================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q

                                   ----------

(Mark One)

|X|   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

For the quarterly period ended September 30, 2005

                                       OR

|_|   Transition report pursuant to Section 13 or 15 (d) of the Securities
      Exchange Act of 1934

Commission File Number:  000-50371

                         Curative Health Services, Inc.
             (Exact name of registrant as specified in its charter)

            MINNESOTA                                           51-0467366
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

                               61 Spit Brook Road
                           Nashua, New Hampshire 03060
                    (Address of principal executive offices)

                                 (603) 888-1500
              (Registrant's telephone number, including area code)

                                   ----------

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

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes |X| No |_|

      Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act):  Yes |_| No |X|

      As of November 1, 2005, there were 13,019,800 shares of the Registrant's
Common Stock, $.01 par value, outstanding.

================================================================================

<PAGE>

                                      INDEX

Part I   Financial Information                                              Page
--------------------------------------------------------------------------------

Item 1   Financial Statements:

         Condensed Consolidated Statements of Operations
             Three and Nine months ended September 30, 2005 and 2004          3

         Condensed Consolidated Balance Sheets
             September 30, 2005 and December 31, 2004                         4

         Condensed Consolidated Statements of Cash Flows
             Nine months ended September 30, 2005 and 2004                    5

         Notes to Condensed Consolidated Financial Statements                 6

Item 2   Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                       17

         Cautionary Statement and Risk Factors                               27

Item 3   Quantitative and Qualitative Disclosures About Market Risk          46

Item 4   Controls and Procedures                                             47

Part II  Other Information                                                  Page
--------------------------------------------------------------------------------

Item 1   Legal Proceedings                                                   48

Item 6   Exhibits                                                            48

         Signatures                                                          50


                                       2
<PAGE>

Part I Financial Information

Item 1. Financial Statements

                 Curative Health Services, Inc. and Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended            Nine Months Ended
                                                            September 30                  September 30
                                                         2005           2004           2005           2004
                                                      ------------------------      ------------------------
<S>                                                   <C>            <C>            <C>            <C>
Revenues:
   Products                                           $  62,984      $  61,422      $ 207,498      $ 178,206
   Services                                               7,563          7,320         21,401         20,534
                                                      ---------      ---------      ---------      ---------
     Total revenues                                      70,547         68,742        228,899        198,740

Costs and operating expenses:
   Cost of product sales                                 54,225         50,754        179,060        144,165
   Cost of services                                       3,260          3,092          9,591          8,991
   Selling, general and administrative                   11,268         11,942         36,387         38,135
   Goodwill and intangible asset impairment              78,684             --         78,684             --
                                                      ---------      ---------      ---------      ---------
     Total costs and operating expenses                 147,437         65,788        303,722        191,291
                                                      ---------      ---------      ---------      ---------

(Loss) income from operations                           (76,890)         2,954        (74,823)         7,449

Interest expense                                         (5,991)        (5,569)       (17,989)       (10,178)

Other income (expense)                                       27           (807)           635           (699)
                                                      ---------      ---------      ---------      ---------

Loss before income taxes                                (82,854)        (3,422)       (92,177)        (3,428)

Income tax benefit                                       (1,928)        (1,355)        (3,113)        (1,363)
                                                      ---------      ---------      ---------      ---------

Net loss                                              $ (80,926)     $  (2,067)     $ (89,064)     $  (2,065)
                                                      =========      =========      =========      =========

Net loss per common share, basic and diluted(1)       $   (6.22)     $   (0.16)     $   (6.84)     $   (0.16)
                                                      =========      =========      =========      =========

Weighted average common shares, basic and diluted        13,020         13,092         13,020         13,089
                                                      =========      =========      =========      =========
</TABLE>
----------
(1)   See Note 3 for net loss per share calculation.

                             See accompanying notes


                                       3
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           September 30,   December 31,
                                                                2005           2004
                                                           -------------   ------------
<S>                                                          <C>            <C>
ASSETS
Current assets:
Cash and cash equivalents                                    $     249      $   1,176
Accounts receivable, net                                        74,323         81,766
Inventories                                                     13,083         18,398
Prepaids and other current assets                                5,172          5,660
Federal income tax refund receivable                               315          3,431
Deferred income tax assets                                          --          3,977
                                                             ---------      ---------
    Total current assets                                        93,142        114,408

Property and equipment, net                                     12,017         11,104
Intangibles subject to amortization, net                        19,024         20,540
Intangibles not subject to amortization (trade names)            1,615          1,615
Goodwill                                                        36,879        123,138
Other assets                                                    10,823         12,979
                                                             ---------      ---------
    Total assets                                             $ 173,500      $ 283,784
                                                             =========      =========

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable                                             $  15,104      $  35,740
Accrued expenses and other current liabilities                  26,895         21,384
Debt and other obligation                                      213,562          6,496
                                                             ---------      ---------
    Total current liabilities                                  255,561         63,620

Long-term liabilities                                               --        210,991
Deferred income taxes                                               --          3,511
Other long-term liabilities                                         31          1,209
                                                             ---------      ---------
    Total long-term liabilities                                     31        215,711

Stockholders' (deficit) equity:
Common stock                                                       129            128
Additional paid in capital                                     120,102        119,449
Accumulated deficit                                           (200,351)      (111,287)
Deferred compensation                                           (1,972)        (2,364)
Notes receivable - stockholders                                     --         (1,473)
                                                             ---------      ---------
    Total stockholders' (deficit) equity                       (82,092)         4,453
                                                             ---------      ---------

    Total liabilities and stockholders' (deficit) equity     $ 173,500      $ 283,784
                                                             =========      =========
</TABLE>

                             See accompanying notes


                                       4
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                  Nine Months Ended
                                                                                     September 30
                                                                                  2005           2004
                                                                               ---------      ---------
<S>                                                                            <C>            <C>
OPERATING ACTIVITIES:
Net loss                                                                       $ (89,064)     $  (2,065)
Adjustments to reconcile net loss to net cash
used in operating activities:
   Depreciation and amortization                                                   4,593          3,894
   Provision for doubtful accounts                                                 2,909          1,949
   Amortization of deferred financing fees                                         1,482            930
   Stock based compensation                                                        1,046             --
   Change in fair value of interest rate swap                                     (1,082)           759
   Goodwill and intangible asset impairment                                       78,684             --
Changes in operating assets and liabilities, net of effects from
Specialty Infusion acquisitions:
   Accounts receivable                                                             4,534          5,581
   Inventories                                                                     5,315          1,192
    Swap interest receivable                                                          --           (797)
   Prepaids and other                                                              5,960         (2,946)
   Accounts payable and accrued expenses                                         (15,498)       (10,427)
                                                                               ---------      ---------
NET CASH USED IN OPERATING ACTIVITIES                                             (1,121)        (1,930)

INVESTING ACTIVITIES:
Specialty Infusion acquisitions, net of cash acquired                              4,400       (154,127)
Sale of Accordant Health Services, Inc.                                               --          2,327
Purchases of property and equipment, net of disposals                             (3,729)        (1,471)
                                                                               ---------      ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                  671       (153,271)

FINANCING ACTIVITIES:
Net proceeds from long-term borrowings                                                --        173,508
Proceeds from exercise of stock options                                               --            162
Proceeds from repayment of notes receivable - stockholders                         1,473             --
Repayments of credit facilities and long-term liabilities, net,
   and payment of deferred financing costs                                        (1,950)       (16,024)
                                                                               ---------      ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                 (477)       157,646
                                                                               ---------      ---------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                (927)         2,445
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                   1,176          1,072
                                                                               ---------      ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                     $     249      $   3,517
                                                                               =========      =========
</TABLE>

                             See accompanying notes


                                       5
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

      The condensed consolidated financial statements are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2004 and notes
thereto contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the three and
nine months ended September 30, 2005 are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 2005.

      The Company had approximately $213.6 million in outstanding debt as of
September 30, 2005, including $185.0 million aggregate principal amount of
10.75% senior notes due 2011 (the "Notes") and a $23.3 million revolving credit
facility with General Electric Capital Corporation ("GE Capital"), and incurred
significant losses over the past several quarters. The Company hired a
financial advisor to assist it in evaluating the financial alternatives
available given its significant debt and continuing losses. In October 2005, the
Company commenced discussions with an ad hoc committee representing holders of
approximately 80% of the aggregate principal amount of the Notes regarding a
possible restructuring of the Notes. In connection with these discussions, the
Company elected not to pay the interest payment due on the Notes on November 1,
2005 and instead elected to use the 30-day grace period under the Note
agreement. In addition, the Company executed a waiver agreement with
GE Capital for failing to meet the financial covenants of total leverage ratio
and senior secured leverage ratio related to its revolving credit facility for
the quarter ended September 30, 2005, and it is uncertain whether the Company
will be able to meet those obligations in the future. Therefore, all of the
Company's outstanding debt has been classified as current in the accompanying
financial statements.  These conditions raise substantial doubt about the
Company's ability to continue as a going concern.

      In the absence of significantly improved operating cash flow, a
restructuring of the senior notes or some other event that improves liquidity,
the Company currently does not expect to be able to service its debt obligations
coming due in fiscal 2006. Any restructuring of the senior notes resulting from
the current discussions with the ad hoc committee of the bondholders would
likely include a conversion of some or all of this debt to some form and amount
of equity. The amount, form and timing of any conversion to equity cannot be
predicted at this time. The Company cannot guarantee that any restructuring or
other agreement providing additional liquidity for the Company will be reached.

Stock Based Compensation Plans

      The Company grants options for a fixed number of shares to employees and
directors with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants under the intrinsic
value method of Accounting Principles Board ("APB") No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), and related Interpretations because
the Company believes the alternate fair value accounting provided for under
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded.

      The following table illustrates the effect on net loss and net loss per
share for the three and nine months ended September 30 as if the Company had
applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation (in thousands, except per share data):


                                       6
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation (continued)

<TABLE>
<CAPTION>
                                                                Three Months Ended           Nine Months Ended
                                                                   September 30                 September 30
                                                                2005          2004          2005          2004
                                                              ----------------------      ----------------------
<S>                                                           <C>           <C>           <C>           <C>
Net loss, as reported                                         $(80,926)     $ (2,067)     $(89,064)     $ (2,065)
Add: Stock based employee compensation expense included
 in reported net loss, net of related tax effects                  313            --         1,017            --
Deduct: Total stock-based employee compensation expense
 determined under fair value based method for all awards,
 net of related tax effects                                       (896)       (1,287)       (3,323)       (3,736)
                                                              --------      --------      --------      --------
Pro forma net loss                                            $(81,509)     $ (3,354)     $(91,370)     $ (5,801)
                                                              ========      ========      ========      ========

Loss per share:
Basic and diluted - as reported(1)                            $  (6.22)     $  (0.16)     $  (6.84)     $  (0.16)
Basic and diluted - pro forma                                    (6.26)        (0.26)        (7.02)        (0.44)
</TABLE>

(1)   See Note 3 for net loss per share calculation.

      In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), "Share-Based Payment," ("SFAS No. 123(R)") which
eliminated the alternative of accounting for share-based compensation
transactions under the intrinsic value method of APB No. 25. Instead, SFAS No.
123(R) requires companies to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. The grant-date fair value of employee share options and similar
instruments will be estimated using option-pricing models adjusted for the
unique characteristics of those instruments. The Company will adopt SFAS No.
123(R) on January 1, 2006. The adoption of SFAS No. 123(R)'s fair value method
is expected to have a significant impact on the Company's results of operations.

Note 2. Reclassifications

      Certain prior year amounts in the condensed consolidated financial
statements and accompanying notes have been reclassified to conform to the
current year classifications.

Note 3. Net Loss per Common Share

      Net loss per common share, basic, is computed by dividing the net loss by
the weighted average number of common shares outstanding. Net loss per common
share, diluted, is computed by dividing net loss by the weighted average number
of shares outstanding plus dilutive common share equivalents. Basic shares were
used to calculate net loss per common share, diluted, for the three and nine
months ended September 30, 2005 and 2004, as using the effects of stock options
and convertible notes would have an anti-dilutive effect on net loss per share.
If not anti-dilutive, weighted average shares, diluted, would have been
13,284,498 and 13,299,671 for the three and nine months ended September 30,
2005, respectively, and 13,525,594 and 13,748,179 for the three and nine months
ended September 30, 2004, respectively.


                                       7
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Specialty Infusion Acquisition

      On April 23, 2004, the Company acquired Critical Care Systems, Inc.
("CCS"), a leading national provider of specialty infusion pharmaceuticals and
related comprehensive clinical services. Total cash consideration was
approximately $154.2 million, including working capital adjustments of
approximately $4.1 million. The Company financed the acquisition of CCS with a
portion of its $185.0 million senior notes and additional borrowings under the
Company's refinanced credit facility with GE Capital, as agent and lender. A
final purchase price allocation based on fair market value of acquired assets
and liabilities has been completed.

      The CCS acquisition was consummated for purposes of expanding the
Company's Specialty Infusion business and was accounted for using the purchase
method of accounting. The accounts of CCS and related goodwill and intangibles
are included in the accompanying condensed consolidated balance sheets. The
operating results of CCS are included in the accompanying condensed consolidated
statements of operations from the date of acquisition.

      Unaudited pro forma amounts for the nine months ended September 30, 2004,
assuming the CCS acquisition had occurred on January 1, 2004, were as follows
(in thousands, except per share data):

            Revenue                                          $ 232,290

            Net loss                                         $  (4,859)

            Net loss per common share, basic and diluted     $   (0.37)

      The pro forma amounts shown above for the nine months ended September 30,
2004 give effect to: (i) the Company's issuance of the Notes; (ii) the
refinancing of the Company's revolving credit facility and (iii) adjustments
related to the CCS acquisition, including, but not limited to, the amortization
of identifiable intangibles related to a preliminary purchase price allocation,
additional compensation expense and retention incentives, and pro forma tax
adjustments as if the acquisition and related transactions occurred on January
1, 2004.

      The pro forma operating results shown above are not necessarily indicative
of operations in the periods following the CCS acquisition.

Note 5. Segment Information

      The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company has two
reportable segments: Specialty Infusion and Wound Care Management. In its
Specialty Infusion business unit, the Company purchases biopharmaceutical
products (including Synagis(R) for the prevention of respiratory syncytial
virus) and other pharmaceutical products from suppliers and contracts with
insurance companies and other payors to provide its services, which include
coordination of patient care, 24-hour nursing and pharmacy availability, patient
education and reimbursement billing and collection services. Revenues from
Synagis(R) sales for the three and nine months ended September 30, 2005 were
approximately $0.6 million and $28.1 million, respectively. As respiratory
syncytial virus ("RSV") occurs primarily during the winter months, the major
portion of the Company's Synagis(R) sales may be higher during the first and
fourth quarters of the calendar year which may result in significant
fluctuations in the Company's quarterly operating results.

      In its Wound Care Management business unit, the Company contracts with
hospitals to manage outpatient Wound Care Center(R) programs.


                                       8
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Segment Information (continued)

      The Company evaluates segment performance based on (loss) income from
operations. For the three and nine months ended September 30, 2005, management
estimated that corporate general and administrative expenses allocated to the
reportable segments were 64% and 62%, respectively, for Specialty Infusion and
36% and 38%, respectively, for Wound Care Management. For the three and nine
months ended September 30, 2004, management estimated that corporate general and
administrative expenses allocated to the reportable segments were 63% and 62%,
respectively, for Specialty Infusion and 37% and 38%, respectively, for Wound
Care Management. Intercompany transactions were eliminated to arrive at
consolidated totals.

      The following tables present the results of operations and total assets of
the reportable segments of the Company at and for the three and nine months
ended September 30 (in thousands):

                                              At and for the Three Months
                                               Ended September 30, 2005
                                        --------------------------------------
                                        Specialty      Wound Care
                                        Infusion       Management      Totals
                                        ---------      ----------    ---------
      Revenues                          $  62,984      $   7,563     $  70,547
      (Loss) income from operations     $ (78,791)     $   1,901     $ (76,890)
      Total assets                      $ 162,006      $  11,494     $ 173,500

                                              At and for the Three Months
                                               Ended September 30, 2004
                                        --------------------------------------
                                        Specialty      Wound Care
                                        Infusion       Management      Totals
                                        ---------      ----------    ---------
      Revenues                          $  61,422      $   7,320     $  68,742
      Income from operations            $   1,166      $   1,788     $   2,954
      Total assets                      $ 390,505      $  15,286     $ 405,791

                                              At and for the Nine Months
                                               Ended September 30, 2005
                                        --------------------------------------
                                        Specialty      Wound Care
                                        Infusion       Management      Totals
                                        ---------      ----------    ---------
      Revenues                          $ 207,498      $  21,401     $ 228,899
      (Loss) income from operations     $ (78,960)     $   4,137     $ (74,823)
      Total assets                      $ 162,006      $  11,494     $ 173,500

                                              At and for the Nine Months
                                               Ended September 30, 2004
                                        --------------------------------------
                                        Specialty      Wound Care
                                        Infusion       Management      Totals
                                        ---------      ----------    ---------
      Revenues                          $ 178,206      $  20,534     $ 198,740
      Income from operations            $   4,183      $   3,266     $   7,449
      Total assets                      $ 390,505      $  15,286     $ 405,791


                                       9
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Goodwill and Intangible Assets

      During the fourth quarter of 2005, the Company conducted its impairment
test related to the carrying values of goodwill and other intangible assets,
attributed entirely to the Specialty Infusion business unit, in accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," respectively.
Based on the results of this evaluation, the Company recorded non-cash
impairment charges of $78.5 million in goodwill and $0.2 million in other
intangible assets related to the Specialty Infusion business unit as of
September 30, 2005. The total charge of $78.7 resulted primarily from changes in
the economics of the Specialty Infusion business unit. The fair value of the
Specialty Infusion business unit was estimated by performing a discounted cash
flow analysis for the reporting unit.

Note 7. Employee and Facility Termination Costs

      The Company adheres to SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which establishes fair value as the objective for
initial measurement of liabilities related to exit or disposal activities and
requires that such liabilities be recognized when incurred.

      In the first quarter of 2003, the Company consolidated its pharmacy
operations in California which resulted in the termination of a total of 25
employees and the vacating of a leased facility. The Company recorded charges
related to this activity of $0.4 million in 2004 and $1.6 million in 2003.

      Additionally, as previously disclosed, Curative's corporate headquarters
and corporate functions were consolidated into the Company's office located in
Nashua, New Hampshire. As a result, in the fourth quarter of 2004, the Company
recorded severance charges for the consolidation of approximately $0.7 million
related to the termination of 19 employees and facility termination costs of
$0.1 million. The Company recorded costs related to its headquarters
consolidation of approximately $0.5 million and $1.4 million for the three and
nine months ended September 30, 2005, respectively. The consolidation has been
completed as of September 30, 2005.

      The following provides a reconciliation of the related accrued costs
associated with the pharmacy consolidation and headquarters consolidation, which
are included in Selling, General and Administrative expenses in the accompanying
condensed consolidated financial statements, at and for the three and nine
months ended September 30 (in thousands):

<TABLE>
<CAPTION>
                                            At and for the Three Months Ended September 30, 2005
                                         ----------------------------------------------------------
                                         Beginning    Costs Charged      Costs Paid or      Ending
                                          Balance       to Expense     Otherwise Settled    Balance
                                         ---------    -------------    -----------------    -------
<S>                                       <C>             <C>               <C>             <C>
      Employee termination costs          $  596          $  411            $  728          $  279
      Facility termination costs             718              89               355             452
                                          ------          ------            ------          ------
                                          $1,314          $  500            $1,083          $  731
                                          ======          ======            ======          ======

<CAPTION>
                                            At and for the Three Months Ended September 30, 2004
                                         ----------------------------------------------------------
                                         Beginning    Costs Charged      Costs Paid or      Ending
                                          Balance       to Expense     Otherwise Settled    Balance
                                         ---------    -------------    -----------------    -------
<S>                                       <C>             <C>               <C>             <C>
      Employee termination costs          $   39          $   --            $   39          $   --
      Facility termination costs             311              --               107             204
                                          ------          ------            ------          ------
                                          $  350          $   --            $  146          $  204
                                          ======          ======            ======          ======
</TABLE>


                                       10
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Employee and Facility Termination Costs (continued)

<TABLE>
<CAPTION>
                                            At and for the Nine Months Ended September 30, 2005
                                         ----------------------------------------------------------
                                         Beginning    Costs Charged      Costs Paid or      Ending
                                          Balance       to Expense     Otherwise Settled    Balance
                                         ---------    -------------    -----------------    -------
<S>                                       <C>             <C>               <C>             <C>
      Employee termination costs          $  666          $1,004            $1,391          $  279
      Facility termination costs             660             330               538             452
                                          ------          ------            ------          ------
                                          $1,326          $1,334            $1,929          $  731
                                          ======          ======            ======          ======

<CAPTION>
                                            At and for the Nine Months Ended September 30, 2004
                                         ----------------------------------------------------------
                                         Beginning    Costs Charged      Costs Paid or      Ending
                                          Balance       to Expense     Otherwise Settled    Balance
                                         ---------    -------------    -----------------    -------
<S>                                       <C>             <C>               <C>             <C>
      Employee termination costs          $   39          $   --            $   39          $   --
      Facility termination costs             431              --               227             204
                                          ------          ------            ------          ------
                                          $  470          $   --            $  266          $  204
                                          ======          ======            ======          ======
</TABLE>

      In the remainder of 2005, the Company expects to pay approximately $0.4
million of the costs accrued as of September 30, 2005 and the remainder through
2007.

Note 8. Derivative Instruments, Hedging Activities and Debt

      The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," and SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
These statements require that all derivative instruments be recorded on the
consolidated balance sheets at their respective fair values as either assets or
liabilities.

      In April 2004 and in conjunction with the Company's issuance of the Notes,
which bear interest at 10.75%, payable semi-annually, the Company entered into a
$90.0 million notional amount interest rate swap agreement. This agreement was
used by the Company to reduce interest expense and modify exposure to interest
rate risk by converting its fixed rate debt to a floating rate liability. Under
the agreement, the Company received, on the portion of the senior subordinated
notes hedged, 10.75% fixed rate amounts in exchange for floating interest rate
(the 6-month London Interbank Offered Rate ("LIBOR") rate plus a premium)
payments over the life of the agreement without an exchange of the underlying
principal amount.

      The swap was a cash flow hedge. Due to hedge ineffectiveness, measured by
comparing the change in the fair value of debt caused only by changes in the
LIBOR yield curve to the change in the value of the swap, changes in fair value
of the swap are recognized in earnings, and the carrying value of the Company's
debt is not marked to fair value. The changes in fair value for the three and
nine months ended September 30, 2005 of zero and $0.5 million, respectively,
were recorded in other income on the statement of operations.

      In June 2005, the Company exercised its right to terminate its interest
rate swap agreement and, as a result, the Company paid a $0.5 million in fair
market value to National City Bank in June of 2005. The swap was scheduled to
mature on May 2, 2011. No early termination penalties were incurred by the
Company.


                                       11
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Derivative Instruments, Hedging Activities and Debt (continued)

      Also in April 2004, the Company restructured its previous credit facility
with GE Capital, as agent and lender to a $40.0 million senior secured revolving
credit facility to support permitted acquisitions and future working capital and
general corporate needs. The amended and restated revolving credit facility is
an asset backed facility, with availability based upon the Company's balance of
eligible accounts receivable and inventory. As of September 30, 2005, the
Company had approximately $16.7 million of availability under its revolving
credit facility. The facility also contains certain financial covenants which
are measured quarterly during the term of the facility which expires on April
23, 2009. Effective September 30, 2005, the Company and GE Capital executed a
waiver agreement to the revolving credit facility related to the financial
covenants of total leverage ratio and senior secured leverage ratio as the
Company was not in compliance with those covenants. Additionally, this waiver
agreement included a temporary waiver until December 1, 2005 of any default
under the credit facility as the Company did not pay the November 1, 2005 coupon
due on the senior notes and instead elected to use the 30-day grace period under
the Note agreement. The Company also received a waiver during the quarter
related to the non-payment of the promissory note in connection with the 2002
purchase of Apex Therapeutic Care, Inc. which the Company is disputing (see Part
II, Item 1, "Legal Proceedings"). As of September 30, 2005, the Company was in
compliance with all other covenants.

      The Company's debt and other obligation consisted of the following as of
September 30, 2005 and December 31, 2004 (in thousands):

                                                     September 30,  December 31,
                                                         2005           2004
                                                     -------------  ------------
Senior subordinated notes                              $185,000       $185,000
Revolving loan facility                                  23,288         24,310
Note payable-DOJ settlement                                 750          2,000
Convertible note used in purchase of Apex-in dispute      1,524          2,177
Convertible note used in purchase of Home Care            3,000          3,000
Note payable used in purchase of Prescription City           --          1,000
                                                       --------       --------
Total debt and other obligation                        $213,562       $217,487
                                                       ========       ========

Note 9. Deferred Taxes

      In the third quarter of 2005, the Company recorded a valuation allowance
against its net deferred tax assets of approximately $1.6 million to reflect the
uncertainty of realization of those assets. The Company also recorded a tax
benefit of approximately $3.9 million related to reversing tax exposure items.
The resulting tax rate for the nine months ended September 30, 2005 was (3.4%).
The tax rate reconciliation is as follows:

                  Federal statutory rate        (35.0%)
                  Valuation allowance             5.8%
                  Goodwill impairment            29.9%
                  Tax reserves                   (3.9%)
                  Other                          (0.2%)
                                                -----
                  Effective tax rate             (3.4%)
                                                =====


                                       12
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Note Guarantees

      On April 23, 2004, the Company issued the Notes under an Indenture (the
"Indenture"), dated April 23, 2004, among the Company, its subsidiaries and
Wells Fargo Bank, National Association. The Notes are jointly and severally
guaranteed by all of the Company's existing and future restricted subsidiaries
("Restricted Subsidiaries"), as defined in the Indenture, on a full and
unconditional basis, and no separate consideration will be received for the
issuance of these guarantees. However, under certain circumstances, the Company
may be permitted to designate any of its Restricted Subsidiaries as Unrestricted
Subsidiaries.

      The Company has no assets or operations independent of its Restricted
Subsidiaries. Furthermore, as of April 23, 2004, there were no significant
restrictions on the ability of any Restricted Subsidiary to transfer to the
Company, without consent of a third party, any of such Restricted Subsidiary's
assets, whether in the form of loans, advances or cash dividends.

Note 11. Recent Developments

Dispute with DHS on Audit Results

      As previously disclosed in a Form 8-K filed on September 28, 2005, the
Company intends to dispute the results of audits conducted by the California
Department of Health Services ("DHS") of three independent retail California
pharmacies which previously did business with two of the Company's subsidiaries,
Apex Therapeutic Care, Inc. ("Apex") and eBioCare.com, Inc. ("eBioCare"). These
subsidiaries provided contract pharmacy and billing services to the three
independent retail pharmacies audited by DHS.

      The pharmacies recently have undergone audits by DHS which included a
review of their Medi-Cal billing for clotting factor supplied to the pharmacies
by Apex and eBioCare. The audits at issue covered the period from October 1,
2001 to May 30, 2004. Although Apex and eBioCare are not being audited, their
previous contract pharmacy relationships with the three independent retail
pharmacies are potentially implicated because the pharmacies may assert
indemnification claims against Apex and eBioCare.

      Although no final audit findings have been issued, the Company's legal
counsel has learned through discussions with DHS that final audit findings
assessed against the three independent retail pharmacies may include up to $38.0
million in alleged overpayments.

      Approximately 85% of the assessment against the three independent retail
pharmacies is for claims that DHS alleges were improperly reimbursed at 1% over
the retail pharmacies' cost of acquiring the product from the Company's
subsidiaries. DHS alleges that such reimbursement was improper because, in its
view, payments should have been made at 1% over the cost the retail pharmacies
would have incurred had they acquired the product directly from the product
manufacturer.

      Substantially all of the balance of the assessment against the three
independent retail pharmacies is based on allegedly improper reimbursement for
the medically necessary anti-inhibitor product called FEIBA. DHS alleges that
the retail pharmacies submitted claims for FEIBA improperly, in its view, when
they used factor product service codes. Apex and eBioCare used the factor
product service codes when submitting claims on behalf of the retail pharmacies
because EDS, the company that processes claims for payment on behalf of DHS,
could not accept the FEIBA-specific service code into its systems. DHS auditors
have not confirmed whether they will include the FEIBA assessments in their
final findings.


                                       13
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Recent Developments (continued)

      The Company plans to work closely with the three independent retail
pharmacies to appeal any assessments resulting from the audits. The Company
believes the allegations asserted by DHS against the pharmacies are without
merit, and the Company expects the pharmacies to vigorously defend against these
allegations through administrative and judicial proceedings. The Company is also
aware that other similar retail pharmacy relationships in California are being
audited by DHS.

      The Company anticipates that the three independent retail pharmacies may
assert claims for indemnification from the Company's subsidiaries for any
liabilities resulting from the audits. Based on facts and circumstances known to
date, the Company believes some amount of monetary loss is reasonably possible
if the pharmacies assert and prevail on indemnification claims. While the
Company is unable to estimate the range of potential loss due to the uncertainty
of various issues involved in this matter, it does not believe the loss will
exceed $38.0 million. No related loss provision has been accrued in
the condensed consolidated financial statements as of September 30, 2005.

Resignation of Customer Sales and Service Representatives

      On October 21, 2005, six of the Company's customer sales and service
representatives servicing hemophilia patients resigned from Curative. The
Company estimates that the patients serviced by these employees represent
approximately $25.0 million of revenue annually. Curative immediately
implemented an action plan to communicate with and retain patients who were
formerly serviced by these employees. The Company is monitoring compliance by
these former employees with their continuing obligations under their respective
employment agreements and will evaluate its legal remedies with respect to any
of these employees who fail to comply with those obligations. At this time, it
is not possible to forecast the impact that the departure of these individuals
will have on the Company's business.

California Medi-Cal Reimbursement Reduction

      Approximately 7% of the Company's total revenues for each of the three and
nine months ended September 30, 2005, were derived from blood-clotting products
reimbursed by California state funded health programs. The California state
legislature in 2003 passed legislation that modified the reimbursement
methodology for blood-clotting factor products under various California state
funded health programs. Under the new reimbursement methodology, blood-clotting
factor products are reimbursed based upon Average Selling Price ("ASP"), as
provided by the manufacturers, plus 20%.

      In addition, payments for California's Medicaid program ("Medi-Cal") and
certain other state-funded health programs were to be reduced by 5% for services
provided on and after January 1, 2004 and through December 31, 2007. On December
23, 2003, the United States District Court for the Eastern District of
California issued an injunction in California Medical Association, et al v.
Bonta ("CMA v. Bonta") enjoining that scheduled 5% Medi-Cal reimbursement rate
cut. DHS appealed the decision to the federal Ninth Circuit Court of Appeals.
The Ninth Circuit issued a decision on August 2, 2005 reversing the District
Court's grant of the preliminary injunction. However, because a petition for
rehearing and rehearing en banc has been filed, the preliminary injunction
remains in effect until the Ninth Circuit rules on the petition. It is not known
when the Ninth Circuit will rule. Further, subsequent to the issuance of the
decision by the Ninth Circuit, the California legislature amended Welfare &
Institutions Code Section 14105.19 to eliminate the 5% reduction for dates of
service from January 1, 2004 through December 31, 2005. Thus, there is no
possibility of recoupment of payments made pursuant to the preliminary
injunction during this period. It is not possible to determine whether the
current Medi-Cal rates will be


                                       14
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Recent Developments (continued)

reduced after January 1, 2006, should the petition for rehearing or rehearing en
banc be denied. It is possible that the 5% reduction will go into effect at some
point, or it is possible that the California legislature will pass further
legislation to eliminate the 5% reduction. The District Court order enjoining
the 5% Medi-Cal rate reduction did not apply to other state funded programs for
hemophilia patients, and California implemented the 5% reduction for these other
programs. However, the 5% reduction as applied to the other state funded
programs was repealed on or about July 31, 2004 for services provided on and
after July 1, 2004.

      Effective June 1, 2004, Medi-Cal implemented the ASP reimbursement
methodology for blood-clotting factor products. The change amounted to an
approximate 30-40% cut from rates previously in effect. The implementation of
the reduction in the reimbursement from Medi-Cal, and changes in regulations
governing such reimbursement, has adversely impacted the Company's revenues and
profitability from the sale of products by the Company or by retail pharmacies
to which it provides products or services for hemophilia patients who are
Medi-Cal beneficiaries or beneficiaries of other state funded programs for
hemophilia patients.

      In December 2004, the Company and certain named individual plaintiffs
entered into a Settlement Agreement which resolved both a lawsuit previously
filed on behalf of two individual Medi-Cal recipients with hemophilia in the
United States District Court for the Eastern District of California against the
State of California relating to the implementation of the new ASP reimbursement
methodology, and a lawsuit previously filed by the Company in the Superior Court
for the County of Sacramento relating to, among other things, the State of
California's failure to comply with certain applicable federal procedural
requirements relating to the reimbursement rates. In return for dismissal of
both lawsuits, DHS agreed to process, on a priority basis, all pending and
future Medi-Cal, California Children's Services and Genetically Handicapped
Persons Program claims submitted by the Company. In addition, DHS agreed to
expedite its efforts to implement electronic billing and payment for
blood-clotting factor claims.

      In addition, the California legislature recently approved a proposal by
the Governor of California to expand the Medi-Cal managed care program into 13
additional counties and to phase in mandatory enrollment for parents and
children who are Medi-Cal beneficiaries. The Governor's proposal for mandatory
enrollment of seniors and disabled individuals was rejected by the legislature,
except for those individuals who may reside in an expansion county where a
County Organized Health System ("COHS") model is proposed. Under the COHS model,
all eligible Medi-Cal beneficiaries are mandatorily enrolled into the managed
care plan, including seniors and persons with disabilities. The Company
understands there may be significant concern by various constituencies over
mandatory enrollment of medically fragile populations, and the outcome of these
proposals is uncertain at this time.

Change in Medicare Reimbursement Methodology

      Effective January 1, 2005, the Medicare reimbursement methodology for
blood-clotting factor products changed to ASP plus 6% plus a $0.14 per unit
dispensing fee. Under the previous methodology, the Company was reimbursed at
95% of average wholesale price ("AWP"). The Company anticipates that the new
methodology will result in reduced reimbursement of approximately 12% or $1.7
million in Specialty Infusion revenues.


                                       15
<PAGE>

                 Curative Health Services, Inc. and Subsidiaries

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Legal Proceedings

      In the normal course of its business, the Company may be involved in
lawsuits, claims, and investigations, including any arising out of services or
products provided by or to the Company's operations, personal injury claims and
employment disputes, the outcome of which, in the opinion of management, will
not have a material adverse effect on the Company's financial position, cash
flows or results of operations.

Apex Therapeutic Care Litigation

      On October 26, 2005, the Company commenced litigation in the United States
District Court for the Central District of California, entitled "Curative Health
Services, Inc. vs. James H. Williams, et al.," against former stockholders of
Apex alleging, among other things, that stockholders of Apex made material
misrepresentations in connection with their sale of Apex stock to Curative in
2002. As part of the action, in addition to seeking compensatory and punitive
damages, the Company is disputing its obligation to make further payments under
an amended and restated promissory note, dated May 30, 2002, made in favor of
the former stockholders in connection with the acquisition of Apex. Prior to
commencement of the action, Curative sent a letter to the representative of the
former stockholders indicating that Curative would not be making the installment
payment due on September 30, 2005 or any further payments pending resolution of
this dispute. The stockholders' representative responded with a notice on
October 18, 2005 declaring an event of default under the above-referenced note
and an acceleration of payment of the outstanding principal balance under the
note in the amount of approximately $1.5 million. This event did not cause a
default under, or acceleration of, any other obligations of the Company.

Prescription City Litigation

      As previously disclosed in a Form 8-K filed on July 27, 2005, on July 26,
2005, the Company announced that it has reached a settlement with Prescription
City, Inc. ("Prescription City") in connection with a complaint filed by the
Company in November 2003 seeking rescission, compensatory and punitive damages
and other relief. Under the terms of the settlement, the Company received $4.5
million in cash and was released from its obligation to pay a $1.0 million
promissory note entered into in connection with the asset purchase of
Prescription City.


                                       16
<PAGE>

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

Overview

      Curative Health Services, Inc. ("Curative" or the "Company") had
approximately $213.6 million in outstanding debt as of September 30, 2005,
including $185.0 million aggregate principal amount of the Notes and a $23.3
million revolving credit facility with GE Capital, and incurred significant
losses over the past several quarters. The Company hired a financial advisor to
assist it in evaluating the financial alternatives available given its
significant debt and continuing losses. In October 2005, the Company commenced
discussions with an ad hoc committee representing holders of approximately 80%
of the aggregate principal amount of the Notes regarding a possible
restructuring of the Notes. In connection with these discussions, the Company
elected not to pay the interest payment due on the Notes on November 1, 2005 and
instead elected to use the 30-day grace period under the Note agreement.
In addition, the Company executed a waiver agreement with GE Capital for failing
to meet the financial covenants of total leverage ratio and senior secured
leverage ratio related to its revolving credit facility for the quarter ended
September 30, 2005, and it is uncertain whether the Company will be able to meet
those obligations in the future. Therefore, all of the Company's outstanding
debt has been classified as current in the accompanying financial statements.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern (see Note 1 of Notes to Condensed Consolidaated Financial
Statements).

      Curative, through its Specialty Infusion and Wound Care Management
business units, seeks to deliver high-quality care and positive clinical
outcomes that result in high patient satisfaction for patients experiencing
serious acute or chronic medical conditions.

      Through its Specialty Infusion business unit, the Company provides
intravenous and injectable biopharmaceutical and compounded pharmaceutical
products and comprehensive infusion services to patients with chronic and
critical disease states. All patient care is delivered through a national
footprint of community-based branches. Each local branch has an experienced
multidisciplinary team of pharmacists, nurses, reimbursement specialists and
patient service representatives who comprehensively manage all aspects of a
patient's infusion and related support needs. In its Specialty Infusion
operations, the Company purchases biopharmaceutical and other pharmaceutical
products from suppliers and contracts with insurance companies and other payors
to provide its services, which include coordination of patient care, 24-hour
nursing and pharmacy availability, patient education and reimbursement billing
and collection services. The Company's Specialty Infusion revenues are derived
primarily from fees paid by the payors under these contracts for the
distribution of these biopharmaceutical and other pharmaceutical products and
for the injection or infusion services provided. Additional revenues are
acquired through biopharmaceutical and pharmaceutical product distribution and
support services under contracts with retail pharmacies for which the Company
receives related service fees. The products distributed and the injection or
infusion therapies offered by Curative are used by patients with chronic or
severe conditions such as hemophilia, RSV, immune system disorders, chronic or
severe infections, nutritionally compromised and other severe conditions
requiring nutritional support, cancer, rheumatoid arthritis, hepatitis C and
multiple sclerosis. Examples of biopharmaceutical products used by Curative's
patients include hemophilia clotting factor, intravenous immune globulins
("IVIG"), Synagis(R) and Remicade(R). Examples of pharmaceutical products used
by Curative's patients include compounded pharmaceuticals, such as total
parenteral nutrition ("TPN") products, anti-infectives, chemotherapy agents and
pain management products. As of September 30, 2005, the Company had
approximately 450 payor contracts and provided products or services in
approximately 45 states.

      The following provides approximate percentages of the Specialty Infusion
business unit's patient revenues for the three and nine months ended September
30 and the year ended December 31:

                   Three Months Ended    Nine Months Ended         Year Ended
                   September 30, 2005    September 30, 2005    December 31, 2004
                   ------------------    ------------------    -----------------
Private Payors            63.5%                 61.4%                53.4%
Medicaid                  27.0%                 30.5%                39.5%
Medicare                   9.5%                  8.1%                 7.1%


                                       17
<PAGE>

      Curative's Wound Care Management business unit is a leading provider of
wound care services specializing in chronic wound care management. It manages,
on behalf of hospital clients, a nationwide network of Wound Care Center(R)
programs that offer a comprehensive range of services across a continuum of care
for treatment of chronic wounds. The Company's Wound Management ProgramSM
consists of diagnostic and therapeutic treatment procedures that are designed to
meet each patient's specific wound care needs on a cost-effective basis. The
treatment procedures are designed to achieve positive results for wound healing
based on significant experience in the field. The Company maintains a
proprietary database of patient results that it has collected since 1988
containing over 520,000 patient cases as of September 30, 2005. The treatment
procedures, which are based on extensive patient data, have allowed the Company
to achieve an overall rate of healing of approximately 90% for patients
completing therapy. As of September 30, 2005, the Wound Care Center(R) network
consisted of 107 outpatient clinics (102 operating and 5 contracted) located on
or near campuses of acute care hospitals in approximately 30 states.

      The Wound Care Management business unit currently operates two types of
Wound Care Center(R) programs with hospitals: a management model and an "under
arrangement" model, with a primary focus on developing management models. In the
management model, Wound Care Management provides management and support services
for a chronic wound care facility owned or leased by the hospital and staffed by
employees of the hospital, and generally receives a fixed monthly management fee
or a combination of a fixed monthly management fee and a variable case
management fee. In the "under arrangement" model, Wound Care Management provides
management and support services, as well as the clinical and administrative
staff, for a chronic wound care facility owned or leased by the hospital, and
generally receives fees based on the services provided to each patient.

Critical Accounting Policies and Estimates

      Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these condensed consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an ongoing basis, management evaluates its estimates
and judgments, including those related to revenue recognition, bad debts,
inventories, income taxes and intangibles. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. Management believes
the following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its condensed
consolidated financial statements:

Revenue recognition

      Specialty Infusion revenues are recognized, net of any contractual
allowances, when the product is shipped to a patient, retail pharmacy or a
physician's office, or when the service is provided. Wound Care Management
revenues are recognized after the management services are rendered and are
billed monthly in arrears.

Trade receivables

      Considerable judgment is required in assessing the ultimate realization of
receivables, including the current financial condition of the customer, age of
the receivable and the relationship with the customer. The Company estimates its
allowances for doubtful accounts using these factors. If the financial condition
of the Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. In
circumstances where the Company is aware of a specific customer's inability to
meet its financial obligations (e.g., bankruptcy filings), a specific reserve
for bad debts is recorded against amounts due to reduce the receivable to the
amount the Company reasonably believes will be collected. For all other
customers, the Company has reserves for bad debt based upon the total accounts
receivable balance. Although the Company believes its reserve for accounts
receivable at September 30, 2005 is reasonable, there can be no assurance that


                                       18
<PAGE>

additional reserves will not be needed in the future. The recording of any such
reserve may have a negative impact on the Company's operating results.

Inventories

      Inventories are carried at the lower of cost or market on a first in,
first out basis. Inventories consist of high-cost biopharmaceutical and
pharmaceutical products that, in many cases, require refrigeration or other
special handling. As a result, inventories are subject to spoilage or shrinkage.
On a quarterly basis, the Company performs a physical inventory and determines
whether any shrinkage or spoilage adjustments are needed. Although the Company
believes its inventories balance at September 30, 2005 is reasonably accurate,
there can be no assurance that spoilage or shrinkage adjustments will not be
needed in the future. The recording of any such reserve may have a negative
impact on the Company's operating results.

Deferred income taxes

      The Company had approximately $9.4 million in deferred income tax assets
at September 30, 2005 (approximately $4.0 million in current assets and $5.4
million in long-term assets) and approximately $4.3 million in deferred income
tax liabilities. The Company has a full valuation allowance against its net
deferred tax assets and, as such, the amounts of deferred income tax assets and
liabilities are not reflected in the accompanying balance sheet (see Note 9 of
Notes to Condensed Consolidated Financial Statements). The Company has provided
a valuation allowance due to the uncertainty of the realization of the deferred
tax asset.

Goodwill and intangibles

      Goodwill represents the excess of purchase price over the fair value of
net assets acquired. Intangibles consist of separately identifiable intangibles,
such as pharmacy and customer relationships and covenants not to compete. The
Company accounts for goodwill and intangible assets in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets," which requires goodwill and
intangible assets with indefinite lives to not be amortized but rather to be
reviewed annually, or more frequently if impairment indicators arise, for
impairment. Separable intangible assets that are not deemed to have an
indefinite life are amortized over their useful lives. In assessing the
recoverability of the Company's goodwill and intangibles, the Company must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. Due primarily to changes in the
economics of the Specialty Infusion business unit, the Company recorded a
non-cash impairment charge of $78.5 million in goodwill and $0.2 million in
other intangible assets in the third quarter of 2005 (see Note 6 of Notes to
Condensed Consolidated Financial Statements). The fair value of the Specialty
Infusion business unit was estimated by performing a discounted cash flows
analysis for the reporting unit. The Company will continue to monitor its
goodwill and intangibles for impairment indicators.


                                       19
<PAGE>

Key Performance Indicators

      The following provides a summary of some of the key performance indicators
that may be used to assess the Company's results of operations. These
comparisons are not necessarily indicative of future results (dollars in
thousands).

<TABLE>
<CAPTION>
                                                          For the Nine Months Ended September 30
                                                   ---------------------------------------------------
                                                                                   $             %
                                                     2005           2004         Change        Change
                                                   --------       --------      --------      --------
<S>                                                <C>            <C>           <C>             <C>
      Specialty Infusion revenues                  $207,498       $178,206      $ 29,292            16%
      Wound Care Management revenues                 21,401         20,534           867             4%
                                                   --------       --------      --------
      Total revenues                               $228,899       $198,740      $ 30,159            15%

      Specialty Infusion revenues to total               91%            90%
      Wound Care Management revenues to total             9%            10%
                                                   --------       --------
      Total                                             100%           100%

      Specialty Infusion gross margin              $ 28,438       $ 34,041      $ (5,603)          (16%)
      Wound Care Management gross margin             11,810         11,543           267             2%
                                                   --------       --------      --------
      Total gross margin                           $ 40,248       $ 45,584      $ (5,336)          (12%)

      Specialty Infusion gross margin %                  14%            19%
      Wound Care Management gross margin %               55%            56%
      Total gross margin %                               18%            23%

      Specialty Infusion SG&A                      $ 16,819       $ 14,970      $  1,849            12%
      Wound Care Management SG&A                      2,623          3,030          (407)          (13%)
      Corporate SG&A                                 13,289         13,809          (520)           (4%)
      Charges(1)                                      3,656          6,326        (2,670)          (42%)
                                                   --------       --------      --------
      Total SG&A                                   $ 36,387       $ 38,135      $ (1,748)           (5%)

      Goodwill and intangible asset impairment     $ 78,684       $     --      $ 78,684           100%

      Operating margin                             $(74,823)      $  7,449      $(82,272)       (1,104%)
      Operating margin %                                 33%             4%
</TABLE>

----------

(1)   The Company's charges are discussed under Results of Operations - Selling,
      General and Administrative.


                                       20
<PAGE>

Recent Developments

Dispute with DHS on Audit Results

      As previously disclosed in a Form 8-K filed on September 28, 2005, the
Company intends to dispute the results of audits conducted by DHS of three
independent retail California pharmacies which previously did business with two
of the Company's subsidiaries, Apex and eBioCare. These subsidiaries provided
contract pharmacy and billing services to the three independent retail
pharmacies audited by DHS.

      The pharmacies recently have undergone audits by DHS which included a
review of their Medi-Cal billing for clotting factor supplied to the pharmacies
by Apex and eBioCare. The audits at issue covered the period from October 1,
2001 to May 30, 2004. Although Apex and eBioCare are not being audited, their
previous contract pharmacy relationships with the three independent retail
pharmacies are potentially implicated because the pharmacies may assert
indemnification claims against Apex and eBioCare.

      Although no final audit findings have been issued, the Company's legal
counsel has learned through discussions with DHS that final audit findings
assessed against the three independent retail pharmacies may include up to $38.0
million in alleged overpayments.

      Approximately 85% of the assessment against the three independent retail
pharmacies is for claims that DHS alleges were improperly reimbursed at 1% over
the retail pharmacies' cost of acquiring the product from the Company's
subsidiaries. DHS alleges that such reimbursement was improper because, in its
view, payments should have been made at 1% over the cost the retail pharmacies
would have incurred had they acquired the product directly from the product
manufacturer.

      Substantially all of the balance of the assessment against the three
independent retail pharmacies is based on allegedly improper reimbursement for
the medically necessary anti-inhibitor product called FEIBA. DHS alleges that
the retail pharmacies submitted claims for FEIBA improperly, in its view, when
they used factor product service codes. Apex and eBioCare used the factor
product service codes when submitting claims on behalf of the retail pharmacies
because EDS, the company that processes claims for payment on behalf of DHS,
could not accept the FEIBA-specific service code into its systems. DHS auditors
have not confirmed whether they will include the FEIBA assessments in their
final findings.

      The Company plans to work closely with the three independent retail
pharmacies to appeal any assessments resulting from the audits. The Company
believes the allegations asserted by DHS against the pharmacies are without
merit, and the Company expects the pharmacies to vigorously defend against these
allegations through administrative and judicial proceedings. The Company is also
aware that other similar retail pharmacy relationships in California are being
audited by DHS.

      The Company anticipates that the three independent retail pharmacies may
assert claims for indemnification from the Company's subsidiaries for any
liabilities resulting from the audits. Based on facts and circumstances known to
date, the Company believes some amount of monetary loss is reasonably possible
if the pharmacies assert and prevail on indemnification claims. While the
Company is unable to estimate the range of potential loss due to the uncertainty
of various issues involved in this matter, it does not believe the loss will
exceed $38.0 million. No related loss provision has been accrued in
the condensed consolidated financial statements as of September 30, 2005.


                                       21
<PAGE>

Resignation of Customer Sales and Service Representatives

      On October 21, 2005, six of the Company's customer sales and service
representatives servicing hemophilia patients resigned from Curative. The
Company estimates that the patients serviced by these employees represent
approximately $25.0 million of revenue annually. Curative immediately
implemented an action plan to communicate with and retain patients who were
formerly serviced by these employees. The Company is monitoring compliance by
these former employees with their continuing obligations under their respective
employment agreements and will evaluate its legal remedies with respect to any
of these employees who fail to comply with those obligations. At this time, it
is not possible to forecast the impact that the departure of these individuals
will have on the Company's business.

California Medi-Cal Reimbursement Reduction

      Approximately 7% of the Company's total revenues for each of the three and
nine months ended September 30, 2005 were derived from blood-clotting products
reimbursed by California state funded health programs. The California state
legislature in 2003 passed legislation that modified the reimbursement
methodology for blood-clotting factor products under various California state
funded health programs. Under the new reimbursement methodology, blood-clotting
factor products are reimbursed based upon ASP, as provided by the manufacturers,
plus 20%.

      In addition, payments for Medi-Cal and certain other state-funded health
programs were to be reduced by 5% for services provided on and after January 1,
2004 and through December 31, 2007. On December 23, 2003, the United States
District Court for the Eastern District of California issued an injunction in
CMA v. Bonta enjoining that scheduled 5% Medi-Cal reimbursement rate cut. DHS
appealed the decision to the federal Ninth Circuit Court of Appeals. The Ninth
Circuit issued a decision on August 2, 2005 reversing the District Court's grant
of the preliminary injunction. However, because a petition for rehearing and
rehearing en banc has been filed, the preliminary injunction remains in effect
until the Ninth Circuit rules on the petition. It is not known when the Ninth
Circuit will rule. Further, subsequent to the issuance of the decision by the
Ninth Circuit, the California legislature amended Welfare & Institutions Code
Section 14105.19 to eliminate the 5% reduction for dates of service from January
1, 2004 through December 31, 2005. Thus, there is no possibility of recoupment
of payments made pursuant to the preliminary injunction during this period. It
is not possible to determine whether the current Medi-Cal rates will be reduced
after January 1, 2006, should the petition for rehearing or rehearing en banc be
denied. It is possible that the 5% reduction will go into effect at some point,
or it is possible that the California legislature will pass further legislation
to eliminate the 5% reduction. The District Court order enjoining the 5%
Medi-Cal rate reduction did not apply to other state funded programs for
hemophilia patients, and California implemented the 5% reduction for these other
programs. However, the 5% reduction as applied to the other state funded
programs was repealed on or about July 31, 2004 for services provided on and
after July 1, 2004.

      Effective June 1, 2004, Medi-Cal implemented the ASP reimbursement
methodology for blood-clotting factor products. The change amounted to an
approximate 30-40% cut from rates previously in effect. The implementation of
the reduction in the reimbursement from Medi-Cal, and changes in regulations
governing such reimbursement, has adversely impacted the Company's revenues and
profitability from the sale of products by the Company or by retail pharmacies
to which it provides products or services for hemophilia patients who are
Medi-Cal beneficiaries or beneficiaries of other state funded programs for
hemophilia patients.

      In December 2004, the Company and certain named individual plaintiffs
entered into a Settlement Agreement which resolved both a lawsuit previously
filed on behalf of two individual Medi-Cal recipients with hemophilia in the
United States District Court for the Eastern District of California against the
State of California relating to the implementation of the new ASP reimbursement
methodology, and a lawsuit previously filed by the Company in the Superior Court
for the County of Sacramento relating to, among other things, the State of
California's failure to comply with certain applicable federal procedural
requirements relating to the reimbursement rates. In return for dismissal of
both lawsuits, DHS agreed to process, on a priority basis, all pending and
future Medi-Cal, California Children's Services and Genetically Handicapped
Persons Program claims submitted by the Company. In addition, DHS agreed to
expedite its efforts to implement electronic billing and payment for
blood-clotting factor claims.


                                       22
<PAGE>

      In addition, the California legislature recently approved a proposal by
the Governor of California to expand the Medi-Cal managed care program into 13
additional counties and to phase in mandatory enrollment for parents and
children who are Medi-Cal beneficiaries. The Governor's proposal for mandatory
enrollment of seniors and disabled individuals was rejected by the legislature,
except for those individuals who may reside in an expansion county where a COHS
model is proposed. Under the COHS model, all eligible Medi-Cal beneficiaries are
mandatorily enrolled into the managed care plan, including seniors and persons
with disabilities. The Company understands there may be significant concern by
various constituencies over mandatory enrollment of medically fragile
populations, and the outcome of these proposals is uncertain at this time.

Change in Medicare Reimbursement Methodology

      Effective January 1, 2005, the Medicare reimbursement methodology for
blood-clotting factor products changed to ASP plus 6% plus a $0.14 per unit
dispensing fee. Under the previous methodology, the Company was reimbursed at
95% of AWP. The Company anticipates that the new methodology will result in
reduced reimbursement of approximately 12% or $1.7 million in Specialty Infusion
revenues.

Results of Operations

Revenues

      The Company's revenues for the third quarter of 2005 increased $1.8
million, or 3%, to $70.5 million compared to $68.7 million for the third quarter
of 2004. For the first nine months of 2005, revenues increased $30.2 million, or
15%, to $228.9 million from $198.7 million for the same period in 2004. The
increase in revenues for the nine-month period was the result of the April 2004
acquisition of CCS, offset by a reduction in hemophilia revenue related to the
reduced reimbursement from California state programs.

      Product revenues, attributed entirely to the Specialty Infusion business
unit, increased $1.6 million, or 3%, to $63.0 million in the third quarter of
2005 from $61.4 million in the third quarter of 2004. For the first nine months
of 2005, product revenues increased $29.3 million, or 16%, to $207.5 million
compared to $178.2 million for the same period in 2004. The increase in product
revenues for the nine-month period was primarily attributable to the 2004
acquisition of CCS, offset by a reduction in hemophilia revenue related to the
reduced reimbursement from California state programs. As a percentage of
Specialty Infusion's revenues, hemophilia revenues and Synagis(R) sales for the
prevention of RSV accounted for 42% and 1%, respectively, for the third quarter
of 2005 and 36% and 14%, respectively, for the first nine months of 2005. As
RSV occurs primarily during the winter months, the major portion of the
Company's Synagis(R) sales may be higher during the first and fourth quarters
of the calendar year which may result in significant fluctuations in the
Company's quarterly operating results.

      Service revenues, attributed entirely to the Wound Care Management
business unit, increased $0.2 million, or 3%, to $7.6 million in the third
quarter of 2005 from $7.3 million in the third quarter of 2004. For the first
nine months of 2005, service revenues increased $0.9 million, or 4%, to $21.4
million compared to $20.5 million for the same period in 2004. For the third
quarter of 2005, the Company signed two new Wound Care Management contracts and
three contracts were terminated. For the first nine months of 2005, the Company
signed thirteen new Wound Care Management contracts and four contracts were
terminated.

Cost of Product Sales

      Cost of product sales, attributed entirely to the Specialty Infusion
business unit, increased $3.5 million, or 7%, to $54.2 million in the third
quarter of 2005 compared to $50.8 million in the third quarter of 2004. For the
first nine months of 2005, cost of product sales increased $34.9 million, or
24%, to $179.1 million compared to $144.2 million for the same period in 2004.
The increases in cost of product sales were primarily attributable to the 2004
acquisition of CCS and increased costs for IVIG products. As a percentage of
product revenues, cost of product sales for the third quarter of 2005 was 86%
compared to 83% for the same period in 2004 and 86% for the first nine months of
2005 compared to 81% for the same period in 2004. The percentage increases for
2005 were primarily attributable to the acquisition of CCS which resulted in the
reduction of the percentage of the Company's revenues derived from hemophilia
products, which have a lower product cost as a percentage of revenue, as well as
the reduction in hemophilia revenue related to the reduced reimbursement from
California state programs.


                                       23
<PAGE>

Cost of Services

      Cost of services, attributed entirely to the Wound Care Management
business unit, increased $0.2 million, or 5%, to $3.3 million in the third
quarter of 2005 from $3.1 million in the third quarter of 2004. For the first
nine months of 2005, cost of services increased $0.6 million, or 7%, to $9.6
million compared to $9.0 million for the same period in 2004. As a percentage of
service revenues, cost of services for the third quarter of 2005 was 43%
compared to 42% for the same period in 2004 and 45% for the first nine months of
2005 compared to 44% for the same period in 2004.

Gross Margin

      Gross margin decreased $1.8 million, or 12%, to $13.1 million in the third
quarter of 2005 from $14.9 million for the third quarter of 2004. Specialty
Infusion's gross margin declined to $8.8 million for the third quarter of 2005
from $10.7 million for the same period in 2004, a decrease of $1.9 million, or
18%. As a percentage of its revenues, Specialty Infusion's gross margin was 14%
in the third quarter of 2005 as compared to 17% for the same period in 2004. For
the first nine months of 2005, Specialty Infusion's gross margin declined to
$28.4 million from $34.0 million for the same period in 2004, a decrease of $5.6
million, or 16%. As a percentage of its revenues, Specialty Infusion's gross
margin was 14% for the first nine months of 2005 as compared to 19% for the same
period in 2004. The decreases in gross margin dollars and percentage for the
three and nine months ended September 30, 2005 were attributed to lower average
revenue per unit for hemophilia products as a result of changes in reimbursement
rates, lower average revenue per unit for IVIG at pharmacies operating before
the CCS acquisition due to a higher mix of managed care business and a higher
cost of service. These decreases were partially offset by the inclusion of the
gross margin from the CCS acquisition.

      Wound Care Management's gross margin increased to $4.3 million for the
third quarter of 2005 compared to $4.2 million for the same period in 2004. As a
percentage of its revenues, Wound Care Management's gross margin was 57% for the
third quarter of 2005 compared to 58% for the same period in 2004. For the first
nine months of 2005, Wound Care Management's gross margin increased $0.3 million
to $11.8 million compared to $11.5 million for the same period in 2004. As a
percentage of its revenues, Wound Care Management's gross margin was 55% for the
first nine months of 2005 as compared to 56% for the same period in 2004.

Selling, General and Administrative

      Selling, general and administrative expenses decreased by $0.7 million, or
6%, to $11.3 million for the third quarter of 2005 compared to $11.9 million for
the third quarter of 2004 and consisted of $5.6 million related to the Specialty
Infusion business unit, $1.0 million related to the Wound Care Management
business unit, $4.0 million related to corporate services and $0.7 million in
charges related to the Company's corporate reorganization and financial advisory
fees. The decrease in selling, general and administrative expenses of $0.7
million was primarily due to the charges of $0.7 million in the third quarter of
2005 compared to $1.3 million in charges in the same period of 2004. The charges
incurred in the third quarter of 2004 were related to integration costs of the
CCS acquisition and litigation costs associated with Prescription City and
hemophilia reimbursement. As a percentage of total Company revenues, selling,
general and administrative expenses were 16% for the third quarter of 2005
compared to 17% for the same period in 2004.

      For the first nine months of 2005, selling, general and administrative
expenses decreased by $1.7 million, or 5%, to $36.4 million from $38.1 million
for the same period in 2004 and consisted of $16.8 million related to the
Specialty Infusion business unit, $2.6 million related to the Wound Care
Management business unit, $13.3 million related to corporate services and $3.7
million in charges, primarily related to the Company's corporate reorganization
and financial advisory fees. The decrease in selling, general and administrative
expenses of $1.7 million was primarily due to the charges of $3.7 million for
the first nine months of 2005 compared to $6.3 million in charges in the same
period of 2004 and cost savings from reductions in workforce, offset by
additional expenses, as a result of the CCS acquisition. The charges incurred in
the first nine months of 2004 were related to integration costs of the CCS
acquisition and litigation costs associated with Prescription City and
hemophilia reimbursement. As a percentage of total Company revenues, selling,
general and administrative expenses were 16% for the first nine months of 2005
compared to 19% for the same period in 2004.


                                       24
<PAGE>

Goodwill Impairment

      During the fourth quarter of 2005, the Company conducted its impairment
test related to the carrying values of goodwill and other intangible assets,
attributed entirely to the Specialty Infusion business unit, in accordance with
SFAS No. 142 and SFAS No. 144, respectively. Based on the results of this
evaluation, the Company recorded non-cash impairment charges of $78.5 million in
goodwill and $0.2 million in other intangible assets related to the Specialty
Infusion business unit as of September 30, 2005. The total charge of $78.7
resulted primarily from changes in the economics of the Specialty Infusion
business unit. The fair value of the Specialty Infusion business unit was
estimated by performing a discounted cash flow analysis for the reporting unit.

Net Loss

      Net loss was $80.9 million, or $6.22 per share, in the third quarter of
2005 compared to a net loss of $2.1 million, or $0.16 per share, for the same
period in 2004. For the first nine months of 2005, net loss was $89.1 million,
or $6.84 per share, compared to a net loss of $2.1 million, or $0.16 per share,
for the same period in 2004. The net losses for the third quarter and first nine
months of 2005 were attributed to the goodwill and intangible asset impairment
charges, the increased interest expense related to the Company's senior notes,
the decreased gross margins for Specialty Infusion and the charges taken
primarily related to the Company's corporate office relocation.

Liquidity and Capital Resources

      Working capital deficit was $162.4 million at September 30, 2005 compared
to working capital of $50.8 million at December 31, 2004 as the result of the
Company classifying its debt and other obligation as current (see Note 1 of
Notes to Condensed Consolidated Financial Statements). Total cash and cash
equivalents at September 30, 2005 was $0.2 million. The ratio of current assets
to current liabilities was 0.36 to 1 at September 30, 2005 and 1.8 to 1 at
December 31, 2004.

      Cash flows used in operating activities for the nine months ended
September 30, 2005 totaled $1.1 million, attributable to the net loss for the
period, a $1.1 million change in the fair value of the interest rate swap and a
decrease in accounts payable of $15.5 million, offset by depreciation and
amortization of $7.1 million, bad debt provision of $2.9 million, the goodwill
and intangible asset impairment charges of $78.7 million and decreases of
approximately $4.5 million, $5.3 million and $6.0 million in accounts
receivable, inventories and prepaids and other, respectively.

      Cash flows provided by investing activities totaled $0.7 million,
primarily attributable to $4.5 million in proceeds received in connection with
the Prescription City settlement, offset by $3.7 million in fixed asset
purchases, net of disposals.

      Cash flows used in financing activities totaled $0.5 million attributable
to $2.0 million in repayments of credit facilities and long-term liabilities,
net, and payment of deferred financing costs, offset by $1.5 million in proceeds
from repayments of notes receivable from stockholders.

      At September 30, 2005, the Company experienced a net decrease in accounts
receivable of $7.4 million primarily attributable to reduced sales of Synagis(R)
which is a seasonal product. Days sales outstanding ("DSO") was 95 days at
September 30, 2005, as compared to 88 days at December 31, 2004. At September
30, 2005, DSO for the Specialty Infusion business unit was 99 days and for the
Wound Care Management business unit, DSO was 60 days, compared to 89 days and 73
days, respectively, at December 31, 2004.

      As of September 30, 2005, the Company's debt and other obligation of
$213.6 million included $185.0 million in senior notes, $23.3 million in
borrowed funds from the Company's commercial lender, $0.8 million representing
the Department of Justice ("DOJ") obligation, $1.5 million representing the
convertible note used in connection with the purchase of Apex in February 2002
and $3.0 million in a convertible note related to the purchase of Home Care of
New York, Inc. ("Home Care") in October 2002. The Company's debt and other
obligation were classified as current liabilities under generally accepted
accounting principles as of September 30, 2005 (see Note 1 of Notes to Condensed
Consolidated Financial Statements). On October 26, 2005, the Company commenced
litigation against former stockholders of Apex alleging, among other things,
that stockholders of Apex made material misrepresentations in connection
with their sale of Apex stock to


                                       25
<PAGE>

Curative in 2002. Prior to commencement of the action, Curative notified the
representative of the former stockholders indicating that it would not be making
the installment payment due on September 30, 2005 or any further payments
pending resolution of this dispute. The balance of the Apex note was
approximately $1.5 million as of September 30, 2005 (see Part II, Item 1, "Legal
Proceedings").

      The total of the Company's debt and other obligation and long-term
liabilities decreased $3.9 million to $213.6 million compared to $217.5 million
at December 31, 2004. The decrease was primarily due to a lower revolver balance
at September 30, 2005 compared to December 31, 2004, a decrease in the DOJ
obligation due to payments made in 2005 and the release of the obligation to pay
a $1.0 million promissory note entered into in connection with the asset
purchase of Prescription City (see Part II, Item 1, "Legal Proceedings").

      The Company's current liquidity needs include those related to working
capital needs for the servicing of its debt, approximately $19.9 million in
interest expense, paid semi-annually, related principally to the Company's
outstanding senior notes, a $0.8 million obligation payable to the DOJ related
to the settlement of its litigation previously disclosed and the expansion of
the Company's branch network of full-service pharmacies, including capital
expenditure requirements of approximately $4.0 million. As previously disclosed,
the Company hired a financial advisor to assess the financial alternatives
available to the Company given its significant debt and continuing losses. In
addition, an ad hoc committee comprised of the holders of approximately 80% of
the Company's senior notes hired a financial advisor as well. Also as previously
disclosed, the Company expected to receive a tax refund of approximately $3.4
million, and during the third quarter of 2005, the Company received
approximately $3.1 million of those tax refunds. On May 2, 2005, the Company
made the first 2005 semi-annual interest payment of approximately $9.75 million
on the senior notes, and on October 23, 2005, the Company paid the $3.0 million
convertible note related to the purchase of Home Care. The Company made these
payments by drawing against its revolving credit facility. The Company did not,
however, pay the November 1, 2005 coupon due on the senior notes and instead
elected to use the 30-day grace period under the Note agreement to continue to
negotiate with the ad hoc committee of the bondholders and their financial
advisor regarding a restructuring of the senior notes. In the absence of
significantly improved operating cash flow, a restructuring of the senior notes
or some other event that improves liquidity, the Company currently does not
expect to be able to service its debt obligations coming due in fiscal 2006. Any
restructuring of the senior notes resulting from the current discussions with
the ad hoc committee of the bondholders would likely include a conversion of
some or all of this debt to some form and amount of equity. The amount, form and
timing of any conversion to equity cannot be predicted at this time. The Company
cannot guarantee that any restructuring or other agreement providing additional
liquidity for the Company will be reached.

      The Company's longer term cash requirements include working capital for
the expansion of its Specialty Infusion business branch pharmacy network and
servicing of the Company's substantial debt. Other cash requirements are
anticipated for capital expenditures in the normal course of business, including
the acquisition of software, computers and equipment related to the Company's
management information systems. As of September 30, 2005, the Company had senior
notes, bank debt and convertible and promissory notes totaling $212.8 million
payable over various periods through 2011.

      As of September 30, 2005, the Company had approximately $16.7 million of
availability under its revolving credit facility with GE Capital. The credit
facility contains both financial and non-financial covenants. The financial
covenants include a total leverage ratio, fixed charges coverage ratio, senior
secured leverage ratio, capital expenditures and accounts receivable days
outstanding limits. In the event of default under any of these covenants, the
Company may seek a waiver or amendment of the covenants. Effective September 30,
2005, the Company and GE Capital executed a waiver agreement to the revolving
credit facility related to the financial covenants of total leverage ratio and
senior secured leverage ratio as the Company was not in compliance with those
covenants. Additionally, this waiver agreement included a temporary waiver until
December 1, 2005 of any default under the credit facility related to the
Company's not paying the November 1, 2005 coupon on the senior notes for 30
days. The Company also received a waiver during the quarter related to the
non-payment of the promissory note in connection with the 2002 purchase of Apex.
There can be no assurance, however, that such waivers or amendments that may be
needed in the future will be obtained. In the event of any such default, the
lender may suspend or terminate advances under the credit facility, or the
lender may accelerate the debt and demand immediate payment of any outstanding
balance. An acceleration of the debt under the Company's senior secured credit
facility


                                       26
<PAGE>

would result in an event of default under the indenture for the Company's senior
notes as well. The Company was in compliance with the other covenants,
as amended, under the credit facility at September 30, 2005.

Recently Issued Accounting Standard

      In December 2004, the FASB issued SFAS No. 123(R) which eliminated the
alternative of accounting for share-based compensation transactions under the
intrinsic value method of APB No. 25. Instead, SFAS No. 123(R) requires
companies to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award. The
grant-date fair value of employee share options and similar instruments will be
estimated using option-pricing models adjusted for the unique characteristics of
those instruments.

      The Company will adopt SFAS No. 123(R) on January 1, 2006. The adoption of
SFAS No. 123(R)'s fair value method is expected to have a significant impact on
the Company's results of operations.

Cautionary Statement and Risk Factors

      The statements contained in this Quarterly Report on Form 10-Q include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "PSLRA"). When used in this Quarterly Report
on Form 10-Q and in future filings by us with the Securities and Exchange
Commission (the "SEC"), in our news releases, presentations to securities
analysts or investors, and in oral statements made by or with the approval of
one of our executive officers, the words or phrases "believes," "anticipates,"
"expects," "plans," "seeks," "intends," "will likely result," "estimates,"
"projects" or similar expressions are intended to identify such forward-looking
statements. These statements are only predictions. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Actual events or results may differ materially from the results
discussed in the forward-looking statements.

      The following text contains cautionary statements regarding our business
that investors and others should consider. This discussion is intended to take
advantage of the "safe harbor" provisions of the PSLRA. Except to the extent
otherwise required by federal securities laws, we do not undertake to address or
update forward-looking statements in future filings with the SEC or
communications regarding our business or operating results, and do not undertake
to address how any of these factors may have caused results to differ from
discussions or information contained in previous filings or communications. You
should not place undue reliance on forward-looking statements, which speak only
as of the date they are made. In addition, any of the matters discussed below
may have affected past, as well as current, forward-looking statements about
future results so that our actual results in the future may differ materially
from those expressed in prior communications.

Risks Related to our Business

Our substantial level of indebtedness could adversely affect our financial
condition and prevent us from fulfilling our debt obligations.

      We had approximately $213.6 million in outstanding debt as of September
30, 2005, including $185.0 million aggregate principal amount of 10.75% senior
notes due 2011 (the "Notes") and a $23.3 million revolving credit facility with
General Electric Capital Corporation ("GE Capital"), and incurred significant
losses over the past several quarters. We hired a financial advisor to assist us
in evaluating the financial alternatives available given our significant debt
and continuing losses. In October 2005, we commenced discussions with an ad hoc
committee representing holders of approximately 80% of the aggregate principal
amount of the Notes regarding a possible restructuring of the Notes. In
connection with these discussions, we elected not to pay the interest payment
due on the Notes on November 1, 2005 and instead elected to use the 30-day grace
period under the Note agreement. In addition, we executed a waiver
agreement with GE Capital for failing to meet the financial covenants of total
leverage ratio and senior secured leverage ratio related to our revolving credit
facility for the quarter ended September 30, 2005, and it is uncertain whether
we will be able to meet those obligations in the future. Therefore, all of our
outstanding debt has been classified as current in the accompanying financial
statements.  These conditions raise substantial doubt about our ability to
continue as a going concern (see Note 1 of Notes to Condensed Consolidaated
Financial Statements).


                                       27
<PAGE>

      Our high level of indebtedness could have important consequences. For
example, it could:

      o     make it more difficult for us to satisfy our obligations on the
            Notes or under our revolving credit facility;

      o     require us to dedicate a substantial portion of our cash flow from
            operations to interest and principal payments on our indebtedness,
            reducing the availability of our cash flow for other purposes, such
            as branch pharmacy expansion, capital expenditures, acquisitions and
            working capital;

      o     limit our flexibility in planning for, or reacting to, changes in
            our business and the industry in which we operate;

      o     increase our vulnerability to general adverse economic and industry
            conditions;

      o     place us at a disadvantage compared to our competitors that have
            less debt;

      o     limit our ability to obtain or renew managed care contracts;

      o     expose us to fluctuations in the interest rate environment because
            the Company's revolving credit facility is at a variable rate of
            interest; and

      o     limit our ability to borrow additional funds.

      We expect to obtain the money to pay our expenses and to pay the interest
on the Notes, our revolving credit facility and other debt from cash flow from
our operations and from additional loans under our revolving credit facility.
Our ability to meet our expenses thus depends on our future performance, which
will be affected by financial, business, economic and other factors. For
example, in 2004, our business was adversely affected by reimbursement
reductions in the State of California for the hemophilia related products we
sell. We will not be able to control many of these factors, such as economic
conditions in the markets where we operate and pressure from competitors. We
cannot be certain that our cash flow will be sufficient to allow us to pay
principal and interest on our debt (including the Notes) and meet our other
obligations, such as those relating to the expansion of our branch pharmacy
network. If we do not have enough money, we may be required to refinance all or
part of our existing debt (including the Notes), sell assets or borrow more
money. We cannot guarantee that we will be able to do so on terms acceptable to
us. In addition, the terms of existing or future debt agreements, including our
revolving credit facility and the indenture, may restrict us from adopting any
of these alternatives. In October 2005, we commenced discussions with an ad hoc
committee representing holders of approximately 80% of the aggregate principal
amount of the Notes regarding a possible restructuring of the Notes. In
connection with these discussions, we elected not to pay the interest payment
due on the Notes on November 1, 2005. The failure to generate sufficient cash
flow, to refinance or restructure a significant portion of our debt or otherwise
improve our liquidity would significantly adversely affect the value of the
Notes and our ability to pay principal of and interest on the Notes.

Our substantial outstanding debt subjects us to covenant default risk under our
senior secured credit facility.

      We are highly leveraged. If we are unable to achieve our forecasted
operating results, we may violate covenants under our senior secured credit
facility which include a total leverage ratio, fixed charges coverage ratio,
senior secured leverage ratio, capital expenditures and accounts receivable days
outstanding limits. In the event we default under any of these covenants, we may
seek a waiver or amendment of the covenants. Effective December 31, 2004, the
Company executed an amendment to its revolving credit facility to amend the
financial covenants of total leverage ratio and fixed charges, in addition to
other changes made to the credit agreement. Effective September 30, 2005, the
Company and GE Capital executed a waiver agreement to the revolving credit
facility related to the financial covenants of total leverage ratio and senior
secured leverage ratio as the Company was not in compliance with those
covenants. The other financial covenants were amended through December 31, 2005
and


                                       28
<PAGE>

may need to be amended again depending on the Company's operating results. There
can be no assurance, however, that we will be able to obtain such a waiver or
amendment. In the event we are unable to obtain a waiver or amendment to remedy
any such default, the lender may suspend or terminate advances under the credit
facility, or the lender may accelerate the debt and demand immediate payment of
any outstanding balance. An acceleration of the debt under our senior secured
credit facility would result in an event of default under the indenture for the
Notes as well.

If we fail to comply with the terms of our settlement agreement with the
government, we could be subject to additional litigation or other governmental
actions which could be harmful to our business.

      On December 28, 2001, we entered into a settlement with the U.S.
Department of Justice ("DOJ"), the U.S. Attorney for the Southern District of
New York, the U.S. Attorney for the Middle District of Florida and the U.S.
Department of Health and Human Services, Office of the Inspector General, in
connection with all federal investigations and legal proceedings related to
whistleblower lawsuits previously pending against us in the U.S. District Court
for the Southern District of New York and the U.S. District Court for the
District of Columbia. These lawsuits included allegations that we improperly
caused our hospital customers to seek reimbursement for a portion of our
management fees that included costs related to advertising and marketing
activities by our personnel and allegations that we violated the federal
anti-kickback law and the federal False Claims Act. Under the terms of the
settlement, the lawsuits were dismissed, the United States and the
whistleblowers released us from the claims asserted in the lawsuits, and we
agreed to pay to the United States a $9.0 million initial payment, with an
additional $7.5 million to be paid over the next four years. As of September 30,
2005, a balance of approximately $0.8 million was outstanding on this
obligation. Pursuant to the settlement, we have been required to fulfill certain
additional obligations, including abiding by a five-year Corporate Integrity
Agreement, avoiding violations of law and providing certain information to the
DOJ from time to time. As of December 17, 2003, we were released from part of
our obligations under the Corporate Integrity Agreement. The independent review
organization that conducts the audit of our records pursuant to the Corporate
Integrity Agreement is no longer required to conduct the general compliance
review. If we fail or if we are accused of failing to comply with the terms of
the settlement, we may be subject to additional litigation or other governmental
actions, including our Wound Care Management business unit being barred from
participating in the Medicare program and other federal health care programs. In
addition, as part of the settlement, we consented to the entry of a judgment
against us for $28.0 million, less any amounts previously paid under the
settlement, that would be imposed only if we fail to comply with the terms of
the settlement, which, if required to be paid, could have a material adverse
effect on our financial position. In July 2002, we settled a shareholders' class
action suit for $10.5 million that had been consolidated from four lawsuits
involving allegations stemming from the whistleblower lawsuits and DOJ
investigations.

If DHS enforces its audit findings against third-party pharmacies and appeals
are unsuccessful, it is likely that the third-party pharmacies would seek
indemnification from us. Any requirement for us to indemnify the pharmacies
could have a material adverse effect on our financial position and results of
operations.

      As previously disclosed, we intend to dispute the results of audits
conducted by the California Department of Health Services ("DHS") of three
independent retail California pharmacies which previously did business with two
of our subsidiaries, Apex Therapeutic Care, Inc. ("Apex") and eBioCare.com, Inc.
("eBioCare"). These subsidiaries provided contract pharmacy and billing services
to the three independent retail pharmacies audited by DHS.

      The pharmacies recently have undergone audits by DHS which included a
review of their Medi-Cal billing for clotting factor supplied to the pharmacies
by Apex and eBioCare. The audits at issue covered the period from October 1,
2001 to May 30, 2004. Although Apex and eBioCare are not being audited, their
previous contract pharmacy relationships with the three independent retail
pharmacies are potentially implicated because the pharmacies may assert
indemnification claims against Apex and eBioCare.

      Although no final audit findings have been issued, the Company's legal
counsel recently has learned through discussions with DHS that final audit
findings assessed against the three independent retail pharmacies may include up
to $38.0 million in alleged overpayments.


                                       29
<PAGE>

      Approximately 85% of the assessment against the three independent retail
pharmacies is for claims that DHS alleges were improperly reimbursed at 1% over
the retail pharmacies' cost of acquiring the product from the Company's
subsidiaries. DHS alleges that such reimbursement was improper because, in its
view, payments should have been made at 1% over the cost the retail pharmacies
would have incurred had they acquired the product directly from the product
manufacturer.

      Substantially all of the balance of the assessment against the three
independent retail pharmacies is based on allegedly improper reimbursement for
the medically necessary anti-inhibitor product called FEIBA. DHS alleges that
the retail pharmacies submitted claims for FEIBA improperly, in its view, when
they used factor product service codes. Apex and eBioCare used the factor
product service codes when submitting claims on behalf of the retail pharmacies
because EDS, the company that processes claims for payment on behalf of DHS,
could not accept the FEIBA-specific service code into its systems. DHS auditors
have not confirmed whether they will include the FEIBA assessments in their
final findings.

      The Company plans to work closely with the three independent retail
pharmacies to appeal any assessments resulting from the audits. The Company
believes the allegations asserted by DHS against the pharmacies are without
merit, and the Company expects the pharmacies to vigorously defend against these
allegations through administrative and judicial proceedings. The Company is also
aware that other similar retail pharmacy relationships in California are being
audited by DHS.

      The Company anticipates that the three independent retail pharmacies may
assert claims for indemnification from the Company's subsidiaries for any
liabilities resulting from the audits. Based on facts and circumstances known to
date, the Company believes some amount of monetary loss is reasonably possible
if the pharmacies assert and prevail on indemnification claims. While the
Company is unable to estimate the range of potential loss due to the uncertainty
of various issues involved in this matter, it does not believe the loss will
exceed $38.0 million. No related loss provision has been accrued in
the condensed consolidated financial statements as of September 30, 2005.

We are involved in litigation which may harm the value of our business.

      In the normal course of our business, we are involved in lawsuits, claims,
and investigations, including any arising out of services or products provided
by or to our operations, personal injury claims, employment disputes and
contractual claims, the outcome of which, in our opinion, should not have a
material adverse effect on our financial position and results of operations.
However, we may become subject to future lawsuits, claims, audits and
investigations that could result in substantial costs and divert our attention
and resources. In addition, since our current growth strategy includes
acquisitions, among other things, we may become exposed to legal claims for the
activities of an acquired business prior to the respective acquisition.

Our industry is subject to extensive government regulation, and non-compliance
by us, our suppliers, our customers or our referral sources could harm our
business.

      The marketing, labeling, dispensing, storing, provision, selling, pricing
and purchasing of drugs, health supplies and health services, including the
biopharmaceutical products we provide, are extensively regulated by federal and
state governments, and if we fail or are accused of failing to comply with laws
and regulations, our business could be harmed. Our business could also be harmed
if the suppliers, customers or referral sources we work with are accused of
violating laws or regulations. The applicable regulatory framework is complex,
and the laws are very broad in scope. Many of these laws remain open to
interpretation and have not been addressed by substantive court decisions. The
federal government or states in which we operate could, in the future, enact
more restrictive legislation or interpret existing laws and regulations in a
manner that could limit the manner in which we can operate our business and have
a negative impact on our business.


                                       30
<PAGE>

A substantial percentage of our revenue is attributable to the Medicaid and
Medicare programs. Our business has been significantly adversely impacted by
recent changes in Medi-Cal reimbursement policies and will continue to be
subject to changes in reimbursement policies and other legislative or regulatory
initiatives aimed at reducing costs associated with various government programs.

      In the year ended December 31, 2004, approximately 40% of our Specialty
Infusion business unit's revenues were derived from products and/or services
provided to patients covered under various state Medicaid programs, most of
which were from California, and approximately 7% of our Specialty Infusion
business unit's revenues were derived from products and/or services provided to
patients covered under the Medicare program. During the nine months ended
September 30, 2005, approximately 31% and 8% of our Specialty Infusion business
unit's revenues were derived from products and/or services provided to patients
covered under various state Medicaid and Medicare programs, respectively. Such
programs are highly regulated and subject to frequent and substantial changes
and cost-containment measures that may limit and reduce payments to providers.
In the recent past, many states have been experiencing budget deficits that may
require future reductions in health care related expenditures. According to a
Kaiser Family Foundation report issued in October 2004, all 50 states and the
District of Columbia implemented Medicaid cost containment measures in fiscal
year 2004, and each of these states planned to put in additional spending
constraints in fiscal year 2005. State cost containment activity continued to
focus heavily on reducing provider payments and controlling prescription drug
spending.

      In December 2003, the Medicare Prescription Drug Improvement and
Modernization Act of 2003 ("MMA") was signed into federal law, providing for a
Medicare prescription drug benefit and other changes to the Medicare program,
including changes to payment methodologies for products we distribute that are
covered by Medicare. Prior to MMA, Medicare reimbursement for many of the
products we distribute was based on 95% of the products' average wholesale price
("AWP"). Under MMA, Medicare reimbursement for many of the products we
distribute, including most physician-administered drugs and biologicals, was
lowered to 80-85% of AWP effective January 1, 2004. This 2004 change did not
affect Medicare reimbursement for blood-clotting factor products, which
continued to be reimbursed at 95% of AWP during 2004.

      Effective January 1, 2005, the Medicare reimbursement methodology for
blood-clotting factor products changed from an AWP-based system to one based
upon Average Selling Price ("ASP") which has lowered Medicare reimbursement. In
addition to the payment we receive from the Medicare program for blood-clotting
factor, beginning in January 2005, we receive a separate payment of $0.14 for
each unit of factor furnished to Medicare beneficiaries. It is possible that
states and/or commercial payors may adopt the new Medicare reimbursement
methodology. The conversion to a system based upon ASP could have a material
adverse effect on our business, financial condition and results of operations.
In addition, MMA changes the relationship between the Medicare and Medicaid
programs such that we may receive less reimbursement in the future for
individuals who receive benefits under both of these programs.

      In addition to these federal initiatives, many states are also making
modifications to the manner with which they reimburse providers of pharmacy
services. For example, in California, where approximately 12% and 7% of our
total revenues for the year ended December 31, 2004 and for the nine months
ended September 30, 2005, respectively, were derived from blood-clotting
products reimbursed by California state funded health programs, the state
legislature in 2003 passed legislation that modified the reimbursement
methodology for blood-clotting factor products under various California state
funded health programs. Under the new reimbursement methodology, blood-clotting
factor products are reimbursed based upon ASP, as provided by the manufacturers,
plus 20%. In addition, payments for California's Medicaid program ("Medi-Cal")
and certain other state-funded health programs were to be reduced by 5% for
services provided on and after January 1, 2004 and through December 31, 2007. On
December 23, 2003, the United States District Court for the Eastern District of
California issued an injunction in California Medical Association, et al v.
Bonta ("CMA v. Bonta") enjoining that scheduled 5% Medi-Cal reimbursement rate
cut. DHS appealed the decision to the federal Ninth Circuit Court of Appeals.
The Ninth Circuit issued a decision on August 2, 2005 reversing the District
Court's grant of the preliminary injunction. However, because a petition for
rehearing and rehearing en banc has been filed, the preliminary injunction
remains in effect until the Ninth Circuit rules on the petition. It is not known
when the Ninth Circuit will rule. Further, subsequent to the issuance of the
decision by the Ninth Circuit, the California legislature amended Welfare &
Institutions Code Section 14105.19 to eliminate the 5% reduction for dates of
service from January 1, 2004 through December 31, 2005. Thus, there is no
possibility of


                                       31
<PAGE>

recoupment of payments made pursuant to the preliminary injunction during this
period. It is not possible to determine whether the current Medi-Cal rates will
be reduced after January 1, 2006, should the petition for rehearing or rehearing
en banc be denied. It is possible that the 5% reduction will go into effect at
some point, or it is possible that the California legislature will pass further
legislation to eliminate the 5% reduction. The District Court order enjoining
the 5% Medi-Cal rate reduction did not apply to other state funded programs for
hemophilia patients, and California implemented the 5% reduction for these other
programs. However, the 5% reduction as applied to the other state funded
programs was repealed on or about July 31, 2004 for services provided on and
after July 1, 2004.

      Effective June 1, 2004, Medi-Cal implemented the ASP reimbursement
methodology for blood-clotting factor products. The change amounted to an
approximate 30-40% cut from rates previously in effect. The implementation of
the reduction in the reimbursement from Medi-Cal, and changes in regulations
governing such reimbursement, has adversely impacted our revenues and
profitability from the sale of products by us or by retail pharmacies to which
we provide products or services for hemophilia patients who are Medi-Cal
beneficiaries or beneficiaries of other state funded programs for hemophilia
patients.

      In December, 2004, we and certain named individual plaintiffs entered into
a Settlement Agreement which resolved both a lawsuit previously filed on behalf
of two individual Medi-Cal recipients with hemophilia in the United States
District Court for the Eastern District of California against the State of
California relating to the implementation of the new ASP reimbursement
methodology, and a lawsuit previously filed by us in the Superior Court for the
County of Sacramento relating to, among other things, the State of California's
failure to comply with certain applicable federal procedural requirements
relating to the reimbursement rates. In return for dismissal of both lawsuits,
DHS agreed to process, on a priority basis, all pending and future Medi-Cal,
California Children's Services and Genetically Handicapped Persons Program
claims submitted by us. In addition, DHS agreed to expedite its efforts to
implement electronic billing and payment for blood-clotting factor claims. There
can be no assurance, however, that the Company's accounts receivable collections
from the State of California will improve as the result of this settlement
agreement. A failure of the Company to improve its accounts receivable
collections from the State of California could have a material adverse effect on
the Company's business, financial condition and operating results.

      In addition, the California legislature approved a proposal by the
Governor of California to expand the Medi-Cal managed care program into 13
additional counties and to phase in mandatory enrollment for parents and
children who are Medi-Cal beneficiaries. The Governor's proposal for mandatory
enrollment of seniors and disabled individuals was rejected by the legislature,
except for those individuals who may reside in an expansion county where a
County Organized Health System ("COHS") model is proposed. Under the COHS model,
all eligible Medi-Cal beneficiaries are mandatorily enrolled into the managed
care plan, including seniors and persons with disabilities. We understand there
may be significant concern by various constituencies over mandatory enrollment
of medically fragile populations, and the outcome of these proposals is
uncertain at this time.

      We are in the process of evaluating the impact various federal and state
legislative and related initiatives may have on our business, financial position
and results of operations.

Our growth strategy includes the expansion of our branch pharmacy network by the
opening of new branch pharmacy locations.

      An important element of the growth strategy of our Specialty Infusion
business unit is the expansion of our branch pharmacy network through the
opening of new branch locations. This expansion will involve significant
planning and execution processes, such as identifying new markets, leasing
facility space, hiring qualified personnel, obtaining payor contracts and
obtaining patient referrals. In addition, the Company will need to invest
capital in facility build out, computers, offices and other furniture and
equipment. It is expected that these branch pharmacies will incur losses during
their startup periods. Any failure by us to effectively execute this expansion
strategy, including the successful transition of expansion branches from loss
positions to profitability, could have a material adverse effect on the
Company's business, financial condition, operating results and cash flows.


                                       32
<PAGE>

We have experienced rapid growth by acquisitions. If we are unable to manage our
growth effectively or purchase or integrate new companies, our business could be
harmed.

      Our growth strategy will likely strain our resources, and if we cannot
effectively manage our growth, our business could be harmed. In connection with
our growth strategy, we will likely experience an increase in the number of our
employees in our branch network, the size of our programs and the scope of our
operations. Our ability to manage this growth and to be successful in the future
will depend partly on our ability to retain skilled employees, enhance our
management team and improve our management information and financial control
systems.

      As part of our growth strategy, we may evaluate acquisition opportunities.
Acquisitions involve many risks, including the following:

      o     Since the specialty pharmacy industry is undergoing consolidation,
            we may experience difficulty in identifying suitable candidates and
            negotiating and consummating acquisitions on attractive terms, if at
            all.

      o     In the industry in which our Specialty Infusion business unit
            operates, there are customers who have a strong affiliation with
            their community-based representatives; accordingly, we may
            experience difficulty in retaining and assimilating the
            community-based representatives of companies we acquire.

      o     Because of the relationships between community-based representatives
            and customers in certain of our product lines, the loss of a single
            community-based representative may entail the loss of a significant
            amount of revenue.

      o     Our operational, financial and management systems may be
            incompatible with or inadequate to cost effectively integrate and
            manage the acquired business' systems. As a result, billing
            practices could be interrupted, and cash collections on the newly
            acquired business could be delayed pending conversion of patient
            files onto our billing systems and receipt of provider numbers from
            government payors.

      o     A growth strategy that involves significant acquisitions diverts our
            management's attention from existing operations.

      o     Acquisitions may involve significant transaction costs which we may
            not be able to recoup.

      o     We may not be able to integrate newly acquired businesses
            appropriately.

      In addition, we may become subject to litigation and other liabilities
resulting from the conduct of an acquired business prior to their acquisition by
us.

Our growth strategy may include acquisitions. If we fail to implement our
acquisition growth strategy as intended, or incur unknown liabilities for the
past practices of acquired companies, our results of operations could be
adversely affected.

      An element of the growth strategy of our Specialty Infusion business unit
may be expansion through the acquisition of complementary businesses. Our
competitors may acquire or seek to acquire many of the businesses that would
also be suitable acquisition candidates for us. This competition could limit our
ability to grow by acquisition or increase the cost of our acquisitions. There
can be no assurance that we will be able to acquire any complementary businesses
that meet our target criteria on satisfactory terms, or at all.

      We may acquire businesses with significant unknown or contingent
liabilities, including liabilities for failure to comply with health care or
reimbursement laws and regulations. We have policies to conform the practices of
acquired businesses to our standards and applicable laws and generally intend to
seek indemnification from prospective sellers covering these matters. We may,
however, incur material liabilities for past activities of acquired businesses.


                                       33
<PAGE>

      While we generally obtain contractual rights to indemnification from
owners of the businesses we acquire, our ability to realize on any
indemnification claims will depend on many factors, including, among other
things, the availability of assets of the indemnifying parties. These
indemnifying parties are often individuals who may not have the resources to
satisfy an indemnification claim.

We operate in a rapidly changing, consolidating and competitive environment. If
we are unable to adapt quickly to these changes, our business and results of
operations could be seriously harmed.

      The specialty infusion industry is experiencing rapid consolidation. We
believe that technological and regulatory changes will continue to attract new
entrants to the market. Industry consolidation among our competitors may
increase their financial resources, enabling them to compete more effectively
based on price and services offered. This could require us either to reduce our
prices or increase our service levels, or risk losing market share. Moreover,
industry consolidation may result in stronger competitors that are better able
to compete. If we are unable to effectively execute our growth strategy, our
ability to compete in a rapidly changing and consolidating specialty pharmacy
industry may be negatively impacted.

The anticipated benefits of combining Curative and CCS may not be realized.

      In April of 2004, we purchased CCS with the expectation that the
combination of both companies will result in various benefits including, among
other things, benefits relating to increased infrastructure of added pharmacies,
increased leverage with a greater number of payor contracts, an essential and
demonstrably cost-effective therapy offering, increased clinical backbone and
expertise, cost savings and operating efficiencies. There can be no assurance
that we will realize any of these benefits or that the acquisition will not
result in the deterioration or loss of significant business of the combined
company. Costs incurred and liabilities assumed in connection with the
acquisition, including pending and/or threatened disputes and litigation, could
have a material adverse effect on the combined company's business, financial
condition and operating results.

We may need additional capital to finance our growth and capital requirements,
which could prevent us from fully pursuing our growth strategy.

      In order to implement our present growth strategy, we may need substantial
capital resources and may incur, from time to time, short- and long-term
indebtedness, the terms of which will depend on market and other conditions. Due
to uncertainties inherent in the capital markets (e.g., availability of capital,
fluctuation of interest rates, etc.), we cannot be certain that existing or
additional financing will be available to us on acceptable terms, if at all.
Even if we are able to obtain additional debt financing, we may incur additional
interest expense, which may decrease our earnings, or we may become subject to
contracts that restrict our operations. As a result, we could be unable to fully
pursue our growth strategy. Further, additional financing may involve the
issuance of equity securities that would dilute the interests of our existing
shareholders and potentially decrease the market price of our common stock.

An impairment of the significant amount of goodwill on our financial statements
could adversely affect our results of operations.

      Our specialty infusion acquisitions resulted in the recording of a
significant amount of goodwill on our financial statements. The goodwill was
recorded because the fair value of the net assets acquired was less than the
purchase price. We may not realize the full value of this goodwill. As such, we
evaluate, at least on an annual basis, whether events and circumstances indicate
that all or some of the carrying value of goodwill is no longer recoverable, in
which case we would write off the unrecoverable goodwill as a charge against our
earnings. Due primarily to changes in the economics of the Specialty Infusion
business unit we recorded a non-cash impairment charge of $78.5 million in
goodwill and $0.2 million in other intangible assets, respectively, in the third
quarter of 2005. We will continue to monitor our goodwill and intangibles for
impairment indicators.


                                       34
<PAGE>

      Since our growth strategy may involve the acquisition of other companies,
we may record additional goodwill in the future. The possible write-off of this
goodwill could negatively impact our future earnings. We will also be required
to allocate a portion of the purchase price of any acquisition to the value of
any intangible assets that meet the criteria specified in the Statement of
Financial Accounting Standards No. 141, "Business Combinations," such as
marketing, customer or contract-based intangibles. The amount allocated to these
intangible assets could be amortized over a fairly short period, which may
negatively affect our earnings or the market price of our common stock.

      As of September 30, 2005, we had goodwill of approximately $36.9 million,
or 21% of total assets.

Failure to achieve and maintain effective internal control over financial
reporting could have a material adverse effect on our business, results of
operations and stock price.

      We must continue to document and test our internal control procedures in
order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of
2002, which requires annual management assessments of the effectiveness of our
internal control over financial reporting and a report by our independent
registered public accounting firm attesting to these assessments. During this
process, management may identify control deficiencies and material weaknesses in
our internal control over financial reporting and in our disclosure controls and
procedures. Although management's evaluation concluded that our internal control
over financial reporting was effective as of December 31, 2004, we cannot
predict the outcome of testing in future periods. Additionally, for the year
ended December 31, 2005, our report on internal controls will include an
evaluation of the internal controls of the acquired CCS branches which have not
previously had such an evaluation. If we fail to maintain the adequacy of our
internal controls and disclosure controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to conclude on an
ongoing basis that we have effective internal control over financial reporting.
If we cannot provide reliable financial reports, our business and operating
results could be harmed, investors could lose confidence in our reported
financial information and the trading price of our stock could decline.

We are highly dependent on our relationships with a limited number of
biopharmaceutical and pharmaceutical suppliers, and the loss of any of these
relationships could significantly affect our ability to sustain or grow our
revenues.

      The biopharmaceutical and pharmaceutical industries are susceptible to
product shortages. Some of the products that we distribute, such as factor VIII
blood-clotting products and IVIG, have experienced shortages in the past due to
the inability of suppliers to increase production to meet rising global demand.
Although such shortages have ended, demand continues to grow. We are currently
experiencing allocation restrictions of IVIG products. Suppliers were unable to
increase production to meet rising global demand. For the year ended December
31, 2004, approximately 32%, or $81.3 million, and for the nine months ended
September 30, 2005, approximately 25%, or $52.5 million, of our Specialty
Infusion business unit's revenues were derived from our sale of factor VIII. We
purchase the majority of our supplies of blood-clotting products from five
suppliers: Baxter Healthcare Corporation, Wyeth-Ayerst Pharma, Bayer Direct,
Novo Nordisk and ZLB Behring. We believe that these five suppliers represent
substantially all of the production capacity for recombinant factor VIII. In the
event that one of these suppliers is unable to continue to supply us with
products, it is uncertain whether the remaining suppliers would be able to make
up any shortfall resulting from such inability. Our ability to take on
additional customers or to acquire other specialty pharmacy or infusion services
businesses with significant hemophilia customer bases could be affected
negatively in the event we are unable to secure adequate supplies of our
products from these suppliers. In addition, MedImmune, Inc. is the sole
manufacturer of Synagis(R), a product used to treat RSV in infants. For the year
ended December 31, 2004, approximately 17%, or $43.7 million, and for the nine
months ended September 30, 2005, approximately 14%, or $28.1 million, of our
Specialty Infusion business unit's revenues were derived from our sale of
Synagis(R). In particular, RSV occurs primarily during the winter months and
thus the demand for Synagis(R) is greater during this time. A shortage in the
supply of Synagis(R) or our failure to adequately plan for the demand could
adversely affect our financial results. MedImmune has designated us as an
indirect participant in their distribution network for the 2005-2006 Synagis(R)
season, and we have had to secure arrangements with other product wholesalers
for supply of Synagis(R). MedImmune has declined to supply the product directly
to us as a result of their evaluation of our financial statements. We have
recently been put on allocation of product for IVIG by our largest supplier of
IVIG product. Although we believe we will have sufficient supply of IVIG to
service our existing customers, we may not be able to increase our market share


                                       35
<PAGE>

of providing infusion services related to IVIG. There can be no assurance as to
when the allocation for IVIG products will terminate. In addition, it is
possible that we will experience price increases for these products. Although we
believe the price increase for these products will be absorbed by our customers,
there can be no assurance that we will be successful in passing on any such
price increase. If these products, or any of the other drugs or products that we
distribute, are in short supply for long periods of time, our business could be
harmed.

Some biopharmaceutical suppliers in the specialty pharmacy industry have chosen
to limit the number of distributors of their products. If we are not selected as
a preferred distributor of one or more of our core products, our business and
results of operations could be seriously harmed.

      We have identified a trend among some of our suppliers toward the
retention of a limited number of preferred distributors to market certain of
their biopharmaceutical products. If this trend continues, we cannot be certain
that we will be selected and retained as a preferred distributor or can remain a
preferred distributor to market these products. Although we believe we can
effectively meet our suppliers' requirements, there can be no assurance that we
will be able to compete effectively with other specialty pharmacy companies to
retain our position as a distributor of each of our core products. Adverse
developments with respect to this trend could have a material adverse effect on
our business and results of operations.

The seasonal nature of a portion of our business may cause significant
fluctuations in our quarterly operating results.

      For the year ended December 31, 2004, approximately 17%, or $43.7 million,
and for the nine months ended September 30, 2005, approximately 14%, or $28.1
million, of our Specialty Infusion business unit's revenues were derived from
our sale of Synagis(R). Synagis(R) is used to prevent RSV in infants. As RSV
occurs primarily during the winter months, the major portion of our Synagis(R)
sales may be higher during the first and fourth quarters of the calendar year
which may result in significant fluctuations in our quarterly operating results.

If we fail to cultivate new or maintain established relationships with the
physician referral sources, our revenues may decline.

      Our success, in part, is dependent upon referrals and our ability to
maintain good relationships with physician referral sources. Physicians
referring patients to us are not our employees and are free to refer their
patients to our competitors. If we are unable to successfully cultivate new
referral sources and maintain strong relationships with our current referral
sources, our revenues and profits may decline.

If additional providers obtain access to products we handle at more favorable
prices, our business could be harmed.

      Because we do not receive federal grants under the Public Health Service
Act, we are not eligible to participate directly in a federal pricing program
administered by the Federal Health Resources and Services Administration's
Public Health Service, which allows certain entities with such grants, such as
certain hospitals and hemophilia treatment centers, to obtain discounts on
drugs, including certain biopharmaceutical products (e.g., hemophilia-clotting
factor and IVIG) that represented approximately 45% of our total Company
revenues at December 31, 2004 and for the nine months ended September 30, 2005.
To the best of our knowledge, these entities benefit by being able to acquire,
pursuant to this federal program, products competitive with ours at prices lower
than our cost for the same products. Our customers, where eligible, may elect to
obtain hemophilia-clotting factor, or other products, from such lower-cost
entities, which could result in a reduction of revenue to us.

Recent investigations into reporting of average wholesale prices could reduce
our pricing and margins.

      Many government payors, including Medicare (in 2004) and many state
Medicaid programs, as well as a number of private payors, pay us directly or
indirectly based upon a drug's AWP. In fact, most of our Specialty Infusion
business unit's revenues result from reimbursement methodologies based on the
AWP of our products. The AWP for most drugs is compiled and published by
third-party price reporting services, such as First DataBank, Inc.,


                                       36
<PAGE>

from information provided by manufacturers and/or wholesalers. Various federal
and state government agencies have been investigating whether the published AWP
of many drugs, including some that we distribute and sell, is an appropriate or
accurate measure of the market price of the drugs. There are also several
lawsuits pending against various drug manufacturers in connection with the
appropriateness of the manufacturers' AWP for a particular drug(s). These
government investigations and lawsuits involve allegations that manufacturers
reported artificially inflated AWPs of various drugs to third-party price
reporting services, which, in turn, reported these prices to its subscribers,
including many state Medicaid agencies who then included these AWPs in the
state's reimbursement policies.

      Moreover, as discussed above, as a result of MMA, Medicare reimbursement
for many of the products we distribute, including most physician-administered
drugs and biologicals, was lowered to 80-85% of AWP effective January 1, 2004.
Although this 2004 change did not affect Medicare reimbursement for
blood-clotting factor products, which continued to be reimbursed at 95% of AWP
in 2004, effective January 1, 2005, the Medicare reimbursement methodology for
blood-clotting factor products changed from an AWP-based system to a system
based upon ASP (plus, in the case of hemophilia products, 6% plus an additional
administrative fee most recently proposed by Centers for Medicare & Medicaid
Services ("CMS") to be $0.14 per unit), which has lowered Medicare
reimbursement. It is possible that states and/or commercial payors may adopt the
new Medicare reimbursement methodology. While we cannot predict the eventual
results of any law changes, government proposals, investigations or lawsuits, if
government or private payors revise their pricing based on new methods of
calculating AWP for products we supply, or implement reimbursement methodology
based on a value other than AWP, this could have a material adverse effect on
our business, financial condition and results of operations.

A reduction in the demand for our products and services could result in our
reducing the pricing and margins on certain of our products.

      A number of circumstances could reduce demand for our products and
services, including:

      o     customer shifts to treatment regimens other than those we offer;

      o     new treatments or methods of delivery of existing drugs that do not
            require our specialty products and services;

      o     the recall of a drug or adverse reactions caused by a drug;

      o     the expiration or challenge of a drug patent;

      o     competing treatment from a new drug, a new use of an existing drug
            or genetic therapy;

      o     drug companies ceasing to develop, supply and generate demand for
            drugs that are compatible with the services we provide;

      o     drug companies stopping outsourcing the services we provide or
            failing to support existing drugs or develop new drugs;

      o     governmental or private initiatives that would alter how drug
            manufacturers, health care providers or pharmacies promote or sell
            products and services;

      o     the loss of a managed care or other payor relationship covering a
            number of high-revenue customers; or

      o     the cure of a disease we service.


                                       37
<PAGE>

Our business involves risks of professional, product and hazardous substance
liability, and any inability to obtain adequate insurance may adversely affect
our business.

      The provision of health services entails an inherent risk of professional
malpractice, regulatory violations and other similar claims. Claims, suits or
complaints relating to health services and products provided by physicians,
pharmacists or nurses in connection with our Specialty Infusion and Wound Care
Management businesses may be asserted against us in the future.

      Our operations involve the handling of bio-hazardous materials. Our
employees, like those of all companies that provide services dealing with human
blood specimens, may be exposed to risks of infection from AIDS, hepatitis and
other blood-borne diseases if appropriate laboratory practices are not followed.
Although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations, we cannot completely eliminate the risk of accidental infection or
injury from these materials. In the event of such an accident, we could be held
liable for any damages that result, and such liability could harm our business.

      Our operations expose us to product and professional liability risks that
are inherent in managing the delivery of wound care services and the provision
and marketing of biopharmaceutical and pharmaceutical products. We currently
maintain professional and product liability insurance coverage of $15.0 million
in the aggregate. Because we cannot predict the nature of future claims that may
be made, there can be no assurance that the coverage limits of our insurance
would be adequate to protect us against any potential claims, including claims
based upon the transmission of infectious diseases, contaminated products,
negligent services or otherwise. In addition, we may not be able to obtain or
maintain professional or product liability insurance in the future on acceptable
terms, if at all, or with adequate coverage against potential liabilities.

We rely on key community-based representatives whose absence or loss could harm
our business.

      The success of our Specialty Infusion business unit depends upon our
ability to retain key employees known as community-based representatives, and
the loss of their services could adversely affect our business and prospects.
Our community-based representatives are our chief contacts and maintain the
primary relationship with our customers, and the loss of a single
community-based representative could result in the loss of a significant number
of customers. We do not have key person insurance on any of our community-based
representatives. In addition, our success depends upon, among other things, the
successful recruitment and retention of qualified personnel, and we may not be
able to retain all of our key management personnel or be successful in
recruiting additional replacements should that become necessary. For example,
six of our customer sales and service representatives servicing hemophilia
patients resigned from Curative on October 21, 2005. We estimate that the
patients serviced by these employees represent approximately $25.0 million of
revenue annually to Curative. We immediately implemented an action plan to
communicate with and retain patients who were formerly serviced by these
employees. We are monitoring compliance by these former employees with their
continuing obligations under their respective employment agreements and will
evaluate our legal remedies with respect to any of these employees who fail to
comply with those obligations. At this time, it is not possible to forecast the
impact that the departure of these individuals will have on our business.

Our inability to maintain a number of important contractual relationships could
adversely affect our operations.

      Substantially all of the revenues of our Wound Care Management operations
are derived from management contracts with acute care hospitals. At September
30, 2005, we had 107 management contracts (102 operating and 5 contracted). The
contracts generally have initial terms of three to five years, and many have
automatic renewal terms unless specifically terminated. The contracts often
provide for early termination either by the client hospital if specified
performance criteria are not satisfied, or by us under various other
circumstances. Historically, some contracts have expired without renewal, and
others have been terminated by us or the client hospital for various reasons
prior to their scheduled expiration. During 2004, one contract expired without
renewal, and an additional five contracts were terminated prior to their
scheduled expiration. During the nine months ended September 30, 2005, one
contract expired without renewal, and three contracts were terminated prior to
the scheduled expiration. Hospital contracts have been


                                       38
<PAGE>

terminated for reasons such as hospital financial difficulties, Medicare
reimbursement changes which reduced hospital revenues and the desire of the
hospital to exit the business or manage it on its own. Our continued success is
subject to, among other things, our ability to renew or extend existing
management contracts and obtain new management contracts. Any hospital may
decide not to continue to do business with us following expiration of its
management contract, or earlier if such management contract is terminable prior
to expiration. In addition, any changes in the Medicare program or third-party
reimbursement levels which generally have the effect of limiting or reducing
reimbursement levels for health services provided by programs managed by us
could result in the early termination of existing management contracts and could
adversely affect our ability to renew or extend existing management contracts
and to obtain new management contracts. The termination or non-renewal of a
material number of management contracts could harm our business.

Our business will suffer if we lose relationships with payors.

      We are partially dependent on reimbursement from non-governmental payors.
Many payors seek to limit the number of providers that supply drugs to their
enrollees. From time to time, payors with whom we have relationships require
that we and our competitors bid to keep their business and, therefore, due to
the uncertainties involved in any bidding process, we either may not be retained
or may have to reduce our margins to retain business. The loss of a significant
number of payor relationships, or an adverse change in the financial condition
of a significant number of payors, could result in the loss of a significant
number of patients and harm our business.

Changes in reimbursement rates which cause reductions in the revenues of our
operations have adversely affected our Wound Care Management business unit.

      As a result of the Balanced Budget Act of 1997, the CMS implemented the
Outpatient Prospective Payment System ("OPPS") for most hospital outpatient
department services furnished to Medicare patients beginning August 2000. Under
OPPS, a predetermined rate is paid to each hospital for clinical services
rendered, regardless of the hospital's cost. We believe the new payment system
does not provide comparable reimbursement for services previously reimbursed on
a reasonable cost basis, and we believe the payment rates for many services are
insufficient for many of our hospital customers, resulting in revenue and income
shortfalls for the Wound Care Center(R) programs we manage on behalf of the
hospitals. As a result, during 2004 and 2003, we renegotiated and modified many
of our management contracts related to our Wound Care Management business unit,
which has resulted in reduced revenue and income to us from those modified
contracts and, in numerous cases, contract termination. These renegotiations
resulted in reduced revenues of approximately $1.0 million in the year ended
December 31, 2004. In addition, we lost approximately $0.4 million in revenues
in the year ended December 31, 2004 as the result of contract terminations. We
expect that contract renegotiation and modification with many of our hospital
customers will continue, and this could result in reduced revenues and income to
us from those contracts and even contract terminations. These results could harm
our business.

      The Wound Care Center(R) programs managed by our Wound Care Management
business unit on behalf of acute care hospitals are generally treated as
"provider based entities" for Medicare reimbursement purposes. This designation
is required for the hospital-based program to be covered under the Medicare
outpatient reimbursement system. With OPPS, Medicare published criteria for
determining when programs may be designated "provider based entities." Programs
that existed prior to October 1, 2000 were grandfathered by CMS to be "provider
based entities" until the start of the hospital's next cost-reporting period
beginning on or after July 1, 2003. At that time, the hospital could have
submitted an attestation to the appropriate CMS Regional Office, attesting that
the program met all the requirements for provider-based designation. Programs
that started on or after October 1, 2000 could have voluntarily applied for
provider based designation status. We timely advised each of our hospital
clients of the mandatory application procedures. Although we believe that the
programs we manage substantially meet the current criteria to be designated
"provider based entities," a widespread denial of such designation could harm
our business.


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<PAGE>

We are subject to pricing pressures and other risks involved with third-party
payors.

      In recent years, competition for patients, efforts by traditional
third-party payors to contain or reduce health care costs, and the increasing
influence of managed care payors, such as health maintenance organizations, have
resulted in reduced rates of reimbursement. Commercial payors, such as managed
care organizations and traditional indemnity insurers, increasingly are
requesting fee structures and other arrangements providing for health care
providers to assume all or a portion of the financial risk of providing care.
Changes in reimbursement policies of governmental third-party payors, including
policies relating to Medicare, Medicaid and other federally funded programs,
could reduce the amounts reimbursed to our customers for our products and, in
turn, the amount these customers would be willing to pay for our products and
services, or could directly reduce the amounts payable to us by such payors. The
lowering of reimbursement rates, increasing medical review of bills for services
and negotiating for reduced contract rates could harm our business. Pricing
pressures by third-party payors may continue, and these trends may adversely
affect our business.

      Also, continued growth in managed care and capitated plans have pressured
health care providers to find ways of becoming more cost competitive. Managed
care organizations have grown substantially in terms of the percentage of the
population they cover and in terms of the portion of the health care economy
they control. Managed care organizations have continued to consolidate to
enhance their ability to influence the delivery of health care services and to
exert pressure to control health care costs. A rapid increase in the percentage
of revenue derived from managed care payors or under capitated arrangements
without a corresponding decrease in our operating costs could harm our business.

There is substantial competition in the specialty pharmacy, home infusion and
wound care services industries, and we may not be able to compete successfully.

      Our Specialty Infusion business unit faces competition from other
specialty infusion, specialty pharmacy, home infusion and disease management
entities, general health care facilities and service providers,
biopharmaceutical companies, pharmaceutical companies as well as other
competitors. Many of these companies have substantially greater capital
resources, marketing staffs and experience in commercializing products and
services than we have, and may be able to obtain better pricing from suppliers
of products we purchase and distribute. The principal competition with our Wound
Care Management business unit consists of specialty clinics that have been
established by some hospitals or physicians. Additionally, there are some
private companies which provide wound care services through a hyperbaric oxygen
therapy program format. Furthermore, recently developed technologies, or
technologies that may be developed in the future, are or may be the basis for
products which compete with our specialty infusion business or chronic wound
care services. We may not be able to enter into co-marketing arrangements with
respect to these products or maintain pricing arrangements with suppliers that
preserve margins, and we may not be able to compete effectively against such
companies in the future.

If we are unable to effectively adapt to changes in the health care industry,
our business will be harmed.

      Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. We anticipate that
Congress and state legislatures may continue to review and assess alternative
health care delivery and payment systems and may in the future propose and adopt
legislation effecting fundamental changes in the health care delivery system as
well as changes to Medicare's coverage and payments of the drugs and services we
provide.

      As discussed above, in December 2003, MMA was signed into law,
substantially changing the Medicare reimbursement system insofar as it pertains
to biopharmaceuticals and drugs, as well as enacting various other changes to
the Medicare program. It is possible that MMA, as well as any future legislation
enacted by Congress or state legislatures, could harm our business or could
change the operating environment of our targeted customers (including hospitals
and managed care organizations). Health care industry participants may react to
such legislation by curtailing or deferring expenditures and initiatives,
including those relating to our programs and services. It is possible that the
changes to the Medicare program reimbursement may serve as precedent to possible
changes in other payors' reimbursement policies in a manner adverse to us. In
addition, MMA and its related regulatory changes could


                                       40
<PAGE>

encourage integration or reorganization of the health care delivery system in a
manner that could materially and adversely affect our ability to compete or to
continue our operations without substantial changes.

There are a number of state and federal laws and regulations that apply to our
operations which could harm our business.

      A number of state and federal laws and regulations apply to, and could
harm, our business. These laws and regulations include, among other things, the
following:

      o     The federal "anti-kickback law" prohibits the offering or
            solicitation of remuneration in return for the referral of patients
            covered by almost all governmental programs, or the arrangement or
            recommendation of the purchase of any item, facility or service
            covered by those programs. The Health Insurance Portability and
            Accountability Act of 1996, or HIPAA, created new violations for
            fraudulent activity applicable to both public and private health
            care benefit programs and prohibits inducements to Medicare or
            Medicaid eligible patients to influence their decision to seek
            specific items and services reimbursed by the government or to
            choose a particular provider. The potential sanctions for violations
            of these laws include significant fines, exclusion from
            participation in Medicare and Medicaid and criminal sanctions.
            Although some "safe harbor" regulations attempt to clarify when an
            arrangement may not violate the anti-kickback law, our business
            arrangements and the services we provide may not fit within these
            safe harbors. Failure to satisfy a safe harbor requires further
            analysis of whether the parties violated the anti-kickback law. In
            addition to the anti-kickback law, many states have adopted similar
            kickback and/or fee-splitting laws, which can affect the financial
            relationships we may have with our customers, physicians, vendors,
            other retail pharmacies and patients. The finding of a violation of
            the federal laws or one of these state laws could harm our business.

      o     The Department of Health and Human Services issued final regulations
            implementing the Administrative Simplification Provisions of HIPAA
            concerning the maintenance, transmission, and security of
            individually identifiable health information. The privacy
            regulations, with which compliance was required as of April 2003,
            impose on covered entities (including hospitals, pharmacies and
            other health care providers) significant new restrictions on the use
            and disclosure of individually identifiable health information. The
            security regulations, with which compliance was required as of April
            2005, impose on covered entities certain administrative, technical,
            and physical safeguard requirements with respect to individually
            identifiable health information maintained or transmitted
            electronically. The regulations establishing electronic transaction
            standards that all health care providers must use when
            electronically submitting or receiving individually identifiable
            health information in connection with certain health care
            transactions became effective October 2002, but Congress extended
            the compliance deadline until October 2003 for organizations, such
            as ours, that submitted a request for an extension. As a result of
            these HIPAA regulations, we have taken the appropriate actions to
            ensure that patient data kept on our computer networks are in
            compliance with these regulations. We believe that we are
            substantially in compliance with the HIPAA electronic standards and
            are capable of delivering HIPAA standard transactions
            electronically. In addition, if we choose to distribute drugs
            through new distribution channels, such as the Internet, we will
            have to comply with government regulations that apply to those
            distribution channels, which could harm our business. In addition to
            HIPAA, a number of states have adopted laws and/or regulations
            applicable to the use and disclosure of patient health information
            that are more stringent than comparable provisions under HIPAA. The
            finding of a violation of HIPAA or one of these state laws could
            harm our business.

      o     The Ethics in Patient Referrals Act of 1989, as amended, commonly
            referred to as the "Stark Law," prohibits physician referrals to
            entities with which the physician or his or her immediate family
            members have a "financial relationship" and prohibits the entity
            receiving the referral from presenting a claim to Medicare or
            Medicaid programs for services furnished under the referral. On
            March 26, 2004, the CMS issued the second phase of its final
            regulations, addressing physician self-referrals, which became
            effective July 24, 2004. A violation of the Stark Law is punishable
            by civil sanctions, including significant fines, a denial of payment
            or a requirement to refund certain amounts collected, and exclusion


                                       41
<PAGE>

            from participation in Medicare and Medicaid. A number of states have
            adopted laws and/or regulations that contain provisions that track,
            or are otherwise similar to, the Stark Law. The finding of a
            violation of the Stark Law or one or more of these state laws could
            harm our business.

      o     State laws prohibit the practice of medicine, pharmacy and nursing
            without a license. To the extent that we assist patients and
            providers with prescribed treatment programs, a state could consider
            our activities to constitute the practice of medicine. Our nurses
            must obtain state licenses to provide nursing services to some of
            our patients. In addition, in some states, coordination of nursing
            services for patients could necessitate licensure as a home health
            agency and/or could necessitate the need to use licensed nurses to
            provide certain patient-directed services. If we are found to have
            violated those laws, we could face civil and criminal penalties and
            be required to reduce, restructure or even cease our business in
            that state.

      o     Pharmacies (retail, mail-order and wholesale) as well as pharmacists
            often must obtain state licenses to operate and dispense drugs.
            Pharmacies must also obtain licenses in some states in order to
            operate and provide goods and services to residents of those states.
            In addition, our pharmacies may be required by the federal Drug
            Enforcement Agency, as well as by similar state agencies, to obtain
            registration to handle controlled substances, including certain
            prescription drugs, and to follow specified labeling and
            recordkeeping requirements for such substances. If we are unable to
            maintain our pharmacy licenses, or if states place burdensome
            restrictions or limitations on non-resident pharmacies, this could
            limit or otherwise affect our ability to operate in some states,
            which could harm our business.

      o     Federal and state investigations and enforcement actions continue to
            focus on the health care industry, scrutinizing a wide range of
            items such as joint venture arrangements, referral and billing
            practices, product discount arrangements, home health care services,
            dissemination of confidential patient information, promotion of
            off-label drug indications use, clinical drug research trials and
            gifts for patients or referral sources. From time to time, and like
            others in the health care industry, we receive requests for
            information from government agencies in connection with their
            regulatory or investigative authority.

      o     We are subject to federal and state laws prohibiting entities and
            individuals from knowingly and willfully making claims to Medicare
            and Medicaid and other governmental programs and third-party payors
            that contain false or fraudulent information. The federal False
            Claims Act encourages private individuals to file suits on behalf of
            the government against health care providers such as us. As such
            suits are generally filed under seal with a court to allow the
            government adequate time to investigate and determine whether it
            will intervene in the action, the implicated health care providers
            are often unaware of the suit until the government has made its
            determination and the seal is lifted. Violations or alleged
            violations of such laws, and any related lawsuits, could result in
            significant financial or criminal sanctions (including treble
            damages) or exclusion from participation in the Medicare and
            Medicaid programs. Some states also have enacted statutes similar to
            the False Claims Act which may provide for large penalties,
            substantial fines and treble damages if violated.

There is a delay between our performance of services and our reimbursement.

      Billing and collection for our services is a complex process requiring
constant attention and involvement by senior management and ongoing enhancements
to information systems and billing center operating procedures.

      The health care industry is characterized by delays that typically range
from three to nine months between when services are provided and when the
reimbursement or payment for these services is received. This makes working
capital management, including prompt and diligent billing and collection, an
important factor in our results of operations and liquidity. Trends in the
industry may further extend the collection period and impact our working
capital.

      We are paid for our services by various payors, including patients,
insurance companies, Medicare, Medicaid and others, each with distinct billing
requirements. We recognize revenue when we provide services to patients.
However, our ability to collect these receivables depends, in part, on our
submissions to payors of accurate and


                                       42
<PAGE>

complete documentation. In order for us to bill and receive payment for our
services, the physician and the patient must provide appropriate billing
information. Following up on incorrect or missing information generally slows
down the billing process and the collection of accounts receivable. Failure to
meet the billing requirements of the different payors could have a significant
impact on our revenues, profitability and cash flow.

      Further, even if our billing procedures comply with all third party-payor
requirements, some of our payors may experience financial difficulties or may
otherwise not pay accounts receivable when due, which could result in increased
write-offs or provisions for doubtful accounts. There can be no assurance that
we will be able to maintain our current levels of collectibility or that
third-party payors will not experience financial difficulties. If we are unable
to collect our accounts receivable on a timely basis, our revenues,
profitability and cash flow could be adversely affected.

We rely heavily on a limited number of shipping providers, and our business
could be harmed if their rates are increased or our providers are unavailable.

      A significant portion of our revenues result from the sale of drugs we
deliver to our patients, and a significant amount of our products are delivered
by overnight mail or courier or through our retail pharmacies. The costs
incurred in shipping are not passed on to our customers and, therefore, changes
in these costs directly impact our margins. We depend heavily on these
outsourced shipping services for efficient, cost-effective delivery of our
products. The risks associated with this dependence include: any significant
increase in shipping rates; strikes or other service interruptions by these
carriers; and spoilage of high-cost drugs during shipment since our drugs often
require special handling, such as refrigeration.

If we do not maintain effective and efficient information systems, our
operations may be adversely affected.

      Our operations depend, in part, on the continued and uninterrupted
performance of our information systems. Failure to maintain reliable information
systems or disruptions in our information systems could cause disruptions in our
business operations, including billing and collections, loss of existing
patients and difficulty in attracting new patients, patient and payor disputes,
regulatory problems, increases in administrative expenses or other adverse
consequences, any or all of which could have a material adverse effect on our
operations.

Risks Related to our Outstanding Debt and Equity Securities

The Notes are unsecured.

      The Notes are not secured by any of our or our subsidiaries' assets. The
indenture governing the Notes permits us and our subsidiaries to incur secured
indebtedness, including pursuant to our revolving credit facility, purchase
money instruments and other forms of secured indebtedness. As a result, the
Notes and the guarantees will be effectively subordinated to all of our and the
guarantors' secured obligations to the extent of the value of the assets
securing such obligations. As of September 30, 2005, we had approximately $23.3
million of secured indebtedness.

      If we or the subsidiary guarantors were to become insolvent or otherwise
fail to make payment on the Notes or the guarantees, the holders of any of our
and the subsidiary guarantors' secured obligations would be paid first and would
receive payments from the assets securing such obligations before the holders of
the Notes would receive any payments. The holders of the Notes may, therefore,
not be fully repaid if we or the subsidiary guarantors become insolvent or
otherwise fail to make payment on the Notes.

We may not be able to satisfy our obligations to holders of the Notes upon a
change of control.

      Upon the occurrence of a "change of control," as defined in the indenture,
each holder of the Notes will have the right to require us to purchase its Notes
at a price equal to 101% of the principal amount, together with any accrued and
unpaid interest. Our failure to purchase, or give notice of purchase of, such
Notes would be a default under the indenture, which would, in turn, be a default
under our revolving credit facility. In addition, a change of control may


                                       43
<PAGE>

constitute an event of default under our revolving credit facility. A default
under our revolving credit facility would result in an event of default under
the indenture if the lenders accelerate the debt under our revolving credit
facility.

      If a change of control occurs, we may not have enough assets to satisfy
all obligations under our revolving credit facility and the indenture related to
the Notes. Upon the occurrence of a change of control, we could seek to
refinance the indebtedness under our revolving credit facility and the Notes or
obtain a waiver from the lenders or holders of the Notes. There can be no
assurance, however, that we would be able to obtain a waiver or refinance our
indebtedness on commercially reasonable terms, if at all.

There is no established trading market for the Notes, and holders of these Notes
may not be able to sell them quickly or at the price that they paid.

      The Notes are a new issue of securities, and there is no established
trading market for the Notes. We do not intend to apply for the Notes to be
listed on any securities exchange or to arrange for quotation on any automated
dealer quotation systems. The initial purchaser has advised us that it intends
to make a market in the Notes, but the initial purchaser is not obligated to do
so. The initial purchaser may discontinue any market making in the Notes at any
time, in its sole discretion. As a result, there can be no assurance as to the
liquidity of any trading market for the Notes.

      There also can be no assurance that holders of the Notes will be able to
sell such Notes at a particular time or that the prices that holders of such
Notes will receive when these Notes are sold will be favorable. Further, there
can be no assurance as to the level of liquidity of the trading market for these
Notes. Future trading prices of the outstanding Notes will depend on many
factors, including:

      o     our operating performance and financial condition;

      o     the interest of securities dealers in making a market; and

      o     the market for similar securities.

      Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the Notes will be subject to disruptions. Any disruptions may have a
negative effect on noteholders, regardless of our prospects and financial
performance.

Any guarantees of the Notes by our subsidiaries may be voidable, subordinated or
limited in scope under laws governing fraudulent transfers and insolvency.

      Under federal and foreign bankruptcy laws and comparable provisions of
state and foreign fraudulent transfer laws, a guarantee of the Notes by a
guarantor could be voided if, among other things, at the time the guarantor
issued its guarantee, such guarantor:

      o     intended to hinder, delay or defraud any present or future creditor;
            or

      o     received less than reasonably equivalent value or fair consideration
            for the incurrence of such indebtedness and:

            o     was insolvent or rendered insolvent by reason of such
                  incurrence;

            o     was engaged in a business or transaction for which such
                  guarantor's remaining assets constituted unreasonably small
                  capital; or

            o     intended to incur, or believed that it would incur, debts
                  beyond its ability to pay such debts as they mature.


                                       44
<PAGE>

      The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, a guarantor in the United States would be
considered insolvent if:

      o     the sum of its debts, including contingent liabilities, was greater
            than the saleable value of all of its assets;

      o     the present fair saleable value of its assets was less than the
            amount that would be required to pay its probable liabilities on its
            existing debts, including contingent liabilities, as they become
            absolute and mature; or

      o     it could not pay its debts as they become due.

Possible volatility of stock price in the public market.

      The market price of our common stock has experienced, and may continue to
experience, substantial volatility. Over the past eight quarters ended September
30, 2005, the market price of our common stock ranged from a low of $0.94 in the
third quarter of 2005 to a high of $18.44 in the fourth quarter of 2003. Many
factors have influenced the common stock price in the past, including
fluctuations in our earnings and changes in our financial position, management
changes, low trading volume, and negative publicity and uncertainty resulting
from the legal actions brought against us. In addition, the securities markets
have, from time to time, experienced significant broad price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. All of these factors could adversely affect the market price of our
common stock. Our listing on Nasdaq is dependent on maintaining certain
criteria, including with respect to a minimum bid price and minimum value of
publicly held shares, and certain other factors. Changes in our stock price and
other variations in market factors may cause us not to comply with such
requirements and, in any such event, trading of our common stock on the Nasdaq
National Market System could be terminated.

Provisions of our articles of incorporation and Minnesota law may make it more
difficult for a person to receive a change-in-control premium.

      Our Board's ability to designate and issue up to 10 million shares of
preferred stock and issue up to 50 million shares of common stock could
adversely affect the voting power of the holders of common stock, and could have
the effect of making it more difficult for a person to acquire, or could
discourage a person from seeking to acquire, control of the Company. If this
occurred, a person could lose the opportunity to receive a premium on the sale
of his or her shares in a change of control transaction.

      In addition, the Minnesota Business Corporation Act contains provisions
that would have the effect of restricting, delaying or preventing altogether
certain business combinations with any person who becomes an interested
stockholder. Interested stockholders include, among others, any person who,
together with affiliates and associates, acquires 10% or more of a corporation's
voting stock in a transaction which is not approved by a duly constituted
committee of the Board of the corporation. These provisions could also limit a
person's ability to receive a premium in a change of control transaction.


                                       45
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      The Company currently does not have market risk sensitive instruments
entered into for trading purposes and does not have operations subject to risks
of material foreign currency fluctuations. The Company places its investments in
instruments that meet high credit quality standards, as specified in the
Company's investment policy guidelines, and does not expect any material loss
with respect to its investment portfolio. The Company does not enter into
derivative instruments other than for cash flow hedging purposes and does not
speculate using derivative instruments.

      For non-trading purposes, the Company is subject to interest rate risk
under its current revolving credit facility. In conjunction with the acquisition
of CCS on April 23, 2004, the Company restructured its previous credit facility
with GE Capital to provide for a $40.0 million senior secured revolving credit
facility. Loans under this credit facility may, at the Company's option, be
obtained as Base Rate loans, LIBOR loans or any combination thereof. This credit
facility will terminate on April 23, 2009.

      The table below provides information about the Company's financial
instruments, in accordance with stated terms of related agreements, that are
sensitive to changes in interest rates. For debt obligations, the table presents
principal amounts outstanding and related weighted average interest rates at
September 30, 2005 and for each of the next five years ended December 31 and
thereafter. The following table provides information about the Company's
financial instruments (dollars in millions):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                 Outstanding Balances
                                  September 30, 2005                                 December 31,
----------------------------------------------------------------------------------------------------------------------------
                                                Fair                                                                 There-
                                  Balance      Value       2005        2006        2007        2008        2009       after
----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>         <C>         <C>         <C>         <C>         <C>        <C>
Liability:
Long-term debt (Senior Notes)
     Fixed rate ($US)(1)          $185.0      $64.75      $185.0      $185.0      $185.0      $185.0      $185.0     $185.0
     Average interest rate(1)      10.75%      22.03%      10.75%      10.75%      10.75%      10.75%      10.75%     10.75%
----------------------------------------------------------------------------------------------------------------------------
Long-term debt (Revolver)
     Variable rate ($US)(2)       $ 23.3      $ 23.3      $ 23.3      $ 23.3      $ 23.3      $ 23.3
     Average interest rate(2)       7.34%       7.34%       7.59%       8.31%       8.41%       8.47%     $   --     $   --
----------------------------------------------------------------------------------------------------------------------------
Convertible note used in
  purchase of Apex                $  1.5      $  1.5      $  1.5      $  1.5
     Average interest rate(3)        4.4%        4.4%        4.4%        4.4%     $   --      $   --      $   --     $   --
----------------------------------------------------------------------------------------------------------------------------
Convertible note used in
  purchase of Home Care           $  3.0      $  3.0
     Average interest rate(4)        3.0%        3.0%     $   --      $   --      $   --      $   --      $   --     $   --
----------------------------------------------------------------------------------------------------------------------------
Department of Justice
  obligation                      $  0.7      $  0.7
     Average interest rate(4)        6.0%        6.0%     $   --      $   --      $   --      $   --      $   --     $   --
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The Senior Notes mature in May of 2011 and bear interest at a fixed rate
      of 10.75%.

(2)   The average interest rates are based on the LIBOR forward yield curves at
      September 30, 2005 plus the applicable 3.5% premium. The senior secured
      revolving credit facility terminates on April 23, 2009. The LIBOR interest
      rate in effect at September 30, 2005 was the 30-day LIBOR rate of 3.84%
      plus 3.5%. On a monthly basis, a Base Rate of prime plus 2.25% is applied
      to the difference between the LIBOR period loan and the actual outstanding
      balance of the revolving facility. As of September 30, 2005, the prime
      rate in effect was 6.75%. In addition to the LIBOR and Base Rate interest
      rate, there is a monthly unused line fee of between 0.5% and 0.75% of the
      unused balance on the facility.

(3)   Average interest rates are contractual amounts. The Company is disputing
      this obligation (see Part II, Item 1, "Legal Proceedings").

(4)   Average interest rates are contractual amounts.


                                       46
<PAGE>

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

      Under the supervision and with the participation of the Company's
management, including its Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"), the Company evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange")). Based upon that evaluation, the CEO and CFO concluded that, as of
the end of the period covered by this report, the Company's disclosure controls
and procedures were effective.

      Any system of controls, however well designed and operated, can provide
only reasonable, and not absolute, assurance that the objectives of the system
will be met. In addition, the design of any control system is based, in part,
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there is only reasonable
assurance that the Company's controls will succeed in achieving their goals
under all potential future conditions.

Changes in Internal Controls

      In connection with the Company's headquarters consolidation, which was
substantially completed as of September 30, 2005, there were significant changes
to the Company's personnel and their duties and responsibilities with respect to
the financial close and control activities; however, the Company believes that
these changes did not materially affect, and are not reasonably likely to
materially affect, the Company's internal control over financial reporting (as
defined in Rule 13 a-15(f) under the Exchange Act).

      Accordingly, there have been no changes in the Company's internal control
over financial reporting that occurred during the Company's most recently
completed fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

      Management's evaluation of the effectiveness of its internal control over
financial reporting as of December 31, 2004, which was included in the Company's
Annual Report on Form 10-K for fiscal 2004, was not inclusive of the Critical
Care Systems, Inc. acquisition, which is included in the 2004 consolidated
financial statements of the Company and constituted approximately 15% of total
assets as of December 31, 2004 and approximately 29% and 10% of revenues and net
loss, respectively, for the year then ended.


                                       47
<PAGE>

Curative Health Services, Inc. and Subsidiaries

Part II Other Information

Item 1. Legal Proceedings

      In the normal course of our business, we are involved in lawsuits, claims,
audits and investigations, including any arising out of services or products
provided by or to our operations, personal injury claims and employment
disputes, the outcome of which, in the opinion of management, will not have a
material adverse effect on our financial position, cash flows or results of
operations.

Apex Therapeutic Care Litigation

      On October 26, 2005, the Company commenced litigation in the United States
District Court for the Central District of California, entitled "Curative Health
Services, Inc. vs. James H. Williams, et al.," against former stockholders of
Apex alleging, among other things, that stockholders of Apex made material
misrepresentations in connection with their sale of Apex stock to Curative in
2002. As part of the action, in addition to seeking compensatory and punitive
damages, the Company is disputing its obligation to make further payments under
an amended and restated promissory note, dated May 30, 2002, made in favor of
the former stockholders in connection with the acquisition of Apex. Prior to
commencement of the action, Curative sent a letter to the representative of the
former stockholders indicating that Curative would not be making the installment
payment due on September 30, 2005 or any further payments pending resolution of
this dispute. The stockholders' representative responded with a notice on
October 18, 2005 declaring an event of default under the above-referenced note
and an acceleration of payment of the outstanding principal balance under the
note in the amount of approximately $1.6 million. This event is not expected to
cause a default under, or acceleration of, any other obligations of the Company.

Prescription City Litigation

      As previously disclosed in a Form 8-K filed on July 27, 2005, on July 26,
2005, the Company announced that it has reached a settlement with Prescription
City in connection with a complaint filed by the Company in November 2003
seeking rescission, compensatory and punitive damages and other relief. Under
the terms of the settlement, the Company received $4.5 million in cash and is
released from its obligation to pay a $1.0 million promissory note entered into
in connection with the asset purchase of Prescription City.

Item 6. Exhibits

2.1   Plan of Merger, dated as of August 15, 2003, by and among Curative Health
      Services, Inc., Curative Holding Co., and Curative Health Services Co.
      (incorporated by reference to Exhibit 2.1 to the Company's Current Report
      on Form 8-K, filed August 19, 2003, of Curative Health Services, Inc., the
      predecessor company)

2.2   Stock Purchase Agreement relating to Critical Care Systems, Inc., by and
      among Curative Health Services, Inc., Critical Care Systems, Inc. and each
      of the persons listed therein, dated February 24, 2004 (incorporated by
      reference to Exhibit 2.1 to the Company's Current Report on Form 8-K,
      filed April 30, 2004)

2.3   Letter Agreement supplementing the Stock Purchase Agreement, dated April
      23, 2004, by and between Curative Health Services, Inc. and Christopher J.
      York, as Seller's Representative (incorporated by reference to Exhibit 2.2
      to the Company's Current Report on Form 8-K, filed April 30, 2004)

3.1   Amended and Restated Articles of Incorporation of Curative Health
      Services, Inc. (incorporated by reference to Exhibit 3.1 to the Company's
      Current Report on Form 8-K, filed August 19, 2003)

3.2   By-Laws of Curative Health Services, Inc. (incorporated by reference to
      Exhibit 3.2 to the Company's Current Report on Form 8-K, filed August 19,
      2003)


                                       48
<PAGE>

Item 6. Exhibits (continued)

4.1   Rights Agreement, dated as of October 25, 1995, between Curative
      Technologies, Inc. and Wells Fargo Bank Minnesota, National Association,
      as Rights Agent (incorporated by reference to Exhibit 4 of the Company's
      Current Report on Form 8-K, dated November 6, 1995)

4.2   Indenture, dated April 23, 2004, by and among Curative Health Services,
      Inc., certain of its subsidiaries as Guarantors and Wells Fargo Bank,
      N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the
      Company's Current Report on Form 8-K, filed April 30, 2004)

4.3   Registration Rights Agreement, dated April 23, 2004, by and among Curative
      Health Services, Inc., certain of its subsidiaries as Guarantors and UBS
      Securities LLC (incorporated by reference to Exhibit 4.2 to the Company's
      Current Report on Form 8-K, filed April 30, 2004)

4.4   Specimen of 144A Notes (incorporated by reference to Exhibit 4.3 to the
      Company's Current Report on Form 8-K, filed April 30, 2004)

4.5   Specimen of Regulation S Notes (incorporated by reference to Exhibit 4.4
      to the Company's Current Report on Form 8-K, filed April 30, 2004)

4.6   Specimen of Guarantees (incorporated by reference to Exhibit 4.5 to the
      Company's Current Report on Form 8-K, filed April 30, 2004)

4.7   Specimen of Registered Notes (incorporated by reference to Exhibit 4.6 to
      the Company's Quarterly Report on Form 10-Q, filed November 9, 2004)

10.1  Lease and Agreement, dated June 10, 1991, by and between Executive Tower,
      Inc. and Critical Care Systems Inc.

10.2  Amendment to Lease, dated as of June 4, 2001, by and between Brookhaven
      (Nashua), LLC and Critical Care Systems, Inc.

10.3  Second Amendment to Lease, dated as of June 25, 2001, by and between
      Brookhaven (Nashua), LLC and Critical Care Systems, Inc.

10.4  Third Amendment to Lease, dated as of November 7, 2003, by and between
      Brookhaven (Nashua), LLC and Critical Care Systems, Inc.

10.5  Fourth Amendment to Lease, dated as of July 11, 2005, by and between
      Brookhaven (Nashua), LLC and Critical Care Systems, Inc.

10.6  Waiver Agreement, dated as of October 14, 2005, entered into among the
      Company, its subsidiaries and General Electric Capital Corporation

10.7  Waiver Agreement, dated as of November 7, 2005, entered into among the
      Company, its subsidiaries and General Electric Capital Corporation

31.1  Certification of the Chief Executive Officer pursuant to Rule
      13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002

31.2  Certification of the Chief Financial Officer pursuant to Rule
      13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002

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

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

      The Company has excluded from the exhibits filed with this report
instruments defining the rights of holders of long-term convertible debt of the
Company where the total amount of the securities authorized under such
instruments does not exceed 10% of its total assets. The Company hereby agrees
to furnish a copy of any of these instruments to the SEC upon request.


                                       49
<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.

Date: November 14, 2005

                                        CURATIVE HEALTH SERVICES, INC.
                                        (Registrant)


                                        By: /s/ Paul F. McConnell
                                            -------------------------
                                                Paul F. McConnell
                                                Chief Executive Officer
                                                (Principal Executive Officer)


                                        By: /s/ Thomas Axmacher
                                            -------------------------
                                                Thomas Axmacher
                                                Chief Financial Officer
                                                (Principal Financial Officer)


                                       50