FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 1-13690
PolyMedica Industries, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-3033368
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
11 State Street, Woburn, Massachusetts 01801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 933-2020
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of class)
Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the registrant's class of Common Stock
as of August 12, 1996 was 8,355,369 which includes 173,578 shares held in
treasury.
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POLYMEDICA INDUSTRIES, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Financial Statements
Consolidated balance sheets at
June 30, 1996 and March 31, 1996 2
Consolidated statements of operations
for the three months ended June 30, 1996
and June 30, 1995 4
Consolidated statements of cash flows
for the three months ended June 30, 1996
and June 30, 1995 5
Notes to consolidated financial statements 6
Item 2 - Management's discussion and analysis of financial condition
and results of operations 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 16
Exhibit Index
Signatures
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
POLYMEDICA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, March 31,
1996 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 19,546 $ 23,302
Accounts receivable -- trade (net of
allowance for doubtful accounts of
$82 and $82 as of June 30
and March 31, 1996) 2,611 2,558
Inventories 4,262 4,163
Prepaid expenses and other
current assets 912 416
Total current assets 27,331 30,439
Property, plant, and equipment, net 6,076 6,273
Intangible assets, net 35,059 35,500
Other assets, net 377 361
Total assets $ 68,843 $ 72,573
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POLYMEDICA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, March 31,
1996 1996
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 926 $ 1,288
Accrued expenses 2,634 3,605
Total current liabilities 3,560 4,893
Senior debt (net of unamortized discount
of $578 and $600 as of
June 30 and March 31, 1996) 24,422 24,400
Total liabilities 27,982 29,293
Commitments
Stockholders' equity:
Preferred stock $.01 par value; 2,000,000
shares authorized, none issued or
outstanding -- --
Common stock, $.01 par value, 20,000,000
shares authorized, 8,330,995 and
8,112,635 shares issued as of June 30
and March 31, 1996 83 81
Less treasury stock, at cost, 173,578 and
and 159,905 shares as of June 30
and March 31, 1996 (1,166) (1,036)
Additional paid-in capital 52,070 54,917
Accumulated deficit (9,620) (10,105)
Notes receivable from officers (322) (415)
Currency translation adjustment (184) (162)
Total stockholders' equity 40,861 43,280
Total liabilities and
stockholders' equity $ 68,843 $ 72,573
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POLYMEDICA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands, except per share data)
Three Months Ended
June 30, June 30,
1996 1995
Revenues:
Net product sales $ 4,825 $ 5,583
Royalties, exclusivity, development
and license fees 168 221
Total revenues 4,993 5,804
Cost of product sales 1,827 2,110
Total revenues, less cost of product sales 3,166 3,694
Operating expenses:
Selling, general, and administrative 2,147 2,205
Research and deve 120 194
2,267 2,399
Income from operations 899 1,295
Other income and expense:
Investment income 283 201
Interest expense (681) (666)
(398) (465)
Income from continuing operations before
income taxes 501 830
Provision for income taxes 15 20
Income from continuing operations 486 810
Loss from discontinued operations -- (233)
Net income $ 486 $ 577
Income (loss) per share of common stock:
Continuing operations $ .06 $ .11
Discontinued operations -- (.03)
Net income $ .06 $ .08
Weighted average number of
common shares outst 8,480 7,101
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POLYMEDICA INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Three Months Ended
June 30, June 30,
1996 1995
Cash flows from operating activities:
Net income $ 486 577
Loss from discontinued operations -- 233
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 667 680
Provision for bad debts -- 6
Provision for sales allowances 214 200
Changes in assets and liabilities:
Accounts receivable (267) (235)
Inventories (95) (644)
Prepaid expenses and other
current assets (495) (371)
Other assets (23) 44
Accounts payable (363) (781)
Accrued expenses (672) 206
Total adjustments (1,034) (895)
Net cash flows from continuing
operations (548) (85)
Net cash flows used for
discontinued operations -- (242)
Net cash flows from operating
activities (548) (327)
Cash flows from investing activities:
Distribution of CardioTech common stock (3,830) --
Purchase of property, plant, and equipment (198) (615)
Net cash flows from investing
activities (4,028) (615)
Cash flows from financing activities:
Proceeds from issuance of common stock 810 43
Net decrease in cash and cash
equivalents (3,766) (899)
Effect of exchange rate changes
on cash 10 8
Cash and cash equivalents at
beginning of period 23,302 14,006
Cash and cash equivalents at
end of period $19,546 $13,115
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POLYMEDICA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include, in the
opinion of management, all adjustments, consisting of normal, recurring
adjustments, necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that its disclosures are adequate to make the
information presented not misleading. The results for the interim periods
presented are not necessarily indicative of results to be expected for the full
fiscal year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates.
2. Inventories consist of the following:
(In thousands)
June 30, March 31,
1996 1996
Raw materials $ 1,699 $ 1,465
Work in process 821 902
Finished goods 1,742 1,796
$ 4,262 $ 4,163
3. As previously reported, on June 11, 1996, certificates representing
CardioTech International, Inc. ("CardioTech") common stock were mailed to the
Company's stockholders in connection with the spinout of CardioTech. A Company
stockholder on June 3, 1996, the record date, was entitled to become a
stockholder of CardioTech. A holder of one share of the Company's common stock
was entitled to 0.42832 of a share of CardioTech common stock. On June 12, 1996,
shares of CardioTech common stock began trading on the American Stock Exchange
under the symbol "CTE". In accordance with the distribution agreement, the
Company transferred $3.83 million in cash to CardioTech.
On June 19, 1996, the Company announced a second distribution to
stockholders of record as of June 3, 1996 equal to 0.05383 of a share of
CardioTech common stock based on the average trading price per share of
CardioTech common stock from June 12 - 18, 1996.
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For the three months ended June 30, 1995, CardioTech's operations are
accounted for as discontinued operations in the Company's statement of
operations, and accordingly, its operations are segregated in the accompanying
consolidated statements of operations for that period. Net sales, operating
costs and expenses, and other income and expense have been reclassified for
amounts associated with CardioTech's discontinued operations.
4. In June 1996, Michael Szycher, Ph.D., the Chairman and Chief Executive
Officer of CardioTech, resigned as Chairman and Chief Technical Officer of
PolyMedica Industries, Inc. At that time, Dr. Szycher tendered shares to the
Company whose fair market value of $93,403 was equal to his officer loan as
payment in full for that obligation.
5. PolyMedica Pharmaceuticals (U.S.A.), Inc. has received assurances from
Hancock that it would waive any default or event of default arising from certain
financial covenants with which it was not in compliance as of June 30, 1996.
6. Certain amounts in the prior period financial statements have been
reclassified to conform with the current year presentation.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company generates revenues from sales of medical devices and products,
consisting of advanced wound dressings, consumer healthcare products and
prescription and non-prescription pharmaceutical products. In determining net
product sales, the Company records an allowance for future returns of its
products as an adjustment to gross sales. In addition, it generates revenues
from royalties, exclusivity, development and license fees on certain of its
products.
The Company sells its products through a combination of national
distributors, wholesalers and retail chains. It has established exclusive
relationships with Bristol-Myers Squibb, Mylan Laboratories Inc. ("Mylan"),
Hisamitsu Pharmaceutical Co., Inc. ("Hisamitsu") and other distributors for the
sale of its advanced wound dressings to institutional customers, such as
hospitals, nursing homes and other healthcare providers. Consumer healthcare and
pharmaceutical products are sold through a network of more than 100 independent
sales representatives and national wholesalers such as McKesson Drug Company,
Bergen Brunswig Corporation and FoxMeyer Corporation, and to retailers including
CVS HC Inc., Jack Eckerd Co., OSCO (American Drug Stores Inc.) and Rite-Aid
Corp. The Company promotes sales of its products through national advertising in
consumer and professional publications, on television and at professional and
trade group meetings, as well as through retail advertising.
Although certain of the Company's products are seasonal in nature, the
Company does not believe its net product sales, in the aggregate, are generally
subject to material seasonal fluctuations. Thermometer sales to consumers are
higher during the winter cold and flu season. The Company's non-prescription
urological products show higher retail sales during the warmer months, as do
Patch Kits for People, the Company's over-the-counter wound care line, which
are primarily used in connection with outdoor sports activities during the
summer and fall seasons.
The Company is completing approvals on a comprehensive line of new wound
dressing products to be sold directly to the professional market. This is an
expansion of the Company's marketing and distribution focus. PolyMedica's goal
is to provide superior wound management in each major reimbursement category and
to use its competitive edge as an efficient, vertically- integrated manufacturer
of wound care products to offer high technology, low-cost wound dressings
directly to wholesalers, distributors and buying groups already in its
healthcare distribution network.
The Company operates from manufacturing, distribution, and research and
development facilities located in Massachusetts, Colorado and the United
Kingdom. Virtually all of the Company's product sales are denominated in U.S.
dollars. The Company produces proprietary polyurethane materials from which it
manufactures advanced wound dressings. The Company's research and development
activities are principally funded from ongoing operations and consist of the
design,
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development and manufacture of polyurethane-based medical products derived from
proprietary technology and manufacturing processes.
Integral to the Company's growth strategy is the acquisition of new
products and businesses. The Company has successfully integrated five
acquisitions since 1990.
Period to period comparisons of changes in net product sales are not
necessarily indicative of results to be expected for any future period.
Distribution of CardioTech International, Inc. common stock to PolyMedica
stockholders
As previously reported, on June 11, 1996, certificates representing
CardioTech International, Inc. ("CardioTech") common stock were mailed to the
Company's stockholders in connection with the spinout of CardioTech. A Company
stockholder on June 3, 1996, the record date, was entitled to become a
stockholder of CardioTech. A holder of one share of the Company's common stock
was entitled to 0.42832 of a share of CardioTech common stock On June 12, 1996,
shares of CardioTech common stock began trading on the American Stock Exchange
under the symbol "CTE". As part of the consideration, the Company transferred
$3.83 million in cash to CardioTech.
On June 19, 1996, the Company announced a second distribution to
stockholders of record as of June 3, 1996 equal to 0.05383 of a share of
CardioTech common stock based on the average trading price per share of
CardioTech common stock from June 12 - 18, 1996.
For the three months ended June 30, 1995, CardioTech's operations are
accounted for as discontinued operations in the Company's statement of
operations, and accordingly, its operations are segregated in the accompanying
consolidated statements of operations for that period. Net sales, operating
costs and expenses, and other income and expense have been reclassified for
amounts associated with CardioTech's discontinued operations.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
The Company's net income was $486,000, or $.06 per share, for the three
months ended June 30, 1996. This performance compares to net income of $577,000,
or $.08 per share, for the three months ended June 30, 1995. In the three months
ended June 30, 1995, income from continuing operations was $810,000, offset by a
loss from discontinued operations of $233,000 in connection with the spinout of
CardioTech.
Consumer healthcare net product sales increased by 9.4% to $1.24 million in
the three months ended June 30, 1996 as compared with $1.13 million in the three
months ended June 30, 1995. This increase was primarily due to larger sales
volume of the Patch Kits for People consumer wound care product line. The
Company is currently completing plans to build upon the launch of retail wound
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dressings by adding a new line of burn kits and kid savers to its Patch Kits
for People family of wound dressings. These kits are sold in more than 20,000
drug stores locations throughout the United States. To support this effort,
the Company has launched in fiscal 1997 an aggressive marketing campaign using
national television spots on ESPN and ESPNII and major print media, such as
Sports Illustrated.
Net product sales of the Company's prescription and non-prescription
pharmaceutical products increased by 3.0% to $2.85 million in the three months
ended June 30, 1996 as compared with $2.77 million in the three months ended
June 30 1995. This increase is primarily due to a change in the mix of sales of
the Company's over-the-counter and prescription products.
The Company is embarking upon a program to gain more direct control over
the marketing, distribution, and sales of its advanced wound care products
during a transition year for its wound care business. It is in the process of
locating additional distributors worldwide to enhance the Company's existing
distribution channels, and anticipates hiring senior personnel to add new
marketing expertise within the Company. Due to continued changes in the managed
health care environment, the Company is focusing its efforts in the
over-the-counter market, which it believes to be in excess of $1 billion.
The Company reached an agreement with Kuraray Co. Ltd. of Japan ("Kuraray")
for the marketing of MITRAFLEX wound dressings in the professional health care
market in Japan. Kuraray has agreed to certain minimum purchases when import
approval by the Ministry of Health has been obtained.
The Company reacquired all rights to distribute SPYROSORB wound dressings
to the professional health care market in the U.K. and Europe effective January
1, 1997. This action gives the Company control over the marketing and
distribution of SPYROSORB and enables the Company to take advantage of this
wound dressing's position as a tariffied product, which is fully reimbursable in
the U.K.
Total wound care net product sales of MITRAFLEX and SPYROFLEX decreased by
55.1% to $734,000 in the three months ended June 30, 1996 as compared with $1.64
million in the three months ended June 30, 1995. The overall 55.1% decrease in
net product sales was principally the result of a 56.9% decrease in total unit
volume of all dressing sizes, stated on a 4" x 4" equivalent basis. Overall
average unit selling prices for all products in the three months ended June 30,
1996 as compared with the three months ended June 30, 1995 were unchanged.
The Company expects the uneven ordering patterns from both U.S.
distributors of wound care products will continue for the remainder of calendar
1996. The Company believes that the changes in ordering patterns are due to
inventory level adjustments at those distributors and ongoing changes in the
reimbursement and managed care marketplaces. One U.S. distributor has indicated
that its orders during the latter part of calendar 1996 may be significantly
less than orders placed in during the same period in calendar 1995. The other
U.S. distributor, in order to maintain territorial
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exclusivity, must order substantial quantities in the latter part of calendar
1996. That U.S. distributor has indicated that it may not order those minimum
quantities and is discussing alternative arrangements with the Company.
While the Company intends to market and promote these wound care products
aggressively itself and through other channels, the Company expects it will
require time to replace lost volume from such distributors.
Royalty, exclusivity, development and license fees from continuing
operations decreased by 24.2% to $168,000 in the three months ended June 30,
1996 as compared with $221,000 in the three months ended June 30, 1995. This
decrease is primarily due to reduced royalties in the U.S. from sales of
MITRAFLEX, partially offset by license fees from Kuraray in the three months
ended June 30, 1996.
As a percentage of net product sales, overall gross margins were 62.1% in
the three months ended June 30, 1996, which was consistent with 62.2% reported
in the three months ended June 30, 1995.
Principally as a result of the spinout of CardioTech, total operating
expenses of the Company have decreased by $378,000, or 14.3%, when comparing
$2.27 million of such expenses for the three months ended June 30, 1996 to $2.65
million incurred (including CardioTech operating expenses) for the three months
ended June 30, 1995. These additional resources will assist the Company in
accelerating the marketing initiatives described above.
Selling, general, and administration expenses ("SG&A expenses") decreased
by 2.63% in the three months ended June 30, 1996 to $2.15 million as compared
with $2.20 million in the three months ended June 30, 1995. Included in SG&A
expenses were depreciation and amortization, wages, benefit costs, and outside
professional services totalling $1.01 million in the three months ended June 30,
1996, or 46.9% of SG&A expenses, as compared with $1.09 million or 49.5% of SG&A
expenses in the three months ended June 30, 1995.
Research and development expenses decreased by 38.5% to $120,000 in the
three months ended June 30, 1996, as compared with $194,000 in the three months
ended June 30, 1995. This decrease is primarily due to a decrease in development
costs on the Company's gel wound dressing product and lower costs associated
with the initiation of pilot production testing of the Company's in-house
pharmaceutical manufacturing equipment for the three months ended June 30, 1996
when compared with the three months ended June 30, 1995.
Investment income increased by 40.4% to $283,000 in the three months ended
June 30, 1996, as compared with $201,000 in the three months ended June 30,
1995, as the Company earned interest on larger average cash balances, at higher
overall interest rates. Interest expense was $681,000 in the three months ended
June 30, 1996, as compared $666,000 in the three months ended June 30, 1995, as
the Company accrued interest expense in both periods on $25 million of
Guaranteed Senior Secured Notes due January 31, 2003 (the "Hancock Notes") to
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the John Hancock Mutual Life Insurance Company ("Hancock"). The interest rate
on the Hancock Notes increased from 10.65% to 10.90% as a result of a January 1,
1996 amendment.
Liquidity and Capital Resources
Since its inception, the Company has raised $53.46 million in gross equity
capital, of which $7.16 million was from venture capital financings before the
Company's initial public offering, $39.00 million from its March 1992 initial
public offering, $4.55 million from a November 1995 public offering of 700,000
shares of common stock, and $2.75 million from the sale of 431,937 shares of its
common stock, pursuant to Regulation S promulgated under the Securities Act of
1933. In January 1993, the Company sold to Hancock $25 million of 10.65%
Guaranteed Senior Secured Notes due January 31, 2003 (the "Hancock Notes").
As of June 30, 1996, working capital was $23.77 million, including cash and
cash equivalents of $19.55 million, which is a 29.2% increase when comparing
working capital to June 30, 1995. This growth in working capital includes the
effect of a June 1996 transfer of $3.83 million in cash to CardioTech in
connection with its spinout to PolyMedica stockholders. See "Distribution of
CardioTech International, Inc. common stock to PolyMedica stockholders."
In connection with the spinout of CardioTech and the adjustment provisions
in the Hancock warrant, the exercise price of the Hancock warrant was adjusted
to $5.19 per share of common stock for the 542,417 shares exercisable under the
warrant.
PolyMedica Pharmaceuticals (U.S.A.), Inc. has received assurances from
Hancock that it would waive any default or event of default arising from certain
financial covenants with which it was not in compliance as of June 30, 1996.
The Company expects that its current working capital and funds generated
from future operations will be adequate to meet its liquidity and capital
requirements for current operations. In the event that the Company undertakes to
make acquisitions of complementary businesses or products, the Company may
require substantial additional funding beyond currently available working
capital and funds generated from operations. Currently, the Company is
conducting an active search for the strategic acquisition of complementary
businesses or products. The Company has no present commitments or agreements
with respect to any such acquisition.
At March 31, 1996, the Company had approximately $5.0 million of net
operating loss carryforwards for income tax purposes. Pursuant to the Tax Reform
Act of 1986, the Company believes that the use of these net operating loss
carryforwards in any particular year will be limited as a result of changes in
ownership which occurred in prior periods.
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Factors Affecting Future Operating Results
The future operating results of the Company remain difficult to predict.
The Company continues to face many risks and uncertainties which could affect
its operating results, including without limitation, those described below.
Reliance on Distributors; Limited Direct Marketing Experience The Company
has a limited direct marketing and sales organization and relies on its current
distributors, including primarily Bristol-Myers Squibb and Mylan Laboratories
Inc., to sell its wound care products in the institutional marketplace. The
Company has a limited direct sales force which it may need to broaden for
certain of its products. There can be no assurance that the Company will
establish such a direct sales force or that any such sales force that may be
established will be able to successfully market and distribute the Company's
products or to offset any decline in sales to its existing distributors. The
Company's ability to sell its new products will depend in part on its ability to
enter into marketing and distribution agreements with pharmaceutical, medical
device, personal care and other distributors in the United States and other
countries. If the Company enters into any such agreements, there can be no
assurance that the Company's third party distributors will be able to market the
products effectively.
Acquisitions of Other Businesses As part of its growth strategy, the
Company currently intends to expand through the acquisition of other businesses,
as well as internal growth and strategic business alliances with other
companies. The Company regularly reviews potential acquisitions and business
alliances, some of which may be material. The acquisition of other businesses is
integral to the Company's business strategy; however, there can be no assurance
that the Company will successfully acquire any businesses, or that such acquired
businesses, if any, will be profitable. The Company does not currently have any
commitments or agreements with respect to the acquisition of any businesses or
products.
Competition and Technological Change The Company is engaged in rapidly
evolving and highly competitive fields. The Company competes with numerous
companies in the healthcare industry, including Bristol-Myers Squibb which is
also the exclusive distributor of the Company's MITRAFLEX product in the United
States. Competition from medical device manufacturers, pharmaceutical companies
and other competitors is intense and expected to increase. Many of these
companies have substantially greater capital resources, research and development
staffs and facilities, and greater experience in obtaining regulatory approvals
and in marketing and distribution of products, than the Company. Academic
institutions, hospitals, governmental agencies and other public and private
research organizations are also conducting research and seeking patent
protection and may develop competing products on their own or through joint
ventures. There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than any
that are being developed or sold by the Company.
Patents and Trade Secrets The Company's success will depend, in part, on
its ability to obtain patents, maintain trade secrets protection and operate
without infringing on the proprietary rights of third parties. The Company is
the owner of five, and the co-owner of one, issued patents in the United
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States and has filed applications for additional patents in the United
States and abroad. There can be no assurance that any pending patent
applications will result in issued patents. In addition, there can be no
assurance that any issued patents will provide the Company with significant
protection against competitors. Moreover, there can be no assurance that any
patents issued to or licensed by the Company will not be infringed upon or
designed around by others.
The Company also relies on unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information, techniques or processes, that such
technology will not be disclosed or that the Company can meaningfully protect
its rights to such unpatented proprietary technology. There can be no assurance
that the Company's non-disclosure agreements will provide meaningful protection
for the Company's trade secrets or other proprietary know-how. In the absence of
patent protection, the Company's business may be adversely affected by
competitors who independently develop substantially equivalent technology.
Moreover, there can be no assurance that the patents held by others might
not have an adverse effect on some of the Company's products or require that the
Company obtain licenses to continue to test, manufacture or market the affected
product, and, if so, there can be no assurance that such licenses will be
available on acceptable terms, if at all.
Product Liability The testing, marketing and sale of wound care products
and other medical and consumer products entail an inherent risk that product
liability claims will be asserted against the Company or its third party
distributors. A product liability claim or a product recall could have a
material adverse effect on the business or financial condition of the Company.
Certain manufacturers of materials and/or implantable devices have been
subjected to significant claims for damages allegedly resulting from their
products. The Company currently maintains product liability insurance coverage
which it believes to be adequate for its present purposes, but there can be no
assurance that in the future the Company will be able to maintain such coverage
on acceptable terms or that current insurance or insurance subsequently obtained
will provide adequate coverage against any or all potential claims.
Healthcare Reimbursement Political, economic and regulatory influences are
resulting in fundamental changes in the healthcare industry in the United
States. The Company anticipates that Congress and state legislatures will
continue to review and assess alternative healthcare delivery systems and
payment methods and that public debate of these issues will likely continue in
the future. Sales of the Company's products will depend to some extent on the
availability of reimbursement to certain of the Company's customers by third
party payors such as government and private insurance plans. No assurance can be
given that such reimbursement will be available.
Government Regulation The production and marketing of the Company's
products and its ongoing research and development activities are subject to
regulation by numerous governmental authorities in the United States, the United
Kingdom and other countries, and may become subject to the regulations of
additional countries. The rigorous preclinical and clinical testing requirements
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and regulatory approval process required to introduce new products can take
a number of years and require the expenditure of substantial resources. The
Company has limited experience in conducting and managing preclinical testing
and relies on third parties to conduct clinical testing necessary to obtain
government approvals. Delays in obtaining regulatory approvals would adversely
affect the marketing of products developed by the Company and the Company's
ability to receive product revenues or royalties. In addition, the Company
cannot predict the extent to which government regulations or changes thereto
might have an adverse effect on the production and marketing of the Company's
existing or future products. A number of the Company's products under
development will require clearance by the Food and Drug Administration ("FDA")
in the United States. Although the Company believes each of these products, if
successfully developed, will obtain FDA clearance, no assurance can be made that
each will obtain such clearance, or that the process of clearance will be
without undue delay or expense.
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PART II - OTHER INFORMATION
PolyMedica Industries, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) There was one report on Form 8-K filed during the three months
ended June 30, 1996.
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Exhibit Index
PolyMedica Industries, Inc.
Exhibit Description Page
4.11 - Letter Agreement amending the Note and Warrant
Agreement dated June 19, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PolyMedica Industries, Inc.
(registrant)
/s/ Steven J. Lee
Steven J. Lee
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Eric G. Walters
Eric G. Walters
Chief Financial Officer, Treasurer,
and Clerk (Principal Financial and
Accounting Officer)
Dated: August 12, 1996
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Exhibit 4.11
POLYMEDICA INDUSTRIES, INC.
POLYMEDICA PHARMACEUTICALS (U.S.A.), INC.
POLYMEDICA PHARMACEUTICALS (PUERTO RICO), INC.
11 State Street
Woburn, Massachusetts 01801
June 19, 1996
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
John Hancock Place
P. O. Box 111
Boston, Massachusetts 02117
Ladies and Gentlemen:
POLYMEDICA INDUSTRIES, INC., a Massachusetts corporation (the "Parent"),
and POLYMEDICA PHARMACEUTICALS (U.S.A.), INC., a Massachusetts corporation and a
Wholly-Owned Subsidiary of the Parent (the "Company"), and POLYMEDICA
PHARMACEUTICALS (PUERTO RICO), INC., a Massachusetts corporation and a
Wholly-Owned Subsidiary of the Company ("PPR") (the Company and PPR are
sometimes collectively referred to as the "Borrowers" and each as a "Borrower"),
agree with you as follows:
1. Definitions. Reference is hereby made to that certain Note and Warrant
Agreement dated January 26, 1993, as amended and supplemented by nine letter
agreements dated April 27, 1993, June 15, 1993, March 29, 1994, June 17, 1994,
June 30, 1994, October 27, 1994, June 26, 1995, October 18, 1995, and January 1,
1996 (the "Note and Warrant Agreement"). Capitalized terms used herein without
definition have the meanings ascribed to them in the Note and Warrant Agreement.
2. Waiver of Default under Section 14.7 of the Note and Warrant Agreement.
The Parent and the Borrowers hereby request that you waive any Default or Event
of Default arising solely from the failure of the Company to comply with the
provisions of section 14.7 (b) of the Note and Warrant Agreement for the period
of four (4) consecutive quarterly accounting periods ended March 31, 1996. In
consideration of the representations, warranties and agreements of the Parent
and the Borrowers set forth herein, you, by your signature below, hereby grant
such waiver, solely with respect to such period four (4) consecutive quarterly
accounting periods.
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3. No Default, Representations and Warranties, etc.
(a) The Parent and the Borrowers represent and warrant that the
representations and warranties contained in the Note and Warrant Agreement and
the other Operative Agreements are correct on and as of the date hereof as if
made on such date (except to the extent affected by the consummation of
transactions permitted by the Note and Warrant Agreement) and that no Default or
Event of Default exists.
(b) The Parent and the Borrowers each ratify and confirm the Note and
Warrant Agreement and each of the other Operative Agreements to which each is a
party and agree that each such agreement, document and instrument is in full
force and effect, that its obligations thereunder and under this Letter
Agreement are its legal, valid and binding obligations enforceable against it in
accordance with the terms thereof and hereof and that it has no defense, whether
legal or equitable, setoff or counterclaim to the payment and performance of
such obligations.
(c) The Parent and the Borrowers agree that (i) if any default shall be
made in the performance or observance of any covenant, agreement of condition
contained in this Letter Agreement or in any agreement, document or instrument
executed in connection herewith or pursuant hereto or (ii) if any representation
or warranty made by the Parent or the Borrowers herein or therein shall prove to
have been false or incorrect on the date as of which made, the same shall
constitute an Event of Default under the Note and Warrant Agreement and the
other Operative Agreements and, in such event, you and each other holder of any
of the Notes shall have all rights and remedies provided by law and/or provided
or referred to in the Note and Warrant Agreement and the other Operative
Agreements. The Parent and the Borrowers further agree that this Letter
Agreement is an Operative Agreement and all references in the Note and Warrant
Agreement and in any other of the other Operative Agreements referred to therein
shall include this Letter Agreement.
4. Payment of Transaction Costs. Concurrently with the execution of this
Letter Agreement, the Parent and the Borrowers shall pay all reasonable fees and
disbursements incurred by you at or prior to such time, including, without
limitation, the reasonable fees, expenses and disbursements of your special
counsel.
5. Governing Law. This Letter Agreement, including the validity hereof and
the rights and obligations of the parties hereunder, shall be construed in
accordance with and governed by the domestic substantive laws of The
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Commonwealth of Massachusetts without giving effect to any choice of law or
conflicts of law provision or rule that would cause the application of the
domestic substantive laws of any other jurisdiction.
6. Miscellaneous. The headings in this Letter Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. This
Letter Agreement embodies the entire agreement and understanding among the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof. In case any provision in this Letter Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Letter Agreement may be executed in any number of
counterparts and by the parties hereto on separate counterparts but all such
counterparts shall together constitute but one and the same instrument.
(The remainder of this page is left blank intentionally)
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If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart hereof, whereupon this Letter
Agreement shall become a binding agreement under seal among the parties hereto.
Please then return one of such counterparts to the Company.
Very truly yours,
POLYMEDICA INDUSTRIES, INC.
By: /s/ Steven James Lee
Steven James Lee
Chairman and Chief Executive Officer
POLYMEDICA PHARMACEUTICALS
(U.S.A.), INC.
By: /s/ Steven James Lee
Steven James Lee
Chief Executive Officer
POLYMEDICA PHARMACEUTICALS
(PUERTO RICO), INC.
By: /s/ Steven James Lee
Steven James Lee
Chief Executive Officer
The terms and provisions of the foregoing Letter Agreement are hereby
acknowledged and agreed to.
POLYMEDICA SECURITIES, INC. POLYMEDICA PHARMACEUTICALS
SECURITIES, INC.
By:/s/ Steven James Lee By:/s/ Steven James Lee
Steven James Lee Steven James Lee
President President
The foregoing is hereby accepted and agreed to:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:/s/ D. Dana Donovan
D. Dana Donovan
Senior Investment Officer
