursement reductions are possible. 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 reimbursement from Medicare, other government programs and private insurers. Our profits also could be affected by the imposition of more stringent regulatory requirements for Medicare or other government program reimbursement or adjustments to previously reimbursed amounts.

The government’s Medicare regulations are complex and sometimes subjective and therefore may require management’s interpretation. Overpayments by Medicare and others occur in the normal course of business and reserves are recorded when, based upon our assessment of the facts and circumstances, we believe that the amounts due to Medicare and others are probable and estimable.

Our ability to navigate the challenges of the Medicare Prescription Drug Program could negatively impact our Pharmacy segment

The Medicare Modernization Act provides for a voluntary prescription drug benefit, the Medicare Prescription Drug program, or “Part D”, which gives beneficiaries access to prescription drug coverage. Our success as a Part D pharmacy depends upon many factors, specifically upon our success in continuing to enroll new patients at the current rate, our ability to successfully adjudicate claims at profitable reimbursement rates and our ability to encourage patients’ compliance with their prescriptions.

In addition, we presently are a participating pharmacy in approximately 94% of the 2,831 Prescription Drug Plans and approximately 83% of the 63,033 MedicareAdvantage-Prescription Drug Plans that have been approved by the Centers for Medicare and Medicaid Services under Part D through pharmacy networks administered by AmerisourceBergen Drug Corporation and Leader Drug Stores, Inc. While the “any willing pharmacy” provisions of the Medicare Modernization Act would allow us to contract directly with these plans, in the event we were no longer permitted to participate in these pharmacy networks, entering into individual contracts with those prescription drug plans of which our patients are members could be time-consuming and we could suffer patient attrition as a result. In addition, these individual contracts could be less profitable than our network pharmacy contracts. Certain prescription drug plans have excluded Liberty as a participating pharmacy in their plans, which we believe is a violation of the “any willing pharmacy” provisions of the Medicare Modernization Act. We are presently working to resolve these issues.

Competitive bidding for durable medical equipment suppliers could negatively affect our Diabetes segment

The Medicare Modernization Act further provides for a program for competitive bidding of certain durable medical equipment items, which includes diabetes testing supplies. Beginning July 1, 2008, diabetes testing supplies delivered by mail will be bid only in ten competitive bid areas. CMS intends to expand the entire competitive bidding program in 2009 and may specifically implement a national or regional mail order program for diabetes testing supplies in 2010, which could affect a substantial portion of our diabetes patient base. Only winning mail order diabetes testing supply bidders will be allowed to provide competitively bid items through the mail to patients whose primary residence is in a competitively bid area. Competitive bidding could cause our operating results to be negatively affected through a combination of lower reimbursement rates for competitively bid items or our failure to secure status as a contracted supplier.

CMS’s application of Inherent Reasonableness authority could negatively affect our Diabetes segment

The Medicare Modernization Act provides CMS additional power, beginning in 2009, to use pricing information it gathers during the initial competitive bidding phases for the purposes of establishing reimbursement rates in geographic areas not subject to competitive bidding. CMS intends to issue further guidance on whether and then how it intends to use this Inherent Reasonableness authority through the formal rule making process. Our operating results could be negatively affected if CMS uses this authority to impose lower reimbursement rates in geographic areas that would otherwise have been excluded from the impact of competitive bidding.

We are subject to a corporate integrity agreement

As part of the civil settlement with the DOJ and OIG, we entered into a five-year corporate integrity agreement on November 8, 2004. This agreement provides for an annual review of a sample of our Medicare claims by an independent review organization for a five-year period, which could be reduced to a shorter period at the discretion of the OIG, and obligates us to continue our compliance program and the measures we have implemented to promote our compliance with Medicare regulations. Should the financial error rate of the sample reviewed by the independent review organization for any given period, exceed the acceptable error rate, we could be subject to a potentially material overpayment assessment for that period.

The profitability of our segments will decrease if we do not receive recurring orders from patients

The profitability of our segments depends in large part on recurring and sustained orders. We generally incur losses and negative cash flow with respect to the first order from a new patient, due primarily to the marketing and regulatory compliance costs associated with initial patient qualification. Reorder rates are inherently uncertain due to several factors, many of which are outside our control, including patient preferences for home delivery, compliance with their doctor’s orders and prescriptions, competitive price pressures, patient transition to extended care facilities and patient mortality.

We could experience significantly reduced profits from our Diabetes segment if new technologies that reduce or eliminate the need for consumable testing supplies are developed for glucose monitoring

The majority of our Diabetes 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 Diabetes segment.

A fundamental change and the provisions in the Notes related to the occurrence of a fundamental change may adversely affect us

The holders of our 1.0% Convertible Subordinated Notes due September 15, 2011 (“Notes”) can require us to repurchase all or part of the Notes on certain fundamental changes, including changes in control and turnover in our board of directors.

If a fundamental change event occurs, we may not have enough funds to purchase all the Notes, which would cause a default under both the indenture governing the Notes and our Credit Facility. If a fundamental change occurs at a time when we are prohibited from purchasing or redeeming Notes, we could seek the consent of our lenders to redeem the Notes or could attempt to refinance this debt. If we do not obtain a consent, we could not purchase or redeem the Notes.

Furthermore, the fundamental change provisions under the indenture governing the Notes, which include a provision requiring additional shares of our common stock to be issued in connection with a fundamental change, may in certain circumstances make more difficult or discourage a takeover of our company and the removal of incumbent management.

The convertible note hedge and warrant transactions may affect the value of our common stock

In connection with the issuance of the Notes, we entered into privately-negotiated convertible note hedge transactions with Deutsche Bank AG and Bank of America, N.A., which are expected to reduce the potential dilution to our common stock upon any conversion of the Notes. At the same time, we entered into warrant transactions with Deutsche Bank AG and Bank of America, N.A. with respect to our common stock pursuant to which we may issue shares of our common stock. In connection with hedging these transactions, Deutsche Bank AG and Bank of America, N.A. or their affiliates entered into various over-the-counter derivative transactions with respect to our common stock at the pricing of the Notes and may purchase our common stock in secondary market transactions or enter into other over-the-counter derivative transactions in the future. Deutsche Bank AG and Bank of America, N.A. or their affiliates are likely to modify their hedge positions from time to time prior to conversion or maturity of the Notes by purchasing and selling shares of our common stock, other of our securities or other instruments they may wish to use in connection with such hedging.

The effect, if any, of any of these transactions and activities on the market price of our common stock will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of our common stock.

Conversion of the Notes will dilute the ownership interest of existing stockholders, including holders who have previously converted their Notes

The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion could depress the price of our common stock.

Accounting treatment for the Notes is subject to change

The Financial Accounting Standards Board (“FASB”) has added “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” to their agenda for future meetings. Currently, we expense the 1% stated rate applicable to the Notes. If FASB provides additional interpretive guidance on accounting for the Notes which requires us to record additional interest expense, our earnings could be negatively impacted.

Failure to maintain effective internal control over financial reporting could result in a loss of investor confidence in our financial reports and have a materially adverse effect on our stock price

We must continue to document, test and evaluate our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Public Company Accounting Reform and Investor Protection Act of 2002, more commonly known as the Sarbanes-Oxley Act, which requires annual reports by management regarding the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to the effectiveness of the internal control. We have expended and expect that we will continue to expend significant time and resources documenting and testing our internal control over financial reporting. While management’s evaluation as of June 30, 2007 resulted in the conclusion that our internal control over financial reporting was effective as of that date, we cannot predict the outcome of testing in future periods. If we conclude in future periods that our internal control over financial reporting is not effective, or if our independent registered public accounting firm is not able to render the required attestations, it could result in lost investor confidence in the accuracy, reliability and completeness of our financial reports. Any such events could have a materially adverse effect on our stock price.

Loss of use of distribution, call center and data storage facilities could significantly reduce revenues and profits from our businesses

We process and store most of our patient data in our facilities in Port St. Lucie, Florida. If we cannot use any of these facilities as a result of a United States Food and Drug Administration (“FDA”), Occupational Safety and Health Administration or other regulatory action, fire, natural disaster or other event, our revenues and profits would decrease significantly. For example, as a result of the disruption caused by the two hurricanes sustained by our Port St. Lucie based facilities in September 2004, excluding amounts that have been reimbursed to us under our property and casualty and business interruption insurance, we experienced reduced revenues of approximately $3.6 million and incurred losses in excess of $1.5 million.

The market price of our common stock may experience substantial fluctuations for reasons over which we have little control

Our common stock is traded on the Nasdaq Stock Market LLC. The market price of our common stock could fluctuate substantially based on a variety of factors, including, among others:

	–		fluctuations in our quarterly results;

	–		announcements concerning us, our competitors, or manufacturers with whom we have relationships or the healthcare market;

	–		overall volatility of the stock market;

	–		changes in government regulations;

	–		changes in the financial estimates we provide to the market or estimates by analysts; and

	–		loss of key executives.

Furthermore, stock prices for many companies fluctuate widely for reasons that may be unrelated to their operating results. These fluctuations, coupled with changes in our results of operations and general economic, political and market conditions, may adversely affect the market price of our common stock.

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

The expansion of our operations 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 our need for capital. Our personnel, systems, procedures, controls and existing space may not be adequate to support further expansion.

Our debt may adversely affect our cash flow and may restrict our investment opportunities or limit our activities.

As of June 30, 2007, we had $45.90 million in outstanding indebtedness under our revolving Credit Facility as well as $180 million of outstanding convertible debt. Our leverage could have negative consequences, including increasing our vulnerability to adverse economic and industry conditions, limiting our ability to obtain additional financing and limiting our ability to make strategic acquisitions and capital and other expenditures.

The Credit Facility limits the amount of indebtedness we may incur, requires us to maintain certain levels of net worth, leverage ratio and fixed charge ratio, and restricts our ability to materially alter the character of the business. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as interest rates. Our failure to comply with any of these restrictions or covenants may result in an event of default under the applicable debt instrument, which could permit acceleration of the debt under that instrument and require us to prepay that debt before its scheduled due date.

Geopolitical events may reduce our ability to obtain favorable advertising rates for our direct-response advertising efforts, which may increase our expenses and/or lead to a reduction in revenues

The effectiveness of our direct-response advertising is subject to the risks arising from geopolitical events. For example, around the clock news coverage at the onset of the war in Iraq and the war on terrorism affected our ability to obtain favorable rates for our product advertisements and thus affected our ability to obtain new patients since we reduced our advertising. Such geopolitical events may in the foreseeable future have a negative impact on our results of operations by increasing our expenses and/or leading to a reduction in our revenues.

We could experience a charge to earnings as a result of an impairment of our goodwill, direct-response advertising or other intangible assets

We are required to perform impairment tests annually and whenever events or changes in circumstance suggest that the carrying value of goodwill, direct-response advertising or other intangible assets may not be recoverable. The valuation of our goodwill, direct-response advertising and other intangible assets is based upon the results of these impairment tests. Changes in assumptions used and forecasted results of operations for the reporting unit carrying goodwill, direct-response advertising or other intangible assets, could affect the quantification of an impairment value, should one exist.

Since our growth strategy may involve the acquisition of other companies, we may record additional goodwill in the future. The possible write-off of this goodwill could negatively impact our future earnings. We will also be required to allocate a portion of the purchase price of any acquisition to the value of non-competition agreements, patient base and contracts that are acquired. The amount allocated to these items could be amortized over a fairly short period. As a result, our earnings and the market price of our common stock could be negatively impacted.

We could be liable for harm caused by products that we sell and may incur significant expenses in connection with the defense of any product liability claims

The sale of medical products entails the risk that users will make product liability claims. If any such product liability claim is successful, we could be liable for a significant amount of damages. Even if we are ultimately successful on the merits of any such claim, we could incur significant expenses in connection with the defense of any such claim. Although we maintain reasonable levels of insurance, it may not provide adequate coverage for any such damages and/or expenses.

We could lose patients and revenues to new or existing competitors

Competition from other sellers of products offered through our Diabetes and Pharmacy 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.

If we or our suppliers do not comply with applicable government regulations, we may be prohibited from selling our products or may incur fines and other expenses

The majority 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 fines and other expenses until we are in compliance with the regulations or change to another acceptable supplier.

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 suppliers;

	–		the timing of patient orders;

	–		the timing and cost of our advertising campaigns;

	–		the timing of the introduction or acceptance of new products offered by us or our competitors; and

	–		changes in the mix of our products; product costs are significantly influenced by the product brand chosen by our patients. We provide a wide range of product brand choices to our patients, purchased at varying costs from suppliers. Our ability to sustain current gross margin levels is dependent both on our ability to continue securing favorable pricing from suppliers and on the brand choices of our patients.

A reduction in working capital, a change in our business or a decision to invest our capital differently could prevent us from paying dividends to shareholders

A significant increase in our Credit Facility utilization, a change in our business or a decision to invest our capital differently could cause us to reduce or eliminate the payment of dividends to shareholders.

We may make acquisitions that will strain our financial and operational resources

We regularly review potential acquisitions of businesses’ products and assets. 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;

	–		lack of adequate internal control over financial reporting;

	–		failure to assimilate operations of an acquired business;

	–		possible operating losses and expenses of an acquired business;

	–		exposure to legal claims for activities of an acquired business prior to acquisition; and

	–		incurrence of debt and related interest expense.

We cannot guarantee that we would be able to obtain the intended benefits of any of these potential acquisitions.

We could also require substantial capital resources to acquire complementary products or businesses. We cannot be certain that existing or additional financing would be available to us on acceptable terms, if at all.

We are currently involved in litigation and could experience reduced net income if this litigation is not resolved in our favor

PolyMedica and three of our former officers are defendants in a lawsuit alleging violations of certain sections and rules of the Exchange Act, which was initiated in the U.S. District Court for the District of Massachusetts in November 2000. While there is a proposed settlement of this matter, it has not been finalized and is subject to approval by the District Court. If the settlement proposal is not accepted by the Court, we could be exposed to an unfavorable outcome which could cause us to be liable for damages that would reduce our net income in any such period. Our insurance may not provide adequate coverage for such damages. Please see Note 9, Commitments and Contingencies, of our consolidated financial statements for a more complete description of this claim.

Adverse results in tax audits could result in significant cash expenditures or exposure to unforeseen liabilities

We are subject to periodic federal, state and local income tax audits for various tax years. Although we attempt to comply with all taxing authority regulations, adverse findings or assessments made by the taxing authorities as the result of an audit could materially adversely affect us.

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

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

Item 6. Exhibits

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

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/ Patrick T. Ryan
	Patrick T. Ryan
	Chief Executive Officer and Director (Principal Executive Officer)


	/s/ Jonathan A. Starr
	Jonathan A. Starr
	Chief Financial Officer (Principal Financial and Accounting Officer)

Dated: August 7, 2007

Exhibit Index


Exhibit
Number		Description

10.1.1	-	PolyMedica Corporation Executive Savings Plan Amended and Restated May 3, 2007 (1) †

10.1.2	-	PolyMedica Corporation Executive Savings Plan Amended and Restated August 1, 2007 †

10.2	-	Second Amendment to Employment Agreement – Patrick T. Ryan (2) †

10.3	-	First Amendment to Employment Agreement – Stephen C. Farrell (2)†

10.4	-	First Amendment to Employment Agreement – Keith W. Jones (2) †

10.5	-	First Amendment to Employment Agreement – Devin J. Anderson (2) †

10.6	-	Employment Agreement – Jonathan A. Starr (2) †

31.1	-	Certification by Chief Executive Officer pursuant to Rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2	-	Certification by Chief Financial Officer pursuant to Rule 13a–14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1	-	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Incorporated herein by reference to the Company’s Current Report on Form 8-K, filed as of May 8, 2007.

(2)		Incorporated herein by reference to the Company’s Current Report on Form 8-K, filed as of July 13, 2007.

†		Management contract or compensation plan or arrangement.

EX-10.1.2 2 b66147pcexv10w1w2.htm EX-10.1.2 POLYMEDICA CORP. EXECUTIVE SAVINGS PLAN exv10w1w2

Exhibit 10.1.2

POLYMEDICA CORPORATION
EXECUTIVE SAVINGS PLAN

THE POLYMEDICA CORPORATION EXECUTIVE SAVINGS PLAN, originally effective as of January 1, 2005, is hereby amended and restated effective as of August 1, 2007.

RECITALS:

WHEREAS, the Company desires to permit executives of the Company to defer a portion of their compensation;

WHEREAS, the Company desires to make certain matching contributions under the Plan based on amounts executives elect to defer, and to make additional contributions based upon compensation that is in excess of the compensation with respect to which Social Security contributions are made; and

WHEREAS, the Company desires to permit its non-employee directors to defer a portion of their annual retainer fee.

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the Company hereby adopts this Plan pursuant to the following terms and provisions.

ARTICLE I

DEFINITIONS

1.1 “Accounting Date” means the last day of the Plan Year, each day that the New York Stock Exchange is open for business, and such other date or dates as the Committee may designate from time to time as an Accounting Date.

1.2 “Affiliate” means any majority owned subsidiary of the Company.

1.3 “Annual Retainer” means, with respect to any Fiscal Year, the cash portion of the retainer fee which, absent an election to defer hereunder, would be payable to a Director for services rendered to the Board or its committees during the given Fiscal Year.

1.4 “Base Salary” means the regular or base salary or wages received in respect of services rendered during the applicable period by a Participant from the Employer.

1.5 “Beneficiary” means the person or persons designated by a Participant, upon such forms as shall be provided by the Committee, to receive payment of the Participant’s Account after the Participant’s death. If the Participant shall fail to designate a Beneficiary, or if for any reason such designation shall be ineffective, or if such Beneficiary shall predecease the

Participant or die simultaneously with the Participant, then the Beneficiary shall be, in the following order of preference:

(a) the Participant’s surviving spouse, or

(b) the Participant’s estate.

1.6 “Board” means the Board of Directors of the Company.

1.7 “Bonus” means a cash bonus paid to a Participant by the Employer for personal services.

1.8 “Change in Control” “Change of Control” shall mean, either a “change in the ownership or effective control” of the Company, or a “change in the ownership of a substantial portion of the assets” of the Company, as described in Treas. Reg. § 1.409A-3(i)(5), as it may be amended from time to time.

1.9 “Code” means the Internal Revenue Code of 1986, as amended, and successor tax laws.

1.10 “Committee” means the committee appointed to administer the PolyMedica Corporation 401(k) Plan, as it may be comprised from time to time, consisting of one or more persons. In the absence of a committee appointed to administer the PolyMedica Corporation 401(k) Plan, the Committee shall be comprised of one or more persons appointed by the Compensation Committee of the Board, who shall serve at the pleasure of the Compensation Committee or as otherwise set forth in the resolution appointing such person(s), and in the absence of a committee appointed to administer the PolyMedica Corporation 401(k) Plan and such appointment(s), the Compensation Committee of the Board shall constitute the Committee.

1.11 “Company” means PolyMedica Corporation, a Massachusetts corporation, its successors and assigns.

1.12 “Compensation” means the total of all amounts paid to a Participant by the Employer as Base Salary and Bonuses for personal services for the Plan Year, before any reductions for elective contributions under Sections 401(k) or 125 of the Code, or any Tax-Deferred Contributions under this Plan, for the period during the Plan Year in which an Eligible Person is a Participant.

1.13 “Deferral Account” means an account established by a Director who becomes a Participant pursuant to one or more Deferral Agreements.

1.14 “Deferral Contributions” means that portion of the Annual Retainer credited to a Participant’s Deferral Account under Section 3.5(a) hereof.

1.15 “Deferral Agreement” means the agreement in the form or forms prescribed by the Committee, which may be electronic, entered into by (i) the Eligible Person in accordance with Section 3.2 hereof pursuant to which the Eligible Person shall elect (A) the amount of his or her Tax-Deferred Contributions for the Plan Year, (B) the allocation of his or

her Tax-Deferred Contributions among his or her Retirement Account and In-Service Accounts, if any have been established pursuant to a Deferral Agreement, and (C) the manner in which distribution of the Participant’s Account is to be paid in accordance with Article 6 hereof or (ii) the Director in accordance with Section 3.5(b) hereof pursuant to which the Director shall elect (A) the amount of his or her Deferral Contributions for the Fiscal Year and (B) the manner in which distribution of the Director’s Deferral Contributions Account is to be paid in accordance Article 6 hereof.

1.16 “Director” means a non-employee director of the Company who becomes a Participant pursuant to Section 2.1 of the Plan.

1.17 “Disabled” or “Disability” means the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.

1.18 “Eligible Persons” means each full-time, common law employee of the Employer (not including persons engaged as independent contractors by the Employer), designated by the Compensation Committee of the Board to be eligible to participate in the Plan. The Compensation Committee of the Board shall not designate an employee as an Eligible Person unless he or she is deemed to be among a select group of management or highly compensated employees of the Employer within the meaning of Section 201(2) of ERISA.

1.19 “Employer” means the Company and any Affiliate that adopts the Plan with the consent of the Company.

1.20 “Employer Contributions” means the contributions made by the Employer that are credited to the Participant’s Account in accordance with Section 3.3 hereof.

1.21 “Employer Contributions Subaccount” means the account maintained under the Plan for a Participant that is credited with the Participant’s Employer Contributions.

1.22 “Entry Date” means (i) for Eligible Persons who become Participants, January 1, 2005, (ii) for Directors who become Participants, August 1, 2007 and (iii) the first day of each calendar month after (A) January 1, 2005 for Eligible Persons who become Participants and (B) August 1, 2007 for Directors who become Participants.

1.23 “Fiscal Year” means each twelve (12) month period that begins an April 1 and ends on a March 31.

1.24 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor laws.

1.25 “In-Service Account” means an account established by a Participant pursuant to one or more Deferral Agreements which shall have a distribution date selected by the Participant in accordance with Section 6.1(a) hereof, and to which a Participant may allocate a portion of his current Tax-Deferred Contributions.”

1.26 “Investment Funds” means those investment options that shall from time to time be made available as investment options under the Trust.

1.27 “Leave of Absence” means any absence authorized by the Employer that employs the Participant under its standard personnel practices.

1.28 “Matching Contributions” means the matching contributions made by the Employer that are credited to the Participant’s Account in accordance with Section 3.2 hereof.

1.29 “Matching Contributions Subaccount” means the account maintained under the Plan for a Participant that is credited with the Participant’s Matching Contributions.

1.30 “Participant” means any Eligible Person or any Director who becomes a Participant as set forth in Section 2.1 of this Plan.

1.31 “Participant’s Account” means, (i) with respect to Eligible Persons who become Participants, collectively, a Participant’s Retirement Account and In-Service Accounts (if any) and (ii) with respect to Directors who becomes Participants, a Participant’s Deferral Account, each as maintained under the Plan in accordance with the provisions of the Plan for each Participant.

1.32 “Performance Based Compensation Bonus” means compensation based on services over a period of at least 12 months and that satisfies the requirements for performance based compensation as that term is used in Section 409A(a)(4) of the Code.

1.33 “Plan” means the PolyMedica Corporation Executive Savings Plan as herein set forth and as it may be amended from time to time.

1.34 “Plan Year” means each twelve (12) month period beginning on or after January 1, 2005, that begins a January 1 and ends on a December 31.

1.35 “Retirement Account” means the account maintained under the Plan in accordance with the provisions of the Plan for each Participant, that includes the Participant’s Matching Contributions Subaccount and Employer Contributions Subaccount, and the portion of the Participant’s Tax-Deferred Contributions Subaccount that has not been credited to an In-Service Account.

1.36 “Separation from Service” means (i) with respect to Eligible Persons who become Participants, the earliest date on which a Participant has incurred a separation from service, within the meaning of Section 409A(a)(2) of the Code, with the Employer, or if later, and elected by the Participant when the Participant executes his or her initial Deferral Agreement, the date on which the Participant ceases to provide consulting services to the Employer that begin immediately following termination of the Participant’s employment with the Employer and (ii) with respect to Directors who become Participants, the date the participant ceases providing services as a director of the Company.

1.37 “Specified Employees” means “specified employees” as defined in, and pursuant to Treas. Reg. § 1.409A-1(i). The determination of whether a Participant is a Specified

Employee shall be made by the Committee in accordance with the methodology adopted by the Committee in accordance with Section 409A of the Code, which methodology may be amended or replaced from time to time to the extent permitted by Section 409A of the Code.

1.38 “Social Security Wage Base” means the maximum amount of wages that are considered for Social Security purposes for the Plan Year in question.

1.39 “Tax-Deferred Contributions” means the Compensation reduction contributions credited to the Participant’s Account under Section 3.2 of the Plan.

1.40 “Tax-Deferred Contributions Subaccount” means the account maintained under the Plan for a Participant that is credited with the Participant’s Tax-Deferred Contributions.

1.41 “Trust” means the PolyMedica Corporation Executive Savings Plan Trust created pursuant to the Trust Agreement dated as of January 1, 2000 between the Company and Reliance Trust Company, as trustee, as amended from time to time.

1.42 “Trustee” means the person or entity that shall from time to time be serving as the Trustee of the Trust.

ARTICLE II

ELIGIBILITY

2.1 Determining Eligibility.

(a) Only Eligible Persons and Directors may become Participants in the Plan.

(b) An Eligible Person shall become a Participant on the Entry Date coincident with or immediately following the date on which he or she becomes an Eligible Person or such later Entry Date as the Committee may determine.

(i) Group 1 shall be comprised of all Participants who were, on or prior to March 31, 2007, required to file reports with respect to the Company pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and all other Participants designated by the Compensation Committee of the Board as being members of Group 1 for all or a portion of the Plan Year.

(ii) Group 2 shall be comprised of all Participants who are not in Group 1 for the Plan Year.

(d) A Director shall become a Participant on August 1, 2007 or, if later, the Entry Date coincident with or immediately following the date on which he or she is elected to the Board or such later Entry Date as the Committee may determine.

ARTICLE III

CONTRIBUTIONS

3.1 General. Sections 3.1, 3.2, 3.3 and 3.4 of this Article III apply to Eligible Persons who become Participants (pursuant to Section 2.1 above) and Section 3.5 of this Article III applies to Directors who become Participants (pursuant to Section 2.1 above).

3.2 Tax-Deferred Contributions.

(a) Tax-Deferred Contribution Elections. Each Participant, so long as he or she remains a Participant, may elect, pursuant to a Deferral Agreement and in accordance with Committee rules, to defer receipt of a portion of his or her Compensation pursuant to this Plan, consisting of (i) a minimum of 0% and a maximum of 25% (in whole percentages) of his Base Salary earned during the Plan Year, and (ii) a minimum of 0% and a maximum of 100% (in whole percentages) of any Bonuses earned during the Plan Year.

(b) Timing of Tax-Deferred Contribution Elections. A Participant’s Deferral Agreement containing any election to defer Base Salary is effective on a Plan Year basis, must be filed before the beginning of the Plan Year to which it relates, and may not be amended or revoked after the beginning of the Plan Year with respect to that Plan Year. A Participant’s Deferral Agreement containing an election to defer any Bonus that does not constitute Performance Based Compensation must be filed prior to the beginning of the Plan Year in which the Company’s fiscal year with respect to which the Bonus will be paid begins. Such election shall apply to the Bonus payable for such fiscal year of the Company, and may not be amended or revoked with respect to that Bonus after the beginning of the Plan Year in which such fiscal year begins. A Participant’s election to defer any Performance Based Compensation for a Plan Year must be filed on or before September 30 of the Plan Year preceding the Plan Year in which the Performance Based Compensation is payable, and may not be amended or revoked with respect to such Plan Year after that September 30. A Participant may change his or her election with respect to any subsequent deferrals of Base Salary or Bonuses by timely submitting a new Deferral Agreement. Notwithstanding any of the foregoing, the Committee may from time to time set such other deadlines for the filing of Participant elections as it may determine in its discretion, provided that such other deadlines would not result in a violation of any of the requirements of Section 409A of the Code.

(c) Special Rule for First Year of Participation. An Eligible Person who becomes a Participant during a Plan Year may file a Participant Deferral Agreement within 30 days after becoming a Participant. The Participant election form shall apply to Compensation with respect to services to be performed subsequent to the election, beginning with the first administratively practicable payroll period after it is filed, and may not be amended or revoked during the Plan Year for which it is made.

(d) Allocation to Retirement or In-Service Accounts. Each Participant, so long as he or she remains a Participant, may elect on his or her Deferral Agreement to allocate his or her Tax-Deferred Contributions for the Plan Year among his Retirement Account and one or more In-Service Accounts. The Employer shall withhold, by payroll deduction, the amounts deferred pursuant to this Section 3.2 from the current Compensation of a Participant and credit

such withheld amount to the Participant’s Retirement Account or to an In-Service Account, as elected by the Participant.

(e) Timing of Tax Deferred Contributions. Tax-Deferred Contributions made under this Section 3.2 shall be credited to a Participant’s Tax-Deferred Contributions Account as and when such amounts are withheld from each Participant’s Compensation, or as soon as practicable thereafter.

3.3 Matching Contributions.

(a) Amount of Matching Contributions. For each Plan Year, the Committee shall credit to the Matching Contributions Subaccount of each eligible Participant an amount equal to the lesser of (i) 50% of the Participant’s Tax-Deferred Contributions for the Plan Year, and (ii) 3% of the amount by which the Participant’s Compensation for the Plan Year exceeds the compensation limit under Section 401(a)(17) of the Code for the Plan Year. A Participant shall not be eligible for a Matching Contribution for any Plan Year unless the Participant is a member of Group 1 or Group 2, as defined in Section 2.1(c) hereof, for that Plan Year.

(b) Timing of Matching Contributions. Any Matching Contributions made under this Section 3.3 shall be credited to a Participant’s Matching Contributions Subaccount no later than the January 31 that immediately follows the last day of the Plan Year for which the contribution is made.

3.4 Employer Contributions.

(a) Amount of Employer Contributions. For each Plan Year, the Committee shall credit an Employer Contribution to the Employer Contribution Subaccount of each eligible Participant equal to 6.2% of the excess, if any, of such Participant’s Compensation for the Plan Year over the Social Security Wage Base for that year. A Participant shall not be eligible for an Employer Contribution for any Plan Year unless the Participant is a member of Group 1 for that Plan Year.

(b) Timing of Discretionary Employer Contributions. Any Discretionary Employer Contributions made under this Section 3.4 shall be credited to a Participant’s Employer Contributions Subaccount by no later than the January 31 that immediately follows the last day of the Plan Year for which the contribution is made.

3.5 Deferral Contributions.

(a) Deferral Contribution Elections. Each Director who becomes a Participant, so long as he or she remains a Participant, may elect, pursuant to a Deferral Agreement and in accordance with Committee rules, to defer receipt of a portion of his or her Annual Retainer pursuant to this Plan, consisting of (i) a minimum of 0% and a maximum of 100% (in whole percentages) of his Annual Retainer paid during the Fiscal Year.

(b) Deferral Contribution Agreement. A Participant’s Deferral Agreement must be filed before the beginning of the Fiscal Year to which it relates, and may not be amended or revoked after the beginning of the Fiscal Year with respect to that Fiscal Year.

Notwithstanding any of the foregoing, the Committee may from time to time set such other deadlines for the filing of Participant elections as it may determine in its discretion, provided that such other deadlines would not result in a violation of any of the requirements of Section 409A of the Code.

(c) Special Rule for Director’s First Year of Participation. Any individual who is a Director on August 1, 2007 and any individual who becomes a Director during a Fiscal Year thereafter (in each case, who becomes a Participant pursuant to Section 2.1 above), may file a Deferral Agreement within 30 days after August 1, 2007 or becoming a Director, if later. The Director’s election form shall apply to the portion of the Annual Retainer with respect to services to be performed subsequent to the election and may not be amended or revoked during the Fiscal Year for which it is made.

(d) Timing of Deferral Contributions. Deferral Contributions made under this Section 3.5 shall be credited to the Participant’s Deferral Contribution Account as and when such amounts are withheld from each Director’s Annual Retainer, or as soon as practicable thereafter.

ARTICLE IV

VESTING

4.1 All Accounts. A Participant’s interest in all of his or her Accounts shall be fully vested and nonforfeitable at all times.

ARTICLE V

VALUATION OF PARTICIPANT’S ACCOUNTS

5.1 Account Value. Each Participant’s Account shall be treated as if it were actually invested by the Participant in the Investment Funds selected by the Participant in such manner and at such times as shall be determined by the Committee and in accordance with the Plan, and shall be credited with gains and losses allocable thereto at such times and in such manner as shall be determined by the Committee. Participants may change their Investment Fund selections at such times and in such manner as shall be prescribed by the Committee.

5.2 Contribution to Trust. Amounts credited to a Participant’s Account shall be contributed by the Employer to the Trust at such time or times as the Employer shall determine.

ARTICLE VI

DISTRIBUTIONS

6.1 Timing of Distributions.

(a) Timing of In-Service Account Distributions.

(i) A Participant shall specify, in the manner prescribed by the Committee, a date on which distributions from each In-Service Account of the Participants are to commence (the “In-Service Distribution Date”), which date must be at least 2 years from the end of a Plan Year in which contributions are made to the In-Service Account. A Participant may not have more than 3 In-Service Accounts in existence at any one time.

(ii) A Participant may change the In-Service Distribution Date with respect to an In-Service Account up to 3 times per In-Service Account; provided, however, that (1) each change must extend the In-Service Distribution Date by at least 5 years, (2) each change must be made at least 12 months prior to the In-Service Distribution Date being changed, and (3) and no change may accelerate an In-Service Distribution Date.

(iii) Distributions shall commence from an In-Service Account as soon as administratively practicable following the earlier of (1) the In-Service Distribution Date for that In-Service Account, or (2) the first day of the month immediately following the date of the Participant’s Separation from Service or termination of employment with the Employer by reason of the Participant’s death or Disability.

(b) Timing of Retirement Account Distribution. A Participant’s Retirement Account shall be distributed commencing on or as soon as administratively practicable after the first day of the month immediately following the date of the Participant’s Separation from Service or termination of employment with the Employer by reason of the Participant’s death or Disability.

(c) Distributions to Specified Employees. Notwithstanding the foregoing, in no event shall any distributions be made under the Plan on account of the Separation from Service of any Participant that is a Specified Employee, before the date that is 6 months after the date of the Participant’s Separation from Service or, if earlier, the date of the Participant’s death or Disability, or as otherwise permitted without violating the requirements of 409(A)(a)(2) of the Code. Any distribution delayed as a result of the preceding sentence shall be payable in a lump sum as soon as practicable following the expiration of the 6 month period (or such earlier date as permitted under Section 409A of the Code).

(d) Timing of Deferral Accounts Distribution. A Participant’s Deferral Account shall be distributed commencing on or as soon as administratively practicable after the first day of the month immediately following the date of the Participant’s Separation from Service or termination of employment with the Employer by reason of the Participant’s death or Disability.

6.2 Form of Distributions.

(a) Form of In-Service Account Distributions. Distribution of each of a Participant’s In-Service Accounts shall be made in one of the following forms specified by the Participant in the manner prescribed by the Committee: (x) a lump sum distribution, or (y) in at least 4 but not more than 60 quarterly installments. Each installment shall be equal to the value

of the In-Service Account multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of installments remaining to be paid.

(b) Form of Retirement Account Distributions. Distribution of the Participant’s Retirement Account shall be made in one of the following forms specified by the Participant in the manner prescribed by the Committee: (x) a lump sum distribution, or (y) in at least 4 but not more than 60 quarterly installments. Each installment shall be equal to the value of the Participant’s Retirement Account multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of installments remaining to be paid.

(c) Form of Deferral Account Distributions. Distribution of a Participant’s Deferral Account shall be made in one of the following forms specified by the Participant in the manner prescribed by the Committee: (x) a lump sum distribution or (y) in at least 4 but not more than 60 quarterly installments. Each installment shall be equal to the value of the Deferral Account multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of installments remaining to be paid.

(d) Changes to Forms of Distributions; Failure to Elect Form. A Participant may elect on a form provided by the Committee to change the form in which his In Service, Retirement Account or Deferral Account is to be distributed under Section 6.2(a), (b) or (c) provided that (A) any change in the Participant’s election may not take effect until at least 12 months after the date on which the election is made, (B) any election related to an In-Service Account must be made no less than 12 months prior to the date of the first scheduled payment with respect to that In-Service Account and (C) any distribution for which the election is made must be deferred for a period of no less than 5 years from the date such distributions would otherwise have taken place (or in the case of installment payments, 5 years from the date the first amount was scheduled to be distributed). The most recent election made by the Participant with respect to each such Account shall apply with respect to each such Account. If a Participant fails to elect a form of distribution, the distribution shall be made in the form of a lump sum.

6.3 Payments to Beneficiaries. If a Participant dies before distribution of the all of the Participant’s Accounts has been made to him or her, any remaining amounts (including any remaining installments that otherwise would have been payable to the Participant under Section 6.2), shall be distributed to the Participant’s Beneficiary or Beneficiaries in a lump sum payment as soon as practicable after the Participant’s death.

6.4 Change in Control. If and to the extent that it would not violate the requirements of Section 409A of the Code, in the event of a Change in Control, the full value of the Participant’s Account (including any remaining installments that otherwise would have been payable to the Participant under Section 6.2), shall be distributed as a lump sum to the Participant or to the Beneficiary or Beneficiaries of a deceased Participant, as soon as practicable following the Change in Control.

6.5 Method of Distribution. Distribution of the Participant’s Account shall be made in cash, based upon the valuation of such Account on the Accounting Date coincident with or immediately preceding the date of the distribution.

6.6 Hardship Distributions. Upon the written request of a Participant and in the event the Committee determines that an “unforeseeable emergency” has occurred with respect to a Participant, the Participant may withdraw, in each case, the lesser of (i) the amount necessary to meet the emergency or (ii) the value of the Participant’s Account, reduced by applicable withholding taxes. For this purpose, an “unforeseeable emergency” shall mean an unanticipated emergency, such as a sudden and unexpected illness or accident of the Participant or a dependent of the Participant or loss of the Participant’s property due to casualty, that is caused by an event beyond the control of the Participant and that would result in a severe financial hardship if the withdrawal were not permitted. The need to pay a Participant’s child’s tuition to college and the desire to purchase a home shall not be considered unforeseeable emergencies. Hardship distributions shall first be made from the Participant’s Retirement Account, until depleted, and then from the Participant’s In-Service Accounts, if any, beginning with the In-Service Account with the most distant distribution date.

6.7 No Acceleration of Benefits. In no event shall the acceleration of the time or schedule of any payment under the Plan be permitted, except to the extent permitted under Section 409A of the Code and the Treasury Regulations thereunder.

ARTICLE VII

ADMINISTRATION

7.1 Powers and Duties. The Committee generally shall be responsible for the management, operation, interpretation and administration of the Plan. The Committee shall:

(a) Establish procedures for allocation of responsibilities of the Plan which are not allocated herein;

(b) Subject to Section 1.15, determine the names of those employees who are eligible to participate, and such other matters as may be necessary to enable payment under the Plan;

(d) Correct any defect, supply any omission or reconcile any inconsistency that may appear in the Plan;

(e) Determine the amount, manner and time of payment of any benefits hereunder and prescribe procedures to be followed by Participants to obtain benefits; and

(f) Perform such other functions and take such other actions as may be required by the Plan or as may be necessary or advisable to accomplish the purposes of the Plan.

The Company shall furnish the Committee with all data and information available which the Committee may reasonably require in order to perform its functions hereunder. The Committee may rely without question upon any such data or information furnished by the Company. Any interpretation or other decision made by the Committee shall be final, binding and conclusive

upon all persons in the absence of clear and convincing evidence that the Committee acted arbitrarily and capriciously.

7.2 Agents. The Committee may appoint a Secretary who may, but need not, be a member of the Committee, and may employ such agents for clerical and other services, and such counsel, accountants and other professional advisors as may be required for the purpose of administering the Plan. The Committee may rely on all tables, valuations, reports, certificates and opinions furnished by its agents.

7.3 Procedures. A majority of the Committee members shall constitute a quorum for the transaction of business. No action shall be taken except upon a majority vote of the Committee. An individual shall not vote or decide upon any matter relating solely to himself or vote in any case in which his individual right or claim to any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act, and the remaining members cannot agree on an issue, the Company shall appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which he is disqualified.

7.4 Claims Procedure. In the event that any Participant or Beneficiary claims to be entitled to benefits under the Plan or believes his or her benefits are incorrect, that Participant or Beneficiary (hereafter, a “Claimant”) may file a claim for benefits by submitting a written statement describing the basis of the claim for benefits under the Plan. The Committee shall review the claim and respond within a reasonable period of time (generally 90 days). However, if special circumstances require an extension of time to consider the claim, the Committee may extend the 90 day period up to a total of 180 days. If the Committee extends the 90 day period, the Claimant will be notified in writing as to the length of the extension and the special circumstances which necessitate the extension, including the date on which the Committee expects to render the determination. If the Committee makes an adverse determination as to the Claimant’s claim, the Committee shall, within the time period described above, notify the Claimant in a writing setting forth, in a manner calculated to be understood by the Claimant:

(a) the specific reasons for the adverse determination,

(b) the provisions of the Plan on which the determination is based,

(c) a description of additional information or material necessary for the Claimant to perfect the claim and an explanation of why such additional information or material is necessary, and

(d) a description of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring suit under Section 502(a) of ERISA following an adverse benefit determination on review.

Within 60 days of receipt by a Claimant of a notice denying a claim, the Claimant, or his or her duly authorized representative, may request in writing a full and fair review of the claim by filing an appeal with the Committee. In connection with such appeal, the Claimant or his or her duly authorized representative may review pertinent documents and may submit issues and

comments in writing. The Committee shall consider the Claimant’s written presentation, as well as any evidence, facts or circumstances the Committee deems relevant. The Committee shall make a decision not later than 60 days after the Plan’s receipt of a request for appeal, unless special circumstances (such as the need to hold a hearing, as determined by the Committee in its sole discretion) require an extension of time for processing, in which case a decision will be rendered as soon as possible but not later than 120 days after receipt of a request for appeal. The Committee shall notify the Claimant prior to the expiration of the initial 60 day period if an extension is required. The notification shall indicate the special circumstances requiring the extension, and the date on which the Committee expects to render the determination on review. If the initial 60 day period is extended due to a Claimant’s failure to submit information necessary to make the benefit determination on review, the period shall be tolled from the date on which the notification of the extension is sent to the Claimant until the date on which the Claimant responds to the request for additional information.

Notification of the Committee’s decision on appeal shall be provided to the Claimant in writing. If an adverse determination is made, the notification shall set forth, in a manner calculated to be understood by the Claimant:

(a) the specific reasons for the adverse determination,

(b) reference to the specific Plan provisions on which the adverse determination is based,

(c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits, and

(d) a statement that the Claimant may bring an action under Section 502(a) of ERISA.

7.5 Indemnification. The Company shall indemnify each Committee member against any liability or loss sustained by reason of any act or failure to act made in good faith, including, but not limited to, those in reliance on certificates, reports, tables, opinions or other communications from any company or agents chosen by the Committee in good faith. Such indemnification shall include attorneys’ fees and other costs and expenses reasonably incurred in defense of any action brought by reason of any such act or failure to act.

7.6 Participants Bound. Any action with respect to the Plan taken by the Committee or the Company or the Trustee or any action authorized by or taken at the direction of the Committee, the Company or the Trustees shall be final, binding and conclusive upon all Participants and beneficiaries entitled to benefits under the Plan in the absence of clear and convincing evidence that the Committee, Company or Trustee acted arbitrarily and capriciously.

7.7 Receipts and Release. Any payment to any Participant or Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company, the Committee and the Trustee under the Plan, and the Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or Beneficiary is determined by

the Committee to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Committee may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Committee, the Company or the Trustee to follow the application of such funds.

7.8 Withholding or Deduction for Taxes. Anything in this Plan to the contrary notwithstanding, all payments or contributions required to be made, and all benefits required to be provided, shall be subject to the withholding of such amounts relating to taxes as the Employer may reasonably determine should be withheld pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Employer may, in its sole discretion, accept other provisions for payment of taxes and withholding as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold have been satisfied.

ARTICLE VIII

MISCELLANEOUS

8.1 Unfunded Plan. The obligations of an Employer under this Plan shall be paid from the general assets of that Employer and not from any particular fund. Participants shall have the status of general unsecured creditors of an Employer and the Plan constitutes a mere promise by that Employer to make benefit payments in the future. It is intended that this Plan shall constitute an “unfunded” plan for tax purposes and an “unfunded” plan for a select group of management or highly compensated employees under ERISA. If an Employer purchases any life insurance policies, or makes any other investments, such policies (and any amounts invested by that Employer therein) and any other investments of that Employer shall be subject to the claims of that Employer’s creditors. The assets of the Trust also shall be subject to the Employer’s creditors in the event of the Employer’s Insolvency, as defined in the Trust Agreement establishing the Trust. Nothing contained in this Plan shall be interpreted to grant to any Participant or Beneficiary, any right, title or interest in any property of an Employer or the Trust.

8.2 Impact on Other Executive Benefits. This Plan shall not be construed to impact or cause the denial of any benefits to which any Participant may be entitled under any other welfare or benefit plan of the Employer.

8.3 Governing Law. The Plan shall be construed, administered, and governed in all respects under and by the laws of the state in which the Company maintains its primary place of business.

8.4 No Assignment. The right to receive payment of any benefits under the Plan shall not be transferred, assigned or pledged, except by Beneficiary designation, by will, under the laws of decent and distribution, or as may be otherwise required by law.

8.5 Severability. If any provision of this Plan is found, held or deemed to be void, unlawful or unenforceable under any applicable statute or other controlling law, the remainder of the Plan shall continue in full force and effect.

8.6 Headings and Subheadings. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof.

8.7 Gender. The masculine, as used herein, shall be deemed to include the feminine and the singular to include plural, except where the context requires a different construction.

8.8 Amendment and Termination. This Plan may be amended or terminated in any respect at any time by the Compensation Committee of the Board; provided, however, that no amendment or termination of the Plan shall be effective to reduce any benefits that accrue before the adoption of such amendment or termination. If and to the extent permitted without violating the requirements of Section 409A of the Code, the Compensation Committee of the Board may require that the Accounts of all Participants and Beneficiaries (including, without limitation, any remaining benefits payable to Participants or Beneficiaries receiving distributions in installments at the time of the termination) be distributed as soon as practicable after such termination, notwithstanding any elections by Participants or Beneficiaries with regard to the timing or form in which their benefits are to be paid. If and to the extent that the Compensation Committee of the Board does not accelerate the timing of distributions on account of the termination of the Plan pursuant to the preceding sentence, payment of any remaining benefits under the Plan shall be made at the same times and in the same manner as such distributions would have been made based upon the most recent elections made by Participants and Beneficiaries, and the terms of the Plan, as in effect at the time the Plan is terminated.

8.9 No Employment Contract or Retention Right. This Plan does not constitute a contract of employment or impose on the Employer any obligations to retain the Participant as an employee, to change the status of the Participant’s employment, to change the Employer’s policies regarding termination of employment. A Director’s right, if any, to continue to serve as a director of the Company or any of its Affiliates shall not be enlarged or otherwise affected by his or her designation as a Participant under the Plan.

IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized officer effective as of the 1^st day of August, 2007.


		PolyMedica Corporation
	By:	/s/ Patrick T. Ryan

	Name:	Patrick T. Ryan

	Title:	Chief Executive Officer

EX-31.1 3 b66147pcexv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF CEO exv31w1

EXHIBIT 31.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

I, Patrick T. Ryan, certify that:

1.		I have reviewed this Quarterly Report on Form 10-Q of PolyMedica Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 7, 2007



	/s/ Patrick T. Ryan
	Patrick T. Ryan
	Chief Executive Officer and Director

EX-31.2 4 b66147pcexv31w2.htm EX-31.2 SECTION 302 CERTIFICATION OF CFO exv31w2

EXHIBIT 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

I, Jonathan A. Starr, certify that:

1.		I have reviewed this Quarterly Report on Form 10-Q of PolyMedica Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 7, 2007



	/s/ Jonathan A. Starr
	Jonathan A. Starr
	Chief Financial Officer

EX-32.1 5 b66147pcexv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO exv32w1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of PolyMedica Corporation (“PolyMedica”) for the three months ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Patrick T. Ryan, Chief Executive Officer, and Jonathan A. Starr, Chief Financial Officer of PolyMedica, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PolyMedica.



Dated: August 7, 2007	/s/ Patrick T. Ryan
	Patrick T. Ryan
	Chief Executive Officer and Director


Dated: August 7, 2007	/s/ Jonathan A. Starr
	Jonathan A. Starr
	Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

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