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, 1997
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 July 25, 1997 was 8,495,641 which includes 158,661 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, 1997 and March 31, 1997 2
Consolidated statements of operations
for the three months ended June 30, 1997
and June 30, 1996 4
Consolidated statements of cash flows
for the three months ended June 30, 1997
and June 30, 1996 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
Signatures 17
Exhibit Index 18
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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,
1997 1997
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,155 $11,028
Accounts receivable -- trade (net of
allowance for doubtful accounts of
$756 and $538 as of June 30 and March 31,
1997, respectively) 11,246 6,202
Inventories 5,262 5,481
Prepaid expenses and other
current assets 2,669 1,478
-------- --------
Total current assets 27,332 24,189
Property, plant, and equipment, net 6,586 6,271
Intangible assets, net 41,587 42,024
Deferred tax asset 629 1,133
Other assets, net 2,623 1,616
-------- --------
Total assets $78,757 $75,233
====== ======
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,
1997 1997
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade $ 3,250 $ 2,982
Accrued expenses 5,632 3,403
Senior debt and notes payable 2,658 2,658
------- -------
Total current liabilities 11,540 9,043
Senior debt and notes payable, net 22,840 22,818
------- ------
Total liabilities 34,380 31,861
Shareholders' equity:
Preferred stock $.01 par value; 2,000,000 shares
authorized, none issued or outstanding -- --
Common stock, $.01 par value; 20,000,000
shares authorized, 8,606,778 and 8,583,001
issued as of June 30 and March 31, 1997,
respectively 86 86
Treasury stock, at cost, (158,661 and 172,559
shares as of June 30 and March 31, 1997,
respectively) (990) (1,115)
Additional paid-in capital 53,371 53,338
Accumulated deficit (6,952) (7,783)
Notes receivable from officers (898) (929)
Currency translation adjustment (240) (225)
------- -------
Total shareholders' equity 44,377 43,372
------ ------
Total liabilities and
shareholders' equity $78,757 $75,233
====== ======
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)
(Dollars in thousands, except per share data)
Three Months Ended June 30,
1997 1996
--------- ---------
Revenues:
Net product sales $13,958 $ 4,825
Royalties, exclusivity, development
and license fees -- 168
------ ------
13,958 4,993
Cost of product sales 6,728 1,827
------ ------
Total revenues, less cost of product sales 7,230 3,166
Operating expenses:
Selling, general, and administrative 5,288 2,147
Research and development 123 120
------ ------
5,411 2,267
------ ------
Income from operations 1,819 899
Other income and expense:
Investment income 139 283
Interest expense (698) (681)
------ ------
(559) (398)
Income before income taxes 1,260 501
Income tax provision 429 15
------ ------
Net income $ 831 $ 486
====== ======
Net income per common share $ .09 $ .06
====== ======
Weighted average number of
common shares outstanding (thousands) 9,021 8,480
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,
1997 1996
-------- -------
Operating activities
Net income $ 831 $ 486
Adjustments to reconcile net income to
net cash flows
from operating activities:
Depreciation and amortization 1,111 667
Deferred income taxes 504 --
Provision for bad debts 216 --
Provision for sales allowances 334 214
Changes in assets and liabilities:
Accounts receivable--trade (5,695) (267)
Inventories 220 (95)
Prepaid expenses and other assets (142) (518)
Accounts payable--trade 266 (363)
Accrued expenses 2,184 (672)
------ ------
Total adjustments (1,002) (1,034)
------ ------
Net cash flows from operating
activities (171) (548)
------ ------
Investing activities
Spinoff of CardioTech International, Inc. -- (3,830)
Direct-response advertising (2,305) --
Purchase of property, plant, and equipment (588) (198)
------ ------
Net cash flows from investing
activities (2,893) (4,028)
------ ------
Financing activities
Proceeds from issuance of common stock 159 810
Repayment of officer loan 30 --
------ ------
Net cashs flow from financing
activities 189 810
------ ------
Net decrease in cash and cash equivalents (2,875) (3,766)
------ ------
Effect of exchange rate changes on cash 2 10
Cash and cash equivalents at
beginning of period 11,028 23,302
Cash and cash equivalents at end of period $ 8,155 $19,546
======= ======
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,
1997 1997
--------- ----------
Raw materials $1,923 $2,168
Work in process 885 845
Finished goods 2,454 2,468
------ -----
$5,262 $5,481
===== =====
3. Advertising, promotional, and other marketing costs are charged to earnings
in the period in which they are incurred. Promotional and sample costs whose
benefit is expected to assist future sales are expensed as the related materials
are used. Direct-response advertising and related costs are capitalized and
amortized on a declining basis over a seven year period, which matches the
expected future stream of revenues generated from new customers as a result of
this advertising. As of June 30, 1997, capitalized direct-response advertising,
net of accumulated amortization, totaled $3.68 million. This balance consists of
$1.18 million in Prepaid Expenses and Other Current Assets and $2.50 million in
Other Assets, Net. A total of $243,000 in direct-response advertising was
amortized and expensed in the three months ended June 30, 1997.
4. Certain amounts in the prior period financial statements have been
reclassified to conform with the current year presentation.
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5. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share." SFAS
No. 128 establishes a different method of computing net income per share than is
currently required under the provisions of the Accounting Principles Board
Opinion No. 15 ("APB 15"). Under SFAS No. 128, PolyMedica will be required to
present both basic net income per share and diluted net income per share (the
principal difference being that common stock equivalents would not be considered
in the computation of basic EPS). PolyMedica plans to adopt SFAS No. 128 in its
fiscal quarter ending December 31, 1997 and at that time all historical net
income per share data presented will be restated to conform to the provisions of
SFAS No. 128. The Company has not calculated the impact of SFAS No. 128 and
does not expect the effect to be material.
6. In July 1997, the Company completed the sale of certain assets related to its
institutional wound care operations in the United States and United Kingdom to
Innovative Technologies Group Plc. Under the terms of the sale, Innovative
Technologies paid PolyMedica $9 million in cash and $4 million in the form of an
unsecured promissory note. The Company could realize an additional $4.5 million
if Innovative Technologies achieves certain milestones, bringing the total
potential value of the sale to $17.5 million. The Company will recognize
additional proceeds when realized in excess of the $9 million cash received.
This transaction will be recorded in the quarter ending September 30, 1997.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PolyMedica is a leading provider of targeted medical products and
services with primary focus on diabetes supplies, consumer healthcare and
professional products.
Targeted Markets
Entrance into Diabetes Supplies Business through Purchase of Liberty Medical
Supply, Inc.
The Company entered the Diabetes Supplies market with its August 1996
acquisition of Liberty Medical Supply, Inc. ("Liberty Medical"). Liberty
Medical is among the largest, patient-focused, direct-mail providers of diabetes
supplies to senior citizens covered by Medicare.
Liberty Medical is headquartered in Palm City, Florida and was founded
in 1989. Liberty Medical is a participating Medicare provider which accepts
payments directly from Medicare, typically 80% of a product's price, before any
amounts are billed to the patient and/or the patient's medi-gap insurer. The
benefits to a patient range from automatic shipment of supplies to the
elimination of preparing paperwork or using personal resources while waiting for
reimbursement. Liberty Medical ships to more than 40,000 customers in the U.S.,
making it one of the largest suppliers to senior diabetes patients in the
country. Its products address a market estimated to include 1.2 million
insulin-using patients over 65 years old, of which it is estimated that 150,000
- - 175,000 patients currently receive supplies through mail-order companies
similar to and including Liberty Medical. Since March 1997, Liberty Medical's
customer base has grown from 30,000 to 40,000.
In addition to the above market, the Company believes that there is
significant growth potential for Liberty Medical's products by expanding the
market to include people with diabetes who are non-insulin-using. There are
current proposals in Congress (H.R. 58) to include this group under Medicare
following a Congressional Budget Office study indicating that expanding diabetes
coverage in this manner would reduce Medicare expenditures. The Company believes
that passage of H.R. 58 could approximately double the size of Liberty Medical's
potential market.
In addition, the American Diabetes Association, backed by various
medical authorities, has recently suggested a lower threshold for diagnosing
people with diabetes. Federal health officials have also endorsed these new
guidelines which include greater self monitoring and, therefore, the need for
more frequent testing and testing supplies.
Consumer Healthcare
The Consumer Healthcare division includes OTC Medical Devices and
Urinary Discomfort Products. These products are sold through an extensive
network to major retailers. OTC Medical Devices include the number one
private-label market position and the number two overall market position in
digital thermometers. Digital thermometry continues to be a growth category.
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Urinary Discomfort Products for women include AZO-STANDARD(R), which is
currently the number one selling product in a growing market segment.
The Company plans to ship a new and patented Flexible-Tip Thermometer
with Fever Alarm(TM) to drug stores nationwide in time for this year's cough and
cold season. The Company believes that several new consumer healthcare products
will be introduced broadening its AZO feminine urinary discomfort line.
Professional Products
Professional Products include Prescription Urologicals and Dressings.
Prescription Urologicals include a stable line of branded products such as
URISED(R), CYSTOSPAZ(R), ANESTACON(R) and a line of suppositories.
In July 1997, the Company completed the sale of certain assets related
to its institutional wound care operations in the United States and United
Kingdom to Innovative Technologies Group Plc. Under the terms of the sale,
Innovative Technologies paid PolyMedica $9 million in cash and $4 million in the
form of an unsecured promissory note. The Company could realize an additional
$4.5 million if Innovative Technologies achieves certain milestones, bringing
the total potential value of the sale to $17.5 million. The Company will
recognize additional proceeds when realized in excess of the $9 million cash
received. This transaction will be recorded in the quarter ended September 30,
1997.
Overview
In determining net product sales, the Company records an allowance for
future returns of certain products as an adjustment to gross sales.
The Company sells its products through a combination of telemarketing,
national distributors, wholesalers, mail-order catalogs, and retail chains. The
Company continues to seek opportunities to deliver new products to a broader
customer base by leveraging Liberty Medical's efficient, mail-order distribution
system and sophisticated software for billing and customer monitoring.
Consumer healthcare products are sold through a network of more than
100 independent sales representatives and national wholesalers such as McKesson
Drug Company and Bergen Brunswig Corporation, and to retailers including CVS
Corp., 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, at professional and trade group meetings, as well
as through retail advertising.
Although the use of certain of the Company's products are somewhat
seasonal in nature, the Company does not believe its net product sales, in the
aggregate, are generally subject to material seasonal fluctuations.
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The Company operates from manufacturing, distribution, and research and
development facilities located in Massachusetts, Florida, and Colorado.
Virtually all of the Company's product sales are denominated in U.S. dollars.
The Company's research and development activities are funded from ongoing
operations and consist of pilot production of pharmaceutical products.
The Company has completed all of the steps to validate, manufacture and
sell pharmaceutical products made in the Company's Woburn facility. With receipt
of an FDA Establishment Registration Number, in-house manufacturing with
state-of-the-art, automated equipment is now underway for several established
products including AQUACHLORAL(R), B&O(R), and URISED.
Integral to the Company's growth strategy is the acquisition of new
products and businesses and the disposition of products and businesses no longer
central to the Company's long-term growth plans. The Company has successfully
integrated six acquisitions since 1990, spun off one business and sold another.
Period to period comparisons of changes in net product sales are not
necessarily indicative of results to be expected for any future period.
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company generated $13.96 million of revenues in the three months
ended June 30, 1997, the highest in the Company's history, which compares to
$5.0 million in the three months ended June 30, 1996 when the Company did not
own Liberty Medical.
The Company's net income was $831,000, or $.09 per share, in the three
months ended June 30, 1997. This performance compares to net income of $486,000,
or $.06 per share, in the three months ended June 30, 1996.
Pretax income was $1.26 million in the three months ended June 30,
1997, which compares to $501,000 in the three months ended June 30, 1996.
Net product sales of diabetes supplies were $8.31 million in the three
months ended June 30, 1997. This performance compares with $4.58 million for the
three months ended March 31, 1997 and $8.65 million of net product sales of
diabetes supplies for the seven months ended March 31, 1997. As the Company
purchased Liberty Medical in August 1996, there were no sales of diabetes
supplies in the three months ended June 30, 1996. Since acquiring Liberty
Medical and its home testing business for Medicare-eligible seniors with
diabetes, the Company has invested in improving marketing and television
advertising to reach more people with its message.
Net product sales of consumer healthcare products decreased by 2.1% to
$1.94 million in the three months ended June 30, 1997 as compared with $1.98
million in the three months ended June 30, 1996. Sales of advanced thermometry
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products increased during the three months ended June 30, 1997 offset by a
decline in sales of AZO-STANDARD. The Company believes that the decline of sales
of AZO-STANDARD is due to a short-term inventory oversupply at distributor
warehouses. Recent retail takeaway data indicate that shipments of AZO-STANDARD,
which is the category leader, increased during the three months ended June 30,
1997 during a period in which the entire OTC urinary discomfort category grew.
The Company has increased its advertising and promotional campaign to take
advantage of growing consumer awareness of this expanding category.
Net product sales of the Company's professional products increased by
23.1% to $3.71 million in the three months ended June 30, 1997 as compared with
$3.01 million in the three months ended June 30, 1996. This increase is
primarily due to additional shipments of URISED in the three months ended June
30, 1997, which the Company believes is the result of a reduction in the supply
of generic products in the marketplace.
As a percentage of net product sales, overall gross margins were 51.7%
in the three months ended June 30, 1997 and 62.1% in the three months ended June
30, 1996. Gross margins in the three months ended June 30, 1997 decreased
primarily due to the inclusion of significant sales of diabetes related
products, whose gross margins are lower than the Company average for other
products in the three months ended June 30, 1996.
Selling, general, and administration expenses ("SG&A expenses")
increased by 146.4% in the three months ended June 30, 1997 to $5.29 million as
compared with $2.15 million in the three months ended June 30, 1996. Included in
SG&A expenses were depreciation and amortization, wages, benefit costs, and
outside professional services totalling $3.13 million in the three months ended
June 30, 1997, or 59.2% of SG&A expenses, as compared with $1.01 million or
46.9% of SG&A expenses in the three months ended June 30, 1996. SG&A expenses in
the three months ended June 30, 1997 include costs related to Liberty Medical
operations, which the Company did not own in the three months ended June 30,
1996. In addition, during the three months ended June 30, 1997, the Company
increased marketing and advertising costs related to its consumer healthcare
products.
Research and development expenses were $123,000 in the three months
ended June 30, 1997, as compared with $120,000 in the three months ended June
30, 1996.
Investment income decreased by 50.9% to $139,000 in the three months
ended June 30, 1997, as compared with $283,000 in the three months ended June
30, 1996, as the Company earned interest on lower average cash balances in part
due to the June 1996 cash distribution to CardioTech International, Inc. and
cash paid for the purchase of Liberty Medical in August 1996. Interest expense
was $698,000 in the three months ended June 30, 1997, as compared $681,000 in
the three months ended June 30, 1996, 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 the John Hancock Mutual Life Insurance Company
("Hancock").
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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 1996 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"). In January 1996, the Company executed an amendment which increased the
interest rate on the Hancock Notes to 10.9%.
As of June 30, 1997, working capital was $15.79 million, including cash
and cash equivalents of $8.16 million, which compares with working capital of
$23.77 million as of June 30, 1996. In July 1997, the Company received $8.6
million in cash proceeds from the sale of certain assets related to its
institutional wound dressing operations. A total of $400,000 was previously
received when a nonbinding letter of intent was signed to sell these assets.
There were several major factors which affected working capital as of
June 30, 1997 as compared with June 30, 1996. In June 1996, the Company paid
$3.83 million in cash to CardioTech in connection with its spinoff to PolyMedica
shareholders. In August 1996 and March 1997, the Company paid a total of $7.84
million in cash in connection with the Liberty Medical acquisition. In the three
months ended June 30, 1997, the Company's use of working capital was primarily
related to financing growth in Liberty Medical's expanding customer base.
At March 31, 1997, the Company had approximately $10.1 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.
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.
Inflation
To date, inflation has not had a material effect on the Company's
financial results.
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Factors Affecting Future Operating Results
The statements contained in this Report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding the Company's expectations, hopes, intentions or
strategies regarding the future. Forward-looking statements include, among
others: statements regarding possible future expansion of diabetes coverage
under Medicare; statements regarding future benefits from the Company's
advertising and promotional expenditures; statements regarding future product
revenue levels; statements regarding product development, introduction and
marketing; and statements regarding future acquisitions. All forward-looking
statements included in this Report are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward-looking statements. It is important to note that the Company's
actual results could differ materially from those in such forward-looking
statements.
The future operating results of the Company remain difficult to
predict. The Company continues to face many risks and uncertainties which could
affect its operating results, including without limitation, those described
below.
Healthcare Reimbursement. Political, economic and regulatory influences
are resulting in fundamental changes in the healthcare industry in the United
States. The Company anticipates that Congress and state legislatures will
continue to review and assess alternative healthcare delivery systems and
payment methods 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.
Product Liability. The testing, marketing and sale of medical and
consumer products entail an inherent risk that product liability claims will be
asserted against the Company or its third party distributors. 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.
Competition and Technological Change. The Company is engaged in rapidly
evolving and highly competitive fields. 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
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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.
Reliance on Distributors; Limited Direct Marketing Experience. The
Company has a limited direct marketing and sales organization and relies on its
current distributors for certain product sales. 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 market and
distribute the Company's products successfully 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.
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 and other
countries, and may become subject to the regulations of additional countries.
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.
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 two, and the co-owner of one, issued patents in the United 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
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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.
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.
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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) The Company filed a report on Form 8-K, dated June 23, 1997,
under Item 5 - Other Events, relating to the execution of a
definitive agreement with respect to the sale of certain assets
relating to its institutional wound care operations.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PolyMedica 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: July 31, 1997
17
<PAGE>
Exhibit Index
PolyMedica Industries, Inc.
Exhibit Description
10.75 - Letter Agreement amendment by and between the Registrant and
Steven J. Lee dated July 1, 1997.
10.76 - Letter Agreement amendment by and between the Registrant and
Dr. Arthur A. Siciliano dated July 1, 1997.
10.77 - Letter Agreement amendment by and between the Registrant and
Eric G. Walters dated July 1, 1997.
10.78 - Letter Agreement amendment by and between the Registrant and
Randy M. Sloan dated July 1, 1997.
10.79 - Letter Agreement amendment by and between the Registrant and
Robert J. Zappa dated July 1, 1997.
27 - Financial Data Schedule
18
<PAGE>
Exhibit 10.75
July 1, 1997
Mr. Steven J. Lee
112 Farm Road
Sherborn, MA 01770
Re: Amendment of Employment Agreement
Dear Steve,
This letter agreement serves to further amend the employment agreement dated as
of May 16, 1990, by and between you and PolyMedica Industries, Inc. (the
"Company"), as amended by certain letter agreements dated as of June 1, 1991;
December 5, 1991; March 18, 1993; March 31, 1994; April 11, 1995; and April 3,
1996 (together, the "Employment Agreement").
1. Term of Employment. The Employment Period, as defined in Section 2 of
the Employment Agreement, is extended to November 30, 1999.
2. Salary. The Base Salary, as defined in Section 3.1. of the Employment
Agreement, is increased to $276,000 effective August 1, 1997.
3. Vacation. Section 3.4 of the Employment Agreement is amended so that
Executive may take five weeks of paid vacation during each year.
If the foregoing is acceptable to you, please indicate your agreement by signing
a copy of this letter agreement and returning it to the undersigned.
Very truly yours,
/s/ Arthur A. Siciliano
Arthur A. Siciliano
President
ACCEPTED AND AGREED TO:
/s/ Steven J. Lee
- ------------------------------
Steven J. Lee
Exhibit 10.76
July 1, 1997
Arthur A. Siciliano, Ph.D.
3 Pavia Place
Framingham, MA 01701
Re: Amendment of Employment Agreement
Dear Art,
This letter agreement serves to further amend the employment agreement dated as
of May 16, 1990, by and between you and PolyMedica Industries, Inc. (the
"Company"), as amended by certain letter agreements dated as of June 1, 1991;
December 5, 1991; March 18, 1993; March 31, 1994; April 11, 1995; and April 3,
1996 (together, the "Employment Agreement").
1. Term of Employment. The Employment Period, as defined in Section 2 of
the Employment Agreement, is extended to May 31, 1999.
2. Salary. The Base Salary, as defined in Section 3.1. of the Employment
Agreement, is increased to $235,000 effective August 1, 1997.
3. Vacation. Section 3.4 of the Employment Agreement is amended so that
Executive may take four weeks of paid vacation during each year.
If the foregoing is acceptable to you, please indicate your agreement by signing
a copy of this letter agreement and returning it to the undersigned.
Very truly yours,
/s/ Steven J. Lee
Steven J. Lee
Chairman and Chief
Executive Officer
ACCEPTED AND AGREED TO:
/s/ Arthur A. Siciliano
- ------------------------------
Arthur A. Siciliano
Exhibit 10.77
July 1, 1997
Mr. Eric G. Walters
165 Cambridge Turnpike
Concord, MA 01742
Re: Amendment of Employment Agreement
Dear Eric,
This letter agreement serves to further amend the employment agreement dated as
of June 1, 1991, by and between you and PolyMedica Industries, Inc. (the
"Company"), as amended by certain letter agreements dated as of December 5,
1991; March 18, 1993; March 31, 1994; April 11, 1995; and April 3, 1996
(together, the "Employment Agreement").
1. Term of Employment. The Employment Period, as defined in Section 2 of
the Employment Agreement, is extended to May 31, 1999.
2. Salary. The Base Salary, as defined in Section 3.1. of the Employment
Agreement, is increased to $151,000 effective August 1, 1997.
3. Vacation. Section 3.4 of the Employment Agreement is amended so that
Executive may take four weeks of paid vacation during each year.
If the foregoing is acceptable to you, please indicate your agreement by signing
a copy of this letter agreement and returning it to the undersigned.
Very truly yours,
/s/ Steven J. Lee
Steven J. Lee
Chairman and Chief
Executive Officer
ACCEPTED AND AGREED TO:
/s/ Eric G. Walters
- ------------------------------
Eric G. Walters
Exhibit 10.78
July 1, 1997
Mr. Randy M. Sloan
5203 Lexington Ridge Drive
Lexington, MA 02173
Re: Amendment of Employment Agreement
Dear Randy,
This letter agreement serves to amend the employment agreement dated as of
October 1, 1996, by and between you and PolyMedica Industries, Inc. (the
"Company"), (the "Employment Agreement").
Salary. The Base Salary, as defined in Section 3.1. of the Employment
Agreement, is increased to $155,000 effective August 1, 1997.
If the foregoing is acceptable to you, please indicate your agreement by signing
a copy of this letter agreement and returning it to the undersigned.
Very truly yours,
/s/ Steven J. Lee
Steven J. Lee
Chairman and Chief
Executive Officer
ACCEPTED AND AGREED TO:
/s/ Randy M. Sloan
- ------------------------------
Randy M. Sloan
Exhibit 10.79
July 1, 1997
Mr. Robert J. Zappa
2740 Kendrick Street
Golden, CO 80401
Re: Amendment of Employment Agreement
Dear Bob,
This letter agreement serves to further amend the employment agreement dated as
of August 23, 1992, by and between you and PolyMedica Industries, Inc. (the
"Company"), as amended by certain letter agreements dated as of March 18, 1993;
March 31, 1994; April 11, 1995; and April 13, 1996 (together, the "Employment
Agreement").
Salary. The Base Salary, as defined in Section 3.1. of the Employment
Agreement, is increased to $135,000 effective August 1, 1997.
If the foregoing is acceptable to you, please indicate your agreement by signing
a copy of this letter agreement and returning it to the undersigned.
Very truly yours,
/s/ Steven J. Lee
Steven J. Lee
Chairman and Chief
Executive Officer
ACCEPTED AND AGREED TO:
/s/ Robert J. Zappa
- ------------------------------
Robert J. Zappa
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