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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

Commission File No. 0-19842

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

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). [X]

     The aggregate market value of voting Common Stock held by nonaffiliates of the registrant was $271,693,000 based on the closing price of the Common Stock as reported by The Nasdaq Stock Market on September 30, 2002.

     As of June 27, 2003, there were 12,350,632 shares of the registrant’s Common Stock outstanding and an additional 964,350 held in treasury.

     Documents incorporated by reference: The Registrant intends to file a definitive proxy statement pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934, as amended, to be used in connection with the Registrant’s Annual Meeting of Stockholders to be held on September 5, 2003. The information required in response to Items 10 – 13 of Part III of this Form 10-K is hereby incorporated by reference to such proxy statement.

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PART I

ITEM 1. BUSINESS

General

     PolyMedica is a leading provider of direct-to-consumer medical products, conducting business through its Liberty Diabetes, Liberty Respiratory and Pharmaceuticals segments. Through our Liberty Diabetes segment we provide direct-to-consumer diabetes testing supplies and related products primarily to Medicare-eligible customers suffering from diabetes and related chronic diseases. Through our Liberty Respiratory segment we provide direct-to-consumer prescription respiratory medications and supplies primarily to Medicare-eligible customers suffering from chronic obstructive pulmonary disease (“COPD”). Through our Pharmaceuticals segment we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits.

Liberty Diabetes

     As of March 31, 2003, we had approximately 545,000 active diabetes customers, as compared to approximately 440,000 as of March 31, 2002. Many of these customers also suffer from other chronic diseases. We define a person as an active customer if that person has placed an order and we have shipped supplies to that person in the past twelve months. We deliver products to customers’ homes and bill Medicare and private insurance companies (if applicable) directly for those supplies that are reimbursable. We meet the needs of customers suffering from diabetes by:

	-		providing mail order delivery of supplies directly to our customers’ homes;
	-		billing Medicare and/or private insurance companies directly for those supplies that are reimbursable;
	-		providing 24-hour telephone support to customers; and
	-		using sophisticated software and advanced order fulfillment systems to provide products.

     In the United States, there are approximately seventeen million people with diabetes, including at least seven million seniors. Of the seventeen million people with diabetes, it is estimated that approximately eleven million are diagnosed, with the remaining six million unaware that they have the disease. While a portion of the seven million seniors with diabetes are covered by managed care or reside in extended care facilities, we believe that the balance are potential customers of ours.

Liberty Respiratory

     Our Liberty Respiratory segment operates similarly to our Liberty Diabetes segment, as we deliver products to customers’ homes and bill Medicare and private insurance companies (if applicable) directly for those prescription respiratory medications and supplies that are reimbursable. As a participating Medicare provider and third-party insurance biller, we provide a simple, reliable way for customers to obtain their supplies for respiratory disease treatment. As of March 31, 2003, we had approximately 63,000 active customers for our prescription respiratory medications and supplies, compared to approximately 46,000 as of March 31, 2002. We define a person as an active customer if that person has placed an order and we have shipped supplies to that person in the past twelve months. In the United States, there are approximately sixteen million people with COPD, including approximately four million seniors.

Pharmaceuticals

     Through our Pharmaceuticals segment we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits. We sell our female urinary discomfort products and home medical diagnostic kits under our AZO brand name through a network of large drug store chains, major supermarkets, mass merchandisers and drug wholesalers in the United States. Our line of prescription urology products includes urinary analgesics, antispasmodics, local anesthetics and analgesic suppositories. Our primary customers for these urology products are large drug wholesalers in the United States.

Business Strategies

     Our principal strategy is to leverage our operating platform and compliance management protocol to expand our business.

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This strategy includes the following elements:

     Continue growth in our direct to consumer businesses by expanding our customer base. Since the August 1996 acquisition of Liberty Medical Supply, Inc. (“Liberty”), we have invested in an ongoing program of direct-response television advertising to reach a larger portion of the Medicare-eligible patient market. This campaign has resulted in a significant increase in sales as we have expanded our active Medicare-eligible diabetes customers from approximately 17,000 at the time of Liberty’s acquisition to approximately 545,000 customers. In addition, we now have approximately 63,000 active customers for our prescription respiratory medications and supplies. We also use radio and print advertising to further broaden our customer base. We continue to seek opportunities to deliver new products to a broader customer base by leveraging our mail-order distribution system and software for billing and customer monitoring. To manage our growth effectively, we are continually improving our operations, information systems, and regulatory compliance activities.

     As a result of the expansion of our customer base, and emerging ability to leverage the value of our customer base by marketing a range of products to our customers, including those that are newly acquired, we are considering a number of new marketing initiatives. These initiatives may include the use of broad-based advertising that may not qualify as direct-response advertising and therefore, would be expensed as incurred. We are also considering expanding our customer base by purchasing businesses that provide products to consumers that are complementary to our existing products.

     Continue growth in our non-Medicare initiatives. During fiscal year 2003, we continued the growth of Liberty Medical Supply Pharmacy (“Liberty Pharmacy”), which is part of our Pharmaceuticals segment, and which offers prescription oral medications not covered by Medicare directly to consumers. We expect to continue to grow Liberty Pharmacy during fiscal year 2004.

     Continue adding complementary products and businesses. New business initiatives, in various stages of development, include a new clinical laboratory that offers a glycohemoglobin (“HbA1c”) test, the results of which tell the patient or physician what the patient’s blood glucose level has averaged over the previous two or three months, and a medical office building pharmacy, to open in fiscal year 2004, which will provide retail pharmacy services within office buildings occupied by physician groups and other medical professionals. We expect to open additional pharmacies in fiscal year 2004. In order to take advantage of economies of scale in production and marketing, we continue to evaluate opportunities for the acquisition of businesses and products to complement our existing product lines and new business initiatives. In selecting and evaluating acquisition candidates, we examine the market potential for products that can be distributed through our existing marketing infrastructure and which utilize our strengths in sales, marketing and distribution. We also continue to consider adding businesses, manufacturing capabilities and new products that capitalize upon our established brand franchise.

Status of Chief Executive Officer Search

     On August 4, 2002, Steven J. Lee, Chief Executive Officer, Chairman and a director of PolyMedica, retired as Chief Executive Officer, effective as of that date. Mr. Lee continued to serve as Chairman and a director through December 31, 2002. In connection with Mr. Lee’s termination of employment agreement, we incurred a one-time selling, general and administrative expense of approximately $1.30 million in the fiscal year ended March 31, 2003. Pursuant to this agreement, these amounts will generally be paid in cash over a twenty-four month period. We continue to work with the executive recruitment firm of Heidrick & Struggles, which is assisting our Board in its search for a new chief executive officer.

     Samuel L. Shanaman, Lead Director, is performing the functions of the chief executive officer on an interim basis until a successor is named. As compensation for his services as Interim Chief Executive Officer, we pay Mr. Shanaman a nominal salary in cash in addition to his vesting in a fixed number of shares (currently 67 shares) of restricted common stock for every day Mr. Shanaman works. The fair value of the shares ($29.69 per share on the restricted stock date of grant under his current agreement dated March 14, 2003) and the cash, is recorded as a selling, general and administrative expense in our consolidated statements of operations, as the income is earned by Mr. Shanaman. Mr. Shanaman became fully vested in the 8,345 restricted shares awarded under his first agreement entered into in October 2002, during the quarter ended March 31, 2003. We then entered into the March 14, 2003 agreement, which awarded an additional 3,600 restricted shares to be earned going forward.

Major Customers

     For the fiscal years ended March 31, 2003, 2002, and 2001, no customer represented more than 10% of our consolidated revenues. As of March 31, 2003 and 2002, the amounts included in billed accounts receivable due from Medicare were $28.15 million and $19.40 million, respectively.

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Major Products

     For the fiscal years ended March 31, 2003, 2002, and 2001, sales of diabetes test strips and related products represented more than 10% of our consolidated net revenues, amounting to $234.55 million, $201.01 million, and $165.50 million, respectively, or 65.8%, 71.9%, and 75.2%, respectively, of our consolidated net revenues.

Trade Secrets

     We have proprietary manufacturing processes and trade secrets related to our in-house pharmaceutical production.

Trademarks

     URISED and AZO STANDARD, referenced in this Annual Report on Form 10-K are registered trademarks of PolyMedica Corporation.

Manufacturing

     We use state-of-the-art automated machinery to manufacture and package in-house many of our over-the-counter and prescription urology products included in our Pharmaceuticals segment. Sales of these products represented 4.6%, 5.1% and 8.1% of our consolidated net revenues for the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

Government Regulation

     Medicare

     Medicare is a federally funded program that provides health insurance coverage for qualified persons age 65 or older and for some disabled persons. The majority of the products that we provide are reimbursed by Medicare, and are therefore subject to extensive regulation. Medicare reimbursement payments are sometimes lower than the reimbursement payments of other third-party payers, such as traditional indemnity insurance companies. Current Medicare reimbursement guidelines stipulate, among other things, that quarterly orders of diabetes supplies to existing customers be verified with the customers before shipment and that all doctor’s orders for supplies be re-validated every twelve months prior to billing.

     We accept assignment of Medicare claims, as well as claims with respect to other third-party payers, on behalf of our customers. We process claims, accept payments and assume the risks of delay or nonpayment. We also employ the administrative personnel necessary to transmit claims for product reimbursement directly to Medicare and private health insurance carriers. Medicare reimburses at 80% of the government-determined reimbursement prices for reimbursable supplies, and we bill the remaining balance to either third-party payers or directly to customers.

     Our compliance with Medicare regulations may be reviewed by federal or state agencies, including the United States Department of Health and Human Services, the Department of Justice (“DOJ”), and the Food and Drug Administration (“FDA”). The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the Federal Bureau of Investigation (“FBI”) and Department of Health & Human Services’ Office of Inspector General (“OIG”), is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy Corporation (“Liberty Home Pharmacy”). Both civil and criminal investigations are being conducted. We are cooperating with the investigations.

     If any of the investigations or legal proceedings referred to above results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. An adverse determination could have a material effect on our financial position and results of operations. At this time, we cannot accurately predict the outcome of these proceedings, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

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Compliance and Regulatory Affairs

     We have a Compliance and Regulatory Affairs Department that is comprised of five groups: monitoring, investigations and special projects, internal reviews, contracts and licensing, and external communications. Although each group is distinct, the Senior Vice President of Regulatory Affairs and Chief Compliance Officer coordinate activities within the department in order to promote the common goal of ensuring compliance with all federal, state and local laws and regulations applicable to our businesses. We have continued to expand the size and capabilities of our compliance and regulatory affairs department.

     Our compliance program is designed to prevent violations of applicable fraud and abuse laws and, if such violations occur, to promote early and accurate detection and prompt resolution. These objectives are achieved through education, monitoring, disciplinary action and other appropriate remedial measures. As a condition of employment, all personnel are required to attend corporate compliance certification classes annually. In addition, each employee receives a compliance manual that has been developed to communicate standards of conduct and compliance policies and procedures.

     The monitoring group performs oversight functions to ensure compliance with policies and procedures and applicable laws. These functions include telephonic monitoring of contacts between employees and customers, healthcare professionals, payers and other outside contacts.

     The investigations and special projects and internal reviews groups are responsible for conducting a variety of internal reviews of operations to ensure compliance with healthcare program requirements and applicable laws.

     The contracts and licensing group monitors compliance with provider contracting and licensing requirements, which includes random, internal onsite inspections. As appropriate, we also use external audit resources to supplement our internal auditing and monitoring activities.

     The external communications group monitors communications with third parties to ensure timely responses to requests for documents and other requests and oversees the receipt and timely dissemination of supplier bulletin information.

Corporate Governance

     In August 2001, our Board established an Oversight Committee, a special Board committee now consisting of three outside directors, to oversee our response to the investigations and the related litigation described in Item 3 of Part I, Legal Proceedings of this Annual Report on Form 10-K. The Oversight Committee is advised on legal matters by our legal counsel and other appropriate independent advisors. The Oversight Committee will continue to play an active role as these investigations proceed. Its authority includes monitoring the Compliance and Regulatory Affairs Department and that department’s compliance program to ensure compliance with Medicare and internal Company policies.

     Over the past eighteen months, we have expanded and strengthened our Board through the addition of four new directors. We have also established the position of Lead Director, to be elected annually by our outside directors. Samuel Shanaman, Interim Chief Executive Officer, currently holds this position. The role of the Lead Director is to chair regular meetings of the outside directors, providing a strong focal point for both the Board and our shareholders.

     During the past several months, the Corporate Governance Committee has drafted a set of documents intended to codify our corporate governance principles and practices and to aid in our compliance with the Sarbanes-Oxley Act of 2002 (the “Act”) and regulations promulgated by the Securities and Exchange Commission (the “SEC”) pursuant to the Act. In November 2002, the Corporate Governance Committee presented drafts of these documents to the full Board for review. In January 2003, the Board approved the following documents:

	-		Board Guidelines on Significant Corporate Governance Issues;
	-		Charters for the Compensation, Corporate Governance and Executive Committees;
	-		a revised Charter for the Audit Committee;
	-		an Insider Trading Policy applicable to all employees, officers and directors of PolyMedica and its subsidiaries; and
	-		a Code of Conduct and Ethics, applicable to all employees, officers and directors of PolyMedica and its subsidiaries.

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Pharmacy Licensing

     In general, our pharmacy operations are regulated by the State of Florida Board of Pharmacy and the statutes of the State of Florida where we are licensed to do business as a pharmacy. Many of the states into which we deliver prescription pharmaceuticals have laws and regulations governing our activities, although they generally permit our pharmaceutical activities so long as they are permitted under the laws and regulations of Florida. Nevertheless, as of June 2, 2003 we had applied for and been granted licenses in forty-three states. An additional seven states do not require non-resident pharmacy licenses. We believe that we are in material compliance with the laws and regulations governing pharmaceutical activities in states in which we deliver prescription pharmaceuticals.

General

     Numerous federal, state and local laws relating to controlled drug substances, safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances apply to portions of our operations. For example, the Drug Enforcement Administration (“DEA”) regulates controlled drug substances, such as narcotics, under the Controlled Substances Act and the Controlled Substances Import and Export Act. Manufacturers, distributors and dispensers of controlled substances must be registered and inspected by the DEA, and are subject to inspection, labeling and packaging, export, import, security, production quota, record keeping and reporting requirements. In addition, labeling and promotional activities relating to medical devices and drugs are, in certain instances, subject to regulation by the Federal Trade Commission. To the extent we engage in new activities or expand current activities into new states, the cost of compliance with applicable regulations and licensing requirements could be significant. In addition, our manufacturing facility is subject to the Good Manufacturing Practices regulations of the FDA. The FDA enforces these regulations through its plant inspection program. In addition, our drug products are subject to the requirements of the Food, Drug and Cosmetics Act and related regulations.

Competition

     The markets we participate in are highly competitive. Many of our competitors and potential competitors have substantially greater capital resources, purchasing power and advertising budgets, as well as more experience in marketing and distributing products. Our competitors include:

	-		retail pharmacies;
	-		healthcare product distributors;
	-		disease management companies; and
	-		pharmacy benefit management companies.

     We believe that the principal competitive factors in the Liberty Diabetes, Liberty Respiratory and Pharmaceuticals markets include attracting new customers, identifying and responding to customer needs, the quality and breadth of product offerings, and expertise with respect to the reimbursement process. We believe that we compete effectively in all of these areas because of:

	-		Liberty’s brand recognition, supported by a national television advertising campaign;
	-		Our expertise in the Medicare reimbursement and compliance process; and
	-		Our significant investment in employee training, computer systems and order processing systems to assure high quality customer service, cost-effective order processing, and regulatory compliance.

     In the urinary discomfort category, our AZO STANDARD® urinary analgesic, available over-the-counter, holds a leading position. Competitors include a number of major pharmaceutical companies. In the prescription urology and suppository market, URISED®, a prescription urinary analgesic and anti-spasmodic, is our leading seller. Numerous pharmaceutical companies develop and market prescription products that compete with URISED® and our other prescription urology and suppository products on a branded and generic basis.

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Employees

     As of March 31, 2003, we had 1,679 full-time employees. We expect to employ additional personnel as we expand our operations. We believe that employee relations are good.

Available Information

     Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are made available free of charge on or through our website at www.polymedica.com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. None of the information posted on our website is incorporated by reference into this Annual Report.

ITEM 2. PROPERTIES

     Our facilities are located in Woburn, Massachusetts and Port St. Lucie, Palm City and Stuart, Florida. Our corporate headquarters are located in Woburn in a 60,000 square foot facility, which we own. We also own three buildings located in Port St. Lucie, Florida, a 72,000 square foot diabetes supplies facility, a 59,000 square foot distribution center and a 64,000 square foot respiratory supplies facility. On January 28, 2003, we purchased a 120,000 square foot building also located in Port St. Lucie, Florida for a purchase price, excluding legal fees and associated acquisition costs, of $3.26 million, for the purpose of supporting the growth in our Florida businesses. We commenced renovation of this facility in February 2003. These facilities place all of our Florida-based businesses in close proximity.

     We believe that our existing facilities and those either currently under construction or lease are adequate for our current needs.

ITEM 3. LEGAL PROCEEDINGS

U.S. Attorney’s Office

     The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. We cannot accurately predict the outcome of these proceedings at this time, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

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. At least one virtually identical lawsuit was 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.

     Plaintiffs filed a consolidated amended complaint on October 9, 2001. The consolidated amended complaint extended the class period to October 26, 1998 through August 21, 2001, and named as defendants PolyMedica, Liberty, Steven J. Lee, former Chief Executive Officer and Chairman of the Board, Eric G. Walters, an Executive Vice President and Clerk of PolyMedica, and Keith Trowbridge, President of Liberty and a Senior Vice President of PolyMedica. Defendants moved to dismiss the consolidated amended complaint on December 10, 2001. Plaintiffs filed their opposition to this motion on February 11, 2002, and defendants filed a reply memorandum on March 11, 2002. The Court denied the motion without a hearing on May 10, 2002. On June 20, 2002, defendants filed answers to the consolidated amended complaint. The case is currently in discovery.

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     We believe that we have meritorious defenses to the claims made in the consolidated amended complaint and intend to contest the claims vigorously. We are unable to express an opinion as to the likely outcome of this litigation.

Derivative Complaint

     On August 9, 2001, Roberta Casden filed a purported derivative action in Massachusetts Superior Court for Middlesex County against our Board. At least three virtually identical derivative actions were subsequently filed in Massachusetts Superior Court. On October 11, 2001, the Court granted plaintiffs’ motion to consolidate the derivative actions under the caption In re: PolyMedica Corp. Shareholder Derivative Litigation, Civ. Action No. 01-3446.

     On December 17, 2001, plaintiffs filed a consolidated derivative complaint. The consolidated complaint named as defendants PolyMedica, Steven J. Lee, former Chief Executive Officer and Chairman of the Board, Arthur A. Siciliano, President, Eric G. Walters, Executive Vice President and Clerk, and five of our directors: Herbert A. Denton, Thomas S. Soltys, Frank LoGerfo, Marcia J. Hooper, and Daniel S. Bernstein. The Complaint alleges that the defendants breached their fiduciary duties by, among other things, failing to exercise reasonable care in the oversight of corporate affairs and management with respect to the operations of Liberty and by acquiescing in alleged misconduct by Liberty. The Complaint seeks unspecified damages, the return of compensation, and other relief, including injunctive relief. Defendants filed a motion to dismiss the consolidated complaint on January 31, 2002. Plaintiffs filed an opposition to the motion on March 22, 2002 and defendants filed a reply memorandum on April 19, 2002. The Court heard argument on the motion to dismiss on April 30, 2002. On July 16, 2002, the Court entered an order denying the motion to dismiss.

     On August 8, 2002, defendants filed a motion for reconsideration of the order denying defendants’ motion to dismiss, or, in the alternative, to report the case to the Appeals Court and stay the proceeding. After hearing oral argument, the Court issued an order, on September 16, 2002, in which it refused to reconsider its decision, but reported the case to the Appeals Court and granted defendants’ motion to stay the action. On September 25, 2002, plaintiffs filed a motion for reconsideration of the order staying the proceedings, which they subsequently withdrew on December 26, 2002. On January 23, 2003, the Appeals Court docketed the case under the caption Roberta Casden v. Daniel S. Bernstein and others, No. 2003-P-0107.

     On January 29, 2003, defendants, with plaintiffs’ assent, filed a motion requesting the Appeals Court to grant leave to allow the trial court to correct the docket by adding omitted parties and requesting a stay of appellate proceedings. On January 30, 2003, the Appeals Court granted leave and stayed appellate proceedings until March 3, 2003. On February 3, 2003, defendants and plaintiffs filed a joint motion in the Massachusetts Superior Court for Middlesex County requesting correction of the docket. On February 4, 2003, the Superior Court granted the joint motion to correct the docket. By joint motions of all parties, filed on April 2, 2003 and May 16, 2003, the Appeals Court stayed all appellate proceedings until June 19, 2003.

     The defendants believe they have meritorious defenses to the claims made in the consolidated complaint and intend to contest the claims vigorously. We are unable to express an opinion as to the likely outcome of this litigation.

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

     No matters were submitted to a vote of our security holders during the last quarter of the fiscal year ended March 31, 2003.

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EXECUTIVE OFFICERS OF THE REGISTRANT

     Our current executive officers are as follows:

     Mr. Shanaman has been Lead Director and Interim Chief Executive Officer of PolyMedica since August 2002 and has served as a director since November 2001. As well as serving on PolyMedica’s Board, Mr. Shanaman is Managing Director of Logan Enterprises, a private investment venture, and also serves on the Board of Directors of The J. Jill Group, Inc. Mr. Shanaman held a number of positions with The J. Jill Group and its predecessor, DM Management, including President and Chief Executive Officer. Previously Mr. Shanaman was Vice President of Marketing and Field Operations and Chief Financial Officer of Infinet, Inc., a manufacturer and marketer of data communications products and systems utilized in large online networks. Earlier in his career, he was Chief Financial Officer of Nixdorf Computer Corporation and a member of the staff at Arthur Andersen & Company.

     Mr. Stone joined PolyMedica in March 2002 and was appointed a Director, Vice Chairman, General Counsel, and Senior Vice President of PolyMedica in June 2002. Prior to joining PolyMedica, Mr. Stone was a senior partner at Hale and Dorr LLP, a leading Boston based law firm. His corporate law practice focused on emerging companies primarily in the high technology and medical fields and the private and public financing, mergers, acquisitions and strategic relationships of such companies. In his practice, he also assisted companies in structuring, establishing and financing their operations. Mr. Stone has lectured and written on numerous tax, corporate, and international subjects, and is a member of the American and Massachusetts Bar Associations. In addition to serving on PolyMedica’s Board, he currently serves on the Board of Directors of FlexiInternational Software, Inc.

     Dr. Siciliano has been President of PolyMedica since June 1996. Formerly, he served as Executive Vice President from July 1994 to June 1996, as Senior Vice President from January 1993 to July 1994, as Vice President, Pharmaceuticals from July 1991 to January 1993, and as Vice President, Manufacturing from June 1990 to July 1991. From PolyMedica’s inception until June 1990, he served as Chief Operating Officer. From 1984 to 1986, Dr. Siciliano served as President of Microfluidics Corporation, a high technology equipment manufacturer and a subsidiary of the Biotechnology Development Corporation and then helped found a subsidiary, MediControl Corporation, and served as its President from 1986 to 1989. He served as President of the Heico Chemicals Division of the Whittaker Corporation from 1982 to 1984, as General Manager of Reheis Chemicals (Ireland), Ltd. during 1981 and as Technical Director for Reheis Chemical Co., a division of Revlon Inc., from 1975 to 1982. Dr. Siciliano also served as Director of Corporate Research for Kolmar Laboratories, Inc. from 1973 to 1975 and as Senior Scientist for The Gillette Company from 1969 to 1973.

     Mr. Walters who currently serves as Executive Vice President and Clerk and who formerly served as Chief Financial Officer, has announced his intention to resign from PolyMedica effective August 15, 2003.

     Mr. Trowbridge joined PolyMedica in February 1999 as Chief Operating Officer of Liberty. On May 1, 1999, he was appointed President of Liberty and was also elected Vice President of PolyMedica. Effective May 15, 2002, he was promoted to Senior Vice President of PolyMedica. From December 1997 to February 1999, he served as President, and from November 1994 to December 1997 he served as Executive Vice President of U.S. Operations, for Transworld Healthcare, Inc. an international healthcare company, where he was responsible for three domestic operating units including MK Diabetes Support Services. From August 1991 to October 1994, Mr. Trowbridge served as Chairman and Chief Executive Officer of Medical Associates of America, a national integrated network of physician owned pharmacies. Mr. Trowbridge also served as Executive Vice President of T2 Medical from January 1988 to August 1991.

     Mr. Farrell is PolyMedica’s Chief Financial Officer and Senior Vice President, having joined PolyMedica as Treasurer in August 1999. From 1994 to 1999, Mr. Farrell served in various positions at PricewaterhouseCoopers, LLP, most recently as a Senior Manager of the high technology team. Mr. Farrell is a Certified Public Accountant.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     As of March 31, 2003, our Common Stock was held by 927 holders of record. We believe that the actual number of beneficial owners of our Common Stock is significantly greater than the stated number of holders of record because a substantial portion of the Common Stock outstanding is held in “street name”. Our Common Stock is traded on the Nasdaq National Market under the symbol “PLMD”.

     The following table sets forth the high and low closing sales price per share of Common Stock on the Nasdaq National Market:

     On February 13, 2003, we paid a $0.25 per share cash dividend on 12,353,120 common shares outstanding for a total payment of $3.09 million to our common shareholders of record as of the close of business on February 3, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in conjunction with the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report on Form 10-K. The balance sheet data as of March 31, 2003 and 2002 and the statements of operations data for the three years ended March 31, 2003 have been derived from the audited consolidated financial statements for such years, included elsewhere in this Annual Report on Form 10-K. The balance sheet data as of March 31, 2001, 2000, and 1999 and the statements of operations data for the two years ended March 31, 2000 have been derived from the audited consolidated financial statements for such years, not included in this Annual Report on Form 10-K.

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     During the third quarter of fiscal 2003, we implemented Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), retroactive to April 1, 2002. Effective April 1, 2002, we recorded a goodwill impairment charge of $14.62 million, net of related taxes, or $1.17 per diluted weighted average share, as a cumulative effect of change in accounting principle for the adoption of SFAS No. 142. Net income for the fiscal year ended March 31, 2003 included this charge. See Note F to the consolidated financial statements.

     During the fourth quarter of fiscal year 2001, we implemented Staff Accounting Bulletin 101 (“SAB 101”), “Revenue Recognition in Financial Statements”, retroactive to April 1, 2000. Effective April 1, 2000, we recorded a cumulative effect of change in accounting principle of $6.93 million, net of related taxes, or $0.51 per diluted weighted average share, for the adoption of SAB 101. Net income for the fiscal year ended March 31, 2001 included this charge. See Note C to the consolidated financial statements.

     In the fiscal year ended March 31, 2000, net income included a $1.34 million loss, net of related taxes, or $0.12 per diluted weighted average share, related to the loss on retirement of debt.

     On February 13, 2003, we paid a $0.25 per share cash dividend on 12,353,120 common shares outstanding for a total payment of $3.09 million to our common shareholders of record as of the close of business on February 3, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Future Operating Results

     This Annual Report on Form 10-K contains forward-looking statements. 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”, and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause our actual results to differ materially from those indicated or suggested by such forward-looking statements. These factors include, without limitation, those set forth below in the section titled “Factors Affecting Future Operating Results” in this Annual Report on Form 10-K.

Overview

Business

     PolyMedica is a leading provider of direct-to-consumer medical products, conducting business through its Liberty Diabetes, Liberty Respiratory and Pharmaceuticals segments. Through our Liberty Diabetes segment we provide diabetes testing supplies and related products primarily to Medicare-eligible customers suffering from diabetes and related chronic diseases. Through our Liberty Respiratory segment we provide direct-to-consumer prescription respiratory medications and supplies primarily to Medicare-eligible customers suffering from chronic obstructive pulmonary disease (“COPD”). Through our Pharmaceuticals segment we provide prescription oral medications not covered by Medicare directly to consumers and sell prescription urology and suppository products, over-the-counter female urinary discomfort products, and home medical diagnostic kits.

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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 reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 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 if past experience or other assumptions do not turn out to be substantially accurate.

     PolyMedica’s significant accounting policies are presented within Note B to our consolidated financial statements, and the following summaries should be read in conjunction with our consolidated financial statements and the related notes included in this Annual Report on Form 10-K. While all of our accounting policies impact the consolidated financial statements, certain policies may be 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 sales allowances, accounts receivable and the allowance for doubtful accounts, inventories, goodwill, advertising, accruals for Medicare adjustments, and uncertainties.

     Revenue Recognition

     We recognize revenue related to product sales to customers who have placed orders, upon shipment, provided that risk of loss has passed to the customer and we have received and verified the required written forms, if applicable, to bill Medicare, other third-party payers, and customers. We record revenue at the amounts expected to be collected from Medicare, other third-party payers, and directly from customers. We analyze various factors in determining revenue recognition, including a review of specific transactions, current Medicare regulations and reimbursement rates, historical experience, and the credit-worthiness of customers. The determination of appropriate Medicare rates for billing and revenue recognition is complex and sometimes subjective and therefore may require management’s interpretation. Sales allowances are recorded for estimated product returns as a reduction of revenue. We analyze sales allowances using historical data adjusted for significant changes in volume, customer demographics, and business conditions. These allowances are adjusted to reflect actual returns. Changes in these factors could affect the timing and amount of revenue and costs recognized.

     Accounts Receivable and Allowance for Doubtful Accounts

     The valuation of accounts receivable is based upon the credit-worthiness of customers and third-party payers as well as our historical collection experience. Allowances for doubtful accounts are recorded as a selling, general and administrative expense for estimated amounts expected to be uncollectible from third-party payers and customers. We base our estimates on our historical collection and write-off experience, current trends, credit policy, and on our analysis of accounts receivable by aging category. Changes in judgment regarding these factors could affect the timing and amount of costs recognized.

     Inventories

     Inventories are carried at the lower of cost or market value. Market value or the net realizable value to PolyMedica is impacted by the types and levels of inventory held, forecasted demand, and pricing. Due to the medical nature of the products we provide, customers sometimes request supplies before we have received the required written forms, if applicable, to bill Medicare, other third-party payers, and customers. As a result, included in inventories are items shipped to customers for which we have received an order but have not yet received the required written documents and therefore have not recognized revenue. The carrying value of inventory shipped to customers of $2.57 million and $3.77 million as of March 31, 2003 and 2002, respectively, is based upon historical experience of collection of documents required to bill Medicare, other third-party payers, and customers. Changes in judgment regarding the recoverability of inventories, including the carrying value of inventory shipped to customers, could result in the recording of additional income or expense.

     Goodwill

     Subsequent to the transitional impairment test, as prescribed under SFAS No. 142, we are required to perform impairment tests annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable. Step one of the impairment test is performed to determine whether an impairment exists, step two of the impairment test is performed to

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determine the amount of the charge to be recorded as a result of the impairment. See Note F to the consolidated financial statements. In performing impairment tests, we are required to make certain estimates and assumptions relating to the allocation of certain assets and liabilities to our reporting units, estimates of the fair values of our reporting units, and the related fair value of certain of their assets and liabilities. Changes in the estimates and assumptions used could affect the determination of whether an impairment exists as well as the quantification of the impairment value, should one exist.

     Advertising

     In accordance with Statement of Position 93-7(“SOP 93-7”) we capitalize and amortize direct-response advertising and related costs when we can demonstrate that customers have directly responded to our advertisements, among other things. We assess the realizability of the amounts of direct-response advertising costs reported as assets at each balance sheet date by comparing the carrying amounts of such assets to the probable remaining future net cash flows expected to result directly from such advertising. Management’s judgments include determining the period over which such net cash flows are estimated to be realized, currently four years for our diabetes supplies and two years for our respiratory supplies. A business change, including a change in reimbursement rates, that reduces expected net cash flows or that shortens the period over which such net cash flows are estimated to be realized could result in accelerated charges against our earnings. For recent developments regarding the application of SOP 93-7, please see Note U to the consolidated financial statements.

     Non-direct response advertising, promotional and marketing costs are charged to earnings in the period in which they are incurred.

     Accruals for Medicare Adjustments

     The government’s Medicare regulations are complex and sometimes subjective and therefore may require management’s interpretation. Accruals for Medicare adjustments occur in the normal course of business and are recorded when, based upon our assessment of the facts and circumstance, we believe that the amounts due are probable and estimable.

     Uncertainties

     Our compliance with Medicare regulations may be reviewed by federal or state agencies, including the Department of Health and Human Services, the DOJ, and the FDA. The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. Since July 1, 2001 we have spent approximately $9.82 million on legal and accounting fees primarily preparing for and responding to the investigations and the two lawsuits described below. This work has been conducted under the direction of legal counsel who report to the Oversight Committee, a special Board committee comprised of three outside directors, which was established to oversee our response to the investigations and the related litigation.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

     Polymedica and three individuals who are or were officers of PolyMedica are defendants in a lawsuit alleging violations of certain sections and rules of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, there is a derivative action against certain directors and two individuals who are or were officers in Massachusetts state court alleging certain breaches of fiduciary duty. PolyMedica believes it has meritorious defenses to the claims made against it in the actions in which it is a defendant and intends to contest the claims vigorously. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations. Please see Item 3 of Part I, Legal Proceedings, for a more complete description of these claims.

     If any of the investigations or legal proceedings referred to above results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations.

     In addition to those described above, we have certain contingent liabilities, including but not limited to, litigation that arises in the ordinary course of business. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

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Recent Transactions

     On February 28, 2003, we repurchased 100,000 shares of common stock for $2.90 million or an average price of $29.04 per share. Of the 2,000,000 shares originally authorized by the Board, 629,000 shares remained authorized for repurchase as of March 31, 2003.

     On February 13, 2003, we paid a $0.25 per share cash dividend on 12,353,120 common shares outstanding for a total payment of $3.09 million to our common shareholders of record as of the close of business on February 3, 2003. The current intention of our Board is to pay a cash dividend on a quarterly basis for the foreseeable future.

     On January 28, 2003, we purchased a 120,000 square foot building located in Port St. Lucie, Florida for a purchase price, excluding legal fees and associated acquisition costs, of $3.26 million, for the purpose of supporting the growth in our Florida businesses. We commenced renovation of the facility in February 2003.

Other

     Advertising rates may fluctuate during the year, which may affect our acquisition of new customers. We may purchase less advertising when rates are higher, which generally occurs in November and December. As a result, our acquisition of new customers during this period is generally reduced and our net revenues may fluctuate accordingly.

     We operate from manufacturing and distribution facilities located in Massachusetts and Florida, respectively. Virtually all of our product sales are denominated in U.S. dollars.

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

	-		Cost of sales consists primarily of purchased finished goods for sale in our markets and, to a lesser extent, materials, direct labor, and overhead costs for products that we manufacture in our facility and shipping and handling fees.
	-		Selling, general and administrative expenses consist primarily of expenditures for personnel and benefits, as well as legal and related expenses, allowances for bad debts, rent, amortization of capitalized direct-response advertising costs and other amortization and depreciation.

     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

Year Ended March 31, 2003 Compared to Year Ended March 31, 2002

     The following table presents consolidated statements of operations expressed as a percentage of net revenues:

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     Total net revenues increased 27.4% to $356.19 million in the fiscal year ended March 31, 2003, as compared with $279.66 million in the fiscal year ended March 31, 2002. This increase was primarily the result of the growth in revenues from our Liberty Diabetes and Liberty Respiratory segments which increased 18.1% and 43.5%, respectively, in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002.

     Net revenues in the Liberty Diabetes segment increased to $244.68 million in the fiscal year ended March 31, 2003, as compared with $207.26 million in the fiscal year ended March 31, 2002. This growth was due primarily to the growth in our customer base, which grew 23.9% to approximately 545,000 active customers as of March 31, 2003, from approximately 440,000 as of March 31, 2002, primarily as a result of our direct-response advertising spending. Fluctuations in the order volume, order frequency and mix of product for new and existing customers, including those with Type II diabetes, also contributed to the change in net revenues from fiscal 2002 to fiscal 2003.

     Net revenues from our Liberty Respiratory segment increased to $75.13 million in the fiscal year ended March 31, 2003, as compared with $52.36 million in the fiscal year ended March 31, 2002. This increase was due primarily to the growth in our customer base, which grew 37.0% to approximately 63,000 active customers as of March 31, 2003, from approximately 46,000 as of March 31, 2002, as a result of our direct-response advertising spending. Fluctuations in the order volume, order frequency and mix of product for new and existing customers also contributed to the change in net revenues from fiscal 2002 to fiscal 2003.

     Net revenues from our Pharmaceuticals segment increased to $36.38 million in the fiscal year ended March 31, 2003, as compared with $20.04 million in the fiscal year ended March 31, 2002, due primarily to the growth in Liberty Pharmacy sales of prescription oral medications not covered by Medicare. Sales of these products represented 55.3% and 29.1% of total Pharmaceuticals segment net revenues in the fiscal years ended March 31, 2003 and 2002, respectively. We expect this trend of increasing sales from Liberty Pharmacy to continue. The current customer base for these products consists primarily of existing Liberty Diabetes and Liberty Respiratory customers, and their spouses.

     As a percentage of total net revenues, overall gross margins were 64.4% in the fiscal year ended March 31, 2003 and 65.1% in the fiscal year ended March 31, 2002. Gross margins in the fiscal year ended March 31, 2003 decreased primarily as a result of the increase in net revenues generated from lower-margin prescription oral medication sales. Liberty Pharmacy, although profitable, has significantly lower gross and operating margins than our historical businesses. As a result, future consolidated earnings growth is projected to be less than future consolidated revenue growth.

     As a percentage of total net revenues, selling, general and administrative expenses were 46.0% in the fiscal year ended March 31, 2003, as compared with 47.8% in the fiscal year ended March 31, 2002. Selling, general and administrative expenses increased by 22.6% in the fiscal year ended March 31, 2003 to $163.77 million, as compared with $133.61 million in the fiscal year ended March 31, 2002. This decrease in selling, general and administrative expense as a percentage of net revenues was primarily attributable to an additional $5.03 million of selling, general and administrative expenses in the fiscal year ended March 31, 2002 in the Liberty Respiratory segment related to the establishment of a reserve for Medicare overpayments, coupled with a $2.32 million decrease in selling, general and administrative expenses in the fiscal year ended March 31, 2003 in the Liberty Respiratory segment related to a reduction in this reserve based upon a favorable determination by one of the four Medicare carriers that our original method of billing for albuterol and ipratropium combinations was proper. Other factors that contributed to the change in selling, general and administrative expenses as a percentage of net revenues included approximately $1.17 million more of consolidated legal and related expenses, $1.96 million for termination of employment charges related to the termination of certain executive officers, and $6.15 million more of direct-response advertising amortization in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002. These increases were offset by $1.54 million of goodwill amortization recorded in the fiscal year ended March 31, 2002, that was not recorded in the fiscal year ended March 31, 2003.

     Investment income decreased 77.6% to $247,000 in the fiscal year ended March 31, 2003, as compared with $1.11 million in the fiscal year ended March 31, 2002, due to a lower average cash balance and lower interest rates. Interest expense decreased 12.0% to $146,000 in the fiscal year ended March 31, 2003, as compared with $166,000 in the fiscal year ended March 31, 2002.

     The provision for income taxes was $25.30 million and $18.48 million in the fiscal years ended March 31, 2003 and 2002, respectively, which resulted in an effective tax rate of 38.6% and 37.8% in fiscal years 2003 and 2002, respectively. The effective tax rates in fiscal years 2003 and 2002 were higher than the Federal U.S. statutory rates due primarily to state taxes and other permanent differences. We anticipate that the effective tax rate for fiscal year 2004 will be at or near the fiscal 2003 effective tax rate. 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

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laws, future expansion into areas with varying country, state, or local income tax rates, and the deductibility of certain costs and expenses by jurisdiction.

Year Ended March 31, 2002 Compared to Year Ended March 31, 2001

     The following table presents consolidated statements of operations expressed as a percentage of net revenues:

     Total net revenues increased by 27.1% to $279.66 million in the fiscal year ended March 31, 2002, as compared with $220.05 million in the fiscal year ended March 31, 2001. This increase was primarily the result of the growth in revenues from our Liberty Diabetes and Liberty Respiratory segments which increased 24.3% and 47.4%, respectively, in the fiscal year ended March 31, 2002, as compared with the fiscal year ended March 31, 2001.

     Net revenues in the Liberty Diabetes segment increased by 24.3% to $207.26 million in the fiscal year ended March 31, 2002, as compared with $166.77 million in the fiscal year ended March 31, 2001. This growth was due primarily to the growth in our customer base as a result of our direct-response advertising spending. Revenue growth was aided by a cost of living adjustment implemented by the government for certain durable medical equipment products, including diabetes test strips, under the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000, which added 3.7% to the revenue of many of our Liberty Diabetes segment products beginning July 1, 2001. In addition, due to the late implementation by the government of the January 1, 2001 cost of living adjustment, which went into effect July 1, 2001, an incremental 3.28% cost of living adjustment was recorded from July 1, 2001 to December 31, 2001. This incremental 3.28% cost of living adjustment ended on December 31, 2001.

     Net revenues from our Liberty Respiratory segment increased 47.4% to $52.36 million in the fiscal year ended March 31, 2002, as compared with $35.52 million in the fiscal year ended March 31, 2001. This increase was due primarily to the growth in our customer base as a result of our direct-response advertising spending.

     Net revenues from our Pharmaceuticals segment increased 12.9% to $20.04 million in the fiscal year ended March 31, 2002, as compared with $17.76 million in the fiscal year ended March 31, 2001, due primarily to the launch of Liberty’s non-Medicare operation, Liberty Pharmacy. Liberty Pharmacy sales represented 29.1% of Pharmaceutical segment net revenues in the fiscal year ended March 31, 2002. This increase in net revenues generated from Liberty Pharmacy was offset by a reduction in net revenues due to the sale of certain assets of our thermometry business in September 2000.

     As a percentage of total net revenues, overall gross margins were 65.1% in the fiscal year ended March 31, 2002 and 65.0% in the fiscal year ended March 31, 2001. Gross margins in the fiscal year ended March 31, 2002 increased slightly due primarily to a cost of living adjustment described above, and increased sales in our higher margin Liberty Respiratory segment, partially offset by a change

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in the interpretation of the reimbursement formula for albuterol and ipratropium combinations (see Note G to the consolidated financial statements for more details), increasing sales from new business initiatives that have lower margins than our average and a change in the product mix for our Liberty Diabetes and Liberty Respiratory segments.

     As a percentage of total net revenues, selling, general and administrative expenses were 47.8% for the fiscal year ended March 31, 2002, as compared with 44.3% for the fiscal year ended March 31, 2001. Selling, general and administrative expenses increased by 37.0% in the fiscal year ended March 31, 2002 to $133.61 million, as compared with $97.55 million in the fiscal year ended March 31, 2001. This increase in selling, general and administrative expenses as a percentage of net revenues was primarily attributable to legal and related expenses of $5.06 million pertaining to the previously reported investigations of Liberty and Liberty Home Pharmacy, and a charge of $5.03 million for the establishment of a reserve for Medicare overpayments related to a change in interpretation of the reimbursement formula for albuterol and ipratropium combinations used in our Liberty Respiratory segment, in the fiscal year ended March 31, 2002. See Note G to the consolidated financial statements for more information. Selling, general and administrative expenses further increased due to an increase in direct-response advertising amortization of $10.70 million to $30.31 million in the fiscal year ended March 31, 2002, from $19.60 million in the fiscal year ended March 31, 2001. Amortization increased as a result of the growth in the direct-response advertising asset value. See Note B to the consolidated financial statements for more information.

     Investment income decreased 61.5% to $1.11 million in the fiscal year ended March 31, 2002, as compared with $2.87 million in the fiscal year ended March 31, 2001, due to a lower average cash balance and lower interest rates. Interest expense decreased 41.3% to $166,000 in the fiscal year ended March 31, 2002, as compared with $282,000 in the fiscal year ended March 31, 2001, due primarily to the elimination of interest expense on Liberty’s Port St. Lucie facility mortgage as a result of the $1.36 million repayment in December 2000.

     The provision for income taxes was $18.48 million and $17.65 million in the fiscal years ended March 31, 2002 and 2001, respectively, which resulted in an effective tax rate of 37.8% and 37.3% in fiscal years 2002 and 2001, respectively. The effective tax rates in fiscal years 2002 and 2001 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 country, state, or local income tax rates, and the deductibility of certain costs and expenses by jurisdiction.

Liquidity and Capital Resources

     Our business and its sustained growth is currently funded through cash flow from operations. Our cash and cash equivalents balance decreased $722,000 to $27.16 million as of March 31, 2003, due primarily to cash flows generated from operations less cash outflows such as the purchase of property, plant and equipment and investments, the repurchase of our common stock and the payment of cash dividends. Cash flows from operations of $29.45 million for the fiscal year ended March 31, 2003, were generated by income before the cumulative effect of a change in accounting principle of $40.25 million, offset by cash used to fund certain areas of our operations, including an increase in spending for direct-response advertising of $5.93 million to $48.41 million in the fiscal year ended March 31, 2003, as compared with $42.48 million in the fiscal year ended March 31, 2002, to further expand our customer base. An increase in our net accounts receivable balance of $17.11 million to $61.17 million as of March 31, 2003, as compared with $44.06 million as of March 31, 2002, also offset cash flows generated by income before the cumulative effect of a change in accounting principle.

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     In the fiscal years ended March 31, 2003 and 2002, we used $23.52 million and $15.23 million of cash for investing activities, respectively. The $8.29 million increase in total cash used for investing activities in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002, was primarily due to the purchase of $1.44 million of investments and a $6.82 million increase in property, plant and equipment purchases related to the construction of two new facilities and the purchase of a building in Port St. Lucie, Florida.

     In the fiscal years ended March 31, 2003 and 2002, we used $6.65 million and $19.36 million of cash for financing activities, respectively. The $12.71 million decrease in total cash used for financing activities in the fiscal year ended March 31, 2003, as compared with the fiscal year ended March 31, 2002, was primarily due to fewer share repurchases. In the fiscal year ended March 31, 2003, we used $3.56 million to repurchase 125,000 shares of our common stock at an average repurchase price of $28.50 per share, as compared with $18.00 million used to repurchase 1,009,000 shares of our common stock at an average repurchase price of $17.84 per share in the fiscal year ended March 31, 2002. This decrease was offset primarily by $3.09 million of cash dividends paid to shareholders of record as of February 3, 2003, in the fiscal year ended March 31, 2003. The current intention of our Board is to pay a cash dividend to shareholders of record on a quarterly basis for the foreseeable future. We expect the quarterly cash dividend payment to average approximately $3.00 million. As of March 31, 2003, 629,000 shares remained authorized for repurchase under the August 2001 authorized share repurchase program. Other financing activities included the payment of capital lease and note payable obligations, amounts set aside for executive deferred compensation plans and proceeds from the issuance of common stock.

     We believe that our cash and cash equivalents balance as of March 31, 2003 of $27.16 million, and cash flows generated from operations, will be sufficient to meet working capital, capital expenditure and financing needs, including the payment of dividends to shareholders, for future business operations for the foreseeable future. In the event that we undertake to make acquisitions of complementary businesses, products or technologies, we may require substantial additional funding beyond currently available working capital and funds generated from operations. Other factors which could negatively affect our liquidity include a reduction in the demand for our products, an unfavorable outcome of pending litigation and investigations, or a reduction in Medicare reimbursement for our products.

     We have various contractual obligations that affect our liquidity. The following represents our contractual obligations for future annual minimum lease, note payable and rental commitments as of March 31, 2003, under all of our leases, capital and operating and our note payable:

Advertising

     We have committed to purchasing approximately $5.50 and $4.21 million in the fiscal years ending March 31, 2004 and 2005, respectively, in advertising spots from various television networks. We entered into these purchase commitments to obtain favorable advertising rates to more efficiently acquire new customers.

Accounting Pronouncements

     In May 2003, the FASB issued SFAS No. 150, “Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period

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beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As provided for in SFAS No. 123, we have elected to apply Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for our stock-based compensation plans. APB No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value, provided other criteria are met. We have complied with the disclosure requirements of SFAS No. 148.

     In December 2002, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). In general, a variable interest entity is a corporation, partnership, trust or other legal structure used for business purposes that either (a) does not have equity investors with characteristics of a controlling financial interest or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. Additionally, companies with significant investments in variable interest entities, even if not required to consolidate the variable interest entity, have enhanced disclosure requirements. We do not expect the adoption of FIN 46 to have a material impact on our financial position or results of operations.

     In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are applicable for financial statements of interim or annual periods ending after December 15, 2002. We adopted FIN No. 45 in the quarter ended December 31, 2002 and have complied with the new disclosure requirements.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement has not had a material impact on our financial position or results of operations.

     In August 2001, the FASB issued SFAS No. 143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets.” The provisions of SFAS No. 143 apply to all entities that incur obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and thus will be adopted, as required, on April 1, 2003. We do not expect adoption of this statement to have a material impact on our financial position or results of operations.

Factors Affecting Future Operating Results

     All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our future operating results remain difficult to predict. We continue to face many risks and uncertainties which could affect our operating results, including without limitation, those described below.

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

     Sales of a significant portion of our Liberty Diabetes and Liberty Respiratory medications and supplies depend on the continued availability of reimbursement of our customers by government and private insurance plans. Any reduction in Medicare reimbursement currently available for our products would reduce our revenues. Without a corresponding reduction in the cost of such

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products, the result would be a reduction in our overall profit margin. Similarly, any increase in the cost of such products would reduce our overall profit margin unless there was a corresponding increase in Medicare reimbursement. Our profits could also be affected by the imposition of more stringent regulatory requirements for Medicare reimbursement or adjustments to previously reimbursed amounts.

     Federal governmental authorities are continually considering changes to laws and regulations applicable to us as they relate to billing requirements and reimbursement levels of our products. Legislation and regulations are pending relating to:

     Medicare reform proposals

     The United States House of Representatives (“House”) and Senate (“Senate”) are considering Medicare reform and coverage of outpatient prescription drug legislation that include proposals to freeze durable medical equipment (“DME”) payments through 2010, reduce payments for covered outpatient drugs to 85 percent of the average wholesale price (“AWP”) of such drugs, require certain DME to be competitively bid, and implement a competitive acquisition program for outpatient drugs and biologics. If this legislation is enacted, it will likely include one or more of these changes.

     If enacted, these proposals could apply to us. If competitive bidding for DME is enacted, we would begin the process of understanding the bidding requirements and working with the appropriate officials in preparing bids for products that are covered. The other proposals could result in payment reductions for certain products. This legislation is also likely to authorize certain regulatory relief in the administrative process of the Medicare claims and payment rules. It is uncertain at this time whether such legislation will be enacted and become law.

     Inherent reasonableness

     Final regulations have been implemented by the Centers for Medicare and Medicaid Services (“CMS”) that develop a process for identifying whether a payment may be reduced or increased for a category of items or services if it is determined that such payment is grossly deficient or excessive. The process set forth in these regulations could affect the payment for the items that we provide.

Litigation may materially adversely affect us

     PolyMedica and three individuals who are or were officers of PolyMedica are defendants in a lawsuit alleging violations of certain sections and rules of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, there is a derivative action against certain directors and two individuals who are or were officers in Massachusetts state court alleging certain breaches of fiduciary duty. PolyMedica believes it has meritorious defenses to the claims made against it in the actions in which it is a defendant and intends to contest the claims vigorously. Although we do not consider an unfavorable outcome to the various claims probable, we cannot accurately predict their ultimate disposition, and have therefore not recorded any charges related to their outcome. An unfavorable outcome could have a material effect on our financial position and results of operations. Please see Item 3 of Part I, Legal Proceedings, for a more complete description of these claims.

We could experience significantly reduced profits as the result of an unfavorable outcome to current governmental investigations

     The regulations that govern Medicare reimbursement are complex and our compliance with those regulations may be reviewed by federal agencies, including the Department of Health and Human Services, the DOJ, and the FDA. The U.S. Attorney’s Office for the Southern District of Florida, with the assistance of the FBI and OIG, is investigating allegations of healthcare fraud, improper revenue recognition and obstruction of justice by Liberty and Liberty Home Pharmacy. Both civil and criminal investigations are being conducted. We are cooperating with the investigations. We cannot accurately predict the outcome of these proceedings at this time, and have therefore not recorded any charges relating to their outcome.

     If any of these investigations results in a determination that we have failed to comply with the regulations governing Medicare reimbursement or financial reporting or have otherwise committed healthcare fraud or securities law violations, we could be subject to delays or loss of reimbursement, substantial fines or penalties, and other sanctions. An adverse determination could have a material effect on our financial position and results of operations. At this time, we cannot accurately predict the outcome of these proceedings, and have therefore not recorded any charges relating to their outcome.

     In June 2002, Liberty was served with an administrative subpoena from the U.S. Attorney’s Office for the Southern District of Illinois seeking documents relevant to an ongoing investigation of Medicare reimbursement of “depth shoes and inserts.” Liberty has been informed that it is not a target of that investigation. Liberty completed its response to the subpoena in November 2002.

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Geopolitical events may reduce our ability to obtain favorable advertising rates for our direct-response advertising efforts, which may adversely affect our operating results

     The effectiveness of our direct-response advertising is subject to the risks arising from geopolitical events. For example, around the clock news coverage on 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 customers. Such geopolitical events may continue in the foreseeable future and may have a negative impact on our results of operations.

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

     Any change in existing accounting rules or a business change that impacts expected net cash flows or that shortens the period over which such net cash flows are estimated to be realized, currently four years for our diabetes products and two years for our respiratory supplies, could result in accelerated charges against our earnings. For recent developments regarding the accounting treatment of our advertising costs, please see Note U to our consolidated financial statements. In addition, new or different marketing initiatives that may not qualify for direct-response advertising could result in accelerated charges against our earnings.

Our stock price could be volatile

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

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

     We have expanded our operations rapidly and plan to continue to expand. This expansion has created significant demand on our administrative, operational and financial personnel and other resources. Additional expansion in existing or new markets could strain these resources and increase our need for capital. Our personnel, systems, procedures, controls and existing space may not be adequate to support further expansion.

The profitability of our Liberty Diabetes and Liberty Respiratory segments will decrease if we do not receive recurring orders from customers

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

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

     The majority of our Liberty 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 Liberty Diabetes segment.

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We could experience a charge to earnings as a result of an impairment of our goodwill

     We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable. The valuation of our goodwill is based upon the results of these impairment tests. Changes in assumptions used and forecasted results of operations of the reporting unit carrying goodwill, could affect the quantification of an impairment value, should one exist.

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

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

We could lose customers and revenues to new or existing competitors

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

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

     We manufacture substantially all of our prescription urology and suppository products and many of our AZO brand name products at our facility in Woburn, Massachusetts. In addition, we process and store most of our customer data in our facility in Port St. Lucie, Florida. If we cannot use any of these facilities as a result of the FDA, Occupational Safety and Health Administration or other regulatory action, fire, natural disaster or other event, our revenues and profits would decrease significantly. We might also incur significant expense in remedying the problem or securing alternative manufacturing or data storage sources.

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

     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 expenses until we are in compliance with the regulations or change to another acceptable supplier.

We could have difficulty selling our pharmaceuticals products if we cannot maintain and expand our sales to distributors

     We rely on third party distributors to market and sell our over-the-counter female urinary discomfort products and prescription urology and suppository products. Future sales of these products depend in part on our maintaining and expanding marketing and distribution relationships with pharmaceutical, medical device, personal care and other distributors and on the success of those distributors in marketing and selling our products.

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;

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	-		the timing of customer 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 and costs of our products.

-

Product mix and costs are significantly influenced by the product brand chosen by the customers of our mail-order diabetes supply business. We provide a wide range of product brand choices to our customers, 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 customers.

A reduction in working capital or another business change could prevent us from paying dividends to shareholders

     A significant decline in our cash balances or another business change could cause us to reduce, suspend, or eliminate the quarterly payment of dividends to shareholders.

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

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

	-		diversion of the attention of senior management from important business matters;
	-		amortization of substantial intangible assets;
	-		difficulty in retaining key personnel of an acquired business;
	-		failure to assimilate operations of an acquired business;
	-		failure to retain the customers of an acquired business;
	-		possible operating losses and expenses of an acquired business;
	-		exposure to legal claims for activities of an acquired business prior to acquisition; and
	-		incurrence of debt and related interest expense.

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We own certain money market funds, commercial bonds and mutual funds that are sensitive to market risks as part of our investment portfolio. The investment portfolio is used to preserve our capital until it is required to fund operations. None of these market-risk sensitive instruments are held for trading purposes. We do, however, hold some market-risk sensitive instruments in our executive deferred compensation plans, for trading purposes. These investments are accounted for under SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” The investments are recorded at fair value, and changes in fair value are recorded as compensation expense and investment income for the period. We do not own derivative financial instruments in our investment portfolio. We do not believe that the exposure to market risks in our investment portfolio is material.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)

The following documents are filed as part of this Annual Report on Form 10-K.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of PolyMedica Corporation:

     In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 8(a)(1) present fairly, in all material respects, the financial position of PolyMedica Corporation and its subsidiaries at March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 8(a)(2) presents fairly, in all material respects, the information set forth therein read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     As discussed in Note F to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” on April 1, 2002. As discussed in Note C to the consolidated financial statements, during the year ended March 31, 2001 the Company changed its method of recognizing revenue.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
May 21, 2003, except for Note U as to
which the date is June 20, 2003

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PolyMedica Corporation
(In thousands, except share and per share amounts)

Consolidated Balance Sheets

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

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PolyMedica Corporation
(In thousands, except per share amounts)

Consolidated Statements of Operations

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

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PolyMedica Corporation
Consolidated Statements of Shareholders’ Equity
for the years ended March 31, 2001, 2002, and 2003
(Dollars in thousands)

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Additional												Total
		paid - in				Deferred				Retained				shareholders’
		capital				compensation				earnings				equity
Balance at March 31, 2000		$	113,488							$	22,599				136,150
Exercise of stock options			808												1,993
Repurchase of common stock															(6,641	)
Tax benefit from stock options exercised			4,087												4,087
Issuance of common stock under the 1992 Employee Stock Purchase Plan			327												327
Net income											22,734				22,734
Balance at March 31, 2001			118,710								45,333				158,650
Exercise of stock options, net of receipt of 19,242 shares for exercises			(1,231	)											112
Repurchase of common stock															(18,002	)
Tax benefit from stock options exercised			620												620
Issuance of common stock under the 1992 Employee Stock Purchase Plan			423												423
Contribution of minority interests			1,369												1,369
Net income											30,411				30,411
Balance at March 31, 2002			119,891								75,744				173,583
Exercise of stock options			(2,452	)											1,814
Repurchase of common stock															(3,563	)
Tax benefit from stock options exercised			1,562												1,562
Issuance of common stock under the 1992 Employee Stock Purchase Plan			253												468
Issuance of restricted stock to the Interim Chief Executive Officer under the 2000 Stock Incentive Plan			121				(54	)							267
Dividends declared and paid out on common stock (Note M)											(3,088	)			(3,088	)
Net income											25,632				25,632
Balance at March 31, 2003		$	119,375			$	(54	)		$	98,288			$	196,675