<PAGE>

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

                       -----------------------------------

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED MARCH 26, 2004

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

                         COMMISSION FILE NUMBER 0-19952

                       -----------------------------------

                                 CHRONIMED INC.
             (Exact name of registrant as specified in its charter)

          MINNESOTA                                       41-1515691
          ---------                                       ----------
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                      Identification Number)

                       -----------------------------------

                             10900 RED CIRCLE DRIVE
                           MINNETONKA, MINNESOTA 55343

                    (Address of principal executive offices)
                                   (Zip Code)

                       -----------------------------------

        Registrant's telephone number, including area code (952) 979-3600

                       -----------------------------------

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

         Indicate by checkmark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

          Common Stock, $.01 par value - 12,722,053 shares outstanding
                             as of April 30, 2004.

<PAGE>

                                 CHRONIMED INC.

                          QUARTERLY REPORT ON FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 26, 2004

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                          PAGE
                                                                                                          ----
<S>                                                                                                      <C>
PART I.   FINANCIAL INFORMATION

Item 1.  Financial Statements

                  Consolidated Balance Sheets - March 26, 2004 (unaudited) and June 27, 2003                2

                  Consolidated Statements of Income (unaudited) - Three and nine months ended
                  March 26, 2004, and March 28, 2003                                                        3

                  Consolidated Statements of Cash Flows (unaudited) - Three months and nine
                  months ended March 26, 2004, and March 28, 2003                                           4

                  Notes to Consolidated Financial Statements - March 26, 2004                             5 - 9

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations           10 - 15

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                         15

Item 4.  Controls and Procedures                                                                            15

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                                                  16

Items 2, 3, 4, and 5 have been omitted since all items are not applicable or the
answers are negative.

Item 6.  Exhibits and Reports on Form 8-K

         a.) Exhibits                                                                                       16

         b.) Reports on Form 8-K 16

SIGNATURES                                                                                                  17
</TABLE>

                                       1

<PAGE>

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                                 CHRONIMED INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   MARCH 26,
                                                                      2004        JUNE 27,
                                                                   (UNAUDITED)      2003
                                                                  ------------   ------------
<S>                                                               <C>            <C>
ASSETS
Current assets
    Cash and cash equivalents                                     $     15,824   $     22,854
    Short-term investments                                               1,517              -
    Accounts receivable (net of allowances of $6,949 and $5,940
       at March 26, 2004, and  June 27, 2003, respectively)             44,440         40,001
    Inventory                                                           10,838          8,614
    Prepaid expenses                                                     1,190          1,071
    Deferred taxes                                                       2,607          2,607
                                                                  ------------   ------------
        Total current assets                                            76,416         75,147

Property and equipment, net                                              4,456          4,487

Goodwill                                                                34,474         30,233
Other assets, net                                                          147            133
                                                                  ------------   ------------
    Total assets                                                  $    115,493   $    110,000
                                                                  ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
    Accounts payable                                              $     18,492   $     19,085
    Accrued expenses                                                     2,915          2,136
    Accrued bonus                                                        1,198          1,420
    Income taxes payable                                                   223            821
                                                                  ------------   ------------
        Total current liabilities                                       22,828         23,462

Deferred taxes                                                           1,025          1,025

Shareholders' equity
    Preferred stock                                                          -              -
    Common stock, issued and outstanding shares--
          12,722 and 12,541, respectively                                  127            125
    Additional paid-in capital                                          57,393         56,248
    Retained earnings                                                   34,120         29,140
                                                                  ------------   ------------
        Total shareholders' equity                                      91,640         85,513
                                                                  ------------   ------------
        Total liabilities and shareholders' equity                $    115,493   $    110,000
                                                                  ============   ============
</TABLE>

                 See notes to consolidated financial statements

                                       2

<PAGE>

                                 CHRONIMED INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED          NINE MONTHS ENDED
                                   ------------------------    ------------------------
                                    MARCH 26,     MARCH 28,     MARCH 26,     MARCH 28,
                                      2004          2003          2004          2003
                                   ----------    ----------    ----------    ----------
<S>                                <C>           <C>           <C>           <C>
Revenue                            $  142,342    $  111,804    $  402,305    $  320,333

Cost of revenue                       126,976        98,202       356,167       281,095
                                   ----------    ----------    ----------    ----------
        Gross profit                   15,366        13,602        46,138        39,238

Operating expenses
    Selling and marketing               1,461           818         4,213         2,743
    General and administrative         10,760         9,964        32,479        28,533
    Bad debt                              845           939         2,699         2,403
                                   ----------    ----------    ----------    ----------
        Total operating expenses       13,066        11,721        39,391        33,679

Income from operations                  2,300         1,881         6,747         5,559

Interest income                            71           105           171           249
Interest expense                           (1)           (3)           (5)           (3)
Other income                               75             -           150             -
                                   ----------    ----------    ----------    ----------

Income before income taxes              2,445         1,983         7,063         5,805
Income tax expense                       (929)         (754)       (2,083)       (2,214)
                                   ----------    ----------    ----------    ----------
Net income                         $    1,516    $    1,229    $    4,980    $    3,591
                                   ==========    ==========    ==========    ==========

Basic net income per share         $     0.12    $     0.10    $     0.39    $     0.29
Diluted net income per share       $     0.12    $     0.10    $     0.38    $     0.29
                                   ==========    ==========    ==========    ==========

Basic weighted-average shares          12,706        12,400        12,650        12,368
Diluted weighted-average shares        13,032        12,644        13,037        12,478
</TABLE>

                 See notes to consolidated financial statements

                                       3

<PAGE>

                                 CHRONIMED INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        NINE MONTHS ENDED
                                                                     ------------------------
                                                                      MARCH 26,     MARCH 28,
                                                                        2004          2003
                                                                     ----------    ----------
<S>                                                                  <C>           <C>
Operating activities
        Net income                                                   $    4,980    $    3,591

    Adjustments to reconcile income to net cash (used in) provided
        by operating activities:
            Depreciation and amortization                                 1,687         1,747
            Amortization of restricted stock                                  -           592
            Deferred income taxes                                             -           (18)
            Changes in operating assets and liabilities:
                Accounts receivable                                      (4,439)        1,243
                Income taxes                                               (598)          962
                Inventory                                                (2,224)         (470)
                Accounts payable                                           (593)        1,333
                Accrued expenses                                            557          (108)
                Other assets                                               (133)          292
                                                                     ----------    ----------
        Net cash (used in) provided by operating activities                (763)        9,164

Investing activities
    Purchases of property and equipment                                  (1,648)         (946)
    Purchases of short-term investments                                  (1,525)            -
    Acquisition of Accent Rx                                             (4,241)            -
                                                                     ----------    ----------
        Net cash used in investing activities                            (7,414)         (946)

Financing activities
    Net proceeds from issuance of common stock                            1,147           105
                                                                     ----------    ----------
        Net cash provided by financing activities                         1,147           105

(Decrease) increase in cash and cash equivalents                         (7,030)        8,323
Cash and cash equivalents at beginning of year                           22,854         6,306
                                                                     ----------    ----------
Cash and cash equivalents at end of period                           $   15,824    $   14,629
                                                                     ==========    ==========
</TABLE>

                 See notes to consolidated financial statements

                                       4

<PAGE>

                                 CHRONIMED INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.    SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

      Chronimed Inc. ("Chronimed" or the "Company"), a specialty pharmacy,
distributes prescription drugs and provides specialized therapy management
services for people with certain health conditions, including HIV/AIDS, organ
transplants, and diseases treated with biotech injectable medications. We work
with patients, physicians and other health care providers, pharmaceutical
manufacturers, health plans and insurers, and government agencies to improve
clinical and economic outcomes.

BASIS OF PRESENTATION

      The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. Operating results for the three and nine
months ended March 26, 2004, are not necessarily indicative of the results that
may be expected for the fiscal year ending July 2, 2004. The balance sheet at
June 27, 2003, has been derived from the audited financial statements at that
date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the consolidated financial statements and
footnotes thereto included in our Annual Report on Form 10-K for the fiscal year
ended June 27, 2003.

FISCAL YEAR

      We use a four-week, four-week, five-week (4-4-5) quarterly accounting
cycle with the fiscal year ending on the Friday closest to June 30 and the
fiscal quarters ending on the Friday closest to the last day of the respective
month. Fiscal 2004 will include 53 weeks with the year ending July 2, 2004.
Fiscal 2004 fourth quarter will include 14 weeks with the quarter ending July 2,
2004.

REVENUE RECOGNITION

      Revenue is recognized at the time prescriptions are shipped to or picked
up by the patient. We participate in various third-party provider networks and
state Medicaid programs. Under a majority of these networks, the amount to be
paid for our products is determined (or "adjudicated") through electronic
connections with these networks at the time of sale. However, for certain
third-party providers and state Medicaid programs for which there is no
electronic adjudication process available at the time of sale nor established
contracted price, we bill a standard list price and then simultaneously
determine an appropriate estimate for expected payor discount based on our
reimbursement history for each payor class. This reimbursement history is
updated quarterly. Revenue is then reported net of the estimated payor discounts
and adjusted in future periods as final settlements are determined.

STOCK-BASED COMPENSATION

      We have adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (Statement No. 123), "Accounting for Stock-Based
Compensation," as amended by Statement of Financial Accounting Standards No. 148
but apply Accounting Principles Board Opinion No. 25 (APB 25) and related
interpretations in accounting for our stock plans. Under APB 25, when the
exercise price of an employee stock option equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The following table illustrates the effect on net income and earnings per share
if we had applied the fair value

                                       5

<PAGE>

recognition provisions of Statement No. 123 to stock-based employee
compensation.

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED        NINE MONTHS ENDED
                                           ----------------------    ----------------------
(IN THOUSANDS,                             MARCH 26,    MARCH 28,    MARCH 26,    MARCH 28,
    EXCEPT PER SHARE DATA)                   2004         2003         2004         2003
-------------------------------            ---------    ---------    ---------    ---------
<S>                                        <C>          <C>          <C>          <C>
Net income - as reported                   $   1,516    $   1,229    $   4,980    $   3,591
Plus reported stock-based
   employee compensation cost,
   net of related tax effects                      -          327            -          367
Deduct pro forma stock-based
    employee compensation cost,
    net of related tax effects                  (454)        (583)      (1,249)      (1,129)
                                           ---------    ---------    ---------    ---------
Net income - pro forma                     $   1,062    $     973    $   3,731    $   2,829
                                           =========    =========    =========    =========

Earnings per share - basic as reported     $    0.12    $    0.10    $    0.39    $    0.29
Earnings per share - basic pro forma       $    0.08    $    0.08    $    0.29    $    0.23
Earnings per share - diluted as reported   $    0.12    $    0.10    $    0.38    $    0.29
Earnings per share - diluted pro forma     $    0.08    $    0.08    $    0.29    $    0.23
</TABLE>

ACCOUNTS RECEIVABLE ALLOWANCES

Allowance for Doubtful Accounts

      We determine an allowance for doubtful accounts amount based upon an
analysis of the aging of the accounts receivable and historical write-off
experience. Bad debt expense is recorded as an operating expense in our
Consolidated Statements of Income.

Allowance for Payor Discounts

      We determine an allowance for payor discounts based on an analysis of
historical payment experience. Payor discount allowances are recorded as offsets
to revenue in our Consolidated Statements of Income.

INVENTORIES

      Inventories consist of goods held for resale and are carried at the lower
of cost or market determined under the average cost method.

SHORT-TERM INVESTMENTS

      We classify our short-term investments with maturities of over ninety days
when purchased as available-for-sale. We record these investments at fair value
and recognize interest when earned. As of March 26, 2004, our $1.5 million
short-term investments have remaining maturities of less than twelve months.

PER SHARE DATA

      Net income per share is calculated in accordance with Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share." Potential common shares
are included in the diluted net income per share calculation when dilutive.
Potential common shares consisting of common stock issuable upon exercise of
outstanding common stock options are computed using the treasury stock method.
Our basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period, increased to include
restricted stock awards and dilutive potential

                                       6

<PAGE>

common shares issuable upon the exercise of stock options that were outstanding
during the period. The table below is a reconciliation of the numerator and
denominator in the basic and diluted net income per share calculation.

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED       NINE MONTHS ENDED
                                       ---------------------   ---------------------
(IN THOUSANDS,                         MARCH 26,   MARCH 28,   MARCH 26,   MARCH 28,
    EXCEPT PER SHARE DATA)               2004        2003        2004        2003
-------------------------------        ---------   ---------   ---------   ---------
<S>                                    <C>         <C>         <C>         <C>
Numerator
    Net income                         $   1,516   $   1,229   $   4,980   $   3,591

Denominator
    Denominator for basic net
       income per share - weighted
       average shares outstanding         12,706      12,400      12,650      12,368
    Effect of dilutive stock options         326         244         387         110
                                       ---------   ---------   ---------   ---------
    Denominator for diluted net
       income per share - weighted
       average shares outstanding         13,032      12,644      13,037      12,478
                                       =========   =========   =========   =========

Basic net income per share             $    0.12   $    0.10   $    0.39   $    0.29
Diluted net income per share           $    0.12   $    0.10   $    0.38   $    0.29
                                       =========   =========   =========   =========
</TABLE>

      Employee stock options of 1,041,001 and 959,165 for the third quarter and
nine months ended March 26, 2004, respectively, have been excluded from the
diluted net income per share calculation because their effect would be
antidilutive. For the third quarter and nine months ended March 28, 2003,
employee options of 936,895 and 1,087,345, respectively, have been excluded from
the diluted net income per share calculation because their effect would be
antidilutive.

2.    SIGNIFICANT CONCENTRATIONS

      Payor reimbursements from Aetna, Inc. represented approximately 19% of our
revenue in the third quarter of fiscal 2004 and 20% in the nine months ended
March 26, 2004. This compares to approximately 25% in the third quarter of
fiscal 2003 and in the nine months ended March 28, 2003. No other private payor
or single government agency represented more than 10% of our revenues.

      We signed a contract with Roche Laboratories Inc. in March 2003 to be the
exclusive U.S. distributor of Fuzeon(R), its new HIV medication, during the
initial twelve month progressive distribution phase. Fuzeon(R) sales contributed
approximately 14% and 12% of our revenue in the third quarter of fiscal 2004 and
nine months ended March 26, 2004, or $19.8 million and $49.1 million,
respectively.

      We signed a three-year wholesaler agreement with Cardinal Health, a large
national distributor, for the majority of our pharmaceutical purchases effective
August 2003. We used McKesson Corporation, another large national distributor,
for the majority of our pharmaceutical purchases in fiscal 2003 and until August
2003. Cardinal Health made up approximately 76% of our inventory purchases for
the third quarter of fiscal 2004. Cardinal Health and McKesson together made up
79% in the nine months ended March 26, 2004. McKesson Corporation made up
approximately 93% of our inventory purchases in the third quarter of fiscal 2003
and 92% in the nine months ended March 28, 2003. In the event that we are unable
to purchase pharmaceuticals through Cardinal Health, we believe we would be able
to purchase the same inventory through other national pharmaceutical
distributors under similar terms and conditions.

                                       7

<PAGE>

      Our primary concentration of credit risk is third party payor accounts
receivable, which consist of amounts owed by various governmental agencies and
insurance companies. We manage our receivables by regularly reviewing accounts
and contracts and by providing appropriate allowances for uncollectible amounts.
Aetna, Inc. represented approximately 10% and 16% of our gross accounts
receivable balance at March 26, 2004, and June 27, 2003, respectively. No other
private payor or single government agency represented more than 10% of our
accounts receivable balances. Concentration of credit risk relating to accounts
receivable is limited to some extent by the diversity and number of patients and
payors and the geographic dispersion of our operations.

3.    SEGMENT REPORTING

      Effective June 28, 2003, we are operating and reporting in one segment.
Previously, we had identified two reportable operating segments, Mail Service
and Retail, based on separate management, emphasis on different diseases, and a
different distribution method for each segment. Three primary factors have
diminished the distinction between Mail Service and Retail. First, we
consolidated critical elements. In fiscal 2002, we transferred our Kansas City
retail headquarters to Minneapolis and consolidated our accounts receivable and
collections, accounting, and information service functions into a single
location. In addition, we changed our management structure from a vice president
for each of our then-defined operating segments to one vice president for all
operations.

      Second, over the past year we have begun to serve persons living with
HIV/AIDS and persons with organ transplants at both our Retail and Mail Service
pharmacies. In the past, our Retail pharmacies had predominantly served persons
living with HIV/AIDS, and our Mail Service pharmacies had served persons with
organ transplants and others needing biotech injectable medications. In fiscal
2003 we began to serve many more persons with organ transplants through our
Retail pharmacies. We also entered into an agreement with Roche Laboratories
Inc. in fiscal 2003 to distribute Fuzeon(R) to persons with HIV/AIDS. We
distribute this drug through both our Mail Service and Retail pharmacies.

      Third, we have added mail service capabilities to our retail pharmacies as
an enhancement to the local "walk-in" business model. In summary, although we
continue to apply two primary distribution methods, the distribution method no
longer drives the decisions made by our chief decision makers regarding resource
allocation. The chief decision makers regularly review financial information
related to, and make operating decisions based on, a number of factors including
disease state, drugs, payors, and dispensing location in order to efficiently
distribute prescription drugs and provide specialized therapy management
services.

4.    COMPREHENSIVE INCOME

      Net income equaled comprehensive income for the respective periods.

5.    INCOME TAXES

      Our income tax rate was 38.0% and 29.5% for the three and nine months
ended March 26, 2004, respectively. Income tax expense for the first quarter of
fiscal 2004 was $0.3 million, net of a $0.6 million benefit resulting from a
reduction in income tax liabilities associated with prior tax years that are now
audited and closed. Without this reduction, our income tax rate was 38.0% for
the three and nine months ended March 26, 2004.

6.    ACQUISITION

      On December 9, 2003, we purchased certain assets of Accent Rx for $4.2
million in cash. Accent Rx is a specialty mail service pharmacy focusing
primarily on the distribution of pharmaceutical products to individuals living
with HIV/AIDS and post-organ transplants. Accent Rx has been integrated into our
existing mail service operations. The sale was completed in accordance with the
Asset Purchase Agreement dated December 9, 2003, entered into by and between
Accent Rx, Inc., its parent Accentia Inc., and Chronimed. We paid cash for
customer

                                       8

<PAGE>

prescription records and allocated the $4.2 million purchase price as goodwill.
The acquisition was disclosed in our Form 8-K with a report date of December 9,
2003, filed with the SEC on December 16, 2003.

      Beginning December 10, 2003, through March 26, 2004, customers of Accent
Rx were served through Chronimed's mail service operations, resulting in
approximately $3.3 million in revenue during the period.

      The following unaudited pro forma combined financial information is in
accordance with Statement of Financial Accounting Standards No. 141, Business
Combinations, and is based on the respective historical financial results of
Chronimed and Accent Rx, Inc. as though the business combination had been
completed as of the beginning of the periods presented.

<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED      NINE MONTHS ENDED
                               ---------------------   ---------------------
(IN THOUSANDS,                 MARCH 26,   MARCH 28,   MARCH 26,   MARCH 28,
    EXCEPT PER SHARE DATA)       2004        2003        2004        2003
-----------------------------  ---------   ---------   ---------   ---------
<S>                            <C>         <C>         <C>         <C>
Revenue                        $ 142,342   $ 117,115   $ 411,143   $ 335,135
Income from operations             2,300       1,689       6,036       4,417
Net income                         1,516         954       4,116       2,501

Earnings per share - basic     $    0.12   $    0.08   $    0.33   $    0.20
Earnings per share - diluted   $    0.12   $    0.08   $    0.32   $    0.20
</TABLE>

                                       9

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

      The following management's discussion and analysis of financial condition
and results of operations ("MD&A") should be read in conjunction with the MD&A
included in our Annual Report on Form 10-K for the fiscal year ended June 27,
2003.

      The following table represents income and expense items as a percentage of
revenue.

INCOME AND EXPENSE ITEMS AS A PERCENTAGE OF REVENUE

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED            NINE MONTHS ENDED
                                    ------------------------      ------------------------
                                    MARCH 26,      MARCH 28,      MARCH 26,      MARCH 28,
       FISCAL YEAR                    2004           2003           2004           2003
       -----------                  ---------      ---------      ---------      ---------
<S>                                 <C>            <C>            <C>            <C>
Revenue                               100.0%         100.0%         100.0%         100.0%
Cost of revenue                        89.2           87.8           88.5           87.8
                                      -----          -----          -----          -----
Gross profit                           10.8           12.2           11.5           12.2
Operating expenses
    Selling and marketing               1.0            0.8            1.0            0.8
    General and administrative          7.6            8.9            8.1            8.9
    Bad debt                            0.6            0.8            0.7            0.8
                                      -----          -----          -----          -----
Total operating expenses                9.2           10.5            9.8           10.5
Income from operations                  1.6            1.7            1.7            1.7
Interest income, net                    0.1            0.1              -            0.1
Other income                            0.1              -              -              -
Income tax expense                     (0.7)          (0.7)          (0.5)          (0.7)
                                      -----          -----          -----          -----
Net income                              1.1%           1.1%           1.2%           1.1%
                                      =====          =====          =====          =====
</TABLE>

Revenue

      Revenue increased $30.5 million, or 27.3%, to $142.3 million in the third
quarter of fiscal 2004 from $111.8 million in the third quarter of fiscal 2003.
For the nine months ended March 26, 2004, total revenue increased $82.0 million,
or 25.6%, to $402.3 million from $320.3 million for the same period last year.

      The increase in revenue for the quarter was due to several factors. First,
sales of Fuzeon(R), a new HIV medication, contributed $19.8 million and $49.1
million in revenue in the third quarter of fiscal 2004 and nine months ended
March 26, 2004, respectively. Second, we increased the number of patients
served, particularly patients with HIV, organ transplants, rheumatoid arthritis,
and multiple sclerosis. Third, we had higher revenue due to inflationary price
increases.

      On December 9, 2003, we completed the acquisition of Accent Rx, a
specialty mail service pharmacy focusing primarily on HIV/AIDS and post-organ
transplant disease states. Accent Rx has been integrated into our existing mail
service operations and contributed approximately $3.0 million and $3.3 million
in revenue in the third quarter of fiscal 2004 and nine months ended March 26,
2004, respectively.

      The table below shows disease state revenue for the three and nine months
ended March 26, 2004, and March 28, 2003, as a percentage of total revenue.

                                       10

<PAGE>

<TABLE>
<CAPTION>
                                THREE MONTHS ENDED       NINE MONTHS ENDED
                               ---------------------   ---------------------
                               MARCH 26,   MARCH 28,   MARCH 26,   MARCH 28,
(% OF TOTAL REVENUE)             2004        2003         2004        2003
--------------------           ---------   ---------   ---------   ---------
<S>                            <C>         <C>         <C>         <C>
HIV/AIDS                          55%         43%         54%         45%
Transplant                        18%         20%         18%         19%
Other disease states              27%         37%         28%         36%
                                 ---         ---         ---         ---
Total                            100%        100%        100%        100%
                                 ===         ===         ===         ===
</TABLE>

      For the three months ended March 26, 2004, our HIV patient revenue grew
approximately $30.3 million, or 63% from the same period in fiscal 2003. Revenue
from Fuzeon(R) patients contributed $19.8 million to this growth. Transplant
patient revenue grew approximately $3.2 million, or 14%. The remainder of our
patient revenue decreased approximately $3.0 million, or 7%. Revenue from
rheumatoid arthritis and multiple sclerosis patients grew significantly over the
year ago quarter, offset by declines in oncology, hepatitis C, and RSV. The
decrease is also partly attributed to the fiscal 2003 revenue contribution from
our arrangement to manage three District of Columbia Department of Mental Health
pharmacies from November 2002 through February 2003. For the nine months ended
March 26, 2004, our HIV patient revenue grew approximately $72.3 million, or
50%, from the same period in fiscal 2003. Revenue from Fuzeon(R) patients
contributed $49.1 million to this growth. Transplant patient revenue grew
approximately $11.5 million, or 19%. The remainder of our patient revenue
decreased approximately $1.8 million, or 2%. Revenue from rheumatoid arthritis
and multiple sclerosis patients grew significantly over the year ago period,
offset by declines in oncology, hepatitis C, and RSV. We plan to continue to
expand the types of specialty pharmaceutical medications that we distribute at
all of our pharmacies beyond our HIV/AIDS and post-transplant focus to include
hepatitis C, rheumatoid arthritis, multiple sclerosis, and other disease states.

      Our business consists of four major payor categories. Aetna, a single
large contracted payor, represented approximately 19% and 25% of revenues in the
third quarters of fiscal 2004 and 2003, respectively. The decrease as a
percentage of revenue is primarily due to growth of non-Aetna payors. In
addition, Aetna revenue dollars decreased in the third quarter of fiscal 2004
compared to the third quarter of fiscal 2003. The reduction in revenue dollars
is primarily due to Aetna's decision to transfer the oncology portion of our
specialty pharmacy contract to another provider. This reduction is partially
offset by Aetna's decision to award us exclusive distribution of bone marrow
transplant medications. Aetna represented approximately 20% and 25% of revenues
for the nine months ended March 26, 2004, and March 28, 2003, respectively, due
to growth in non-Aetna payors. Aetna revenue dollars remained relatively flat
for the nine months ended March 26, 2004, compared to the same period last year.
Except for Aetna, no other private payor accounted for 10% or more of our
revenues in the three and nine month periods ended March 26, 2004, and March 28,
2003. The approximate mix of our third quarter fiscal 2004 and nine months ended
March 26, 2004, total revenue across the remaining three payor categories is as
follows: Medicaid and other state programs including State of Indiana programs,
37% and 34%, respectively; Medicare, the federal program which covers many organ
transplant recipients, 7% and 7%, respectively; and all other payors, 37% and
39%, respectively. Beginning in October 2003, a State of Indiana
government-sponsored payment program for HIV positive and other high-cost
individuals reduced its reimbursement rate. This payor represented approximately
3% of our revenues, and the rate change impacted our revenue and gross margin by
approximately $0.6 million and $1.2 million in the third quarter of fiscal 2004
and nine months ended March 26, 2004, respectively.

      Chronimed has noted that Aetna is exploring options with respect to the
specialty pharmacy network. Although Aetna has not indicated publicly or
communicated to Chronimed any decision on this matter, it is possible that a
final decision may not include Chronimed as a specialty pharmacy provider. If
Aetna reaches this conclusion, the Company does not believe the decision will
impact Chronimed's financial results before the end of the June 2004 fiscal
year. The Company also believes that both organic growth and acquisitions in an
active pipeline of opportunities would offset much if not all of the negative
earnings impact from a loss of the Aetna contract. Overall, Chronimed expects
that revenue and earnings would grow in fiscal 2005 against expected fiscal 2004
results even if the Aetna contract was cancelled in December 2004, when it is
currently set to expire.

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<PAGE>

      For the three months ended March 26, 2004, our retail distribution channel
accounted for approximately 56%, or $80 million, of our revenue. Our retail
pharmacies had same-store-growth of 26.3% or $16.6 million in the third quarter
of fiscal 2004 compared to the same quarter last year. For the three months
ended March 26, 2004, our mail service distribution channel accounted for
approximately 44%, or $62 million, of our revenue. Mail service revenue grew
34.7%, or $16.0 million, due to HIV and Fuzeon(R).

      Our one-year exclusive contract with Roche Laboratories Inc. to distribute
Fuzeon(R) ended April 26, 2004. We expect our Fuzeon(R) product revenue to
decline in our fourth quarter and likely into fiscal 2005 because of the
expanded distribution network for Fuzeon(R) beginning after April 26, 2004.

Cost of Revenue and Gross Profit

      Total gross profit dollars increased $1.8 million, or 13.0%, to $15.4
million in the third quarter of fiscal 2004 from $13.6 million in the third
quarter of fiscal 2003 due to the increase in revenue. For the nine months ended
March 26, 2004, total gross profit dollars increased 17.6% to $46.1 million from
$39.2 million for the same period last year. The dollar increase in gross profit
was due to revenue growth from Fuzeon(R) and new HIV and transplant patients.
Third quarter gross margins as a percentage of revenue decreased to 10.8% in
fiscal year 2004 from 12.2% in fiscal year 2003. Gross margins decreased to
11.5% for the nine months ended March 26, 2004, from 12.2% for the same period
last year. The expected decline in gross margin rate was due primarily to the
reduction in Medicare transplant reimbursement rates beginning January 2004,
lower-than-average margin rates from Fuzeon(R), and the October 2003 reduction
in the reimbursement rate from a State of Indiana government-sponsored HIV
program.

      Aetna represented approximately 14% and 18% of our gross profit for the
three months ended March 26, 2004, and March 28, 2003, respectively.
Year-to-date, Aetna represented approximately 14% and 17% of our gross profit
for the nine months ended March 26, 2004, and March 28, 2003, respectively. The
October 2003 reduction in the State of Indiana government-sponsored program's
reimbursement rate lowered our revenue and gross margin by approximately $0.6
million and $1.2 million in the third quarter of fiscal 2004 and nine months
ended March 26, 2004, respectively.

      We expect continuing downward pressure on our gross margins from Medicare
and our state Medicaid business. The Medicare Prescription Drug Improvement and
Modernization Act, signed in December 2003, contained a reduction in
reimbursement for transplant medications provided to patients covered under
Medicare Part B. Effective January 1, 2004, the reimbursement reduction was
approximately 10% on all Medicare-covered transplant medications. The negative
impact of this Medicare reimbursement reduction to us may be partly offset by
generic drug substitution and changes in our transplant service offering to
Medicare Part B participants. The net impact on operating income was
approximately $1.0 million in the third quarter ending March 26, 2004, and is
expected to be approximately the same in our fiscal fourth quarter.

Operating Expenses

      Our operating expenses include selling and marketing, general and
administrative (G&A), and bad debt expenses. Our G&A expenses include both
corporate G&A expenses (corporate management, information systems, accounting,
human resources) and direct G&A expenses (division management, customer service,
billing, pharmacy fulfillment).

Selling and Marketing Expenses

      Our selling and marketing expenses in the third quarter of fiscal 2004
increased $0.6 million, or 78.6%, to $1.4 million from $0.8 million in the third
quarter of fiscal 2003. Selling and marketing expenses as a percentage of
revenue increased to 1.0% in the third quarter of fiscal 2004 compared to 0.8%
in the third quarter of fiscal 2003. For the nine months ended March 26, 2004,
our selling and marketing expenses increased $1.5 million, or

                                       12

<PAGE>

53.6%, to $4.2 million from $2.7 million for the same period last year. As a
percentage of revenue, selling and marketing expenses increased to 1.0% for the
nine months ended March 26, 2004, from 0.9% for the same period last year. In
the fourth quarter of fiscal 2003, we redefined our sales and marketing strategy
to focus more on specific diseases and increased our sales force resulting in
higher payroll expenses and travel expenses for the nine months ended March 26,
2004, compared to the same periods last year.

General and Administrative Expenses

      Our general and administrative expenses increased $0.8 million, or 8.0%,
to $10.8 million in the third quarter of fiscal 2004 from $10.0 million in the
third quarter of fiscal 2003. As a percentage of revenue, general and
administrative costs decreased to 7.6% from 8.9% reflecting a leveraging of G&A
expenses on growing sales. For the nine months ended March 26, 2004, our general
and administrative expenses increased $4.0 million, or 13.9%, to $32.5 million
from $28.5 million for the same period last year. As a percentage of revenue,
general and administrative expenses decreased to 8.1% for the nine months ended
March 26, 2004 from 8.9% for the same period last year. The dollar increase for
the nine months ended March 26, 2004, was due in part to expense growth of
approximately $1.8 million in customer service and pharmacy fulfillment related
to patient and revenue growth, $0.4 million investment in business development,
$0.3 million in consulting fees incurred in preparation for compliance with
Section 404 of the Sarbanes-Oxley Act, $0.2 million in higher insurance
premiums, and an additional $0.2 million charge as part of a tentative
settlement related to certain reimbursement claims submitted to the District of
Columbia Medicaid between January and April 2000.

Bad Debt

      Our bad debt expense decreased $0.1 million to $0.8 million in the third
quarter of fiscal 2004 from $0.9 million in the third quarter of fiscal 2003.
Bad debt as a percentage of revenue decreased to 0.6% for the third quarter of
fiscal 2004 from 0.8% for the third quarter of fiscal 2003 reflecting continued
efficiencies in our collection practices. For the nine months ended March 26,
2004, our bad debt expense increased $0.3 million, or 12.3%, to $2.7 million
from $2.4 million for the same period last year. Bad debt expense as a
percentage of revenue for the nine months ended March 26, 2004, decreased to
0.7% from 0.8% for the nine months ended March 28, 2003. The allowance for bad
debt expense was approximately $4.5 million as of March 26, 2004, and June 27,
2003. The bad debt reserve decreased to 9.3% of trade receivables as of March
26, 2004, from 10.1% of trade receivables as of June 27, 2003, due to improved
agings and lower write-off experience. We expect our future bad debt expense to
continue at levels below 1.0% of revenue.

Interest Income

      Interest income, net of interest expense, remained fairly consistent
between the third quarter of fiscal 2004 and fiscal 2003 and totaled
approximately $0.2 million for each of the nine months ended March 26, 2004, and
March 28, 2003. Interest income resulted from current cash balances while having
no outstanding borrowings on our line of credit.

Other Income

      We recorded approximately $0.1 million other income for payment on a fully
reserved note receivable in the third quarter of fiscal 2004 and $0.15 million
for the nine months ended March 26, 2004.

Income Taxes

      Our income tax rate was 38.0% and 29.5% for the three and nine months
ended March 26, 2004, respectively. Income tax expense for the first quarter of
fiscal 2004 was $0.3 million, net of a $0.6 million benefit resulting from a
reduction in income tax liabilities associated with prior tax years that are now
audited and closed. Without this reduction, our income tax rate was 38.0% for
the three and nine months ended March 26, 2004. Looking forward to the remainder
of fiscal 2004, we expect our combined Federal and State tax rate to approximate
38.0%.

                                       13

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      As of March 26, 2004, we had $53.6 million of working capital compared to
$51.7 million as of June 27, 2003. During the nine-month period ended March 26,
2004, we used $0.8 million of cash for operating activities primarily due to an
increase in accounts receivable and inventory. Our accounts receivable increased
$4.4 million due to an increasing sequential-quarter revenue growth, net of an
improving days sales outstanding (DSO) rate. Our DSO improved to 29 days at
March 26, 2004, from 34 days at June 27, 2003. We continue to experience a delay
in the final $2.1 million payment from the District of Columbia Department of
Mental Health that we do not expect to result in bad debt. We expect our DSO to
remain at or near to the current DSO level for the remainder of fiscal 2004. We
used a net $0.6 million in cash to decrease accounts payable, due primarily to
shorter payment terms with our new pharmaceutical wholesaler. The average days
of inventory on hand of 8 days at March 26, 2004, was consistent with average
days on hand at June 27, 2003. We used $2.2 million to finance inventory
required to support our business growth. We expect our inventory to perform at
or near to the current days on hand for the remainder of fiscal 2004.

      We used approximately $7.4 million of cash in investing activities during
the nine-month period ended March 26, 2004, consisting of $4.2 million for the
purchase of Accent Rx, a mail service specialty pharmacy, $1.5 million in
purchases of short-term investments, and $1.7 million for leasehold
improvements, furniture, equipment, and computer hardware and software.

      We had no outstanding borrowings as of March 26, 2004 and June 27, 2003.
Shareholders' equity as of March 26, 2004, and June 27, 2003, was $91.6 million
and $85.5 million, respectively. Net tangible assets, an indicator of borrowing
capacity, as of March 26, 2004, and June 27, 2003, were $57.2 million and $55.3
million, respectively. As of March 26, 2004, we have a secured line of credit
totaling $30 million. We had no borrowings under our line of credit during the
three and nine months ended March 26, 2004. We are in compliance with the debt
covenants of the line of credit. Under the terms of the agreement, the debt is
secured by receivables and inventory and bears interest at the Eurodollar rate
plus an applicable margin depending on our covenant calculation (approximately
3.05% at March 26, 2004). The line of credit expires in April 2006.

      We believe that our cash and cash equivalents, investments, line of
credit, and cash provided by operating activities should allow us to meet
foreseeable cash requirements and provide the flexibility to fund future working
capital growth. However, we would need to seek additional debt or equity
financing beyond our current $30 million line of credit to fund any major
business acquisitions. We expect our capital project requirements to be between
$2 and $3 million in fiscal 2004.

      Our future contractual commitments consist entirely of payments due under
operating leases. See Note 5, Notes to Consolidated Financial Statements,
included in our Annual Report on Form 10-K for the fiscal year ended June 27,
2003.

IMPACT OF INFLATION

      Changes in prices charged by biopharmaceutical manufacturers for the drugs
we dispense, along with increasing labor costs, freight and supply costs, and
other overhead expenses affect our cost of revenue and operating expenses.
Historically, we have been able to pass a portion of the effect of such
increases to the payor and patient pursuant to automatic price adjustments under
our payor contracts. As a result, changes due to inflation have not had
significant adverse effects on our operations.

FORWARD-LOOKING STATEMENTS

      Information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, other than historical or current
facts, should be considered forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These statements reflect management's
current views of future events and financial performance that involve a number
of risks and uncertainties. These factors include, but

                                       14

<PAGE>

are not limited to, the following: our ability to maintain satisfactory on-going
arrangements with biopharmaceutical manufacturers and wholesalers and their
ability to satisfy our volume, pricing, and product requirements; decrease in
demand for drugs we handle; changes in Medicare or Medicaid, including
reimbursement rates and covered drugs; loss of relationships with payors
(including Aetna or other material contracts); loss of the Fuzeon(R)
distribution contract and related business volume; negative cost containment
trends or financial difficulties by our payors; changes in or unknown violations
of various federal, state, and local regulations; costs and other effects of
legal or administrative proceedings; the adoption of new or changes to existing
accounting policies and practices and the application of such policies and
practices; the amount and rate of growth in our selling, general and
administrative and bad debt expenses; the impairment of a significant amount of
our goodwill; the effects of and changes in, trade, monetary and fiscal
policies, laws and regulations; increased competition; our ability to obtain
competitive financing to fund operations and growth; loss or retirement of key
executives; developments in medical research affecting the treatment or cure of
conditions for which we distribute medications; the ability of management and
accounting controls to assure accurate and timely recognition of revenue and
earnings; and adverse publicity, news coverage, and reporting by independent
analysts. We urge you to read the cautionary statement filed as Exhibit 99.1 to
our Annual Report on Form 10-K for the fiscal year ended June 27, 2003. This
cautionary statement discusses specific factors which could affect our
operations and forward-looking statements contained in this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are exposed to interest rate risk primarily through our short-term
investments and our borrowing activities under our line of credit discussed in
Item 2 of this report. A 10% change in interest rates would not have a
significant effect on our interest income based our short-term investments
balance as of March 26, 2004.

      Our short-term borrowings would bear interest at variable rates based on
the Eurodollar rate plus an applicable margin depending on our covenant
calculation. A 10% increase in interest rates would not have a significant
effect on our interest expense based on the fact that we have had no borrowings
in fiscal 2004. We do not use financial instruments for trading or other
speculative purposes and are not a party to any leveraged financial instruments.

ITEM 4. CONTROLS AND PROCEDURES

      Our management, including the Chief Executive Officer and Chief Financial
Officer, have conducted an evaluation of the effectiveness of disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this report. Based on such
evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective.

      There have not been any changes in our internal controls over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during our most recent quarter that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.

                                       15

<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      There have been no material developments in legal proceedings involving
Chronimed Inc. or its subsidiaries during the fiscal quarter ended March 26,
2004. See also the Company's report on Form 10Q for the period ended December
26, 2003.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      a)    Exhibits

            31.1  Certification Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 (Chief Executive Officer).

            31.2  Certification Pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 (Chief Financial Officer).

            32.1  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                  (Chief Executive Officer).

            32.2  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                  (Chief Financial Officer).

      b)    Reports on Form 8-K

                  A Current Report on Form 8-K with a report date of January 28,
            2004, was filed during the third quarter of fiscal 2004 to provide
            the full text of the second quarter financial results press release
            dated January 28, 2004.

                  A Current Report on Form 8-K/A with a report date of December
            9, 2003, was filed during the third quarter of fiscal 2004 to report
            the Accent Rx acquisition, the financial statements of the business
            acquired, and pro forma financial information.

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<PAGE>

      SIGNATURES

      Pursuant to the requirements of Section 13 of 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.

                                           CHRONIMED INC.

Dated: May 5, 2004                         By /s/ Henry F. Blissenbach
                                              ----------------------------------
                                              Henry F. Blissenbach
                                              Chief Executive Officer and
                                              Chairman of the Board of Directors

Dated: May 5, 2004                            /s/ Gregory H. Keane
                                              ----------------------------------
                                              Gregory H. Keane
                                              Vice President, Chief Financial
                                              Officer and Treasurer (Principal
                                              Financial and Accounting Officer)

                                       17