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

                                   ----------

                                    FORM 10-K

                                   ----------

(Mark One)

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

For the fiscal year ended December 31, 2004

                                       OR

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

Commission File Number:  000-50371

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

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

                                150 Motor Parkway
                            Hauppauge, New York 11788
                    (Address of principal executive offices)

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

                    Internet Website: http://www.curative.com

           Securities registered pursuant to section 12(b) of the Act:
                                      None

           Securities registered pursuant to section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                                (Title of Class)

                                   ----------

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

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

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

      The aggregate market value of voting stock held by non-affiliates of the
registrant, as of June 30, 2004, was approximately $95.0 million (based on the
last sale price of such stock as reported by the Nasdaq National Market).

      As of March 4, 2005, there were 12,976,464 shares of the Registrant's
Common Stock, $.01 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      The information required by Part III of this Form 10-K is incorporated by
reference to portions of our definitive proxy statement for our 2005 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 30, 2005.

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<PAGE>

                                     PART I

      In this Annual Report on Form 10-K, unless the context requires otherwise,
"Curative," "Company," "we," "our," and "us" refer collectively to Curative
Health Services, Inc. and its consolidated subsidiaries, including Critical Care
Systems, Inc. ("CCS"). With the acquisition of CCS (see Note C of Notes to
Consolidated Financial Statements included elsewhere in this Annual Report on
Form 10-K), the Company repositioned its Specialty Pharmacy Services business
unit to focus on the specialty infusion market which is a hybrid of the
specialty pharmacy and traditional home infusion industries. In connection with
this repositioning, the Company changed the name of its Specialty Pharmacy
Services business unit to Specialty Infusion business unit and the name of its
Specialty Healthcare Services business unit to Wound Care Management business
unit. For ease of reference, the names of these business units have been
standardized throughout this Annual Report on Form 10-K to Specialty Infusion
business unit and Wound Care Management business unit regardless of whether the
discussion pertains to periods prior to or after the name changes.

FORWARD-LOOKING STATEMENTS

      Certain of the matters discussed in this report may constitute
forward-looking statements. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," the
negative of such terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially.

      Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Important factors that could cause our
actual results, performance and achievements, or industry results to differ
materially from estimates or projections contained in forward-looking statements
include, among other things, the following:

      o     changes in reimbursement policies and other legislative or
            regulatory initiatives aimed at reducing costs associated with the
            Medicaid and Medicare programs;

      o     our ability to open new branch offices and achieve profitability at
            those locations;

      o     our substantial indebtedness;

      o     our ability to generate sufficient cash to service our debt;

      o     relationships with our key community based representatives;

      o     integration risks in connection with our multiple acquisitions
            and/or our consolidation of our corporate headquarters and
            functions;

      o     relationships with a limited number of biopharmaceutical and
            pharmaceutical suppliers;

      o     relationships with our payors;

      o     relationships with our shippers;

      o     the competitive nature of our business; and

      o     changes in the extensive government regulations to which we are
            subject.

      Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements. All written and
oral forward-looking statements made in connection with this report which are
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the "Risk Factors" and other cautionary statements included
elsewhere in this Annual Report on Form 10-K. We are under no duty to update any
of the forward-looking statements after the date of this report to conform such
statements to actual results or to changes in our expectations.


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<PAGE>

ITEM 1.  BUSINESS

OVERVIEW

BUSINESS OF CURATIVE HEALTH SERVICES, INC.

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

      Our Specialty Infusion business unit provides intravenous and injectable
biopharmaceutical and compounded pharmaceutical products and comprehensive
infusion services to patients with chronic and critical disease states. All
patient care is delivered through a national footprint of community-based
branches. Each local branch has an experienced multidisciplinary team of
pharmacists, nurses, reimbursement specialists and patient service
representatives who comprehensively manage all aspects of a patient's infusion
and related support needs. We purchase biopharmaceutical and other
pharmaceutical products from suppliers and contract with insurance companies and
other payors to provide our services, which include coordination of patient
care, 24-hour nursing and pharmacy availability, patient education and
reimbursement billing and collection services. The products distributed and the
injection or infusion therapies offered by Curative are used by patients with
chronic or severe conditions such as hemophilia, respiratory syncytial virus
("RSV"), immune system disorders, chronic or severe infections, nutritionally
compromised and other severe conditions requiring nutritional support, cancer,
rheumatoid arthritis, hepatitis C and multiple sclerosis. Examples of
biopharmaceutical products used by Curative's patients include hemophilia
clotting factor, intravenous immune globulins ("IVIG"), Synagis(R) and
Remicade(R). Examples of pharmaceutical products used by Curative's patients
include compounded pharmaceuticals, such as total parenteral nutrition ("TPN")
products, anti-infectives, chemotherapy agents and pain management products. As
of December 31, 2004, we had 401 payor contracts and provided products or
services in approximately 48 states.

      Our Wound Care Management business unit is a leading provider of wound
care services specializing in chronic wound care management. It manages, on
behalf of hospital clients, a nationwide network of Wound Care Center(R)
programs that offer a comprehensive range of services across a continuum of care
for treatment of chronic wounds. Our Wound Management Program(SM) consists of
diagnostic and therapeutic treatment procedures that are designed to meet each
patient's specific wound care needs on a cost-effective basis. Our treatment
procedures are designed to achieve positive results for wound healing based on
significant experience in the field. We maintain a proprietary database of
patient results that we have collected since 1988 containing over 488,000
patient cases. Our treatment procedures, which are based on extensive patient
data, have allowed us to achieve an overall rate of healing of approximately 88%
at December 31, 2004 for patients completing therapy. As of December 31, 2004,
our Wound Care Center(R) network consisted of 98 outpatient clinics (93
operating and 5 contracted) located on or near campuses of acute care hospitals
in approximately 30 states.

      Our predecessor was incorporated in the State of Minnesota in 1984 under
the name Curatech, Inc. It changed its name to Curative Technologies, Inc. in
March 1990 and to Curative Health Services, Inc. in June 1996. In August 2003,
our predecessor effected a holding company reorganization in which we became the
holding company of our predecessor, which is now the direct parent of all of our
other current subsidiaries, except for Curative Health Services of New York,
Inc. and Critical Care Systems, Inc. which are our direct subsidiaries. We
assumed the name Curative Health Services, Inc. and our predecessor changed its
name to Curative Health Services Co. On April 23, 2004, we acquired all of the
outstanding capital stock of CCS from its existing stockholders for a total
consideration of approximately $150.0 million in cash. CCS is a leading national
provider of specialty infusion pharmaceuticals and related comprehensive
infusion services. Our principal executive offices are currently located at 150
Motor Parkway, Hauppauge, New York 11788, telephone number (631) 232-7000. In
December 2004, we announced that our corporate headquarters and corporate
functions will be consolidated into our office located at 61 Spit Brook Road,
Nashua, New Hampshire 03060, telephone number (603) 888-1500. We anticipate that
the consolidation of our corporate offices will be completed within the first
six to eight months of 2005.


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<PAGE>

SPECIALTY INFUSION BUSINESS UNIT

      Our Specialty Infusion business unit provides high-cost, injectable or
infusible biopharmaceutical and compounded pharmaceutical products to patients
with chronic health conditions for which there is no known cure and to patients
with critical disease states that require specialized expertise in "high touch"
injectable and infusion therapies. High touch therapies require clinical
management, special product handling and specialized nursing administration. Our
Specialty Infusion business unit focuses on and has core strengths in several
therapies, including hemophilia clotting factor, anti-infective therapy, IVIG,
TPN and Synagis(R). These products are used by patients with chronic or severe
conditions such as hemophilia, RSV, immune system disorders, chronic or severe
infections, nutritionally compromised and other severe conditions requiring
nutritional support, cancer, rheumatoid arthritis, hepatitis C and multiple
sclerosis. Our local pharmacies provide biopharmaceutical and compounded
pharmaceutical products which are administered intravenously to patients in
their homes and other alternative locations by a team of clinical professionals.
Additionally, we provide patient education and instruction regarding the
administration of medications, clinical supervision of patient compliance,
specialized delivery services, including refrigerated delivery and expedited
overnight mail or courier service, patient and community advocacy and
reimbursement services for or on behalf of patients and payors. Our Specialty
Infusion business unit also provides intravenous infusion services to patients
in their home by an experienced team of clinical professionals or in our
ambulatory infusion suites located in some of our branch pharmacies.

      Our Specialty Infusion business unit purchases biopharmaceutical and other
pharmaceutical products from suppliers and manufacturers. We contract with
insurance companies and other payors, including managed care organizations,
Medicare and Medicaid programs, to provide clinical management and related
injectable and infusible services. Our Specialty Infusion revenues are derived
primarily from fees paid by the payors under these contracts for the
distribution of these biopharmaceutical and other pharmaceutical products and
for the injection or infusion services provided. Additional revenues are
acquired through biopharmaceutical and pharmaceutical product distribution and
support services under contracts with retail pharmacies for which we receive
related service fees.

      Financial information with respect to the Specialty Infusion business
unit, including information concerning revenues, operating profit and total
assets may be found under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note O of Notes to Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K.

SPECIALTY INFUSION - DISEASE MARKETS AND PRODUCTS

      As a specialty infusion company, we focus on high-margin infused therapies
that require complex clinical management. The specialty infusion industry, which
is a hybrid of the specialty pharmacy and traditional home infusion industries,
has evolved as the approval and demand of new biopharmaceutical and
pharmaceutical products has expanded. These specialty products are expensive,
require temperature-sensitive storage and delivery, patient education, training
and monitoring of their proper use and require the patient to inject or infuse
the product. Intravenously administered therapies tend to be more complex and
potent than oral or injectable drugs. Our core services require patient
training, specialized equipment and clinical monitoring by a team of
pharmacists, nurses, dietitians and support staff. Our specialty infusion
offering differentiates itself by specializing in complex therapies delivered by
a local team of clinicians and support staff who provide a continuum of care
focused on patient satisfaction, cost savings and positive clinical outcomes.

      For the year ended December 31, 2004, the Specialty Infusion business unit
recorded the majority of its revenues from four disease states: hemophilia
(approximately 44%) for which we provide both factor VIII and factor IX
blood-clotting products, RSV (approximately 17%) for which we offer Synagis(R),
immune system disorders (approximately 11%) which are typically treated with
IVIG and infectious diseases (approximately 10%) for which we provide
antibiotics. An overview of the disease states we service and products we offer
follows. Additional information with respect to the Specialty Infusion business
unit's revenues from disease states may be found under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Annual Report on Form 10-K.


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<PAGE>

      HEMOPHILIA. Hemophilia is a genetically inherited and currently incurable
bleeding disorder resulting from a deficiency in the bloodstream of a plasma
protein, called factor, which helps the blood to clot. This blood-clotting
factor is essential in helping to cease the bleeding after a cut or injury and
preventing spontaneous bleeding. There are two types of hemophilia: hemophilia A
and hemophilia B. Hemophilia A, which represents approximately 80% of the
hemophiliac population, is the result of a deficiency of factor VIII, while
hemophilia B is the result of a deficiency of factor IX. The greater the
deficiency of these plasma proteins, the greater the severity of the disease,
measured as mild, moderate or severe.

      It is estimated that there are approximately 18,000 persons, predominantly
male, in the United States that suffer from hemophilia and that about seven out
of ten suffer from a severe form of the disease. Treatment of hemophilia
involves intravenously infusing the missing clotting factor in order to replace
deficient proteins. The two types of clotting factor available are
non-recombinant, made from human blood plasma, and recombinant which is
laboratory produced. Patients with severe hemophilia may require multiple
injections of clotting factor per week. Patients with less severe forms of
hemophilia may only require clotting factor treatment after bleeding starts or
before participating in an activity having a high risk of injury. Our Specialty
Infusion business unit provides hemophilia patients with both factor VIII and
factor IX blood-clotting products under prescription from a physician.

      INFECTIOUS DISEASES. Anti-infective therapy involves the infusion of
antibiotic, antiviral and antifungal medications for the treatment of a variety
of infections, such as osteomyelitis (bone infections), bacterial endocarditis
(infection of the heart valves), wound infections, infections associated with
HIV/AIDS, cancer and post-kidney transplant treatment protocols. Anti-infective
drugs are more effective when infused directly into the patient's blood as
compared to oral ingestion. Once discharged from a hospital, a vast majority of
patients utilizing the anti-infective therapy require daily treatment for
approximately three to four weeks. Our Specialty Infusion business unit, in
addition to offering a full range of pharmaceutical services, also offers nurse
visitations to the patient's home to educate, train and monitor the patient.

      IMMUNE SYSTEM DISORDERS. The immune system acts as a natural defense
system that recognizes foreign substances, such as bacteria and viruses, as
being different from the body's own tissues. A healthy immune system allows the
body to fight off infections while an unhealthy immune system, or immune system
disorder, reduces the body's ability to fight off infections. Some immune
disorders occur when the body treats its own tissues and cells as if they were
foreign, prompting the immune system to produce antibodies that destroy those
tissues and cells. Most of these disorders are progressive in nature and,
therefore, cannot be cured. Treatment of immune disorders typically consists of
intravenous infusion of immune globulins which are concentrated levels of
antibodies derived from pooled human plasma designed to strengthen the immune
system. Clinical oversight is generally necessary for injecting immune globulins
due to the high toxicity level, length of treatment and the potential for a
negative reaction to the infusion. Our Specialty Infusion business unit operates
ambulatory infusion suites in some of its branch pharmacies and offers nurse
visitation to the home to administer infusions to the patient there.

      NUTRITIONAL SUPPORT. Certain diseases, such as inflammatory bowel disease,
short bowel syndrome, pancreatitis or other gastrointestinal illnesses that
prohibit oral digestion, require the patient to obtain life-sustaining nutrients
through infusion. TPN is a solution that contains one or more of the following:
amino acids, dextrose, fatty acids, electrolytes, trace elements, minerals and
vitamins. Accordingly, TPN is mixed for each patient specifically and requires a
high degree of pharmacy manipulation. TPN therapy is also utilized to augment
the nutritional status of patients with cancer, hyperemesis and eating
disorders. Certain patients require TPN for life, while others may only need
short-term therapy. Our Specialty Infusion business unit offers nutritional
assessments, clinical pharmacy consultants, nurse visitations to the patient's
home, patient education, blood draws and patient monitoring.

      RESPIRATORY SYNCYTIAL VIRUS. RSV is a highly contagious virus that most
commonly infects infants from birth to age two. The virus begins with
indications similar to the common cold that progress into more severe symptoms,
affecting the lower respiratory system where bronchiolitis and pneumonia can
develop. RSV is the most commonly diagnosed respiratory virus in infants and
young children. It is estimated that over 100,000 children nationwide are
hospitalized each year with the virus. Synagis(R), a drug manufactured by
MedImmune, Inc., is the most widely used treatment for the prevention of serious
lower respiratory tract diseases caused by RSV. The treatment is administered
through intramuscular (i.e., into the muscle) injections, at least once monthly,
during the virus' peak season (from September through April). We believe that
within the past few years, a substantially reduced number of hospitalizations


                                        5
<PAGE>

associated with the virus, as well as a decrease in the mortality rate for
infants, is due to improved treatments, including Synagis(R). Our Specialty
Infusion business unit offers Synagis(R) to patients through injections in a
location most convenient for the patient, either at a physician's office, the
patient's home or at local clinics.

      CANCER. Chemotherapy, the use of drugs to treat cancer, works by seeking
out and destroying fast-growing cells. However, chemotherapy not only attacks
cancer cells, but also healthy cells which are needed for strength. One of the
common side effects of chemotherapy, and the most prevalent, is anemia which
occurs when the body does not have enough red blood cells. Red blood cells carry
hemoglobin, which transports oxygen to cells and organs. Once depleted of red
blood cells, the body is then unable to adequately transport oxygen and fatigue
results, stealing the physical and emotional strength needed to fight cancer.
Anemia affects up to two out of three chemotherapy patients. Another side effect
of chemotherapy is a severe drop in infection-fighting white blood cells, a
condition called neutropenia. About half of cancer chemotherapy patients develop
neutropenia, placing them at risk for life-threatening infections which may
require hospitalization and can delay chemotherapy treatment and reduce its
effectiveness. Our Specialty Infusion business unit provides chemotherapeutic
regimens for cancer treatments, anti-infective therapy for infections associated
with cancer treatments, TPN for nutritionally compromised cancer patients and
other adjunctive chemotherapy treatments, such as Epogen(R), Procrit(R) and
Neupogen(R) to treat red and white blood cell deficiencies.

      RHEUMATOID ARTHRITIS. Rheumatoid arthritis is a chronic inflammatory
disease of the synovium, or lining of the joint, that results in pain,
stiffness, swelling, deformity and loss of function in the joints as cartilage
and bone is destroyed. This inflammation is most common in the hands and the
feet. It is estimated that approximately 2.1 million people in the United
States, or 1% of the population, have rheumatoid arthritis. The treatment of
rheumatoid arthritis involves specialty biopharmaceuticals and pharmaceuticals.
Our Specialty Infusion business unit provides specialty anti-inflammatory
biopharmaceuticals to treat the symptoms of rheumatoid arthritis, such as
Enbrel(R), generally taken several times weekly, and Remicade(R), an infused
therapy generally taken bi-monthly and administered in a physician's office, the
patient's home or in one of our local ambulatory infusion suites.

      HEPATITIS C. Hepatitis C is a blood-borne infection that can attack and
damage the liver. The hepatitis C virus is spread predominately through contact
with infected blood and can lead to cirrhosis, liver cancer or liver failure.
Hepatitis C is characterized by a consistent elevation of liver enzymes and is
the principal reason for liver transplant. The virus affects an estimated four
million persons in the United States; however, with proper treatment, about 50%
of all patients can now be cured. Our Specialty Infusion business unit provides
hepatitis C treatments such as PEG-Intron(R), Rebetron(R) and Rebetol(R).

      MULTIPLE SCLEROSIS. Multiple sclerosis is a chronic disease of the central
nervous system for which neither a cause nor a cure is currently known. The
central nervous system is made up of nerves that act as the body's messenger
system. Nerves are protected by substances called myelin, which insulate the
nerves and aid in the transmission of nerve impulses, or messages between the
brain and other parts of the body. In patients with multiple sclerosis, the
body's immune cells enter the brain and spinal cord and attack the protective
myelin covering. Once the myelin is gone and replaced with scar tissue, a
process called demyelination, nerve impulses sent throughout the central nervous
system can become disrupted. The brain then becomes unable to properly send and
receive messages. The type and severity of multiple sclerosis varies by the
location and the extent of demyelination. It is estimated that multiple
sclerosis affects approximately 2.5 million people worldwide, including 400,000
Americans. In recent years, the U.S. Food and Drug Administration ("FDA") has
approved several biopharmaceutical and pharmaceutical products that have been
shown to help slow the progression of multiple sclerosis, including Avonex(R),
Betaseron(R), Copaxone(R) and Rebif(R).

SPECIALTY INFUSION - PRODUCT DISTRIBUTION

      We distribute our products by specialized delivery services, including
refrigerated delivery and expedited overnight mail or courier. Our products are
shipped from our various wholesale or retail pharmacies and include the drugs,
educational materials and any supplies necessary for the patient to administer
the medication. In addition, the Specialty Infusion business unit provides
intravenous infusion services to patients in their home by an experienced team
of clinical professionals or in our ambulatory infusion suites located in some
of our branch pharmacies.


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<PAGE>

SPECIALTY INFUSION - PRODUCT SUPPLIERS

      We purchase products directly from manufacturers and wholesale
distributors. The majority of our hemophilia-related products is purchased from
five suppliers with whom we have supply arrangements, our Synagis(R) from its
only manufacturer, MedImmune, Inc., and our IVIG and other products from
multiple suppliers.

      Some of the products that we distribute, such as factor VIII
blood-clotting and IVIG products, have experienced shortages in the past due to
the inability of suppliers to increase production to meet rising global demand.
Although such shortages have ended, demand continues to grow. We are currently
experiencing allocation restrictions of IVIG products. We currently have a
contract to purchase a substantial amount of various pharmaceuticals that will
expire in August 2005 and another contract to purchase a substantial amount of
factor and medical supplies that will expire in December 2006. While we cannot
be certain, we believe that under our arrangements with suppliers, we will have
adequate supply of the products we offer, other than IVIG, to serve our existing
patients and to add new patients in 2005.

SPECIALTY INFUSION - STRATEGY

      The strategy of our Specialty Infusion business unit is to achieve same
store sales growth by continuing to focus on our core therapies (hemophilia
clotting factor, Synagis(R), IVIG, anti-infective therapy and TPN), with which
we have significant clinical experience, delivery capabilities and strong payor
relationships. As of December 31, 2004, we operated 46 locally-based full
service pharmacies where we endeavor to deliver positive clinical outcomes
through locally-based clinical teams comprised of Company-employed pharmacists,
nurses, dietitians and other experts. We continue to leverage and build upon our
approximately 400 local, regional and national payor relationships. Utilizing
our local presence, we plan to further our market share by expanding
relationships and cultivating new opportunities with physician and hospital
referral sources. We will expand into new disease states that require
high-touch, local distribution, similar to our core therapies. We will use scale
and clinical expertise to compete against both local and national competitors in
the fragmented specialty pharmacy and home infusion markets. We also expect to
grow by opening new locations that leverage our corporate infrastructure and
state-level regulatory expertise and contacts. Additionally, we may selectively
acquire complementary businesses that we believe will expand our service and
product offerings and our customer base, deepen our penetration in existing
markets and increase our operating leverage.

      In support of this strategy, on April 23, 2004, we acquired CCS, a
specialty infusion company with 29 branch locations in 18 states. See Note C of
Notes to Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-K.

SPECIALTY INFUSION - MARKETING

      We have assembled an industry-experienced sales force to execute our
growth strategy. As of December 31, 2004, we had more than 100 Specialty
Infusion sales and service representatives, 33 of whom are exclusively dedicated
to servicing the hemophilia community Our dedicated hemophilia sales and service
representatives are responsible for distributing patient education materials,
providing product inventory support, ensuring patient compliance according to
their diagnoses and increasing the patient base they serve. The majority of our
Specialty Infusion sales force is focused on selling our complete portfolio of
core therapies directly to physicians, case managers and other patient
influencers. They are responsible for enhancing existing relationships while
developing new referral sources. Through our dedicated contracting department,
we continue to expand upon existing managed care relationships while adding new
contracts.


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<PAGE>

SPECIALTY INFUSION - PAYORS

      As of December 31, 2004, the Specialty Infusion business unit had 401
payor contracts. We typically contract with large health maintenance
organizations, major health insurers, government agencies and physician
practices. The following provides approximate percentages of our Specialty
Infusion business unit's patient revenues for the years ended December 31:

                                      2004   2003   2002
                                      ----   ----   ----
                     Private payors   53.4%  42.5%  37.1%
                     Medicaid         39.5%  51.0%  54.1%
                     Medicare          7.1%   6.5%   8.8%

SPECIALTY INFUSION - REIMBURSEMENT

      The profitability of our Specialty Infusion operations depends, in large
part, on the reimbursement we receive from third-party payors, including managed
care organizations and Medicare and Medicaid programs. In recent years,
competition for patients, efforts by traditional third-party payors to contain
or reduce health care costs and the increasing influence of managed care payors,
such as health maintenance organizations, have resulted in reduced rates of
reimbursement for health care providers and suppliers. Changes in reimbursement
policies of private and governmental third-party payors, including policies
relating to Medicare, Medicaid and other federally funded programs, could reduce
the amounts reimbursed to us for our products and services.

      Our Specialty Infusion business unit offers a local reimbursement model
for all of our products, supporting both the patient and payor. Prior to
shipping the product or administering the product in the patient's home, our
local reimbursement staff obtains authorization from the patient's insurer,
easing the process for the patients and avoiding billing disputes with payors
which might otherwise occur.

      Many government payors, including Medicare (in 2004) and many state
Medicaid programs, as well as a number of private payors, pay us directly or
indirectly based upon a drug's average wholesale price ("AWP"). In fact, most of
our Specialty Infusion business unit revenues result from reimbursement
methodologies based on the AWP of our products. The AWP for most drugs is
compiled and published by third-party price reporting services, such as First
DataBank, Inc., from information provided by manufacturers and/or wholesalers.
Various federal and state government agencies have been investigating whether
the published AWP of many drugs, including some that we distribute and sell, is
an appropriate or accurate measure of the market price of the drugs. There are
also several lawsuits pending against various drug manufacturers in connection
with the appropriateness of the manufacturers' AWP for a particular drug(s).
These government investigations and lawsuits involve allegations that
manufacturers reported artificially inflated AWPs of various drugs to
third-party price reporting services, which, in turn, reported these prices to
its subscribers, including many state Medicaid agencies who then included these
AWPs in the state's reimbursement policies.

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


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<PAGE>

      Effective January 1, 2005, the Medicare reimbursement methodology for many
of the products we distribute (including blood-clotting factor products) changed
from an AWP-based system to one based upon Average Selling Price ("ASP") which
we anticipate will lower Medicare reimbursement. The ASP drug methodology does
not apply to drugs dispensed to and infused in the home. It is possible that
states and/or commercial payors may adopt the new Medicare reimbursement
methodology. In addition, MMA changes the relationship between the Medicare and
Medicaid programs such that we may receive less reimbursement in the future for
individuals who receive benefits under both of these programs.

      In addition to these federal initiatives, many states are also making
modifications to the manner with which they reimburse providers of pharmacy
services. For example, in California, where approximately 12% of our total
revenues for the year ended December 31, 2004 were derived from the California
state funded health programs, the state legislature in 2003 passed legislation
that modified the reimbursement methodology for blood-clotting factor products
under various California state funded health programs. Under the new
reimbursement methodology, blood-clotting factor products are reimbursed based
upon ASP, as provided by the manufacturers, plus 20%. More recently, California
Governor Schwarzenegger proposed additional cuts to California's Medicaid
program ("Medi-Cal") that may lower reimbursement for our products for which we
are directly reimbursed and for which our customers are reimbursed in
California, as well as limit enrollment in the Medi-Cal program.

      In May 2004, the California Department of Health Services ("DHS") issued a
provider bulletin notifying providers that the ASP plus 20% methodology would be
implemented for services provided on and after June 1, 2004. On May 27, 2004, a
lawsuit was filed in the United States District Court for the Eastern District
of California on behalf of two individual Medi-Cal recipients with hemophilia
against the State of California relating to the implementation of the new ASP
reimbursement methodology, alleging, among other things, that a severe reduction
in reimbursement rates would threaten the ability of Medi-Cal recipients with
hemophilia to have adequate access to blood-clotting factor. In addition, on
June 10, 2004, we filed a lawsuit in the Superior Court for the County of
Sacramento relating to the failure of DHS to disclose payment rates and the
detailed methodology utilized to determine the rates, and its failure to comply
with certain applicable federal procedural requirements relating to the proposed
reimbursement rates. In December, 2004, we and certain named individual
plaintiffs entered into a Settlement Agreement which resolved both of these
cases. In return for dismissal of both lawsuits, DHS agreed to process, on a
priority basis, all pending and future Medi-Cal, California Children's Services
and Genetically Handicapped Persons Program claims submitted by us. In addition,
DHS agreed to expedite its efforts to implement electronic billing and payment
for blood-clotting factor claims.

SPECIALTY INFUSION - COMPETITION

      We face a high degree of competition from companies in the specialty
pharmacy and traditional home infusion industry. Our competitors include
traditional home infusion providers, other specialty pharmacy companies,
prescription benefit managers, retail chain pharmacies, mail order pharmacies,
physician office infusion suites and hospital based pharmacies. We compete in
areas such as quality of service, pricing, reliability and availability of
pharmacists and patient service representatives. To remain competitive, our
Specialty Infusion business unit must maintain strong relationships with
physicians, hospitals, payors, patients and manufacturers.

WOUND CARE MANAGEMENT BUSINESS UNIT

      Our Wound Care Management business unit is a leading provider of wound
care management services that manages, on behalf of hospital clients, a
nationwide network of Wound Care Center(R) programs that offer a comprehensive
range of services for treatment of chronic wounds.

      Financial information with respect to the Wound Care Management business
unit, including information concerning revenues, operating profit and total
assets may be found under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note O of Notes Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K.


                                        9
<PAGE>

WOUND CARE MANAGEMENT - MARKET

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

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

WOUND CARE MANAGEMENT - THE CURATIVE APPROACH TO CHRONIC WOUND CARE

      Our Wound Care Management Program(SM) is a comprehensive array of
diagnostic and therapeutic treatment regimens with all the components of care
necessary to treat chronic wounds. The Wound Care Management Program(SM) is
administered primarily through a nationwide network of Wound Care Center(R)
programs. We believe the Wound Care Management Program(SM) provides a better
approach to chronic wound management than the traditional approach, which we
believe lacks a comprehensive solution, effective technology, positive outcomes
and cost efficiency. Each Wound Care Management Program(SM) offers its patients
an inter-disciplinary team of health care professionals, typically including
general and specialty surgeons and a medical director, nurse, case manager,
nutritionist and endocrinologist.

      In most cases, patients arriving at a Wound Care Center(R) program have
been treated with traditional wound healing techniques but continue to suffer
from chronic wounds. In some cases, patients come to a Wound Care Center(R)
program after they have received an opinion from their primary physician that
limb amputation may be required. After being treated under our Wound Care
Management Program(SM), 120 out of 139 patients who were recommended for
amputation, or approximately 86%, did not require a limb amputation as of
December 31, 2004. Wound Care Management believes that this demonstrates the
impact that the Wound Care Management business unit's Wound Management
Program(SM) has on reducing health care costs and improving the quality of life.
Upon the commencement of treatment under our Wound Management Program(SM),
medical personnel conduct a systematic diagnostic assessment of the patient.
Specialized treatment plans are then established for the patient, based on the
underlying cause of the wound and the unique status of the patient. After the
assessment phase, the course of treatment in the Wound Management Program(SM)
may include revascularization, infection control, wound debridement, skin
grafting, nutrition, protection devices, patient education, referrals and
effective management of care through patient/provider communications.

      To measure the effectiveness of our Wound Management Program(SM), we have
developed a functional assessment scoring system to measure the healing of a
wound. Under this system, a chronic wound is assessed when (i) it is less than
100% epithelialized (i.e., the wound is covered by a membranous cellular tissue
that covers and protects a wound as it heals) and requires a dressing, (ii) it
is completely covered by epithelium (i.e., a membranous cellular tissue that
covers and protects a wound as it heals) but still requires intervention and
dressing, (iii) maturing skin is present, but the wound requires a protective
dressing and (iv) mature skin requires preventive care only. We have a
proprietary database of patient outcomes that has been collected since 1988
containing over 488,000 patient records as of December 31, 2004 which indicate
an overall healing rate of approximately 88% for patients completing therapy.


                                       10
<PAGE>

WOUND CARE MANAGEMENT - STRATEGY

      The objective of our Wound Care Management business unit is to enhance its
position as a leading disease management company in the chronic wound care
market. Its growth strategy is to continue to improve and refine the Wound
Management Program(SM) while broadening its delivery models to cover the entire
continuum of care for wound management. Key elements of this strategy include:

      CONTINUE TO DEVELOP WOUND CARE MANAGEMENT BUSINESS UNIT'S NATIONWIDE
NETWORK OF OUTPATIENT WOUND CARE CENTER(R) PROGRAMS. We intend to continue
pursuing additional outpatient Wound Care Center(R) programs on or near the
campuses of acute care hospitals. Since December 2002, the total number of net
programs contracted and operating increased from 91 to 98 as of the end of 2004.
Contract terminations have been effected for such reasons as reduced
reimbursement, financial restructuring, bankruptcies or hospital closings.
Additionally, we believe that hospitals choose to terminate or not renew
contracts based upon decisions to terminate our programs or to operate them
internally. As of December 31, 2004, Wound Care Management managed 93 operating
outpatient Wound Care Center(R) programs and believes there is opportunity for
growth. We believe hospitals are continually seeking low-cost, high-quality
solutions to wound management, such as those provided by Wound Care Management.
In addition, we believe the Wound Management Program(SM) enables its hospital
clients to differentiate themselves from their competitors through better wound
care treatment outcomes, reduced costs due to decreased inpatient lengths of
stay and increased revenue through the introduction of new patients. As a
result, we believe there is a significant opportunity for Wound Care Management
to continue to expand its Wound Care Center(R) programs through affiliation with
acute care hospitals.

      In 2002, we signed a multi-year contract with VHA, Inc. ("VHA"), a
cooperative representing more than 2,200 leading community-owned health care
organizations and their affiliated physicians. Under this agreement, we offer
wound management services to VHA members which comprise 25% of the
community-owned hospitals in the United States, including many of the nation's
largest and most respected institutions.

      DEVELOP NEW SERVICE MODELS TO ENHANCE MARKET PENETRATION. We are actively
developing new service models in new health care delivery settings, such as
inpatient programs for acute care hospitals and long-term care facilities (e.g.,
nursing homes and long-term acute care hospitals). These new service models are
being operated as a service to existing hospital customers and serve to expand
the continuum of wound care services. Pressure sores, the most common form of a
chronic wound, usually occur among nursing home, acute care and home care
patients due to the sedentary lifestyle associated with those care settings. As
we further develop our inpatient service models, we believe we will become more
capable of penetrating the large pressure sore market, as acquired wounds are
receiving increased scrutiny in post-acute and acute care quality requirements.

      PROVIDE A COMPREHENSIVE MANAGED CARE PRODUCT. We believe that wound care
represents a significant cost to managed care organizations and that Wound Care
Management has the ability to provide a variety of services to managed care
payors. These services may include, among others, case management, accreditation
services and other tools necessary to effectively manage wound care patients.
With its Wound Management Program(SM) and increasing presence in multiple health
care delivery settings, Wound Care Management can offer managed care payors a
relationship which we believe will provide better patient healing outcomes,
patient satisfaction and more cost-effective services for subscribers.

      ENHANCE OUR WOUND MANAGEMENT Program(SM). Our Wound Care Management
business unit currently offers a unique Wound Management Program(SM) which
includes assessment, vascular studies, revascularization, infection control,
wound debridement, growth factor therapy, skin grafting, nutrition, protection
devices, patient education, referrals and effective management of care through
patient/provider communications. Wound Care Management is continually exploring
and seeking advances in wound care management services and products which could
enhance its current Wound Management Program(SM). We are actively pursuing such
advances through the continuous development of our current services and
co-marketing arrangements with other providers of wound care products and
services. Wound Care Management's current service offerings include furnishing
hyperbaric oxygen services to interested hospital partners, forming alliances
with companies marketing new wound care technologies and developing clinical
research capabilities for the Wound Care Center(R) network.


                                       11
<PAGE>

WOUND CARE MANAGEMENT - WOUND CARE OPERATIONS

      Wound Care Management's wound care operations offer health care providers
the opportunity to create specialty wound care departments designed to meet the
needs of chronic wound patients. The initial focus of Wound Care Management's
wound care operations has been hospital outpatient Wound Care Center(R)
programs. Wound Care Management is currently expanding its programmatic approach
to wound care to inpatient settings, such as acute care hospitals and long-term
care facilities. In these settings, Wound Care Management offers an
inter-disciplinary approach to the treatment of chronic wounds in the inpatient
settings to complement existing hospital Wound Care Center(R) programs.

      HOSPITAL OUTPATIENT WOUND CARE CENTER(R) PROGRAMS. Outpatient Wound Care
Center(R) programs, located on or near the campuses of acute care hospitals,
represent Wound Care Management's core business. A typical hospital outpatient
Wound Care Center(R) consists of approximately 2,500 square feet of space,
comprised of four to eight exam rooms, a nursing station and physician and
administrative offices. These Wound Care Center(R) programs are designed to
deliver all necessary outpatient services for the treatment of chronic wounds,
with the hospital providing any inpatient care such as revascularization or
surgical debridement.

      Wound Care Management currently offers its hospital clients two outpatient
Wound Care Center(R) models: a management model and an "under arrangement"
model, with a primary focus on developing management models. The differences
between these two models relate primarily to the employment of the clinical
staff at the Wound Care Center(R) program. In the management model, generally
our only employee at the Wound Care Center(R) program is the center's Program
Director, and Wound Care Management generally receives a fixed monthly
management fee or a combination of a fixed monthly management fee and a variable
case management fee. In the "under arrangement" model, we employ most or all of
the clinical and administrative staff (other than physicians) at the Wound Care
Center(R) program, and structure our fees similarly to those of the management
model with the exception of inclusion of fees to cover additional employee
costs. In all other material respects, the two models are identical. In both
models, physicians remain independent contractors, and Wound Care Management
recruits and trains the physicians and staff associated with the Wound Care
Center(R) program. The physicians providing services at a Wound Care Center(R)
program are recruited by Wound Care Management, primarily from among the doctors
who work at the hospital and practice in related areas. In addition, in both
models, Wound Care Management's field support departments provide the staff at
each Wound Care Center(R) program with clinical oversight, quality assurance,
reimbursement consulting, community education and marketing, a proprietary
database, training and general administrative support services. The terms of
Wound Care Management's contract with each hospital are negotiated individually.
Generally, in addition to the management fees described above, the contracts
provide for development fees charged to the hospital. In both models, the
hospital and the physician bill the patient for the services provided and are
responsible for seeking reimbursement from insurers or other third-party payors.

      The first Wound Care Center(R) program opened in 1988, and, as of December
31, 2004, there were 98 hospital outpatient Wound Care Center(R) programs in
operation or under contract in approximately 30 states. In addition, in 2004,
Wound Care Management entered into contracts with 13 hospitals to open
additional Wound Care Center(R) programs. Wound Care Management's hospital
client base ranges from medium-sized community-based hospitals to large
hospitals affiliated with national chains and not-for-profit hospitals in local
markets. Wound Care Management selects hospital clients based on a number of
criteria. A suitable hospital client typically can accommodate at least 100
inpatient beds, has a primary and secondary market population greater than
100,000 people, offers services which complement the Wound Management
Program(SM), including physician specialists in the areas of general, plastic
and vascular surgery, endocrinology and diabetes, is financially stable and has
a solid reputation in the community it serves. Of Wound Care Management's 98
hospital outpatient Wound Care Center(R) programs, 94 are management model
centers and 4 are "under arrangement" model centers.

      In expanding its product offering, Wound Care Management furnishes
hyperbaric oxygen therapy ("HBO") services to interested hospital partners
operating outpatient Wound Care Center(R) programs. These services generally
include furnishing HBO chambers and managing the program. As of December 31,
2004, Wound Care Management managed 21 HBO programs complementing existing
hospital outpatient Wound Care Center(R) programs of which 13 were operating.


                                       12
<PAGE>

      INPATIENT WOUND CARE PROGRAMS. Wound Care Management is addressing the
needs of the inpatient wound care market through the development of new
inpatient programs. These patients often have pressure sores resulting from
inactivity. While not typically as severe as diabetic or venous stasis ulcers,
pressure sores represent the largest segment of the chronic wound market. Wound
Care Management has developed an inpatient program for its affiliated acute care
hospitals that is directed at assisting those hospitals in identifying and
managing inpatients in the acute care hospital that are at risk of acquired
wounds or who already suffer from chronic wounds. The program is primarily
directed at reducing the length of stay of those patients in the acute care
setting and related wound care costs. Wound Care Management has also developed a
Wound Outreach Program, whereby a nurse practitioner or physician assistant from
an affiliated outpatient Wound Care Center(R) program provides wound-related
services to long-term care facilities in surrounding areas. As of December 31,
2004, Wound Care Management had contracts to manage 31 such inpatient programs
at existing acute-care hospital customers of which 20 were operating. Further,
as of December 31, 2004, Wound Care Management had contracts to manage 25
programs that provide outreach wound care services to local long-term care
facilities. There can be no assurance that these programs will be successful in
the future.

      CONTRACTS TERMS AND RENEWALS. Substantially all of the revenues of Wound
Care Management are derived from management contracts with acute care hospitals.
The contracts generally have initial terms of three to five years and many have
automatic renewal terms unless specifically terminated. The contracts often
provide for early termination either by the client hospital, if specified
performance criteria are not satisfied, or by Wound Care Management under
various other circumstances. Historically, some contracts have expired without
renewal, and others have been terminated by Wound Care Management or the client
hospital for various reasons prior to their scheduled expiration. During 2004,
one hospital contract expired without renewal, and an additional five hospital
contracts were terminated by the client hospital prior to their scheduled
expiration. Generally, Wound Care Management elects to negotiate a mutual
termination of a management contract if a client hospital desires to terminate
the contract prior to its stated term. Wound Care Management believes that there
were a number of reasons why hospitals chose to terminate their contract,
including hospital financial difficulties and the Medicare reimbursement changes
which reduced hospital revenues. The continued success of Wound Care Management
is subject to its ability to renew or extend existing management contracts and
obtain new management contracts. We believe that hospitals choose to terminate
or not to renew contracts based on decisions to terminate their wound care
programs or to convert their programs from independently-managed programs to
programs operated internally. There can be no assurance that any hospital will
continue to do business with Wound Care Management following the expiration of
its management contract or earlier, if such management contract is terminable
prior to expiration. In addition, any changes in the Medicare program or
third-party reimbursement levels, which generally have the effect of limiting or
reducing reimbursement levels for health services provided by programs managed
by Wound Care Management, could result in the early termination of existing
management contracts and would adversely affect the ability of Wound Care
Management to renew or extend existing management contracts and to obtain new
management contracts. The termination or non-renewal of a material number of
management contracts could harm our business.

      MANAGED CARE OPERATIONS. Wound Care Management's managed care strategy is
currently focused on marketing Wound Care Center(R) program services to local
managed care organizations in concert with its hospital clients' efforts to
promote all hospital-based services to such managed care organizations. Wound
Care Management seeks to establish relationships with managed care organizations
and other disease management companies to provide wound care services. Wound
Care Management's contractual arrangements with managed care organizations and
other disease management companies, which will vary based upon the needs of the
particular customer, are expected to provide for Wound Care Management to
receive compensation on a fee-for-service, fixed-case rate or at-risk capitation
basis. While Wound Care Management anticipates that most of its managed care
contracts will be fee-for-service or case-rate contracts, it expects that
at-risk capitation could become a contracting method.

      Wound Care Management has developed tools to help managed care
organizations and other disease management companies assess their current wound
care experiences (both clinical results and costs) against our Wound Management
Program(SM) in order to demonstrate that a wound care carve-out product can
provide added value. To date, Wound Care Management has been unsuccessful in
establishing managed care or disease management relationships.


                                       13
<PAGE>

      Wound Care Management's managed care operations have been limited.
Although Wound Care Management or its hospital clients have been reimbursed for
wound treatment by a number of managed care organizations on a case-by-case
basis, Wound Care Management currently has no contracts that require or offer
incentives to subscribers to use Wound Care Management's wound care services.
There can be no assurance that Wound Care Management will be able to
successfully expand its managed care operations.

WOUND CARE MANAGEMENT - COMMUNITY EDUCATION AND MARKETING

      Wound Care Management's community education and marketing strategy
consists of a two-fold approach involving the development of new wound care
programs as well as the growth in operating Wound Care Center(R) programs. The
professional community education component is locally managed and conducted by
the Wound Care Center(R) Program Directors under the supervision of the Regional
Managers with support from Community Education Managers. The primary community
education efforts are directed at physicians and other health care professionals
to expand community awareness of the Wound Care Center(R) program services.

      In addition, community education marketing plans are developed each year
at each Wound Care Center(R) program. The development and execution of the plan
is the responsibility of the Program Director at the Wound Care Center(R) along
with the Corporate Marketing Department. The plan details the anticipated
marketing for the year and may include radio and print advertising as well as
professional symposiums and other community education. Wound Care Management
markets the Wound Care Center(R) program concept to hospitals as a therapeutic
"Center of Excellence." Wound Care Management believes that having a Wound Care
Center(R) program can differentiate a hospital from its competitors and can
increase the hospital's revenues through the introduction of new patients, which
leads to an increase in appropriate ambulatory surgeries, X-rays, laboratory
tests and inpatient surgeries such as debridements, vascular surgeries and
plastic surgeries.

      Wound Care Management's efforts to develop new wound management programs
is the responsibility of the Directors of Business Development, whose primary
role is the development of new wound care programs with acute care hospitals. As
of December 31, 2004, Wound Care Management had four Directors of Business
Development.

WOUND CARE MANAGEMENT - THIRD-PARTY REIMBURSEMENT

      Wound Care Management, through its wound care operations, provides
contractual management services for fees to acute care hospitals and other
health care providers. These providers, in turn, seek reimbursement from
third-party payors, such as Medicare, Medicaid, health maintenance organizations
and private insurers, for clinical services rendered to patients insured by
these payors. The availability of reimbursement from such payors has been a
significant factor in Wound Care Management's ability to increase its revenue
streams and will be important for future growth.

      Each third-party payor formulates its own coverage and reimbursements
policies. Although we have not, and we believe that our clients have not, in
general experienced difficulty in securing third-party reimbursement for Wound
Care Center(R) program services, some hospitals have experienced denials, delays
and difficulties in obtaining such reimbursement. To our knowledge, no
widespread denials have been received by hospitals regarding reimbursement for
Wound Care Center(R) program clinical services. We discuss coverage and
reimbursement issues with our hospital clients and third-party payors on a
regular basis. Such discussions will continue as we seek to assure sufficient
payments from third-party payors to our hospital customers for services managed
by us so that our hospital customers and potential customers find it financially
feasible to renew contracts or enter into contracts with Wound Care Management.
Although no individual coverage and reimbursement decision is material to us, a
widespread denial of reimbursement coverage for clinical services provided in
the Wound Care Center(R) programs could have a material adverse effect on our
business, financial position and results of operations.


                                       14
<PAGE>

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

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

WOUND CARE MANAGEMENT - COMPETITION

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

GOVERNMENT REGULATION

      Our operations and the marketing of our services are subject to extensive
regulation by numerous governmental authorities in the United States, both
federal and state. We believe that we are currently in substantial compliance
with applicable laws, regulations and rules. However, there can be no assurance
that a governmental agency or a third party will not contend that certain
aspects of our business are subject to or are not in compliance with such laws,
regulations or rules or that the state or federal regulatory agencies or courts
would interpret such laws, regulations and rules in our favor. The sanctions for
failure to comply with such laws, regulations or rules could include denial of
the right to conduct business, significant fines and criminal and civil
penalties. Additionally, an increase in the complexity or substantive
requirements of such laws, regulations or rules could have a material adverse
effect on our business.

      Any change in current regulatory requirements or related interpretations
by, or positions of, state officials in states where we operate could adversely
affect our operations within those states. In states where we are not currently
located but where we may operate in the future, we intend to utilize the same
approaches adopted elsewhere for achieving state compliance. However, state
regulatory requirements could adversely affect our ability to establish
operations in such other states.


                                       15
<PAGE>

      Various state and federal laws and agencies regulate providers of health
care services and suppliers of biopharmaceutical and pharmaceutical products,
including the products and services that we distribute and sell. These laws
include, but are not limited to, the following:

LICENSURE AND REGISTRATION

      We are required by various states to be licensed as an in-state pharmacy
and, within most other states where we distribute prescription drugs, we are
required to be licensed as an out-of-state pharmacy.

      In addition, federal controlled substance laws mandate that we register
our pharmacy and repackaging locations with the federal Drug Enforcement
Administration as well as conform with recordkeeping, labeling and security
regulations when dispensing controlled substances.

      We believe that we are currently in substantial compliance with all state
licensing and registration laws applicable to our business. However, if we are
found to not be in compliance, we could be subject to fines and penalties which
could have an adverse effect on our business.

FRAUD AND ABUSE LAWS

      These laws, specifically the anti-kickback laws, include the fraud and
abuse provisions and referral restrictions of the Medicare and Medicaid
statutes, as well as other federally funded programs, which prohibit the
solicitation, payment, receipt or offering of any direct or indirect
remuneration for the referral of Medicare and Medicaid patients or for
purchasing, arranging for or recommending the purchasing, leasing or ordering of
Medicare or Medicaid covered services, items or equipment.

      The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
created violations for fraudulent activity applicable to both public and private
health care benefit programs and prohibits inducements to Medicare or Medicaid
eligible patients.

      The Office of Inspector General ("OIG") from time to time publishes its
interpretations on various fraud and abuse issues and about fraudulent or
abusive activities OIG deems suspect and potentially in violation of the federal
laws, regulations and rules. If our actions are found to be inconsistent with
OIG's interpretations, such actions could have a material adverse effect on our
business.

      Due to the complexity of such anti-kickback laws, the Department of Health
and Human Services ("HHS") has established certain safe harbor regulations
whereby various payment practices may be protected from criminal or civil
penalties. However, an activity that is outside a safe harbor is not necessarily
deemed illegal.

      Violations of these fraud and abuse laws may result in fines and penalties
as well as civil or criminal penalties for individuals or entities, including
exclusion from participation in the Medicare or Medicaid programs. Several
states have adopted similar laws that cover patients in both private and
government programs. Because the anti-fraud and abuse laws have been broadly
interpreted, they limit the manner in which we can operate our business and
market our services to, and contract for services with, other health care
providers.

THE STARK LAW

      Federal and some state laws impose restrictions on the relationships
between providers of health care services or products and other persons or
entities, such as physicians and other clinicians, including with respect to
employment or service contracts, investment relationships and referrals for
certain designated health services. Outpatient prescription drugs are one of the
11 designated services to which the Stark Law applies. On March 26, 2004, CMS
issued the second phase of its final regulations addressing physician
self-referrals, which became effective July 24, 2004. We believe we have
structured our operations in an attempt to comply with these provisions.
Periodically, there are efforts to expand the scope of these referral
restrictions from its application to government health care programs to all
payors and to additional health care services. Certain states are considering
adopting similar restrictions or expanding the scope of existing restrictions.
There can be no assurance that the federal government, or other states in which
we


                                       16
<PAGE>

operate, will not enact similar or more restrictive legislation or restrictions
or interpret existing laws and regulations in a manner that could harm our
business.

PROFESSIONAL FEE SPLITTING

      The laws of many states prohibit physicians from sharing professional fees
with non-physicians and prohibit non-physician entities, such as us, from
practicing medicine and from employing physicians to practice medicine. The laws
in most states regarding the corporate practice of medicine have been subjected
to judicial and regulatory interpretation.

PHARMACY OPERATION LAWS

      Our pharmacies are subject to various state laws relating to pharmacy
operation, including requirements regarding licensure and handling, securing,
storing, labeling, dispensing, recordkeeping and reporting for pharmaceutical
products, as well as patient confidentiality requirements and prohibitions on
fee-splitting by pharmacies. Additionally, many state boards of pharmacy require
pharmacies to provide counseling to customers. Our pharmacy business marketing
activities may also be regulated by the FDA, including with respect to any
promotion of off-label uses of products (for indications which have not been
approved by the FDA). We believe we are in substantial compliance with these
requirements. However, if we are found not to be in compliance, we could be
subject to fines and penalties which could have an adverse effect on our
business.

PROFESSIONAL LICENSES

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

FALSE CLAIMS ACT

      Federal and some state laws impose requirements in connection with the
submission of claims for payment for health care services and products,
including prohibiting the knowing submission of false or fraudulent claims and
submission of false records or statements. Such requirements would apply to the
operations of our pharmacies and to the hospital customers to which we provide
wound care management services. Not only are government agencies active in
investigating and enforcing actions with respect to applicable health laws, but
also health care providers are often subject to actions brought by individuals
on behalf of the government. As such suits are generally filed under seal with a
court to allow the government adequate time to investigate and determine whether
it will intervene in the action, implicated health care providers are often
unaware of the suit until the government has made its determination and the seal
is lifted.

      The federal False Claims Act (the "False Claims Act") generally provides
for the imposition of civil penalties and for treble damages, resulting in the
possibility of substantial financial penalties for small billing errors that are
replicated in a large number of claims, as each individual claim could be deemed
to be a separate violation of the False Claims Act. Criminal provisions that are
similar to the False Claims Act provide that if a corporation is convicted of
presenting a claim or making a statement that it knows to be false, fictitious
or fraudulent to any federal agency, it may be fined. Some states also have
enacted statutes similar to the False Claims Act which may include criminal
penalties, substantial fines and treble damages.


                                       17
<PAGE>

HIPAA - ADMINISTRATIVE SIMPLIFICATION

      The Administrative Simplification Provisions of HIPAA require HHS to adopt
standards to protect the security and privacy of health-related information. In
February 2002, HHS issued final rules concerning the security standards. These
rules do not require the use of specific technologies (e.g., no specific
hardware or software is required), but instead require health plans, health care
clearinghouses and health care providers to comply with certain minimum security
procedures in order to protect data integrity, confidentiality and availability.
The compliance deadline will occur in April 2005, and we are currently on target
with our planned implementation to ensure that our systems will comply with the
security standards.

      With respect to the privacy standards, HHS published final rules in
December 2000 which were modified on August 14, 2002. All health care providers
were required to be compliant with the new federal privacy requirements no later
than April 14, 2003. HIPAA privacy standards contain detailed requirements
regarding the use and disclosure of individually identifiable health
information. Improper use or disclosure of identifiable health information
covered by HIPAA privacy regulations can result in the following fines and/or
imprisonment: (i) civil money penalties for HIPAA privacy violations are $100
per incident, up to $25,000, per person, per year, per standard violated; (ii) a
person who knowingly and in violation of HIPAA privacy regulations obtains
individually identifiable health information or discloses individually
identifiable health information to another person may be fined up to $50,000 and
imprisoned up to one year, or both; (iii) if the offense is committed under
false pretenses, the fine may be up to $100,000 and imprisonment for up to five
years; and (iv) if the offense is done with the intent to sell, transfer or use
individually identifiable health information for commercial advantage, personal
gain or malicious harm, the fine may be up to $250,000 and imprisonment for up
to ten years.

      HIPAA also required HHS to adopt national standards establishing
electronic transaction standards that all health care providers must use when
submitting or receiving certain health care transactions electronically.
Although these standards were to become effective October 2002, Congress
extended the compliance deadline until October 2003 for organizations, such as
ours, that submitted a request for an extension. We have taken the appropriate
actions to ensure that patient data kept on our computer networks are in
compliance with these regulations. We believe that we are now substantially in
compliance with the HIPAA electronic standards and are capable of delivering
HIPAA standard transactions electronically. In addition, if we choose to
distribute drugs through new distribution channels, such as the Internet, we
will have to comply with government regulations that apply to those distribution
channels, which could harm our business. In addition to HIPAA, a number of
states have adopted laws and/or regulations applicable to the use and disclosure
of patient health information that are more stringent than comparable provisions
under HIPAA.

      If we were found to have violated one of these state laws, we could be
subject to fines, penalties and other actions which could have an adverse effect
on our business.

CONFIDENTIALITY

      Under federal and state laws, we must adhere to stringent confidentiality
regulations intended to protect the confidentiality of patient records.

ONGOING INVESTIGATIONS

      Federal and state investigations and enforcement actions continue to focus
on the health care industry, scrutinizing a wide range of items such as joint
venture arrangements, referral and billing practices, product discount
arrangements, home health care services, dissemination of confidential patient
information, promotion of off-label drug indications use, clinical drug research
trials and gifts for patients or referral sources. We believe our current and
planned activities are substantially in compliance with applicable legal
requirements. There can be no assurance, however, that a governmental agency or
a third party will not contend that certain aspects of our business are subject
to, or are not in compliance with, such laws, regulations or rules, or that
state or federal regulatory agencies or courts would interpret such laws,
regulations and rules in our favor, or that future interpretations of such laws
will not require structural or organizational modifications of our existing
business or have a negative impact on our business. Applicable laws and
regulations are very broad and complex, and, in many cases, the courts interpret
them differently, making compliance difficult. Although we try to comply with
such laws, regulations and rules, a violation could result in denial of the
right


                                       18
<PAGE>

to conduct business, significant fines and criminal penalties. Additionally, an
increase in the complexity or substantive requirements of such laws, regulations
or rules, or reform of the structure of health care delivery systems and payment
methods, could have a material adverse effect on our business.

INTELLECTUAL PROPERTY

      Our success depends, in part, on our ability to maintain trade secret
protection and operate without infringing on or violating the proprietary rights
of third parties. In addition, we also rely, in part, on trade secrets,
proprietary know-how and technological advances which we seek to protect by
measures, such as confidentiality agreements with our employees, consultants and
other parties with whom we do business. There can be no assurance that these
agreements will not be breached, that we will have adequate remedies for any
breach or that our trade secrets and proprietary know-how will not otherwise
become known, be independently discovered by others or found to be unprotected.

      Wound Care Center(R), Wound Care Management Program(SM), the name Critical
Care Systems(R) and its logo and our logo with our name, Curative Health
Services(R), are our trademarks. This report also includes trade names and marks
of other companies.

EMPLOYEES

      As of December 31, 2004, we employed 717 full-time employees, of which 513
were in the Specialty Infusion business unit, 130 employees were in the Wound
Care Management business unit and 74 were in various support departments. We
expect to increase our personnel at our business units, partially offset by a
modest reduction in corporate staff due to our consolidation of headquarters,
resulting in a modest growth in our headcount during 2005. We believe that our
relations with our employees are good.

AVAILABLE INFORMATION

      Our filings with the Securities and Exchange Commission ("SEC"), including
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and all amendments and exhibits to those reports are available free
of charge through our Internet website (http://www.curative.com) as soon as
reasonably practicable after these materials are electronically filed, or
furnished, with the SEC (http://www.sec.gov).

ITEM 2.  PROPERTIES

      Our headquarters are currently located in Hauppauge, Long Island, New
York. We lease this 30,000 square foot facility under a lease which expires in
October of 2005. We also have approximately 10,000 square feet of headquarter
space in Nashua, New Hampshire. As announced on December 20, 2004, we will be
relocating our headquarters to Nashua by the third quarter of 2005 and
increasing our leased space there to approximately 25,000 square feet.
Additionally, through our Specialty Infusion business unit, we lease office,
pharmacy and warehouse space in various states. We have leases for our 46 branch
pharmacy locations, totaling approximately 243,000 square feet. We believe that
our facilities are adequate and suitable for our operation. Our Wound Care
Management business unit operates hospital outpatient Wound Care Center programs
in facilities which are owned or leased by the hospitals.

ITEM 3.  LEGAL PROCEEDINGS

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


                                       19
<PAGE>

PRESCRIPTION CITY LITIGATION

      As previously disclosed, a search warrant issued by a U.S. Magistrate
Judge, Southern District of New York, relating to a criminal investigation was
executed on November 4, 2003 at our Prescription City pharmacy, formerly located
in Spring Valley, New York. The Government has informed us that we are not a
target of the investigation. Apex Therapeutic Care, Inc. ("Apex"), a
wholly-owned subsidiary of the Company, was served with the search warrant on
Tuesday, November 4, 2003 while it was conducting its own compliance review at
the Spring Valley pharmacy. We have cooperated fully with the U.S. Attorney's
Office in its investigation. Based on information known as of November 5, 2003,
the employment of Paul Frank, the former principal shareholder of Prescription
City, was terminated. Apex also hired outside counsel in connection with this
investigation. Certain assets of Prescription City were purchased by Apex in
June 2003. The purchase was structured as an asset purchase with Apex being
provided indemnifications, representations and warranties by the sellers. Apex
has filed a complaint in the United States District Court, Southern District of
New York against Paul Frank and Prescription City, seeking rescission,
compensatory and punitive damages and other relief. The defendants filed a
motion to join Curative as a plaintiff and to have the case dismissed for lack
of diversity, and the Court denied such motion. The defendants have filed a
motion to have such decision reconsidered. The defendants have also filed a
third-party complaint for declaratory relief and a breach of contract relating
to a promissory note delivered by Apex (and issued by Curative) to the sellers
as part of the obligations of Apex in connection with the acquisition. The
Company has filed a motion to dismiss such third-party complaint. Apex intends
to pursue its claims against Prescription City and Paul Frank aggressively, and
the Company intends to defend vigorously any claims made in the third-party
complaint if it is not dismissed. Such litigation is pending, and the outcome is
uncertain at this time.

CALIFORNIA DHS LITIGATION

      In May 2004, DHS, issued a provider bulletin notifying providers that the
ASP plus 20% methodology would be implemented for services provided on and after
June 1, 2004. On May 27, 2004, a lawsuit was filed in the United States District
Court for the Eastern District of California on behalf of two individual
Medi-Cal recipients with hemophilia against the State of California relating to
the implementation of the new ASP reimbursement methodology, alleging, among
other things, that a severe reduction in reimbursement rates would threaten the
ability of Medi-Cal recipients with hemophilia to have adequate access to
blood-clotting factor. In addition, on June 10, 2004, we filed a lawsuit in the
Superior Court for the County of Sacramento relating to the failure of DHS to
disclose payment rates and the detailed methodology utilized to determine the
rates, and its failure to comply with certain applicable federal procedural
requirements relating to the proposed reimbursement rates. In December, 2004, we
and certain named individual plaintiffs entered into a Settlement Agreement
which resolved both of these cases. In return for dismissal of both lawsuits,
DHS agreed to process, on a priority basis, all pending and future Medi-Cal,
California Children's Services and Genetically Handicapped Persons Program
claims submitted by us. In addition, DHS agreed to expedite its efforts to
implement electronic billing and payment for blood-clotting factor claims.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                       20
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES

      The Company's common stock is traded on the Nasdaq National Market System
under the symbol "CURE." The following table sets forth the range of high and
low sales prices of the Company's common stock as quoted on the Nasdaq National
Market System:

                     2004               HIGH      LOW
                     --------------   -------   -------
                     Fourth Quarter   $  6.91   $  4.79
                     Third Quarter       8.63      5.22
                     Second Quarter     13.74      8.58
                     First Quarter      14.22     11.82

                     2003               HIGH      LOW
                     --------------   -------   -------
                     Fourth Quarter   $ 18.44   $ 12.25
                     Third Quarter      18.86     16.02
                     Second Quarter     19.27     12.20
                     First Quarter      19.38     15.41

      The closing sale price for the common stock as quoted on the Nasdaq
National Market System on March 4, 2005 was $3.69.

      HOLDERS. As of March 4, 2005, there were 149 holders of record of the
Company's common stock.

      DIVIDENDS. The Company has not paid any cash dividends since its
inception, nor does it currently intend to pay cash dividends in the foreseeable
future. The Company intends to retain all earnings, if any, for use in its
business operations. The Company has entered into an indenture pursuant to its
10.75% Notes. Under this indenture, the Company cannot, directly or indirectly,
make any dividend payment if at the time of such payment:

      1.    there is a default under the 10.75% Notes or a default under those
            Notes shall occur as a consequence of such payment;

      2.    the Company cannot incur $1.00 of additional indebtedness under the
            Coverage Ratio Exception (as defined in the indenture); or

      3.    the dividend, when added to the aggregate amount of all other
            restricted payments (as defined in the indenture) made after April
            23, 2004, exceeds a certain Restricted Payments Basket (as defined
            in the indenture).

      RECENT SALES OF UNREGISTERED SECURITIES. There were no unregistered
securities sold by the Company during the fiscal year ended December 31, 2004.

      ISSUER PURCHASES OF EQUITY SECURITIES. The Company did not repurchase any
of its common stock during the fiscal quarter ended December 31, 2004.


                                       21
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

      The following should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," as well as the
consolidated financial statements and notes thereto contained elsewhere in this
Annual Report on Form 10-K. Financial Highlights and Results of Operations
should be read together with the accompanying Consolidated Financial Statements
and Notes. The period-to-period comparability of the Company's selected
consolidated financial data is affected by its acquisition activity. Please see
discussion in the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview."

      Five year selected consolidated financial data of Curative Health
Services, Inc. and Subsidiaries for the years ended December 31 is as follows
(in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                2004           2003          2002        2001       2000
                                                            ----------      ---------     ---------   ---------   --------
<S>                                                         <C>             <C>           <C>         <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues                                              $  282,368      $ 214,741     $ 139,229   $  81,638   $ 77,691
Costs and operating expenses:
   Costs of product sales and services                         222,493        148,673        89,297      55,666     51,073
   Selling, general and administrative                          53,552         44,544        26,401      51,466     29,441
   Goodwill and intangible asset impairment                    134,755             --            --          --         --
                                                            ----------      ---------     ---------   ---------   --------
      Total costs and operating expenses                       410,800        193,217       115,698     107,132     80,514
                                                            ----------      ---------     ---------   ---------   --------

(Loss) income from operations                                 (128,432)        21,524        23,531     (25,494)    (2,823)

Interest (expense) income, net                                 (15,726)        (2,280)       (1,111)        816      2,609
Other (expense) income, net                                     (1,081)         2,327         1,907          --         --
                                                            ----------      ---------     ---------   ---------   --------

(Loss) income before income taxes                             (145,239)        21,571        24,327     (24,678)      (214)
Income tax (benefit) provision                                  (3,834)         8,496         9,682      (2,473)       (86)
                                                            ----------      ---------     ---------   ---------   --------

Net (loss) income                                           $ (141,405)     $  13,075     $  14,645   $ (22,205)  $   (128)
                                                            ==========      =========     =========   =========   ========

Net (loss) income per common share, basic                   $   (10.92)     $    1.04     $    1.30   $   (3.09)  $  (0.01)
                                                            ==========      =========     =========   =========   ========

Net (loss) income per common share, diluted                 $   (10.92)(1)  $     .96(1)  $    1.20   $   (3.09)  $  (0.01)
                                                            ==========      =========     =========   =========   ========

Denominator for basic (loss) income per share, weighted
average common shares                                           12,949         12,546        11,280       7,193      8,780
                                                            ==========      =========     =========   =========   ========

Denominator for diluted (loss) income per share, weighted
average common shares assuming conversions                      12,949         13,826        12,207       7,193      8,780
                                                            ==========      =========     =========   =========   ========

BALANCE SHEET DATA:
Working capital                                             $   50,788      $  25,468     $  17,353   $   2,525   $ 44,394
Total assets                                                   283,784        233,938       186,886      76,439     75,166
Long-term liabilities                                          215,711         40,906        26,153       6,000         --
(Accumulated deficit) retained earnings                       (111,287)        30,118        17,043       2,398     24,603
Stockholders' equity                                             4,453        143,720       120,901      36,004     55,570
</TABLE>

(1)   See Note P of Notes to Consolidated Financial Statements for net (loss)
      income per share calculation.


                                       22
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

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

      Through its Specialty Infusion business unit, the Company provides
intravenous and injectable biopharmaceutical and compounded pharmaceutical
products and comprehensive infusion services to patients with chronic and
critical disease states. All patient care is delivered through a national
footprint of community-based branches. Each local branch has an experienced
multidisciplinary team of pharmacists, nurses, reimbursement specialists and
patient service representatives who comprehensively manage all aspects of a
patient's infusion and related support needs. In its Specialty Infusion
operations, the Company purchases biopharmaceutical and other pharmaceutical
products from suppliers and contracts with insurance companies and other payors
to provide its services, which include coordination of patient care, 24-hour
nursing and pharmacy availability, patient education and reimbursement billing
and collection services. The Company's Specialty Infusion revenues are derived
primarily from fees paid by the payors under these contracts for the
distribution of these biopharmaceutical and other pharmaceutical products and
for the injection or infusion services provided. Additional revenues are
acquired through biopharmaceutical and pharmaceutical product distribution and
support services under contracts with retail pharmacies for which the Company
receives related service fees. The products distributed and the injection or
infusion therapies offered by Curative are used by patients with chronic or
severe conditions such as hemophilia, RSV, immune system disorders, chronic or
severe infections, nutritionally compromised and other severe conditions
requiring nutritional support, cancer, rheumatoid arthritis, hepatitis C and
multiple sclerosis. As of December 31, 2004, the Company had 401 payor contracts
and provided products or services in approximately 48 states.

      The period-to-period comparability of the Company's financial statements
is affected by its acquisition activity. The Company entered the specialty
infusion business with its acquisition of eBioCare.com, Inc. ("eBioCare") in
March 2001, which was the Company's first acquisition of a specialty infusion
business. The Company has since completed eleven acquisitions, including the
acquisition of eBioCare, and the most recent acquisition of Critical Care
Systems, Inc. ("CCS") in April 2004 for a total consideration of approximately
$154.2 million. The financial condition and results of operations of all of
these acquired companies, including CCS, have been included in Curative's
consolidated financial statements since the respective acquisition dates. See
Note C of Notes to Consolidated Financial Statements.

      The Wound Care Management business unit contracts with hospitals to manage
outpatient Wound Care Center(R) programs that offer a comprehensive range of
services and enable the Wound Care Management business unit to provide patient
specific wound care diagnosis and treatments on a cost-effective basis. Wound
Care Management currently operates two types of Wound Care Center(R) programs
with hospitals: a management model and an "under arrangement" model, with a
primary focus on developing management models.

      In the management model, Wound Care Management provides management and
support services for a chronic wound care facility owned or leased by the
hospital and staffed by employees of the hospital, and generally receives a
fixed monthly management fee or a combination of a fixed monthly management fee
and a variable case management fee. In the "under arrangement" model, Wound Care
Management provides management and support services, as well as the clinical and
administrative staff, for a chronic wound care facility owned or leased by the
hospital, and generally receives fees based on the services provided to each
patient. In both models, physicians remain independent. Wound Care Management
offers assistance in recruiting and provides training in wound care to the
physicians and staff associated with the Wound Care Center(R) programs.


                                       23
<PAGE>

HOLDING COMPANY REORGANIZATION

      In August 2003, the Company effected a holding company reorganization in
which each share of the registrant's outstanding common stock was deemed to have
been exchanged for one share of common stock in a newly formed corporation (the
"new holding company"). Pursuant to Section 302A.626 (subd. 7) of the Minnesota
Business Corporation Act, the articles of incorporation, bylaws and name of the
new holding company, and the authorized capital stock of the new holding company
(including the designations, rights, powers and preferences of such capital
stock and the qualifications, limitations and restrictions thereof) are all
consistent with those of the registrant as it existed prior to the
reorganization. In addition, the directors and executive officers of the new
holding company were the same individuals who were directors and executive
officers, respectively, of the registrant prior to the reorganization. The terms
"Curative" and the "Company" as used in this report refer, for periods prior to
the reorganization, to the corporation that was the registrant prior to the
reorganization, and, for periods after the reorganization, to the new holding
company.

RECENT DEVELOPMENTS

CALIFORNIA MEDI-CAL REIMBURSEMENT REDUCTION

      Approximately 12% of the Company's total revenues for the year ended
December 31, 2004 were derived from California state funded health programs. The
California state legislature in 2003 passed legislation that modified the
reimbursement methodology for blood-clotting factor products under various
California state funded health programs. Under the new reimbursement
methodology, blood-clotting factor products are reimbursed based upon ASP, as
provided by the manufacturers, plus 20%.

      In addition, payments for Medi-Cal and certain other state-funded health
programs were to be reduced by 5% for services provided on and after January 1,
2004. On December 23, 2003, the United States District Court for the Eastern
District of California issued an injunction enjoining that scheduled 5% Medi-Cal
reimbursement rate cut. DHS appealed the decision to the federal Ninth Circuit
Court of Appeals, and oral argument was heard by the Ninth Circuit on December
8, 2004. A decision is expected in the next few months, but an exact date when
the decision will be issued cannot be predicted. The length of the injunction
and the ultimate outcome of this litigation are uncertain at this time. The
court order enjoining the 5% Medi-Cal rate reduction did not apply to other
state funded programs for hemophilia patients, and California implemented the 5%
reduction for these other programs. However, the 5% reduction as applied to the
other state funded programs was repealed on or about July 31, 2004 for services
provided on and after July 1, 2004.

      In May 2004, DHS issued a provider bulletin notifying providers that the
ASP plus 20% methodology would be implemented for services provided on and after
June 1, 2004, but did not specify actual reimbursement rates. On or about July
9, 2004, DHS published a notice in the California Regulatory Notice Register
advising that persons wanting to find out the latest rates could obtain the
information from Electronic Data Systems. The revised rates have resulted in
substantially greater cuts than the guidance previously provided by DHS
representatives had indicated, amounting to approximately a 30-40% cut from
rates previously in effect.

      On May 27, 2004, a lawsuit was filed on behalf of two individual Medi-Cal
recipients with hemophilia in the United States District Court for the Eastern
District of California against the State of California relating to the
implementation of the new ASP reimbursement methodology, alleging, among other
things, that a severe reduction in reimbursement rates would threaten the
ability of Medi-Cal recipients with hemophilia to have adequate access to
blood-clotting factor. In addition, on June 10, 2004, the Company filed a
lawsuit in the Superior Court for the County of Sacramento relating to the
failure of DHS to disclose payment rates and the detailed methodology utilized
to determine the rates, and its failure to comply with certain applicable
federal procedural requirements relating to the reimbursement rates. In December
2004, the Company and certain named individual plaintiffs entered into a
Settlement Agreement which resolved both of these cases. In return for dismissal
of both lawsuits, DHS agreed to process, on a priority basis, all pending and
future Medi-Cal, California Children's Services and Genetically Handicapped
Persons Program claims submitted by the Company. In addition, DHS agreed to
expedite its efforts to implement electronic billing and payment for
blood-clotting factor claims.


                                       24
<PAGE>

      In addition, the Governor of California has recently proposed to expand
the Medi-Cal managed care program into 13 additional counties and to phase in
mandatory enrollment for aged, blind and disabled Medi-Cal beneficiaries. The
Company understands there may be significant concern by various constituencies
over mandatory enrollment of medically fragile populations, and the outcome of
these proposals is uncertain at this time.

CHANGE IN MEDICARE REIMBURSEMENT METHODOLOGY

      In November 2004, CMS posted the Final Physician Payment Rule which
contains the final rule for reimbursement for blood-clotting factor. The new
Medicare reimbursement methodology, which became effective on January 1, 2005,
is ASP plus 6% plus a $0.14 per unit dispensing fee. Under the previous
methodology, the Company was reimbursed at 95% of AWP. The new methodology will
result in reduced reimbursement of approximately 12%.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

REVENUE RECOGNITION

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

TRADE RECEIVABLES

      Considerable judgment is required in assessing the ultimate realization of
receivables, including the current financial condition of the customer, age of
the receivable and the relationship with the customer. The Company estimates its
allowances for doubtful accounts using these factors. If the financial condition
of the Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. In
circumstances where the Company is aware of a specific customer's inability to
meet its financial obligations (e.g., bankruptcy filings), a specific reserve
for bad debts is recorded against amounts due to reduce the receivable to the
amount the Company reasonably believes will be collected. For all other
customers, the Company has reserves for bad debt based upon the total accounts
receivable balance. As of December 31, 2004, the Company's reserve for accounts
receivable was approximately 5% of total receivables. Although the Company
believes its reserve for accounts receivable at December 31, 2004 is reasonable,
there can be no assurance that additional reserves will not be needed in the
future. The recording of any such reserve may have a negative impact on the
Company's operating results.


                                       25
<PAGE>

INVENTORIES

      Inventories are carried at the lower of cost or market on a first in,
first out basis. Inventories consist of high-cost biopharmaceutical and
pharmaceutical products that, in many cases, require refrigeration or other
special handling. As a result, inventories are subject to spoilage or shrinkage.
On a quarterly basis, the Company performs a physical inventory and determines
whether any shrinkage or spoilage adjustments are needed. Although the Company
believes its inventories balance at December 31, 2004 is reasonably accurate,
there can be no assurance that spoilage or shrinkage adjustments will not be
needed in the future. The recording of any such reserve may have a negative
impact on the Company's operating results.

DEFERRED INCOME TAXES

      The Company had approximately $4.9 million in deferred income tax assets
at December 31, 2004 and approximately $3.5 million in deferred income tax
liabilities. The Company does not have a valuation allowance against its assets
as it believes it is more likely than not that the tax assets will be realized.
The Company has considered future income expectations and prudent tax strategies
in assessing the need for a valuation allowance. In the event the Company
determines in the future that it needs to record a valuation allowance, an
adjustment to deferred income tax assets would be charged against income in the
period of determination.

GOODWILL AND INTANGIBLES

      Goodwill represents the excess of purchase price over the fair value of
net assets acquired. Intangibles consist of separately identifiable intangibles,
such as pharmacy and customer relationships and covenants not to compete. The
Company accounts for goodwill and intangible assets in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets," which requires goodwill and intangible assets with
indefinite lives to not be amortized but rather to be reviewed annually, or more
frequently if impairment indicators arise, for impairment. Separable intangible
assets that are not deemed to have an indefinite life are amortized over their
useful lives. In assessing the recoverability of the Company's goodwill and
intangibles, the Company must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective assets.
Due primarily to changes in the economics of the Specialty Infusion business
unit, including the changes in reimbursement methodology that occurred in 2004,
the Company recorded a non-cash impairment charge of $134.7 million in goodwill
and $0.1 million in other intangible assets, respectively in the fourth quarter
of 2004. The fair value of the Specialty Infusion business unit was estimated by
performing a discounted cash flows analysis for the reporting unit. The Company
will continue to monitor its goodwill and intangibles for impairment indicators.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

      The Company has an interest rate swap covering a portion of its fixed rate
senior notes. The Company does not use derivatives other than for cash flow
hedging purposes. The Company accounts for the swap instrument under the
provisions of SFAS No. 133, as amended by SFAS Nos. 138 and 149, which require
that all derivative financial instruments be recorded on the consolidated
balance sheet at fair value as either assets or liabilities. Adjustments in fair
value are recognized in earnings in the period of the change. Due to hedge
ineffectiveness, changes in fair value of the Company's swap are recognized in
earnings, and the carrying value of the Company's debt is not marked to fair
value. Curative is exposed to the risk of interest rate changes and credit risk
in the event of nonperformance by the counterparties. However, the Company
believes the risk of nonperformance is low.


                                       26
<PAGE>

KEY PERFORMANCE INDICATORS

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

<TABLE>
<CAPTION>
                                                                                   %                                            %
                                             2004         2003       $ CHANGE    CHANGE      2003        2002     $ CHANGE   CHANGE
                                           ----------   ---------   ----------   ------   ---------   ---------   --------   ------
<S>                                        <C>          <C>         <C>          <C>      <C>         <C>         <C>         <C>
Specialty Infusion revenues                $  255,443   $ 185,843   $   69,600     37%    $ 185,843   $ 104,550   $ 81,293     78%
Wound Care Management revenues                 26,925      28,898       (1,973)    (7)%      28,898      34,679     (5,781)   (17)%
                                           ----------   ---------   ----------            ---------   ---------   --------
Total revenues                             $  282,368   $ 214,741   $   67,627     31%    $ 214,741   $ 139,229   $ 75,512     54%

Specialty Infusion revenues to total               90%         87%                               87%         75%
Wound Care Management revenues to total            10%         13%                               13%         25%
                                           ----------   ---------                         ---------   ---------
Total                                             100%        100%                              100%        100%

Specialty Infusion gross margin            $   45,026   $  50,394   $   (5,368)   (11)%   $  50,394   $  30,145   $ 20,249     67%
Wound Care Management gross margin             14,849      15,674         (825)    (5)%      15,674      19,787     (4,113)   (21)%
                                           ----------   ---------   ----------            ---------   ---------   --------
Total gross margin                         $   59,875   $  66,068   $   (6,193)    (9)%   $  66,068   $  49,932   $ 16,136     32%

Specialty Infusion gross margin%                   18%         27%                               27%         29%
Wound Care Management gross margin%                55%         54%                               54%         57%
Total gross margin%                                21%         31%                               31%         36%

Specialty Infusion SG&A                    $   21,368   $  17,649   $    3,719     21%    $  17,649   $   8,983   $  8,666     96%
Wound Care Management SG&A                      3,971       4,641         (670)   (14)%       4,641       5,053       (412)    (8)%
Corporate SG&A                                 18,267      15,502        2,765     18%       15,502      12,365      3,137    100%
Charges(1)                                      9,946       6,752        3,194     47%        6,752          --      6,752    100%
                                           ----------   ---------   ----------            ---------   ---------   --------
Total SG&A                                 $   53,552   $  44,544   $    9,008     20%    $  44,544   $  26,401   $ 18,143     69%

Goodwill and intangible asset impairment   $  134,755   $      --   $  134,755    100%    $      --   $      --   $     --     --

Operating margin                           $ (128,432)  $  21,524   $ (149,956)  (697)%   $  21,524   $  23,531   $ (2,007)    (9)%
Operating margin%                                 (45)%        10%                               10%         17%
</TABLE>

(1)   The Company's charges are discussed under Results of Operations - SELLING,
      GENERAL AND ADMINISTRATIVE.


                                       27
<PAGE>

RESULTS OF OPERATIONS

FISCAL YEAR 2004 VS. FISCAL YEAR 2003

      REVENUES. The Company's revenues increased $67.6 million, or 31%, to
$282.4 million for the fiscal year ended December 31, 2004 compared to $214.7
million for the fiscal year ended December 31, 2003. The increase in revenues
was the result of the 2004 acquisition of CCS and the specialty infusion
acquisitions the Company completed in 2003, offset by a reduction in hemophilia
revenue related to the reduced reimbursement from California state programs and
a reduction in service revenues in the Wound Care Management business unit.

      Product revenues, attributed entirely to the Specialty Infusion business
unit, increased $69.6 million, or 37%, to $255.4 million in 2004 from $185.8
million in 2003. The increase in product revenues was primarily attributable to
the 2004 acquisition of CCS and the specialty infusion acquisitions the Company
completed in 2003, offset by a reduction in hemophilia revenue related to the
reduced reimbursement from California state programs and a reduction in IVIG
sales. Product revenues for the years ended December 31 included the following:

<TABLE>
<CAPTION>
                                              2004                   2003
                                       --------------------   --------------------
                                                    % OF                   % OF
                                                  SPECIALTY              SPECIALTY
                                          IN      INFUSION       IN      INFUSION
                                       MILLIONS   REVENUES    MILLIONS   REVENUES
                                       --------   ---------   --------   ---------
<S>                                     <C>          <C>       <C>         <C>
Hemophilia                              $ 111.4       44%      $ 115.3      62%
Synagis(R)(1)                              43.7       17%         37.1      20%
Other branch pharmacy revenue(2)          100.3       39%         33.4      18%
                                        -------      ---       -------     ---
   Total Specialty Infusion revenues    $ 255.4      100%      $ 185.8     100%
                                        =======      ===       =======     ===
</TABLE>

(1)   As respiratory syncytial virus occurs primarily during the winter months,
      the major portion of the Company's Synagis(R) sales will be recorded in
      the first and fourth quarters of the calendar year which may result in
      significant fluctuations in the Company's quarterly operating results.

(2)   Includes product, service and per diem revenues for products such as,
      among others, antibiotics, IVIG, TPN, Remicaid(R) and chemotherapy.

      Service revenues, attributed entirely to the Wound Care Management
business unit, decreased $2.0 million, or 7%, to $26.9 million in 2004 from
$28.9 million in 2003. The decrease in service revenues was primarily
attributable to contract terminations, contract renegotiations resulting in
lower average revenues per program and the conversion over the last two years of
four under arrangement programs to management service programs where revenues
are lower. As of the fiscal year ended 2004, the Company signed 13 new Wound
Care Management contracts and 6 contracts were terminated. The improvement in
the total number of contracts signed in 2004 versus contracts terminated was the
result of a more favorable climate for outsourcing within the hospital market as
well as improved financial stability of hospitals generally. Program
terminations by client hospitals have been effected for such reasons as reduced
reimbursement, financial restructuring, layoffs, bankruptcies, hospital closings
or a hospital's decision to maintain a wound care center without external
management. The continued termination, non-renewal or renegotiations of a
material number of management contracts or the inability to sign new contracts
could result in a continued decline in the Company's Wound Care Management
business unit revenue. The Wound Care Management business unit has a number of
initiatives to counter the decline in revenue, although there can be no
assurance that the initiatives will be successful. These initiatives include new
product offerings such as inpatient wound care programs at acute care hospitals
focusing on pressure sores, and wound outreach programs whereby nurse
practitioners or physicians from affiliated Wound Care Centers provide related
services to long-term care facilities in surrounding areas. All of these
programs are currently being offered to hospitals.

      COST OF PRODUCT SALES. Cost of product sales, attributed entirely to the
Specialty Infusion business unit, increased $75.0 million, or 55%, to $210.4
million in 2004 compared to $135.4 million in 2003. The increase in cost of
product sales was primarily attributable to the 2004 acquisition of CCS and the
specialty infusion acquisitions the Company completed in 2003. As a percentage
of product revenues, cost of product sales in 2004


                                       28
<PAGE>

was 82% compared to 73% in 2003. The increased percentage for 2004 was primarily
attributable to the acquisition of CCS which resulted in the reduction of the
percentage of the Company's revenues derived from hemophilia products, which
have a lower product cost as a percentage of revenue, as well as the reduction
in hemophilia revenue related to the reduced reimbursement from California state
programs.

      COST OF SERVICES. Cost of services, attributed entirely to the Wound Care
Management business unit, decreased $1.1 million, or 9%, to $12.1 million in
2004 from $13.2 million in 2003. The decrease in cost of services for 2004 was
primarily attributed to the conversion over the last two years of four under
arrangement programs to management service programs where expenses are lower. As
a percentage of service revenues, cost of services in 2004 was 45% compared to
46% in 2003.

      GROSS MARGIN. Gross margin decreased $6.2 million, or 9%, to $59.9 million
in 2004 from $66.1 million in 2003. Specialty Infusion's gross margin declined
to $45.0 million in 2004 from $50.4 million in 2003, a decrease of $5.4 million,
or 11%. As a percentage of its revenues, Specialty Infusion's gross margin was
18% in 2004 as compared to 27% in 2003. The decreases in gross margin dollars
and percentage were attributed to lower average revenue per unit for hemophilia
as a result of changes in reimbursement rates, lower average revenue per unit
for IVIG at pharmacies operating before the CCS acquisition due to a higher mix
of managed care business, and a higher cost of service. These decreases were
partially offset by the inclusion of the gross margin from the CCS acquisition.
Wound Care Management's gross margin slightly decreased to $14.8 million in 2004
from $15.7 million in 2003, or 5%. As a percentage of its revenues, Wound Care
Management's gross margin was 55% in 2004 compared to 54% in 2003. The increase
was attributed to the conversion over the past two years of four under
arrangement contract programs to management services contracts where gross
margins are typically higher.

      SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $9.0 million, or 20%, to $53.6 million in 2004 compared to
$44.5 million in 2003 and consisted of $21.4 million related to the Specialty
Infusion business, $4.0 million related to the Wound Care Management business,
$18.3 million related to corporate services and $9.9 million in charges. The
total 2004 charges of $9.9 million included the following:

                                                         IN
                  CHARGE                              MILLIONS
                  ---------------------------------   --------
                  Critical Care Systems integration     $ 6.8
                  Litigation expense                      1.8
                  Corporate reorganization                1.3
                                                        -----
                     Total charges                      $ 9.9
                                                        =====

      The increase in selling, general and administrative expenses of $9.0
million was due to the charges of $9.9 million in 2004 compared to $6.7 million
in charges in 2003 and the 2004 acquisition of CCS which accounted for increases
of approximately $3.7 million in Specialty Infusion expenses and $2.8 million
due to growth in corporate departments in support of the CCS acquisition and
acquisitions completed in 2003, offset by a decrease of approximately $0.7
million in Wound Care Management expenses. As a percentage of revenues, selling,
general and administrative expenses were 19% for 2004 compared to 21% for 2003.

      GOODWILL IMPAIRMENT. During the fourth quarter of 2004, the Company
conducted its impairment test related to the carrying values of goodwill and
other intangible assets, attributed entirely to the Specialty Infusion business
unit, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets"
and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," respectively. Based on the results of this evaluation, the Company
recorded non-cash impairment charges of $134.7 million in goodwill and $0.1
million in other intangible assets related to the Specialty Infusion business
unit. The total charge of $134.8 resulted primarily from changes in the
economics of the Specialty Infusion business unit, including the changes in
reimbursement methodology that occurred in 2004.

      INTEREST (EXPENSE) INCOME. Net interest expense in 2004 was $15.7 million
compared to $2.3 million in 2003. The increase of $13.4 million was due to the
Company's increased debt used to fund the CCS acquisition in April of 2004 (see
Notes C and I of Notes to Consolidated Financial Statements).


                                       29
<PAGE>

      OTHER EXPENSE. Other expense in 2004 was $1.1 million compared to zero in
2003 and represents the fair value adjustments of the Company's swap agreement
as of December 31, 2004 (see Note J of Notes to Consolidated Financial
Statements).

      NET (LOSS) INCOME. Net loss was $141.4 million, or ($10.92) per share
compared to net income of $13.1 million, or $0.96 per diluted share (calculated
under the "as if converted" method; see Note P of Notes to Consolidated
Financial Statements) in 2003. The net loss for 2004 was attributable to the
increase in charges incurred in 2004, increased interest expense related to the
Company's senior notes, the goodwill impairment charge and the reductions in
hemophilia revenue related to the reduced reimbursement from California state
programs.

FISCAL YEAR 2003 VS. FISCAL YEAR 2002

      REVENUES. The Company's revenues increased $75.5 million, or 54%, to
$214.7 million for the fiscal year ended December 31, 2003 compared to $139.2
million for the fiscal year ended December 31, 2002. The increase in revenues
was the result of the Specialty Infusion acquisitions the Company completed in
2003 and 2002 and organic growth in certain products, offset by a reduction in
service revenues in the Wound Care Management business unit.

      Product revenues, attributed entirely to the Specialty Infusion business
unit, increased $81.3 million, or 78%, to $185.8 million in 2003 from $104.6
million in 2002. The increase in product revenues was primarily attributed to
the inclusion of the Specialty Infusion acquisitions completed in 2003 and 2002
and organic growth of 13.5% in hemophilia patient revenues, 17.5% in IVIG and
infusible revenues and a 16.6% increase in fourth quarter 2003 Synagis(R)
revenues, as compared to the fourth quarter of 2002. Product revenues for the
years ended December 31 included the following:

<TABLE>
<CAPTION>
                                               2003                   2002
                                       --------------------   --------------------
                                                    % OF                   % OF
                                                  SPECIALTY              SPECIALTY
                                          IN      INFUSION       IN      INFUSION
                                       MILLIONS   REVENUES    MILLIONS   REVENUES
                                       --------   ---------   --------   ---------
<S>                                     <C>         <C>        <C>          <C>
Hemophilia                              $ 115.3      62%       $  83.2       80%
Synagis(R)(1)                              37.1      20%           7.6        7%
Other branch pharmacy revenue(2)           33.4      18%          13.8       13%
                                        -------     ---        -------      ---
   Total Specialty Infusion revenues    $ 185.8     100%       $ 104.6      100%
                                        =======     ===        =======      ===
</TABLE>

(1)   As respiratory syncytial virus occurs primarily during the winter months,
      the major portion of the Company's Synagis(R) sales will be recorded in
      the first and fourth quarters of the calendar year which may result in
      significant fluctuations in the Company's quarterly operating results.

(2)   Includes IVIG, Remicade(R), growth hormone products and other products
      such as oral medications, Avonex(R), Rebetron(R), Betaseron(R) and
      Rebif(R).

      The decrease in hemophilia sales as a percentage of Specialty Infusion
revenues was due to the Company adding product lines through acquisitions and
organic growth in existing products.

      Service revenues, attributed entirely to the Wound Care Management
business unit, decreased 17% to $28.9 million in 2003 from $34.7 million in
2002. The service revenues decrease of $5.8 million was attributed to contract
terminations, contract renegotiations resulting in lower revenues and the
conversion of three under arrangement programs to management service programs
where revenues and expenses are lower. Additionally, in 2003, the Company
operated an average of 87 programs as compared to an average of 96 programs
operating in 2002. For the fiscal year ended 2003, the Company signed 13 new
contracts and had 11 contracts terminated. The improvement in the total number
of contracts signed in 2003 versus contracts terminated was the result of a more
favorable climate for outsourcing within the hospital market as well as improved
financial stability of hospitals generally. Program terminations by client
hospitals have been effected for such reasons as reduced reimbursement,
financial restructuring, layoffs, bankruptcies, hospital closings or a
hospital's decision to maintain a wound care center without external management.
The continued termination, non-renewal or renegotiation of a material number of
management contracts could result in a continued decline in the Wound Care
Management business unit's revenue.


                                       30
<PAGE>

      COST OF PRODUCT SALES. Cost of product sales, attributed entirely to the
Specialty Infusion business unit, increased $61.0 million, or 82%, to $135.4
million in 2003 from $74.4 million in 2002. The increase was attributed to the
internal growth of hemophilia patient revenues and the inclusion of the
Specialty Infusion acquisitions completed in 2003 and 2002. As a percentage of
product revenues, cost of product sales in 2003 was 73% compared to 71% in 2002.
The increase in cost of product sales as a percentage of revenue is the result
of different product revenue mix in 2003.

      COST OF SERVICES. Cost of services, attributed entirely to the Wound Care
Management business unit, decreased $1.7 million, or 11%, to $13.2 million in
2003 from $14.9 million in 2002. The decrease was attributed to the operation of
an average of 87 programs in 2003 as compared to an average of 96 programs
operating in 2002. As a percentage of service revenues, cost of services in 2003
was 46% compared to 43% in 2002.

      GROSS MARGIN. Gross margin increased $16.1 million, or 32%, to $66.1
million in 2003 from $49.9 million in 2002. Specialty Infusion gross margin
improved to $50.4 million in 2003 from $30.1 million in 2002, an increase of
$20.2 million, or 67%. The increase in gross margin was attributed to the
internal growth of hemophilia patient revenues and the inclusion of the
Specialty Infusion acquisitions completed in 2003 and 2002. As a percentage of
its revenues, Specialty Infusion gross margin was 27% in 2003 as compared to 29%
in 2002. The decrease in gross margin as a percentage of revenues was the result
of a higher mix of lower margin product revenues in 2003 as compared to 2002.
Wound Care Management gross margin decreased to $15.7 million in 2003 from $19.8
million in 2002, or 21%. The decrease was attributed to contract terminations,
contract renegotiations and the operation of an average of 87 programs in 2003
as compared to an average of 96 programs in 2002. As a percentage of sales,
Wound Care Management gross margin was 54% in 2003 as compared to 57% in 2002.
The decrease was attributed to contract renegotiations and the conversion of
three under arrangement contracts to management services contracts.

      SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $18.1 million, or 69%, to $44.5 million in 2003 from $26.4
million in 2002 and consisted of $19.3 million related to the Specialty Infusion
business unit (including $1.6 million in charges), $4.6 million related to the
Wound Care Management business unit and $20.6 million related to corporate
services (including $5.1 million in charges). The total 2003 charges of $6.7
million included the following:

<TABLE>
<CAPTION>
                                                                                IN
      CHARGE                                                                 MILLIONS
      --------------------------------------------------------------------   --------
<S>                                                                            <C>
      Consolidation of pharmacy operations in California                       $ 1.6
      Settlement of executive departures in March 2002                           1.1
      Early termination cost of previous credit line                             0.6
      Legal and other costs associated with corporate legal structure
      reorganization                                                             0.2
      Convertible note offering not completed                                    0.7
      Severance costs related to the terminations of certain executives          0.5
      Acquisitions not completed                                                 1.4
      Additional costs related to corporate legal structure reorganization       0.3
      Write-off of equipment                                                     0.3
                                                                               -----
         Total charges                                                         $ 6.7
                                                                               =====
</TABLE>

      The increase of $18.1 million was primarily due to an increase of $8.0
million of Specialty Infusion expenses attributed to the Specialty Infusion
acquisitions completed in 2003 and 2002 and costs related to the 2003
non-hemophilia sales force hires and new business development efforts, increased
costs of $3.0 million related to additional corporate staff to support these
acquisitions, $0.4 million attributed to the Wound Care Management business unit
and the $6.7 million in charges. As a percentage of revenues, selling, general
and administrative expenses were 21% in 2003 compared to 19% in 2002. Excluding
the $6.7 million in charges, selling, general and administrative expenses
increased $11.4 million, or 43%, and accounted for 18% of revenues.

      INTEREST INCOME (EXPENSE). Net interest in 2003 was $2.3 million as
compared to $1.1 million in 2002. The increase in interest expense was the
result of the increased borrowings and uses of notes payable and debt to
partially fund the Specialty Infusion acquisitions (see Note C of Notes to
Consolidated Financial Statements).


                                       31
<PAGE>

      OTHER INCOME. Other income for 2003 was $2.3 million as compared to $1.9
million in 2002 and represented the Company's sale of its interest in Accordant
Health Services, Inc. (see Note B of Notes to Consolidated Financial
Statements).

      NET INCOME. Net income was $13.1 million, or $.96 per diluted share
(calculated under the "as if" converted method; see Note P of Notes to
Consolidated Financial Statements), in 2003 compared to net income of $14.6
million, or $1.20 per diluted share, in 2002. The decrease of $1.6 million, or
11%, was primarily due to the 2003 charges of $6.7 million, the costs related to
hiring a sales force for the Specialty Infusion business unit, increased
investment in information technology systems and corporate hires to support
acquisition growth. Excluding these charges, net income would have increased by
approximately $5.1 million, primarily attributable to the inclusion of the
Specialty Infusion acquisitions completed in 2002 and included for a full year
in 2003 versus a partial year in 2002 and the acquisitions completed in 2003.

LIQUIDITY AND CAPITAL RESOURCES

      Working capital was $50.8 million at December 31, 2004 compared to $25.5
million at December 31, 2003. Total cash and cash equivalents at December 31,
2004 was $1.2 million. The ratio of current assets to current liabilities was
1.8 to 1 at December 31, 2004 and 1.5 to 1 at December 31, 2003.

      Cash flows used in operating activities for 2004 totaled $5.6 million,
primarily attributable to the net loss for the period, and increases of
approximately $4.0 million, $5.6 million and $1.4 million, in inventories,
prepaids and other and accounts receivable, respectively, offset by a $134.8
million goodwill and intangible asset impairment charge, depreciation and total
amortization of $6.6 million, doubtful accounts provision of $3.4 million and a
$1.1 million change in fair value related to the interest rate swap. The
increase in prepaids and other is primarily the result of financing fees
capitalized in 2004 and a deposit made with a supplier, the purpose of which is
to improve the payment discount percentage the Company receives. This deposit is
refundable at any time.

      Cash flows used in investing activities totaled $155.8 million primarily
attributable to $154.2 million cash used in the CCS acquisition and $5.4 million
used in fixed asset purchases, offset by proceeds of approximately $2.8 million
from Accordant Health Services and $1.5 million from the disposal of property
and equipment.

      Cash flows provided by financing activities totaled $161.6 million
attributable to $173.4 million in net proceeds from long-term borrowings, offset
by $12.1 million used in net repayments of debt obligations.

      At December 31, 2004, the Company experienced a net increase in accounts
receivable of $26.5 million attributable to the acquisition of CCS and an
increase in accounts receivable days outstanding. Days sales outstanding were 88
days at December 31, 2004, as compared to 78 days at December 31, 2003. At
December 31, 2004, days sales outstanding for the Specialty Infusion business
unit was 89 days and for the Wound Care Management business unit, days sales
outstanding was 73 days compared to 79 days and 70 days, respectively, at
December 31, 2003. The increase in days sales outstanding was attributed to the
inclusion of CCS, which historically has experienced higher days sales
outstanding, as well as a slowdown from California state payors for the first
three quarters of 2004. During the fourth quarter of 2004, the Company entered
into a settlement agreement wherein DHS agreed to process, on a priority basis,
all pending and future claims submitted by the Company as well as implement
electronic billing and payment for blood-clotting factor (see Note S of Notes to
Consolidated Financial Statements).

      As of December 31, 2004, the Company's current portion of long-term
liabilities of $6.5 million included $1.6 million representing the current
portion of the DOJ obligation, $0.9 million representing the current portion of
a convertible note payable used in connection with the purchase of Apex in
February 2002, $3.0 million in a convertible note payable related to the
purchase of Home Care of New York, Inc. ("Home Care") in October 2002 and $1.0
million representing the note payable used in connection with the purchase of
certain assets of Prescription City in June 2003. At December 31, 2004, the
Company's long-term liabilities of $211.0 million included $185.0 million in
senior notes payable, $24.3 million in borrowed funds from the Company's
commercial lender, a $1.3 million promissory note representing the long-term
portion of the convertible note used in the purchase of Apex and $0.4 million
representing the long-term portion of the DOJ obligation.


                                       32
<PAGE>

      The Company's current portion of long-term liabilities and long-term
liabilities increased $170.0 million to $217.5 million at December 31, 2004
compared to $47.5 million at December 31, 2003. The increase is due to the
Company's issuance of $185.0 million aggregate principal amount of 10.75% senior
notes due 2011 pursuant to Rule 144A and Regulation S under the Securities Act
of 1933, offset by the conversion of $1.2 million in the first quarter of 2004
related to the note the Company issued pursuant to its acquisition of Infinity
Infusion Care, Ltd. and a lower balance on the revolving credit facility.

      The Company's longer term cash requirements include working capital for
the expansion of its Specialty Infusion business branch pharmacy network and
servicing of the Company's substantial debt. Other cash requirements are
anticipated for capital expenditures in the normal course of business, including
the acquisition of software, computers and equipment related to the Company's
management information systems. As of December 31, 2004, the Company had a $2.0
million obligation, payable over approximately one year, to the DOJ related to
the settlement of its litigation previously disclosed, as well as senior notes
bank debt and convertible and promissory notes totaling $215.5 million payable
over various periods through 2011. In April 2004, the Company completed the
acquisition of CCS for total consideration of approximately $154.2 million in
cash. The purchase price was paid with the proceeds from an offering of $185.0
million aggregate principal amount of 10.75% senior notes due 2011 offered to
eligible purchasers pursuant to Rule 144A and Regulation S under the Securities
Act of 1933. Concurrent with the transaction closing, the Company also completed
the refinancing of its credit facility with General Electric Capital Corporation
("GE Capital"), as agent and lender to a $40.0 million senior secured revolving
credit facility to support permitted acquisitions and future working capital and
general corporate needs. As of December 31, 2004, the Company had approximately
$15.7 million of availability under its revolving credit facility. The credit
facility contains both financial and non-financial covenants. The financial
covenants include a total leverage ratio, fixed charges coverage ratio, senior
secured leverage ratio, capital expenditures and accounts receivable days
outstanding limits. In the event of default under any of these covenants, the
Company may seek a waiver or amendment of the covenants. Effective December 31,
2004, the Company sought and received from GE Capital an amendment to the
revolving credit facility to amend the financial covenants of total leverage
ratio and fixed charges. These covenants were amended through December 31, 2005.
There can be no assurance, however, that such a waiver or amendment that may be
needed in the future will be obtained. In the event of any such default, the
lender may suspend or terminate advances under the credit facility, or the
lender may accelerate the debt and demand immediate payment of any outstanding
balance. An acceleration of the debt under the Company's senior secured credit
facility would result in an event of default under the indenture for the
Company's 10.75% senior notes due 2011 as well. The Company was in compliance
with the amended covenants under the credit facility at December 31, 2004.

      During the fourth quarter of 2004, the Company entered into a settlement
agreement wherein DHS agreed to process, on a priority basis, all pending and
future claims submitted by the Company as well as implement electronic billing
and payment for blood-clotting factor. As a result, the Company anticipates a
reduction in its days sales outstanding over the next twelve months and expects
that this reduction will improve its cash flow from operations. However, there
can be no assurance that the Company will be successful in reducing its days
sales outstanding or improving its cash flow from operations. If the Company is
not successful in improving its operating cash flow, it may be necessary to
reduce operating costs, capital expenditures or pursue additional sources of
debt and/or equity financing.

      The Company believes that, based on the above as well as its current
business plan and an expected $3.4 million in refundable taxes, its operating
cash flow and existing credit facilities will be sufficient to meet working
capital needs for the servicing of its debt, approximately $18.6 million in net
interest expense related to the Company's outstanding senior notes, and the
expansion of its branch network of full-service pharmacies, including capital
expenditure requirements of approximately $1.2 million, over the next twelve
months. However, any material increase in the Company's days sales outstanding
or the failure to collect receivables under the settlement agreement with DHS
could slow the Company's business expansion plans, create difficulty in
servicing its debt or require the Company to increase its credit facilities,
issue equity or offer some combination of both debt and equity to meet its
working capital needs.


                                       33
<PAGE>

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

      At December 31, 2004, the Company had a $2.0 million obligation, payable
quarterly through February 2006, to the DOJ related to the settlement of its
litigation previously disclosed, as well as bank debt and convertible and
promissory notes totaling $215.5 million payable over various periods through
2011 that were used in the Specialty Infusion acquisitions (see Note I of Notes
to Consolidated Financial Statements). In addition, the Company has contractual
obligations under various operating leases.

      The following table details total future payments under these obligations
at December 31, 2004 (in thousands):

<TABLE>
<CAPTION>
                                                                                       MORE
                                                  LESS THAN     1 - 3      3 - 5      THAN 5
                                        TOTAL       1 YEAR      YEARS      YEARS      YEARS
                                      ---------   ---------   --------   --------   ---------
<S>                                   <C>          <C>        <C>        <C>        <C>
      Long-term debt:
         Senior subordinated notes    $ 185,000    $     --   $     --   $     --   $ 185,000
         Revolving loan facility         24,310          --         --     24,310          --
         DOJ obligation                   2,000       1,625        375         --          --
         Convertible and promissory
            notes payable                 6,177       4,871      1,306         --          --
      Operating leases                   14,812       4,318      6,360      3,085       1,049
      Purchase obligations(1)            55,742      50,179      5,563         --          --
                                      ---------    --------   --------   --------   ---------
      Total                           $ 288,041    $ 60,993   $ 13,604   $ 27,395   $ 186,049
                                      =========    ========   ========   ========   =========
</TABLE>

      (1)   The Company's hemophilia product Volume Commitment Agreement with
            Baxter Healthcare Corporation ("Baxter") terminates on December 31,
            2006, unless terminated earlier pursuant to the provisions of the
            Agreement. Thereafter, the Agreement can be renewed at the option of
            the Company for up to two (2) successive one (1) year terms, unless
            terminated earlier pursuant to the provisions of the Agreement. The
            Company's Medication Delivery Division Group Agreement terminates on
            February 28, 2006, and the Company has the option to renew this
            agreement for an additional two-year period with written
            notification to Baxter sixty days prior to the termination date.

      The effects of inflation and changing prices are considered immaterial.

RECENTLY ISSUED ACCOUNTING STANDARDS

      In June 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," which nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 establishes fair value as the objective for initial measurement of
liabilities related to exit or disposal activities and requires that such
liabilities be recognized when incurred. The Company adopted SFAS No. 146
effective January 1, 2003. See Note G of Notes to Consolidated Financial
Statements. The adoption of this standard did not have a material effect on the
Company's consolidated financial statements.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," and provides alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 to require disclosure, in both annual and interim
financial statements, in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share. The Company adopted
SFAS No. 148 effective December 31, 2002. See Note A of Notes to Consolidated
Financial Statements.


                                       34
<PAGE>

      In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities" and amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
requires that all contracts with comparable characteristics be accounted for
similarly and clarifies the circumstances for which a contract with an initial
net investment meets the characteristics of a derivative as well as when a
derivative contains a financing component. This statement is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company adopted SFAS No. 149
effective April 1, 2004. See Note J of Notes to Consolidated Financial
Statements.

      In November 2004, the EITF announced that it reached a consensus with
respect to Issue No. 04-8, "The Effect of Contingently Convertible Instruments
on Diluted Earnings Per Share." The EITF's consensus states that contingently
convertible debt instruments and other contingently convertible instruments that
are generally convertible into common stock are subject to the if-converted
method under SFAS No. 128, "Earnings Per Share,"(i.e., included in diluted
earnings per share computations, if dilutive) regardless of whether their market
price triggers (or other contingent features) have been met. The adoption of
Issue No. 04-8 did not have a material effect on the Company's consolidated
financial statements.

      In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment," which is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123(R) supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement
of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar to the
approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.

      SFAS No. 123(R) must be adopted no later than July 1, 2005. The Company
expects to adopt SFAS No. 123(R) on July 1, 2005.

      SFAS No. 123(R) permits public companies to adopt its requirements using
one of two methods:

      1.    A "modified prospective" method in which compensation cost is
            recognized beginning with the effective date (a) based on the
            requirements of SFAS No. 123(R) for all share-based payments granted
            after the effective date and (b) based on the requirements of SFAS
            No. 123 for all awards granted to employees prior to the effective
            date of SFAS No. 123(R) that remain unvested on the effective date.

      2.    A "modified retrospective" method which includes the requirements of
            the modified prospective method described above, but also permits
            entities to restate based on the amounts previously recognized under
            SFAS No. 123 for purposes of pro forma disclosures for either (a)
            all prior periods presented or (b) prior interim periods of the year
            of adoption.

      The Company plans to adopt SFAS No. 123(R) using the
modified-retrospective method, restating only the prior interim periods of 2005.

      As permitted by SFAS No. 123, the Company currently accounts for
share-based payments to employees using APB No. Opinion 25's intrinsic value
method and, as such, generally recognizes no compensation cost for employee
stock options. Accordingly, the adoption of SFAS No. 123(R)'s fair value method
will have a significant impact on the Company's results of operations, although
it will have no impact on its overall financial position. The impact of adoption
of SFAS No. 123(R) cannot be predicted at this time because it will depend on
levels of share-based payments granted in the future. However, had the Company
adopted SFAS No. 123(R) in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net (loss) income and net (loss) income per share in Note P of Notes to
Consolidated Financial Statements. SFAS No. 123(R) also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. While the Company
cannot estimate what those amounts will be in the future (because they depend
on, among other things, when employees exercise stock options), the amount of
operating cash flows recognized in prior periods for such tax deductions were
zero, $1.5 million and $3.3 million in 2004, 2003 and 2002, respectively.


                                       35
<PAGE>

CAUTIONARY STATEMENT AND RISK FACTORS

      The statements contained in this Annual Report on Form 10-K include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "PSLRA"). When used in this Annual Report on
Form 10-K and in future filings by us with the Securities and Exchange
Commission, in our news releases, presentations to securities analysts or
investors, and in oral statements made by or with the approval of one of our
executive officers, the words or phrases "believes," "anticipates," "expects,"
"plans," "seeks," "intends," "will likely result," "estimates," "projects" or
similar expressions are intended to identify such forward-looking statements.
These forward-looking statements involve risks and uncertainties that may cause
our actual results to differ materially from the results discussed in the
forward-looking statements.

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

RISKS RELATED TO OUR BUSINESS

OUR SUBSTANTIAL LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND PREVENT US FROM FULFILLING OUR DEBT OBLIGATIONS.

      As of December 31, 2004, we had approximately $217.5 million of total
indebtedness which included $185.0 million aggregate principal amount of our
10.75% Senior Notes due 2011 (the "Notes") and our credit facility of $24.3
million with General Electric Capital Corporation. Subject to restrictions in
the indenture related to the Notes and our credit facility, we may incur
additional indebtedness.

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

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

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

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

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

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

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

      o     limit our ability to borrow additional funds.


                                       36
<PAGE>

      We expect to obtain the money to pay our expenses and to pay the principal
and interest on the Notes, our revolving credit facility and other debt from
cash flow from our operations and from additional loans under our revolving
credit facility. Our ability to meet our expenses thus depends on our future
performance, which will be affected by financial, business, economic and other
factors. For example, in 2004, our business was adversely affected by
reimbursement reductions in the State of California for the hemophilia related
products we sell. We will not be able to control many of these factors, such as
economic conditions in the markets where we operate and pressure from
competitors. We cannot be certain that our cash flow will be sufficient to allow
us to pay principal and interest on our debt (including the Notes) and meet our
other obligations, such as those relating to the expansion of our branch
pharmacy network or the planned relocation of our corporate offices. If we do
not have enough money, we may be required to refinance all or part of our
existing debt (including the Notes), sell assets or borrow more money. We cannot
guarantee that we will be able to do so on terms acceptable to us. In addition,
the terms of existing or future debt agreements, including our revolving credit
facility and the indenture, may restrict us from adopting any of these
alternatives. The failure to generate sufficient cash flow or to achieve such
alternatives could significantly adversely affect the value of the Notes and our
ability to pay principal of and interest on the Notes.

OUR SUBSTANTIAL OUTSTANDING DEBT SUBJECTS US TO COVENANT DEFAULT RISK UNDER OUR
SENIOR SECURED CREDIT FACILITY.

      We are highly leveraged. If we are unable to achieve our forecasted
operating results, we may violate covenants under our senior secured credit
facility. The financial covenants under our senior secured credit facility
include a total leverage ratio, fixed charges coverage ratio, senior secured
leverage ratio, capital expenditures and accounts receivable days outstanding
limits. In the event we default under any of these covenants, we may seek a
waiver or amendment of the covenants. Effective December 31, 2004, the Company
executed an amendment to its revolving credit facility to amend the financial
covenants of total leverage ratio and fixed charges, in addition to other
changes made to the credit agreement. The financial covenants were amended
through December 31, 2005 and may need to be amended again depending on the
Company's operating results. There can be no assurance, however, that we will be
able to obtain such a waiver or amendment. In the event we are unable to obtain
a waiver or amendment to remedy any such default, the lender may suspend or
terminate advances under the credit facility, or the lender may accelerate the
debt and demand immediate payment of any outstanding balance. An acceleration of
the debt under our senior secured credit facility would result in an event of
default under the indenture for our Notes due 2011 as well.

IF WE FAIL TO COMPLY WITH THE TERMS OF OUR SETTLEMENT AGREEMENT WITH THE
GOVERNMENT, WE COULD BE SUBJECT TO ADDITIONAL LITIGATION OR OTHER GOVERNMENTAL
ACTIONS WHICH COULD BE HARMFUL TO OUR BUSINESS.

      On December 28, 2001, we entered into a settlement with the U.S.
Department of Justice ("DOJ"), the U.S. Attorney for the Southern District of
New York, the U.S. Attorney for the Middle District of Florida and the U.S.
Department of Health and Human Services, Office of the Inspector General, in
connection with all federal investigations and legal proceedings related to
whistleblower lawsuits previously pending against us in the U.S. District Court
for the Southern District of New York and the U.S. District Court for the
District of Columbia. These lawsuits included allegations that we improperly
caused our hospital customers to seek reimbursement for a portion of our
management fees that included costs related to advertising and marketing
activities by our personnel and allegations that we violated the federal
anti-kickback law and the federal False Claims Act. Under the terms of the
settlement, the lawsuits were dismissed, the United States and the
whistleblowers released us from the claims asserted in the lawsuits, and we
agreed to pay to the United States a $9.0 million initial payment, with an
additional $7.5 million to be paid over the next four years. As of December 31,
2004, a balance of approximately $2.0 million was outstanding on this
obligation. Pursuant to the settlement, we have been required to fulfill certain
additional obligations, including abiding by a five-year Corporate Integrity
Agreement, avoiding violations of law and providing certain information to the
DOJ from time to time. As of December 17, 2003, we were released from part of
our obligations under the Corporate Integrity Agreement. The independent review
organization that conducts the audit of our records pursuant to the Corporate
Integrity Agreement is no longer required to conduct the general compliance
review. If we fail or if we are accused of failing to comply with the terms of
the settlement, we may be subject to additional litigation or other governmental
actions, including our Wound Care Management business unit being barred from
participating in the Medicare program and other federal health care programs. In
addition, as part of the settlement, we consented to the entry of a judgment
against us for $28.0 million, less any amounts previously paid under the
settlement, that would be


                                       37
<PAGE>

imposed only if we fail to comply with the terms of the settlement, which, if
required to be paid, could have a material adverse effect on our financial
position. In July 2002, we settled a shareholders' class action suit for $10.5
million that had been consolidated from four lawsuits involving allegations
stemming from the whistleblower lawsuits and DOJ investigations.

WE ARE INVOLVED IN LITIGATION WHICH MAY HARM THE VALUE OF OUR BUSINESS.

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

A SUBSTANTIAL PERCENTAGE OF OUR REVENUE IS ATTRIBUTABLE TO THE MEDICAID AND
MEDICARE PROGRAMS. OUR BUSINESS HAS BEEN SIGNIFICANTLY ADVERSELY IMPACTED BY
RECENT CHANGES IN MEDI-CAL REIMBURSEMENT POLICIES AND WILL CONTINUE TO BE
SUBJECT TO CHANGES IN REIMBURSEMENT POLICIES AND OTHER LEGISLATIVE OR REGULATORY
INITIATIVES AIMED AT REDUCING COSTS ASSOCIATED WITH VARIOUS GOVERNMENT PROGRAMS.

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

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

      Effective January 1, 2005, the Medicare reimbursement methodology for many
of the products we distribute (including blood-clotting factor products) changed
from an AWP-based system to one based upon Average Selling Price ("ASP") which
has lowered Medicare reimbursement. The ASP drug methodology does not apply to
drugs dispensed to and infused in the home. In addition to the payment we
receive from the Medicare program for blood-clotting factor, beginning in
January 2005, we receive a separate payment of $0.14 for each unit of factor
furnished to Medicare beneficiaries. It is possible that states and/or
commercial payors may adopt the new Medicare reimbursement methodology. The
conversion to a system based upon ASP could have a material adverse effect on
our business, financial condition and results of operations. In addition, MMA
changes the relationship between the Medicare and Medicaid programs such that we
may receive less reimbursement in the future for individuals who receive
benefits under both of these programs.


                                       38
<PAGE>

      In addition to these federal initiatives, many states are also making
modifications to the manner with which they reimburse providers of pharmacy
services. For example, in California, where approximately 12% of our total
revenues for year ended December 31, 2004 were derived from the California state
funded health programs, the state legislature in 2003 passed legislation that
modified the reimbursement methodology for blood-clotting factor products under
various California state funded health programs. Under the new reimbursement
methodology, blood-clotting factor products are reimbursed based upon ASP, as
provided by the manufacturers, plus 20%. In addition, payments for California's
Medicaid program ("Medi-Cal") and certain other state-funded health programs
were to be reduced by 5% for services provided on and after January 1, 2004. On
December 23, 2003, the United States District Court for the Eastern District of
California issued an injunction enjoining that scheduled 5% Medi-Cal
reimbursement rate cut. The California Department of Health Services ("DHS")
appealed the decision to the federal Ninth Circuit Court of Appeals, and oral
argument was heard by the Ninth Circuit on December 8, 2004. A decision is
expected in the next few months, but an exact date when the decision will be
issued cannot be predicted. The length of the injunction and the ultimate
outcome of this litigation are uncertain at this time. The court order enjoining
the 5% Medi-Cal rate reduction did not apply to other state funded programs for
hemophilia patients, and California implemented the 5% reduction for these other
programs. However, the 5% reduction as applied to the other state funded
programs was repealed on or about July 31, 2004 for services provided on and
after July 1, 2004.

      In May, 2004, DHS issued a provider bulletin notifying providers that the
ASP plus 20% methodology would be implemented for services provided on and after
June 1, 2004, but did not specify actual reimbursement rates. On or about July
9, 2004, DHS published a notice in the California Regulatory Notice Register
advising that persons wanting to find out the latest rates could obtain the
information from Electronic Data Systems. The revised rates have resulted in
substantially greater cuts than the guidance previously provided by DHS
representatives had indicated, amounting to approximately a 30-40% cut from
rates previously in effect. The implementation of the reduction in the
reimbursement from Medi-Cal, and changes in regulations governing such
reimbursement, has adversely impacted our revenues and profitability from the
sale of products by us or by retail pharmacies to which we provide products or
services for hemophilia patients who are Medi-Cal beneficiaries or beneficiaries
of other state funded programs for hemophilia patients.

      On May 27, 2004, a lawsuit was filed on behalf of two individual Medi-Cal
recipients with hemophilia in the United States District Court for the Eastern
District of California against the State of California relating to the
implementation of the new ASP reimbursement methodology, alleging, among other
things, that a severe reduction in reimbursement rates would threaten the
ability of Medi-Cal recipients with hemophilia to have adequate access to
blood-clotting factor. In addition, on June 10, 2004, we filed a lawsuit in the
Superior Court for the County of Sacramento relating to the failure of DHS to
disclose payment rates and the detailed methodology utilized to determine the
rates, and its failure to comply with certain applicable federal procedural
requirements relating to the reimbursement rates. In December, 2004, we and
certain named individual plaintiffs entered into a Settlement Agreement which
resolved both of these cases. In return for dismissal of both lawsuits, DHS
agreed to process, on a priority basis, all pending and future Medi-Cal,
California Children's Services and Genetically Handicapped Persons Program
claims submitted by us. In addition, DHS agreed to expedite its efforts to
implement electronic billing and payment for blood-clotting factor claims. There
can be no assurance, however, that the Company's accounts receivable collections
from the State of California will improve as the result of this settlement
agreement. A failure of the Company to improve its accounts receivable
collections from the State of California could have a material adverse effect on
the Company's business, financial condition and operating results.

      In addition, the Governor of California has recently proposed to expand
the Medi-Cal managed care program into 13 additional counties and to phase in
mandatory enrollment for aged, blind and disabled Medi-Cal beneficiaries. We
understand there may be significant concern by various constituencies over
mandatory enrollment of medically fragile populations, and the outcome of these
proposals is uncertain at this time.

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


                                       39
<PAGE>

WE HAVE RECENTLY EXPERIENCED RAPID GROWTH BY ACQUISITIONS. IF WE ARE UNABLE TO
MANAGE OUR GROWTH EFFECTIVELY OR TO PURCHASE OR INTEGRATE NEW COMPANIES, OUR
BUSINESS COULD BE HARMED.

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

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

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

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

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

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

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

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

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

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

OUR GROWTH STRATEGY INCLUDES ACQUISITIONS. IF WE FAIL TO IMPLEMENT OUR
ACQUISITION GROWTH STRATEGY AS INTENDED, OR INCUR UNKNOWN LIABILITIES FOR THE
PAST PRACTICES OF ACQUIRED COMPANIES, OUR RESULTS OF OPERATIONS COULD BE
ADVERSELY AFFECTED.

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

      We may acquire businesses with significant unknown or contingent
liabilities, including liabilities for failure to comply with health care or
reimbursement laws and regulations. We have policies to conform the practices of
acquired businesses to our standards and applicable laws and generally intend to
seek indemnification from prospective sellers covering these matters. We may,
however, incur material liabilities for past activities of acquired businesses.
For example, shortly after our June 2002 acquisition of certain assets from
Prescription City, Inc., our pharmacy formerly located in Spring Valley, New
York, was served with a search warrant issued by a U.S. Magistrate Judge for the


                                       40
<PAGE>

Southern District of New York relating to a criminal investigation. The
government has informed us that we are not a target of this investigation, but
we anticipate that this investigation will reduce revenues from our oncology
related pharmaceuticals business, and could cause us to incur substantial costs
and divert the attention of our management.

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

WE OPERATE IN A RAPIDLY CHANGING AND CONSOLIDATING COMPETITIVE ENVIRONMENT. IF
WE ARE UNABLE TO ADAPT QUICKLY TO THESE CHANGES, OUR BUSINESS AND RESULTS OF
OPERATIONS COULD BE SERIOUSLY HARMED.

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

THE ANTICIPATED BENEFITS OF COMBINING CURATIVE AND CCS MAY NOT BE REALIZED.

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

CURATIVE MAY HAVE DIFFICULTY AND INCUR SUBSTANTIAL COSTS IN INTEGRATING CCS.

      Integrating Curative and CCS will be a complex, time-consuming and
expensive process. Before the acquisition, Curative and CCS operated
independently, each with its own business, products, customers, employees,
culture and systems. The combined company may face substantial difficulties,
costs and delays in integrating Curative and CCS. These factors may include:

      o     potential difficulty in leveraging the value of the separate
            technologies of the combined company;

      o     managing patient and payor overlap and potential pricing conflicts;

      o     costs and delays in implementing common systems and procedures;

      o     difficulty integrating differing distribution models;

      o     diversion of management resources from the business of the combined
            company;

      o     potential incompatibility of business cultures and philosophies;

      o     reduction or loss of revenue due to the potential for market
            confusion, hesitation and delay;

      o     retaining and integrating management and other key employees of the
            combined company; and

      o     coordinating infrastructure operations in an effective and efficient
            manner.


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<PAGE>

      We may seek to combine certain operations and functions using common
information and communication systems, operating procedures, financial controls
and human resource practices. We may be unsuccessful in implementing the
integration of these systems and processes.

      Any one or all of these factors may cause increased operating costs, worse
than anticipated financial performance or the loss of patients and payor
contracts. Many of these factors are also outside our control. The failure to
effectively and efficiently integrate Curative and CCS could have a material
adverse effect on our business, financial condition and operating results.

      In December 2004, we announced that our corporate headquarters and
corporate functions in Hauppauge, New York, will be consolidated into our office
located in Nashua, New Hampshire. The consolidation, which is expected to be
completed within the first six to eight months of 2005, will require recruitment
of qualified personnel in the areas of finance, legal and marketing. There can
be no assurance that we will be able to attract and/or retain qualified
personnel in these areas. The failure to do so could have a material adverse
effect on our business, financial condition and operating results.

WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR GROWTH AND CAPITAL REQUIREMENTS,
WHICH COULD PREVENT US FROM FULLY PURSUING OUR GROWTH STRATEGY.

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

AN IMPAIRMENT OF THE SIGNIFICANT AMOUNT OF GOODWILL ON OUR FINANCIAL STATEMENTS
COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

      Our specialty infusion acquisitions resulted in the recording of a
significant amount of goodwill on our financial statements. The goodwill was
recorded because the fair value of the net assets acquired was less than the
purchase price. We may not realize the full value of this goodwill. As such, we
evaluate, at least on an annual basis, whether events and circumstances indicate
that all or some of the carrying value of goodwill is no longer recoverable, in
which case we would write off the unrecoverable goodwill as a charge against our
earnings.

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

      We conducted our annual impairment test related to the carrying value of
our goodwill and other intangible assets in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets." Based on the results of our evaluation,
we concluded that an impairment charge of $134.8 million needed to be taken to
reduce our Specialty Infusion segment goodwill and intangibles to their
estimated fair values as of December 31, 2004. This charge resulted primarily
from changes in the economics of our Specialty Infusion business unit, including
the recent changes in reimbursement methodology, as described above, that has
occurred in 2004. Subsequent to this impairment, we had goodwill of
approximately $123.1 million, or 44% of total assets, as of December 31, 2004.


                                       42
<PAGE>

WE ARE HIGHLY DEPENDENT ON OUR RELATIONSHIPS WITH A LIMITED NUMBER OF
BIOPHARMACEUTICAL AND PHARMACEUTICAL SUPPLIERS, AND THE LOSS OF ANY OF THESE
RELATIONSHIPS COULD SIGNIFICANTLY AFFECT OUR ABILITY TO SUSTAIN OR GROW OUR
REVENUES.

      The biopharmaceutical and pharmaceutical industries are susceptible to
product shortages. Some of the products that we distribute, such as factor VIII
blood-clotting products and IVIG, have experienced shortages in the past due to
the inability of suppliers to increase production to meet rising global demand.
Although such shortages have ended, demand continues to grow. We are currently
experiencing allocation restrictions of IVIG products. Suppliers were unable to
increase production to meet rising global demand. Although this shortage has
ended, demand continues to grow. In 2004, approximately 32%, or $81.3 million,
of our Specialty Infusion business unit revenues were derived from our sale of
factor VIII. We purchase the majority of our supplies of blood-clotting products
from five suppliers: Baxter Healthcare Corporation, Bayer Direct, Genetics
Institute, ZLB Behring and Express Scripts Specialty Care. We believe that these
five suppliers represent substantially all of the production capacity for
recombinant factor VIII. In the event that one of these suppliers is unable to
continue to supply us with products, it is uncertain whether the remaining
suppliers would be able to make up any shortfall resulting from such inability.
Our ability to take on additional customers or to acquire other specialty
pharmacy or infusion services businesses with significant hemophilia customer
bases could be affected negatively in the event we are unable to secure adequate
supplies of our products from these suppliers. In addition, MedImmune, Inc. is
the sole source of Synagis(R), a product used to treat RSV in infants. For the
year ended December 31, 2004, approximately 17%, or $43.7 million of our
Specialty Infusion business unit revenues was derived from our sale of
Synagis(R). MedImmune's failure to provide us with an adequate supply of
Synagis(R) product for any reason could impair our ability to add and service
patients. In particular, RSV occurs primarily during the winter months and thus
the demand for Synagis(R) is greater during this time. A shortage in the supply
of Synagis(R) or our failure to adequately plan for the demand could adversely
affect our financial results. Under our existing arrangements with MedImmune, we
are non-exclusive distributors of Synagis(R) and MedImmune has no obligation to
supply us with a minimum amount of Synagis(R). We have recently been put on
allocation of product for IVIG by our largest supplier of IVIG product. Although
we believe we will have sufficient supply of IVIG to service our existing
customers, we will not be able to increase our market share of providing
infusion services related to IVIG. There can be no assurance as to when the
allocation for IVIG products will terminate. In addition, it is likely that we
will experience price increases for these products. Although we believe the
price increase for these products will be absorbed by our customers, there can
be no assurance that we will be successful in passing on any such price
increase. If these products, or any of the other drugs or products that we
distribute, are in short supply for long periods of time, our business could be
harmed.

SOME BIOPHARMACEUTICAL SUPPLIERS IN THE SPECIALTY PHARMACY INDUSTRY HAVE CHOSEN
TO LIMIT THE NUMBER OF DISTRIBUTORS OF THEIR PRODUCTS. IF WE ARE NOT SELECTED AS
A PREFERRED DISTRIBUTOR OF ONE OR MORE OF OUR CORE PRODUCTS, OUR BUSINESS AND
RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED.

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

THE SEASONAL NATURE OF A PORTION OF OUR BUSINESS MAY CAUSE SIGNIFICANT
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.

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


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<PAGE>

IF WE FAIL TO CULTIVATE NEW OR MAINTAIN ESTABLISHED RELATIONSHIPS WITH THE
PHYSICIAN REFERRAL SOURCES, OUR REVENUES MAY DECLINE.

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

IF ADDITIONAL PROVIDERS OBTAIN ACCESS TO PRODUCTS WE HANDLE AT MORE FAVORABLE
PRICES, OUR BUSINESS COULD BE HARMED.

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

RECENT INVESTIGATIONS INTO REPORTING OF AVERAGE WHOLESALE PRICES COULD REDUCE
OUR PRICING AND MARGINS.

      Many government payors, including Medicare (in 2004) and many state
Medicaid programs, as well as a number of private payors, pay us directly or
indirectly based upon a drug's AWP. In fact, most of our Specialty Infusion
business unit revenues result from reimbursement methodologies based on the AWP
of our products. The AWP for most drugs is compiled and published by third-party
price reporting services, such as First DataBank, Inc., from information
provided by manufacturers and/or wholesalers. Various federal and state
government agencies have been investigating whether the published AWP of many
drugs, including some that we distribute and sell, is an appropriate or accurate
measure of the market price of the drugs. There are also several lawsuits
pending against various drug manufacturers in connection with the
appropriateness of the manufacturers' AWP for a particular drug(s). These
government investigations and lawsuits involve allegations that manufacturers
reported artificially inflated AWPs of various drugs to third-party price
reporting services, which, in turn, reported these prices to its subscribers,
including many state Medicaid agencies who then included these AWPs in the
state's reimbursement policies.

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


                                       44
<PAGE>

A REDUCTION IN THE DEMAND FOR OUR PRODUCTS AND SERVICES COULD RESULT IN OUR
REDUCING THE PRICING AND MARGINS ON CERTAIN OF OUR PRODUCTS.

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

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

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

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

      o     the expiration or challenge of a drug patent;

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

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

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

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

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

      o     the cure of a disease we service.

OUR BUSINESS INVOLVES RISKS OF PROFESSIONAL, PRODUCT AND HAZARDOUS SUBSTANCE
LIABILITY, AND ANY INABILITY TO OBTAIN ADEQUATE INSURANCE MAY ADVERSELY AFFECT
OUR BUSINESS.

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

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

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


                                       45
<PAGE>

WE RELY ON KEY COMMUNITY-BASED REPRESENTATIVES WHOSE ABSENCE OR LOSS COULD HARM
OUR BUSINESS.

      The success of our Specialty Infusion business unit depends upon our
ability to retain key employees known as community-based representatives, and
the loss of their services could adversely affect our business and prospects.
Our community-based representatives are our chief contacts and maintain the
primary relationship with our customers, and the loss of a single
community-based representative could result in the loss of a significant number
of customers. We do not have key person insurance on any of our community-based
representatives. In addition, our success depends upon, among other things, the
successful recruitment and retention of qualified personnel, and we may not be
able to retain all of our key management personnel or be successful in
recruiting additional replacements should that become necessary.

OUR INABILITY TO MAINTAIN A NUMBER OF IMPORTANT CONTRACTUAL RELATIONSHIPS COULD
ADVERSELY AFFECT OUR OPERATIONS.

      Substantially all of the revenues of our Wound Care Management operations
are derived from management contracts with acute care hospitals. At December 31,
2004, we had 98 management contracts (93 operating and 5 contracted). The
contracts generally have initial terms of three to five years, and many have
automatic renewal terms unless specifically terminated. The contracts often
provide for early termination either by the client hospital if specified
performance criteria are not satisfied, or by us under various other
circumstances. Historically, some contracts have expired without renewal, and
others have been terminated by us or the client hospital for various reasons
prior to their scheduled expiration. During 2004, two contracts expired without
renewal, and an additional five contracts were terminated prior to their
scheduled expiration. Generally, these contracts were terminated by hospitals
because of the now settled DOJ investigation of Wound Care Management, hospital
financial difficulties and Medicare reimbursement changes which reduced hospital
revenues. Our continued success is subject to, among other things, our ability
to renew or extend existing management contracts and obtain new management
contracts. Any hospital may decide not to continue to do business with us
following expiration of its management contract, or earlier if such management
contract is terminable prior to expiration. In addition, any changes in the
Medicare program or third-party reimbursement levels which generally have the
effect of limiting or reducing reimbursement levels for health services provided
by programs managed by us could result in the early termination of existing
management contracts and could adversely affect our ability to renew or extend
existing management contracts and to obtain new management contracts. The
termination or non-renewal of a material number of management contracts could
harm our business.

      In addition, a portion of the revenues of our Specialty Infusion
operations is derived from contractual relationships with retail pharmacies. Our
success is subject to, among other things, the continuation of these
relationships, and termination of one or more of these relationships could harm
our business.

OUR BUSINESS WILL SUFFER IF WE LOSE RELATIONSHIPS WITH PAYORS.

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

CHANGES IN REIMBURSEMENT RATES WHICH CAUSE REDUCTIONS IN THE REVENUES OF OUR
OPERATIONS HAVE ADVERSELY AFFECTED OUR WOUND CARE MANAGEMENT BUSINESS UNIT.

      As a result of the Balanced Budget Act of 1997, the CMS implemented the
Outpatient Prospective Payment System ("OPPS") for most hospital outpatient
department services furnished to Medicare patients beginning August 2000. Under
OPPS, a predetermined rate is paid to each hospital for clinical services
rendered, regardless of the hospital's cost. We believe the new payment system
does not provide comparable reimbursement for services previously reimbursed on
a reasonable cost basis, and we believe the payment rates for many services are
insufficient for many of our hospital customers, resulting in revenue and income
shortfalls for the Wound Care Center(R) programs


                                       46
<PAGE>

we manage on behalf of the hospitals. As a result, during 2004 and 2003, we
renegotiated and modified many of our management contracts related to our Wound
Care Management business unit, which has resulted in reduced revenue and income
to us from those modified contracts and, in numerous cases, contract
termination. These renegotiations resulted in reduced revenues of approximately
$1.0 million in the year ended December 31, 2004. In addition, we lost
approximately $0.4 million in revenues in the year ended December 31, 2004 as
the result of contract terminations. We expect that contract renegotiation and
modification with many of our hospital customers will continue, and this could
result in further reduced revenues and income to us from those contracts and
even contract terminations. These results could harm our business.

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

WE ARE SUBJECT TO PRICING PRESSURES AND OTHER RISKS INVOLVED WITH THIRD-PARTY
PAYORS.

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

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

THERE IS SUBSTANTIAL COMPETITION IN THE SPECIALTY PHARMACY, HOME INFUSION AND
WOUND CARE SERVICES INDUSTRIES, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

      Our Specialty Infusion business unit faces competition from other
specialty infusion, specialty pharmacy, home infusion and disease management
entities, general health care facilities and service providers,
biopharmaceutical companies, pharmaceutical companies as well as other
competitors. Many of these companies have substantially greater capital
resources, marketing staffs and experience in commercializing products and
services than we have, and may be able to obtain better pricing from suppliers
of products we purchase and distribute. The principal competition with our Wound
Care Management business unit consists of specialty clinics that have been
established by some hospitals or physicians. Additionally, there are some
private companies which provide wound care services through a hyperbaric oxygen
therapy program format. Furthermore, recently developed technologies, or
technologies that may be


                                       47
<PAGE>

developed in the future, are or may be the basis for products which compete with
our specialty infusion business or chronic wound care services. We may not be
able to enter into co-marketing arrangements with respect to these products or
maintain pricing arrangements with suppliers that preserve margins, and we may
not be able to compete effectively against such companies in the future.

IF WE ARE UNABLE TO EFFECTIVELY ADAPT TO CHANGES IN THE HEALTH CARE INDUSTRY,
OUR BUSINESS WILL BE HARMED.

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

      As discussed above, in December 2003, MMA was signed into law,
substantially changing the Medicare reimbursement system insofar as it pertains
to biopharmaceuticals and drugs, as well as enacting various other changes to
the Medicare program. It is possible that MMA, as well as any future legislation
enacted by Congress or state legislatures, could harm our business or could
change the operating environment of our targeted customers (including hospitals
and managed care organizations). Health care industry participants may react to
such legislation by curtailing or deferring expenditures and initiatives,
including those relating to our programs and services. It is possible that the
changes to the Medicare program reimbursement may serve as precedent to possible
changes in other payors' reimbursement policies in a manner adverse to us. In
addition, MMA and its related regulatory changes could encourage integration or
reorganization of the health care delivery system in a manner that could
materially and adversely affect our ability to compete or to continue our
operations without substantial changes.

OUR INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, AND NON-COMPLIANCE
BY US, OUR SUPPLIERS, OUR CUSTOMERS OR OUR REFERRAL SOURCES COULD HARM OUR
BUSINESS.

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

THERE ARE A NUMBER OF STATE AND FEDERAL LAWS AND REGULATIONS THAT APPLY TO OUR
OPERATIONS WHICH COULD HARM OUR BUSINESS.

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

      o     The federal "anti-kickback law" prohibits the offering or
            solicitation of remuneration in return for the referral of patients
            covered by almost all governmental programs, or the arrangement or
            recommendation of the purchase of any item, facility or service
            covered by those programs. The Health Insurance Portability and
            Accountability Act of 1996, or HIPAA, created new violations for
            fraudulent activity applicable to both public and private health
            care benefit programs and prohibits inducements to Medicare or
            Medicaid eligible patients to influence their decision to seek
            specific items and services reimbursed by the government or to
            choose a particular provider. The potential sanctions for violations
            of these laws include significant fines, exclusion from
            participation in Medicare and Medicaid and criminal sanctions.
            Although some "safe harbor" regulations attempt to clarify when an
            arrangement may not violate the anti-kickback law, our business
            arrangements and the services we provide may not fit within these
            safe harbors. Failure to satisfy a safe


                                       48
<PAGE>

            harbor requires further analysis of whether the parties violated the
            anti-kickback law. In addition to the anti-kickback law, many states
            have adopted similar kickback and/or fee-splitting laws, which can
            affect the financial relationships we may have with our customers,
            physicians, vendors, other retail pharmacies and patients. The
            finding of a violation of the federal laws or one of these state
            laws could harm our business.

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

      o     The Ethics in Patient Referrals Act of 1989, as amended, commonly
            referred to as the "Stark Law," prohibits physician referrals to
            entities with which the physician or his or her immediate family
            members have a "financial relationship" and prohibits the entity
            receiving the referral from presenting a claim to Medicare or
            Medicaid programs for services furnished under the referral. On
            March 26, 2004, the CMS issued the second phase of its final
            regulations, addressing physician self-referrals, which became
            effective July 24, 2004. A violation of the Stark Law is punishable
            by civil sanctions, including significant fines, a denial of payment
            or a requirement to refund certain amounts collected, and exclusion
            from participation in Medicare and Medicaid. A number of states have
            adopted laws and/or regulations that contain provisions that track,
            or are otherwise similar to, the Stark Law. The finding of a
            violation of the Stark Law or one or more of these state laws could
            harm our business.

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

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


                                       49
<PAGE>

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

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

THERE IS A DELAY BETWEEN OUR PERFORMANCE OF SERVICES AND OUR REIMBURSEMENT.

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

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

      We are paid for our services by various payors, including patients,
insurance companies, Medicare, Medicaid and others, each with distinct billing
requirements. We recognize revenue when we provide services to patients.
However, our ability to collect these receivables depends, in part, on our
submissions to payors of accurate and complete documentation. In order for us to
bill and receive payment for our services, the physician and the patient must
provide appropriate billing information. Following up on incorrect or missing
information generally slows down the billing process and the collection of
accounts receivable. Failure to meet the billing requirements of the different
payors could have a significant impact on our revenues, profitability and cash
flow.

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

WE RELY HEAVILY ON A LIMITED NUMBER OF SHIPPING PROVIDERS, AND OUR BUSINESS
COULD BE HARMED IF THEIR RATES ARE INCREASED OR OUR PROVIDERS ARE UNAVAILABLE.

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


                                       50
<PAGE>

IF WE DO NOT MAINTAIN EFFECTIVE AND EFFICIENT INFORMATION SYSTEMS, OUR
OPERATIONS MAY BE ADVERSELY AFFECTED.

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

RISKS RELATED TO OUR OUTSTANDING DEBT AND EQUITY SECURITIES

THE NOTES ARE UNSECURED.

      The Notes are not secured by any of our or our subsidiaries' assets. The
indenture governing the Notes permits us and our subsidiaries to incur secured
indebtedness, including pursuant to our revolving credit facility, purchase
money instruments and other forms of secured indebtedness. As a result, the
Notes and the guarantees will be effectively subordinated to all of our and the
guarantors' secured obligations to the extent of the value of the assets
securing such obligations. As of December 31, 2004, we had approximately $24.3
million of secured indebtedness.

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

WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATIONS TO HOLDERS OF THE NOTES UPON A
CHANGE OF CONTROL.

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

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

THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES, AND HOLDERS OF THESE NOTES
MAY NOT BE ABLE TO SELL THEM QUICKLY OR AT THE PRICE THAT THEY PAID.

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

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


                                       51
<PAGE>

      o     our operating performance and financial condition;

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

      o     the market for similar securities.

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

ANY GUARANTEES OF THE NOTES BY OUR SUBSIDIARIES MAY BE VOIDABLE, SUBORDINATED OR
LIMITED IN SCOPE UNDER LAWS GOVERNING FRAUDULENT TRANSFERS AND INSOLVENCY.

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

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

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

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

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

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

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

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

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

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

POSSIBLE VOLATILITY OF STOCK PRICE IN THE PUBLIC MARKET.

      The market price of our common stock has experienced, and may continue to
experience, substantial volatility. Over the past eight quarters ended December
31, 2004, the market price of our common stock ranged from a low of $4.79 in the
fourth quarter of 2004 to a high of $19.38 in the first quarter of 2003. Many
factors have influenced the common stock price in the past, including
fluctuations in our earnings and changes in our financial position, management
changes, low trading volume, and negative publicity and uncertainty resulting
from the legal actions brought against us. In addition, the securities markets
have, from time to time, experienced significant broad price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. All of these factors could adversely affect the market price of our
common stock.


                                       52
<PAGE>

PROVISIONS OF OUR ARTICLES OF INCORPORATION AND MINNESOTA LAW MAY MAKE IT MORE
DIFFICULT FOR A PERSON TO RECEIVE A CHANGE-IN-CONTROL PREMIUM.

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

      For non-trading purposes, the Company is subject to interest rate risk
under its current revolving credit facility and an interest rate swap on a
portion of its fixed rate debt. In conjunction with the acquisition of CCS on
April 23, 2004, the Company completed the refinancing of its existing credit
facility with GE Capital, as agent and lender to a $40.0 million senior secured
revolving credit facility. Loans under this credit facility may, at the
Company's option, be obtained as Base Rate loans, London Interbank Offered Rate
("LIBOR") loans or any combination thereof. This credit facility will terminate
on April 23, 2009. In the second quarter of 2004, the Company entered into a
$90.0 million notional amount interest rate swap on a portion of its fixed rate
debt. This swap agreement is used by the Company to reduce interest expense and
modify exposure to interest rate risk by converting its fixed rate debt to a
floating rate liability. Under the swap agreement, the Company receives, on the
portion of the senior subordinated notes hedged, 10.75% fixed rate amounts in
exchange for floating interest rate (the 6-month LIBOR rate plus a premium)
payments over the life of the agreement without an exchange of the underlying
principal amount. The swap matures on May 2, 2011. Due to hedge ineffectiveness,
changes in fair value of the swap are recognized in earnings, and the carrying
value of the Company's debt is not marked to fair value. The Company is exposed
to credit risk in the event of nonperformance by the counterparties. However,
the Company believes the risk of nonperformance is low.


                                       53
<PAGE>

      The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including the Company's interest rate swap and debt
obligations. For debt obligations, the table presents principal amounts
outstanding and related weighted average interest rates for each of the next
five years and thereafter. For the Company's interest rate swap, the table
presents the notional amount and average interest rate over the outstanding
period. The following table provides information about the Company's financial
instruments at December 31 (dollars in millions):

<TABLE>
<CAPTION>
                                                                        OUTSTANDING BALANCES
                                DECEMBER 31, 2004                            DECEMBER 31,
                                -----------------   ---------------------------------------------------------
                                            FAIR                                                       THERE-
                                BALANCE    VALUE      2005      2006      2007      2008     2009      AFTER
                                -------   -------   -------   -------   -------   -------   -------   -------
<S>                             <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Liability:
Long-term debt (Senior Notes)
   Fixed rate ($US)(1)          $ 185.0   $ 185.0   $ 185.0   $ 185.0   $ 185.0   $ 185.0   $ 185.0   $ 185.0
   Average interest rate(1)       10.75%    10.75%    10.75%    10.75%    10.75%    10.75%    10.75%    10.75%
Long-term debt (Revolver)
   Variable rate ($US)(2)       $  24.3   $  24.3   $  24.3   $  24.3   $  24.3   $  24.3   $    --   $    --
   Average interest rate(2)        5.92%     5.92%     7.07%     7.47%     7.74%     8.12%
Convertible note used in
  purchase of Apex              $   2.2   $   2.2   $   1.3   $   0.4   $    --   $    --   $    --   $    --
   Average interest rate(3)         4.4%      4.4%      4.4%      4.4%
Convertible note used in
  purchase of Home Care         $   3.0   $   3.0   $    --   $    --   $    --   $    --   $    --   $    --
   Average interest rate(3)         3.0%      3.0%
Note payable used in
  purchase of Prescription
   City                         $   1.0   $   1.0   $    --   $    --   $    --   $    --   $    --   $    --
   Average interest rate(3)         4.0%      4.0%
Department of Justice
  obligation                    $   2.0   $   2.0   $   0.4   $    --   $    --   $    --   $    --   $    --
Average interest rate(3)            6.0%      6.0%      6.0%
Interest Rate Derivative:
Notional amount ($US)           $  90.0             $  90.0   $  90.0   $  90.0   $  90.0   $  90.0   $  90.0
   Average pay rate(4)             9.37%               9.93%    10.32%    10.60%    10.97%    11.25%    11.44%
   Average receivable rate(4)     10.75%              10.75%    10.75%    10.75%    10.75%    10.75%    10.75%
</TABLE>

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

(2)   The average interest rates are based on the LIBOR forward yield curves at
      December 31, 2004 plus the applicable 3.5% premium. The senior secured
      revolving credit facility terminates on April 23, 2009.  The LIBOR
      interest rate in effect at December 31, 2004 was the 30-day LIBOR rate
      of 2.42% plus 3.5%. On a monthly basis, a Base Rate of prime plus 2.25%
      is applied to the difference between the LIBOR period loan and
      the actual outstanding balance of the revolving facility. As of December
      31, 2004, the prime rate in effect was 5.25%. In addition to the LIBOR and
      Base Rate interest rate, there is a monthly unused line fee of between
      0.5% and 0.75% of the unused balance on the facility.

(3)   Average interest rates are contractual amounts.

(4)   The average pay rates are based on the LIBOR forward yield curves at
      December 31, 2004 plus the applicable 6.375% premium. The average
      receivable rate is based on a fixed rate of 10.75%.


                                       54
<PAGE>

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The information required by this item is incorporated herein by reference
to the Consolidated Financial Statements listed in Item 15(a) of Part IV of this
Report.

      The following table sets forth the financial results of the Company for
the eight quarters ended December 31, 2004 (in thousands, except per share
data)(1):

<TABLE>
<CAPTION>
                                                      NET (LOSS)        NET (LOSS)
                                            NET         INCOME           INCOME
                    TOTAL      GROSS      (LOSS)      PER COMMON       PER COMMON
                  REVENUES    PROFIT      INCOME     SHARE, BASIC   SHARE, DILUTED(1)
                  --------   --------   ----------   ------------   -----------------
<S>               <C>        <C>        <C>            <C>              <C>
QUARTER ENDED
   2004
   December 31    $ 83,628   $ 14,291   $ (139,340)    $ (10.76)        $ (10.76)
   September 30     68,742     14,896       (2,066)       (0.16)           (0.16)
   June 30          64,440     14,882       (3,132)       (0.24)           (0.24)
   March 31         65,558     15,806        3,133         0.24             0.23

   2003
   December 31    $ 65,445   $ 17,185   $    4,382     $   0.34         $   0.32
   September 30     46,587     15,589        1,765         0.14             0.13
   June 30          44,689     16,139        3,533         0.29             0.26
   March 31         58,020     17,155        3,395         0.28             0.25
</TABLE>

(1)   This table should be read together with the accompanying Consolidated
      Financial Statements and Notes. The period-to-period comparability of the
      Company's selected consolidated financial data is affected by its
      acquisition activity. See Note C of Notes to Consolidated Financial
      Statements.

(2)   See Note P of Notes to Consolidated Financial Statements for net (loss)
      income per share calculation.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      None.


                                       55
<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      Under the supervision and with the participation of the Company's
management, including its Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"), the Company evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, the CEO and
CFO concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures have been designed and are being
operated in a manner that provides reasonable assurance that the information
required to be disclosed by the Company in reports filed under the Exchange Act,
as amended, is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.

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

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

      The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Under the supervision and with the participation of the
Company's management, including its CEO and CFO, the Company conducted an
evaluation of the effectiveness of its internal control over financial reporting
based on the framework in INTERNAL CONTROL--INTEGRATED FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management's evaluation of the effectiveness of its internal control over
financial reporting was not inclusive of the Critical Care Systems, Inc.
acquisition, which is included in the 2004 consolidated financial statements of
the Company and constituted approximately 15% of total assets as of December 31,
2004 and approximately 29% and 10% of revenues and net loss, respectively, for
the year then ended. Based on that evaluation, the CEO and CFO concluded that
its internal control over financial reporting was effective as of December 31,
2004.

      Management's assessment of the effectiveness of its internal control over
financial reporting as of December 31, 2004 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated in their report
on internal control over financial reporting which is included elsewhere herein.

CHANGES IN INTERNAL CONTROLS

      During the period covered by this, there has been no change in the
Company's internal control over financial reporting (as defined in Rule 13
a-15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.

ITEM 9B. OTHER INFORMATION

      None.


                                       56
<PAGE>

                                    PART III

      The information required by Part III of this Form 10-K is omitted from
this Report in that the Registrant will file a definitive proxy statement
pursuant to Regulation 14(a) for its 2005 Annual Meeting of Shareholders (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information required by this Item is incorporated by reference to the
sections "Election of Directors," "Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement. The
Company has adopted a Code of Ethics that applies to the Company's Chief
Executive Officer and senior financial officers. The text of such Code of Ethics
has been posted on the Company's website at www.curative.com. Any amendment to,
or waiver from, a provision of such Code of Ethics shall be posted on the
Company's website at www.curative.com. In addition, the Company has adopted a
Code of Business Practices as part of its compliance program, and a copy of such
Code of Business Practices is available upon written request to the Company.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

      The information required by this Item is incorporated by reference to the
section "Ratification of Appointment of Independent Auditors" of the Company's
Proxy Statement.


                                       57
<PAGE>

                                    PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)   THE FOLLOWING DOCUMENTS ARE INCLUDED WITH THE FILING OF THIS REPORT:

      1.    INDEX TO FINANCIAL STATEMENTS                                   PAGE
                                                                            ----
            Reports of Independent Registered Public Accounting Firm         F-1

            Consolidated Balance Sheets at December 31, 2004 and 2003        F-3

            Consolidated Statements of Operations for the years ended
               December 31, 2004, 2003 and 2002                              F-4

            Consolidated Statements of Stockholders' Equity for the
               years ended December 31, 2004, 2003 and 2002                  F-5

            Consolidated Statements of Cash Flows for the years ended
               December 31, 2004, 2003 and 2002                              F-6

            Notes to Consolidated Financial Statements                       F-7

      2.    FINANCIAL STATEMENT SCHEDULES

            Schedule II - Consolidated Schedule - Valuation and
            Qualifying Accounts                                              S-1

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

(B)   EXHIBITS

      The list of exhibits, entitled "Exhibits," immediately following
      the financial statement schedules accompanying this report is
      incorporated herein by reference.


                                       58
<PAGE>

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                CURATIVE HEALTH SERVICES, INC.

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

Date:  March 16, 2005

                                POWER OF ATTORNEY

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

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

<TABLE>
<CAPTION>
SIGNATURE                  TITLE                                          DATE
------------------------   --------------------------------------------   --------------
<S>                        <C>                                            <C>
/s/ Paul F. McConnell      Chief Executive Officer                        March 16, 2005
---------------------
    Paul F. McConnell      (Principal Executive Officer)

/s/ Thomas Axmacher        Chief Financial Officer                        March 16, 2005
-------------------
    Thomas Axmacher        (Principal Financial and Accounting Officer)

/s/ John C. Prior          Chief Operating Officer                        March 16, 2005
-----------------
    John C. Prior          Director

/s/ Paul S. Auerbach, MD   Director                                       March 16, 2005
------------------------
    Paul S. Auerbach, MD

/s/ Daniel E. Berce        Director                                       March 16, 2005
-------------------
    Daniel E. Berce

/s/ Lawrence English       Director                                       March 16, 2005
--------------------
    Lawrence English

/s/ Joseph Feshbach        Director                                       March 16, 2005
-------------------
    Joseph Feshbach

/s/ Gerard Moufflet        Director                                       March 16, 2005
-------------------
    Gerard Moufflet

/s/ Timothy I. Maudlin     Chairman of the Board                          March 16, 2005
----------------------
    Timothy I. Maudlin

/s/ Peter M. DeComo        Director                                       March 16, 2005
-------------------
    Peter M. DeComo
</TABLE>

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Curative Health Services, Inc.

We have audited the accompanying consolidated balance sheets of Curative Health
Services, Inc. and subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2004. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Curative Health
Services, Inc. and subsidiaries at December 31, 2004 and 2003, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Curative Health
Services, Inc. and subsidiaries' internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 11, 2005 expressed an unqualified opinion
thereon.

                                           /s/ Ernst & Young LLP

Melville, New York
March 11, 2005


                                       F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Curative Health Services, Inc.

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting appearing under
Item 9A, that Curative Health Services, Inc. and subsidiaries maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

As indicated in the accompanying Management's Report on Internal Control Over
Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of Critical Care Systems, Inc., which was acquired in 2004 and
which is included in the 2004 consolidated financial statements of the Company
and constituted approximately 15% of total assets as of December 31, 2004 and
approximately 29% and 10% of revenues and net loss, respectively, for the year
then ended. Our audit of internal control over financial reporting of Curative
Health Services, Inc. and subsidiaries also did not include an evaluation of the
internal control over financial reporting of Critical Care Systems, Inc.

In our opinion, management's assessment that Curative Health Services, Inc. and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2004, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, Curative Health Services, Inc. and
subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Curative Health Services, Inc. and subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2004 and our report dated March 11, 2005 expressed an unqualified opinion
thereon.

                                           /s/ Ernst & Young LLP

Melville, New York
March 11, 2005


                                       F-2
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                          ---------------------
                                                                            2004        2003
                                                                          ---------   ---------
<S>                                                                       <C>         <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                 $   1,176   $   1,072
Accounts receivable (less allowance of $4,646 and $4,022
   at December 31, 2004 and 2003, respectively)                              81,766      55,217
Inventories                                                                  18,398      11,237
Prepaids and other current assets                                             5,660       4,270
Federal income tax refund receivable                                          3,431          --
Deferred income tax assets                                                    3,977       2,984
                                                                          ---------   ---------
   Total current assets                                                     114,408      74,780

Property and equipment, net                                                  11,104       7,890
Intangibles subject to amortization, net                                     20,540       1,463
Intangibles not subject to amortization (trade names)                         1,615         682
Goodwill                                                                    123,138     147,895
Other assets                                                                 12,979       1,228
                                                                          ---------   ---------
   Total assets                                                           $ 283,784   $ 233,938
                                                                          =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                          $  35,740   $  28,892
Accrued expenses and other current liabilities                               21,384      11,502
Deferred income taxes                                                            --       1,007
Current portion of long-term liabilities                                      6,496       7,911
                                                                          ---------   ---------
   Total current liabilities                                                 63,620      49,312

Long-term liabilities                                                       210,991      39,599
Deferred income taxes                                                         3,511       1,307
Other long-term liabilities                                                   1,209          --
                                                                          ---------   ---------
   Total long-term liabilities                                              215,711      40,906

Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share; 10,000,000 shares
   authorized, none issued                                                       --          --
Preferred stock, Series A Junior Participating, par value
   $.01 per share, 500,000 shares authorized, none issued                        --          --
Common stock, $.01 par value per share; 50,000,000 shares authorized,
   12,951,462 shares issued and outstanding (12,831,288 shares in 2003)         128         127
Additional paid in capital                                                  119,449     115,082
(Accumulated deficit) retained earnings                                    (111,287)     30,118
Deferred compensation                                                        (2,364)         --
Notes receivable - stockholders                                              (1,473)     (1,607)
                                                                          ---------   ---------
   Total stockholders' equity                                                 4,453     143,720
                                                                          ---------   ---------
   Total liabilities and stockholders' equity                             $ 283,784   $ 233,938
                                                                          =========   =========
</TABLE>

                             See accompanying notes


                                       F-3
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                            -------------------------------------
                                                               2004           2003        2002
                                                            ----------     ---------    ---------
<S>                                                         <C>            <C>          <C>
Revenues:
   Products                                                 $  255,443     $ 185,843    $ 104,550
   Services                                                     26,925        28,898       34,679
                                                            ----------     ---------     --------
      Total revenues                                           282,368       214,741      139,229

Costs and operating expenses:
   Cost of product sales                                       210,417       135,449       74,405
   Cost of services                                             12,076        13,224       14,892
   Selling, general and administrative                          53,552        44,544       26,401
   Goodwill and intangible asset impairment                    134,755            --           --
                                                            ----------     ---------    ---------
      Total costs and operating expenses                       410,800       193,217      115,698
                                                            ----------     ---------    ---------

(Loss) income from operations                                 (128,432)       21,524       23,531

Interest expense                                               (15,833)       (2,300)      (1,181)
Interest income                                                    107            20           70
Other expense                                                   (1,081)           --           --
Other income                                                        --         2,327        1,907
                                                            ----------     ---------    ---------

(Loss) income before income taxes                             (145,239)       21,571       24,327

Income tax (benefit) provision                                  (3,834)        8,496        9,682
                                                            ----------     ---------    ---------

Net (loss) income                                           $ (141,405)    $  13,075    $  14,645
                                                            ==========     =========    =========

Net (loss) income per common share, basic                   $   (10.92)    $    1.04    $    1.30
                                                            ==========     =========    =========

Net (loss) income per common share, diluted                 $   (10.92)(1) $     .96(1) $    1.20
                                                            ==========     =========    =========

Denominator for basic (loss) income per share,
   weighted average common shares                               12,949        12,546       11,280
                                                            ==========     =========    =========

Denominator for diluted (loss) income per share, weighted
   average common shares assuming conversions                   12,949        13,826       12,207
                                                            ==========     =========    =========
</TABLE>

(1)   See Note P of Notes to Consolidated Financial Statements for net (loss)
      income per share calculation.

                             See accompanying notes


                                       F-4
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                             RETAINED
                                          COMMON     COMMON   ADDITIONAL     EARNINGS                        NOTES          TOTAL
                                          STOCK      STOCK     PAID-IN     (ACCUMULATED     DEFERRED      RECEIVABLE    STOCKHOLDERS
                                          SHARES     AMOUNT    CAPITAL       DEFICIT)     COMPENSATION   STOCKHOLDERS      EQUITY
                                        ----------   ------   ----------   ------------   ------------   ------------   ------------

<S>                                     <C>          <C>      <C>           <C>             <C>           <C>             <C>
BALANCE, DECEMBER 31, 2001               7,540,921   $  75    $  34,019     $    2,398      $     --      $   (488)       $  36,004
   Exercise of options, net of
      stockholder loans                  1,139,348      11        7,510             --            --        (1,899)           5,622
   Shares issued in private placement    1,059,000      11       16,451             --            --            --           16,462
   Shares issued in acquisition          1,981,793      20       38,380             --            --            --           38,400
   Shares issued for shareholder
      lawsuit settlement                   421,044       4        6,496             --            --            --            6,500
   Tax benefit from stock option
      exercises                                 --      --        3,268             --            --            --            3,268
   Net income for 2002                          --      --           --         14,645            --            --           14,645
                                        ----------   -----    ---------     ----------      --------      --------        ---------

BALANCE, DECEMBER 31, 2002              12,142,106     121      106,124         17,043            --        (2,387)         120,901
   Exercise of options                     485,863       4        4,136             --            --            --            4,140
   Exercise of rights under
      convertible notes                    300,389       3        4,828             --            --            --            4,831
   Tax benefit from stock option
      exercises                                 --      --        1,517             --            --            --            1,517
      stockholders                              --      --           --             --                         780              780
   Shares repurchased and retired          (97,070)     (1)      (1,523)            --            --            --           (1,524)
   Net income for 2003                          --      --           --         13,075            --            --           13,075
                                        ----------   -----    ---------     ----------      --------      --------        ---------

BALANCE, DECEMBER 31, 2003              12,831,288     127      115,082         30,118            --        (1,607)         143,720
   Exercise of options and other            47,459       1          303             --            --            --              304
   Grant of restricted common stock             --      --        2,896             --        (2,896)           --               --
   Amort. of deferred stock comp                --      --           --             --           532            --              532
   Exercise of rights under
      convertible notes                     72,715      --        1,168             --            --            --            1,168
   Repayment of notes receivable-
      stockholders                              --      --           --             --            --           134              134
   Net loss for 2004                            --      --           --       (141,405)           --            --         (141,405)
                                        ----------   -----    ---------     ----------      --------      --------        ---------

BALANCE, DECEMBER 31, 2004              12,951,462   $ 128    $ 119,449     $ (111,287)     $ (2,364)     $ (1,473)       $   4,453
                                        ----------   -----    ---------     ----------      --------      --------        ---------
</TABLE>

                             See accompanying notes


                                       F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                                   ----------------------------------
                                                                       2004        2003       2002
                                                                   ----------   ---------   ---------
<S>                                                                <C>          <C>         <C>
OPERATING ACTIVITIES:
Net (loss) income                                                  $ (141,405)  $  13,075   $  14,645
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
   Depreciation and amortization                                        5,180       2,797       2,226
   Provision for doubtful accounts                                      3,411       3,291       1,044
   Equity in operations of investee                                        --          --        (184)
   Gain on sale of equity investment                                       --      (2,327)     (1,907)
   Amortization of deferred financing fees                              1,382          --          --
   Stock based compensation                                               532          --          --
   Change in fair value of interest rate swap                           1,081          --          --
   Deferred income taxes                                                  595       2,423       3,797
   Tax benefit from stock option exercises                                 --       1,517       3,268
   Goodwill and intangible asset impairment                           134,755          --          --
Changes in operating assets and liabilities, net of effects from
Specialty Infusion acquisitions:
   Accounts receivable                                                 (1,417)    (20,221)     (9,116)
   Inventories                                                         (4,000)      2,252      (1,222)
   Swap interest receivable                                              (211)         --          --
   Prepaids and other                                                  (5,603)      1,053         699
   Accounts payable and accrued expenses                                   85       3,498      (1,273)
                                                                   ----------   ---------     -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                    (5,615)      7,358      11,977

INVESTING ACTIVITIES:
Specialty Infusion acquisitions, net of cash acquired                (154,795)    (26,154)    (60,264)
Sale of Accordant Health Services, Inc.                                 2,815          --       4,496
Purchase of property and equipment                                     (5,353)     (6,653)     (1,206)
Disposal of property and equipment and other                            1,493          --         248
                                                                   ----------   ---------   ---------
NET CASH USED IN INVESTING ACTIVITIES                                (155,840)    (32,807)    (56,726)

FINANCING ACTIVITIES:
Proceeds from private placement, net of fees                               --          --      16,462
Shares repurchased and retired                                             --      (1,524)         --
Net proceeds from issuance of senior subordinated notes               173,401          --          --
Proceeds from exercise of stock options                                   165       3,989       5,298
Proceeds from repayment of notes receivable-- stockholders                134         780          --
Borrowing from credit facilities                                       12,730      34,001      13,368
Repayments of long-term liabilities                                   (24,000)    (13,368)         --
Repayment of notes payable                                               (871)         --          --
                                                                   ----------   ---------   ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             161,559      23,878      35,128
                                                                   ----------   ---------   ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      104      (1,571)     (9,621)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          1,072       2,643      12,264
                                                                   ----------   ---------   ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR                           $    1,176   $   1,072   $   2,643
                                                                   ==========   =========   =========
</TABLE>

                             See accompanying notes


                                       F-6
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

      The Company was organized under the laws of the State of Minnesota in
October 1984. In August 2003, the Company effected a holding company
reorganization in which each share of the registrant's outstanding common stock
was deemed to have been exchanged for one share of common stock in a newly
formed corporation (the "new holding company"). Pursuant to Section 302A.626
(subd. 7) of the Minnesota Business Corporation Act, the articles of
incorporation, bylaws and name of the new holding company, and the authorized
capital stock of the new holding company (including the designations, rights,
powers and preferences of such capital stock and the qualifications, limitations
and restrictions thereof) are all consistent with those of the registrant as it
existed prior to the reorganization. In addition, the directors and executive
officers of the new holding company were the same individuals who were directors
and executive officers, respectively, of the registrant prior to the
reorganization. The terms "Curative" and the "Company" as used in these
financial statements and accompanying notes refer, for periods prior to the
reorganization, to the corporation that was the registrant prior to the
reorganization, and, for periods after the reorganization, to the new holding
company.

      The Company, through its Specialty Infusion and Wound Care Management
business units, seeks to deliver high-quality care and positive clinical
outcomes that result in high patient satisfaction for patients experiencing
serious acute or chronic medical conditions. Through its Specialty Infusion
business unit, the Company provides intravenous and injectable biopharmaceutical
and compounded pharmaceutical products and comprehensive infusion services to
patients with chronic and critical disease states. All patient care is delivered
through a national footprint of community-based branches. Each local branch has
an experienced multidisciplinary team of pharmacists, nurses, reimbursement
specialists and patient service representatives who comprehensively manage all
aspects of a patient's infusion and related support needs. The Company purchases
biopharmaceutical and other pharmaceutical products from suppliers and contracts
with insurance companies and other payors to provide its services, which include
coordination of patient care, 24-hour nursing and pharmacy availability, patient
education and reimbursement billing and collection services. The products
distributed and the injection or infusion therapies offered by Curative are used
by patients with chronic or severe conditions such as hemophilia, RSV, immune
system disorders, chronic or severe infections, nutritionally compromised and
other severe conditions requiring nutritional support, cancer, rheumatoid
arthritis, hepatitis C and multiple sclerosis. Examples of biopharmaceutical
products used by Curative's patients include hemophilia clotting factor, IVIG,
Synagis(R) and Remicade(R). Examples of pharmaceutical products used by
Curative's patients include compounded pharmaceuticals, such as TPN products,
anti-infectives, chemotherapy agents and pain management products. As of
December 31, 2004, the Company had 401 payor contracts and provided products or
services in approximately 48 states.

      Curative's Wound Care Management business unit is a leading provider of
wound care services specializing in chronic wound care management. It manages,
on behalf of hospital clients, a nationwide network of Wound Care Center(R)
programs that offer a comprehensive range of services across a continuum of care
for treatment of chronic wounds. The Company's Wound Management Program(SM)
consists of diagnostic and therapeutic treatment procedures that are designed to
meet each patient's specific wound care needs on a cost-effective basis. The
treatment procedures are designed to achieve positive results for wound healing
based on significant experience in the field. The Company maintains a
proprietary database of patient results that it has collected since 1988
containing over 488,000 patient cases. The treatment procedures, which are based
on extensive patient data, have allowed the Company to achieve an overall rate
of healing of approximately 88% for patients completing therapy. As of December
31, 2004, the Wound Care Center(R) network consisted of 98 outpatient clinics
(93 operating and 5 contracted) located on or near campuses of acute care
hospitals in approximately 30 states.


                                       F-7
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

STOCK BASED COMPENSATION PLANS

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

      The following table illustrates the effect on net (loss) income and net
(loss) income per share for the years ended December 31 as if the Company had
applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                          2004          2003        2002
                                                       ----------     --------    --------
<S>                                                    <C>            <C>         <C>
Net (loss) income, as reported                         $ (141,405)    $ 13,075    $ 14,645
Add:  Stock based employee compensation expense
   included in reported net income, net of related
   tax effects                                                440           --          --
Deduct:  Total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax effects       (5,056)      (4,654)     (3,489)
                                                       ----------     --------    --------
Pro forma net (loss) income                            $ (146,021)    $  8,421    $ 11,156
                                                       ==========     ========    ========

(Loss) income per share:
   Basic - as reported                                 $   (10.92)    $   1.04    $   1.30
   Basic - pro forma                                       (11.28)         .67         .99

   Diluted - as reported                               $   (10.92)(1) $    .96(1) $   1.20
   Diluted - pro forma                                     (11.28)         .61         .91
</TABLE>

(1)   See Note P of Notes to Consolidated Financial Statements for net (loss)
      income per share calculation.


                                       F-8
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS

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

USE OF ESTIMATES

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

NET (LOSS) INCOME PER SHARE

      Basic and diluted (loss) income per share are calculated in accordance
with SFAS No. 128, "Earnings Per Share." See Note P.

INVENTORIES

      Inventories, which consist of intravenous and injectable biopharmaceutical
and compounded pharmaceutical products held for sale, are stated at the lower of
cost (first in, first out method) or market.

PROPERTY AND EQUIPMENT

      Property and equipment, which are recorded at cost, are depreciated under
the straight-line method over their estimated useful lives (generally four to
seven years). Leasehold improvements are amortized over the life of the lease or
the estimated useful life of the related asset, whichever is shorter.

GOODWILL AND INTANGIBLES

      Goodwill represents the excess of purchase price over the fair value of
net assets acquired. Intangibles consist of separately identifiable intangibles,
such as pharmacy and customer relationships and covenants not to compete. The
Company accounts for goodwill and intangible assets in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets," which requires goodwill and
intangible assets with indefinite lives not to be amortized but rather to be
reviewed annually, or more frequently if impairment indicators arise, for
impairment. Separable intangible assets that are not deemed to have an
indefinite life are amortized over their useful lives. The Company completed its
annual goodwill impairment test as of December 31, 2004 and, based on its
results, the Company recorded a total non-cash impairment charge of $134.8
million. See Note D.

DEFERRED FINANCING FEES

      The Company capitalizes fees related to its financing activities and
amortizes them over the life of the related financing. In 2004, the Company
capitalized $11.6 million related to its senior subordinated notes and $1.4
million in fees related to its revolving credit facility. These fees are being
amortized over 94 months and 60 months, respectively. As of December 31, 2004,
approximately $11.7 million remained in unamortized deferred financing fees and
were recorded in other long-term assets in the accompanying balance sheet.


                                       F-9
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CASH AND CASH EQUIVALENTS

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

CONCENTRATION OF CREDIT RISK

      The Company's revenues are generated from its Specialty Infusion business
unit's sales of biopharmaceuticals and compounded pharmaceuticals and from its
Wound Care Management business unit's Wound Care Center(R) programs, which have
been established as cooperative ventures with acute care hospitals. Specialty
Infusion's receivables consist of amounts due from various payors, including
government programs, insurance companies, retail pharmacies and self-pay patient
accounts. Credit is extended based upon a pre-authorization of coverage check or
contractual arrangement. Payment terms are generally thirty days from date of
invoice. Wound Care Management's receivables are from its hospital partners
under contractual management services contracts. Credit is extended based on an
evaluation of the hospital's financial condition. Payment terms are generally 30
to 90 days from date of invoice. For 2004, 2003 and 2002, the Company derived
approximately 12%, 30% and 35%, respectively, of consolidated revenue from one
payor. As a percentage of total, the Company's accounts receivable from its
largest payor was approximately 13% and 29.4%, respectively, at December 31,
2004 and 2003.

      The Company evaluates the collectibility of accounts receivable based on
numerous factors, including past transaction history with payors and their
credit worthiness. The Company estimates an allowance for doubtful accounts
primarily based on cash collection history. This estimate is periodically
adjusted when the Company becomes aware of a specific payor's inability to meet
its financial obligations (e.g., bankruptcy, etc.) or as a result of changes in
the overall aging of accounts receivable.

REVENUES

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

      The current Medicare, Medicaid and other third party-payor programs in
which the Company participates are based upon extremely complex laws and
regulations that are subject to interpretation. Non-compliance with such laws
and regulations could result in fines, penalties and/or exclusion from such
programs. The Company is not aware of any allegations of non-compliance that
could have a material adverse effect on the accompanying consolidated financial
statements and believes it is in substantial compliance with all applicable laws
and regulations.

ADVERTISING

      Advertising and community education costs are expensed when incurred.
Specialty Infusion's advertising and community education expenses were
approximately $0.7 million, $0.9 million and $0.4 million in 2004, 2003 and
2002, respectively. Wound Care Management's advertising and community education
costs were approximately $0.7 million, $0.8 million and $1.6 million in 2004,
2003 and 2002, respectively.


                                      F-10
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

      Income taxes have been provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes." See Note N.

SHIPPING AND HANDLING

      Outbound shipping and handling charges were approximately $2.9 million,
$0.9 million and $0.5 million in 2004, 2003 and 2002, respectively, and are
included in cost of product sales in the accompanying consolidated statements of
operations.

FAIR VALUES OF FINANCIAL INSTRUMENTS

      CASH AND CASH EQUIVALENTS. The carrying values of the Company's cash and
cash equivalents approximate fair value because of the short maturity of these
instruments.

      OTHER NOTES PAYABLE. Fair values approximate carrying values as the notes
generally bear interest at market rates.

      LOAN FACILITY. Fair values approximate carrying values as the interest
rates are variable.

      SENIOR NOTES. The fair value of the Company's debt is based upon the
market price of the debt.

      INTEREST RATE SWAP. The fair value of the Company's interest rate swap is
based upon discounted cash flow analysis using current interest rates.

      For non-trading purposes, the Company entered into an interest rate swap
agreement to reduce interest expense and modify exposure to interest rate risk
by converting a portion of its fixed rate debt to a floating rate liability. The
Company accounts for the swap instrument under the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 138 and SFAS No. 139. Due to hedge ineffectiveness, changes in fair
value of the swap are recognized in earnings, and the carrying value of the
Company's debt is not marked to fair value. See Note J.

      The carrying amounts and fair values of the Company's financial
instruments at December 31 were as follows (in thousands):

                                           2004                  2003
                                  ---------------------   -------------------
                                   CARRYING     FAIR      CARRYING     FAIR
                                    VALUE       VALUE      VALUE       VALUE
                                  ---------   ---------   --------   --------

      Cash and cash equivalents   $   1,176   $   1,176   $  1,072   $  1,072
      Other notes payable         $   8,177   $   8,177   $ 12,257   $ 12,257
      Loan facility               $  24,310   $  24,310   $ 35,253   $ 35,253
      Senior Notes                $ 185,000   $ 164,650   $     --   $     --
      Interest rate swap          $   1,081   $   1,081   $     --   $     --


                                      F-11
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SUPPLEMENTAL CASH FLOW INFORMATION

      Supplemental information with respect to the Company's cash flows for the
years ended December 31 is as follows (in thousands):

                               2004       2003      2002
                             --------   -------   -------
         Interest paid       $ 12,356   $ 2,119   $   631
         Income taxes paid   $  1,076   $ 5,231   $ 1,543

      Supplemental information pertaining to non-cash investing and financing
activities included the following:

      a)    In 2002, proceeds from the exercise of stock options excluded $1.9
            million in loans given to officers and/or directors for the exercise
            of options. The proceeds from the 2002 exercise of stock options
            excluded $0.3 million in option repricing.

      b)    Certain selling shareholders of Infinity Infusion Care, Ltd.
            ("Infinity") exercised their rights under convertible notes and
            converted approximately $1.2 million of such notes into 72,715
            shares of the Company's common stock in 2004 and approximately $4.8
            million of such notes into 300,389 shares in 2003.

RECENTLY ISSUED ACCOUNTING STANDARDS

      In June 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," which nullifies EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 establishes
fair value as the objective for initial measurement of liabilities related to
exit or disposal activities and requires that such liabilities be recognized
when incurred. The Company adopted SFAS No. 146 effective January 1, 2003. See
Note G of Notes to Consolidated Financial Statements. The adoption of this
standard did not have a material effect on the Company's consolidated financial
statements.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," and provides alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 to require disclosure, in both annual and interim
financial statements, in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share. The Company adopted
SFAS No. 148 effective December 31, 2002. See Note A of Notes to Consolidated
Financial Statements.

      In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities" and amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
requires that all contracts with comparable characteristics be accounted for
similarly and clarifies the circumstances for which a contract with an initial
net investment meets the characteristics of a derivative as well as when a
derivative contains a financing component. This statement is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company adopted SFAS No. 149
effective April 1, 2004. See Note J of Notes to Consolidated Financial
Statements.


                                      F-12
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      In November 2004, the EITF announced that it reached a consensus with
respect to Issue No. 04-8, "The Effect of Contingently Convertible Instruments
on Diluted Earnings Per Share." The EITF's consensus states that contingently
convertible debt instruments and other contingently convertible instruments that
are generally convertible into common stock are subject to the if-converted
method under SFAS No. 128, "Earnings Per Share," (i.e., included in diluted
earnings per share computations, if dilutive) regardless of whether their market
price triggers (or other contingent features) have been met. The adoption of
Issue No. 04-8 did not have a material effect on the Company's consolidated
financial statements.

      In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment," which is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123(R) supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement
of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar to the
approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative.

      SFAS No. 123(R) must be adopted no later than July 1, 2005. The Company
expects to adopt SFAS No. 123(R) on July 1, 2005.

      SFAS No. 123(R) permits public companies to adopt its requirements using
one of two methods:

      1.    A "modified prospective" method in which compensation cost is
            recognized beginning with the effective date (a) based on the
            requirements of SFAS No. 123(R) for all share-based payments granted
            after the effective date and (b) based on the requirements of SFAS
            No. 123 for all awards granted to employees prior to the effective
            date of SFAS No. 123(R) that remain unvested on the effective date.

      2.    A "modified retrospective" method which includes the requirements of
            the modified prospective method described above, but also permits
            entities to restate based on the amounts previously recognized under
            SFAS No. 123 for purposes of pro forma disclosures for either (a)
            all prior periods presented or (b) prior interim periods of the year
            of adoption.

      The Company plans to adopt SFAS No. 123 using the modified-retrospective
method, restating only the prior interim periods of 2005.

      As permitted by SFAS No. 123, the Company currently accounts for
share-based payments to employees using APB No. Opinion 25's intrinsic value
method and, as such, generally recognizes no compensation cost for employee
stock options. Accordingly, the adoption of SFAS No. 123(R)'s fair value method
will have a significant impact on the Company's results of operations, although
it will have no impact on its overall financial position. The impact of adoption
of SFAS No. 123(R) cannot be predicted at this time because it will depend on
levels of share-based payments granted in the future. However, had the Company
adopted SFAS No. 123(R) in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net (loss) income and (loss) income per share in Note A of Notes to
Consolidated Financial Statements. SFAS No. 123(R) also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. While the Company
cannot estimate what those amounts will be in the future (because they depend
on, among other things, when employees exercise stock options), the amount of
operating cash flows recognized in prior periods for such tax deductions were
zero, $1.5 million and $3.3 million in 2004, 2003 and 2002, respectively.


                                      F-13
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE B - INVESTMENT IN ACCORDANT HEALTH SERVICES

      In October 2002, the Company sold its interest in Accordant Health
Services, Inc. ("Accordant") for an initial sale price of approximately $5.5
million which resulted in a gain of approximately $1.9 million, recorded as
other income in the Company's 2002 financial statements. Approximately $1.0
million of the sale price was placed in escrow subject to customary
indemnification obligations being satisfied of which approximately $0.5 million
was paid to the Company in November 2003 and the remaining $0.5 million was paid
in November 2004.

      In addition, the sale agreement provided for an earn-out payment if
Accordant achieved certain 2003 operating goals. Accordant achieved the 2003
operating goals and, in January 2004, the Company received approximately $2.3
million related to this earn-out and has recorded this as other income in its
2003 financial statements. The Company is not entitled to any other funds
related to this transaction.

NOTE C - SPECIALTY INFUSION ACQUISITIONS

      On February 28, 2002, the Company acquired Apex Therapeutic Care, Inc.
("Apex"), a California-based leading provider of biopharmaceutical products,
therapeutic supplies and services to people with hemophilia. The purchase price
for Apex was approximately $60.0 million. A final purchase price allocation
based on fair market value of acquired assets and liabilities has been
completed.

      On June 28, 2002, the Company purchased Infinity Infusion Care, Ltd., a
Houston, Texas, based distributor of specialty pharmaceuticals and a provider of
infusion therapy services. The purchase price for Infinity was approximately
$24.0 million. A final purchase price allocation based on fair market value of
acquired assets and liabilities has been completed.

      On October 23, 2002, the Company acquired the specialty pharmacy business
and certain related assets of Home Care of New York, Inc., a Scotia, New York,
based specialty pharmacy and home infusion company. The purchase price for Home
Care was approximately $12.0 million. A final purchase price allocation based on
fair market value of acquired assets and liabilities has been completed.

      On November 20, 2002, the Company acquired OptCare Plus, Inc. ("OptCare"),
a specialty pharmacy dispensing biological medications. The purchase price for
OptCare was approximately $10.5 million. A final purchase price allocation based
on fair market value of acquired assets and liabilities has been completed.

      On February 3, 2003, the Company acquired MedCare, Inc. ("MedCare"), a
specialty pharmacy with locations in Alabama, Mississippi and West Virginia. The
purchase price for MedCare was $6.3 million. A final purchase price allocation
based on fair market value of acquired assets and liabilities has been
completed.

      On April 23, 2003, the Company acquired the assets and specialty pharmacy
business of All Care Medical, Inc. ("All Care"), a Louisiana-based Synagis(R)
pharmacy. The purchase price for All Care was $2.1 million. A final purchase
price allocation based on fair market value of acquired assets and liabilities
has been completed.

      On June 10, 2003, the Company acquired certain assets of Prescription
City, Inc. ("Prescription City"), a Spring Valley, New York, specialty pharmacy
business specializing in the provision of chemotherapy and cancer drugs. The
purchase price for Prescription City was $17.5 million. Fair market valuations
have not yet been finalized and, as such, the allocation of the purchase price
is preliminary, pending a final valuation.


                                      F-14
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE C - SPECIALTY INFUSION ACQUISITIONS (CONTINUED)

      A search warrant issued by a U.S. Magistrate Judge, Southern District of
New York, relating to a criminal investigation was executed on November 4, 2003
at the Company's Prescription City pharmacy, formerly located in Spring Valley,
New York. The Government has informed the Company that it is not a target of the
investigation. Apex, a wholly-owned subsidiary of the Company, was served with
the search warrant on Tuesday, November 4, 2003 while it was conducting its own
compliance review at the Spring Valley pharmacy. The Company has cooperated
fully with the U.S. Attorney's Office in its investigation. Based on information
known as of November 5, 2003, the employment of Paul Frank, the former principal
shareholder of Prescription City, was terminated. Apex also hired outside
counsel in connection with this investigation. Certain assets of Prescription
City were purchased by Apex in June 2003. The purchase was structured as an
asset purchase with Apex being provided indemnifications, representations and
warranties by the sellers. Apex has filed a complaint in the United States
District Court, Southern District of New York against Paul Frank and
Prescription City, seeking rescission, compensatory and punitive damages and
other relief. The defendants filed a motion to join Curative as a plaintiff and
to have the case dismissed for lack of diversity, and the Court denied such
motion. The defendants have filed a motion to have such decision reconsidered.
The defendants have also filed a third-party complaint for declaratory relief
and a breach of contract relating to a promissory note delivered by Apex (and
issued by Curative) to the sellers as part of the obligations of Apex in
connection with the acquisition. The Company has filed a motion to dismiss such
third-party complaint. Apex intends to pursue its claims against Prescription
City and Paul Frank aggressively, and the Company intends to defend vigorously
any claims made in the third-party complaint if it is not dismissed. Such
litigation is pending, and the outcome is uncertain at this time.

      On April 23, 2004, the Company acquired CCS, a leading national provider
of specialty infusion pharmaceuticals and related comprehensive clinical
services. Total cash consideration was approximately $154.2 million, including
working capital adjustments of approximately $4.1 million. CCS focuses on
delivering four principal therapies: hemophilia clotting factor, IVIG, total
parenteral nutrition and anti-infective therapies. The Company financed the
acquisition of CCS with a portion of its recently issued $185.0 million
aggregate principal amount of 10.75% senior notes due 2011 and additional
borrowings under the Company's refinanced credit facility with GE Capital, as
agent and lender.

      The Company acquired approximately $37.9 million of CCS's assets,
including $28.6 million in accounts receivable, $3.2 million in inventory and
$3.3 million in fixed assets. The Company also assumed approximately $13.9
million of CCS's liabilities, including $1.4 million recorded in accrued
expenses related to severance costs associated with the terminations of ten CCS
employees, all of which were paid by the Company by the end of the third quarter
of 2004. The excess of the acquisition cost over the fair value of identifiable
tangible net assets acquired was approximately $130.2 million, consisting of
approximately $20.5 million in payor contracts and $0.2 million in covenants not
to compete, which are being amortized over 17 years and 4 years, respectively,
from the date of acquisition, and trade name and goodwill of approximately $0.9
million and $108.5 million, respectively, which are not being amortized for book
purposes per SFAS No. 142, "Goodwill and Other Intangible Assets." Fair market
valuations have not yet been finalized and, as such, the allocation of the
purchase price is preliminary, pending completion of a final valuation and the
resolution of certain pre-acquisition account balance contingencies.

      The acquisitions described above (collectively the "Specialty Infusion
acquisitions") were consummated for purposes of expanding the Company's
Specialty Infusion business and were accounted for using the purchase method of
accounting. The accounts of the Specialty Infusion acquisitions and related
goodwill and intangibles are included in the accompanying consolidated balance
sheets. The operating results of the Specialty Infusion acquisitions are
included in the accompanying consolidated statements of operations from the
dates of acquisition.


                                      F-15
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE C - SPECIALTY INFUSION ACQUISITIONS (CONTINUED)

      Unaudited pro forma amounts for the years ended December 31, assuming the
Specialty Infusion acquisitions had occurred on January 1, 2002, were as follows
(in thousands, except per share data):

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                              -------------------------------------
                                                 2004           2003         2002
                                              ----------     ---------    ---------
<S>                                           <C>            <C>          <C>
Revenues                                      $  315,918     $ 334,425    $ 285,510
Net (loss) income                             $ (146,065)    $   9,483    $  13,963
Net (loss) income per common share, diluted   $   (11.14)(1) $    0.69(2) $    1.09
</TABLE>

(1)   Basic  shares  were  used as  using  the  effects  of  stock  options  and
      convertible notes would have an anti-dilutive effect on income per share.

(2)   Calculated under the "as if converted" method. See Note P.

      The pro forma amounts shown above give effect to: (i) the Company's
issuance of $185.0 million aggregate principal amount of 10.75% senior notes due
2011; (ii) the refinancing of the Company's revolving credit facility and (iii)
Specialty Infusion acquisitions as if these transactions occurred on January 1,
2002. The above pro forma amounts include adjustments related to the CCS
acquisition, including, but not limited to, the amortization of identifiable
intangibles related to a preliminary purchase price allocation, additional
compensation expense and retention incentives, and pro forma tax adjustments.

      The pro forma operating results shown above are not necessarily indicative
of operations in the periods following the Specialty Infusion acquisitions.

NOTE D - GOODWILL AND OTHER INTANGIBLE ASSETS

      Acquired intangible assets subject to amortization consisted of the
following at December 31 (in thousands):

<TABLE>
<CAPTION>
                                         2004                           2003
                           -----------------------------   -----------------------------
                           GROSS CARRYING   ACCUMULATED    GROSS CARRYING   ACCUMULATED
                               AMOUNT       AMORTIZATION       AMOUNT       AMORTIZATION
                           --------------   ------------   --------------   ------------
<S>                           <C>              <C>             <C>             <C>
Payor contracts               $ 20,507         $   828         $    --         $    --
Covenants not to compete         2,262           1,562           2,185             945
Injectable customers               220             165             220             121
Website                            191             139             177              99
Licenses                            82              33              39               2
Pharmacy relationships              20              15              20              11
                              --------         -------         -------         -------
                              $ 23,282         $ 2,742         $ 2,641         $ 1,178
                              ========         =======         =======         =======
</TABLE>


                                      F-16
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE D - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)

      Amortization period by intangible asset class is as follows:

            ASSET CLASS                AMORTIZATION PERIOD
            ------------------------   -------------------
            Payor contracts                 17 years
            Covenants not to compete      2 - 5 years
            Injectable customers            5 years
            Website                       3 - 5 years
            Licenses                     12 - 20 years
            Pharmacy relationships          5 years

      The aggregate amortization expense was approximately $1.6 million, $0.7
million and $0.4 million for the years ended December 31, 2004, 2003 and 2002,
respectively. The increase in 2004 compared to 2003 and 2002 was primarily the
result of the amortization related to intangibles with definite lives purchased
in connection with the CCS acquisition. The estimated amortization for future
years ending December 31 is as follows (in thousands):

                        2005         $  1,753
                        2006            1,427
                        2007            1,257
                        2008            1,223
                        2009            1,208
                        Thereafter     13,672
                                     --------
                        Total        $ 20,540
                                     ========

      The changes in the carrying amounts of goodwill for the years ended
December 31 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    2004        2003
                                                                 ----------   ---------
<S>                                                              <C>          <C>
       Balance as of January 1, 2004                             $  147,895   $ 122,877
       Goodwill acquired during the year                            109,986      26,301
       Adjustments related to accounts receivable,
          indemnification and other claims (eBioCare and Apex)           --      (1,487)
       Other adjustments                                                 --         204
       Impairment loss                                             (134,743)         --
                                                                 ----------   ---------
       Balance as of December 31, 2004                           $  123,138   $ 147,895
                                                                 ==========   =========
</TABLE>

      The Company's goodwill and other intangible assets, attributed entirely to
the Specialty Infusion business unit, were tested for impairment during the
fourth quarter of 2004. Due primarily to changes in the economics of the
Specialty Infusion business unit, including the changes in reimbursement
methodology that occurred in 2004, the Company recorded non-cash impairment
charges of $134.7 million in goodwill and $0.1 million in other intangible
assets, respectively. The fair value of the Specialty Infusion business unit was
estimated by performing a discounted cash flows analysis for the reporting unit.


                                      F-17
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE D - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)

      All of the Company's goodwill at December 31, 2004 is related to the
Specialty Infusion Services segment. Approximately $45.8 million of the
Company's December 31, 2004 goodwill is deductible for tax purposes on a
straight line basis over 15 years.

      As certain of the Company's acquisitions were accounted for as stock
purchases, goodwill amortization related to those acquisitions is not tax
deductible.

NOTE E - PROPERTY AND EQUIPMENT

      A summary of property and equipment and related accumulated depreciation
and amortization at December 31 follows (in thousands):

                                                            2004       2003
                                                          --------   --------
         Property and equipment                           $ 23,186   $ 16,602
         Leasehold improvements                              5,556      2,810
                                                          --------   --------
            Total                                           28,742     19,412
         Less accumulated depreciation and amortization     17,638     11,522
                                                          --------   --------
                                                          $ 11,104   $  7,890
                                                          ========   ========

      Depreciation and amortization expense on property and equipment amounted
to approximately $3.4 million, $2.0 million and $1.5 million for 2004, 2003 and
2002, respectively.

NOTE F - ACCRUED EXPENSES

      A summary of accrued expenses and other current liabilities at December 31
follows (in thousands):

                                                    2004       2003
                                                  --------   --------
            Incentive compensation and benefits   $  2,714   $  2,496
            Professional fees                          889      2,176
            Customer credits                         6,315        781
            Accrued interest                         3,464         95
            Accrued reorganization costs             3,027      1,360
            Other                                    4,975      4,594
                                                  --------   --------
               Total                              $ 21,384   $ 11,502
                                                  ========   ========


                                      F-18
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE G - EMPLOYEE AND FACILITY TERMINATION COSTS

      In the first quarter of 2003, the Company consolidated its pharmacy
operations in California which resulted in the termination of a total of 25
employees and the vacating of a leased facility. The Company recorded charges
related to this activity of $1.6 million in the first quarter of 2003 and $0.4
million in the fourth quarter of 2004. Additionally, in the fourth quarter of
2004, the Company recorded severance charges for the consolidation of its
headquarters of approximately $0.7 million related to the termination of 19
employees and facility termination costs of $0.1 million.

      The following provides a reconciliation of the related accrued costs
associated with the pharmacy consolidation, which are included in Selling,
General and Administrative expenses in the accompanying consolidated financial
statements, at and for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                         AT AND FOR THE YEAR ENDED DECEMBER 31, 2004
                                   -------------------------------------------------------
                                   BEGINNING   COSTS CHARGED     COSTS PAID OR      ENDING
                                    BALANCE      TO EXPENSE    OTHERWISE SETTLED   BALANCE
                                   ---------   -------------   -----------------   -------
<S>                                  <C>          <C>               <C>            <C>
      Employee termination costs     $  39        $   666           $    39        $   666
      Facility termination costs       431            517               288            660
                                     -----        -------           -------        -------
                                     $ 470        $ 1,183           $   327        $ 1,326
                                     =====        =======           =======        =======
</TABLE>

<TABLE>
<CAPTION>
                                         AT AND FOR THE YEAR ENDED DECEMBER 31, 2003
                                   -------------------------------------------------------
                                   BEGINNING   COSTS CHARGED     COSTS PAID OR      ENDING
                                    BALANCE      TO EXPENSE    OTHERWISE SETTLED   BALANCE
                                   ---------   -------------   -----------------   -------
<S>                                  <C>          <C>               <C>            <C>
      Employee termination costs     $  --        $   871           $   832        $    39
      Facility termination costs        --            759               328            431
                                     -----        -------           -------        -------
                                     $  --        $ 1,630           $ 1,160        $   470
                                     =====        =======           =======        =======
</TABLE>

NOTE H - LEASES

      The Company entered into several non-cancelable operating leases for the
rental of certain office space expiring in various years through 2009.
Additionally, through the Specialty Infusion business unit, the Company leases
office, branch pharmacy and warehouse space in various states. The principal
lease for office space provides for monthly rent of approximately $65,000. As
these leases expire, it can be expected that in the normal course of business,
they will be renewed or replaced. In addition, certain lease agreements contain
renewal options and rent escalation clauses. The principal lease for office
space expires in October of 2005 and will not be renewed. The Company will be
relocating its headquarters to Nashua, New Hampshire, where an existing office
space lease will be expanded to accommodate additional space needs. The
following is a schedule of future property and other lease payments, by year and
in the aggregate, under non-cancelable operating leases with initial or
remaining terms of one year or more at December 31, 2004 (in thousands):

                              2005         $  4,318
                              2006            3,592
                              2007            2,768
                              2008            1,839
                              2009            1,246
                              Thereafter      1,049
                                           --------
                                 Total     $ 14,812
                                           ========


                                      F-19
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE H - LEASES (CONTINUED)

      Rent expense for all operating leases was approximately $4.1 million, $1.4
million and $1.0 million for the years ended December 31, 2004, 2003 and 2002,
respectively. The increase in rent expense for 2004 was due to additional rent
for CCS's corporate office and branch pharmacies.

NOTE I - LONG-TERM LIABILITIES

      Long-term liabilities consisted of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                               2004        2003
                                                             ---------   --------
<S>                                                          <C>         <C>
        Senior subordinated notes                            $ 185,000   $     --
        Term loan facility                                          --     24,000
        Revolving loan facility                                 24,310     11,253
        Note Payable - DOJ Settlement                            2,000      4,040
        Convertible note used in purchase of Apex                2,177      3,048
        Convertible note used in purchase of Infinity               --      1,169
        Convertible note used in purchase of Home Care           3,000      3,000
        Note payable used in purchase of Prescription City       1,000      1,000
                                                             ---------   --------
                                                               217,487     47,510
        Less amounts due within one year                         6,496      7,911
                                                             ---------   --------
           Total                                             $ 210,991   $ 39,599
                                                             =========   ========
</TABLE>

      In December 2001, the Company entered into a settlement agreement with the
DOJ related to whistleblower actions brought against the Company. The settlement
agreement called for payments to be made to the DOJ totaling $16.5 million, with
an initial payment of $9.0 million and the $7.5 million balance paid over four
years, payable in 12 quarterly installments of $0.5 million, followed by four
quarterly installments of $0.4 million, all bearing interest at a rate of 6% per
annum. The final installment under this agreement is due in February 2006.

      On February 28, 2002, in connection with the purchase of Apex, the Company
entered into a $5.0 million promissory note that bore interest at the rate of
4.4% per annum and matures on February 28, 2007. This note was subject to Apex
meeting certain operating targets. The Company and the former shareholders of
Apex amended and restated the promissory note on May 30, 2002 to change the
terms relating to the business performance criteria, add a convertible feature
and ultimately adjust the principal amount of the promissory note to $3.7
million. The amended and restated promissory note is convertible at a share
price of $20.10 into a maximum of 184,080 shares of the Company's common stock.
The Company makes quarterly principal payments against this note which commenced
in April 2003.

      On June 28, 2002, in connection with the purchase of Infinity, the Company
entered into $6.0 million in convertible promissory notes, which bear interest
at a rate of 3% per annum, mature on June 28, 2007, and are convertible at a
price per share of $16.08 into an aggregate of 373,111 shares of the Company's
common stock. Certain selling shareholders of Infinity exercised their rights
under the convertible notes and converted approximately $1.2 million of such
notes into 72,715 shares of the Company's common stock in 2004 and approximately
$4.8 million of such notes into 300,389 shares in 2003.

      On October 23, 2002, in connection with the purchase of Home Care, the
Company entered into a $3.0 million convertible note which bears interest at a
rate of 3% per annum, matures on October 23, 2005 and is convertible at a price
per share of $16.00 into an aggregate of 187,500 shares of the Company's common
stock.


                                      F-20
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE I - LONG-TERM LIABILITIES (CONTINUED)

      On June 9, 2003, the Company completed a new senior secured credit
facility with GE Capital. Under the credit agreement, the Company obtained a
secured revolving credit facility of up to $15.0 million, of which it can
utilize up to $5.0 million as a letter of credit subfacility and up to $5.0
million as a swingline subfacility (i.e., a short-term loan advance facility),
and a $20.0 million secured term loan which was subsequently increased to $25.0
million, for a total facility of $40.0 million. The Company used the funds
available under this new credit facility to immediately pay all of its
outstanding borrowings, accrued interest and termination fees under its credit
facility with Healthcare Business Credit Corporation and to finance its
acquisition of certain assets of Prescription City. The Company paid off all
balances under this facility on April 23, 2004 in connection with a restructure
of the agreement (see below).

      The term loan was to mature on July 15, 2007. Interest accrued on the term
loan at an annual rate equal to the applicable LIBOR rate plus an additional
amount based on the borrower's senior leverage ratio, which additional amounts
may range from 3.5% to 4.0%. All accrued interest outstanding on base rate term
loans bore interest at an annual rate equal to the base rate plus an additional
amount based on the borrower's senior leverage ratio, which additional amounts
may range from 2.25% to 2.75% for the term base rate loan. At December 31, 2003,
the interest rate was LIBOR plus 4%, or 5.12%. The Company paid off all balances
under this facility on April 23, 2004 in connection with a restructure of the
agreement (see below).

      On June 10, 2003, in connection with the purchase of certain assets of
Prescription City, the Company entered into a $1.0 million one-year note which
bears interest at a rate of 4% and matured on June 9, 2004. See Note T.

      On April 23, 2004 and in conjunction with the acquisition of CCS, the
Company issued $185.0 million aggregate principal amount of 10.75% senior
subordinated notes due May 1, 2011 (the "Notes") which bear interest at 10.75%,
payable semi-annually. The Notes may not be redeemed prior to May 1, 2008, at
which time the Company may redeem, at any time at various redemption prices, any
amount of the Notes in whole or in part. The Company may also, at any time prior
to May 1, 2007, redeem up to 35% of the Notes with cash proceeds from equity
offerings at a redemption price equal to 110.75% of the principal amount of the
Notes redeemed. The Notes also contain certain covenants limiting the Company
from, among other restrictions, taking on additional indebtedness, paying
dividends and selling assets.

      Also on April 23, 2004, the Company restructured its previous credit
facility with GE Capital to provide for a secured revolving credit facility of
up to $40.0 million, of which the Company can use up to $5.0 million as a letter
of credit subfacility and up to $5.0 million as a swingline subfacility (i.e., a
short-term loan advance facility). The Company used the facility immediately to
pay all of its outstanding borrowings under the previous facility.

      The revolving credit facility matures on April 23, 2009. The Company will
pay all accrued interest on outstanding LIBOR loans on the last day of the
applicable LIBOR period, provided in the case of any LIBOR period greater than
three months in duration, interest shall be payable at three month intervals and
on the last day of such LIBOR period. All accrued interest on outstanding
revolving credit LIBOR loan advances which bears interest at an annual rate
equal to the LIBOR rate plus an additional amount based on the borrower's senior
leverage ratio, which additional amounts may range from 3% to 3.5%. At December
31, 2004, the applicable margin for revolving credit loan advances was LIBOR
plus 3.5%, or approximately 5.34%. For outstanding base rate loans, the Company
will pay all accrued interest on the first business day of each calendar
quarter. All accrued interest on outstanding revolving credit base rate loans
bears interest at an annual rate equal to the base rate plus an additional
amount based on the borrower's senior leverage ratio, which additional amounts
may range from 1.75% to 2.25% for the revolving credit base rate loans.


                                      F-21
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE I - LONG-TERM LIABILITIES (CONTINUED)

      In the credit agreement, the Company has made certain representations and
warranties to GE Capital and is subject to certain reporting requirements and
financial and other covenants. The credit facility restricts the Company's
ability to incur or to permit any of its properties or assets to be encumbered
by liens. The credit facility also restricts the Company's ability to make
certain types of payments relating to its capital stock, including the
declaration or payment of dividends. Consolidations, mergers, sales of assets
and the creation of additional subsidiaries are also restricted, as is the
Company's ability to purchase assets and to make investments. The Company may
purchase other businesses that are preferred health care provider organizations
or are otherwise related to its line of business as long as the price for any
particular such acquisition does not exceed $25.0 million and the aggregate
purchase price for all such acquisitions during any fiscal year does not exceed
$40.0 million. Acquisitions that do not comply with the covenant can be made
only with the consent of GE Capital. The covenants also restrict transactions
with the Company's affiliates and require the Company to maintain certain levels
with respect to its total leverage ratio, senior leverage ratio and fixed charge
coverage ratio. The Company sought and received from GE Capital an amendment to
the covenants related to total leverage and fixed charges for the fourth quarter
of 2004 and the full year of 2005. At December 31, 2004, the Company was in
compliance with its amended debt covenants.

      Principal maturities of long-term liabilities are as follows at December
31 (in thousands):

                              2005         $   6,496
                              2006             1,245
                              2007               436
                              2008                --
                              2009            24,310
                              Thereafter     185,000
                                           ---------
                                 Total     $ 217,487
                                           =========

NOTE J - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

      In conjunction with the Company's issuance of $185.0 million senior
subordinated Notes (see Note I), the Company entered into a $90.0 million
notional amount interest rate swap agreement. This agreement is used by the
Company to reduce interest expense and modify exposure to interest rate risk by
converting its fixed rate debt to a floating rate liability. Under the
agreement, the Company receives, on the portion of the senior subordinated notes
hedged, 10.75% fixed rate amounts in exchange for floating interest rate (the
six-month LIBOR rate plus a premium) payments over the life of the agreement
without an exchange of the underlying principal amount. The swap matures on May
2, 2011.


                                      F-22
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE J - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)

      The swap is a cash flow hedge. Due to hedge ineffectiveness, measured by
comparing the change in the fair value of debt caused only by changes in the
LIBOR yield curve to the change in the value of the swap, changes in fair value
of the swap are recognized in earnings, and the carrying value of the Company's
debt is not marked to fair value. The fair value of the swap agreement as of
December 31, 2004 was approximately $1.1 million and was recorded in other
long-term liabilities on the balance sheet and in other expense on the statement
of operations. The Company is exposed to the risk of interest rate changes and
credit risk in the event of non-performance by the counterparties. However, the
Company believes the risk of non-performance is low.

NOTE K - NOTE GUARANTEES

      On April 23, 2004, the Company issued its $185.0 million aggregate
principal amount of 10.75% senior subordinated notes (see Note I) under an
Indenture (the "Indenture"), dated April 23, 2004, among the Company, its
subsidiaries and Wells Fargo Bank, National Association. The Notes are jointly
and severally guaranteed by all of the Company's existing and future restricted
subsidiaries ("Restricted Subsidiaries"), as defined in the Indenture, on a full
and unconditional basis, and no separate consideration will be received for the
issuance of these guarantees. However, under certain circumstances, the Company
may be permitted to designate any of its Restricted Subsidiaries as Unrestricted
Subsidiaries.

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

NOTE L - STOCKHOLDERS' EQUITY

DIRECTOR SHARE PURCHASE PROGRAM

      The Company maintains a Director Share Purchase Program (the "Program") to
encourage ownership of its common stock by its directors. Under the Program,
each non-employee director can elect to forego receipt of cash payments for
director's annual retainer and meeting fees and, in lieu thereof, receive shares
of common stock at market value equal to the cash payment. The Program
authorized the issuance of up to 120,000 shares of the Company's common stock at
market value. At each year ended December 31, 2004, 2003 and 2002, 118,406
shares of common stock were reserved for future issuance under the Program.

REPURCHASE OF COMMON STOCK

      The Company did not repurchase any of its common stock during 2004. In
January, 2003, the selling shareholder of Hemophilia Access, Inc. ("HAI")
exercised a put option right under the Stock Purchase Agreement of HAI,
requiring the Company to repurchase shares issued to acquire HAI.

NOTES CONVERTED INTO COMMON STOCK

      Certain selling shareholders of Infinity exercised their rights under
convertible notes and converted approximately $1.2 million of such notes into
72,715 shares of the Company's common stock in January of 2004 and approximately
$4.8 million, or 300,389 shares, in July of 2003.


                                      F-23
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE L - STOCKHOLDERS' EQUITY (CONTINUED)

RESTRICTED STOCK AWARDS PLANS

      During 1999, the Company implemented a Restricted Stock Award Plan ("the
Plan") for certain key executives. The total shares to be granted under the Plan
are 73,000 shares at a price of $5.41 per share. The shares vest over a
three-year period.

RESTRICTED COMMON STOCK

      In 2004, a total of 317,604 restricted shares of the Company's common
stock were granted by the Board of Directors to certain principal officers
and/or directors of the Company at various costs per share. The awards relate to
services to be provided over future years and, as a result, the stock awards are
subject to certain restrictions as provided in the agreements. These awards also
automatically vest upon the respective officer and/or director's retirement or
termination of employment by the Company without cause. The restricted stock had
a weighted average price of $9.12 at December 31, 2004. The excess of market
value over cost of the shares awarded of $2.9 million was recorded as deferred
compensation and reflected as a reduction of stockholders' equity in the
accompanying consolidated balance sheets. As of December 31, 2004, related
amortization amounted to approximately $0.5 million.

RIGHTS PLAN

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

NOTE M - STOCK BASED COMPENSATION PLANS

      The Company has stock option plans which provide for the granting of
non-qualified, incentive options, or restricted stock awards to employees and
directors. The plans authorize granting of up to 8,394,595 shares of the
Company's common stock at the market value at the date of such grants. All
options are exercisable at times as determined by the Board of Directors, not to
exceed ten years after the grant date.

      Pro forma information regarding net (loss) income and net (loss) income
per share is required by SFAS No. 123, "Accounting for Stock Based
Compensation," and has been determined as if the Company has accounted for its
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions at December 31,
2004, 2003 and 2002, respectively: risk-free interest rate of 1.57%, 1.0% and
1.32%; no dividend yields; volatility factor of the expected market price of the
Company's common stock of 69.2%, 70.0% and 71.8%; and a weighted-average
expected life of the options of four years.


                                      F-24
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE M - STOCK BASED COMPENSATION PLANS (CONTINUED)

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

      A summary of the Company's stock option activity and related information
for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                   2004                   2003                    2002
                             WEIGHTED AVERAGE       WEIGHTED AVERAGE       WEIGHTED AVERAGE
                           --------------------   --------------------   -----------------------
                                       EXERCISE               EXERCISE                EXERCISE
                            OPTIONS      PRICE     OPTIONS      PRICE      OPTIONS     PRICE
                           ---------   --------   ---------   --------   ----------   ----------
<S>                        <C>          <C>       <C>          <C>       <C>           <C>
Outstanding at
   beginning of year       3,286,449    $ 13.89   3,454,963    $ 12.51    3,738,089    $ 11.13
      Granted              1,003,750      12.71     873,850      16.35    2,298,600      14.76
      Exercised              (30,791)      9.58    (457,863)      8.71   (1,139,348)      6.32
      Cancelled             (626,179)     15.81    (584,501)     13.47   (1,442,378)     17.40
                           ---------    -------   ---------              ----------
Outstanding at
   end of year             3,633,229      13.27   3,286,449      13.89    3,454,963      12.51
                           =========              =========              ==========
Exercisable at
   end of year             2,283,425      12.65   1,682,645      11.92       68,697      10.45
Weighted average
   fair value of options
   granted                              $  6.68                $  8.74                 $  7.98
</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 2004:

                               OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                       ----------------------------------   --------------------
                                     WEIGHTED
                                     AVERAGE     WEIGHTED               WEIGHTED
                                    REMAINING     AVERAGE                AVERAGE
                                   CONTRACTUAL   EXERCISE               EXERCISE
     EXERCISE PRICES     SHARES        LIFE        PRICE      SHARES      PRICE
     ---------------   ---------   -----------   --------   ---------   --------
      4.813 -  7.22      711,061       5.34         5.66      663,061      5.62
       7.22 - 10.83      233,500       6.21         9.28      189,496      9.30
      10.83 - 16.25    1,743,321       8.38        13.50      724,557     13.79
      16.25 - 24.38      785,268       8.47        17.35      606,232     17.47
      24.38 - 32.00      160,079       3.72        28.69      100,079     28.18
                       ---------                            ---------
                       3,633,229                            2,283,425
                       =========                            =========

      At December 31, 2004, 842,059 shares of common stock were reserved for
future issuance, excluding shares reserved for options outstanding.


                                      F-25
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE N - INCOME TAXES

      Significant components of the Company's deferred income tax assets and
liabilities for the years ended December 31 were as follows (in thousands):

                                                         2004       2003
                                                       --------   --------
         Deferred income tax assets:
            Bad debt reserve                           $  3,120   $  2,808
            Intangible asset amortization                   727         --
            Accrued expenses                              1,039        286
                                                       --------   --------
               Total deferred income tax assets           4,886      3,094

         Deferred income tax liabilities:
            State tax                                        --       (463)
            Goodwill amortization                        (2,230)      (965)
            Tax over book depreciation                   (1,217)      (348)
            Installment sale                                (64)      (538)
                                                       --------   --------
               Total deferred income tax liabilities     (3,511)    (2,314)
                                                       --------   --------

         Net deferred income tax assets                $  1,375   $    780
                                                       ========   ========

      Total net long-term deferred income tax assets of $909,000 and $110,000
are included in other assets in the accompanying balance sheets for the years
ended December 31, 2004 and 2003, respectively.

      Significant components of the (benefit) provision for income taxes for the
years ended December 31 were as follows (in thousands):

                                                  2004       2003      2002
                                                --------   -------   -------
         Current:
            Federal                             $ (3,256)  $ 4,998   $ 4,801
            State                                     18     1,075     1,084

         Deferred:
            Federal                                 (582)    2,325     3,160
            State                                    (14)       98       637
                                                --------   -------   -------
         Total income tax (benefit) provision   $ (3,834)  $ 8,496   $ 9,682
                                                ========   =======   =======

      A reconciliation of income tax computed at the U.S. Federal statutory tax
rate to income tax (benefit) expense for the years ended December 31 is as
follows:

                                                          2004    2003   2002
                                                         -----   -----   ----
         Federal statutory tax rate                       34.0%   35.0%  35.0%
         State income taxes net of Federal tax benefit      --     4.6%   4.6%
         Goodwill impairment                             (31.6)%    --     --
         Other                                             0.2%   (0.2)%  0.2%
                                                         -----    ----   ----
         Effective tax rate                                2.6%   39.4%  39.8%
                                                         =====    ====   ====


                                      F-26
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE O - SEGMENT INFORMATION

      The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company has two
reportable segments: Specialty Infusion and Wound Care Management. In its
Specialty Infusion business unit, the Company purchases biopharmaceutical and
other pharmaceutical products from suppliers and contracts with insurance
companies and other payors to provide its services, which include coordination
of patient care, 24-hour nursing and pharmacy availability, patient education
and reimbursement billing and collection services. In its Wound Care Management
business unit, the Company contracts with hospitals to manage outpatient Wound
Care Center(R) programs. The Company evaluates segment performance based on
(loss) income from operations. The accounting policies of the reportable
segments are the same as those described in Note A. Intercompany transactions
are eliminated to arrive at consolidated totals.

      The following table presents the results of operations and total assets of
the reportable segments of the Company at and for the years ended December 31
(in thousands):

<TABLE>
<CAPTION>
                                         AT AND FOR THE YEAR ENDED DECEMBER 31, 2004
                                         -------------------------------------------
                                           Specialty       Wound Care
                                           Infusion        Management       Total
                                         -------------   -------------   -----------
<S>                                        <C>              <C>           <C>
         Revenues                          $  255,443       $ 26,925      $  282,368
         (Loss) income from operations     $ (132,369)      $  3,937      $ (128,432)
         Total assets                      $  265,881       $ 17,903      $  283,784
</TABLE>

<TABLE>
<CAPTION>
                                         AT AND FOR THE YEAR ENDED DECEMBER 31, 2003
                                         -------------------------------------------
                                           Specialty       Wound Care
                                           Infusion        Management       Total
                                         -------------   -------------   -----------
<S>                                        <C>             <C>            <C>
         Revenues                          $ 185,843       $ 28,898       $ 214,741
         Income from operations            $  18,946       $  2,578       $  21,524
         Total assets                      $ 216,088       $ 17,850       $ 233,938
</TABLE>

<TABLE>
<CAPTION>
                                         AT AND FOR THE YEAR ENDED DECEMBER 31, 2002
                                         -------------------------------------------
                                           Specialty       Wound Care
                                           Infusion        Management       Total
                                         -------------   -------------   -----------
<S>                                        <C>             <C>            <C>
         Revenues                          $ 104,550       $ 34,679       $ 139,229
         Income from operations            $  15,450       $  8,081       $  23,531
         Total assets                      $ 174,413       $ 12,473       $ 186,886
</TABLE>


                                      F-27
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE P - NET (LOSS) INCOME PER SHARE

      Net (loss) income per common share, basic, is computed by dividing the net
(loss) income by the weighted average number of common shares outstanding. Net
(loss) income per common share, diluted, is computed by dividing adjusted net
(loss) income (see below) by the weighted average number of shares outstanding
plus dilutive common share equivalents. The following table sets forth the
computation of weighted average shares, basic and diluted, used in determining
basic and diluted (loss) income per share for the years ended December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                                               2004     2003     2002
                                                                              ------   ------   ------
<S>                                                                           <C>      <C>      <C>
      Denominator:
         Denominator for basic income per share, weighted                     12,949   12,546   11,280
         average shares

      Effect of dilutive employee stock options
         and convertible notes(1)                                                 --    1,280      927
                                                                              ------   ------   ------

      Denominator:
         Denominator for diluted (loss) income per share, adjusted weighted
         average shares assuming conversions                                  12,949   13,826   12,207
                                                                              ======   ======   ======
</TABLE>

      (1)   Potentially dilutive employee and director stock options that have
            been excluded from this amount because they are anti-dilutive
            amounted to approximately 3,633,000, 2,006,000 and 2,528,000 in
            2004, 2003 and 2002, respectively.

      Adjusted net (loss) income and net (loss) income per common share,
diluted, for the years ended December 31 were computed as follows (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                                                      2004           2003         2002
                                                                   ----------      --------     --------
<S>                                                                <C>             <C>          <C>
      Net (loss) income, as reported                               $ (141,405)     $ 13,075     $ 14,645
      Add back interest related to convertible notes, net of tax           --           212           --
                                                                   ----------      --------     --------
      Adjusted net (loss) income                                   $ (141,405)     $ 13,287     $ 14,645
                                                                   ==========      ========     ========

      Net (loss) income per common share, diluted                  $   (10.92)(2)  $    .96(3)  $   1.20
                                                                   ==========      ========     ========

      Weighted average shares, diluted                                 12,949        13,826       12,207
                                                                   ==========      ========     ========
</TABLE>

      (2)   Basic shares were used to calculate net loss per common share,
            diluted, for the year ended December 31, 2004 as using the effects
            of stock options and convertible notes would have an anti-dilutive
            effect on income per share. If not anti-dilutive, weighted average
            shares, diluted, would have been 13,586 for the year ended December
            31, 2004.

      (3)   In accordance with SFAS No. 128, "Earnings Per Share," net income
            per common share, diluted, for the year ended December 31, 2003 was
            calculated under the "as if converted" method, which requires adding
            shares related to convertible notes that have no contingencies to
            the denominator for diluted income per share and adding to net
            income, the numerator, tax effected interest expense relating to
            those convertible notes.


                                      F-28
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE Q - EMPLOYEE BENEFITS

      The Company maintains a qualified Employee Savings Plan (the "Plan") for
eligible employees under Section 401(k) of the Internal Revenue Code. The Plan
provides for voluntary employee contributions through salary reductions and
employer contributions at the discretion of the Company. The Company had
previously authorized employer contributions of 25% of employees' contribution
up to 1% of the employees' compensation. As of July 1, 2003, the Company amended
the Plan to reflect employer contributions of 50% of employees' contribution up
to 2% of the employees' compensation. The Company's contribution match was $0.6
million, $0.3 million and $0.1 million in 2004, 2003 and 2002, respectively.

NOTE R - RELATED PARTY TRANSACTIONS

      During 2002, the Company advanced approximately $1.9 million to certain
officers and directors of the Company. The Company received promissory notes
payable with maturity dates ranging from February 19, 2004 to March 1, 2005 for
such advances, which bear interest at an annual rate of 2.46% payable on the
maturity date. At December 31, 2004 and 2003, principal amounts outstanding
under these promissory notes are included in notes receivable - stockholders in
the accompanying consolidated balance sheets. As of March 1, 2005, all such
loans were paid in full.

NOTE S - RECENT DEVELOPMENTS

CALIFORNIA MEDI-CAL REIMBURSEMENT REDUCTION

      Approximately 12% of the Company's total revenues for the year ended
December 31, 2004 were derived from California state funded health programs. The
California state legislature in 2003 passed legislation that modified the
reimbursement methodology for blood-clotting factor products under various
California state funded health programs. Under the new reimbursement
methodology, blood-clotting factor products are reimbursed based upon ASP, as
provided by the manufacturers, plus 20%.

      In addition, payments for Medi-Cal and certain other state-funded health
programs were to be reduced by 5% for services provided on and after January 1,
2004. On December 23, 2003, the United States District Court for the Eastern
District of California issued an injunction enjoining that scheduled 5% Medi-Cal
reimbursement rate cut. DHS appealed the decision to the federal Ninth Circuit
Court of Appeals, and oral argument was heard by the Ninth Circuit on December
8, 2004. A decision is expected in the next few months, but an exact date when
the decision will be issued cannot be predicted. The length of the injunction
and the ultimate outcome of this litigation are uncertain at this time. The
court order enjoining the 5% Medi-Cal rate reduction did not apply to other
state funded programs for hemophilia patients, and California implemented the 5%
reduction for these other programs. However, the 5% reduction as applied to the
other state funded programs was repealed on or about July 31, 2004 for services
provided on and after July 1, 2004.

      In May 2004, DHS issued a provider bulletin notifying providers that the
ASP plus 20% methodology would be implemented for services provided on and after
June 1, 2004, but did not specify actual reimbursement rates. On or about July
9, 2004, DHS published a notice in the California Regulatory Notice Register
advising that persons wanting to find out the latest rates could obtain the
information from Electronic Data Systems. The revised rates have resulted in
substantially greater cuts than the guidance previously provided by DHS
representatives had indicated, amounting to approximately a 30-40% cut from
rates previously in effect.


                                      F-29
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE S - RECENT DEVELOPMENTS

      On May 27, 2004, a lawsuit was filed on behalf of two individual Medi-Cal
recipients with hemophilia in the United States District Court for the Eastern
District of California against the State of California relating to the
implementation of the new ASP reimbursement methodology, alleging, among other
things, that a severe reduction in reimbursement rates would threaten the
ability of Medi-Cal recipients with hemophilia to have adequate access to
blood-clotting factor. In addition, on June 10, 2004, the Company filed a
lawsuit in the Superior Court for the County of Sacramento relating to the
failure of DHS to disclose payment rates and the detailed methodology utilized
to determine the rates, and its failure to comply with certain applicable
federal procedural requirements relating to the reimbursement rates. In December
2004, the Company and certain named individual plaintiffs entered into a
Settlement Agreement which resolved both of these cases. In return for dismissal
of both lawsuits, DHS agreed to process, on a priority basis, all pending and
future Medi-Cal, California Children's Services and Genetically Handicapped
Persons Program claims submitted by the Company. In addition, DHS agreed to
expedite its efforts to implement electronic billing and payment for
blood-clotting factor claims.

      In addition, the Governor of California has recently proposed to expand
the Medi-Cal managed care program into 13 additional counties and to phase in
mandatory enrollment for aged, blind and disabled Medi-Cal beneficiaries. The
Company understands there may be significant concern by various constituencies
over mandatory enrollment of medically fragile populations, and the outcome of
these proposals is uncertain at this time.

CHANGE IN MEDICARE REIMBURSEMENT METHODOLOGY

      In November 2004, CMS posted the Final Physician Payment Rule which
contains the final rule for reimbursement for blood-clotting factor. The new
Medicare reimbursement methodology, which became effective on January 1, 2005,
is ASP plus 6% plus a $0.14 per unit dispensing fee. Under the previous
methodology, the Company was reimbursed at 95% of AWP. The new methodology will
result in reduced reimbursement of approximately 12%.

NOTE T - LEGAL PROCEEDINGS

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

      As previously disclosed, a search warrant issued by a U.S. Magistrate
Judge, Southern District of New York, relating to a criminal investigation was
executed on November 4, 2003 at the Company's Prescription City pharmacy,
formerly located in Spring Valley, New York. The Government has informed the
Company that it is not a target of the investigation. Apex, a wholly-owned
subsidiary of the Company, was served with the search warrant on Tuesday,
November 4, 2003 while it was conducting its own compliance review at the Spring
Valley pharmacy. The Company has cooperated fully with the U.S. Attorney's
Office in its investigation. Based on information known as of November 5, 2003,
the employment of Paul Frank, the former principal shareholder of Prescription
City, was terminated. Apex also hired outside counsel in connection with this
investigation. Certain assets of Prescription City were purchased by Apex in
June 2003. The purchase was structured as an asset purchase with Apex being
provided indemnifications, representations and warranties by the sellers. Apex
has filed a complaint in the United States District Court, Southern District of
New York against Paul Frank and Prescription City, seeking


                                      F-30
<PAGE>

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE T - LEGAL PROCEEDINGS (CONTINUED)

rescission, compensatory and punitive damages and other relief. The defendants
have filed a motion to join Curative as a plaintiff and to have the case
dismissed for lack of diversity, and the Court denied such motion. The
defendants have filed a motion to have such decision reconsidered. The
defendants also filed a third-party complaint for declaratory relief and a
breach of contract relating to a promissory note delivered by Apex (and issued
by Curative) to the sellers as part of the obligations of Apex in connection
with the acquisition. The Company has filed a motion to dismiss such third-party
complaint. Apex intends to pursue its claims against Prescription City and Paul
Frank aggressively, and the Company intends to defend vigorously any claims made
in the third-party complaint if it is not dismissed. Such litigation is pending,
and the outcome is uncertain at this time.


                                      F-31
<PAGE>

                                                                     SCHEDULE II

                 CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

<TABLE>
<CAPTION>
COL. A                              COL. B               COL. C               COL. D         COL. E
-------------------------------   -----------   ------------------------   -----------     -----------
                                                       ADDITIONS
                                                ------------------------
                                   BALANCE AT    CHARGED TO   CHARGED TO                    BALANCE AT
                                   BEGINNING     COSTS AND      OTHER                          END
DESCRIPTION                         OF YEAR       EXPENSES     ACCOUNTS     DEDUCTIONS       OF YEAR
-------------------------------   -----------   -----------   ----------   -----------     -----------
<S>                               <C>           <C>              <C>       <C>             <C>
Year ended December 31, 2004
Allowance for doubtful accounts   $ 4,022,000   $ 3,411,000      $ --      $ 2,787,000(1)  $ 4,646,000

Year ended December 31, 2003:
Allowance for doubtful accounts   $ 2,954,000   $ 3,291,000      $ --      $ 2,223,000(1)  $ 4,022,000

Year ended December 31, 2002:
Allowance for doubtful accounts   $ 3,504,000   $ 1,044,000      $ --      $ 1,594,000(1)  $ 2,954,000
</TABLE>

(1)   Accounts written off.


                                       S-1
<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT
   NO.                                 DESCRIPTION
---------   --------------------------------------------------------------------
    2.1     Plan of Merger, dated as of August 15, 2003, by and among Curative
            Health Services, Inc., Curative Holding Co., and Curative Health
            Services Co. (incorporated by reference to Exhibit 2.1 to the
            Company's Current Report on Form 8-K, filed August 19, 2003, of
            Curative Health Services, Inc., the predecessor company)

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

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

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

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

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

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

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

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

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

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

   10.1     Curative Health Services, Inc., Director Share Purchase Program
            (incorporated by reference to Exhibit 10.28.3 of the Company's
            Quarterly Report on Form 10-Q for the quarter ended June 30, 1996**

   10.2     1991 Stock Option Plan (incorporated by reference to Exhibit 10.27
            to the Company's Registration Statement on Form S-1 No. 33-39879)**

   10.3     Curative Technologies, Inc. Non-Employee Director Stock Option Plan
            (incorporated by reference to Exhibit 10.25.2 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended June 30, 1996)**

   10.4     Employment Agreement, dated as of September 1, 1997 between John C.
            Prior and the Company (incorporated by reference to Exhibit 10.5 to
            the Company's Annual Report on Form 10-K for the year ended December
            31, 1997)**

   10.5     Amended Employment Agreement dated December 17, 1997 between William
            Tella and the Company (incorporated by reference to Exhibit 10.45.1
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            March 31, 1998)**

   10.6     Amendment No. 4 to the 1991 Stock Option Plan (incorporated by
            reference to Exhibit 10.7 to the Company's Quarterly Report on Form
            10-Q for the quarter ended June 30, 1998)**

<PAGE>

EXHIBIT
   NO.                                 DESCRIPTION
---------   --------------------------------------------------------------------
   10.7     Amendment No. 1 to Curative Technologies, Inc. Non-Employee Director
            Stock Option Plan (incorporated by reference to Exhibit 10.19 to the
            Company's Quarterly Report on Form 10-Q for the quarter ended June
            30, 1998)**

   10.8     Lease Agreement dated June 30, 1997, and amended Lease Agreement
            dated November 13, 1997, between New York Life Insurance Company and
            the Company (incorporated by reference to Exhibit 10.4 to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            1998)

   10.9     Amendment to the Non-Employee Director Stock Option Plan
            (incorporated by reference to Exhibit 10.19.2 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended June 30, 2000)**

  10.10     Form of Restricted Stock Award Agreement dated August 11, 1999
            (incorporated by reference to Exhibit 10.25 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended June 30, 2000)**

  10.11     Non-Employee Director Severance Plan (incorporated by reference to
            Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended June 30, 2000)**

  10.12     Asset Purchase Agreement among Cytomedix, Inc., Cytomedix, N.V., CHS
            Services, Inc. and Curative Health Services, Inc. dated as of
            October 12, 2000 (incorporated by reference to Exhibit 10.25 to the
            Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2000)

  10.13     Employment Agreement, dated as of September 18, 2000, between Roy
            McKinley and the Company (incorporated by reference to Exhibit 10.26
            to the Company's Annual Report on Form 10-K for the year ended
            December 31, 2000)**

  10.14     Curative Health Services, Inc. 2000 Stock Incentive Plan
            (incorporated by reference to Exhibit 10.24 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended March 31,
            2001)**

  10.15     Stock Purchase Agreement dated as of March 19, 2001, by and among
            Curative Health Services, Inc. and certain stockholders of
            eBioCare.com, Inc. (incorporated by reference to Exhibit 2.1 to the
            Company's Current Report on Form 8-K, filed April 13, 2001)

  10.16     Form of Stockholder Purchase Agreement, between Curative Health
            Services, Inc. and all other stockholders of eBioCare.com, Inc.
            (incorporated by reference to Exhibit 2.2 to the Company's Current
            Report on Form 8-K, filed April 13, 2001)

  10.17     Form of Option/Warrant Repurchase and Surrender Agreement between
            eBioCare.com, Inc. and the holders of options and warrants to
            purchase common stock of eBioCare.com, Inc. (incorporated by
            reference to Exhibit 2.3 to the Company's Current Report on Form
            8-K, filed April 13, 2001)

  10.18     Employment Agreement, dated as of June 25, 2001, between Nancy Lanis
            and the Company (incorporated by reference to Exhibit 10.33 to the
            Company's Quarterly Report on Form 10-Q for the quarter ended June
            30, 2001)**

  10.19     Curative Health Services, Inc. 2001 Broad-Based Stock Incentive Plan
            (incorporated by reference to Exhibit 10.37 to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2001)**

  10.20     Curative Health Services, Inc. form of Non-Qualified Stock Option
            Agreement (incorporated by reference to Exhibit 10.38 to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            2001)**

  10.21     Stock Purchase Agreement, dated as of January 27, 2002, by and among
            Curative Health Services, Inc. and the stockholders of Apex
            Therapeutic Care, Inc. (incorporated by reference to Exhibit 2 to
            the Company's Current Report on Form 8-K, filed March 11, 2002)

  10.22     Purchase Agreement, dated as of June 10, 2002, by and among Curative
            Health Services, Inc., Infinity Infusion, LLC and Infinity Infusion
            II, LLC, and IIC GP, LLC, Azar I. Delpassand, Dr. Ebrahim
            Delpassand, Tara Imani, Maryam Panahi and Yassamin Norouzian
            (incorporated by reference to Exhibit 99.2 to the Company's Current
            Report on Form 8-K, filed June 11, 2002)

  10.23     Amended and Restated Loan and Security Agreement, dated as of May
            17, 2002, by and among Curative Health Services, Inc., eBioCare.com,
            Inc., Hemophilia Access, Inc., Apex Therapeutic Care, Inc. and
            Healthcare Business Credit Corporation (incorporated by reference to
            Exhibit 99.3 to the Company's Current Report on Form 8-K, filed June
            11, 2002)
<PAGE>
EXHIBIT
   NO.                                 DESCRIPTION
---------   --------------------------------------------------------------------
  10.24     Amendment No. 1 to Purchase Agreement dated as of June 28, 2002, by
            and among Curative Health Services, Inc., Infinity Infusion, LLC and
            Infinity Infusion II, LLC and Bijan Imani, as Sellers'
            Representative on behalf of the Sellers (incorporated by reference
            to Exhibit 2.2 to the Company's Current Report on Form 8-K, filed
            July 2, 2002)

  10.25     Employment agreement, dated as of July 24, 2002, between Joseph
            Feshbach and the Company (incorporated by reference to Exhibit 10.1
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2002)**

  10.26     Employment agreement, dated as of March 13, 2002, between Thomas
            Axmacher and the Company (incorporated by reference to Exhibit 10.2
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2002)**

  10.27     Registration Rights and Lock-Up Agreement, dated as of February 28,
            2002, by and among Curative Health Services, Inc. and the
            stockholders of Apex Therapeutic Care, Inc. (incorporated by
            reference to Exhibit 10.45 to the Company's Annual Report on Form
            10-K for the year ended December 31, 2002)

  10.28     Amendment No. 1 to the Registration Rights and Lock-Up Agreement,
            dated as of February 27, 2003, by and between Curative Health
            Services, Inc. and Jon M. Tamiyasu, in his capacity as the
            Stockholders' Representative under the Registration Rights and
            Lock-Up Agreement, dated as of February 28, 2002, by and among
            Curative Health Services, Inc. and the shareholders of Apex
            Therapeutic Care, Inc. (incorporated by reference to Exhibit 10.46
            to the Company's Annual Report on Form 10-K for the year ended
            December 31, 2002)

  10.29     Kerlin Agreement, dated February 28, 2002, by and among Curative
            Health Services, Inc., Kerlin Capital Group, LLC, William K. Doyle
            and Cheryl S. Doyle as Trustees of the William K. Doyle and Cheryl
            S. Doyle Family Trust dated July 15, 1991, and Timothy J. Fahringer
            (the Kerlin Parties) and the stockholders of Apex Therapeutic Care,
            Inc. (incorporated by reference to Exhibit 10.47 to the Company's
            Annual Report on Form 10-K for the year ended December 31, 2002)

  10.30     Amendment No. 1 to the Kerlin Agreement, dated as of February 27,
            2003, by and among Curative Health Services, Inc., Jon M. Tamiyasu,
            in his capacity as the Stockholders' Representative under the Stock
            Purchase Agreement, dated as of January 27, 2002, by and among
            Curative and the shareholders of Apex Therapeutic Care, Inc. and the
            Kerlin Parties (incorporated by reference to Exhibit 10.48 to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            2002)

  10.31     Form of Amendment to Executive Employment Agreements with John C.
            Prior, William C. Tella, Nancy F. Lanis and Roy McKinley
            (incorporated by reference to Exhibit 10.49 to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2002)**

  10.32     Employment agreement, dated as of March 5, 2003, between Michelle
            LeDell and the Company (incorporated by reference to Exhibit 10.1 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            March 31, 2003)**

  10.33     Employment agreement, dated as of March 5, 2003, between Alan
            Jackson and the Company (incorporated by reference to Exhibit 10.2
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            March 31, 2003)**

  10.34     Amendment No. 1 to Curative Health Services, Inc. 2001 Broad-Based
            Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            March 31, 2003)**

  10.35     Amendment No. 2 to Curative Health Services, Inc. 2001 Broad-Based
            Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            March 31, 2003)**

  10.36     Credit Agreement, dated as of June 9, 2003, between General Electric
            Capital Corporation and the Company (incorporated by reference to
            Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended June 30, 2003)

<PAGE>
EXHIBIT
   NO.                                 DESCRIPTION
---------   --------------------------------------------------------------------
  10.37     Consent and First Amendment to Credit Agreement, dated as of July
            11, 2003, among General Electric Capital Corporation and the Company
            (incorporated by reference to Exhibit 10.2 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)

  10.38     Employment agreement, dated as of September 2, 2003, between Anne
            Bruce and the Company (incorporated by reference to Exhibit 10.1 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2003)**

  10.39     Second Amendment to Credit Agreement, dated as of October 10, 2003,
            among General Electric Capital Corporation and the Company and the
            related Term Note (incorporated by reference to Exhibit 10.2 to the
            Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2003)

  10.40     Form of Acknowledgment Relating to Employment Agreement, dated as of
            June 3, 2003, executed by John C. Prior and Roy McKinley
            (incorporated by reference to Exhibit 10.3 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended September 30,
            2003)**

  10.41     Form of Acknowledgment of Assignment of Employment Agreement, dated
            as of June 3, 2003, executed by Joseph L. Feshbach, William C.
            Tella, Thomas Axmacher and Nancy F. Lanis (incorporated by reference
            to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
            the quarter ended September 30, 2003)**

  10.42     Form of Amendment to and Second Acknowledgment Relating to
            Employment Agreement, dated as of August 19, 2003, executed by John
            C. Prior and Roy McKinley (incorporated by reference to Exhibit 10.5
            to the Company's Quarterly Report on Form 10-Q for the quarter ended
            September 30, 2003)**

  10.43     Form of Amendment to and Second Acknowledgment of Assignment of
            Employment Agreement, dated as of August 19, 2003, executed by
            Joseph L. Feshbach, William C. Tella, Thomas Axmacher and Nancy F.
            Lanis (incorporated by reference to Exhibit 10.6 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended September 30,
            2003)**

  10.44     Form of Acknowledgment of Limitations on Exercise of Stock Options,
            dated as of June 3, 2003, executed by Timothy I. Maudlin, Gerard
            Moufflet, Lawrence P. English, Paul S. Auerbach and Daniel E. Berce
            (incorporated by reference to Exhibit 10.7 to the Company's
            Quarterly Report on Form 10-Q for the quarter ended September 30,
            2003)**

  10.45     Third Amendment to Credit Agreement, dated as of December 31, 2003,
            among General Electric Capital Corporation and the Company
            (incorporated by reference to Exhibit 10.63 to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2003)

  10.46     Escrow Agreement, dated April 23, 2004, by and among Curative Health
            Services, Inc., Christopher J. York in his capacity as
            representative of the Sellers, and The Bank of New York, as escrow
            agent (incorporated by reference to Exhibit 10.1 to the Company's
            Current Report on Form 8-K, filed April 30, 2004)

  10.47     Amended and Restated Credit Agreement, dated as of April 23, 2004,
            by and among Curative Health Services, Inc., certain other borrowers
            signatory thereto, certain lenders referred to therein, GECC Capital
            Markets Group, Inc. and General Electric Capital Corporation
            (incorporated by reference to Exhibit 10.2 to the Company's Current
            Report on Form 8-K, filed April 30, 2004)

  10.48     Employment Agreement, dated as of April 23, 2004, by and between
            Curative Health Services, Inc. and Paul F. McConnell (incorporated
            by reference to Exhibit 10.1 to the Company's Current Report on Form
            8-K, filed May 4, 2004)**

  10.49     Noncompetition Agreement, dated as of April 23, 2004, by and between
            Curative Health Services, Inc. and Paul F. McConnell (incorporated
            by reference to Exhibit 10.2 to the Company's Current Report on Form
            8-K, filed May 4, 2004)**

  10.50     Restricted Stock Unit Award Agreement, dated as of April 23, 2004,
            by and between Curative Health Services, Inc. and Paul F. McConnell
            (incorporated by reference to Exhibit 10.3 to the Company's Current
            Report on Form 8-K, filed May 4, 2004)**

<PAGE>
EXHIBIT
   NO.                                 DESCRIPTION
---------   --------------------------------------------------------------------
  10.51     Separation from Employment Agreement, dated April 27, 2004, between
            William C. Tella and the Company (incorporated by reference to
            Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
            quarter ended June 30, 2004)**

  10.52     Amendment No. 1 to Curative Health Services, Inc. 2000 Stock
            Incentive Plan (incorporated by reference to Exhibit 10.2 to the
            Company's Quarterly Report on Form 10-Q for the quarter ended June
            30, 2004)**

  10.53     Amendment No. 3 to Curative Health Services, Inc. Non-Employee
            Director Stock Option Plan (incorporated by reference to Exhibit
            10.3 to the Company's Quarterly Report on Form 10-Q for the quarter
            ended June 30, 2004)**

  10.54     Swap Transaction Agreement, dated May 3, 2004, between National City
            Bank and the Company (incorporated by reference to Exhibit 10.4 to
            the Company's Quarterly Report on Form 10-Q for the quarter ended
            June 30, 2004)

  10.55     First Amendment to Amended and Restated Credit Agreement and
            Collateral Documents, made and entered into as of May 3, 2004, among
            General Electric Capital Corporation and the Company (incorporated
            by reference to Exhibit 10.5 to the Company's Quarterly Report on
            Form 10-Q for the quarter ended June 30, 2004)

  10.56     Second Amendment to Amended and Restated Credit Agreement, made and
            entered into as of June 30, 2004, among General Electric Capital
            Corporation and the Company (incorporated by reference to Exhibit
            10.6 to the Company's Quarterly Report on Form 10-Q for the quarter
            ended June 30, 2004)

  10.57     Third Amendment to Amended and Restated Credit Agreement, made and
            entered into as of October 20, 2004, among General Electric Capital
            Corporation and the Company (incorporated by reference to Exhibit
            10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
            ended September 30, 2004)

  10.58     Transition Agreement, dated as of October 2, 2004, by and between
            the Company and Joseph L. Feshbach (incorporated by reference to
            Exhibit 10.1 to the Company's Current Report on Form 8-K, filed
            November 16, 2004)**

  10.59     Restricted Stock Award Agreement, dated as of November 10, 2004, by
            and between the Company and Joseph L. Feshbach (incorporated by
            reference to Exhibit 10.2 to the Company's Current Report on Form
            8-K, filed November 16, 2004)**

  10.60     Amendment to Employment Agreement, dated as of November 15, 2004, by
            and between the Company and Paul F. McConnell (incorporated by
            reference to Exhibit 10.3 to the Company's Current Report on Form
            8-K, filed November 16, 2004)**

  10.61     Amended and Restated Employment Agreement, effective as of December
            31, 2004, by and between the Company and John C. Prior (incorporated
            by reference to Exhibit 10.1 to the Company's Current Report on Form
            8-K, filed December 20, 2004)**

  10.62     Fourth Amendment to Amended and Restated Credit Agreement, by and
            between the Company, its subsidiaries and General Electric Capital
            Corporation, a Delaware corporation, effective as of December 31,
            2004 (incorporated by reference to Exhibit 10.3 to the Company's
            Current Report on Form 8-K, filed March 1, 2005)

  10.63     Employment agreement, dated as of April 23, 2004, between Andrew C.
            Walk and the Company*

  10.64     Employment agreement, dated as of April 23, 2004, between Craig
            Vollmer and the Company*

  10.65     Restricted Stock Unit Award Agreement, dated as of December 14,
            2004, by and between Curative Health Services, Inc. and Thomas
            Axmacher*

  10.66     Form of Restricted Stock Award Agreement*

  10.67     Form of Incentive Stock Option Agreement - 2000 Stock Incentive
            Plan*

<PAGE>

EXHIBIT
   NO.                                 DESCRIPTION
---------   --------------------------------------------------------------------
  10.68     Form of Non-Qualified Stock Option Agreement*

  10.69     Form on Director Non-Qualified Stock Option Agreement*

   21       List of Subsidiaries*

   23       Consent of Ernst & Young LLP*

   24       Power of Attorney (included on signature page)*

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

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

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

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

----------
*     Filed herewith

**    Required to be filed pursuant to Item 601(b)(10)(ii)(A) or (iii) of
      Regulation S-K

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