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

                                  FORM 10-K
                              _________________

(Mark One)

    X       Annual Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                 For the fiscal year ended December 31, 1999

                                      or

            Transition   Report  Pursuant  to  Section  13  or  15(d)  of  the
Securities Exchange Act of 1934

      [No Fee Required]

      For the Transition Period From       to

Commission File Number:  000-19370

                        Curative Health Services, Inc.

            (Exact name of registrant as specified in its charter)

                      MINNESOTA                         41-1503914
            (State or other jurisdiction of             (I.R.S. Employer
             incorporation or organization)          Identification Number)
             150 Motor Parkway
             Hauppauge, New York                             11788
            (Address of principal executive offices)       (Zip Code)


      Registrant's telephone number, including area code: (631) 232-7000

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

                                     None

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

                    Common Stock, par value $.01 per share
                               (Title of Class)

    Indicate by check mark  whether the  registrant  (1) has filed all reports
required by Section 13 or 15(d) of the Securities  Exchange Act of 1934 during
the  preceding  12 months ( or such  shorter  period that the  registrant  was
required  to file  such  reports)  and (2) has  been  subject  to such  filing
requirements for the past 90 days:

                                Yes X No______

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

    As of March  15,  2000,  9,794,010  shares of  Common  Stock of  Curative
Health Services,  Inc. were outstanding and the aggregate market value of such
Common Stock held by nonaffiliates  (based upon its closing  transaction price
on such date) was approximately $63 million.

                     DOCUMENTS INCORPORATED BY REFERENCE
    Portions of  Registrant's  Proxy  Statement for its 2000 Annual Meeting of
Stockholders,  which the  Registrant  intends  to file not later than 120 days
following  December 31,  1999,  are  incorporated  by reference to Part III of
this Form 10-K Report.

                                       1
<PAGE>

                                     PART I

Item 1   Business

General

         Curative Health Services,  Inc. is a leading disease management company
in the chronic wound care market.  Currently,  the Company manages, on behalf of
hospital  clients,  a nationwide  network of Wound Care Centers(R) that offers a
comprehensive  range of services which enable the Company to provide  customized
wound care. The Company's Wound  Management  Program  consists of diagnostic and
therapeutic  treatment  regimens  which  are  designed  to meet  each  patient's
specific wound care needs on a cost  effective  basis.  The Company's  treatment
regimens are based on critical pathways designed for wound healing.  The Company
has a  proprietary  database of patient  outcomes that the Company has collected
since 1988  containing  approximately  285,000 patient records which indicate an
overall healing rate of approximately 80% for patients completing  therapy.  The
Company's  Wound Care  Center(R)  network  consists  of 158  outpatient  clinics
located on or near campuses of acute care hospitals in 34 states. The Company is
developing new service models for other health care delivery settings  including
inpatient acute care and long term care  facilities.  Additionally,  the Company
operates four freestanding Wound Care Centers(R).

         The  Company  believes  that  the high  degree  of  specialization  and
expertise offered by the Wound Care Centers(R) provide benefits: (i) to patients
through  superior  wound care,  thus  enhancing  their  quality of life, in many
cases,  allowing  them to avoid  amputation;  (ii) to  affiliated  hospitals  by
enabling them to differentiate  themselves from their competitors through better
wound care treatment outcomes,  to reduce costs by decreasing  inpatient lengths
of stay and to increase revenue through the introduction of new patients;  (iii)
to affiliated  physicians by providing  greater access to patients;  and (iv) to
insurers and managed care providers by offering a cost effective  alternative to
traditional wound care.

Industry

         Market  Overview.  Chronic  wounds are common in patients with diabetes
and venous  stasis  disease,  as well as in  patients  who are  immobilized  and
afflicted with pressure  sores. A chronic wound generally is a wound which shows
no signs of significant  healing in four weeks or has not healed in eight weeks.
The healing of a wound is dependent  upon  adequate  blood flow to stimulate new
cell growth and combat  infection.  When adequate blood flow does not occur, the
healing  process is retarded,  often  resulting in a chronic wound that can last
for months or years.  Without effective  treatment,  a chronic wound may lead to
more severe  medical  conditions,  such as infection,  gangrene and  amputation,
which are costly to payors and impede the quality of life for the patient.

         According  to Chronic  Wound Care:  U.S.  Markets for Wound  Management
Products (Medical Data  International,  1997), it is estimated that at least six
million  people  suffer from  chronic  wounds in the United  States.  Of the six
million  people with chronic  wounds,  an estimated  three million have pressure
sores,  over two million have diabetic ulcers,  and over one million suffer from
venous  stasis  ulcers.   Diabetic   ulcers  are  responsible  for  60,000  limb
amputations each year,  accounting for more than half of all such procedures not
related to trauma.  Venous stasis  disease and pressure  sores often afflict the
elderly,  who constitute the most rapidly growing segment of the U.S. population
and  account  for a  disproportionately  large  share of total U.S.  health care
expenditures.  It is estimated  that the wound care  segment of the U.S.  health
care  industry  generated  $5  billion  in  expenditures  in  1997.  It is  also
anticipated  that the wound care market  will  continue to grow due to the aging
population and the increasing  incidence of health disorders,  such as diabetes,
which may lead to chronic wounds.

         Traditional  Approach to Chronic Wound Care.  Traditional chronic wound
care  treatment,  which is typically  administered  by a primary care physician,
relies principally on cleansing and debriding the wound,  controlling  infection
with  antibiotics  and  protecting  the  wound.  For  example,  topical  or oral
antibiotics  are  administered  to decrease  the  bacterial  count in the wound,
protective  dressings are used to decrease  tissue trauma and augment repair and
various topical agents are applied that chemically  cleanse the wound and remove
wound exudate. These passive treatments do not directly stimulate the underlying
wound healing  process.  In many cases,  the patient may have to see a number of
health care professionals  before effective treatment is received.  In addition,
under this  traditional  care model,  patients must manage their own care, which
often leads to non-compliance and treatment failure which may lead to infection,
gangrene and  amputation.  Although  wound care programs have begun to evolve to
more specialized and aggressive treatment regimens,  the Company believes that a
significant medical need and market opportunity exists for products and services
that improve and accelerate the wound healing process.

                                       2
<PAGE>

The Curative Approach to Chronic Wound Care

         The Company's  Wound  Management  Program is a  comprehensive  array of
diagnostic and  therapeutic  treatment  regimens with all the components of care
necessary to treat chronic  wounds.  The Company's Wound  Management  Program is
administered  primarily through the Company's  nationwide  network of Wound Care
Centers.  The Company  believes the Wound  Management  Program provides a better
approach to chronic wound  management than the traditional  approach,  which the
Company  believes lacks  comprehensive  wound  programs,  effective  technology,
positive outcomes and cost efficiency.  Each Wound Management Program offers its
patients an  inter-disciplinary  team of health care professionals,  including a
medical   director,    surgeon,   nurse,   case   manager,    nutritionist   and
endocrinologist.

         In most cases,  patients  arriving at the Company's  Wound Care Centers
have been treated with  traditional  wound healing  techniques,  but continue to
suffer from chronic wounds. In some cases,  patients come to a Wound Care Center
after they have  received  an opinion  from their  primary  physician  that limb
amputation is required.  Upon the  commencement of treatment under the Company's
Wound Management  Program,  medical  personnel  conduct a systematic  diagnostic
assessment of the patient.  Specialized treatment protocols are then established
for the  patient,  based on the  underlying  cause of the wound  and the  unique
status of the patient.  After the assessment  phase,  the course of treatment in
the Wound Management Program may include  revascularization,  infection control,
wound debridement,  growth factor therapy, skin grafting, nutrition,  protection
devices, patient education,  referrals, and effective management of care through
patient/provider communications.

         To measure the effectiveness of the Company's Wound Management Program,
the Company has developed a functional  assessment scoring system to measure the
healing of a wound. Under this system, a chronic wound is considered healed when
(i) it is completely  covered by epithelium (i.e., a membranous  cellular tissue
that covers and protects a wound as it heals),  (ii) maturing skin is present in
the wound,  (iii)  there is  minimal  drainage  from the  wound,  (iv) the wound
requires only a protective dressing and (v) the limb involved is functional. The
Company  has a  proprietary  database of patient  outcomes  that the Company has
collected  since 1988  containing  approximately  285,000  patient records which
indicate an overall healing rate of  approximately  80% for patients  completing
therapy.

         A unique aspect of the Company's Wound Management Program is the use of
Procuren(R),   the  Company's  wound  healing  agent  which  is  used  to  treat
approximately  9% of  patients.  Procuren(R)  is a naturally  occurring  complex
mixture of several growth factors. Growth factors have been shown to promote the
growth of skin,  soft  tissue and blood  vessels.  Procuren(R)  is  produced  by
stimulating  the  release of growth  factors  from  platelets  contained  in the
patient's own blood. Blood is taken from the patient at the treatment center and
then sent to a  Company-operated  blood processing  facility located in the same
state where the  patient's  blood was drawn.  To produce  Procuren,  the Company
separates the platelets  from the  remainder of the blood  sample.  Thrombin,  a
substance in the body that is active in the wound healing  process,  is added to
the  platelets,  causing the platelets to release growth  factors.  The platelet
shells are discarded and the growth factors are diluted and placed in a buffered
solution  which is frozen  until used.  When  required as part of the  patient's
wound care treatment program, Procuren is applied topically to the wound area by
soaking a gauze  dressing in the  Procuren  solution and covering the wound area
with the gauze.  Procuren, as part of a comprehensive  treatment algorithm,  has
been used to treat over 55,000  patients  to date.  The  Company  believes  that
Procuren  stimulates a normal wound  healing  response in patients  with chronic
wounds in much the same way as the body naturally initiates healing.

         Company-sponsored  studies  suggest that the use of Procuren as part of
the Company's Wound Management  Program is both efficacious and  cost-effective.
For example, a  Company-sponsored  retrospective study of patients with diabetic
ulcers (who tend to have the most severe chronic wounds) published by CP Fylling
and PC  McKeown  in 1990  found  that the  average  charges  for a  conventional
treatment  program were $19,000 as compared to $14,000 for a  specialized  wound
management  program that  included  the use of Procuren.  In addition to costing
less, the  specialized  program had a healing rate of 79% as compared to 24% for
patients enrolled in the conventional treatment program. Furthermore, 60% of the
conventionally  treated  patients  required  amputations at the end of the study
compared with only 19% in the specialized group of patients.

                                       3
<PAGE>

Strategy

         The Company's objective is to enhance its position as a leading disease
management  company in the  chronic  wound care  market.  The  Company's  growth
strategy is to continue to improve and refine the Wound Management Program while
broadening its delivery  models to cover the entire  continuum of care for wound
management. Key elements of this strategy include:

         Continue  to Develop the  Company's  Nationwide  Network of  Outpatient
Wound Care  Centers.  The Company  intends to continue to  establish  additional
outpatient  Wound Care Centers on or near the campuses of acute care  hospitals.
Despite the  Company's  rapid growth from 32  outpatient  centers in 1991 to 158
outpatient  centers as of the end of 1999, the Company  believes the opportunity
for further growth  remains  substantial.  The Company has  identified  over 300
additional  markets in the United  States  which the Company  believes  have the
population  necessary  to support a dedicated  wound care  program.  The Company
believes  hospitals are continually  seeking low cost, high quality solutions to
wound management such as those provided by the Company. In addition, the Company
believes it enables its hospital clients to differentiate  themselves from their
competitors through better wound care treatment  outcomes,  reduced costs due to
decreased   inpatient   lengths  of  stay  and  increased  revenue  through  the
introduction  of new  patients.  As a result,  the Company  believes  there is a
significant  opportunity  for the  Company to  continue to expand its Wound Care
Center operations through affiliation with acute care hospitals. Additionally in
response  to the needs of acute care  hospitals  in smaller  rural  markets  the
Company developed a wound care program which effectively unbundles the Company's
value added  services.  Through this program,  hospitals in smaller  markets can
purchase  components  of  the  Wound  Management  Program  through  a  licensing
agreement  which enables these  hospitals to manage wound care  patients.  As of
December 31, 1999, the Company has established three of the rural hospital wound
care programs.

         Develop New Service Models to Enhance Market  Penetration.  The Company
is actively  developing new service models in new health care delivery  settings
such as  inpatient  programs  for  acute  care  hospitals  and  long  term  care
facilities (e.g.,  nursing homes and long term acute care hospitals).  These new
service  models are being  operated  as a service  from the  Company's  existing
hospital outpatient Wound Care Centers.  Pressure sores, the most common form of
chronic  wound,  usually occur among nursing home,  acute care and home patients
due to the  sedentary  lifestyle  associated  with those care  settings.  As the
Company further develops its inpatient  service models,  the Company believes it
will become more capable of  penetrating  the large  pressure  sore market.  The
Company  operates  four   freestanding   outpatient  Wound  Care  Centers.   The
freestanding  service model was developed by the Company to  strategically  grow
its business  through select target marketing and enter markets where a suitable
partner is not  available or as a method of attracting a hospital  partner.  The
Company  does not  have any  immediate  plans  to open  additional  freestanding
centers and expects to develop the existing  freestanding  centers into hospital
outpatient Wound Care Centers.

         Provide a Comprehensive  Managed Care Product. In addition to providing
new  revenue  opportunities,  the  Company  believes  its ability to provide its
services as a  comprehensive  managed care product in a number of settings  will
increase  its  attractiveness  to  managed  care  payors  seeking  to  provide a
continuum of care while reducing  risk.  With its Wound  Management  Program and
increasing  presence in multiple health care delivery settings,  the Company can
offer managed care payors a shared risk relationship  which the Company believes
will provide better patient healing  outcomes and more  cost-effective  services
for  subscribers.  Further,  in 1998 the Company  entered into a development and
license  agreement  with  Accordant  Health  Services,  Inc., a private  disease
management company.  As a strategic partner,  Accordant has been licensed by the
Company to develop  and market a wound care  disease  management  program to the
managed  care  market.  The Company  has not  generated  any  revenue  from this
business.  Additionally,  the Company has made a $4 million equity investment in
Accordant.

         Enhance the Company's Wound Management  Program.  The Company currently
offers a unique Wound  Management  Program which includes  assessment,  vascular
studies, revascularization,  infection control, wound debridement, growth factor
therapy,  skin  grafting,  nutrition,  protection  devices,  patient  education,
referrals   and   effective   management   of  care   through   patient/provider
communications.  In addition,  the Company is continually  exploring and seeking
advances in wound care management  services and products which could enhance its
current Wound Management Program. The Company is actively pursuing such advances
through  the   continuous   development  of  its  current   services,   and  the
consideration of acquisition  opportunities  and co-marketing  arrangements with
other providers of wound care products and services.  Current product  offerings
include furnishing  hyperbaric oxygen services to interested  hospital partners,
alliance with  companies  marketing new wound care  technologies  and developing
clinical research capabilities for the wound care center network.

                                       4
<PAGE>

         Expand Into Other Disease Management Areas. Longer term, the Company is
considering  capitalizing on its disease  management  expertise by expanding its
services into other disease  management  areas to meet the growing  continuum of
health care needs of patients and providers.  The Company believes that there is
a significant  market  potential  for the delivery of other  disease  management
services through its existing network of Wound Care Centers.  The  possibilities
for expansion of the Company's disease management services include the treatment
of chronic wound related diseases such as diabetes, as well as non-chronic wound
related diseases such as cardiovascular disorders.

Wound Care Operations

         The Company's  wound care  operations  offer health care  providers the
opportunity  to create  specialty  wound care  departments  designed to meet the
needs of chronic wound  patients.  The initial focus of the Company's wound care
operations  has been  hospital  outpatient  Wound Care  Centers.  The Company is
currently  expanding  its  programmatic  approach  to  wound  care to  inpatient
settings such as acute care  hospitals and long term care  facilities.  In these
settings the Company is establishing a wound care program with existing hospital
Wound Care Centers to offer an  inter-disciplinary  approach to the treatment of
chronic  wounds  in  the  inpatient  settings.  In  addition,  the  Company  has
established freestanding outpatient Wound Care Centers.

         Hospital Outpatient Wound Care Centers.  Outpatient Wound Care Centers,
located on or near the campuses of acute care hospitals, represent the Company's
core business. A typical hospital outpatient Wound Care Center consists of 4,000
square feet of space comprising four to eight exam rooms, a nursing station, and
physician and administrative  offices.  These Wound Care Centers are designed to
deliver all necessary  outpatient  services for the treatment of chronic wounds,
with the hospital  providing any inpatient  care, such as  revascularization  or
surgical debridement.

         The Company  currently offers its hospital clients two outpatient Wound
Care Center models: a management model and an "under  arrangement" model, with a
primary focus on developing management models. The differences between these two
models relate  primarily to the  employment  of the clinical  staff at the Wound
Care Center and the basis for the  management  fees paid to the Company.  In the
management  model,  generally the only employee of the Company at the Wound Care
Center is the Wound Care Center's Program  Director,  and the Company  generally
receives a fixed monthly  management fee and a variable case  management fee. In
the "under  arrangement"  model,  the Company  employs all of the  clinical  and
administrative  staff (other than  physicians)  at the Wound Care Center and the
Company generally  receives fees based on the services provided to each patient.
In all other  material  respects the two models are  identical.  In both models,
physicians remain independent and the Company recruits and trains the physicians
and staff  associated  with the Wound  Care  Center.  The  physicians  providing
services at a Wound Care Center are  recruited  by the  Company  primarily  from
among the doctors who work at the  hospital and  practice in related  areas.  In
addition,  in both models the Company  develops,  manages and provides  Procuren
processing  services for the Wound Care Center,  and the Company's field support
departments provide the staff at each Wound Care Center with clinical oversight,
quality  assurance,  reimbursement  consulting,  sales and marketing and general
administrative  support services.  The terms of the Company's contract with each
hospital are negotiated  individually.  Generally, in addition to the management
fees described  above,  the contracts  provide for development fees and Procuren
processing  fees charged to the hospital based on  utilization.  In both models,
the hospital and the  physician  bill the patient for the services  provided and
are  responsible  for seeking  reimbursement  from insurers or other third party
payors.

         The first Wound Care Center  opened in 1988 and there are currently 158
hospital  outpatient  Wound Care Centers in operation in 34 states.  The Company
has  entered  into  contracts  or letters  of intent  with 9  hospitals  to open
additional  Wound Care Centers.  The Company's  hospital client base ranges from
medium-sized  community-based  hospitals  to  large  hospitals  affiliated  with
national  chains and  not-for-profit  hospitals  in local  markets.  The Company
selects  hospital  clients  based on a number of criteria.  A suitable  hospital
client  typically can accommodate at least 200 inpatient  beds,  offers services
which complement the Wound Management Program,  including physician  specialists
in the  areas of  general,  plastic  and  vascular  surgery,  endocrinology  and
diabetes,  is financially  stable and has a solid reputation in the community it
serves. Of the Company's 158 current hospital outpatient Wound Care Centers, 110
are management model centers and 48 are "under arrangement" model centers.

                                       5
<PAGE>

         In expanding its product  offering,  the Company  furnishes  hyperbaric
oxygen  therapy  (HBO)  services  to  interested   hospital  partners  operating
outpatient wound care centers.  These services  generally include furnishing HBO
chambers and managing the program.  The Company  current manages 16 HBO programs
at  existing  hospital   outpatient  Wound  Care  Centers  which  accounted  for
approximately 2% of the Company's revenue.

         At December  31, 1999,  the Company had  management  contracts  with 23
acute  care  hospitals  directly  or  indirectly  owned by  Columbia/HCA.  These
hospitals  collectively  accounted  for  approximately  13% of the  consolidated
revenues of the Company for the year ended December 31, 1999. In 1999 there were
9  Columbia/HCA  hospital  contracts  that  terminated  and closed.  The Company
expects that the Columbia/HCA  hospitals collectively will account for less than
12%  of  future  revenues.   The  Company   renegotiated  all  of  its  existing
Columbia/HCA  hospital  contracts  in 1999  which  resulted  in an  average  26%
decrease in revenue per contract. There can be no assurance further negotiations
with  Columbia/HCA will not result in changes which would have an adverse impact
on the  Company's  business,  financial  condition  and  results of  operations,
including,  without  limitation,   contract  terminations,   price  concessions,
contract  termination  provisions  less favorable to the Company,  and increased
costs borne by the Company.

         Inpatient  Wound Care Programs.  The Company is addressing the needs of
the  inpatient  wound care  market  through  the  development  of new  inpatient
programs.  These patients often have pressure sores  resulting from  inactivity.
While not  typically  as severe as diabetic or venous  stasis  ulcers,  pressure
sores represent the largest segment of the chronic wound market. The Company has
developed a Wound Reduction Assessment Program(sm) for its affiliated acute care
hospitals with outpatient wound care centers that is directed at assisting those
hospitals in identifying and managing inpatients in the acute care hospital that
are at risk or who suffer from chronic wounds. The program is primarily directed
at reducing the length of stay of those patients in the acute care setting.  The
Company  has  also  developed  a  Wound  Outreach Program(sm), whereby  a  nurse
practitioner  or physician  assistant from an affiliated  outpatient  wound care
center  provides  wound  related  services  to  long  term  care  facilities  in
surrounding   cachement  areas.  Both  programs  are  in  the  early  stages  of
development  and  implementation.  There can be no assurance that these programs
will be successful in the future.

         Freestanding  Outpatient Wound Care Centers.  In late 1995, the Company
began to establish  freestanding  Wound Care Centers in which the Company is the
owner and operator.  The Company  believes that this delivery  model allowed the
Company to expand its market  penetration in the outpatient  setting by allowing
the Company to strategically penetrate markets without the constraint of finding
a hospital or contracting with competing  hospitals.  The Company  currently has
four  freestanding  centers  in  four  states.  The  Company  does not  have any
immediate plans to open additional  freestanding  centers and expects to develop
the existing  freestanding  centers into hospital  based  outpatient  wound care
centers.  The  freestanding  Wound Care  Centers  resemble  standard  outpatient
facilities or specialized physician practices.  The Company employs the staff of
the Wound Care Center and is responsible  for billing  patients for all services
provided at the Wound Care Center and for seeking reimbursement from third party
payors,  including  Medicare.  To date the Company has not  employed  any of the
physicians  providing services at its freestanding Wound Care Centers;  however,
the Company may employ physicians at these models in the future.

         Procuren Production Facilities. The Company currently produces Procuren
in 35 facilities in 34 states, all of which are registered with the FDA as blood
processing  facilities.  The  Company's  personnel at these  facilities  produce
Procuren at the direction of Wound Care Center physicians.

                                       6
<PAGE>

Contract Terms and Renewals

         Substantially  all of the  revenues of the  Company  are  derived  from
management  contracts with acute care  hospitals.  The contracts  generally have
initial  terms of three to five  years and many  have  automatic  renewal  terms
unless  specifically  terminated.  During the year ending December 31, 2000, the
contract  terms  of  58 of  the  Company's  management  contracts  will  expire,
including  44 contracts  which  provide for  automatic  one-year  renewals.  The
contracts often provide for early  termination  either by the client hospital if
specified  performance  criteria  are not  satisfied,  or by the  Company  under
various other circumstances.  Historically,  some contracts have expired without
renewal and others have been  terminated  by the Company or the client  hospital
for various reasons prior to their scheduled expiration. During 1999, 4 hospital
contracts  expired without renewal and an additional 16 hospital  contracts were
terminated  prior to their  scheduled  expiration by the client  hospital and in
some cases by the Company.  Generally,  the Company elects to negotiate a mutual
termination of a management  contract if a client hospital  desires to terminate
the contract prior to its stated term.  The continued  success of the Company is
subject to its  ability to renew or extend  existing  management  contracts  and
obtain new management  contracts.  Hospitals choose to terminate or not to renew
contracts  based on decisions to terminate  their  programs or to convert  their
programs from  independently  managed programs to programs operated  internally.
There can be no assurance  that any hospital  will  continue to do business with
the Company 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  the  Company  could  result  in  the  early
termination  of existing  management  contracts and would  adversely  affect the
ability of the Company 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 result in a  significant  decrease in the
Company's net revenues and could have a material adverse effect on the Company's
business, financial condition and results of operations.


Managed Care Operations

         The Company's  managed care strategy is currently  focused on marketing
Wound Care  Center  services to local  managed  care  organizations  ("MCOs") in
concert  with its  hospital  clients'  efforts  to  promote  all  hospital-based
services to such MCOs. In those instances  where hospital  clients are unable to
establish contractual relations with a large local MCO or in those markets where
the Company operates freestanding Wound Care Centers where it would otherwise be
appropriate,  the Company seeks to establish  relations  directly with MCOs. The
Company's  contractual  arrangements  with MCOs,  which will vary based upon the
needs of the particular  MCO, are expected to provide for the Company to receive
compensation on a fee-for-service,  fixed case rate or at-risk capitation basis.
While the Company  anticipates that initially most of its managed care contracts
will  be  fee-for-service  or case  rate  contracts,  it  expects  that  at-risk
capitation could become a contracting method.

         The Company's longer term managed care strategy is to establish a wound
care  carve-out  product with  selected  MCOs.  The Company has begun to develop
tools to help MCOs assess their current wound care  experiences  (both  clinical
outcomes and costs) against the Company's Wound  Management  Program in order to
demonstrate  that a wound care  carve-out  product can provide  added value.  In
order to make  itself  more  attractive  to MCOs by  offering a broader  disease
management program, the Company intends, where appropriate, to align itself with
other disease  management  companies focused on case management or complementary
diseases  such as  cardiac care, venous  stasis  management  and  diabetes.  The
Company  expects that  contracts  for a carve-out  product will provide  at-risk
arrangements with MCOs (i.e., fixed case rates or capitation).

         In 1998, the Company entered into a development  and license  agreement
with Accordant Health Services,  Inc. a private disease management company. As a
strategic  partner,  Accordant  has been  licensed by the Company to develop and
market a wound care  disease  management  program  to the  managed  care  market
including,   Health  Maintenance   Organizations  (HMO's),   Preferred  Provider
Organization (PPO's) and insurance companies.  The wound care disease management
program being  developed  will include  impact  models,  assessment/intervention
tools and outcome  reporting.  The model is expected to be a "carve in" approach
whereby  registered  nurses will monitor health plan  subscribers  identified as
chronic wound patients  through care  management  programs.  The case management
software  supports  and  prompts  collection  of disease  specific  data  points
utilized by the registered  nurses to assist  patients in caring for the chronic
condition,  identify  and  monitor  patients  at risk and  educate  patients  in
preventative  measures.  The nurses conduct  proactive  patient  monitoring that
assesses  patient  compliance,  complications,  functional  and clinical  health
status and patient  satisfaction.  The respective health plans are then provided
reports. The program is expected to be launched early in 2000.  Additionally,
the Company has made a $4 million equity investment in Accordant.

                                       7
<PAGE>

         The Company's  managed care operations are overseen by a Vice President
of  Managed  Care and Payor  Relations.  To date,  the  Company's  managed  care
operations have been limited.  Although the Company or its hospital clients have
been reimbursed for wound treatment by a number of MCOs on a case-by-case basis,
the Company  currently has no contracts that require or incentivize  subscribers
to use the Company's  wound care  services.  There can be no assurance  that the
Company will be able to successfully expand its managed care operations.

Community Education and Marketing

         The Company's  community education and marketing strategy consists of a
two-fold  approach  involving the development of new wound care programs as well
as growth in operating Wound Care Centers.  To accomplish  this, the Company has
divided  the  United  States  into four  operating  divisions  each  headed by a
Divisional Vice President.  The community education and marketing effort in each
division is directed by a Divisional Sales Director under the supervision of the
Divisional Vice President.  The Divisional Sales Director is responsible for the
activities of the Sales Managers,  Professional  Liaisons,  Business Development
Managers.  The  Professional  Liaisons are primarily  responsible  for community
education  efforts directed at physicians and other healthcare  professionals to
expand  community  awareness of the Wound Care  Centers.  The primary job of the
Business Development Manager is the development of new wound care programs.  The
Company's  community  education and marketing  operations are overseen by a Vice
President of Sales and Marketing.

         As of  December  31,  1999,  the  Company  had  four  Divisional  Sales
Directors,  13  Business  Development  Managers,  five  Sales  Managers  and  53
Professional Liaisons.

         In addition to the above, a community education plan and marketing plan
are developed each year at each Wound Care Center.  The execution of the plan is
the  responsibility  of the Program Director at the Wound Care Center.  The plan
details  the  anticipated  marketing  for the year  including  radio,  print and
television  advertising as well as  professional  symposiums and other community
education. The cost of this plan is generally shared between the Company and the
hospital.  The Company  markets the Wound Care Center  concept to hospitals as a
therapeutic  "Center of  Excellence."  The Company  believes that having a Wound
Care Center can  differentiate  a hospital from its competitors and can increase
the hospital's revenues through the introduction of new patients, which leads to
an increase in  ambulatory  surgeries,  X-rays,  laboratory  tests and inpatient
surgeries,  such as debridements,  vascular surgeries and plastic surgeries. The
Company has demonstrated that Wound Care Centers provide significant incremental
revenues  to  participating  hospitals,  and  therefore  provide  an  attractive
economic opportunity for hospitals at the same time being more cost effective in
terms of total  healthcare  dollars  expanded.  Potential  benefits  to treating
physicians include the healing of  difficult-to-heal  wounds and an expansion of
the physician's practice.


Patents and Proprietary Rights

         The  Company's  success  depends  in part  on its  ability  to  enforce
patents,  maintain trade secret protection and operate without  infringing on or
violating the  proprietary  rights of third  parties.  One U.S.  patent has been
issued,  and one  additional  application  for a patent in the United States has
been filed,  relating  to the  manufacture  and use of Procuren  for wound care.
There can be no assurance that any pending patent  applications will be approved
or that any issued patents will provide the Company with competitive  advantages
in the future or will not be  challenged by any third parties or, if involved in
a challenge,  will be found valid and  infringed.  Furthermore,  there can be no
assurance that others will not design around the patents. The issued U.S. patent
is jointly  owned by the  University  of Minnesota  and the  Company.  The joint
interest of the  University of Minnesota is licensed  exclusively to the Company
under a paid in  full,  royalty  free  arrangement.  The U.S.  Government  has a
nonexclusive  grant back license under the issued U.S. patent for all government
purposes. The additional pending U.S. application is owned by the Company and is
not subject to the government grant back license.

         In addition to patent protection,  the Company also relies, in part, on
trade secrets, proprietary know-how and technological advances which it seeks to
protect by  measures  such as  confidentiality  agreements  with its  employees,
consultants  and  other  parties  with  whom it does  business.  There can be no
assurance  that these  agreements  will not be breached,  that the Company would
have  adequate  remedies  for any breach,  that  others  will not  independently
develop  products  similar to Procuren or that the  Company's  trade secrets and
proprietary   know-how  will  not  otherwise   become  known,  be  independently
discovered  by  others or found to be  unprotected.  The  Company  is aware of a
limited number of physicians  who appear to be utilizing an autologous  platelet
extract for the treatment of chronic wounds.

         The Company has registered the names "Procuren" and "Wound Care Center"
as  trademarks  in the United  States for use in  connection  with the Company's
wound care operations.

                                       8
<PAGE>

Government Regulation

         The Company's  Wound Care Centers and the  production  and marketing of
its  products  and  services  are subject to  extensive  regulation  by numerous
governmental  authorities in the United States, both federal and state. Although
the  Company  believes  that it is  currently  in  substantial  compliance  with
applicable  laws,  regulations and rules,  the Company received a Warning Letter
from FDA in March 1998  admonishing the Company for several  alleged  deviations
from good  manufacturing  practices at one of the Company's  Wound Care Centers.
The  Company  has  responded  to the  Warning  Letter and  believes  that it has
adequately  addressed  FDA's concerns.  However,  there can be no assurance that
FDA, another  governmental agency or a third party will not contend that certain
aspects of the Company's  operations or procedures  are subject to or are not in
compliance  with such  laws,  regulations  or rules or that the state or federal
regulatory  agencies or courts would interpret such laws,  regulations and rules
in the  Company's  favor.  The  sanctions  for failure to comply with such laws,
regulations  or rules  could  include  denial of the right to conduct  business,
significant  fines and  criminal  penalties.  Additionally,  an  increase in the
complexity or substantive  requirements of such laws, regulations or rules could
have a material adverse effect on the business,  financial  position and results
of operations of the Company.

         The FDA regulates drugs and biologics that move in interstate  commerce
and requires that such products receive pre-marketing approval based on evidence
of safety and efficacy. Since Procuren is produced at one of the Company's blood
processing  facilities  in the state  where the Wound  Care  Center  which  will
dispense  the  Procuren is located and so is not  intended to be shipped  across
state lines,  the Company  believes,  based on the advice of its  counsel,  that
under current law and regulations,  FDA approval is not required for the Company
to distribute and sell Procuren  through the Wound Care Centers on an intrastate
basis.  The FDA is currently  reassessing its regulation of other autologous and
somatic  cell  products  and has  publicly  stated that it believes  that if any
component of a drug or biological  or if any patient  receiving  such  substance
moves in interstate commerce, a sufficient nexus with interstate commerce exists
for FDA to require pre-marketing  approval and licensure.  The FDA has indicated
to the Company  that the status of Procuren  would be  addressed by the FDA in a
future  Federal  Register  publication,  possibly as a part of the FDA's overall
regulation of other  autologous and somatic cell products.  While the production
of Procuren includes components that are shipped in interstate commerce, to date
the FDA has not determined that Procuren,  as currently prepared,  is subject to
licensure or pre-market approval. However, in the March 1998 FDA Warning Letter,
FDA objected to the Company providing Procuren to patients who reside in a state
other than the one in which the Wound Care Center is located. The Company ceased
providing  Procuren to  out-of-state  patients.  Although  the Company  believes
interstate  shipment  of the final  biologic  product  is  required  to  trigger
pre-marketing  approval and  licensure,  a  determination  by the FDA to require
Procuren to obtain pre-marketing  approval would materially and adversely affect
the Company.

         Because FDA approval  has not been  required  for  Procuren,  and state
approvals are generally  limited to licensing of  facilities,  there has been no
independent determination of its efficacy by any governmental entity. If the FDA
were to require  submission  of a  biologics  license  application  ("BLA") as a
condition for the continued distribution and sale of Procuren, the Company might
have to demonstrate the safety, purity, potency and effectiveness of the product
through extensive  clinical trials.  Neither the Company nor any third party has
conducted  the  controlled  clinical  trials  required to  establish  Procuren's
efficacy.  Compliance  with the  requirements  for a BLA is  time-consuming  and
involves the  expenditure  of substantial  resources.  There can be no assurance
that the Company  would be able to  establish  efficacy or to obtain or maintain
the necessary FDA approvals to manufacture and distribute Procuren.

         Any change in current  regulatory  interpretations  by or  positions of
state officials where the Wound Care Center's are located could adversely affect
the Company's  distribution  of Procuren  within those  states.  In states where
Wound Care Centers are not currently located, the Company intends to utilize the
same approaches adopted elsewhere for achieving state compliance. However, state
regulatory   requirements  could  adversely  affect  the  Company's  ability  to
establish Wound Care Centers in such other states.

         Various  state and federal  laws  regulate  the  relationships  between
providers of health care services and physicians and other clinicians, including
employment  or service  contracts,  investment  relationships  and referrals for
certain  designated  health  services.  These laws  include  the fraud and abuse
provisions  and referral  restrictions  of the  Medicare and Medicaid  statutes,
which prohibit the solicitation,  payment,  receipt or offering of any direct or
indirect remunerations for the referral of Medicare and Medicaid patients or for
the  ordering or providing of Medicare or Medicaid  covered  services,  items or
equipment.  Violations  of these  provisions  may  result  in civil or  criminal
penalties for individuals or entities including  exclusion from participation in
the Medicare or Medicaid programs. Several states have adopted similar laws that
cover patients in private programs as well as government  programs.  Because the
anti-fraud and abuse laws have been broadly  interpreted,  they limit the manner
in which the Company can operate its  business  and market its  services to, and
contract for services with, other health care providers.

                                       9
<PAGE>

         Additionally,  federal  and some  state  laws  impose  restrictions  on
physician's  referrals for certain  designated  health services to entities with
which the  physician  has a financial  relationship,  but there is  considerable
uncertainty  about some facets of these laws,  especially  the federal law since
there  are no  final  rules  interpreting  the law.  The  Company  believes  its
operations  do  not  violate  these   restrictions  to  the  extent  applicable.
Periodically   there  are  efforts  to  expand  the  scope  of  these   referral
restrictions  from its  application  to  government  health care programs to all
payors,  and to  additional  health  services.  Certain  states are  considering
adopting similar  restrictions or expanding the scope of existing  restrictions.
There can be no assurance  that the federal  government or other states in which
the Company operates will not enact similar or more  restrictive  legislation or
restrictions  or interpret  existing laws and regulations in a manner that could
under  certain  circumstances  limit the manner in which the Company can operate
its business and have a negative  impact on the  Company's  business,  financial
condition and results of operations.

         The Company has been  informed of two separate  complaints  filed under
the Federal Civil False Claims Acts alleging  that:  the Company's  charges were
excessive;  the Company shifted costs from  non-allowable  services to allowable
services;  included charges for advertising costs that were not allowable to the
hospital  claiming  reimbursement  from the Medicare  program;  and violated the
"anti-kickback"  statute because a portion of the Company's fee was based on the
number of new  patients  seen in the wound care  centers  managed by the Company
(See Item 3 Legal  Proceedings for a further  discussion on these matters).  The
Company disagrees with these characterizations of its contractual  arrangements,
its services, and the fees it charges for those services. If the government were
to  conclude  that the Company  engaged in any  misconduct,  it could  result in
affecting  the  Company's   relationship   with  all  its  hospital   customers,
substantial  monetary  fines and  penalties,  and  exclusion  from  governmental
healthcare  programs which could have a material adverse effect on the business,
financial position and results of operations of the Company.

         The laws of many states prohibit  physicians from sharing  professional
fees  with  non-physicians  and  prohibit  non-physician  entities,  such as the
Company,  from  practicing  medicine and from  employing  physicians to practice
medicine.  The laws in most states regarding the corporate  practice of medicine
have been  subjected to limited  judicial  and  regulatory  interpretation.  The
Company believes its current and planned activities do not constitute prohibited
fee  splitting  or violate any  prohibition  against the  corporate  practice of
medicine.  There can be no assurance,  however,  that future  interpretations of
such laws will not require  structural or  organizational  modifications  of the
Company's existing business or have a negative impact on the Company's business,
financial addition and results of operations.

         Pursuant to the federal  Occupational  Safety and Health Act, employers
have a general  duty to  provide a work place for their  employees  that is safe
from hazard. The U.S. Occupational Safety and Health Administration ("OSHA") has
issued rules relevant to certain  hazards that are found in the Company's  blood
processing facilities. In addition, OSHA issued a standard in 1992 applicable to
protection of workers from  blood-borne  pathogens.  Failure to comply with this
standard relating to blood-borne pathogens,  other applicable OSHA rules or with
the  general  duty to provide a safe work place  could  subject  the  Company to
substantial fines and penalties.

Third Party Reimbursement

         The Company,  through its wound care operations,  provides  contractual
management  services  for fees and sells  Procuren to acute care  hospitals  and
other health care providers.  These providers,  in turn, seek reimbursement from
third party payors, such as Medicare, Medicaid, health maintenance organizations
and private  insurers,  including Blue Cross/Blue Shield plans. The availability
of reimbursement from such payors has been a significant factor in the Company's
ability to increase its revenue streams and will be important for future growth.

         In addition to hospital  outpatient Wound Care Centers which it manages
for its clients,  the Company owns and operates  freestanding  outpatient  Wound
Care  Centers.  With  respect to  services  and  products  provided  through its
freestanding  centers,  the  Company is subject to the risks  inherent  in third
party  reimbursement,  including the risks  associated  with billing third party
payors.  As of  December  31,  1999,  the  Company  operated  four  freestanding
outpatient Wound Care Centers which contributed  approximately  $2,508,000 or 2%
of the Company's  revenues for the year ended  December 31, 1999.  However,  the
Company anticipates that the number of, and amount of revenues  attributable to,
its freestanding  centers will decrease in the future since the Company does not
have any immediate plans to open additional  freestanding centers and expects to
develop the existing  freestanding  centers into hospital  outpatient wound care
centers. See "Business--Strategy."

                                       10
<PAGE>

         Each third party payor  formulates its own coverage and  reimbursements
policies. In 1992, the Health Care Financing Administration ("HCFA"), the agency
that administers the Medicare program nationally,  published a national coverage
decision  denying  coverage for  Procuren  based on its  determination  that the
safety and  efficacy  of  Procuren  had not been  established  and so the use of
Procuren was not  "reasonable  and  necessary"  within the meaning of applicable
law.  Procuren sales represent a significant part of the Company's  revenues and
earnings and the Company  believes  that  Procuren,  as a component of its Wound
Management  Program,  is a  significant  component  of the  Company's  services.
Although  the Company has not,  and the Company  believes  that its clients have
not, in general experienced difficulty in securing third party reimbursement for
Wound Care Center services and the use of Procuren from private  insurers,  some
hospitals have  experienced  denials,  delays and difficulties in obtaining such
reimbursement.  In some cases where Procuren  reimbursement has been denied by a
payor, the hospitals have ceased providing Procuren to patients whose only means
of payment is through such payor.  To the  Company's  knowledge,  no  widespread
denials have been received by hospitals regarding  reimbursement for other Wound
Care Center services or  reimbursement of management fees charged by the Company
to its hospital clients. The Company discusses coverage and reimbursement issues
with its  hospital  clients  and third  party  payors on a regular  basis.  Such
discussions  will  continue as the Company seeks to assure  sufficient  payments
from third party payors to the Company's hospital customers for services managed
by the Company and for Procuren so that the  Company's  hospital  customers  and
potential  customers  find it financially  feasible to renew  contracts or enter
into   contracts  with  the  Company.   Although  no  individual   coverage  and
reimbursement  decision is  material  to the  Company,  a  widespread  denial of
reimbursement  coverage  for  Procuren or other  services  would have a material
adverse  effect on the  Company's  business,  financial  position and results of
operations.

         Medicare  regulations limit  reimbursement for health care charges paid
to related  parties.  A party is considered  "related" to a provider if there is
significant  common  ownership or common  control by the provider.  On occasion,
fiscal  intermediaries  under contract to HCFA to audit hospital Medicare claims
have asserted that one test for determining  control for this purpose is whether
the  percentage  of the total  revenues  of the  party  received  from  services
rendered to the  provider is so high that it  effectively  constitutes  control.
Although the Company believes it does not currently receive sufficient  revenues
from any customer,  including Columbia/HCA,  that would make it a related party,
it is  possible  that such  regulations  could  limit the  number of  management
contracts that the Company could have with Columbia/HCA or any other client.

         The Wound Care  Centers  managed by the Company on behalf of acute care
hospitals  are treated as "provider  based  entities"  for  Medicare  cost based
reimbursement  purposes.  This  designation  is required for the hospital  based
program to be covered under the Medicare  cost based  reimbursement  system.  In
August 1996 and again in May 1998, HCFA published  criteria for determining when
programs may be designated  "provider based entities".  The  interpretation  and
application  of these  criteria are not entirely  clear and there is a risk that
some of the programs  managed by the Company  could be found not to be "provider
based entities". Although the Company believes that the programs it manages meet
the current criteria to be designated  "provider based  entities",  a widespread
denial on such designation would have a material adverse effect on the Company's
business, financial position and results of operations.

         In the Balanced Budget Act of 1997, Congress directed HCFA to implement
a prospective  payment system for all hospital  outpatient  department  services
furnished  to  Medicare  patients on or after  January 1, 1999.  The Company has
learned that HCFA's planned  implementation  date for this new payment system is
July 2000.  In September  1998 and then further  update in November  1999,  HCFA
published  the proposed  rules,  which  delineate  the  framework,  services and
operation of the Prospective  Payment System.  Under the system, a predetermined
rate will be paid to hospitals for clinic services  rendered,  regardless of the
hospitals cost.  Based on review and analysis of the proposed  regulations,  the
Company believes that the  reimbursement  rates will be insufficient for many of
its hospital customers, resulting in revenue and income shortfalls for the wound
care center  operations  managed by the Company on behalf of the hospitals.  The
Company  expects that it will need to modify its management  contracts with many
of its hospital  customers which could result in reduced  revenues and income to
the Company from those  contracts  and even contract  terminations.  The results
could have a material effect on the Company's business,  financial condition and
results of operations. Additionally, the new rules will include new criteria for
programs to be designated a "provider  based  entity".  The  interpretation  and
application  of these new criteria are not entirely clear and there is risk that
some of the  programs  managed  by the  Company  could be  determined  not to be
"provider based entities".  A widespread denial on such designation could have a
material  adverse  effect on the  Company's  business,  financial  position  and
results of operations.

                                       11
<PAGE>

         Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change.  Although Congress has
failed to pass  comprehensive  health  care  reform  legislation  thus far,  the
Company anticipates that Congress and state legislatures will 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. It is possible that future legislation enacted by Congress
or state  legislatures  will contain  provisions which may materially  adversely
affect the business, financial position and results of operations of the Company
or may change the operating  environment  for the Company's  targeted  customers
(including  hospitals  and managed  care  organizations).  Health care  industry
participants  may  react  to such  legislation  or the  uncertainty  surrounding
related  proposals by  curtailing  or deferring  expenditures  and  initiatives,
including  those  relating to the Company's  programs and  services.  It is also
possible that future  legislation  either could result in  modifications  to the
nation's  public and private health care insurance  systems,  which could affect
reimbursement  policies in a manner adverse to the Company,  or could  encourage
integration  or  reorganization  of the health care delivery  system in a manner
that could materially affect the Company's ability to compete or to continue its
operations without substantial  changes.  The Company cannot predict which other
legislation  relating  to its  business or to the health  care  industry  may be
enacted,  including  legislation relating to third party reimbursement,  or what
effect any such  legislation  may have on its business,  financial  position and
results of operations.


Competition

         The Company's  principal  competition  in the chronic wound care market
consists of specialty  clinics that have been  established  by some hospitals or
physicians.  Additionally, there are a number of private companies which provide
wound care  services  through a HBO  program  format.  In the market for disease
management  products and  services,  the Company  faces  competition  from other
disease  management  facilities,  general  health  care  facilities  and service
providers,  pharmaceutical  companies,  biopharmaceutical  companies  and  other
competitors.   Many  of  these  companies  have  substantially  greater  capital
resources  and  marketing  staffs,  and greater  experience  in  commercializing
products  and  services,  than the  Company.  In  addition,  recently  developed
technologies, or technologies that may be developed in the future, are or may be
the basis for products  which  compete  with the  Company's  chronic  wound care
products and which may be in direct  competition with Procuren.  There can be no
assurance that the Company will be able to enter into co-marketing  arrangements
with  respect to these  products,  or that the  Company  will be able to compete
effectively against such companies in the future.


Employees

         As of December 31, 1999, the Company employed 678 full-time  employees,
of which 584 employees were in the wound care  operations,  40 employees were in
Procuren  production,  13 employees  were in technical  support and 41 employees
were  in  general  administration  and  finance.  The  Company  expects  to  add
additional  personnel to its wound care operations in the next year. The Company
believes that its relations with its employees are good.

Item 2   Properties

         The Company's headquarters and technical support facility is located in
Hauppauge,  Long Island,  New York.  The Company  leases this 30,000 square foot
facility  under a lease through 2005.  The Company  believes that its facilities
are adequate and suitable for its  operation.  The Company also leases one field
operations office for its wound care operations totaling 4,100 square feet, four
freestanding  Wound Care Centers  totaling  12,919 square feet and 27 production
facilities totaling 53,175 square feet. The Company's facilities at the hospital
outpatient Wound Care Centers are owned or leased by the hospitals.

                                       12
<PAGE>

Item 3   Legal Proceedings

         In April 1999,  the Company  learned  through a press  release from the
United   States   Department  of  Justice  that  a  complaint  was  filed  by  a
"whistleblower"  relator  under the Federal Civil False Claims Act alleging that
the Company made  improper  charges to  Columbia/HCA  hospitals as well as other
hospitals.  The case has been filed as United  States ex. rel.  Joseph  "Mickey"
Parslow v.  Columbia/HCA  Healthcare  Corporation and Curative Health  Services,
Inc. and has been assigned civil case number  98-1260-civ-T-23F,  in the Federal
District Court for the Middle District of Florida, Tampa Division.

         Under  this  act,  the  whistleblower  relator  could  be  entitled  to
approximately  15 percent of any  amounts  obtained  from the  defendants.  This
potential bounty under the False Claims Act was intended by Congress to motivate
private persons to bring actions of this nature.

         The Company's counsel has advised the Company that it is common for the
government  to file an amended  complaint  when it  intervenes  in a civil False
Claims Act case,  and the  Company's  counsel  expects  that the  Department  of
Justice  will file an  amended  complaint  in this case.  An amended  complaint,
originally anticipated to be filed by August 6, 1999 was extended until February
18, 2000.  The Department of Justice  contacted the Company  through its outside
legal  counsel,  seeking an  additional  four-month  extension.  The Company has
agreed to the extension  and  anticipates  receiving an amended  complaint on or
before  June 18,  2000.  The Company has  received an  Authorized  Investigative
Demand  (document  subpoena)  requiring  the  production  of a  broad  range  of
documents  from  January 1, 1989 to December  31, 1999.  The  Company's  outside
counsel is currently discussing with the United States Department of Justice the
schedule for the production of documents.

         The  "whistleblower's"  complaint  alleges that: the Company's  charges
were  excessive;  the  Company  shifted  costs from  non-allowable  services  to
allowable  services;  included  charges  for  advertising  costs  that  were not
allowable to the hospital claiming  reimbursement from the Medicare program; and
violated the "anti-kickback"  statute because a portion of the Company's fee was
based on the number of new patients  seen in the wound care  centers  managed by
the  Company.  The  Company  disagrees  with  these   characterizations  of  its
contractual  arrangements,  its  services,  and the fees it  charges  for  those
services.

         The Company does not believe that it "refers,  recommends  or arranges"
for a hospital's  services in exchange for kickbacks.  The Company also believes
that its charges are fair market value for the services  that it  furnishes,  as
supported by the fact that more than 170 hospitals  have entered into  contracts
with the Company for its services in managing wound care centers.  The Company's
charges  cover  not only  direct  costs  for  management  services  but also the
Company's intellectual property,  which includes a unique data base and clinical
pathways that have proven effective in healing  intractable  wounds in more than
80 percent of the patients that have completed treatment. These are patients who
otherwise  would  likely  have  had  to  have  amputations  or  other  invasive,
expensive,  and possibly  disabling  or  disfiguring  services.  The Company has
expended  millions  of  dollars  in  developing  and  maintaining  its  clinical
pathways,  and also in training  physicians and other clinicians in its clinical
pathways.

         The   Company   notes   that   the   contracts    challenged   in   the
"whistleblower's"  civil suit are  contracts  that its hospital  customers  have
generally  been required to furnish to Medicare  auditors as part of cost report
filings. In hundreds of instances,  the Company's fees to its hospital customers
have been  allowed in full,  sometimes  after a  detailed  audit.  The  Company,
itself,  is neither a  provider  nor a supplier  participating  in the  Medicare
program and does not receive payments from the Medicare program.

         The Company has a formal  compliance  program and  management  believes
that the  Company is in material  compliance  with  applicable  laws and ethical
business  practices.  In the conduct of its business,  the Company has relied on
the advice and guidance of nationally  recognized law firms in  structuring  its
business  relationships  with its  hospitals.  In this pending  litigation,  the
Company intends to defend itself  vigorously.  An adverse result in this qui tam
action could have a material adverse effect on the Company's business, financial
condition and/or results of operations.

                                       13
<PAGE>

           As previously  disclosed in the  Company's  Form 10-Q for the quarter
ended March 31,  1999,  in April 1999 the Company  received a document  subpoena
from the Office of Inspector  General  ("OIG") of the U.S.  Department of Health
and Human Services,  Region II (New York, NY). The subpoena directed the Company
to  produce a broad  range of  documents  from  January  1, 1993 to the  present
relating to various areas including, among others, the Wound Care Centers, wound
care treatment programs and general business practices. The subpoena stated that
it had been  delivered  in  connection  with a "Health Care  Investigation".  In
response to that subpoena, the Company has furnished a large number of documents
to the OIG.

           The Company has learned that this "Health Care Investigation" relates
to a qui tam action filed under seal in the United States District Court for the
Southern  District of New York in 1998.  Pursuant  to a court  order  entered on
January 11,  2000,  the seal under which this action was filed was  modified to,
among  other  things,  permit the  Company to disclose  the  allegations  in the
complaint in its periodic  filings with the Securities  and Exchange  Commission
and as required to fulfill its  disclosure  obligations  under federal and state
securities laws.

           The  complaint  was  filed by a  "whistleblower"  relator  under  the
Federal Civil False Claims Act and names the Company and hospitals with which it
does business as defendants. The complaint alleges, among other things, that the
defendants violated the "anti-kickback" statute in part because a portion of the
Company's  fee was based on the  number of new  patients  seen in the wound care
centers   managed  by  the   Company;   engaged  in   prohibited   self-referral
transactions;  improperly  billed Medicare for costs and services not covered by
Medicare;  double-billed Medicare for professional services; and submitted false
claims to Medicare.  Certain of the  allegations  are similar to the allegations
made in United States ex. Rel. Joseph "Mickey"  Parslow v.  Columbia/HCA  Health
Care  Corporation  and  Curative  Health  Services,  Inc.,  qui tam action.  The
complaint in the Southern  District of New York action asserts that, as a result
of the allegedly  wrongful conduct,  the United States suffered damages and that
the defendants are liable to the United States for three times the amount of the
alleged damages plus civil penalties of up to $10,000 per false claim.

           The United States has not yet decided whether to intervene in the New
York qui tam action.  If it does not, then the plaintiff  relator may pursue the
claims on his/her own or may withdraw the complaint.

           The Company disagrees with the  characterizations in the complaint of
its contractual  arrangements,  its services,  and the fees it charges for those
services,  and intends to defend itself  vigorously  in this action.  An adverse
result  in this qui tam  action  could  have a  material  adverse  effect on the
Company's business, financial condition and/or results of operations.

         Further, if the government were to conclude that the Company engaged in
any misconduct, it could result in affecting the Company's relationship with all
its hospital  customers,  substantial  monetary  fines and  penalties,  and even
exclusion from the governmental  healthcare programs which could have a material
adverse effect on the business,  financial position and results of operations of
the Company.

         Subsequent  to the  disclosure of  the Parslow "whistleblower"  lawsuit
and Department of Justice action, the Company and, in some cases, certain of its
officers were named in four shareholder lawsuits, namely:

                  Ernest Hack versus Curative Health Services, Inc et al.

                  Scott Thompson versus Curative Health Services, Inc et al.

                  Tirdad Thompson versus Curative Health Services, Inc et al.

                  William Nolan versus Curative Health Services, Inc et al.

         All  suits  were  filed in the  United  States  District  Court for the
Eastern  District  of  New  York.  The  four  shareholder   lawsuits  have  been
consolidated  into one class action lawsuit.  The lawsuits allege generally that
the Company and its officers  violated federal  securities laws by disseminating
materially  false and  misleading  statements  and failing to disclose  material
information   relating  to  the  contractual   relationships  with  Columbia/HCA
Healthcare   Corporation   and   other   hospitals,    and   certain   purported
misrepresentations   in  connection   therewith.   The  suit  seeks  to  recover
unspecified  damages from  defendants.  The Company denies the  allegations  and
intends to vigorously  defend the suits. The Court denied  defendants  motion to
dismiss and discovery is currently  ongoing.  An adverse  result in this lawsuit
could  have a  material  adverse  effect on the  Company's  business,  financial
conditions and/or results of operations.

                                       14
<PAGE>

         Notwithstanding  its belief that it has  complied  with the law and its
intention to defend  itself  vigorously,  if it is  determined to be in the best
interests of the Company, it is possible that the Company will eventually choose
to enter into a settlement  with the  government  related to the qui tam actions
and or the  plaintiffs in the  securities  litigation  lawsuit that could have a
material adverse effect on the Company's  business,  financial  condition and or
results of operations.

         In addition,  the Company,  in the ordinary course of business,  is the
subject of or party to various lawsuits,  the outcome of which in the opinion of
management, will not have a material adverse effect on its financial position or
results of operations.

Item 4   Submission of Matters to a Vote of Security Holders

         None.

                                       15
<PAGE>

                                     PART II


Item 5   Market for the Registrant's Common Equity and Related Stockholder
         Matters

         The  Company's  common stock is traded on The Nasdaq Stock Market under
the symbol "CURE". As of March 15, 2000, there were approximately 214 holders of
record and approximately  3,500 beneficial  shareholders of the Company's common
stock.  The Company has not paid any cash  dividends  since its  inception.  The
Company  currently  does not  intend to pay cash  dividends  in the  foreseeable
future but  intends  to retain all  earnings,  if any,  for use in its  business
operations.

         The following table sets forth, for the fiscal periods  indicated,  the
range of high and low sales  prices of the common  stock as quoted on The Nasdaq
National Market System:

                                                            High         Low
               1999
               Fourth Quarter.....................       $  8 7/8    $   4 3/4
               Third Quarter......................          6 1/16       4 1/2
               Second Quarter.....................         12 1/8        3 3/4
               First Quarter......................         30 3/4        9 7/8

               1998
               Fourth Quarter.....................       $ 35        $  22 11/16
               Third Quarter......................         32 1/4       20 1/2
               Second Quarter.....................         35 3/4       25 3/4
               First Quarter......................         39 1/4       30

                                       16
<PAGE>

Item 6   Selected Consolidated Financial Data

         Five year  selected  consolidated  financial  data and other  operating
information of Curative Health Services, Inc., and subsidiaries follow:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                               1995             1996            1997            1998          1999
                                               -------------------------------------------------------------------
                                                        (In thousands, except per share and operating data)
<S>                                       <C>              <C>             <C>            <C>            <C>
Statement of Operations Data:
Revenues                                  $  52,442        $  67,395       $  87,906      $  103,987     $  101,209
Costs and operating expenses:
   Costs of products sales and services..    26,189           37,828          48,200          56,035         59.945
   Selling, general and administrative...    18,209           19,208          22,617          23,358         26,273
   Research and development..............     4,143                -               -               -              -
                                             ------           ------          ------          ------         ------
Total costs and operating expenses.......    48,541           57,036          70,817          79,393         86,218
                                             ------           ------          ------          ------         ------
Income from operations..................
   before interest income ..............      3,901           10,359          17,089          24,594         14,991
Interest income..........................       528            1,344           2,666           2,660          2,037
                                              -----           ------          ------          ------         ------
Income before income taxes...............     4,429           11,703          19,755          27,254         17,028
Income taxes.............................       219            1,008           3,293          10,217          6,566
                                                ---            -----           -----          ------          -----
Net income .............................. $   4,210        $  10,695       $  16,462      $   17,037     $   10,462
                                              =====           ======          ======          ======         ======
Net income  per common share, basic...... $    0.41        $    0.95       $    1.33      $     1.34     $      .99
                                               ====             ====            ====            ====            ===
Denominator for basic earnings per share,
     weighted average common shares......    10,192           11,212          12,404          12,704         10,559


Operating Data:
Wound care centers at end of period......        79              105             132             154            158
Number of new patients...................    30,023           38,699          48,722          58,510         61,539

Balance Sheet Data:
Working capital.......................... $  12,575        $  45,760       $  62,583      $   76,419     $   55,456
Total assets.............................    25,030           61,959          84,939         109,121         87,910
Long-term debts
   (including capital lease obligation)..     1,198            1,044               7               -              -
Retained earnings (deficit)..............   (29,925)         (19,230)         (2,768)         14,269         24,731
Stockholders' equity.....................    15,611           50,270          72,592          93,396         71,600
</TABLE>


                                       17
<PAGE>

Item 7   Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

         The Company's  principal business is the delivery of chronic wound care
services through its nationwide network of Wound Care Centers located in or near
acute care hospitals.  Substantially all of the Company's revenues are currently
generated  under its contracts  with acute care  hospitals for the management of
chronic  wound  care  programs  and the  production  of  Procuren.  The  Company
currently  operates two types of Wound Care Center  contracts with hospitals:  a
management model and an "under arrangement" model.

         In the management  model, the Company  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 and a variable case  management  fee. In the "under  arrangement"
model,  the Company  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. In both models, physicians remain independent, and the
Company  recruits and trains the physicians and staff  associated with the Wound
Care Center.  In addition,  in both models,  the Company  receives  fees for the
production of Procuren based on utilization.

         Of the 158  hospital  outpatient  Wound Care Centers in operation as of
December 31, 1999,  110 were  management  model Wound Care Centers,  and 48 were
"under  arrangement"  model Wound Care  Centers.  The  Company's  fees under its
management  contracts  with  acute  care  hospitals  are  paid by the  hospitals
directly. See "Business--Third Party Reimbursement."

         The Company has four freestanding wound care centers that are owned and
operated by the Company.  These centers  accounted for  approximately  2% of the
Company's revenue in 1999. The Company does not have any immediate plans to open
additional freestanding centers and expects to develop the existing freestanding
programs into hospital based wound care centers.

Results of Operations

     Fiscal Year 1998 vs.  Fiscal Year 1999.  The Company's  revenues  decreased
from  $104.0  million in 1998 to $101.2  million  in 1999,  a 3%  decrease.  The
Company  ended the year with 158  hospital  based Wound Care  Centers  operating
compared with 154 at the end of 1998. The decrease in revenue is attributable to
the termination of 20 programs during 1999,  renegotiation of existing contracts
including 24 with Columbia/HCA Healthcare Corporation, which resulted in reduced
revenue to the Company,  and a reduction  of Procuren  revenues as a result of a
decline in Procuren  patients.  Revenue at existing centers declined 2 % in 1999
primarily due to such  renegotiations and declining  Procuren  revenues.  At any
time  during  the  year,  10 % to 20 % of  the  Company's  contracts  are  being
renegotiated  with the client  hospital  for a variety of  contractual  terms or
issues.  Historically,  some contracts have expired  without  renewal and others
have been  terminated by the Company or the client  hospital for various reasons
prior to their scheduled  expiration.  Hospitals are currently  facing financial
challenges associated with lower occupancy rates and reduced revenue streams due
to pricing  pressures from third party payors.  Program  terminations  by client
hospitals  have been  effected  for such  reasons  as  financial  restructuring,
layoffs, bankruptcies or even hospital closings. The termination, non-renewal or
renegotiation  of a material  number of management  contracts  could result in a
continued  decline in the Company's  revenue.  As the result of the recent legal
action against the Company,  further unanticipated  terminations or non-renewals
may take place.  Additionally,  new  business  development  has been slower than
normal given the legal uncertainties facing the
Company.  Any  inability of the Company to develop new Wound Care Centers  could
continue the revenue decline. Further, the Medicare program will be implementing
a new reimbursement  system in year 2000 for hospital outpatient  services.  The
Company believes that the reimbursement  rates to hospitals will be insufficient
resulting in reduced revenues to the hospitals. The Company expects that it will
need to modify its  management  contracts  with many of its  hospital  customers
which  could  result  in  reduced  revenue  to  the  Company  or  even  contract
terminations.  The Company has a number of initiatives to counter the decline in
revenue,  although  there  can be no  assurance  that  the  initiatives  will be
successful.  Total new  patients  to the wound care  centers  increased  5% from
58,510 in 1998 to  61,539  in 1999.  The  total  number  of  patients  receiving
Procuren  therapy  decreased  29% from  8,164  in 1998 to  5,797  in  1999.  The
percentage of patients  receiving  Procuren  decreased from 14% in 1998 to 9% in
1999. The Company  believes that this decrease is attributable to an increase in
the  percentage  of less severe  chronic  wounds being  treated at the Company's
Wound  Care  Centers(R),  for which  physicians  are less  likely  to  prescribe
Procuren(R),  a lack of  available  reimbursement  for  Medicare  patients,  the
inability of hospitals to assume  collection risks due to financial  constraints
and  increased  competition  from other  wound  healing  products.  The  Company
anticipates that the percentage of patients receiving  Procuren(R) will continue
to decline in the future.

                                       18
<PAGE>

         Costs of product  sales and services  increased  from $56.0  million in
1998 to $59.9 million in 1999, a 7% increase.  The increase is  attributable  to
additional  staffing and operating expenses  associated with the operation of 12
additional under arrangement Wound Care Centers at which the services  component
of costs is higher than at the  Company's  other  centers due to the  additional
clinical staffing and expenses that these models require. As compared with 1998,
the higher  services  components  at these  centers  along with  existing  under
arrangement  centers accounted for $3.2 million of the increase in product costs
and services for 1999. As a percentage  of revenues,  costs of product sales and
services  for  1999 was 59 %  compared  to 54 % for  1998.  The 5%  increase  is
attributed  to the lower  revenue and  negative  same store sales  growth  which
decreased  margins and created an inability to leverage  expenses over a broader
revenue base.

         Selling,  general  and  administrative  expenses  increased  from $23.4
million in 1998 to $26.3  million  in 1999,  a 12%  increase.  The  increase  is
primarily attributable to legal and other costs of approximately $1.7 million in
1999,  related to the  Department  of Justice  action,  the Office of  Inspector
General's  document subpoena and shareholder class action lawsuits.  The Company
expects to continue to incur significant legal and other related costs until the
aforementioned  actions are  resolved.  As a percentage  of  revenues,  selling,
general and administrative  expenses were 26 % in 1999 compared to 22 % in 1998.
The increase is due to the higher legal expense and decreased revenue in 1999.

         Interest  income was $2.0  million in 1999  compared to $2.7 million in
1998. The decline is primarily attributable to the lower cash balances resulting
from the repurchase of Company stock.

         Net income  decreased  from $17.0 million or $1.34 (basic) per share in
1998 to $10.5  million  or $.99  (basic)  per  share in 1999.  The  decrease  in
earnings  of $6.5  million  is  attributable  to a reduced  revenue  base  which
impacted wound care center margins,  lower interest  income,  and the additional
unanticipated legal and other costs.

         Fiscal Year 1997 vs. Fiscal Year 1998. The Company's revenues increased
from $87.9  million  in 1997 to $104.0  million in 1998,  an 18%  increase.  The
increased  revenue is primarily  attributable to the operation of 132 wound care
centers  at the  end of 1997  compared  with  154 at the  end of 1998  and a 10%
increase in revenues at existing  wound care centers  related to higher  patient
volume.  The Company's revenue growth declined to 18% in 1998 compared to 30% in
1997.  The  decline is  primarily  attributable  to the closing of 16 Wound Care
Centers  and the  modification  of  contractual  terms of six under  arrangement
programs  during 1998.  At any time during a year, 10 % to 15 % of contracts are
being  renegotiated  with the client hospital for a variety of contractual terms
or issues. Historically,  some contracts have expired without renewal and others
have been  terminated by the Company or the client  hospital for various reasons
prior to  their  scheduled  expiration.  The  termination  or  non-renewal  of a
material number of management  contracts could result in a continued  decline in
the Company's revenue growth. The Company has a number of initiatives to counter
the decline of growth in revenue,  although  there can be no assurance  that the
initiatives  will be  successful.  Total new  patients to the wound care centers
increased  20% from  48,722  in 1997 to  58,510  in 1998.  The  total  number of
patients  receiving Procuren therapy decreased 5% from 8,583 in 1997 to 8,164 in
1998. The percentage of patients  receiving  Procuren decreased from 18% in 1997
to 14% in  1998.  The  Company  believes  that  this  decrease  is  attributable
primarily to an increase in the  percentage of less severe  chronic wounds being
treated at the  Company's  Wound Care  Centers,  for which  physicians  are less
likely to prescribe Procuren,  as well as a lack of available  reimbursement for
Medicare  patients.  The Company believes that this shift in the severity of the
wounds  treated at a Wound Care  Center  occurs as the local  medical  community
becomes familiar with the services offered by the Wound Care Center and refers a
broader range of chronic wound  patients to the Wound Care Center for treatment.
The Company  anticipates that the percentage of patients receiving Procuren will
continue to decline in the future.

                                       19
<PAGE>

         Costs of product  sales and services  increased  from $48.2  million in
1997 to $56.0 million in 1998, a 16% increase.  The increase is  attributable to
the additional  staffing and operating  expenses of  approximately  $5.3 million
associated with the operation of 22 additional  wound care facilities at the end
of 1998,  offset by $2.5 million  associated with 16 closed centers,  as well as
increased  volume at  existing  wound care  facilities.  Additionally,  these 22
facilities include 14 under arrangement Wound Care Centers at which the services
component of costs is higher than at the Company's  other  facilities due to the
additional clinic staffing that these models require. As compared with 1997, the
higher services components at these facilities  accounted for an additional $3.8
million of the increase in product  sales and services for 1998. As a percentage
of revenues,  costs of product  sales and services was 54% in 1998 compared with
55% in 1997.  The  decrease  is  attributable  to the  ability of the Company to
leverage the fixed overhead components of the cost of product sales and services
over a broader revenue base.

         Selling,  general  and  administrative  expenses  increased  from $22.6
million  in 1997 to $23.4  million  in 1998,  a 3%  increase.  The  increase  is
attributable to the additional  staffing and operating expenses  associated with
the  growth  of  the  wound  care  center  business  related  to  field  support
departments.  As a percentage of revenues,  selling,  general and administrative
expenses were 22% in 1998 compared to 26% in 1997. The decrease is  attributable
to the ability of the Company to obtain  leverage by spreading  the costs of its
overhead structure over a broader revenue base.

         Interest income was $2.7 million in 1998 and 1997.  Interest income for
1998 is flat when  compared  to 1997 as the result of  increased  investment  in
lower yielding tax free instruments in 1998 .

         Net income increased from  $16.5 million or $1.33 (basic) per  share in
1997 to  $17.0  million or $1.34  (basic)  per share in 1998.  The  increase  in
earnings of $.5 million is primarily attributable to an improvement in operating
margins  associated  with the revenue  growth  particularly  related to existing
wound care  facilities  and economies of scale  achieved  through market growth,
offset by an increase in income taxes as a result of a higher effective tax rate
in 1998.

Liquidity and Capital Resources

         Working  capital  was $55.5  million at December  31, 1999  compared to
$76.4 million at December 31, 1998.  Total cash, cash equivalents and marketable
securities  held-to-maturity  as of December 31, 1999 was $47.0  million and was
invested  primarily in highly  liquid money market funds,  commercial  paper and
government  securities.  The decline in total cash  equivalents  and  marketable
securities  held-to-maturity  in 1999 is  primarily  attributable  to the use of
$32.3 million for the repurchase of 2.7 million  shares of the Company's  common
stock during the first quarter of 1999.  The ratio of current  assets to current
liabilities  decreased  from 5.9:1 at December 31, 1998 to 4.4:1 at December 31,
1999. The Company's  decrease in working  capital and current ratio is primarily
attributable to the stock repurchase.

         Cash flows  provided  by  operations  for 1999  totaled  $12.9  million
primarily  attributable to the net income for the period. Cash flows provided by
investing  activities  for 1999 totaled  approximately  $11.4 million  primarily
attributable  to the excess of sales of  marketable  securities  over  purchases
related to funding of the stock repurchase,  offset by capital  expenditures for
furniture,  equipment  and  leasehold  improvements  of  $2.6  million  and  the
additional  investment in Accordant Health  Services,  Inc. of $1.0 million (See
Note B of  Notes to  Consolidated  Financial  Statements).  Cash  flows  used in
financing  activities  totaled  $32.3  million  for  1999  which  was  primarily
attributable to the repurchase of shares.

         During  1999,  the Company  experienced  a $.8 million  increase in net
accounts  receivable and an increase in the average  number of days  receivables
outstanding to 76 days as of December 31, 1999 compared to 66 as of December 31,
1998.  The increase in days  outstanding is  attributable  to financial and cash
flow  constraints  being  experienced at some  hospitals.  Further,  compared to
December 31, 1998, the Company's accounts payable and accrued expenses increased
$.6 million as of December 31, 1999.

         The Company's longer term cash requirements include working capital for
the  expansion  of  its  wound  care  business.   Other  cash  requirements  are
anticipated  for capital  expenditures  in the normal  course of  business,  the
acquisition  of  software,  computers  and  equipment  related to the  Company's
management   information   systems,   and  the   repurchase  of  Company  stock.
Additionally the Company expects to incur significant legal costs related to the
Department  of  Justice  action,   Office  of  Inspector   General  action   and
shareholder  class action  lawsuits  filed against the Company during April 1999
(See Legal  Proceedings,  Part I Item 3). The Company  expects that based on its
current  business  plan,  its existing  cash,  cash  equivalents  and marketable
securities will be sufficient to satisfy its current working capital needs.  The
effect of inflation risk is considered immaterial.

                                       20
<PAGE>

Year 2000

         During the year, the Company completed its efforts to minimize the risk
of  disruption  from the Year 2000 Issue.  The Year 2000 Issue was the result of
computer  programs  using two digits  rather than four to define the  applicable
year. The Company has  experienced no significant  problems  related to the Year
2000 Issue.

Cautionary Statement

         This report contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements include statements
regarding  intent,  belief  or  current  expectations  of the  Company  and  its
management.  These  forward-looking  statements  are not  guarantees  of  future
performance and involve a number of risks and  uncertainties  that may cause the
Company's  actual  results to differ  materially  from the results  discussed in
these statements. Factors that might cause such differences include, but are not
limited  to,  changes  in the  Company's  level of  business  with  Columbia/HCA
Healthcare  Corporation,  terminations  or non-renewal of  a material  number of
contracts  or  inability  to obtain new  contracts,  changes  in the  government
regulations  relating  to the  Company's  wound  care  operations  or  Procuren,
uncertainties  relating  to  health  care  reform  initiatives,  changes  in the
availability  of third  party  reimbursements  for the  Company's  products  and
services,  and the other risks and uncertainties detailed throughout this report
and from time to time in the Company's  filings with the Securities and Exchange
Commission.

                                       21
<PAGE>

Item 7a  Quantitative and Qualitative Disclosures About Market Risk

         The  primary  objective  of our  investment  activities  is to preserve
principal  while at the same time  maximizing  the  income we  receive  from our
investments without  significantly  increasing risk. Some of the securities that
we  invest in may have  market  risk.  This  means  that a change in  prevailing
interest  rates may cause the fair market value of the  principal  amount of the
investment to fluctuate. For example, if we hold a security that was issued with
a fixed interest rate at the  then-prevailing  rate and the prevailing  interest
rate later rises,  the fair value of the principal amount of our investment will
probably  decline.  To minimize  this risk we  maintain  our  portfolio  of cash
equivalents  and short-term  investments  in a variety of securities,  including
commercial  paper,  money  market  funds,  government  and  non-government  debt
securities.  The average  duration of all of our  investments has generally been
less than one  year.  Due to the  short-term  nature  of these  investments,  we
believe we have no  material  exposure to interest  rate risk  arising  from our
investments.

Item 8   Consolidated Financial Statements and Supplementary Data

             The information required by this item is  incorporated  herein  by
       reference to the Consolidated  Financial  Statements listed in Item 14(a)
       of Part IV of this Report.

             The following table sets forth the financial results of the Company
       for the eight quarters ended December 31, 1999 (in thousands, except per
       share data):
<TABLE>
<CAPTION>
         <S>                              <C>        <C>               <C>            <C>                  <C>
                                                                                      Income Per           Income Per
         Quarter Ended                    Revenues   Gross Profit      Net Income     Common Share Basic   Common Share Diluted
         ----------------------------------------------------------------------------------------------------------------------
           1999:
           December 31              $     24,367     $    9,702        $   2,130            $   .21                $  .21
           September 30                   25,979         10,262            2,201                .22                   .22
           June 30                        25,620         10,131            2,319                .23                   .23
           March 31                       24,243         11,169            3,812                .32                   .31


           1998:
           December 31              $     26,716     $   12,412        $   4,572            $   .36                $  .35
           September 30                   26,722         12,313            4,392                .34                   .34
           June 30                        26,036         11,959            4,196                .33                   .32
           March 31                       24,513         11,268            3,877                .31                   .29
</TABLE>


Item 9   Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         None.


                                       22
<PAGE>

                                    PART III


         This information required by Part III of this Form 10-K is omitted from
this  Report in that the  Registrant  will  file a  definitive  proxy  statement
pursuant to Regulation  14(a) for its 2000 Annual Meeting of  Stockholders  (the
"Proxy  Statement")  not later than 120 days  after the end of the  fiscal  year
covered by this Report, and certain information included therein is incorporated
herein by reference.

Item 10  Directors and Executive Officers of the Registrant

         The  information  required by this Item is incorporated by reference to
the sections  "Election of Directors" and "Executive  Officers" of the Company's
Proxy Statement.

Item 11  Executive Compensation

         The  information  required by this Item is incorporated by reference to
the section "Executive Compensation" of the Company's Proxy Statement.

Item 12  Security Ownership of Certain Beneficial Owners and Management

The  information  required  by this Item is  incorporated  by  reference  to the
section "Stock  Ownership of Certain  Beneficial  Owners and  Management" of the
Company's Proxy Statement.

Item 13  Certain Relationships and Related Transactions

         The  information  required by this Item is incorporated by reference to
the  sections  "Election  of  Directors",  "Executive  Officers"  and "Executive
Committee" of the Company's Proxy Statement.

                                       23
<PAGE>

                                     PART IV


Item 14  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  1.  Index to Financial Statements.

                  The following consolidated financial statements of Curative
         Health Services, Inc. are included herein:
                                                                            Page
                                                                          Number
                                                                          ------
         Report of Independent Auditors......................................F-1

         Consolidated Balance Sheets at December 31, 1999 and 1998...........F-2

         Consolidated Statements of Income for the years ended
           December 31, 1999, 1998 and 1997..................................F-3

         Consolidated Statements of Stockholders' Equity for the
           years ended December 31, 1999, 1998 and 1997......................F-4

         Consolidated Statements of Cash Flows for the years ended
           December 31, 1999, 1998 and 1997..................................F-5

         Notes to Consolidated Financial Statements..........................F-6

     2.  Financial  Statement  Schedules.  The following  financial  statement
         schedule of Curative Health Services,  Inc. is included herein:

         Schedule                                                           Page
         --------                                                           ----
         II     Valuation and Qualifying Accounts............................S-1

         All other schedules are omitted because they are not applicable, or not
         required,  or because  the  required  information  is  included  in the
         consolidated financial statements or notes thereto.

     3.  Exhibits.  The exhibits  listed in the  accompanying  Index to Exhibits
         immediately  following the financial statement schedules are filed with
         this report.

(b)      Reports  on Form 8-K.  No  reports  were filed on Form 8-K  by the
         Company during the fiscal quarter ended December 31, 1999.


(c)      Exhibits - The response to this portion of Item 14 is submitted as a
         separate section of this report.


(d)      Financial Statement Schedules - The response to this portion of Item 14
         is submitted as a separate section of this report.

                                       24
<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                  CURATIVE  HEALTH SERVICES, INC.
                                  By:  /s/  John Vakoutis
                                       ------------------
                                            John Vakoutis
                                            President, Chief Executive Officer
                                            and Director
Dated:  March 30, 2000
                                POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature
appears below constitutes and appoints John Vakoutis and John C. Prior,  jointly
and severally, his attorneys-in-fact,  each with the power of substitution,  for
him in any and all  capacities,  to sign any  amendments  to this Report on Form
10-K,  and to file the  same,  with  exhibits  thereto  and other  documents  in
connection  therewith,  with the  Securities  and  Exchange  Commission,  hereby
ratifying  and  confirming  all  that  each  of said  attorneys-in-fact,  or his
substitute or substitutes, may do or cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature                     Title                               Date
---------                     -----                               ----

/s/ John Vakoutis             President, CEO                      March 30, 2000
-----------------            (Principal Executive Officer) and Director
John Vakoutis

/s/ John C. Prior             SVP Finance and CFO                 March 30, 2000
-----------------            (Principal Financial and Accounting Officer)
John C. Prior                 Secretary


/s/ Lawrence J. Stuesser      Chairman of the Board and Director  March 30, 2000
------------------------
Lawrence J. Stuesser

/s/ Paul S. Auerbach          Director                            March 30, 2000
--------------------
Paul S. Auerbach

/s/ Daniel E. Berce           Director                            March 30, 2000
-------------------
Daniel E. Berce

/s/ Gerardo Canet
-----------------             Director                            March 30, 2000
Gerardo Canet

/s/ Joseph L. Feshbach        Director                            March 30, 2000
----------------------
Joseph L.  Feshbach

/s/ Daniel A. Gregorie        Director                            March 30, 2000
----------------------
Daniel A. Gregorie

/s/ Lawrence C. Hoff          Director                            March 30, 2000
--------------------
Lawrence C. Hoff

/s/ Timothy I. Maudlin        Director                            March 30, 2000
----------------------
Timothy I. Maudlin


<PAGE>

                         Report of Independent Auditors

Board of Directors and Stockholders
Curative Health Services, Inc.

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Curative  Health  Services,  Inc. and  subsidiaries  as of December 31, 1999 and
1998, and the related consolidated  statements of income,  stockholders' equity,
and cash flows for each of the three  years in the  period  ended  December  31,
1999. Our audits also included the financial  statement  schedule  listed in the
Index at Item 14(a).  These consolidated  financial  statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated  financial statements and schedule based on our
audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Curative Health  Services,  Inc. and subsidiaries at December 31, 1999 and 1998,
and the  consolidated  results of its  operations and its cash flows for each of
the three years in the period  ended  December  31,  1999,  in  conformity  with
accounting  principles  generally  accepted in the United  States.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

                                      /s/ Ernst & Young LLP
Melville, New York
February 7, 2000


                                       F-1
<PAGE>


                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
<TABLE>
<CAPTION>


                                                                                          December 31,
                                                                                          -----------
                                                                                    1999               1998
                                                                                    -----------------------
<S>                                                                              <C>              <C>
ASSETS
     Cash and cash equivalents............................................       $  16,215        $  24,222
     Marketable securities held-to-maturity...............................          30,807           45,830
     Accounts receivable (less allowance of $2,276 and $1,679
         at December 31, 1999 and 1998, respectively).....................          20,653           19,871
     Deferred tax assets..................................................           2,271            1,042
     Prepaid and other current assets.....................................           1,820            1,179
                                                                                     -----            -----
         Total current assets.............................................          71,766           92,144
     Property and equipment, net..........................................          12,010           13,366
     Other assets ........................................................           4,134            3,611
                                                                                     -----            -----
         Total assets.....................................................       $  87,910        $ 109,121
                                                                                    ======          =======

LIABILITIES & STOCKHOLDERS' EQUITY
     Accounts payable.....................................................       $   7,831        $   8,786
     Accrued expenses.....................................................           8,479            6,932
     Capital lease obligations............................................               -                7
                                                                                    ------           ------
         Total current liabilities........................................          16,310           15,725

     Commitments and contingencies
     Stockholders' equity:
         Preferred stock, $.01 par value per share; 10,000,000
           shares authorized, none issued.................................               -                -
         Preferred stock, Series A Junior Participating, par value
          $.01 per share, 500,000 shares authorized, none issued..........               -                -
         Common stock, $.01 par value per share; 50,000,000
           shares authorized,10,090,110 shares issued and
           outstanding (12,758,282 shares in 1998)........................             100              127
         Additional paid in capital.......................................          46,769           79,000
         Retained earnings ...............................................          24,731           14,269
                                                                                    ------           ------
     Total stockholders' equity...........................................          71,600           93,396
                                                                                    ------           ------
     Total liabilities and stockholders' equity...........................       $  87,910       $  109,121
                                                                                    ======          =======
</TABLE>


                 See notes to consolidated financial statements

                                       F-2
<PAGE>

                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                                ----------------------
                                                                          1999            1998           1997
                                                                     ----------------------------------------
<S>                                                                  <C>            <C>                <C>
Revenues ....................................................        $ 101,209      $  103,987      $  87,906
Costs and operating expenses:
     Costs of product sales and services......................          59,945          56,035         48,200
     Selling, general and administrative......................          26,273          23,358         22,617
                                                                        ------          ------         ------
         Total costs and operating expenses...................          86,218          79,393         70,817
                                                                        ------          ------         ------
Income from operations........................................          14,991          24,594         17,089
Interest income...............................................           2,037           2,660          2,666
                                                                         -----           -----          -----
Income before income taxes....................................          17,028          27,254         19,755
Income taxes..................................................           6,566          10,217          3,293
                                                                         -----          ------          -----
Net income....................................................       $  10,462      $   17,037     $   16,462
                                                                        ======          ======         ======
Net income per common share, basic............................       $     .99      $    1.34      $     1.33
                                                                           ===           ====            ====
Net income per common share, diluted..........................       $     .97      $    1.30      $     1.27
                                                                           ===           ====            ====
Denominator for basic earnings per share, weighted average
     common shares............................................          10,559          12,704         12,404
                                                                        ======          ======         ======
Denominator for diluted earnings per share, weighted
     average common shares assuming conversions...............          10,756          13,071         12,954
                                                                        ======          ======         ======
</TABLE>

                 See notes to consolidated financial statements


                                      F-3
<PAGE>


                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                          (In thousands, except shares)
<TABLE>
<CAPTION>
                                                                      Additional     Retained                         Total
                                                 Common Stock         Paid in        Earnings      Subscription       Stockholders'
                                              Shares      Amount      Capital       (Deficit)      Receivable         Equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>        <C>          <C>                 <C>             <C>
Balance, December 31, 1996..............    12,215,423    $  121     $  69,421    $  (19,230)         $  (42)         $  50,270
     Subscription receivable............                                                                  42                 42
     Exercise of options................       345,919         4         2,414                                            2,418
     Tax benefit from stock option
            exercises...................                                 3,400                                            3,400
     Net income for 1997................                                              16,462                             16,462
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997..............    12,561,342       125        75,235        (2,768)              -             72,592
     Exercise of options................       196,940         2         1,916                                            1,918
     Tax benefit from stock option
             exercises..................                                 1,849                                            1,849
     Net income for 1998................                                              17,037                             17,037
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998..............    12,758,282       127        79,000        14,269               -             93,396
     Exercise of options................         6,828         -            33                                               33
     Shares repurchased and retired.....    (2,675,000)      (27)      (32,293)                                         (32,320)
     Tax benefit from stock option
             exercises..................                                    29                                               29
     Net income for 1999................                                              10,462                             10,462
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999..............    10,090,110    $  100     $  46,769     $  24,731          $    -          $  71,600
                                            ===================================================================================
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                 See notes to consolidated financial statements

                                       F-4
<PAGE>



                CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

 <TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                                 ----------------------
                                                                           1999           1998           1997
                                                                           ------------------------------------
<S>                                                                    <C>            <C>            <C>
OPERATING ACTIVITIES:
Net income......................................................       $   10,462     $   17,037     $   16,462
Adjustments to reconcile net income to net cash provided by
  operating activities:
   Depreciation & amortization..................................            3,983          2,794          2,014
   Provision for doubtful accounts..............................            3,668          1,957          1,648
   Equity in operations of investee.............................              496             85              -
   Deferred income taxes........................................           (1,229)           193         (1,235)
   Tax benefit from stock option exercises......................               29          1,849          3,400
Change in operating assets and liabilities:
   Increase in accounts receivable..............................           (4,450)        (7,617)        (3,540)
   (Increase) decrease in prepaid and other current assets......             (641)          (255)            98
   Increase in accounts payable and accrued expenses............              592          3,418          1,795
                                                                           ------         ------         ------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................           12,910         19,461         20,642

INVESTING ACTIVITIES:
Investment in Accordant Health Services, Inc. and other.........           (1,071)        (3,000)             -
Purchases of property and equipment.............................           (2,575)        (6,840)        (6,476)
Purchases of marketable securities held-to-maturity.............          (35,854)       (49,942)       (56,781)
Sales of marketable securities held-to-maturity.................           50,877         22,919         75,812
                                                                           ------         ------         ------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.............           11,377        (36,863)        12,555

FINANCING ACTIVITIES:
Stock repurchases...............................................          (32,320)             -              -
Proceeds from exercise of stock options, warrants
   and subscription receivable..................................               33          1,918          2,460
Principal payments on capital lease obligations and revolving
   line of credit...............................................               (7)           (40)        (1,137)
                                                                           ------          -----          -----
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES.............          (32,294)         1,878          1,323
                                                                           ------          -----          -----
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................           (8,007)       (15,524)        34,520
Cash and cash equivalents at beginning of year..................           24,222         39,746          5,226
                                                                           ------         ------         ------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................       $   16,215     $   24,222     $   39,746
                                                                           ======         ======         ======
SUPPLEMENTARY CASH FLOW INFORMATION:
   Interest paid................................................       $        2     $       31     $       31
                                                                                =             ==             ==
   Income taxes paid............................................       $    6,315     $    5,330     $      265
                                                                            =====          =====            ===
</TABLE>

                 See notes to consolidated financial statements

                                       F-5
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999


NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         Organization:  The Company was organized under the laws of the State of
Minnesota in October  1984.  It is a disease  management  company in the chronic
wound care business. The Company,  operating in one business segment,  manages a
nationwide   network   of  Wound   Care   Centers   that   offers   patients   a
multi-disciplinary   comprehensive   wound  treatment  program.   The  Company's
management  agreements with hospitals and other health care providers  generally
have a term of five years.

         Principles of  Consolidation:  The  consolidated  financial  statements
include  the  accounts  of  the  Company  and  its  wholly-owned   subsidiaries.
Significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

         Reclassifications:  Certain prior year's balances have been
reclassified to conform with the 1999 presentation.

         Use of Estimates: The preparation of financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

         Net Income Per Share: Basic and diluted earnings per share is
calculated in accordance with Financial Accounting Standards Board ("FASB")
Statement No. 128.  All earnings per share  amounts for all periods have been
presented, and where appropriate, restated to conform to FASB No. 128
requirements.

         Property and  Equipment:  Property and  equipment are recorded at cost.
Depreciation  of property  and  equipment  is provided  using the  straight-line
method  over  the  estimated  useful  lives  (generally  4 to 7  years).  Leased
equipment capitalized and leasehold  improvements are amortized over the life of
the lease or the useful life of the related asset, whichever is shorter.

         Other Assets:  As of December 31, 1998 and 1999,  other assets totalled
$3,611,000 and $4,134,000  respectively.  As of December 31, 1998,  other assets
consist principally of costs of filing patents and trademarks of $696,000 and
the net investment of $2,915,000 in Accordant Health Services, Inc. (See
Note B).  As of December 31, 1999, other assets consist primarily of costs of
filing patents and trademarks of 644,000, the net investment of $3,419,000 in
Accordant Health Services, Inc. and a note receivable of $71,000. Costs and
expenses related to a 1992  patent of  $920,000  are being  amortized  over the
life of the patent (17 years) and trademarks of $75,000 are being amortized over
the estimated life of the trademark (20 years) using the straight-line method.

         Long-Lived Assets: The Company  periodically reviews the carrying value
of its long-lived  assets in determining  the ultimate  recoverability  of their
unamortized  values using future  undiscounted cash flows analyses.  Such review
has been  performed by  management  and does not indicate an  impairment of such
assets.

         Cash and Cash Equivalents:  Cash and cash equivalents consist of demand
deposits with banks,  certificates of deposit with maturities of less than three
months at the time of purchase and highly liquid money market fund investments.

         Marketable  Securities  Held-to-Maturity:  Held-to-maturity  marketable
securities  represent highly liquid money market  instruments with maturities of
greater  than three  months at time of purchase.  These  securities,  consisting
principally  of  securities  of   municipalities,   commercial  paper  and  U.S.
Government  agencies maturing at various dates through November 2000, are valued
at amortized cost which approximates market.

                                       F-6
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999


NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

The  Company's  investment  policy  gives  primary  consideration  to  safety of
principal, liquidity and return. The Company invests its funds with institutions
that have high credit ratings and to date has not  experienced any losses on its
investments.  The Company  classifies  its  investments  in such  securities  as
held-to-maturity  as the  Company  has the  intent  and  ability  to hold  these
securities  to  maturity.  As of  December  31,  1998 and 1999,  the Company had
approximately  $121,000 of unrealized gains and $115,000 of unrealized losses on
marketable securities, respectively.

         Concentration  of  Credit  Risk:  Substantially  all of  the  Company's
revenues  have been  generated  from Wound Care  Centers  which the  Company has
established  as  cooperative  ventures  with acute care  hospitals in the United
States to provide a  multi-disciplinary  treatment  protocol for chronic wounds.
The Company provides contractual management services for fees and sells Procuren
to acute care  hospitals  and other  health care  providers.  Credit is extended
based on an evaluation of the hospital's  financial  condition and collateral is
generally not required.

         Revenues:  Revenues are  recognized  when  products are dispensed or as
contractual management services are rendered.

         Advertising:  The Company expenses  advertising and community education
costs  when  incurred.   Advertising   and  community   education   expense  was
approximately  $8,056,000,  $10,166,000  and $8,434,000 for 1999,  1998 and 1997
respectively.

         Income Taxes:  Income taxes have been provided using the liability
method in accordance with FASB No. 109, "Accounting for Income Taxes."

         Stock Based Compensation  Plans: The Company grants options for a fixed
number of shares to employees with exercise price equal to the fair value of the
shares at the date of grant.  The Company  accounts for stock  option  grants in
accordance with APB Opinion No. 25,  "Accounting for Stock Issued Employees" and
related  Interpretations  because the Company  believes the alternate fair value
accounting  provided  for  under  FASB 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 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.

NOTE B -- EQUITY INVESTMENT

         On June 4, 1998, the Company signed an agreement with Accordant  Health
Services, Inc. ("Accordant") in which the Company agreed to invest $4 million in
Accordant  preferred  stock.  This  agreement  gives the  Company  an 11 percent
interest in Accordant and is accounted for using the equity method of accounting
as the  Company  has the option to convert the  Accordant  preferred  stock into
common  stock.  In  addition,  the Company has  significant  influence  over the
operations of Accordant. As of December 31, 1999 the Company invested $4 million
under this  agreement  and its share of  Accordant's  1998 and 1999 net loss was
approximately  $85,000 and  $496,000  respectively.  The Company's investment in
Accordant is not material to the Company's consolidated financial statements.

                                       F-7
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999



NOTE C -- PROPERTY AND EQUIPMENT
          A summary of property and equipment and related accumulated
depreciation and amortization follows:
                                                                  December 31,
                                                                  -----------
                                                               1999         1998
                                                               -----------------
                                                                 (In thousands)
                                                               -----------------
 Property and equipment............................. $  18,394         $  16,392
 Leased equipment capitalized.......................     1,371             1,371
 Leasehold improvements.............................     5,766             5,193
                                                         -----             -----
                                                        25,531            22,956
 Less accumulated depreciation and amortization.....    13,521             9,590
                                                        ------             -----
                                                     $  12,010         $  13,366
                                                        ======            ======


NOTE D -- ACCRUED EXPENSES
          Accrued expenses are as follows:
                                                                  December 31,
                                                                  -----------
                                                              1999          1998
                                                              ------------------
                                                                (In thousands)
                                                              ------------------
 Incentive compensation and benefits................ $  2,616           $  2,221
 Deferred compensation .............................      874                  -
 Marketing and community education .................      691              1,137
 Salaries ..........................................    1,431              1,195
 Health benefits ...................................      996                682
 Other .............................................    1,871              1,697
                                                        -----              -----
                                                     $  8,479           $  6,932
                                                        =====              =====

NOTE E -- LEASES
         The Company has entered into several  noncancellable  operating  leases
for the rental of certain  office space  expiring in various years through 2005.
The principal lease for office space provides for monthly rent of  approximately
$60,000.  The following is a schedule of future lease  payments,  by year and in
the aggregate,  under noncancellable  operating leases with initial or remaining
terms of one year or more at December 31, 1999:

                                                     Operating Leases
                                                     ----------------
                                                    (In thousands)
                                                     ----------------
         2000 ...................................... $  1,976
         2001 ......................................    1,648
         2002.......................................    1,268
         2003.......................................    1,015
         2004.......................................      857
         Thereafter.................................      393
                                                        -----
         Total...................................... $  7,157
                                                        -----

         Rent expense for all operating  leases was  approximately  $2,130,000,
$2,113,000 and $2,118,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

                                       F-8
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999

NOTE F -- STOCKHOLDERS' EQUITY


         Director Share Purchase Program: The Company maintains a Director Share
Purchase  Program (the "Program") to encourage  ownership of its common stock by
its directors. Under the Program, each non-employee director can elect to forego
receipt of cash payments for director's annual retainer and meeting fees and, in
lieu thereof,  receive  shares of common stock at market value equal to the cash
payment.  The Program  authorized  the  issuance of up to 120,000  shares of the
Company's  common stock at market value. At December 31, 1999 and 1998,  118,406
shares of common stock were reserved for future issuance under the Program.

         Stock  Repurchase  Plan:  In February  1999 the  Company  announced a 2
million share buyback plan. This repurchase plan was completed in March 1999 and
an additional buyback  authorization of 1.5 million shares was announced.  As of
December 31, 1999, a total of  2,675,000  shares were  repurchased  at a cost of
$32,320,000.

         Rights Plan: On October 25, 1995, the Board of Directors of the Company
declared a dividend of one  preferred  share  purchase  right per share for each
outstanding  share of common  stock of the  Company.  The  dividend  was paid on
November  6,  1995 to  shareholders  of  record  on  that  date.  Under  certain
circumstances  each right may be  exercised to purchase  one-one  hundredth of a
share of Series A Junior  Participating  Preferred Stock, par value $.01, of the
Company for $65.  The rights,  which are  redeemable  by the Company at $.01 per
right,  expire in November  2005.  The purchase right issued under the Company's
Rights  Agreement dated October 22, 1995 provides the holder in the event of (i)
the acquisition of 15% or more of the Company's  outstanding  common stock by an
Acquiring Person (as defined in the Rights Agreement),  (ii) the commencement of
a tender offer or exchange  offer which  results in a person or group owning 15%
or more of the Company's common stock, to exercise each right (other than rights
held by an  Acquiring  Person)  to  purchase  common  stock of the  Company or a
successor company with a market value of twice the $65 exercise price.

NOTE G -- STOCK BASED COMPENSATION PLANS

         The Company has stock  option  plans which  provide for the granting of
non-qualified  or incentive  options to employees,  directors,  consultants  and
advisors.  The  plans  authorize  granting  of up to  3,406,695  shares  of  the
Company's  common  stock at the  market  value at the date of such  grants.  All
options are exercisable at times as determined by the Board of Directors, not to
exceed ten years after the grant date.

         Pro forma information  regarding net income and net income per share is
required  by FASB  No.  123,  and has  been  determined  as if the  Company  has
accounted for its stock  options under the fair value method of that  Statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions at December 31, 1999, 1998 and 1997 respectively: risk-free interest
rate of 5.75%,  4.84% and 5.61%; no dividend  yields;  volatility  factor of the
expected market price of the Company's  common stock of 74.1%,  55.7% and 58.0%;
and a weighted-average expected life of the options of 4 years.


                                       F-9
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999

NOTE G -- STOCK BASED COMPENSATION PLANS - (CONTINUED)

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the   Company's   stock   options  have   characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock  options.  The Company's pro forma
information is as follows:
                                        (In thousands, except per share data)
                                       1999                 1998          1997
                                       -----------------------------------------

   Net Income:    As reported       $  10,462            $  17,037     $  16,462
                  Pro forma             8,403               14,622        14,949

   Basic EPS:     As reported       $     .99            $    1.34     $    1.33
                  Pro forma               .80                 1.15          1.21

   Diluted EPS:   As reported       $     .97            $    1.30     $    1.27
                  Pro forma               .78                 1.12          1.15

         A  summary  of  the  Company's   stock  option   activity  and  related
 information for the years ended is as follows:

<TABLE>
<CAPTION>

                                         1999                        1998                          1997
                                         -------------------------------------------------------------------------------------
                                                    Weighted Avg                 Weighted Avg                   Weighted Avg
                                         Options    Exercise Price   Options     Exercise Price    Options      Exercise Price
<S>                                      <C>        <C>              <C>         <C>               <C>          <C>
Outstanding at beginning of year....     1,367,434  $  25.81         1,353,614   $  22.92          1,177,833    $  15.04
   Granted..........................       450,550      7.55           250,000      28.14            625,500       28.43
   Exercised........................        (6,828)     4.88          (196,940)      9.74           (345,919)       6.99
   Cancelled........................      (132,608)    19.13           (39,240)     21.59           (103,800)      19.74
                                           -------                      ------                       -------
Outstanding at end of year.........      1,678,548     24.58         1,367,434      25.81          1,353,614       22.92
                                         =========                   =========                     =========
Exercisable at end of year..........       710,762     18.58           499,413      16.95            338,303       13.25
                                           =======                     =======                       =======
Weighted average fair value of
   options granted..................                $   4.47                     $  13.85                      $   14.86
                                                        ====                        =====                          =====
</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
                                             Options Outstanding                                 Options Exercisable
                                             -------------------                                 -------------------
                                           Weighted Average
         Exercise prices        Options           Remaining        Weighted Average                       Weighted Average
                            Outstanding    Contractual Life          Exercise Price          Shares         Exercise Price
                                                  (In Years)
                            ----------------------------------------------------------------------------------------------
          <S>                    <C>                   <C>                  <C>              <C>                   <C>
          $  1.55 - $ 4.75       99,865                4.65                 $  3.89          99,051                $  3.89
             4.813 -  7.00      380,858                8.10                    6.01          58,658                   6.00
             8.50 -  11.50      193,800                7.32                   10.96          75,700                  10.13
            13.25 -  20.00      116,377                6.21                   17.16         116,294                  17.16
            20.25 -  33.06      240,271                6.79                   25.52         225,646                  25.39
                                647,377                8.04                   30.30         135,413                  29.40
                                -------                ----                                 -------
                              1,678,548                6.86                                 710,762
                              =========                ====                                 =======
</TABLE>

At December 31, 1999,  388,556  shares of common stock were  reserved for future
issuance.

                                       F-10
<PAGE>




                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999


NOTE H -- INCOME TAXES
         Significant  components  of the  Company's  deferred  tax assets as of
December  31, 1999 and 1998 are as follows:
                                                          1999            1998
                                                          --------------------

         Bad debt reserve                             $    856       $    630
         Affiliate net operating loss carryforward         591              -
         Other reserves and accruals                       576            300
         Book over tax depreciation                        248            112
                                                           ---            ---
              Deferred tax assets                     $  2,271       $  1,042
                                                         =====          =====

Significant components of the provision for income taxes are as follows:
                                          1999            1998            1997
                                          ------------------------------------
       Current:
            Federal                    $  6,651        $  8,434        $  7,340
            State                         1,144           1,590           1,050
       Deferred                          (1,229)            193          (1,235)
       Utilization of net operating
       loss carryforwards                     -               -          (3,862)
                                         ------           -----           -----
       Total income tax provision      $  6,566        $ 10,217        $  3,293
                                          =====          ======           =====

A reconciliation of income tax computed at the U.S. Federal statutory tax rate
to income tax expense is as follows:
                                          1999            1998            1997
                                          ------------------------------------
       Federal statutory tax rate         35.0%            35.0%          35.0%
       State income taxes net
           of Federal tax benefit          4.4%             3.8%           3.5%
       Reduction in valuation allowance    -                -             (6.2%)
       Tax benefit of net operating
           loss carryforwards              -                -            (23.0%)
       Other                               (.8%)           (1.3%)          7.4%
                                          -----           ------          -----
       Effective tax rate                 38.6%            37.5%          16.7%
                                          =====            =====          =====

                                       F-11
<PAGE>



                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999


NOTE I -- MAJOR CUSTOMERS

         In 1997, 1998 and 1999, the Company derived  29%, 25% and 13% of its
consolidated revenues from one customer, respectively.

NOTE J -- LEGAL PROCEEDINGS

         In April 1999,  the Company  learned  through a press  release from the
United   States   Department  of  Justice  that  a  complaint  was  filed  by  a
"whistleblower"  relator  under the Federal Civil False Claims Act alleging that
the Company made  improper  charges to  Columbia/HCA  hospitals as well as other
hospitals.  The case has been filed as United  States ex. rel.  Joseph  "Mickey"
Parslow v.  Columbia/HCA  Healthcare  Corporation and Curative Health  Services,
Inc. and has been assigned civil case number  98-1260-civ-T-23F,  in the Federal
District Court for the Middle District of Florida, Tampa Division.

         Under  this  act,  the  whistleblower  relator  could  be  entitled  to
approximately  15 percent of any  amounts  obtained  from the  defendants.  This
potential bounty under the False Claims Act was intended by Congress to motivate
private persons to bring actions of this nature.

         The Company's counsel has advised the Company that it is common for the
government  to file an amended  complaint  when it  intervenes  in a civil False
Claims Act case,  and the  Company's  counsel  expects  that the  Department  of
Justice  will file an  amended  complaint  in this case.  An amended  complaint,
originally anticipated to be filed by August 6, 1999 was extended until February
18, 2000.  The Department of Justice  contacted the Company  through its outside
legal  counsel,  seeking an  additional  four-month  extension.  The Company has
agreed to the extension  and  anticipates  receiving an amended  complaint on or
before  June 18,  2000.  The Company has  received an  Authorized  Investigative
Demand  (document  subpoena)  requiring  the  production  of a  broad  range  of
documents  from  January 1, 1989 to December  31, 1999.  The  Company's  outside
counsel is currently discussing with the United States Department of Justice the
schedule for the production of documents.

         The  "whistleblower's"  complaint  alleges that: the Company's  charges
were  excessive;  the  Company  shifted  costs from  non-allowable  services  to
allowable  services;  included  charges  for  advertising  costs  that  were not
allowable to the hospital claiming  reimbursement from the Medicare program; and
violated the "anti-kickback"  statute because a portion of the Company's fee was
based on the number of new patients  seen in the wound care  centers  managed by
the  Company.  The  Company  disagrees  with  these   characterizations  of  its
contractual  arrangements,  its  services,  and the fees it  charges  for  those
services.

         The Company does not believe that it "refers,  recommends  or arranges"
for a hospital's  services in exchange for kickbacks.  The Company also believes
that its charges are fair market value for the services  that it  furnishes,  as
supported by the fact that more than 170 hospitals  have entered into  contracts
with the Company for its services in managing wound care centers.  The Company's
charges  cover  not only  direct  costs  for  management  services  but also the
Company's intellectual property,  which includes a unique data base and clinical
pathways that have proven effective in healing  intractable  wounds in more than
80 percent of the patients that have completed treatment. These are patients who
otherwise  would  likely  have  had  to  have  amputations  or  other  invasive,
expensive,  and possibly  disabling  or  disfiguring  services.  The Company has
expended  millions  of  dollars  in  developing  and  maintaining  its  clinical
pathways,  and also in training  physicians and other clinicians in its clinical
pathways.

                                       F-12
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999

NOTE J -- LEGAL PROCEEDINGS (CONTINUED)

            The   Company   notes   that  the   contracts   challenged   in  the
"whistleblower's"  civil suit are  contracts  that its hospital  customers  have
generally  been required to furnish to Medicare  auditors as part of cost report
filings. In hundreds of instances,  the Company's fees to its hospital customers
have been  allowed in full,  sometimes  after a  detailed  audit.  The  Company,
itself,  is neither a  provider  nor a supplier  participating  in the  Medicare
program and does not receive payments from the Medicare program.

         The Company has a formal  compliance  program and  management  believes
that the  Company is in material  compliance  with  applicable  laws and ethical
business  practices.  In the conduct of its business,  the Company has relied on
the advice and guidance of nationally  recognized law firms in  structuring  its
business  relationships  with its  hospitals.  In this pending  litigation,  the
Company intends to defend itself  vigorously.  An adverse result in this qui tam
action could have a material adverse effect on the Company's business, financial
condition and/or results of operations.

           As previously  disclosed in the  Company's  Form 10-Q for the quarter
ended March 31,  1999,  in April 1999 the Company  received a document  subpoena
from the Office of Inspector  General  ("OIG") of the U.S.  Department of Health
and Human Services,  Region II (New York, NY). The subpoena directed the Company
to  produce a broad  range of  documents  from  January  1, 1993 to the  present
relating to various areas including, among others, the Wound Care Centers, wound
care treatment programs and general business practices. The subpoena stated that
it had been  delivered  in  connection  with a "Health Care  Investigation".  In
response to that subpoena, the Company has furnished a large number of documents
to the OIG.

           The Company has learned that this "Health Care Investigation" relates
to a qui tam action filed under seal in the United States District Court for the
Southern  District of New York in 1998.  Pursuant  to a court  order  entered on
January 11,  2000,  the seal under which this action was filed was  modified to,
among  other  things,  permit the  Company to disclose  the  allegations  in the
complaint in its periodic  filings with the Securities  and Exchange  Commission
and as required to fulfill its  disclosure  obligations  under federal and state
securities laws.

           The  complaint  was  filed by a  "whistleblower"  relator  under  the
Federal Civil False Claims Act and names the Company and hospitals with which it
does business as defendants. The complaint alleges, among other things, that the
defendants violated the "anti-kickback" statute in part because a portion of the
Company's  fee was based on the  number of new  patients  seen in the wound care
centers   managed  by  the   Company;   engaged  in   prohibited   self-referral
transactions;  improperly  billed Medicare for costs and services not covered by
Medicare;  double-billed Medicare for professional services; and submitted false
claims to Medicare.  Certain of the  allegations  are similar to the allegations
made in United States ex. Rel. Joseph "Mickey"  Parslow v.  Columbia/HCA  Health
Care  Corporation  and  Curative  Health  Services,  Inc.,  qui tam action.  The
complaint in the Southern  District of New York action asserts that, as a result
of the allegedly  wrongful conduct,  the United States suffered damages and that
the defendants are liable to the United States for three times the amount of the
alleged damages plus civil penalties of up to $10,000 per false claim.

           The United States has not yet decided whether to intervene in the New
York qui tam action.  If it does not, then the plaintiff  relator may pursue the
claims on his/her own or may withdraw the complaint.

           The Company disagrees with the  characterizations in the complaint of
its contractual  arrangements,  its services,  and the fees it charges for those
services,  and intends to defend itself  vigorously  in this action.  An adverse
result  in this qui tam  action  could  have a  material  adverse  effect on the
Company's business, financial condition and/or results of operations.

                   Further,  if the government were to conclude that the Company
engaged  in  any  misconduct,   it  could  result  in  affecting  the  Company's
relationship with all its hospital customers,  substantial monetary fines and/or
penalties, and even

                                       F-13
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999

NOTE J -- LEGAL PROCEEDINGS (CONTINUED)

exclusion from the governmental  healthcare programs which could have a material
adverse effect on the business,  financial position and results of operations of
the Company.

         Subsequent  to the  disclosure of  the Parslow "whistleblower"  lawsuit
and Department of Justice action, the Company and, in some cases, certain of its
officers were named in four shareholder lawsuits, namely:

                  Ernest Hack versus Curative Health Services, Inc et al.

                  Scott Thompson versus Curative Health Services, Inc et al.

                  Tirdad Thompson versus Curative Health Services, Inc et al.

                  William Nolan versus Curative Health Services, Inc et al.

         All  suits  were  filed in the  United  States  District  Court for the
Eastern  District  of  New  York.  The  four  shareholder   lawsuits  have  been
consolidated  into one class action lawsuit.  The lawsuits allege generally that
the Company and its officers  violated federal  securities laws by disseminating
materially  false and  misleading  statements  and failing to disclose  material
information   relating  to  the  contractual   relationships  with  Columbia/HCA
Healthcare   Corporation   and   other   hospitals,    and   certain   purported
misrepresentations   in  connection   therewith.   The  suit  seeks  to  recover
unspecified  damages from  defendants.  The Company denies the  allegations  and
intends to vigorously  defend the suits. The Court denied  defendants  motion to
dismiss and discovery is currently  ongoing.  An adverse  result in this lawsuit
could  have a  material  adverse  effect on the  Company's  business,  financial
conditions and/or results of operations.

         Notwithstanding  its belief that it has  complied  with the law and its
intention to defend  itself  vigorously,  if it is  determined to be in the best
interests of the Company, it is possible that the Company will eventually choose
to enter into a settlement  with the  government  related to the qui tam actions
and or the  plaintiffs in the  securities  litigation  lawsuit that could have a
material adverse effect on the Company's  business,  financial  condition and/or
results of operations.

         In addition,  the Company,  in the ordinary course of business,  is the
subject of or party to various lawsuits,  the outcome of which in the opinion of
management,  will not have a material  adverse effect on its financial  position
and/or results of operations.

NOTE K -- EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
earnings per share:
                                                  1999      1998        1997
                                                        (In thousands)
                                               --------------------------------
   Denominator:
         Denominator for basic earnings per
         share, weighted average shares           10,559    12,704      12,404

   Effect of dilutive employee stock options (a)     197       367         550
                                                     ---       ---         ---
   Denominator for diluted earnings per share,
         adjusted weighted average shares and
         assumed conversions                      10,756    13,071      12,954
                                                  ======    ======      ======

 (a)  Potentially  dilutive  employee and director  stock options that have been
excluded from this amount because they are  anti-dilutive amounted to 1,198,000,
425,000 and 454,000 in 1999, 1998, 1997, respectively.

                                       F-14
<PAGE>


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999

NOTE K -- EARNINGS PER SHARE (CONTINUED)

         The numerator for basic and diluted earnings per share for the years
ended  December 31, 1999,  1998 and 1997 is the net income for the period.


NOTE L -- EMPLOYEE BENEFITS

                  The Company  maintains a qualified  Employee Savings Plan (the
"Plan") for eligible  employees  under  Section  401(k) of the Internal  Revenue
Code.  The Plan provides for voluntary  employee  contributions  through  salary
reductions  and employer  contributions  at the  discretion of the Company.  The
Company  currently has authorized  employer  contributions  of 50% of employees'
contribution up to 2% of the employees' compensation. The Company's contribution
expense  was   $552,000,   $480,000  and  $385,000  in  1999,   1998  and  1997,
respectively.

The  Company  also  maintains a  non-qualified  Deferred  Compensation  Plan for
certain  executives  and  directors.  The  Company's  expense for this  Deferred
Compensation Plan was $145,000 in 1999, the initial year for this plan.


                                       F-15
<PAGE>

                                                                     Schedule II


                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>

       <S>                                 <C>             <C>                                <C>                <C>
       COL. A                              COL.B           COL. C                             COL. D             COL. E
                                                                    ADDITIONS

                                           Balance at      Charged to      Charged to                            Balance at
                                            Beginning       Costs and   Other Account         Deductions                End
       DESCRIPTION                          of Period        Expenses        Describe           Describe          of Period

Year ended December 1999
Allowance for doubtful accounts          $  1,679,000    $  3,668,000          $    -        $  3,071,000(1)    $  2,276,000
                                            =========       =========           =====           =========          =========

Year ended December 31, 1998:
Allowance for doubtful accounts          $  2,492,000    $  1,957,000          $    -        $  2,770,000(1)    $  1,679,000
                                            =========      ==========           =====           =========          =========

Year ended December 31, 1997:
Allowance for doubtful accounts          $    941,000    $  1,648,000          $    -        $     97,000(1)    $  2,492,000
                                              =======       =========           =====           =========          =========
Allowance for deferred tax valuation     $  6,129,000    $          -          $    -        $  6,129,000(2)    $          -
                                            =========       =========           =====           =========          =========

(1)  Accounts written off
(2)  Reduction in allowances

</TABLE>

                                       S-1
<PAGE>


                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>

<S>               <C>                                                                            <C>
Exhibit No.       Description                                                                    Page No.
---------------------------------------------------------------------------------------------------------
     3.1          Articles of Incorporation of the Company                                       (1)

     3.2          Bylaws of the Company                                                          (1)

     4.0          Rights Agreement, dated as of October 25, 1995 between
                  Curative Technologies, Inc. and Bank Minnesota,
                  National Association, as Rights Agent                                          (7)

     4.1          Stock Purchase Agreement, dated July 6, 1989, among
                  the Company and certain investors named therein                                (1) (Ex. 4.2)

    10.1          Technology Transfer Agreement, dated September 21, 1990,
                  between Curative Technologies GmbH and the Company                             (1) (Ex. 10.8)

    10.2          Contractual  Agreement for Wound Healing Product  effective as
                  of January 1, 1988, between the Company and the University of
                  Minnesota Hospital and Clinic                                                  (1) (Ex. 10.17)

    10.3          Form of Wound Care Center(R)Contract                                           (12)

    10.4          Lease Agreement dated June 30, 1997,  and amended  Lease
                  Agreement dated November 13, 1997, between New York Life
                  Insurance Company and the Company                                              (12)

    10.5          Employment Agreement, dated as of September 1, 1997 between
                  John C. Prior and the Company                                                  (9)**

    10.6          1991 Stock Option Plan                                                         (1) (Ex. 10.27)**

    10.7          Amendment No. 4 to the 1991 Stock Option Plan                                  (12)**

    10.9          Curative Health Services, Inc., Director Share Purchase
                  Program                                                                        (3)**

    10.10         Employment Agreement, dated as of October 21, 1993, between
                  Howard Jones and the Company                                                   (4)**

    10.11         Curative Health Services, Inc. Employee 401(k) Savings Plan,
                  as amended and restated                                                        (5)**

    10.12         Settlement Agreement by and between the University of
                  California, David R. Knighton and the Company dated
                  September 1, 1993                                                              (6)

<PAGE>

    10.13         Settlement Agreement by and among the United States of America and
                  UltraMed, Inc., Robert Baurys, Susan Hrim, Cy Corgan, Chris Rosenski
                  and the Company dated October 18, 1994 and related agreements                  (6)

    10.14         Amendment of Employment Agreement, dated September 1, 1997
                  between John Vakoutis and the Company                                          (9)**

    10.15         Employment Agreement dated as of September 1, 1997, between
                  Carol Gleber and the Company                                                   (9)**

    10.16         Employment Agreement dated as of June 17, 1987, between
                  Gary Jensen and the Company                                                    (6)**

    10.19         Curative Technologies, Inc. Non-Employee Director Stock Option
                  Plan                                                                           (8)

    10.19.1       Amendment No. 1 to Curative Technologies, Inc. Non Employee
                  Director Stock Option Plan                                                     (10) (Ex. 10.19)

    10.20         Employment Agreement dated as of October 21, 1998 between
                  Robert Heisler and the Company                                                 (12)**

    10.21         Amended Employment Agreement dated December 17, 1997 between
                  William Tella and the Company                                                  (11)**

    10.22         Development and Licensing Agreement dated May 19, 1998 between
                  Accordant Health Services, Inc. and the Company                                (12)

    10.23        Stock Purchase Agreement dated May 1998, among Accordant Health
                 Services, Inc, the Company and certain investor named herein.                   (12)

    21            Subsidiaries of the Registrant                                                  *

    23            Consent of Ernst & Young LLP                                                    *

    24            Power of Attorney (included signature page)

    27            Financial Data Schedule


*      Filed herewith
**     Required to be filed pursuant to Item 601(b) (10) (ii) (A)  or (iii) of
       Regulation S-K.
</TABLE>


(1)    Incorporated  by reference to  similarly  numbered  exhibit to the
       Company's  current  report on Form 8-K dated May 30, 1996.
(2)    Incorporated  by  reference  to  the  similarly  numbered  exhibit
       (unless otherwise indicated) to the Company's Registration Statement on
       Form S-1 (No. 33-39880).
(3)    Incorporated by reference to the Company's Registration Statement on Form
       S-8 (filed July 7, 1993,  No. 33-65710).
(4)    Incorporated by reference to Exhibit 10.32 to the Company's Annual Report
       on Form 10-K filed for the year ended December 31, 1993.
(5)    Incorporated by reference to the Company's Registration Statement on Form
       S-8 (filed October 13, 1994, No. 33-85188).
(6)    Incorporated by reference  to  the  similarly  numbered  exhibit  to  the
       Company's Annual Report on Form 10-K filed for the year ended
       December 31, 1994.
(7)    Incorporated by reference to similarly numbered  exhibit to the Company's
       Current Report on Form 8-K dated November 6, 1995.
(8)    Incorporated by reference to Exhibit 10.25.2 to the  Company's  Quarterly
       Report on Form 10-Q filed for the year ended June 30, 1996.
(9)    Incorporated by reference to the similarly numbered exhibit to the
       Company's Annual Report and Form 10-K filed the year ended
       December 31, 1997.
(10)   Incorporated by reference to the similarly numbered exhibit
       (unless otherwise indicated) to the Company's Quarterly Report on
       Form 10-Q for the  quarter  ended  June 30, 1998.
(11)   Incorporated by reference to Exhibit 10.45.1 to the  Company's  Quarterly
       Report on Form 10Q for the quarter ended March 3, 1998.
(12)   Incorporated  by reference to similarly numbered exhibit to the Company's
       Annual Report on From 10K filed for the year ended December 31, 1998.


<PAGE>

                                                                   Exhibit 21


SUBSIDIARIES OF THE REGISTRANT

The following is a list of all of the subsidiaries of the registrant:

1.  CHS Services, Inc., organized under the laws of Delaware.



<PAGE>
                                                                   Exhibit 23

                         CONSENT OF INDEPENDENT AUDITORS

     We consent to the incorporation by reference in the Registration  Statement
(Form S-8 No.  333-65751)  pertaining to the Curative Health Services,  Inc. and
subsidiaries 1991 Stock Option Plan, as amended, in Registration Statement (Form
S-8 No.  333-65753)  pertaining to Curative Health Services,  Inc.  Non-Employee
Director Stock Option Plan, as amended, in the Registration  Statement (Form S-8
No. 33-19370) pertaining to the Curative Health Services,  Inc. and subsidiaries
Director Share Purchase Program and in the Registration  Statement (Form S-8 No.
33-85188)  pertaining to the Curative  Health  Services,  Inc. and  subsidiaries
Employee  401(k) Savings Plan of our report dated February 7, 2000, with respect
to the  consolidated  financial  statements  and  schedule  of  Curative  Health
Services,  Inc. and  subsidiaries  included in the Annual Report (Form 10-K) for
the year ended December 31, 1999.

                                               /s/  Ernst & Young LLP
Melville, New York
March ___, 2000