<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 DECEMBER 27, 2002

[ ] 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 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 - 12,496,916 shares outstanding as of January
31, 2003


================================================================================
<PAGE>

                                 CHRONIMED INC.

                          QUARTERLY REPORT ON FORM 10-Q

                     FOR THE QUARTER ENDED DECEMBER 27, 2002

                                      INDEX

<TABLE>
<CAPTION>
PART I.   FINANCIAL INFORMATION                                                                            PAGE
-------------------------------                                                                            ----
<S>                                                                                                        <C>
Item 1.  Financial Statements

                  Consolidated Balance Sheets -- December 27, 2002 (unaudited) and June 28, 2002              2

                  Consolidated Statements of Operations (unaudited) -- Three and six months ended
                  December 27, 2002 and December 28, 2001                                                     3

                  Consolidated Statements of Cash Flows (unaudited) -- Six months ended  December 27,
                  2002 and December 28, 2001                                                                  4

                  Notes to Consolidated Financial Statements -- December 27, 2002                           5 - 8

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations              9 - 14

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                          14

Item 4.  Controls and Procedures                                                                             14


PART II.  OTHER INFORMATION
---------------------------

Item 1.  Legal Proceedings                                                                                   15

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

Item 4:  Submission of Matters to a Vote of Security Holders                                                 15

Item 6.  Exhibits and Reports on Form 8-K

         a.)      Exhibits                                                                                   15

         b.)      Reports on Form 8-K                                                                        15


SIGNATURES                                                                                                   16
----------


CERTIFICATIONS                                                                                             17 - 18
--------------
</TABLE>



                                       1

<PAGE>

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                                 CHRONIMED INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       DECEMBER 27,
                                                                          2002                     JUNE 28,
                                                                       (UNAUDITED)                  2002
----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                      <C>
ASSETS
Current assets
    Cash and cash equivalents                                            $ 14,423                 $ 6,306
    Accounts receivable (net of allowances of $7,075 and $8,923
        at December 27, 2002 and June 28, 2002, respectively)              38,888                  44,461
    Inventory                                                              10,918                   8,334
    Prepaid expenses                                                        1,943                   1,062
    Deferred taxes                                                          3,389                   3,437
----------------------------------------------------------------------------------------------------------
        Total current assets                                               69,561                  63,600

Property and equipment, net                                                 4,861                   5,485

Goodwill                                                                   30,233                  30,233
Other assets, net                                                             139                     177
----------------------------------------------------------------------------------------------------------
        Total assets                                                     $104,794                $ 99,495
==========================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
    Accounts payable                                                     $ 17,653                $ 14,811
    Accrued expenses                                                        3,065                   3,117
    Accrued bonus                                                             700                   1,174
    Income taxes payable                                                    1,270                     648
----------------------------------------------------------------------------------------------------------
        Total current liabilities                                          22,688                  19,750

Deferred taxes                                                                278                     344

Shareholders' equity
    Preferred stock                                                             -                       -
    Common stock, issued and outstanding shares--
          12,478 and 12,353, respectively                                     125                     124
    Additional paid-in capital                                             55,713                  55,122
    Unearned compensation                                                    (527)                      -
    Retained earnings                                                      26,517                  24,155
----------------------------------------------------------------------------------------------------------
        Total shareholders' equity                                         81,828                  79,401
----------------------------------------------------------------------------------------------------------
        Total liabilities and shareholders' equity                       $104,794                $ 99,495
==========================================================================================================
</TABLE>




                 See notes to consolidated financial statements


                                       2


<PAGE>

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


<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                        SIX MONTHS ENDED
                                          -------------------------------------       ------------------------------------
                                            DECEMBER 27,          DECEMBER 28,          DECEMBER 27,         DECEMBER 28,
                                                2002                  2001                2002                  2001
-------------------------------------------------------------------------------       ------------------------------------
<S>                                          <C>                  <C>                  <C>                  <C>
Revenue
   Mail Order                                $  45,094            $  45,566            $  86,809            $  85,891
   Retail                                       63,542               54,988              121,720              108,091
--------------------------------------------------------------------------------------------------------------------------
      Total revenue                            108,636              100,554              208,529              193,982

Cost of revenue                                 94,976               88,512              182,893              170,396
--------------------------------------------------------------------------------------------------------------------------
        Gross profit                            13,660               12,042               25,636               23,586

Operating expenses
    Selling and marketing                        1,002                  871                1,925                1,712
    General and administrative                   9,549                9,861               18,569               20,006
    Bad debt expense                               953                  821                1,464                1,444
--------------------------------------------------------------------------------------------------------------------------
        Total operating expenses                11,504               11,553               21,958               23,162

Income from operations                           2,156                  489                3,678                  424

Interest income                                     81                  117                  144                  229
Interest expense                                   -                   (132)                 -                   (219)
Other income                                       -                     64                  -                    109
--------------------------------------------------------------------------------------------------------------------------

Income before income taxes                       2,237                  538                3,822                  543
Income tax expense                                (850)                (210)              (1,460)                (212)
--------------------------------------------------------------------------------------------------------------------------
Net income                                   $   1,387            $     328            $   2,362            $     331
==========================================================================================================================

Basic and diluted net
     income per share                        $    0.11            $    0.03            $    0.19            $    0.03
==========================================================================================================================

Basic weighted-average shares                   12,353               12,315               12,353               12,315
Diluted weighted-average shares                 12,444               12,316               12,400               12,316
</TABLE>


                 See notes to consolidated financial statements




                                        3



<PAGE>

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


<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED
                                                                        ---------------------------------------
                                                                           DECEMBER 27,            DECEMBER 28,
                                                                              2002                    2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                     <C>
Operating activities
    Net income                                                             $  2,362                $    331

    Adjustments to reconcile net income to net cash
         provided by (used in) operating activities:
            Depreciation and amortization                                     1,171                   1,480
            Amortization of restricted stock                                     65                     -
            Deferred income taxes                                               (18)                    -
            Changes in operating assets and liabilities:
                Accounts receivable                                           5,573                  (6,680)
                Income taxes                                                    622                      52
                Inventory                                                    (2,584)                 (1,544)
                Accounts payable                                              2,842                    (429)
                Accrued expenses                                               (526)                    305
                Other assets                                                   (853)                   (684)
----------------------------------------------------------------------------------------------------------------
        Net cash provided by (used in) operating activities                   8,654                  (7,169)

Investing activities
    Purchases of property and equipment                                        (537)                   (571)
----------------------------------------------------------------------------------------------------------------
        Net cash used in investing activities                                  (537)                   (571)

Financing activities
    Net proceeds from borrowings                                                -                     9,000
----------------------------------------------------------------------------------------------------------------
        Net cash provided by financing activities                               -                     9,000

    Increase in cash and cash equivalents                                     8,117                   1,260
    Cash and cash equivalents at beginning of year                            6,306                     -
----------------------------------------------------------------------------------------------------------------
    Cash and cash equivalents at end of year                               $ 14,423                $  1,260
================================================================================================================
</TABLE>





SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
    -    In August 2002, we granted 145,000 shares of restricted stock to our
         officers and in October 2002 cancelled 20,000 of the shares. Related to
         the grant, we recognized compensation expense of $37,000 and $65,000 in
         the quarter ended and six months ended December 27, 2002, respectively.

                 See notes to consolidated financial statements


                                       4

<PAGE>



                                 CHRONIMED INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         Chronimed Inc. ("Chronimed" or the "Company") is a distributor of
prescription drugs for people with certain chronic health conditions. We
consider our business to be unique and refer to it as specialty pharmacy. We
serve patients with highly specialized pharmaceutical needs and help employers
and third-party payors manage patient care costs. We distribute pharmaceuticals
and provide specialized patient management services nationwide for people with
chronic conditions including HIV/AIDS, organ transplants, and diseases treated
with biotech injectable medications. We work directly with patients, physicians,
healthcare providers, insurance companies, health maintenance organizations,
preferred provider organizations, government agencies, and other third-party
payors to improve clinical and financial outcomes for patients with chronic,
complex, and expensive pharmaceutical needs.

         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 six months ended
December 27, 2002, are not necessarily indicative of the results that may be
expected for the fiscal year ending June 27, 2003. The balance sheet at June 28,
2002, 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 28, 2002.

         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.

2.       INVENTORIES

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

3.       PER SHARE DATA

         Earnings per share are calculated in accordance with Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share." Potential
common shares are included in the diluted net income 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 income by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed by dividing income by the weighted average number
of common shares outstanding during the period, increased to include restricted
stock awards and dilutive potential common shares issuable upon the exercise of
stock options that were outstanding during the period. A reconciliation of the
numerator and denominator in the basic and diluted earnings per share
calculation is as follows:



                                       5

<PAGE>

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                    ----------------------------------    ----------------------------------
                                                     DECEMBER 27,        DECEMBER 28,      DECEMBER 27,        DECEMBER 28,
                                                        2002                2001              2002                2001
                                                    ----------------------------------    ----------------------------------
<S>                                                   <C>                <C>                <C>                <C>
(IN THOUSANDS, EXCEPT
   PER SHARE DATA)

Numerator
    Net income                                        $ 1,387            $   328            $ 2,362            $   331
============================================================================================================================
Denominator
    Denominator for basic net
       income per share - weighted
       average shares outstanding                      12,353             12,315             12,353             12,315
    Effect of dilutive stock options
       and restricted stock                                91                  1                 47                  1
----------------------------------------------------------------------------------------------------------------------------
    Denominator for diluted net
       income per share - weighted
       average shares outstanding                      12,444             12,316             12,400             12,316
============================================================================================================================

Basic and diluted
  net income per share                                $  0.11            $  0.03            $  0.19            $  0.03
============================================================================================================================
</TABLE>

         Employee stock options of 1,150,245 and 1,476,345 for the second
quarter and six months ended December 27, 2002, respectively, have been excluded
from the diluted net income per share calculation because their exercise prices
were greater than the average market price of the common stock for the
respective periods. For the second quarter and six months ended December 28,
2001, employee options of 2,559,018, have been excluded from the diluted net
income per share calculation because their exercise prices were greater than the
average market price of the common stock for the respective periods.

4.       SHAREHOLDERS' EQUITY

         In August 2002, the Compensation Committee of the Board of Directors
approved restricted stock grants to our officers totaling 145,000 shares of
restricted common stock under our 2001 Stock Incentive Plan. These restricted
shares, valued at $682,950 based on our fair market value of $4.71 per common
share at the date of grant, will be recognized as compensation expense over the
four year vesting period of the grant, subject to an acceleration provision
based on an increase in our stock price to $7.54 or more for five consecutive
trading days. In October 2002, 20,000 of these shares were cancelled. Excluding
the acceleration provision, the expected financial impact of the stock grant
will be approximately $91,000 annually, net of tax, or $0.01 per share.

5.       SIGNIFICANT CONCENTRATIONS

         Payor reimbursements from Aetna, Inc. represented 25.4% of our revenue
in the second quarter of fiscal 2003 and 24.9% in the six months ended December
27, 2002. This compares to 28.1% in the second quarter of fiscal 2002 and 26.8%
in the six months ended December 28, 2001. No other private payor or single
government agency represented more than 10% of our revenues.

         We use McKesson Corporation, a large national distributor, to supply
pharmaceuticals for both the Retail and the Mail Order segments. This supplier
made up 90.6% of our inventory purchases in the second quarter of fiscal year
2003 and 91.8% in the six months ended December 27, 2002. McKesson made up 91.2%
of our inventory purchases in the second quarter of fiscal year 2002 and 90.2%
in the six months ended December 28,



                                       6

<PAGE>

2001. In the event that we are unable to purchase pharmaceuticals through this
distributor, we believe we would be able to purchase the same inventory through
other national pharmaceutical distributors under similar terms and conditions.

     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 uncollectable amounts.
Aetna, Inc. represents 22.3% and 21.7% of our accounts receivable balance at
December 27, 2002, and June 28, 2002, 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.

6.       BUSINESS SEGMENT INFORMATION

         We have two reportable segments. The Mail Service segment includes the
medications distributed through our mail service facilities. The majority of the
products are biotech injectable and organ transplant drugs. The Retail segment
consists of our StatScript Pharmacy stores which distribute HIV/AIDS drugs,
organ transplant medications, and biotech injectable products.

         Our reportable segments are made up of business lines that offer
related products and services to patients with chronic health conditions but
through separate distribution channels. We evaluate performance based on profit
or loss from operations before interest and income taxes.

The table below presents information by reportable segment.

<TABLE>
<CAPTION>
(IN THOUSANDS)                                           MAIL ORDER                 RETAIL                   TOTAL
-------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                      <C>                     <C>
For the three months ended December 27, 2002
     Revenue                                              $ 45,094                 $ 63,542                $108,636
     Income from operations                                    521                    1,635                   2,156

For the three months ended December 28, 2001
     Revenue                                              $ 45,566                 $ 54,988                $100,554
     Income (loss) from operations                           1,046                     (557)                    489


For the six months ended December 27, 2002
     Revenue                                              $ 86,809                 $121,720                $208,529
     Income from operations                                  1,045                    2,633                   3,678

For the six months ended December 28, 2001
     Revenue                                              $ 85,891                 $108,091                $193,982
     Income (loss) from operations                           1,316                     (892)                    424
</TABLE>

         Income from operations includes special charges relating to the retail
segment totaling $0.8 million in the second quarter ended December 28, 2001, and
$2.2 million for the six months ended December 28, 2001. These charges relate to
transferring the StatScript headquarters from Kansas City to Minneapolis,
expenses associated with the fiscal 2001 financial restatement, and store
closing costs.



                                       7

<PAGE>

         The following table is a reconciliation of reportable segment
information to our consolidated totals.


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED                          SIX MONTHS ENDED
                                        -----------------------------------------    ----------------------------------------
                                          DECEMBER 27,               DECEMBER 28,     DECEMBER 27,             DECEMBER 28,
(IN THOUSANDS)                                2002                      2001             2002                     2001
---------------------------------------------------------------------------------    ----------------------------------------
<S>                                         <C>                        <C>             <C>                       <C>
INCOME FROM OPERATIONS
Total for reportable segments               $ 2,156                    $ 489           $ 3,678                   $ 424
Unallocated amounts:
 -  Interest income (expense)                    81                      (15)              144                      10
 -  Other income                                  -                       64                 -                     109
-----------------------------------------------------------------------------------------------------------------------------

Income before income taxes                  $ 2,237                    $ 538           $ 3,822                   $ 543
=============================================================================================================================
</TABLE>


         The following table presents assets by reportable segment.



<TABLE>
<CAPTION>
(IN THOUSANDS)                         MAIL ORDER                RETAIL                  CORPORATE                 TOTAL
-----------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                     <C>                      <C>                     <C>
As of December 27, 2002
   Segment assets                      $ 25,407                $ 60,775                 $ 18,612                $ 104,794

As of June 28, 2002
   Segment assets                      $ 28,275                $ 61,419                 $  9,801                $  99,495
</TABLE>

         Corporate assets consist primarily of deferred taxes, taxes receivable,
prepaid expenses, certain receivables and deposits, and unallocated corporate
fixed assets.

7.       COMPREHENSIVE INCOME

         Net income equaled comprehensive income for the respective periods.



                                       8


<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 28, 2002.

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


<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED                        SIX MONTHS ENDED
                                       -----------------------------------       ----------------------------------
                                          DECEMBER 27,       DECEMBER 28,          DECEMBER 27,       DECEMBER 28,
FISCAL YEAR                                  2002              2001                    2002              2001
--------------------------------------------------------------------------       ----------------------------------
<S>                                       <C>               <C>                     <C>               <C>
Revenue
    Mail Order                                41.5 %            45.3 %                  41.6 %            44.3 %
    Retail                                    58.5              54.7                    58.4              55.7
-------------------------------------------------------------------------------------------------------------------
    Total revenue                            100.0             100.0                   100.0             100.0
Cost of revenue                               87.4              88.0                    87.7              87.8
-------------------------------------------------------------------------------------------------------------------
Gross profit                                  12.6              12.0                    12.3              12.2
Operating expenses
    Selling and marketing                      0.9               0.9                     0.9               0.9
    General and administrative                 8.8               9.8                     8.9              10.3
    Bad debt expense                           0.9               0.8                     0.7               0.8
-------------------------------------------------------------------------------------------------------------------
Total operating expenses                      10.6              11.5                    10.5              12.0
Income from operations                         2.0               0.5                     1.8               0.2
Interest income, net                           0.1                 -                       -                 -
Other income                                     -                 -                       -               0.1
Income tax expense                            (0.8)             (0.2)                   (0.7)             (0.1)
-------------------------------------------------------------------------------------------------------------------
Net income                                     1.3 %             0.3 %                   1.1 %             0.2 %
===================================================================================================================
</TABLE>


Revenue

         Revenue increased $8.1 million or 8.0% to $108.6 million in the second
quarter of fiscal 2003 from $100.5 million in the second quarter of fiscal 2002.
For the six months ended December 27, 2002, total revenue increased $14.5
million or 7.5% to $208.5 million from $194.0 million for the same period last
year.



                                       9


<PAGE>
         The following table shows revenue by segment.


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                 -----------------------------------------
                                                   DECEMBER 27,             DECEMBER 28,
(IN THOUSANDS)                                        2002                     2001                   % CHANGE
------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                      <C>                          <C>
Mail Order segment                                 $ 45,094                 $ 45,566                    (1.0)%
------------------------------------------------------------------------------------------------------------------

Retail segment
    On-going business                                63,542                   49,892                     27.4%
    Stores closed in FY2002                             -                      5,096                  (100.0)%
------------------------------------------------------------------------------------------------------------------
        Total Retail                                 63,542                   54,988                     15.6%
------------------------------------------------------------------------------------------------------------------
Total Company                                      $108,636                 $100,554                      8.0%
==================================================================================================================


<CAPTION>


                                                            SIX MONTHS ENDED
                                                 -----------------------------------------
                                                   DECEMBER 27,             DECEMBER 28,
                                                      2002                     2001                    % CHANGE
------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                      <C>                          <C>
Mail Order segment                                 $ 86,809                 $ 85,891                     1.1%
------------------------------------------------------------------------------------------------------------------

Retail segment
    On-going business                               121,720                   98,136                     24.0%
    Stores closed in FY2002                             -                      9,955                  (100.0)%
------------------------------------------------------------------------------------------------------------------
        Total Retail                                121,720                  108,091                     12.6%
------------------------------------------------------------------------------------------------------------------
Total Company                                      $208,529                 $193,982                      7.5%
==================================================================================================================
</TABLE>


         The Mail Order segment revenue decreased 1.0% in the second quarter of
fiscal 2003 compared to the same period last year. This is primarily due to
lower Synagis revenue in the quarter and the slow ramp-up of our payor
contracts. For the six months ended December 27, 2002, and December 28, 2001,
the Mail Order segment revenue increased 1.1%. The Mail Order patient base and
order activity in fiscal 2003 is level with fiscal 2002. Payor reimbursements
from Aetna represented 61.1% and 62.0% of our Mail Order revenues in the second
quarters of fiscal years 2003 and 2002, respectively. For the six months ended
December 27, 2002, and December 28, 2001, payor reimbursements from Aetna
represented 59.9% and 60.4% of our Mail Order revenues, respectively. Except for
Aetna, no other private payor accounted for 10% or more of our revenues in the
six months ended December 27, 2002, and December 28, 2001.

         The Retail segment revenue grew 15.6% in the second quarter of fiscal
2003 compared to the same period last year. For the six months ended December
27, 2002, and December 28, 2001, the Retail segment revenue increased 12.6%.
Excluding the revenue from the fourteen StatScript retail locations closed
during fiscal 2002, Retail revenue increased $13.7 million or 27.4% for the
second quarter of fiscal 2003 compared to the same period last year. For the six
months ended December 27, 2002, and December 28, 2001, excluding the revenue
from the fourteen closed StatScript retail locations, the Retail revenue
increased $23.6 million or 24.0%. This increase is due to continued additions of
new patients at existing stores and to the revenue contribution of three
District of Columbia Department of Mental Health pharmacies we began to manage
in November 2002. The same store growth was due to a combination of increased
anti-viral medication volume bolstered by increased post-transplant drug sales.
We plan to continue our expansion of Retail product offerings beyond our
HIV/AIDS focus, to include post-transplant, Hepatitis C, and other biotech
injectable medications. A single private payor represented approximately 5.2%
and 6.4% of our on-going Retail revenues in the second quarters of fiscal years
2003 and 2002, respectively. Year-to-date, the private payor represented 5.7%
and 6.5% of our on-going Retail revenues for the six months ended December 27,
2002, and December 28, 2001, respectively.




                                       10
<PAGE>



Cost of Revenue and Gross Profit

         Total gross profit dollars increased $1.6 million or 13.4% to $13.6
million in the second quarter of fiscal 2003 from $12.0 million in the second
quarter of fiscal 2002. For the six months ended December 27, 2002, total gross
profit dollars increased 8.7% to $25.6 million from $23.6 million for the same
period last year. Second quarter gross margins as a percentage of revenue
increased to 12.6% in fiscal year 2003 from 12.0% in fiscal year 2002. Gross
margins increased to 12.3% for the six months ended December 27, 2002, from
12.2% for the same period last year.

         Mail Order margins as a percentage of revenue increased slightly in the
second quarter and six months ended December 27, 2002 compared to the same
period last year due to improved purchasing programs and a change in product mix
toward higher margin products. Aetna represented 46.1% and 40.9% of our Mail
Order margins for the second quarters of fiscal years 2003 and 2002,
respectively. Year-to-date, Aetna represented 44.2% and 36.0% of our Mail Order
margins for the six months ended December 27, 2002, and December 28, 2001,
respectively.

         Retail margins as a percentage of revenue increased slightly in the
second quarter ended but decreased for the six months ended December 27, 2002,
compared to the same period last year. The slight increase in second quarter is
due to a change in drug mix and the closing of lower margin stores in fiscal
2002. The year-to-date decrease is due to pricing pressures in selected
geographic markets and store locations. A single private payor represented 7.3%
and 9.1% of our on-going Retail margins for the second quarters of fiscal years
2003 and 2002, respectively. Year-to-date, the single private-payor represented
8.0% and 9.7% of our on-going Retail margins for the six months ended December
27, 2002, and December 28, 2001, respectively.

         We anticipate that payors will continue to exert downward pressure on
the prices we will be able to charge as payors continue to seek containment of
healthcare costs, which will negatively affect margins in the future. We are
working to offset this pricing pressure in a number of ways, including sales and
marketing efforts to direct more patients and profitable medications into the
Retail and Mail Order segments; enhanced programs with manufacturers,
wholesalers, and group purchasing organizations to reduce product costs; and a
store-by-store focus on payor and product mix to improve gross margins.

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 segment G&A expenses (division management, customer
service, billing, pharmacy fulfillment). Our business model for operating
expenses is to continue to improve efficiency on greater volume.

Selling and Marketing Expenses

         Our selling and marketing expenses increased $0.1 million or 15.0% to
$1.0 million in the second quarter of fiscal 2003 from $0.9 million in the
second quarter of fiscal 2002. Year-to-date, our selling and marketing expenses
increased $0.2 million or 12.4% to $1.9 million for the six months ended
December 27, 2002, from $1.7 million for the same period last year. This
increase in expenses is primarily due to head count additions and increased
travel and promotion activities. Selling and marketing expenses as a percentage
of revenue remained unchanged at 0.9% in the second quarters and years-to-date
of fiscal 2003 and fiscal 2002.



                                       11


<PAGE>




General and Administrative Expenses

         The following chart shows the quarter to quarter comparisons of general
and administrative expenses, excluding bad debt expense.


<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED
                                           ------------------------------------------
                                             DECEMBER 27,              DECEMBER 28,
(IN THOUSANDS)                                   2002                     2001                    % CHANGE
------------------------------------------------------------------------------------------------------------
<S>                                            <C>                      <C>                           <C>
    On-going business                          $ 9,549                  $ 9,022                       5.8%
    Transition and restatement costs                 -                      839                   (100.0)%
------------------------------------------------------------------------------------------------------------
Total Company                                  $ 9,549                  $ 9,861                     (3.2)%
============================================================================================================



<CAPTION>


                                                      SIX MONTHS ENDED
                                           ------------------------------------------
                                              DECEMBER 27,             DECEMBER 28,
                                                 2002                     2001                     % CHANGE
------------------------------------------------------------------------------------------------------------
<S>                                            <C>                      <C>                           <C>
    On-going business                         $ 18,569                 $ 17,776                       4.5%
    Transition and restatement costs                 -                    2,230                   (100.0)%
------------------------------------------------------------------------------------------------------------
Total Company                                 $ 18,569                 $ 20,006                     (7.2)%
============================================================================================================
</TABLE>



         Our general and administrative expenses decreased $0.3 million or 3.2%
to $9.5 million in the second quarter of fiscal 2003 from $9.8 million in the
second quarter of fiscal 2002. As a percentage of revenue, general and
administrative costs decreased from 9.8% to 8.8%. For the six months ended
December 27, 2002, our general and administrative expenses decreased $1.4
million or 7.2% to $18.6 million from $20.0 million for the same period last
year. As a percentage of revenue, general and administrative costs decreased to
8.9% from 10.3%. The decrease was due to two significant factors. First, the
first and second quarter fiscal 2002 general and administrative expenses
included $2.2 million related to the StatScript retail business for the costs of
transferring the Kansas City retail headquarters to Minneapolis, costs
associated with the fiscal 2001 financial restatement, and store closing costs.
No similar costs were incurred in the six months ended December 27, 2002.
Second, general and administrative expenses of $0.8 million and $1.6 million for
the three and six months ended December 28, 2001, respectively, were directly
related to the operations of fourteen Retail stores that closed in the latter
part of fiscal 2002. The decrease was offset by higher lease and pharmacist
operating costs in existing specialty pharmacy stores in addition to the general
and administrative costs associated with our involvement in retail distribution
of mental health drugs.

Bad Debt Expenses

         Our bad debt expense increased $0.1 million to $0.9 million in the
second quarter of fiscal 2003 from $0.8 million in the second quarter of fiscal
2002. Bad debt expense remained relatively unchanged for the six months ended
December 27, 2002, and December 28, 2001. Bad debt expense represented 0.9% and
0.8% of revenue for the second quarter of fiscal 2003 and fiscal 2002,
respectively, and it represented 0.7% and 0.8% of revenue for the six months
ended December 27, 2002, and December 28, 2001, respectively. We expect our
future bad debt expense to continue at or below 1% of revenue.

Interest Income

         Interest income, net of interest expense, increased slightly to $0.1
million in the second quarter of fiscal 2003 and six months ended December 27,
2002, from $0.0 million for the same periods last year. Included in interest
income for the six months ended December 28, 2001, was $0.2 million of interest
on a note receivable with the



                                       12



<PAGE>



buyer of our HSM business in September 2000. This note was paid in full in
fourth quarter of fiscal 2002 and as a result did not generate interest income
in the first or second quarters of fiscal 2003. We had a $13.1 million balance
on our line of credit at December 28, 2001, incurring interest expense for the
six months ended December 28, 2001, compared to a zero balance on our line of
credit at December 27, 2002, resulting in no year-to-date interest expense in
fiscal 2003.

Income Taxes

         Our income tax rate was 38.0% in the second quarter of fiscal 2003, and
38.2% for the six months ended December 27, 2002, compared to 39.0% in the
second quarter and for the six months ended December 28, 2001. Looking forward,
we expect our combined Federal and State tax rate to remain at 38.0%.

LIQUIDITY AND CAPITAL RESOURCES

         As of December 27, 2002, we had $46.9 million of working capital,
compared to $43.9 million as of June 28, 2002. During the second quarter of
fiscal 2003, we generated $8.7 million of cash from operating activities. The
average days sales outstanding (DSO) of our accounts receivable improved from 44
days at June 28, 2002, to 37 days at December 27, 2002. We generated $5.6
million in cash from our receivable collections due to faster payment from our
larger payors and active collection efforts. We expect our receivables to
continue to perform in the high thirty to low forty DSO range during the
remainder of fiscal 2003. We had an increase in cash of $2.8 million from higher
accounts payable due to inventory purchased to support our revenue growth. The
average days inventory on hand increased from 9 days at June 28, 2002, to 10
days at December 27, 2002. We used $2.6 million to finance our inventory growth.
We expect our inventory to perform at or below 10 days through the remainder of
the year.

         We used approximately $0.5 million of cash in investing activities
during the six-month period ended December 27, 2002, for leasehold improvements
for the StatScript specialty pharmacies and for computer hardware and software.

         We had no long-term debt as of December 27, 2002. Shareholders' equity
as of December 27, 2002, and fiscal year-end 2002 was $81.8 million and $79.4
million, respectively. Net tangible assets, an indicator of borrowing capacity,
as of December 27, 2002, and fiscal year-end 2002 were $51.2 million and $49.2
million, respectively. As of June 28, 2002, we had a secured line of credit
totaling $30 million. We are in compliance with the debt covenants of the line
of credit as of December 27, 2002. Under the terms of the agreement, the debt is
secured by receivables and inventory and bears interest at Prime Rate. The line
of credit expires January, 2003, and has been extended to April 2003. We are
currently in the process of securing a new, long-term line of credit agreement.

         There were no short-term borrowings outstanding under our line of
credit at December 27, 2002. We believe that the 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 or
capital spending projects. We are not currently planning any major capital
projects beyond our normal requirements of $2 to $3 million per year.

         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 28,
2002.

RESTRICTED STOCK GRANTS

         In August 2002, the Compensation Committee of the Board of Directors
approved restricted stock grants to our officers totaling 145,000 shares of
restricted common stock under our 2001 Stock Incentive Plan. These


                                       13


<PAGE>



restricted shares, valued at $682,950 based on our fair market value of $4.71
per common share at the date of grant, will be recognized as compensation
expense over the four year vesting period of the grant, subject to an
acceleration provision based on an increase in our stock price to $7.54 or more
for five consecutive trading days. In October 2002, 20,000 of these shares were
cancelled. Excluding the acceleration provision, the expected financial impact
of the stock grant will be approximately $91,000 annually, net of tax, or $0.01
per share.

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 general and
administrative 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 made 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 are not limited to, the
following: our ability to maintain satisfactory on-going arrangements with drug
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; loss of relationships with payors (including Aetna or
other large contracts); 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 expenses; the
impairment of a significant amount of our goodwill; the effects of and changes
in, trade, monetary and fiscal policies, laws and regulations; other activities
of government agencies; our ability to obtain competitive financing to fund
operations and growth; continuing qualifications to list our securities on a
national stock exchange; 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 information;
computer system, software, or hardware failures or malfunctions; heightened
competition; and loss or retirement of key executives or changes in ownership.
We urge you to read the cautionary statement filed as Exhibit 99.1 to our most
recently filed Form 10-K.

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are exposed to interest rate risk primarily through our borrowing
activities under our line of credit discussed in Item 2 of this report. Our
short-term borrowings bear interest at variable rates based on the prime rate. A
10% increase in interest rates would not have a significant effect on our
interest expense based on current borrowing levels. 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 pursuant to Exchange Act Rule 13a-14 within
90 days of filing this report. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the disclosure controls
and procedures are effective in ensuring that all material information required
to be filed in this quarterly report has been made known to them in a timely
fashion. There have been no significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
the Chief Executive Officer and the Chief Financial Officer completed their
evaluation.


                                       14


<PAGE>



                           PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         There have been no material developments in legal proceedings involving
Chronimed Inc or its subsidiaries since those reported in our Annual Report on
Form 10-K for the fiscal year ended June 28, 2002.

         We are involved in routine litigation incidental to the conduct of our
business. We do not believe that any of the litigation to which we are currently
a party will have a material adverse effect on our business or financial
condition.

ITEM 2.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Two matters were submitted to a vote at the Annual Meeting of
Shareholders held November 20, 2002. The voting results on the two matters
considered at the meeting are stated below.

Matter 1:         Election of Directors

         The director nominees described in the Company's Proxy Statement were
elected as follows:

<TABLE>
<CAPTION>
                                                                                   For             Withhold
                                                                                   ---             --------
<S>                                 <C>                                        <C>                <C>
         Henry F. Blissenbach       Class II, three year term                  10,809,369         1,043,885
         Thomas F. Heaney           Class II, three year term                  11,663,354           189,900
         Charles V. Owens           Class II, three year term                  11,661,282           191,972
</TABLE>

         The terms for directors David R. Hubers and Thomas A. Cusick expire at
the Annual Meeting of shareholders to be held in 2003. Myron Z. Holubiak was
elected on September 20, 2002, to serve as a Class III director. Mr. Holubiak's
term expires at the Annual Meeting of shareholders to be held in 2003.

         The term for director Stuart A. Samuels expires at the Annual Meeting
of shareholders to be held in 2004. John H. Flittie resigned from the Board
effective December 31, 2002.

Matter 2:         Appointment of Independent Auditors

The appointment of Ernst & Young LLP as Independent Auditors for the 2003 fiscal
year was ratified as follows:

<TABLE>
<CAPTION>
                  For               Against            Abstain           Broker Non-vote
                  ---               -------            -------           ---------------
<S>                                 <C>                <C>               <C>
               11,739,175           104,654             9,425                  0
</TABLE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)    Exhibits

         99.1     Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

         99.2     Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


b)    Reports on Form 8-K

         None.





                                       15

<PAGE>



                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                    CHRONIMED INC.

Dated:  February 6, 2003            By       /s/ HENRY F. BLISSENBACH
                                             -----------------------------------
                                             Henry F. Blissenbach
                                             Chief Executive Officer and
                                             Chairman of the Board of Directors

Dated:  February 6, 2003                     /s/ GREGORY H. KEANE
                                             -----------------------------------
                                             Gregory H. Keane
                                             Vice President, Chief Financial
                                             Officer and Treasurer
                                             (Principal Financial and Accounting
                                             Officer)




                                       16

<PAGE>



                                 CERTIFICATIONS



I, Henry F. Blissenbach, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Chronimed Inc;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of material fact or omit to state a material fact
         necessary to make the statement made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)    designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, including its
               consolidated subsidiaries, is made known to us by others within
               those entities, particularly during the period in which this
               quarterly report is being prepared;

         b)    evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing of this quarterly report (the "Evaluation Date"); and

         c)    presented in this quarterly report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         a)    all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

         b)    any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

     Date: February 6, 2003



/s/ HENRY F. BLISSENBACH
-----------------------------------------------------
Henry F. Blissenbach
Chief Executive Officer



                                       17

<PAGE>






I, Gregory H. Keane, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Chronimed Inc;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of material fact or omit to state a material fact
         necessary to make the statement made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)    designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, including its
               consolidated subsidiaries, is made known to us by others within
               those entities, particularly during the period in which this
               quarterly report is being prepared;

         b)    evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing of this quarterly report (the "Evaluation Date"); and

         c)    presented in this quarterly report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         a)    all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

         b)    any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

     Date:  February 6, 2003



/s/ GREGORY H. KEANE
-----------------------------------------------------
Gregory H. Keane
Chief Financial Officer


                                       18