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SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




---

FORM 10-K/A

(Amendment No. 1)


(Mark One)



| |     |                                                                                      
| | --- | -------------------------------------------------------------------------------------
| | [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
|
| |     | For the fiscal year ended June 30,
	2001                                             

OR



| |      |                                                                                          
| | ---- | -----------------------------------------------------------------------------------------
| | [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-25769

Accredo Health, Incorporated

(Exact name of company as specified in its
charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Delaware                                                        |  | 62-1642871                           
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)

1640 Century Center Pkwy, Suite 101, Memphis,
Tennessee 38134

(Address, including Zip Code, of principal
executive offices)


Registrants telephone number, including
area code:  (901) 385-3688

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

None

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

Common Stock, $.01 par value

(Title of Class)


Indicate by check mark whether the Company
(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 Company was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.  Yes x  No o

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
the Company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.  o

The aggregate market value of the voting stock
held by non-affiliates of the Company was $712,545,632 as of
September 18, 2001, based upon the closing price of such
stock as reported on the Nasdaq National Market System
(Nasdaq Stock Market) on that day (assuming for
purposes of this calculation, without conceding, that all
executive officers and directors are affiliates). There were
26,021,675 shares of common stock, $.01 par value, outstanding
at September 18, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrants Proxy Statement
for its 2001 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Annual Report.









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TABLE OF CONTENTS



|                                                            |                                                                                               |  |  |  |  |  |  | 
|----------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                     
|                                                            | Item 1. Business                                                                             
|RISK FACTORS                                               
|                                                            | Item 2. Properties                                                                           
|                                                            | Item 3. Legal Proceedings                                                                    
|Item 4. Submission of Matters to a Vote of Security Holders
|PART II                                                    
|                                                            | Item 5. Market for Companys Common Equity and Related Stockholder Matters.                  
|                                                            | Item 6. Selected Consolidated Financial Data                                                 
|SELECTED FINANCIAL DATA                                    
|                                                            | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                            | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                                            | Item 8. Financial Statements and Supplementary Data                                          
|                                                            | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                                   
|                                                            | Item 10. Directors and Executive Officers of the Company                                     
|                                                            | Item 11. Executive Compensation                                                              
|                                                            | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                            | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                                    
|                                                            | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|REPORT OF INDEPENDENT AUDITORS                             
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS           
|SIGNATURES                                                 
|EXHIBIT INDEX                                              
|CONSENT OF ERNST & YOUNG                                   



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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (the
Amendment No. 1) amends the Registrants
Annual Report on Form 10-K for the year ended June 30,
2001 that was originally filed on September 28, 2001 (the
Original 10-K Filing). Accredo Health, Inc.
(Accredo) jointly filed with Gentiva Health Services, Inc.
(Gentiva) on February 8, 2002 a Form S-4 Registration
Statement (as amended) pursuant to the pending acquisition by
Accredo of substantially all of the assets of Gentivas
specialty pharmaceutical services business (SPS). As a part of
its review of the Form S-4 Registration Statement, the SEC
requested that Accredo make certain technical changes to the
Original 10-K Filing as described below:



| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The description Patient service
    revenue has been changed to Patient revenue
    throughout the filing to reflect the fact that Accredo derives
    revenue from the sale of products and not the sale of services.                                                                                                                        
|
| |  | The description Cost of services has
    been changed to Cost of sales throughout the filing
    to reflect the fact that the costs associated with Patient
    revenue are for the sale of products and not the sale of
    services.                                                                                                      
|
| |  | The Revenues sections in the
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations have been amended to
    reflect the fact that the growth in revenues is primarily the
    result of volume growth with the addition of new patients and
    additional sales to existing patients.                
|
| |  | The Revenue Recognition policy in the
    Notes to the Consolidated Financial Statements has
    been amended to note that patient revenues are from the sale of
    biopharmaceutical drugs to patients and are reported at the net
    amount billed to patients, third-party payors and others in the
    period the services are rendered.
|
| |  | The Revenue Recognition policy has
    also been amended to expand the description of other revenues.                                                                                                                                                                                                                                           

For the convenience of the reader, this Amendment
No. 1 amends and restates in its entirety the Original 10-K
Filing. This Amendment No. 1 continues to speak as of the
date of the Original 10-K Filing, and the Registrant has not
updated the disclosure contained herein to reflect any events
that occurred at a later date. All information contained in this
Amendment No. 1 is subject to updating and supplementing as
provided in the Registrants periodic reports filed with
the SEC subsequent to the date of the Original 10-K Filing.






PART I


Some of the information in this report contains
forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by
forward-looking words such as may, will,
expect, anticipate, believe,
intend, estimate and
continue or similar words. You should read
statements that contain these words carefully for the following
reasons:



| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | the statements discuss our future expectations;                                                 
|
| |  | the statements contain projections of our future
    earnings or of our financial condition; and
|
| |  | The statements state other
    forward-looking information.                                   

We believe it is important to communicate our
expectations to our investors. There may be events in the
future, however, that we are not accurately able to predict or
over which we have no control. The risk factors listed below, as
well as any cautionary language in this report, provide examples
of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe
in our forward-looking statements. Examples of these risks,
uncertainties and events include the availability of new drugs,
the demand for our services, our ability to expand through joint
ventures and acquisitions, our ability to maintain existing
pricing arrangements with suppliers, the impact of government
regulation, reliance on key payor relationships, our need for
additional capital, the seasonality of our operations and our
ability to implement our strategies and objectives.

Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in
the risk factors, elsewhere in this report and other events that
we have not predicted or assessed could have a material adverse
effect on our earnings, financial condition and business. In
such case, the trading price of our common stock could decline
and you may lose all or part of your investment.

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Item 1.     Business

Overview

We provide specialized contract pharmacy services
on behalf of biopharmaceutical manufacturers to patients with
chronic diseases. Our services help simplify the difficult and
often challenging medication process for patients with a chronic
disease and help ensure that patients receive and take their
medication as prescribed. Our services benefit biopharmaceutical
manufacturers by accelerating patient acceptance of new drugs,
facilitating patient compliance with the prescribed treatment
and capturing valuable clinical information about a new
drugs effectiveness.

Our services include contract pharmacy services,
clinical services, reimbursement services and delivery services.
We provide overnight, temperature-controlled delivery of all
drugs and supplies necessary for patients to self-administer
their drug dosages safely and effectively in the privacy of
their homes. Our pharmacists and customer service staff talk
frequently with patients over the telephone, help them comply
with prescribed treatment schedules and educate them about ways
to manage their complex diseases more effectively. Our
reimbursement specialists manage the complicated paperwork that
is required to collect payment for the patients medication
from insurance companies and managed care plans.

We sell a limited number of drugs to our
patients. We mainly focus our services on drugs that:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | are used on a recurring basis to treat chronic
	and potentially life-threatening diseases;            
|
| |  | are expensive, with annual costs generally
	ranging from approximately $8,000 to $200,000 per patient;
|
| |  | are administered through injection; and                                                               
|
| |  | require temperature control or other specialized
	handling.                                           

We have agreements with five biopharmaceutical
manufacturers to provide specialized contract pharmacy services.
Although our agreements are not exclusive, our status generally
means that we are a recommended provider of the
manufacturers drug to patients and physicians. These
agreements also contain favorable pricing from the manufacturer
and compensate us for our specialized services. The terms of
these agreements may be adjusted periodically in the event of
changed market conditions or required service levels.

Our objective is to be the leading provider of
specialized contract pharmacy services to biopharmaceutical
manufacturers. Key elements of our strategy include:
(i) expanding the number of chronic diseases served;
(ii) leveraging our expertise to expand our service
offerings; (iii) establishing additional relationships with
academic medical centers and childrens hospitals that
treat patients with costly, chronic diseases;
(iv) increasing the number of our payor contracts; and
(v) pursuing selective acquisitions of similar or
complementary businesses.

Accredo Health, Incorporated, was incorporated in
Delaware in 1996. We acquired Southern Health Systems, Inc.
(SHS) and its wholly owned subsidiary Nova Factor,
Inc. (Nova Factor) in 1996 and continue to own SHS
and its subsidiary, Nova Factor. In June 1997, we acquired all
of the outstanding stock of Hemophilia Health Services, Inc.
(HHS). We consummated an initial public offering of
our common stock in April 1999.

In October 1999, we acquired two pharmacies
located in Florida and California from Home Medical of America,
Inc. through a newly created subsidiary, AHI Pharmacies, Inc. We
also acquired all of the outstanding stock of Sunrise Health
Management, Inc. (SHM) on December 1, 1999.

During fiscal year ended June 30, 2001, we
consummated a second public offering of our common stock in
August 2000 and acquired all of the outstanding stock of
Pharmacare Resources, Inc. and a related company NCL Management,
Inc. in May 2001.

Our principal executive offices are located at
1640 Century Center Parkway, Suite 101, Memphis, Tennessee
38134. Our telephone number at that address is 901-385-3688.

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Services

Our services include the following:

Contract Pharmacy
Services.We offer customized services
to biopharmaceutical manufacturers designed to meet specific
needs that arise at various stages in the life cycles of their
products.

Prior to product launch, we offer:



| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consulting services related to strategic pricing
	decisions;                                                                                                                                                
|
| |  | analyses and information to assist manufacturers
	in evaluating payor mix and pricing strategies for their new
	drugs;                                                                                      
|
| |  | testing of a manufacturers packaging to
	assess maintenance of product temperatures and to determine
	whether the packaging system will meet the products unique
	needs during normal shipping conditions;
|
| |  | advice on injection and infusion supplies related
	to the drug therapy and assistance in procuring supplies and
	customized packaging for infusion supply kits; and                                         
|
| |  | clinical guidelines that assist nurses and
	caregivers in learning how to safely and effectively administer
	a drug, including sterilization techniques, supplies needed and
	infusion time required.       

Following product launch, we offer:



| |   |                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | clinical hotlines that allow the physician or
	patient caregiver to inquire about product usage, adverse drug
	reactions and other clinical questions;              
|
| |  | reimbursement hotlines for patients and health
	care professionals;                                                                                                 
|
| |  | support for manufacturers patient
	assistance programs for patients without the financial ability
	to otherwise acquire needed drugs and services;                 
|
| |  | replacement drug and supply programs that
	replenish patients inventory of products or supplies that
	become damaged;                                              
|
| |  | home care coordination programs that provide
	patient assistance in training, identify home care providers and
	transfer clinical information to all caregivers; and
|
| |  | triage services that refer patients to the
	appropriate provider based on the patients insurance
	provider network.                                                

Results of our interaction with patients, which
is primarily via telephone, are coded to protect privacy and
tracked to compile valuable information, including side effects,
drug interactions, administration problems, supply issues,
physician prescription habits, changes to new products, and
reasons for therapy discontinuation and non-compliance.

We will also report on adverse drug reactions,
log the occurrence, and complete an initial preliminary report
of the occurrence to assist manufacturers in completing adverse
event reports in a timely manner. We can also create a wide
variety of additional reports that can be customized to meet
specific manufacturers needs. Examples of reports include
sales by physician, sales by zip code, sales trending, first
time patient orders, Medicaid and Medicare sales, inventory
status and reasons for patient discontinuations. Due to the
nature of the data we collect, we have established procedures
designed to ensure compliance with laws regarding
confidentiality of patient information.

Clinical Services.We work with the patient and the patients physician to
implement the prescribed plan of care. Each patient is assigned
to a team consisting of a pharmacist, a customer service
representative and a reimbursement specialist. Generally, each
patients team members specialize only in that
patients

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disease and work only with payors and providers
in that patients geographic region. In helping to
implement the prescribed plan of care; we:




| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | help patients understand their medication and
	treatment program;                                                                          
|
| |  | help patients manage potential side effects and
	adverse reactions that may occur so that patients are less
	likely to discontinue therapy;
|
| |  | help coordinate backup care in the event of a
	medical emergency; and                                                                      
|
| |  | help patients establish an inventory management
	and record keeping system.                                                                

In addition, we assist patients and their
families in coping with a variety of difficult and emotional
social challenges presented by their diseases, participate in
patient advocacy organizations, assist in the formation of
patient support groups, advocate legislation to advance patient
interests and publish newsletters for our patients.

Reimbursement
Services.By focusing on specific
chronic diseases, we have developed significant expertise in
managing reimbursement issues related to the patients
condition and treatment program. Due to the long duration and
high cost of therapy generally required to treat chronic
disorders, the availability of adequate health insurance is a
continual concern for chronically ill patients and their
families. Generally, we contact the payor prior to each shipment
to determine the patients health plan coverage and the
portion of costs that the payor will reimburse. Our
reimbursement specialists review issues such as
pre-certification or other prior approval requirements, lifetime
limits, pre-existing condition clauses, and the availability of
special state programs. By identifying coverage limitations as
part of an initial consultation, we can assist the patient in
planning for alternate coverage, if necessary. From time to
time, we negotiate with payors to facilitate or expand coverage
for the chronic diseases we serve. In addition, we accept
assignment of benefits from numerous payors, which substantially
eliminates the claims submission process for most patients.

Delivery Services.We provide timely delivery of drugs and ancillary supplies
directly to the patient or the patients physician in
packaging specially designed to maintain appropriate
temperatures. The package typically contains all of the supplies
required for administration in the patients home or in
other alternate sites. Substantially all products are shipped
from our two primary pharmacy locations in Memphis and
Nashville, Tennessee. We also maintain satellite pharmacy
locations in Dallas-Ft. Worth, Texas; Birmingham, Alabama;
Atlanta, Georgia; Garden Grove, California; Charlotte, North
Carolina; Jacksonville, Florida; Elmsford, New York and Milford,
Massachussetts. We ship our products via FedEx.

Disease Markets and Related Products

Substantially all of the biopharmaceutical drugs
that we sell, other than growth hormones, IVIG and other
blood-related products, are only available from single sources.
Currently, we provide our specialty services with respect to the
drugs and diseases described below.

Multiple Sclerosis.Multiple Sclerosis is a progressive neurological disease in
which the body loses the ability to transmit messages among
nerve cells, leading to a loss of muscle control, paralysis and,
in some cases, death. Patients with active relapsing Multiple
Sclerosis experience an uneven pattern of disease progression
characterized by periods of stability interrupted by flare-ups
of the disease. Industry sources estimate that Multiple
Sclerosis affects between 250,000 and 350,000 people in the
United States, approximately two-thirds of whom are women.
Disease onset typically occurs in young adults between the ages
of 20 and 40. Of the patients diagnosed with Multiple Sclerosis
in the United States, about 90% of patients initially have
relapsing Multiple Sclerosis and about half of those patients go
on to develop a progressive form of the disease. About 10% of
patients exhibit a progressive form of the disease at onset.
Industry sources estimate that of the persons currently affected
by Multiple Sclerosis in the United States, approximately 50%
have a

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relapsing form of the disease, and approximately
50% have a progressive form. There are currently three
FDA-approved products used for treating relapsing Multiple
Sclerosis:




| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | AVONEX®, which is manufactured by Biogen,
	Inc.;                            
|
| |  | Betaseron®, which is manufactured by Chiron
	Corporation; and               
|
| |  | Copaxone®, which is manufactured by Teva
	Pharmaceutical Industries Limited.

Biogens AVONEX® product is the only
FDA-approved product shown to slow the accumulation of
disability in patients with relapsing forms of Multiple
Sclerosis and, as a result, AVONEX®, which is generally
administered via a single intramuscular injection once per week,
is used by a majority of such patients in the United States
currently on drug therapy.

Effective January 2000, we entered into amended
and restated agreements with Biogen pursuant to which we
dispense AVONEX® and provide various services and
information to Biogen. The pricing of AVONEX® under our
agreements with Biogen, as well as the scope and pricing of
services provided by us, are subject to periodic adjustment. Our
agreements with Biogen have an initial term of three years
ending December 31, 2002 and are terminable by either party
for any reason with 90 days prior notice. In addition, our
agreements provide that as long as we are the only preferred
home delivery service provider approved by Biogen (other than
providers to Medicaid patients in some states), we may not,
without Biogens approval, sell any products that compete
with AVONEX® for the treatment of Multiple Sclerosis. We do
not have exclusive rights to sell AVONEX®, and Biogen has
reserved the right under our agreement to sell AVONEX®
directly or to appoint other providers of home delivery pharmacy
services for AVONEX®, but any such action would eliminate
our exclusivity obligations.

Gaucher Disease.Gaucher Disease is a seriously debilitating, sometimes fatal,
genetic disorder caused by a deficiency of an important enzyme
in the body called glucocerebrosidase. This deficiency results
in the accumulation of the glucocerebroside lipid in the cells
of organs in the body. The disease is characterized by an
enlarged liver or spleen, anemia, bleeding problems, fatigue,
bone and joint pain and other orthopedic complications such as
repeated fractures and bone erosion. Type I Gaucher Disease is
the most common form of Gaucher Disease, affecting about 90% of
all Gaucher patients. Genzymes Ceredase® and
Cerezyme® products are the only FDA-approved products used
for treating Type I Gaucher Disease.

We have a longstanding relationship with Genzyme
relating to Ceredase® and Cerezyme®. Ceredase®
and Cerezyme® are administered by intravenous infusion.
Dosing frequencies vary, but a typical dosing regimen involves
administration once every two weeks. Pursuant to our current
agreement with Genzyme, we dispense Ceredase® and
Cerezyme® in the United States and provide various
information and other services to Genzyme. The pricing of
Ceredase® and Cerezyme® under our agreement with
Genzyme, as well as the scope and pricing of services that we
provide, are subject to periodic adjustment. Our agreement with
Genzyme automatically renews on an annual basis unless either
party provides 90 days prior notice of non-renewal, and is
terminable by either party for any reason with 60 days
prior notice. In addition, the agreement provides that, during
the term of the agreement and for a period of five years after
its termination, we may not sell any prescription drug for the
treatment of Gaucher Disease other than Ceredase® and
Cerezyme®. We do not have exclusive rights to sell
Ceredase® or Cerezyme®. Genzyme has reserved the right
under the agreement to sell these products directly or to
appoint other distributors of these products, but any such
action would eliminate our exclusivity obligations.

Hemophilia.Hemophilia is an inherited, genetic, lifelong bleeding disorder
caused by the absence or inactivity of an essential blood
clotting protein or factor. Two major disease
categories exist, hemophilia A, or Factor VIII deficiency, and
hemophilia B, or Factor IX deficiency. It is estimated that
there are approximately 20,000 people with hemophilia in the
United States, and presently there is no known cure. Individuals
with hemophilia may suffer from bleeding episodes that can occur
spontaneously or as a result of physical activity or trauma.
While small surface cuts can usually be treated with a pressure
bandage, the most frequent complication of hemophilia is
internal bleeding into muscles and joints, which can cause
arthritis and debilitating orthopedic problems. More serious
complications include internal bleeding in the head, neck,
spinal cord or internal organs, which can cause death.

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Hemophilia is generally treated by infusing
anti-hemophilic factor concentrates intravenously when the
symptoms of a bleed are detected. This therapy is generally
administered by the patient or his or her family members,
without the assistance of a nurse, in response to bleeding
episodes. Approximately 60% of the persons with hemophilia in
the United States have a severe form of the disorder as measured
by the level of factor naturally present in the body. In
general, the more severe the factor deficiency, the more
frequently the bleeding episodes may occur. On average, someone
with severe hemophilia will need to infuse factor weekly. In
many individuals with severe hemophilia, factor therapy is
administered prophylactically to maintain high enough
circulating factor levels to minimize the risk of bleeding.

In the recent past, many hemophilia patients
contracted hepatitis or human immunodeficiency virus, commonly
known as HIV, as a result of contaminated blood derivative
therapies they received prior to the mid-1980s. It is
estimated that approximately one-half of the hemophilia
population who received anti-hemophilic factor prior to the
mid-1980s was exposed to HIV and is at risk of developing
acquired immune deficiency syndrome, commonly known as AIDS. We
offer medications used in treating AIDS as a convenience to our
hemophilia patients that have contracted HIV. In the early
1990s, recombinant clotting factor, a biotechnological
alternative to plasma-derived factor, was introduced and to date
has proved to be as effective as the blood-derived products with
virtually no risk of viral transmission. Current utilization
reflects increased use of recombinant and monoclonal products by
physicians because of the advantages of increased purity. Issues
related to the development of inhibitors, or antibodies to the
infused factor products, may influence future utilization of
these products.

There are currently six major suppliers of
FDA-approved products used for treating hemophilia. We purchase
products from all six suppliers. Historically, no supplier is
responsible for a majority of our hemophilia product purchases.

Growth Hormone-Related
Disorders.A major treatable cause of
growth delay in children is growth hormone deficiency. It is
estimated that there are approximately 20,000 pediatric patients
in the United States who are candidates for growth hormone
therapy. The market for growth hormone products is relatively
mature, and currently five manufacturers sell eleven
FDA-approved growth hormone products for a variety of
indications. However, a majority of patients currently being
treated with growth hormone products use one of Genentechs
growth hormone products, Protropin®, Nutropin®,
Nutropin AQ® or Nutropin Depot, the first long-acting
dosage form of recombinant human growth hormone. Genentech began
shipping Nutropin Depot to distributors in June 2000.

We have purchasing relationships with all five
manufacturers of growth hormone products used in the United
States, including a longstanding relationship with Genentech.
Typically, patients or family members administer growth hormone
products at home without the presence of a nurse. Most growth
hormone products require administration by injection several
times per week, and in some cases daily. In contrast, Nutropin
Depot may be administered as infrequently as monthly or
bi-monthly. We have entered into a distribution agreement with
Genentech in which we also provide various information and other
services relating to Genentechs human growth hormone
products, Protropin®, Nutropin®, Nutropin AQ® and
Nutropin Depot in the United States. Under the agreement,
the pricing of Protropin®, Nutropin®, Nutropin
AQ® and Nutropin Depot under the distribution
agreement, as well as the scope and pricing of the services
provided by us, are subject to periodic adjustment. The
distribution agreement has an initial term that has been
extended to December 31, 2002. The agreement may be
terminated by Genentech if we are acquired by one of their
competitors and may be terminated by either party for cause
following a 60-day right to cure or in the event of bankruptcy,
insolvency or similar events affecting the other party. We do
not have exclusive rights to distribute Protropin®,
Nutropin®, Nutropin AQ® and Nutropin Depot.
Genentech has reserved the right under our agreement to sell
these drugs directly or to appoint other distributors of these
drugs.

Crohns
Disease.Crohns Disease is a
chronic and debilitating disorder involving inflammation of the
gastrointestinal tract. Symptoms include abdominal pain,
diarrhea, fever, general fatigue, and weight loss. Crohns
Disease is estimated to affect approximately 400,000 patients in
the United States, of which as many as 140,000 patients have
moderate to severe Crohns Disease. Of those with moderate
to severe Crohns Disease, more than 40,000 suffer from
draining fistulizing disease. REMICADE, a drug developed by

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Centocor, was approved in 1998 by the FDA for the
treatment of moderate to severe active Crohns Disease. It
has also been approved as a treatment for patients with
fistulizing Crohns Disease for reduction in the number of
draining fistulae.


In August 1998, we established a preferred
relationship with Centocor relating to REMICADE. Under an
agreement that we have with Centocor, we dispense REMICADE
and provide various information and other services to Centocor.
The pricing of REMICADE under our agreement with Centocor,
as well as the scope and pricing of the services provided by us,
are subject to periodic adjustment. Our agreement with Centocor
has an initial term of three years ending August 2001 and renews
on an annual basis thereafter. We do not have any exclusive
rights to sell REMICADE, and Centocor has reserved the
right under the agreement to sell REMICADE directly or to
appoint distributors or other providers of pharmacy services for
REMICADE.

Rheumatoid
Arthritis.Rheumatoid arthritis is a
chronic disease in which the inflammation of various joints in
the body leads to swelling, pain, and eventual loss of function.
It is estimated that Rheumatoid Arthritis affects approximately
2.5 million patients in the United States. Three general classes
of drugs are commonly used in the treatment of Rheumatoid
Arthritis:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | anti-rheumatic drugs that slow the progression
	and treat the symptoms of the disease, such as REMICADE
	and Enbrel;
|
| |  | corticosteroids, which reduce inflammation and
	regulate the immune system; and                                       
|
| |  | non-steroidal agents that reduce inflammation and
	decrease pain and other symptoms.                                  

On November 10, 1999, the FDA approved
REMICADE for the treatment of rheumatoid arthritis. We
distribute REMICADE for the treatment of rheumatoid
arthritis under our agreement with Centocor described above.

Autoimmune Disorder.Autoimmune disorders describe a group of chronic diseases in
which the body treats its own tissues or cells as if they were
foreign substances and produces antibodies to attack and destroy
those tissues or cells. Most autoimmune disorders currently are
incurable and tend to become progressively severe. Various
therapies, including IVIG, are administered to minimize the
effects of autoimmune disorders and the severity of their
associated symptoms. Although typically administered via
infusion in a hospital or physicians office, IVIG can be
administered at home by patients who require repeated treatment.

Prior to October 1999, we did not offer IVIG
products on a retail basis. In an effort to improve the overall
effectiveness of a patients medication, many physicians
prescribe IVIG in combination with existing drug therapies to
treat chronic diseases such as Multiple Sclerosis and rheumatoid
arthritis. This trend contributed to our decision to make two
acquisitions in fiscal year 2000 through which we gained access
to the retail IVIG market. We subsequently acquired another IVIG
distributor in May 2001. Because IVIG is collected and processed
from human donors, the IVIG product market is somewhat limited
by supply constraints.

Respiratory Syncytial
Virus.Respiratory syncytial virus
(RSV) is a serious lower respiratory tract disease that
primarily attacks pediatric patients. RSV is the most common
cause of pneumonia and bronchiolitis in infants and children.
Approximately two-thirds of infants are infected with RSV during
the first year of life, and almost all have been infected by age
two. It has been estimated that, nationwide, there are
approximately 300,000 children at risk of RSV each year and
approximately 90,000 hospitalizations due to RSV infections.

Synagis® (palivizumab), a drug manufactured
by MedImmune, has been shown to significantly reduce RSV
hospitalizations in pediatric patients at risk of the disease.
Clinical studies have shown that preventive treatment with
Synagis® was associated with a 55% reduction in overall
hospitalizations due to RSV. Physicians prescribe Synagis®
to immunize infants who are at high risk for serious lung
impairment. Synagis® is typically administered by
intramuscular injection once a month over a five month period.

Respiratory syncytial virus is seasonal, with the
disease striking primarily during the period of October through
April. We renewed our relationship with MedImmune for the
2000-2001 respiratory syncytial virus

7



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season by executing a new distribution agreement
on October 3, 2000. The distribution agreement with
MedImmune automatically renews on an annual basis unless either
party provides 30 days prior notice of non-renewal and is
terminable by either party for any reason on 30 days
notice. We do not have the exclusive right to sell
Synagis®, although we were the national preferred
assignment of benefits distributor of the drug for the 2000-2001
respiratory syncytial virus season. We are in discussions with
MedImmune to renew our agreement for the 2001-2002 season.


Suppliers

The drugs that we dispense, other than growth
hormones, IVIG and other blood-related products, are available
only from single sources:



| |   |                                                   
| | - | --------------------------------------------------
| |  | Genzyme, with respect to Ceredase® and
	Cerezyme®;
|
| |  | Biogen, with respect to AVONEX®;                  
|
| |  | Centocor with respect to REMICADE; and           
|
| |  | MedImmune, with respect to Synagis®.              

Although there are four other manufacturers of
FDA-approved growth hormone products, Genentechs products
collectively enjoy a market share that exceeds the aggregate of
all other individual manufacturers of growth hormone products.
Accordingly, in the event that one or more of our current
suppliers of products (other than IVIG and other blood-related
products) were to cease selling products to us, our business,
financial condition and results of operations would be
materially and adversely affected.

Our agreements with our key suppliers generally
may be canceled by either party, without cause, upon between 30
and 90 days prior notice. Furthermore, both we and our
suppliers periodically adjust the acquisition cost and other
terms for the drugs and related supplies covered by such
contracts. In addition, our agreements with our suppliers
generally provide that during the term of the agreements (and,
in some instances, for as much as five years after termination
of the agreements), we may not distribute any competing
products. We do not have any exclusive rights to dispense our
products, and our suppliers have generally reserved the right
under their agreements with us to distribute their products
directly or to appoint other distributors of their products. See
Risk Factors  We are highly dependent on our
relationships with a limited number of biopharmaceutical
manufacturers. and Business  Disease
Markets and Related Products.

We have supply contracts with all six major
suppliers of clotting factor and all five major suppliers of
IVIG in the United States, and no supplier is responsible for a
majority of our hemophilia or IVIG product purchases. However,
an industry wide recombinant factor VIII product shortage has
existed for some time, as a result of the manufacturers
being unable to increase production to meet rising global
demand. Several events have occurred which prolonged the
industry wide shortage of product.

Approximately ten months ago, Bayer Corporation
released its second-generation recombinant factor VIII product,
Kogenate FS, and phased out the original Kogenate. The new
product was not produced in sufficient quantity to serve all of
the previous Kogenate users. Furthermore, Bayer Corporation has
not released Kogenate FS onto the U.S. market since
mid-December, 2000 (as a voluntary measure) so that it could
follow-up on observations made by the FDA during a December 2000
inspection of its Berkeley facility. This has also impacted
Aventis-Behrings ability to ship its product Helixate FS,
as it is manufactured under an arrangement with Bayer
Corporation.

Due to the lack of Bayer product, increased
demand was placed on Baxter Hyland Immunos Recombinate
product, which was put on allocation. Product availability was
further reduced when, on February 28, 2001, Baxter
announced the temporary closing of its Thousand Oaks
manufacturing facility to perform scheduled maintenance.
Genetics Institute, Inc. entered the market in January with
Refacto, its new second-generation recombinant factor VIII
product. The demand for Refacto quickly outstripped the supply
and Refacto was also put on allocation.

8



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Although Baxter and Bayer have announced publicly
that they anticipate resuming product release, we are not
certain when they will return to normal product allocations.

Relationships with Medical Centers

At June 30, 2001, we had joint ventures with
five medical centers. We currently have joint ventures with four
medical centers (or their affiliates):



| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | Childrens Home Care located in Los Angeles,
    California;   
|
| |  | Alternative Care Systems, Inc. located in Dallas,
    Texas;   
|
| |  | Cook Childrens Medical Center located in
    Ft. Worth, Texas;
|
| |  | Childrens Hospital located in
    Washington D.C.             

In our typical joint venture arrangement, we and
the medical center (or its affiliate) form a joint venture
entity that then enters into a management agreement with us to
obtain specialized contract pharmacy services. Under the terms
of the joint venture agreement, we manage the sales, marketing,
and provision of specialty pharmacy services in exchange for a
monthly management fee and the reimbursement of some expenses.
We share in the profits and losses of the joint venture entity
with the medical center in proportion to our respective capital
contributions and receive a management fee for our management
services. The agreements generally have initial terms of between
one and five years and contain restrictive covenants and rights
of first refusal.

In addition to joint venture relationships, we
have from time to time entered into management agreements with
medical centers (or their affiliates) to provide specialized
contract pharmacy services.

Under our management agreements, we provide goods
and services used in our joint ventures specialized
pharmacy business, including drugs and related supplies, patient
education, clinical consultation, and reimbursement services.
While the payment terms under such management agreements may
vary, we are generally reimbursed for our costs and are paid a
monthly management fee generally calculated as a percentage of
revenues. These agreements usually have terms of between one and
five years and are terminable by either party, with or without
cause, with between one and twelve months prior notice. See
Risk Factors  If our relationships with some
medical centers are disrupted, our business could be
harmed.

Payors

The following are the approximate percentages of
the Companys gross patient revenue attributable to various
payor categories for the fiscal years ended June 30, 1999,
2000 and 2001:

|                                       |       |               |    |               |   |               |    |     |   |  |    |     |  
|-------------------------------------- | ----- | ------------- | -- | ------------- | - | ------------- | -- | --- | - |  | -- | --- | -
|                                       |       | Year Ended    |    | Year Ended    |   | Year Ended   
|                                       |       | June 30, 1999 |    | June 30, 2000 |   | June 30, 2001
|                                       |       |               |    |               |   |              
|Private payors (including self pay)(1) |       |               | 82 | %             |   |               | 82 | %   |   |  | 81 | %  
|Medicaid and other state programs      |       |               | 16 | %             |   |               | 16 | %   |   |  | 17 | %  
|Medicare and other federal programs    |       |               | 2  | %             |   |               | 2  | %   |   |  | 2  | %  
|                                       |       |               |    |               |   |               |    |     |   |  |    |    
|                                       | Total |               |    | 100           | % |               |    | 100 | % |  |    | 100 | %
|                                       |       |               |    |               |   |               |    |     |   |  |    |    






|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes sales to private physician practices,
    whose ultimate payor is typically Medicare, which accounted for
    approximately 6%, 5% and 4% of gross patient revenue,
    respectively, for the fiscal years ended June 30, 1999,
    2000 and 2001.

In fiscal year 2001, Aetna, Inc. and its
affiliates (Aetna) accounted for approximately 15%
of the Companys revenue. The Company entered into a
Specialty Pharmacy Mail Service Vendor Agreement with Aetna
effective May 1, 2000. Our Agreement has an initial term of
three years ending April 30, 2003 and renews on an annual
basis thereafter. Either party may terminate the Agreement on
90 days notice. Except for Aetna, no private payor accounts
for 10% or more of the Companys revenue.

The primary trend in the United States health
care industry is toward cost containment. The increasing
prevalence of managed care, centralized purchasing decisions,
consolidation among and integration of health

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care providers, and competition for patients has
affected, and continues to affect, pricing, purchasing, and
usage patterns in health care. Decisions regarding the use of a
particular drug treatment are increasingly influenced by large
private payors, including managed care organizations, pharmacy
benefit managers, group purchasing organizations, regional
integrated delivery systems, and similar organizations, and are
based increasingly on economic considerations including product
cost and whether a product reduces the cost of treatment.
Efforts by payors to eliminate, contain or reduce costs through
coverage exclusions, lower reimbursement rates, greater claims
scrutiny, closed provider panels, restrictions on required
formularies, claim delays or denials and other similar measures
could have a material adverse effect on our business, financial
condition and results of operations.


Some payors set lifetime limits on the amount
reimbursable to patients for medical costs. Some of our patients
may reach these limits because of the high cost of their medical
treatment and associated pharmaceutical regimens. Some payors
may attempt to further control costs by selecting some firms to
be their exclusive providers of pharmaceutical or other medical
product benefits. If any such arrangements were with our
competitors, we would be unable to be reimbursed for purchases
made by such patients.

We derive a significant portion of our revenue
from governmental programs such as Medicare and Medicaid. Such
programs are highly regulated and subject to frequent and
substantial changes and cost containment measures. In recent
years, changes in these programs have limited and reduced
reimbursement to providers. The Balanced Budget Act of 1997
includes significant additional reductions in spending levels
for these programs. This legislation also replaced and relaxed
the federal Medicaid payment standard, thereby increasing state
discretion over administration of Medicaid programs.

Federal and state proposals are pending that
would impose further limitations on governmental payments and
that could increase patient co-payments and deductibles. Many
government payors, including Medicare and Medicaid, pay us
directly or indirectly at the drugs average wholesale
price (AWP) or at a percentage off AWP. The Department of
Health and Human Services, Office of Inspector General has
raised concerns since 1992 about how certain manufacturers have
established AWP for certain Medicare covered drugs. Federal and
state agencies continue to examine perceived discrepancies
between reported AWP of drugs and the actual manufacturers
selling price. In connection with one such investigation, the
U.S. unit of Bayer AG agreed to pay $14 million to resolve
allegations that it caused Medicaid to overpay for its drugs.
Abbott Laboratories, Novartis and the Kendall unit of Tyco
International have confirmed that they are also being
investigated.

Recently, First DataBank, Inc., which reports AWP
to Medicaid programs, announced that it will report based on
market prices rather than prices submitted by manufacturers. As
a result, a number of state Medicaid agencies have lowered the
amount of reimbursement that they pay for certain drugs,
including clotting factor. Medicare also announced that it would
implement lower prices for certain drugs effective
October 1, 2000. The proposal to include clotting factor
and cancer drugs in the lower Medicare pricing was withdrawn. As
recent as September 21, 2001, The United States House
Subcommittees on Health and Oversight & Investigations held
hearings to examine how Medicare reimburses providers for the
cost of drugs. In conjunction with that hearing, the U.S.
General Accounting Office issued its Draft Report recommending
that Medicare establish payment levels for part-B prescription
drugs and their delivery and administration that are more
closely related to their costs and that payments for drugs be
set at levels that reflect actual market transaction prices and
the likely acquisition cost to providers. Similar reports have
previously been issued regarding the prices paid by state
Medicaid for certain drugs. We expect that these developments
will reduce prices and margins on some of the drugs that we
distribute.

Recently, several proposals have been made in
Congress to enlarge prescription drug coverage. The U.S.
Congress has also been studying the accuracy of average
wholesale prices as an appropriate benchmark for setting rates
of reimbursement. Additionally, a number of states are
considering legislation designed to reduce their Medicaid
expenditures and provide universal coverage and additional care
for some populations, including proposals to impose additional
taxes on providers to help finance or expand such programs. Some
states may require us to maintain a licensed pharmacy in their
states in order to qualify for reimbursement under
state-administered reimbursement plans. Any of these changes
could result in significant reductions in

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payment levels for drugs handled and services
provided by us, which would have a material adverse effect on
our business, financial condition and results of operations.


Hemophilia treatment centers may purchase factor
from manufacturers at a discount under a government program
established in 1992 which extended the Medicaid best price
rebate program to hemophilia treatment centers. Manufacturers
that sell outpatient drugs to hemophilia treatment centers agree
with the Department of Health and Human Services that they will
not charge a price for covered outpatient drugs that is higher
than a statutorily set amount. We do not directly own or operate
a hemophilia treatment center that is eligible for this special
pricing, which places us at a competitive disadvantage as a
provider of factor, except where our affiliated medical centers
are eligible for the special pricing. Under the
Departments guidelines, an eligible hemophilia treatment
center may obtain factor at this special pricing and use a
contract pharmacy to dispense it to the centers patients.
However, if a hemophilia treatment center does not comply with
the Departments guidelines or sells factor bought at this
special pricing to patients who are not patients of the center,
it may incur civil penalties or liability to drug manufacturers
for the amount of the discount that the center received from the
manufacturer.

Competition

The specialty pharmacy industry is highly
competitive and is undergoing consolidation. The industry is
fragmented, with many public and private companies focusing on
different product or customer niches. Some of our current and
potential competitors include:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | specialty pharmacy distributors, such as Caremark
	Therapeutic Services, Priority Healthcare Corporation and
	Gentiva Health Services, Inc.;
|
| |  | specialty pharmacy divisions of national
	wholesale drug distributors;                                                                      
|
| |  | pharmacy benefit management companies;                                                                                                      
|
| |  | hospital-based pharmacies;                                                                                                                  
|
| |  | retail pharmacies;                                                                                                                          
|
| |  | home infusion therapy companies;                                                                                                            
|
| |  | manufacturers that sell their products both to
	distributors and directly to users, including clinics and
	physician offices; and           
|
| |  | hospital-based comprehensive hemophilia care
	centers and other alternate site health care providers.                                       

Some of our competitors have greater financial,
technical, marketing and managerial resources than we have.

While competition is often based primarily on
price and quality of care and service, it can also be affected
by the ability to develop and maintain relationships with
patients and referral sources, depth of product line, technical
support systems, specific patient requirements and reputation.
There can be no assurance that competitive pressures will not
have a material adverse affect on our business, financial
condition and results of operations.

Government Regulation

Federal and state governments heavily regulate
the drug and medical supply industry. Manufacturers,
distributors, health care providers and patients are all subject
to these regulations. Particular government attention currently
focuses on:



| |   |                                                     
| | - | ----------------------------------------------------
| |  | the payment of inducements for patient referrals;   
|
| |  | prohibited financial relationships with
	physicians;
|
| |  | joint venture and management arrangements;          
|
| |  | product discounts;                                  

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| |   |                                   
| | - | ----------------------------------
| |  | inducements given to patients; and
|
| |  | professional licensing.           

The laws are very broad, the regulations are
complicated, and in many cases the courts interpret them
differently. This makes compliance difficult. Federal and state
civil and criminal fines and penalties may be imposed on persons
who violate these laws. While we try to comply with all laws, a
violation could result in fines or criminal penalties, which
could reduce our profitability. The following are particular
areas of government regulation that apply to our business.

Licensing and
Registration.State laws require that
we be licensed as an in-state pharmacy in Tennessee, Alabama,
Georgia, California, North Carolina, Massachusetts, Florida and
Texas. We also currently ship prescription drugs to many other
states that require us to be licensed as an out-of-state
pharmacy. We believe that we substantially comply with all state
licensing laws applicable to our business.

Some pharmacy associations and state boards of
pharmacy are attempting to protect local pharmacies by
restricting the activities of out-of-state pharmacies. In
addition, some states impose limits on financial incentives paid
to insurance companies and other payors offering managed drug
programs. Restrictions on our operations imposed by these laws
could reduce our profitability.

Laws enforced by the federal Drug Enforcement
Agency, as well as some similar state agencies, require our
pharmacy locations to individually register in order to handle
controlled substances, including prescription drugs. A separate
registration is required at each principal place of business
where the applicant manufactures, distributes, or dispenses
controlled substances. Federal and state laws also require that
we follow specific labeling and record-keeping requirements for
controlled substances. We maintain federal and state controlled
substance registrations for each of our facilities that require
it, and follow procedures intended to comply with all such
record-keeping requirements.

Pharmacists and Nursing
Licenses.Our nurses must obtain state
licenses to provide teaching services and the hands on nursing
which we provide to our IVIG patients and some of our hemophilia
patients, and our pharmacists must obtain state licenses to
dispense drugs. Our pharmacists and nurses are licensed in those
states where their activity requires it. Pharmacists and nurses
must also comply with professional practice rules. We monitor
our nurses and pharmacists practices for compliance
with such state laws and rules. We do not believe that the
activities undertaken by our nurses or pharmacists violate laws
or rules governing the practice of pharmacy, nursing or medicine.

Pharmacy Counseling.Federal law requires that states offering Medicaid prescription
drug benefits implement a drug use review program. The program
requires before and after drug use reviews, the use
of predetermined standards, and patient education. Its purpose
is to improve the quality of care by ensuring drug prescriptions
are medically necessary, and not likely to cause adverse
effects. Participating states must develop standards for
pharmacy counseling. These standards apply as well to
non-resident pharmacies like us. We believe our pharmacists
monitor these requirements, and provide the necessary counseling.

Federal Mail Order.Federal law imposes standards for:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | the labeling, packaging and repackaging,
	advertising and adulteration of prescription drugs; and
|
| |  | the dispensing of controlled substances and
	prescription drugs.                                 

The Federal Trade Commission and the United
States Postal Service regulate mail order drug sellers. The law
requires truth in advertising, a reasonable supply of drugs to
fill orders, and a right to a refund if an order cannot be
filled within thirty days. We believe that we substantially
comply with all of these requirements.

Prescription Drug Marketing
Act.This federal law exempts many
drug and medical devices from federal labeling and packaging
requirements, as long as they are not adulterated or misbranded
and were prescribed by a physician. The law also prohibits the
sale, purchase or trade of drug samples that are not intended
for sale or intended to promote the sale of the drug. Records
must be kept of drug sample distribution, and proper storage

12



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and maintenance methods used. To the extent that
this law applies to us, we believe that we comply with the
documentation, record-keeping and storage requirements.


Anti-Kickback and
Self-Referral.We are subject to the
federal Medicare Anti-Kickback law that prohibits offering,
paying, soliciting or receiving, directly or indirectly, in cash
or in kind, remuneration to induce or in exchange for:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the referral of patients covered by Medicare,
	Medicaid or other government healthcare reimbursement programs;
	or                                               
|
| |  | the leasing, purchasing, ordering or arranging
	for or recommending the lease, purchase or order of any item,
	good, facility or service covered by the programs.

Violations by individuals or entities are
punishable by criminal fines, civil penalties, imprisonment, or
exclusion from participation in the reimbursement programs.
Sanctions imposed under this law on us, our business partners
(such as drug suppliers), or our customers could reduce our
business and our profits.

Many states have similar state laws, which, if
violated, could result in similar penalties. Courts have not
applied the Anti-Kickback law or similar state laws
consistently, and some courts have found a violation if only one
purpose of an otherwise acceptable arrangement was to induce
referrals.

The Department of Health and Human Services,
DHHS, published a set of safe harbor regulations and
continues to publish clarifications to the safe harbors.
Arrangements that fully comply with a safe harbor are deemed not
to violate the Anti-Kickback law. We have several business
arrangements (for example, our joint venture and management
arrangements with medical centers, service arrangements with
physicians and product pricing arrangements with suppliers) that
do not satisfy all of the requirements necessary to fall within
the safe harbors. Failure to satisfy a safe harbor does not mean
that a transaction is necessarily illegal. The law requires the
government to evaluate the intent in each situation. We try to
structure our business arrangements to comply with the
Anti-Kickback law, the Health Insurance Portability and
Accountability Act and similar state laws. However, if we are
found to violate any of these laws, we could suffer penalties,
fines, or possible exclusion, which could reduce our revenues
and profits.

Health Insurance Portability and
Accountability Act.HIPAA created new
health care crimes, and granted authority to the Secretary of
DHHS to impose certain civil penalties. Particularly, the
Secretary may now exclude from Medicare any individual with a
direct or indirect ownership interest in an entity convicted of
health care fraud or excluded from the program. HIPAA encourages
the reporting of health care fraud by allowing reporting
individuals to share in any recovery made by the government.
HIPAA also requires new programs to control fraud and abuse, and
new investigations, audits and inspections.

New crimes under HIPAA include:



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | knowingly and willfully committing a federal
	health care offense relating to a health care benefit program;
	and                                                                                                                      
|
| |  | knowingly and willfully falsifying, concealing,
	or covering up a material fact or making any materially false or
	fraudulent statements in connection with claims and payment for
	health care services by a health care benefit plan.

These provisions of HIPAA criminalized situations
that previously were handled civilly through repayments of
overpayments, offsets, and fines. We believe that our business
arrangements and practices comply with HIPAA. However, a
violation could subject us to penalties, fines, or possible
exclusion from Medicare or Medicaid. Such sanctions could reduce
our revenues or profits.

OIG Fraud Alerts and Advisory
Opinions.The Office of Inspector
General of DHHS periodically issues Fraud Alerts and Advisory
Opinions identifying practices it believes may violate federal
fraud and abuse laws. One Fraud Alert addresses joint venture
and contractual arrangements between health care providers.
Another concerns prescription drug marketing practices. Drug
marketing activities may implicate the federal fraud and abuse
laws because the cost of drugs are often reimbursed by Medicare
and Medicaid. According to the Fraud Alert, questionable
practices may include payments to pharmacists to recommend a
particular drug or

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product. One Advisory Opinion indicates that
management fees calculated as a percentage of net revenues,
where marketing services are included, could implicate the
federal fraud and abuse laws if the fee is intended to induce
patient referrals. We try to structure our business arrangements
to comply with federal fraud and abuse laws. However, if we are
found to have violated any of these laws, we could suffer
penalties, fines or possible exclusion from the Medicare,
Medicaid or other governmental programs, which could adversely
affect our results of operations.


State Consumer Protection
Laws.A number of states are involved
in enforcement actions involving pharmaceutical marketing
programs, including programs offering incentives for pharmacists
to dispense one product rather than another. State consumer
protection laws generally prohibit false advertising, deceptive
trade practices and the like. A number of the states have
requested that the FDA exercise greater regulatory oversight in
the area of pharmaceutical promotional activities by
pharmacists. It is not possible to determine whether the FDA
will act in this regard or what effect, if any, FDA involvement
would have on our operations.

The Stark Law.Federal law prohibits physicians from making a referral for
certain health items or services if they, or their family
members, have a financial relationship with the entity receiving
the referral. No bill may be submitted in connection with a
prohibited referral. Violations are punishable by civil monetary
penalties upon both the person making the referral and the
provider rendering the service. Such persons or entities are
also subject to exclusion from Medicare and Medicaid. The Stark
Law applies to our products and services, and we try to
structure our relationships to comply with the law. However, if
our practices are found to violate the Stark Law, we may be
subject to sanctions or be required to alter or discontinue some
of our practices. This could reduce our revenues or profits.

Beneficiary
Inducement.HIPAA penalizes the
offering of remuneration or other inducements to beneficiaries
of federal health care programs to influence the
beneficiaries decision to seek specific governmentally
reimbursable items or services, or to choose a particular
provider. HIPAA excludes items provided to promote the delivery
of preventive care. The statutory exception would apply where
such care is provided or directly supervised by the
medical provider that has provided the incentive.

The OIG recently issued final regulations
concerning inducements to beneficiaries. Under the new
regulations, permissible incentives are those given in
connection with preventive care, including pre and post natal
care, and services described in the U.S. Preventive Service Task
Forces Guide to Preventive Care. OIG also believes that
items of nominal value given to beneficiaries are permissible
even if not related to preventive care. However, permissible
incentives would not include cash or cash equivalents. We from
time to time provide some items at no charge to our patients in
connection with their drug therapies, not all of which are
included on the list of items specifically stated not to violate
the new regulations. We nevertheless believe that those items
are allowed by the underlying statute. A determination that we
violated the regulations or the statute, however, could result
in sanctions that reduce our revenue or profits.

The False Claims
Act.We are also subject to federal
and state laws prohibiting individuals or entities from
knowingly and willfully making claims for payment to Medicare,
Medicaid, or other third party payors that contain false or
fraudulent information. These laws provide for both criminal and
civil penalties. Health care providers who submit claims which
they knew or should have known were false, fraudulent, or for
items or services that were not provided as claimed, may be
excluded from Medicare and Medicaid participation, required to
repay previously collected amounts, and subject to substantial
civil monetary penalties.

Government
Investigations.The government
increasingly examines arrangements between health care providers
and potential referral sources to ensure that they are not
designed to exchange remuneration for patient care referrals.
Investigators are increasingly willing to look behind
formalities of business transactions to determine the underlying
purpose of payments. Enforcement actions have increased and are
highly publicized. To our knowledge, we are not currently the
subject of any investigation. Any future investigation may cause
publicity that would cause potential customers to avoid us,
reducing potential revenues and profits.

In addition to investigations and enforcement
actions initiated by governmental agencies, we could be the
subject of an action brought under the False Claims Act by a
private individual on behalf of the government. Actions under
the False Claims Act, commonly known as
whistleblower lawsuits are generally filed under

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seal to allow the government adequate time to
investigate and determine whether it will intervene in the
action, and defendant health care providers are often without
knowledge of such actions until the government has completed its
investigation and the seal is lifted.


Confidentiality.Federal and state laws protect confidentiality of medical
records and information. We maintain medical records for each
patient to whom we dispense drugs. We are thus subject to some
of these medical record and patient confidentiality laws. In
addition, we expect to become subject to DHHS rules recently
proposed to ensure integrity and confidentiality of patient
data. These rules, if adopted, would require mandatory security
standards for entities which maintain or transmit health
information electronically. Compliance with new standards to
safeguard electronic medical records could be expensive, harming
our results of operations. The HIPAA statute imposes criminal
penalties on wrongful disclosure of private medical information.
We maintain written procedures and provide regular training to
our employees in an effort to comply with all of the medical
record and patient confidentiality laws to which we are subject.
While we attempt to comply with all confidentiality
requirements, a violation of any confidentiality law could
subject us to sanctions that could reduce revenues or profits.

Balanced Budget Act.Each state operates a Medicaid program funded in part by the
Federal government. The states may customize their programs
within federal limitations. Each state program has its own
payment formula and recipient eligibility criteria. In recent
years, changes in Medicare and Medicaid programs have resulted
in limitations on, and reduced levels of, payment and
reimbursement for a substantial portion of health care goods and
services. For example, the federal Balanced Budget Act of 1997
(even after the restoration of some funding in 1999) will
continue to cause significant reductions in spending levels for
the Medicare and Medicaid programs. A more recent example is the
action of a number of state Medicaid agencies to reduce their
reimbursement rates in response to the new AWP prices published
by First Data Bank. Medicare also adopted new AWP pricing for
some drugs effective October 1, 2000, although this pricing
does not apply to drugs that we currently sell.

Laws governing Medicare, Medicaid, CHAMPUS and
other governmental programs may change, and various
administrative rulings, interpretations and determinations make
compliance difficult. Any changes may materially increase or
decrease program payments or the cost of providing services.
Final determinations of government program reimbursement often
require years, because of audits, providers rights of
appeal and numerous technical requirements. We believe we make
adequate provision for adjustments. However, future reductions
in reimbursement could reduce our revenues and profits.

Reform.The U.S.
health care industry continues to undergo significant change. We
anticipate that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and
payment methods and that public debate of these issues will
likely continue in the future. We cannot predict which, if any,
reform proposals will be adopted. Future changes in the nature
of the health care system could reduce revenues and profits.

Employees

As of June 30, 2001, we had 556 full-time
and 85 part-time employees, which included 58 full-time and 14
part-time pharmacists. Our employees are not represented by a
labor union, and we believe we have good relations with our
employees.

Liability Insurance

Providing health care services and products
entails an inherent risk of liability. In recent years,
participants in the health care industry have become subject to
an increasing number of lawsuits, many of which involve large
claims and significant defense costs. We may from time to time
be subject to such suits as a result of the nature of our
business. We maintain general liability insurance, including
professional and product liability, in an amount deemed adequate
by our management. There can be no assurance, however, that
claims in excess of, or beyond the scope of, our insurance
coverage will not arise. In addition, our insurance policies
must be renewed annually. Although we have not experienced
difficulty in obtaining insurance coverage in the past, there
can be no assurance that we will be able to do so in the future
on acceptable terms or at all.

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RISK FACTORS

You should carefully consider the risks and
uncertainties we describe below before investing in Accredo. The
risks and uncertainties described below are notthe only
risks and uncertainties that could develop. Other risks and
uncertainties that we have not predicted or evaluated could also
affect our company.

If any of the following risks occur, our
earnings, financial condition or business could be materially
harmed, and the trading price of our common stock could decline,
resulting in the loss of all or part of your
investment.

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

We derive a substantial majority of our revenue
and profitability from our relationships with Biogen, Genzyme,
MedImmune and Genentech. The table below shows the concentration
of our revenue derived from these relationships as a percentage
of revenue for the periods indicated:

|          |  |                   |    |               |  |               |    |   |  |  |    |  
|--------- |  | ----------------- | -- | ------------- |  | ------------- | -- | - |  |  | -- | -
|          |  |                  
|          |  | Fiscal Year Ended
|          |  |                  
|          |  | June 30, 1999     |    | June 30, 2000 |  | June 30, 2001
|          |  |                   |    |               |  |              
|Biogen    |  |                   | 31 | %             |  |               | 37 | % |  |  | 38 | %
|Genzyme   |  |                   | 37 | %             |  |               | 30 | % |  |  | 23 | %
|MedImmune |  |                   | 1  | %             |  |               | 1  | % |  |  | 6  | %
|Genentech |  |                   | 4  | %             |  |               | 4  | % |  |  | 5  | %

Our agreements with these suppliers are
short-term and cancelable by either party without cause on 60 to
90 days prior notice. These agreements also generally limit
our ability to handle competing drugs during and, in some cases,
after the term of the agreement, but allow the supplier to
distribute through channels other than us. Further, these
agreements provide that pricing and other terms of these
relationships be periodically adjusted for changed market
conditions or required service levels. Any termination or
adverse adjustment to any of these relationships could have a
material adverse effect on a significant portion of our
business, financial condition and results of operations.

Our ability to grow could be limited if we do
not expand our existing base of drugs or if we lose
patients.

We focus almost exclusively on a limited number
of complex and expensive drugs that serve small patient
populations. The concentration of our revenue related to these
diseases and the associated drugs is shown in the table below as
a percentage of revenue for the periods indicated:

|                                    |  |                   |    |               |  |               |    |   |  |  |    |  
|----------------------------------- |  | ----------------- | -- | ------------- |  | ------------- | -- | - |  |  | -- | -
|                                    |  |                  
|                                    |  | Fiscal Year Ended
|                                    |  |                  
|                                    |  | June 30, 1999     |    | June 30, 2000 |  | June 30, 2001
|                                    |  |                   |    |               |  |              
|Multiple Sclerosis                  |  |                   | 31 | %             |  |               | 37 | % |  |  | 38 | %
|Gaucher Disease                     |  |                   | 37 | %             |  |               | 30 | % |  |  | 23 | %
|Hemophilia and Autoimmune Disorders |  |                   | 21 | %             |  |               | 21 | % |  |  | 21 | %
|Growth Hormone-Related Disorders    |  |                   | 6  | %             |  |               | 7  | % |  |  | 9  | %
|Respiratory Syncytial Virus         |  |                   | 1  | %             |  |               | 1  | % |  |  | 6  | %
|Crohns Disease                     |  |                   | 1  | %             |  |               | 1  | % |  |  | 1  | %

Due to the small patient populations that use the
drugs we handle, our future growth is highly dependent on
expanding our base of drugs. Further, a loss of patient base or
reduction in demand for any reason of the drugs we currently
handle could have a material adverse effect on a significant
portion of our business, financial condition and results of
operation.

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Our business would be harmed if demand for our
products and services is reduced.

Reduced demand for our products and services
could be caused by a number of circumstances, including:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | patient shifts to treatment regimens other than
	those we offer;                                                 
|
| |  | new treatments or methods of delivery of existing
	drugs that do not require our specialty products and services;
|
| |  | a recall of a drug;                                                                                              
|
| |  | adverse reactions caused by a drug;                                                                              
|
| |  | the expiration or challenge of a drug patent;                                                                    
|
| |  | competing treatment from a new drug or a new use
	of an existing drug;                                           
|
| |  | the loss of a managed care or other payor
	relationship covering a number of high revenue patients;              
|
| |  | the cure of a disease we service; or                                                                             
|
| |  | the death of a high-revenue patient.                                                                             

There is substantial competition in our
industry, and we may not be able to compete
successfully.

The specialty pharmacy industry is highly
competitive and is continuing to become more competitive. All of
the drugs, supplies and services that we provide are also
available from our competitors. Our current and potential
competitors include:



| |   |                                                              
| | - | -------------------------------------------------------------
| |  | other specialty pharmacy distributors;                       
|
| |  | specialty pharmacy divisions of wholesale drug
	distributors;
|
| |  | pharmacy benefit management companies;                       
|
| |  | hospital-based pharmacies;                                   
|
| |  | retail pharmacies;                                           
|
| |  | home infusion therapy companies;                             
|
| |  | comprehensive hemophilia treatment centers; and              
|
| |  | other alternative site health care providers.                

Many of our competitors have substantially
greater resources and more established operations and
infrastructure than we have. We are particularly at risk from
any of our suppliers deciding to pursue its own distribution and
services and not outsource these needs to companies like us. A
significant factor in effective competition will be an ability
to maintain and expand relationships with managed care
companies, pharmacy benefit managers and other payors who can
effectively determine the pharmacy source for their enrollees.

If any of our relationships with medical
centers are disrupted or cancelled, our business could be
harmed.

We have significant relationships with four
medical centers that provide services primarily related to
hemophilia, growth hormone-related disorders and respiratory
syncytial virus. For the fiscal years ended June 30, 1999,
2000 and 2001, we received approximately 23%, 12% and 4%,
respectively, of our earnings before income taxes and
extraordinary item from equity in the net income of
unconsolidated joint ventures associated with these
relationships.

As of April 1, 2000, our ownership was
increased to 80% in one of our joint ventures with
Childrens Home Care, Inc. and the financial results of
this joint venture are now included in our consolidated
financial results. This consolidated joint venture represented
approximately 10% of our income before income taxes for the
fiscal year ended June 30, 2001.

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Our agreements with medical centers have terms of
between one and five years, and may be cancelled by either party
without cause upon notice of between one and twelve months.
Adverse changes in our relationships with those medical centers
could be caused, for example, by:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | changes caused by consolidation within the
	hospital industry;                                
|
| |  | changes caused by regulatory uncertainties
	inherent in the structure of the relationships; or
|
| |  | restrictive changes to regulatory requirements.                                               

Any termination or adverse change of these
relationships could have a material adverse effect on our
business, financial condition and results of operations.

If additional providers obtain access to
favorably priced drugs we handle, our business could be
harmed.

We are not eligible to participate directly in
the federal pricing program of the Public Health Service,
commonly known as PHS, which allows hospitals and hemophilia
treatment centers to obtain discounts on clotting factor. The
federal Health Resources and Services Administration recently
issued a notice that we expect will broaden the number of
facilities purchasing PHS priced clotting factor. Increased
competition from hospitals and hemophilia treatment centers may
reduce our profit margins.

Our acquisition and joint venture strategy may
not be successful, which could cause our business and future
growth prospects to suffer.

As part of our growth strategy, we continue to
evaluate joint venture and acquisition opportunities, but we
cannot predict or provide assurance that we will complete any
future acquisitions or joint ventures. Acquisitions and joint
ventures involve many risks, including:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | difficulty in identifying suitable candidates and
	negotiating and consummating acquisitions on attractive terms;
|
| |  | difficulty in assimilating the new operations;                                                                   
|
| |  | increased transaction costs;                                                                                     
|
| |  | diversion of our managements attention from
	existing operations;                                               
|
| |  | dilutive issuances of equity securities that may
	negatively impact the market price of our stock;               
|
| |  | increased debt; and                                                                                              
|
| |  | increased amortization expense related to
	intangible assets that would decrease our earnings.                   

We could also be exposed to unknown or contingent
liabilities resulting from the pre-acquisition operations of the
entities we acquire, such as liability for failure to comply
with health care or reimbursement laws.

Fluctuations in our quarterly financial
results may cause our stock price to decline.

Our results of operations may fluctuate on a
quarterly basis, which could adversely affect the market price
of our common stock. Our results may fluctuate as a result of:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | lower prices paid by Medicare or Medicaid for the
	drugs that we sell, including lower prices resulting from recent
	revisions in the method of establishing AWP;
|
| |  | below-expected sales or delayed launch of a new
	drug;                                                                                                           
|
| |  | price and term adjustments with our drug
	suppliers;                                                                                                             
|
| |  | increases in our operating expenses in
	anticipation of the launch of a new drug;                                                                                
|
| |  | product shortages;                                                                                                                                               

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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | inaccuracies in our estimates of the costs of
	ongoing programs;                                     
|
| |  | the timing and integration of our acquisitions;                                                      
|
| |  | changes in governmental regulations;                                                                 
|
| |  | the annual renewal of deductibles and co-payment
	requirements that affect patient ordering patterns;
|
| |  | our provision of drugs to treat seasonal
	illnesses, such as respiratory syncytial virus;            
|
| |  | physician prescribing patterns; and                                                                  
|
| |  | general political and economic conditions.                                                           

Our business would be harmed if the
biopharmaceutical industry ceases research, development and
production of the types of drugs that are compatible with the
services we provide.

Our business is highly dependent on continued
research, development, manufacturing and marketing expenditures
of biopharmaceutical companies, and the ability of those
companies to develop, supply and generate demand for drugs that
are compatible with the services we provide. Our business would
be materially and adversely affected if those companies stopped
outsourcing the services we provide or failed to support
existing drugs or develop new drugs. Our business could also be
harmed if the biopharmaceutical industry undergoes any of the
following developments:



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | supply shortages;                                                                                                                                        
|
| |  | adverse drug reactions;                                                                                                                                  
|
| |  | drug recalls;                                                                                                                                            
|
| |  | increased competition among biopharmaceutical
	companies;                                                                                                
|
| |  | an inability of drug companies to finance product
	development because of capital shortages;                                                             
|
| |  | a decline in product research, development or
	marketing;                                                                                                
|
| |  | a reduction in the retail price of drugs from
	governmental or private market initiatives;                                                               
|
| |  | changes in the FDA approval process; or                                                                                                                  
|
| |  | governmental or private initiatives that would
	alter how drug manufacturers, health care providers or
	pharmacies promote or sell products and services.

Our business could be harmed if the supply of
any of the products that we distribute becomes scarce.

The biopharmaceutical industry is susceptible to
product shortages. Some of the products that we distribute, such
as IVIG and blood-related products, are collected and processed
from human donors. Accordingly, the supply of these products is
highly dependent on human donors and their availability has been
constrained from time to time. An industry wide recombinant
factor VIII product shortage has existed for some time, as a
result of the manufacturers being unable to increase production
to meet rising global demand. Future availability of product is
unclear and we are not certain when the manufacturers will
return to normal product allocations. If these products, or any
of the other drugs that we distribute, are in short supply for
long periods of time, our business could be harmed.

If some of the drugs that we provide lose
their orphan drug status, we could face more
competition.

Our business could also be adversely affected by
the expiration or challenge to the orphan drug
status that has been granted by the Food and Drug
Administration, FDA, to some of the drugs that we handle. When
the FDA grants orphan drug status, it will not
approve a second drug for the same treatment for a period of

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seven years unless the new drug is chemically
different or clinically superior. The orphan drug
status applicable to drugs that we handle expires as follows:




| |   |                                  
| | - | ---------------------------------
| |  | Cerezyme® expired May 2001;      
|
| |  | AVONEX® expires May 2003; and    
|
| |  | REMICADE expires September 2005.

The loss of orphan drug status could result in
competitive drugs entering the market, which could harm our
business.

Our ability to continue to provide
AVONEX® could be affected by a pending challenge that
Biogen is infringing on a patent.

Our ability to continue to service AVONEX®
could also be affected by a pending challenge by Berlex
Laboratories, Inc. that Biogen is infringing on a Berlex patent
in the production of AVONEX®. Berlex is seeking, among
other things, a permanent injunction restraining Biogen from
manufacturing AVONEX®. If the permanent injunction is
granted or if Biogen is unable to continue to supply
AVONEX® on terms favorable to us, our business could be
harmed. In August 2000 the Federal District Court for the
District of Massachusetts granted summary judgment in
Biogens favor ruling that AVONEX® does not infringe
on a Berlex patent, and in September 2000 the Court entered a
final judgement in favor of Biogen dismissing the District Court
Case. Berlex has appealed this decision to the U.S. Federal
District Court of Appeals.

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

Many government payors, including Medicare and
Medicaid, pay us directly or indirectly at the drugs
average wholesale price (or AWP) or at a percentage off AWP. We
have also contracted with a number of private payors to sell
drugs at AWP or at a percentage off AWP. AWP for most drugs is
compiled and published by a private company, First DataBank,
Inc. Various federal and state government agencies have been
investigating whether the reported AWP of many drugs, including
some that we sell, is an appropriate or accurate measure of the
market price of the drugs. As reported in the Wall Street
Journal, there are also several whistleblower lawsuits pending
against various drug manufacturers. These government
investigations and lawsuits involve allegations that
manufacturers reported artificially inflated AWP prices of
various drugs to First DataBank. Bayer Corporation, one of the
Companys suppliers of clotting factor, recently agreed to
pay $14 million in a settlement with the federal government and
45 states regarding these charges. Bayer also entered into a
5 year corporate integrity agreement with the government,
in which Bayer agreed to provide average selling prices of its
drugs to the government. In February 2000, First DataBank
published a Market Price Survey of 437 drugs, which was
significantly lower than the historic AWP for a number of the
clotting factor and IVIG products that we sell.

A number of state Medicaid agencies have revised
their payment methodology as a result of the Market Price
Survey. The Centers for Medicare and Medicaid Services
(CMMS) had also announced that Medicare
intermediaries should calculate the amount that they pay for
certain drugs by using the lower prices on the First DataBank
Market Price Survey. However, the proposal to include clotting
factor in the lower Medicare pricing was withdrawn. Instead,
CMMS has announced that it will seek legislation that would
establish payments to cover the administrative costs of
suppliers of clotting factor as a supplement to lower AWP
pricing for factor.

As recently as September 21, 2001, the
United States House Subcommittees on Health and Oversight &
Investigations held hearings to examine how Medicare reimburses
providers for the cost of drugs. In conjunction with that
hearing, the U.S. General Accounting Office issued its Draft
Report recommending that Medicare establish payment levels for
part-B prescription drugs and their delivery and administration
that are more closely related to their costs, and that payments
for drugs be set at levels that reflect actual market
transaction prices and the likely acquisition costs to providers.

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We cannot predict the eventual results of the
government investigations and the changes made by First
DataBank. If the reduced average wholesale prices published by
First DataBank for the drugs that we sell are ultimately adopted
as the standard by which we are paid by government payors or
private payors, this could have a material adverse effect on our
business, financial condition and results of operation,
including reducing the pricing and margins on certain of our
products.

Our business could be harmed by changes in
Medicare or Medicaid.

Changes in the Medicare, Medicaid or similar
government programs or the amounts paid by those programs for
our services may adversely affect our earnings. For example,
these programs could revise their pricing based on new methods
of calculating the AWP for drugs we handle. We estimate that
approximately 18% of our gross patient revenues for the fiscal
years ended June 30, 1999 and 2000 and 19% of our gross
patient revenues for the fiscal year ended June 30, 2001
consisted of reimbursements from federal and state programs,
excluding sales to private physicians whose ultimate payor is
typically Medicare. Any reductions in amounts reimbursable by
government programs for our services or changes in regulations
governing such reimbursements could materially and adversely
affect our business, financial condition and results of
operations.

Our business will suffer if we lose
relationships with payors.

We are highly dependent on reimbursement from
non-governmental payors. For the fiscal years ended
June 30, 1999, 2000 and 2001 we derived approximately 82%,
82% and 81% respectively of our gross patient revenue from
non-governmental payors (including self-pay), which included 6%,
5% and 4%, respectively for those periods, from sales to private
physician practices whose ultimate payor is typically Medicare.
In fiscal year 2001, our private payor, Aetna, Inc. and
affiliates accounted for approximately 15% of the Companys
revenue.

Many payors seek to limit the number of providers
that supply drugs to their enrollees. For example, we were
selected by Aetna, Inc. as one of three providers of injectible
medications. From time to time, payors with whom we have
relationships require that we and our competitors bid to keep
their business, and there can be no assurance that we will be
retained or that our margins will not be adversely affected when
that happens. The loss of a payor relationship, for example, our
relationship with Aetna (which is terminable on 90 days
notice), or an adverse change in the financial condition of a
payor like Aetna, could result in the loss of a significant
number of patients and have a material adverse effect on our
business, financial condition and results of operations.

We rely heavily on a single shipping provider,
and our business would be harmed if our rates are increased or
our provider is unavailable.

Almost all of our revenues result from the sale
of drugs we deliver to our patients and principally all of our
products are shipped by a single carrier, FedEx. We depend
heavily on these outsourced shipping services for efficient,
cost effective delivery of our product. The risks associated
with this dependence include:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | any significant increase in shipping rates;                                                                              
|
| |  | strikes or other service interruptions by our
	primary carrier, FedEx, or by another carrier that could affect
	FedEx; or
|
| |  | spoilage of high cost drugs during shipment,
	since our drugs often require special handling, such as
	refrigeration.    

Disruption in New York City and in U.S.
commercial activities generally following the September 2001
terrorist attacks on the U.S. may adversely impact our results
of operations, our ability to raise capital or our future
growth.

Our operations have been and may continue to be
harmed by the recent terrorist attacks on the U.S. For example,
transportation systems and couriers that we rely upon to deliver
our drugs have been and may

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continue to be disrupted, thereby causing a
decrease in our revenues. In addition, we may experience a rise
in operating costs, such as costs for transportation, courier
services, insurance and security. We also may experience delays
in receiving payments from payors that have been affected by the
attacks, which, in turn, would harm our cash flow. The U.S.
economy in general may be adversely affected by the terrorist
attacks or by any related outbreak of hostilities. Any such
economic downturn could adversely impact our results of
operations, impair our ability to raise capital or impede our
ability to continue growing our business.


Our business could be harmed if payors
decrease or delay their payments to us.

Our profitability depends on payment from
governmental and non-governmental payors, and we could be
materially and adversely affected by cost containment trends in
the health care industry or by financial difficulties suffered
by non-governmental payors. Cost containment measures affect
pricing, purchasing and usage patterns in health care. Payors
also influence decisions regarding the use of a particular drug
treatment and focus on product cost in light of how the product
may impact the overall cost of treatment. Further, some payors,
including large managed care organizations and some private
physician practices, have recently experienced financial
trouble. The timing of payments and our ability to collect from
payors also affects our revenue and profitability. If we are
unable to collect from payors or if payors fail to pay us in a
timely manner, it could have a material adverse effect on our
business and financial condition.

If we are unable to manage our growth
effectively, our business will be harmed.

Our rapid growth over the past several years has
placed a strain on our resources, and if we cannot effectively
manage our growth, our business, financial condition and results
of operations could be materially and adversely affected. We
have experienced a large increase in the number of our
employees, the size of our programs and the scope of our
operations. Our ability to manage this growth and 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.

We could be adversely affected by an
impairment of the significant amount of goodwill on our
financial statements.

Our formation and our acquisitions of Southern
Health Systems, Inc., Hemophilia Health Services, Inc., Sunrise
Health Management, Inc., Pharmacare Resources, Inc., NCL
Management, Inc. and the specialty pharmacy businesses of Home
Medical of America, Inc. 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. There can be no
assurance that we will realize the full value of this goodwill.
We evaluate on an on-going 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 in a charge to our earnings.

We are not presently aware of any persuasive
evidence that any material portion of our goodwill will be
impaired and written off against earnings. As of June 30,
2001, we had goodwill, net of accumulated amortization, of
approximately $89.4 million, or 31% of total assets and 47% of
stockholders equity.

Since our growth strategy may involve the
acquisition of other companies, we may record additional
goodwill in the future. The possible write-off of this goodwill
could negatively impact our future earnings. We will also be
required to allocate a portion of the purchase price of any
acquisition to the value of non-competition agreements, patient
base and contracts that are acquired. The amount allocated to
these items could be amortized over a fairly short period. As a
result, our earnings and the market price of our common stock
could be negatively impacted.

We rely on a few key employees whose absence
or loss could adversely affect our business.

We depend on a few key executives, and the loss
of their services could cause a material adverse effect to our
company. We do not maintain key person life
insurance policies on any of those executives. As a result, we
are not insured against the losses resulting from the death of
our key executives. Further, we must be able

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to attract and retain other qualified, essential
employees for our technical operating and professional staff,
such as pharmacists. If we are unable to attract and retain
these essential employees, our business could be harmed.


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 growth strategy, we
will need substantial capital resources and will incur, from
time to time, short- and long-term indebtedness, the terms of
which will depend on market and other conditions. We cannot be
certain that existing or additional financing will be available
to us on acceptable terms, if at all. 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 reduce the percentage ownership of our then current
stockholders.

Our industry is subject to extensive
government regulation and noncompliance by us or our suppliers
could harm our business.

The marketing, sale and purchase of drugs and
medical supplies is extensively regulated by federal and state
governments, and if we fail or are accused of failing to comply
with laws and regulations, we could suffer a material adverse
effect on our business, financial condition and results of
operations. Our business could also be materially and adversely
affected if the suppliers or clients 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 health care laws and regulations that
especially apply to our activities include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The federal Anti-Kickback Law
	prohibits the offer or solicitation of compensation 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.
	The potential sanctions for violations of these laws range from
	significant fines, to exclusion from participation in the
	Medicare and Medicaid programs, to criminal sanctions. Although
	some safe harbor regulations attempt to clarify when
	an arrangement will not violate the Anti-Kickback Law, our
	business arrangements and the services we provide may not fit
	within these safe harbors. Failure to satisfy a safe harbor
	requires analysis of whether the parties intended to violate the
	Anti-Kickback Law. The finding of a violation could have a
	material adverse effect on our business.
|
| |  | The Department of Health and Human Services
	recently issued regulations implementing the Administrative
	Simplification provision of HIPAA concerning the maintenance and
	transmission and security of electronic health information,
	particularly individually identifiable information. The new
	regulations, when effective, will require the development and
	implementation of security and transaction standards for all
	electronic health information and impose significant use and
	disclosure obligations on entities that send or receive
	individually identifiable electronic health information. Failure
	to comply with these regulations, or wrongful disclosure of
	confidential patient information could result in the imposition
	of administrative or criminal sanctions, including exclusion
	from the Medicare and state Medicaid programs. 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 have a material adverse effect on our business.                                             
|
| |  | 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 their immediate family members have a
	financial relationship. A violation of the Stark Law
	is punishable by civil sanctions, including significant fines
	and exclusion from participation in Medicare and Medicaid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

23



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. 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.                                                  
|
| |  | Pharmacies and pharmacists must obtain state
	licenses to operate and dispense drugs. Pharmacies must also
	obtain licenses in some states to operate and provide goods and
	services to residents of those states. If we are unable to
	maintain our licenses or if states place burdensome restrictions
	or limitations on non-resident pharmacies, this could limit or
	affect our ability to operate in some states which could
	adversely impact our business and results of operations.
|
| |  | 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, clinical drug research trials
	and gifts for patients.                                                                                                      
|
| |  | The False Claims Act encourages private
	individuals to file suits on behalf of the government against
	health care providers such as us. Such suits could result in
	significant financial sanctions or exclusion from participation
	in the Medicare and Medicaid programs.                                                                                                                                                                                                                

The market price of our common stock may
experience substantial fluctuations for reasons over which we
have little control.

Our common stock is traded on the Nasdaq National
Market. Since our common stock has only been publicly traded for
a short time, an active trading market for the stock may not
develop or be maintained. Also, the market price of our common
stock could fluctuate substantially based on a variety of
factors, including the following:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | future announcements concerning us, our
	competitors, the drug manufacturers with whom we have
	relationships or the health care market;
|
| |  | changes in government regulations;                                                                                                      
|
| |  | overall volatility of the stock market;                                                                                                 
|
| |  | changes in earnings estimates by analysts; and                                                                                          
|
| |  | changes in operating results from quarter to
	quarter.                                                                                  

Furthermore, stock prices for many companies
fluctuate widely for reasons that may be unrelated to their
operating results. These fluctuations, coupled with changes in
our results of operations and general economic, political and
market conditions, may adversely affect the market price of our
common stock.

Some provisions of our charter documents may
have anti-takeover effects that could discourage a change in
control, even if an acquisition would be beneficial to our
stockholders.

Our certificate of incorporation, our bylaws and
Delaware law contain provisions that could make it more
difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders.






Item 2.     Properties


Facilities

Our corporate headquarters are located in
Memphis, Tennessee and our primary pharmacy locations are in
Memphis and Nashville, Tennessee and Charlotte, North Carolina.
In addition, we have satellite pharmacy locations in the
following cities:



| |   |                     
| | - | --------------------
| |  | Birmingham, Alabama;
|
| |  | Atlanta, Georgia;   

24



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##### Table of Contents





| |   |                          
| | - | -------------------------
| |  | Dallas/Ft. Worth, Texas; 
|
| |  | Garden Grove, California;
|
| |  | Jacksonville, Florida;   
|
| |  | Elmsford, New York; and  
|
| |  | Milford, Massachussetts  

Memphis, Tennessee.We currently lease approximately 87,000 square feet of space in
an office/warehouse business park in Memphis. In addition we
have recently entered into a lease agreement for an additional
61,000 square feet of space in the same location that we will
occupy later in fiscal year 2002. We also have a land lease for
an expanded parking lot next to our offices. The lease for 9,282
square feet of space expires in March 2007, the land lease
expires in March 2007, the lease for 47,040 square feet of space
expires in July 2006, and the lease on the remainder of the
space will expire in March 2007, but we have an option to extend
our lease terms for one additional five-year period.

Nashville,
Tennessee.We currently lease
approximately 31,000 square feet of space in Nashville. Our
lease expires in December 2005.

Charlotte, North
Carolina.We currently lease
approximately 25,000 square feet of space in Charlotte, North
Carolina. Our lease expires in July 2006.

Birmingham, Alabama.We currently lease approximately 2,400 square feet of space near
Birmingham. Our lease expires in February 2003.

Atlanta, Georgia.We
currently lease approximately 7,300 square feet of space in the
Atlanta area. Our lease expires in December 2005.

Dallas/Ft. Worth,
Texas.Partnerships in which we are a
general partner currently lease an aggregate of approximately
2,400 square feet of space in two locations in the Dallas/Fort
Worth, Texas area. The leases for this space expire in May 2002
with an option to extend the lease terms for one additional
three-year period.

Garden Grove,
California.We currently lease
approximately 1,700 square feet of space in Garden Grove near
Los Angeles. Our lease expires in September 2003.

Jacksonville,
Florida.We currently lease
approximately 2,400 square feet of space in Jacksonville. Our
lease expires in September 2002.

Elmsford, New York.We currently lease approximately 3000 square feet of space in
Elmsford near New York City. Our lease expires in November 2003.

Milford,
Massachussetts.We currently lease
approximately 2000 square feet of space in Milford near Boston.
Our lease expires in June 2004.




Item 3.     Legal
Proceedings

We are involved in a small number of lawsuits and
claims arising in the normal course of our business. In our
opinion, in the aggregate these lawsuits and claims should not
have a material adverse effect on our business, financial
condition, or results of operations.




Item 4.     Submission
of Matters to a Vote of Security Holders

None.

25



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##### Table of Contents






PART II






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item  5. | Market for Companys Common Equity and
	Related Stockholder Matters.

Price Range of Common
Stock

The Companys common stock is traded on the
Nasdaq National Market System under the symbol ACDO.
The following table sets forth the quarterly high and low sales
prices as reported on the Nasdaq National Market System for the
fiscal years ended June 30, 2000 and 2001.

|                                       |  |      |       |     |  |  |       | 
|-------------------------------------- |  | ---- | ----- | --- |  |  | ----- | 
|Fiscal Years 2000 and 2001             |  | High |       | Low
|                                       |  |      |       |    
|First Quarter ended September 30, 1999 |  |      | 16.39 |     |  |  | 12.00 | 
|Second Quarter ended December 31, 1999 |  |      | 14.78 |     |  |  | 11.83 | 
|Third Quarter ended March 31, 2000     |  |      | 26.25 |     |  |  | 12.83 | 
|Fourth Quarter ended June 30, 2000     |  |      | 25.17 |     |  |  | 12.25 | 
|First Quarter ended September 30, 2000 |  |      | 34.67 |     |  |  | 19.83 | 
|Second Quarter ended December 31, 2000 |  |      | 37.21 |     |  |  | 23.25 | 
|Third Quarter ended March 31, 2001     |  |      | 35.54 |     |  |  | 23.50 | 
|Fourth Quarter ended June 30, 2001     |  |      | 39.95 |     |  |  | 26.06 | 

Holders

As of September 18, 2001, the approximate
number of registered stockholders was 4,236 including 32
stockholders of record and approximately 4,204 persons or
entities holding common stock in nominee name.

Dividend Policy

We have never paid any cash dividends on our
capital stock. We currently anticipate that all of our earnings
will be retained to finance the growth and development of our
business, and therefore, do not anticipate that any cash
dividend will be declared or paid on our common stock in the
foreseeable future. Any future declaration of dividends will be
subject to the discretion of our Board of Directors and their
review of our earnings, financial condition, capital
requirements and surplus, contractual restrictions to pay such
dividends and other factors they deem relevant.

Sales of Unregistered
Securities

None.

26



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##### Table of Contents






Item 6.     Selected
Consolidated Financial Data




SELECTED FINANCIAL DATA

You should read the following selected financial
data in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our financial statements and the notes thereto included
elsewhere in this Annual Report on Form 10-K. The selected
financial data as of and for the fiscal years ended
June 30, 1997, 1998, 1999, 2000 and 2001 have been derived
from our audited financial statements. The information set forth
below is not necessarily indicative of the results of future
operations.

|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |         |         | 
|--------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                                                                      |                                        |                                      
|                                                                                                                      |                                        | Years Ended June 30,                 
|                                                                                                                      |                                        |                                      
|                                                                                                                      |                                        | 1997                                  |        | 1998    |         | 1999 |        | 2000    |         | 2001
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |     
|                                                                                                                      |                                        |                                      
|                                                                                                                      |                                        | (in thousands, except per share data)
|Statements of Operations Data:                                                                                        |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Revenues:                                                                                                             |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|                                                                                                                      | Net patient revenue                    |                                       | $      | 106,143 |         |      | $      | 170,002 |         |      | $      | 244,158 |         |   | $      | 335,601 |         |   | $      | 446,007 |        
|                                                                                                                      | Other revenue                          |                                       |        | 8,049   |         |      |        | 9,806   |         |      |        | 12,277  |         |   |        | 15,432  |         |   |        | 14,985  |        
|                                                                                                                      | Equity in net income of joint ventures |                                       |        | 1,017   |         |      |        | 1,150   |         |      |        | 1,919   |         |   |        | 2,002   |         |   |        | 1,148   |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|                                                                                                                      |                                        | Total revenues                        |        |         | 115,209 |      |        |         | 180,958 |      |        |         | 258,354 |   |        |         | 353,035 |   |        |         | 462,140 | 
|Operating expenses:                                                                                                   |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|                                                                                                                      | Cost of sales                          |                                       |        | 101,080 |         |      |        | 154,046 |         |      |        | 220,517 |         |   |        | 300,973 |         |   |        | 395,365 |        
|                                                                                                                      | General and administrative             |                                       |        | 5,939   |         |      |        | 12,489  |         |      |        | 17,637  |         |   |        | 23,831  |         |   |        | 29,871  |        
|                                                                                                                      | Bad debts                              |                                       |        | 2,977   |         |      |        | 3,165   |         |      |        | 4,739   |         |   |        | 6,117   |         |   |        | 6,131   |        
|                                                                                                                      | Depreciation and amortization          |                                       |        | 4,877   |         |      |        | 3,861   |         |      |        | 3,911   |         |   |        | 3,397   |         |   |        | 4,263   |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|                                                                                                                      |                                        | Total operating expenses              |        |         | 114,873 |      |        |         | 173,561 |      |        |         | 246,804 |   |        |         | 334,318 |   |        |         | 435,630 | 
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Operating income                                                                                                      |                                        |                                       | 336    |         |         |      | 7,397  |         |         |      | 11,550 |         |         |   | 18,717 |         |         |   | 26,510 |        
|Interest expense (income), net                                                                                        |                                        |                                       | 984    |         |         |      | 3,552  |         |         |      | 3,165  |         |         |   | 2,136  |         |         |   | (2,770 | )      
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Income (loss) before minority interest in
	income of consolidated joint venture, income taxes and
	extraordinary item |                                        |                                       | (648   | )       |         |      | 3,845  |         |         |      | 8,385  |         |         |   | 16,581 |         |         |   | 29,280 |        
|Minority interest in income of cons. joint venture                                                                    |                                        |                                       |       |         |         |      |       |         |         |      |       |         |         |   | (177   | )       |         |   | (692   | )      
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Income (loss) before income taxes and
	extraordinary item                                                             |                                        |                                       | (648   | )       |         |      | 3,845  |         |         |      | 8,385  |         |         |   | 16,404 |         |         |   | 28,588 |        
|Income tax expense (benefit)                                                                                          |                                        |                                       | 1,502  |         |         |      | 2,420  |         |         |      | 4,003  |         |         |   | 6,508  |         |         |   | 11,333 |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Income (loss) before extraordinary item                                                                               |                                        |                                       | (2,150 | )       |         |      | 1,425  |         |         |      | 4,382  |         |         |   | 9,896  |         |         |   | 17,255 |        
|Extraordinary item for early extinguishment of
	debt, net of income tax benefit                                       |                                        |                                       |       |         |         |      |       |         |         |      | (1,254 | )       |         |   |       |         |         |   |       |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Net income (loss)                                                                                                     |                                        |                                       | (2,150 | )       |         |      | 1,425  |         |         |      | 3,128  |         |         |   | 9,896  |         |         |   | 17,255 |        
|Mandatorily redeemable cumulative preferred stock
	dividends                                                          |                                        |                                       | (2,043 | )       |         |      | (2,043 | )       |         |      | (1,617 | )       |         |   |       |         |         |   |       |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Net income (loss) to common stockholders                                                                              |                                        | $                                     | (4,193 | )       |         | $    | (618   | )       |         | $    | 1,511  |         |         | $ | 9,896  |         |         | $ | 17,255 |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Diluted earnings per common share:                                                                                    |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Income (loss) before extraordinary item                                                                               |                                        | $                                     | (0.19  | )       |         | $    | 0.11   |         |         | $    | 0.28   |         |         | $ | 0.45   |         |         | $ | 0.66   |        
|Extraordinary item                                                                                                    |                                        |                                       |       |         |         |      |       |         |         |      | (0.08  | )       |         |   |       |         |         |   |       |        
|Preferred stock dividends                                                                                             |                                        |                                       | (0.17  | )       |         |      | (0.16  | )       |         |      | (0.10  | )       |         |   |       |         |         |   |       |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Net income (loss) to common stockholders(1)                                                                           |                                        | $                                     | (0.36  | )       |         | $    | (0.05  | )       |         | $    | 0.10   |         |         | $ | 0.45   |         |         | $ | 0.66   |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        
|Cash dividends declared on common stock                                                                               |                                        | $                                     |       |         |         | $    |       |         |         | $    |       |         |         | $ |       |         |         | $ |       |        
|                                                                                                                      |                                        |                                       |        |         |         |      |        |         |         |      |        |         |         |   |        |         |         |   |        |        

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|                                                  |  |          |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------- |  | -------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                  |  |         
|                                                  |  | June 30,
|                                                  |  |         
|                                                  |  | 1997     |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                                  |  |          |         |      |  |      |         |      |  |     
|Balance Sheet Data:                               |  |          |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                         |  | $        | 3,676   |      |  | $    | 5,087   |      |  | $    | 5,542   |  |  | $ | 10,204  |  |  | $ | 54,520  | 
|Working capital                                   |  |          | 16,894  |      |  |      | 23,377  |      |  |      | 28,906  |  |  |   | 35,639  |  |  |   | 88,288  | 
|Total assets                                      |  |          | 113,309 |      |  |      | 114,049 |      |  |      | 146,746 |  |  |   | 205,229 |  |  |   | 289,244 | 
|Long-term debt                                    |  |          | 35,195  |      |  |      | 36,418  |      |  |      | 20,500  |  |  |   | 37,000  |  |  |   |        | 
|Mandatorily redeemable cumulative preferred stock |  |          | 27,749  |      |  |      | 29,792  |      |  |      |        |  |  |   |        |  |  |   |        | 
|Stockholders equity                              |  |          | 12,790  |      |  |      | 12,801  |      |  |      | 64,127  |  |  |   | 77,544  |  |  |   | 189,170 | 






|    |                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Historical diluted loss per share for the periods
	ended June 30, 1997 and 1998 have been calculated using the
	same denominator as used for basic loss per share because the
	inclusion of dilutive securities in the denominator would have
	an anti-dilutive effect.






|         |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|Item  7. | Managements Discussion and Analysis
	of Financial Condition and Results of Operations

The following discussion and analysis should
be read in conjunction with Selected Financial Data
and our Financial Statements and the Notes thereto included
elsewhere in this Annual Report on Form 10-K. The
discussion in this Form 10-K contains certain
forward-looking statements that involve risks and uncertainties,
such as statements regarding our plans, objectives, expectations
and intentions. The cautionary statements made in this
Form 10-K should be read as being applicable to all
forward-looking statements wherever they appear in this Report.
Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences
include those discussed in Item 1 under the heading
Risk Factors, as well as those discussed elsewhere
herein.

Overview

We provide specialized contract pharmacy services
for the treatment of patients with costly, chronic diseases. We
derive revenues primarily from the sale of drugs to patients.

The following table presents the percentage of
our total revenue generated from sales and services provided
with respect to the diseases that we service for the years ended
June 30:

|                                    |  |      |    |      |  |      |    |   |  |  |    |  
|----------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                    |  | 1999 |    | 2000 |  | 2001
|                                    |  |      |    |      |  |     
|Multiple Sclerosis                  |  |      | 31 | %    |  |      | 37 | % |  |  | 38 | %
|Gaucher Disease                     |  |      | 37 | %    |  |      | 30 | % |  |  | 23 | %
|Hemophilia and Autoimmune Disorders |  |      | 21 | %    |  |      | 21 | % |  |  | 21 | %
|Growth Hormone-Related Disorders    |  |      | 6  | %    |  |      | 7  | % |  |  | 9  | %
|Respiratory Syncytial Virus         |  |      | 1  | %    |  |      | 1  | % |  |  | 6  | %
|Crohns Disease                     |  |      | 1  | %    |  |      | 1  | % |  |  | 1  | %

Sales and services with respect to Multiple
Sclerosis, Gaucher Disease, growth hormone-related disorders,
Crohns Disease and rheumatoid arthritis and Respiratory
Syncytial Virus are dependent upon our relationships with
Biogen, Genzyme, Genentech, Centocor and MedImmune. Our
agreements with these manufacturers describe the services to be
provided by us, including contract pharmacy, information,
clinical, reimbursement and customized delivery services. These
agreements generally:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | limit our ability to supply competing drugs
	during (and in some cases up to five years after) the term of
	the agreement;
|
| |  | allow the manufacturer to distribute directly or
	through other parties; and                                              
|
| |  | are short-term and may be cancelled by either
	party, without cause, upon between 60 and 90 days prior
	notice.           

28



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These agreements vary in level of exclusivity and
scope of services provided. We typically purchase products at
prices below the manufacturers average wholesale sales
prices, and our resulting contribution margins vary for each
product line. Pricing is customized to reflect specific services
to be provided by us and is subject to periodic adjustments to
reflect changing market conditions.

We purchase drugs for hemophilia and autoimmune
disorders from all available sources on a volume discount basis.
We were one of the national providers selected by MedImmune,
Inc. to distribute drugs for respiratory syncytial virus for the
1999-2000 and the 2000-2001 seasons and are in discussions with
MedImmune, Inc. to be a national provider for the 2001-2002
season.

We recognize revenue at the time we ship drugs or
when we have performed the contractual service. While we may
experience revenue changes from price fluctuations on our
existing product lines, our revenue growth will depend
principally on the introduction of new drugs and on volume
growth in existing drug lines.

At June 30, 2001, we had six joint venture
agreements with various medical centers (or their affiliates) in
which we own 50% of each venture and one joint venture agreement
with a medical center affiliate in which we own 80% of the joint
venture. Many of our patient populations have diseases that are
discovered before or during adolescence and require ongoing care
from physician specialists, many of whom are based at pediatric,
academic and other acute care medical centers. To date, these
ventures have primarily derived revenues from the treatment of
patients with hemophilia, growth hormone-related disorders and
respiratory syncytial virus. We share profits and losses with
our joint venture partners in equal proportion to our respective
equity ownership. We account for our interests in the net income
or loss in our 50% owned joint ventures under the equity method
of accounting, and in our 80% owned joint venture under the
consolidated method of accounting. Our equity interest in the
net income of these joint ventures represented approximately
23%, 12% and 4% of our income before income taxes for the years
ended June 30, 1999, 2000 and 2001, respectively.

Costs of sales include drug acquisition costs,
pharmacy and warehouse personnel costs, freight and other direct
costs associated with the delivery of our products and costs of
clinical services provided. General and administrative expenses
include the personnel costs of the reimbursement, sales,
marketing, administrative and support staffs as well as
corporate overhead and other general expenses. Bad debts include
our provision for patient accounts receivable which prove to be
uncollectible after routine collection efforts have been
exhausted. We typically hire personnel and incur legal,
recruiting, marketing and other expenses in anticipation of the
commercial launch of a new biopharmaceutical drug. In some
instances, a portion of these expenses are reimbursed to us by
the biopharmaceutical manufacturer. We have not historically
capitalized any of these start-up expenses.

Due to the increasing sensitivity to drug cost
within governmental and non-governmental payors, we are
continuously susceptible to reimbursement and operating margin
pressures. In recent years, pharmacy benefit managers and other
non-governmental payors have aggressively attempted to discount
their reimbursement rates for our products. Although this
aggressive discounting has resulted in some reduced margins for
our services, our agreements with biopharmaceutical
manufacturers typically have provisions that address these
discounts through adjustments in product acquisition cost. These
provisions have allowed us to remain price competitive while
maintaining relatively stable operating margins.

Many government payors, including Medicare and
Medicaid, pay us directly or indirectly for some of the drugs
that we sell at the drugs average wholesale price
(AWP) or a percentage discount off AWP. Recent
government investigations into the reporting of AWP by drug
manufacturers have lead First DataBank, Inc. to publish a Market
Price Survey of 437 drugs that significantly reduces
reimbursement for a number of the clotting factor and IVIG
products we sell.

A number of state Medicaid agencies now pay us
for clotting factor at the prices shown on the Market Price
Survey or at a percentage discount off those prices. Other
states have not changed their pricing structure or have changed
back to their pre-Market Price Survey reimbursement rates. In
addition, the Centers for Medicare and Medicaid Services
(CMMS) had previously announced that Medicare
intermediaries should calculate the amount that they pay for
clotting factor and 49 other drugs by using the lower prices on
the First DataBank Market Price Survey. However, the proposal to
include clotting factor in the lower Medicare

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pricing was withdrawn. Instead, CMMS has
announced that it will seek legislation that would establish
payments to cover administrative cost of suppliers of clotting
factor as a supplement to lower AWP pricing for factor.


Results of Operations

The following table sets forth for the periods
indicated, the percentages of total revenues represented by the
respective financial items:

|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |      |       | 
|------------------------------------------------------------------------ | -------------------------------------- | ------------------------ | ---- | ---- | ----- | ---- | --- | ---- | ----- |  | --- | ---- | ----- | 
|                                                                         |                                        |                         
|                                                                         |                                        | Years Ended June 30,    
|                                                                         |                                        |                         
|                                                                         |                                        | 1999                     |      | 2000 |       | 2001
|                                                                         |                                        |                          |      |      |       |     
|Revenues:                                                                |                                        |                          |      |      |       |      |     |      |       |  |     |     
|                                                                         | Net patient revenue                    |                          |      | 94.5 | %     |      |     | 95.0 | %     |  |     | 96.5 | %    
|                                                                         | Other revenue                          |                          |      | 4.8  |       |      |     | 4.4  |       |  |     | 3.2  |      
|                                                                         | Equity in net income of joint ventures |                          |      | 0.7  |       |      |     | 0.6  |       |  |     | 0.3  |      
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     
|                                                                         |                                        | Total revenues           |      |      | 100.0 |      |     |      | 100.0 |  |     |      | 100.0 | 
|Operating expenses:                                                      |                                        |                          |      |      |       |      |     |      |       |  |     |     
|                                                                         | Cost of sales                          |                          |      | 85.4 |       |      |     | 85.2 |       |  |     | 85.6 |      
|                                                                         | General and administrative             |                          |      | 6.8  |       |      |     | 6.8  |       |  |     | 6.5  |      
|                                                                         | Bad debts                              |                          |      | 1.8  |       |      |     | 1.7  |       |  |     | 1.3  |      
|                                                                         | Depreciation and amortization          |                          |      | 1.5  |       |      |     | 1.0  |       |  |     | .9   |      
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     
|                                                                         |                                        | Total operating expenses |      |      | 95.5  |      |     |      | 94.7  |  |     |      | 94.3  | 
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     
|Operating income                                                         |                                        |                          | 4.5  |      |       |      | 5.3 |      |       |  | 5.7 |     
|Interest income (expense), net                                           |                                        |                          | (1.3 | )    |       |      | (.6 | )    |       |  | .6  |     
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     
|Income before minority interest, income taxes and
    extraordinary item |                                        |                          | 3.2  |      |       |      | 4.7 |      |       |  | 6.3 |     
|Minority interest                                                        |                                        |                          |     |      |       |      | .1  |      |       |  | .1  |     
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     
|Income before income taxes and extraordinary item                        |                                        |                          | 3.2  |      |       |      | 4.6 |      |       |  | 6.2 |     
|Income tax expense                                                       |                                        |                          | 1.5  |      |       |      | 1.8 |      |       |  | 2.5 |     
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     
|Income before extraordinary item                                         |                                        |                          | 1.7  |      |       |      | 2.8 |      |       |  | 3.7 |     
|Extraordinary charge, net of income tax benefit                          |                                        |                          | (.5  | )    |       |      |    |      |       |  |    |     
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     
|Net income                                                               |                                        |                          | 1.2  | %    |       |      | 2.8 | %    |       |  | 3.7 | %   
|                                                                         |                                        |                          |      |      |       |      |     |      |       |  |     |     

Fiscal Year Ended June 30, 2001
Compared to Fiscal Year Ended June 30, 2000

Revenues.Total
revenues increased 31% from $353.0 million to $462.1 million
from fiscal year 2000 to fiscal year 2001. Net patient revenues
increased 33% from $335.6 million to $446.0 million from fiscal
year 2000 to fiscal year 2001. In fiscal year 2001, we
experienced growth in all of our core products for the
treatments of multiple sclerosis, growth hormone disorders,
hemophilia and Gaucher Disease as a result of volume growth with
the addition of new patients and additional sales of product to
existing patients. We also had a significant increase in our
seasonal drug SYNAGIS® for the treatment of Respiratory
Synctial Virus as a result of increased patient volume. Our
sales of intravenous immunoglobulin (IVIG) increased
due to the acquisition of Pharmacare Resources, Inc., which
added approximately $3.1 million in revenues during the year
ended June 30, 2001. We also benefited from the addition of
new and expanded contracts with managed care organizations. In
June 2000, we were selected by Aetna, Inc. to be a preferred
distributor of injectable medications to Aetna members and
participating physicians.

Equity in net income of joint ventures decreased
$854,000 from fiscal year 2000 to fiscal year 2001 primarily due
to the acquisition of an additional 30% interest in the joint
venture Childrens Hemophilia Services effective April 1,
2000. The results of operations of the joint venture have been
consolidated with our results of operations since the date of
acquisition and, therefore, are no longer recorded using the
equity method of accounting.

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Cost of Sales.Cost
of sales increased 31% from $301.0 million to $395.4 million
from fiscal year 2000 to fiscal year 2001, which is commensurate
with the increase in our revenues discussed above. As a
percentage of revenues, cost of sales increased from 85.2% to
85.6% from fiscal year 2000 to fiscal year 2001 resulting in
gross margins of 14.8% in fiscal year 2000 and 14.4% in fiscal
year 2001. Gross margins for the individual products have
remained relatively stable; however, a change in product mix
resulted in a decrease in the composite gross margin in fiscal
year 2001. The primary drivers were increased revenues from
SYNAGIS® for the treatment of Respiratory Synctial Virus
and AVONEX® for the treatment of multiple sclerosis, which
have higher acquisition costs as a percentage of revenue than
most of the other products we distribute.

General and
Administrative.General and
administrative expenses increased from $23.8 million to $29.9
million, or 26%, from fiscal year 2000 to fiscal year 2001. This
increase was primarily the result of increased salaries and
benefits associated with the expansion of our reimbursement,
sales and marketing, administrative and support staffs and the
addition of office space and related furniture and fixtures to
support the revenue growth. General and administrative expenses
represented 6.8% and 6.5% of revenues for fiscal years 2000 and
2001, respectively.

Bad Debts.Bad debts
were $6.1 million in both fiscal years 2000 and 2001. As a
percentage of revenues, bad debt expense decreased from 1.7% to
1.3% from fiscal year 2000 to fiscal year 2001. The decrease in
bad debts as a percentage of revenues is primarily due to the
increased percentage of our revenues that was reimbursed by
prescription card benefits versus major medical benefit plans.
The majority of the reimbursement for both AVONEX® and
SYNAGIS® is being provided by prescription card benefit
plans, and therefore is subject to much lower co-payment and
deductible amounts (typically $10-$15 per prescription)
resulting in lower bad debt. AVONEX® and SYNAGIS®
represented 44% of our revenues in fiscal year 2001 compared to
38% in fiscal year 2000.

Depreciation and Amortization.Depreciation expense increased from
$1,094,000 to $1,509,000 from fiscal year 2000 to fiscal year
2001 as a result of purchases of property and equipment
associated with our revenue growth and the expansion of our
leasehold facility improvements. Amortization expense associated
with goodwill and other intangible assets increased from
$2,303,000 to $2,754,000 from fiscal year 2000 to fiscal year
2001 due to acquisitions made during fiscal years 2000 and 2001.

Interest Income/Expense,
Net.Interest expense, net, amounted
to $2,136,000 in fiscal year 2000 compared to interest income,
net, of $2,770,000 in fiscal year 2001. This change amounting to
$4,906,000 is due to the repayment of our debt with the proceeds
of the stock offering completed during the first quarter of
fiscal year 2001, the investment of the excess proceeds from the
offering and the sale of an interest rate swap for $350,000.

Income Tax Expense.Our effective tax rate decreased from 39.7% to 39.6% from fiscal
year 2000 to fiscal year 2001. The difference between the
recognized effective tax rate and the statutory tax rate is
primarily attributed to approximately $816,000 and $788,000 of
nondeductible amortization expense in fiscal years 2000 and
2001, respectively, and state income taxes.

Fiscal Year Ended June 30, 2000
Compared to Fiscal Year Ended June 30, 1999

Revenues.Total
revenues increased 37% from $258.4 million to $353.0 million
from fiscal year 1999 to fiscal year 2000. In fiscal year 2000,
we experienced growth in all of our core products for the
treatments of multiple sclerosis, Gaucher Disease, hemophilia
and growth hormone disorders as a result of volume growth with
the addition of new patients and additional sales of product to
existing patients. Approximately $50.3 million, or 53%, of this
increase was attributable to our increased sales of
AVONEX®. Our Cerezyme® and Ceredase®drug sales
increased approximately $11.8 million, or 12% of the revenue
increase. Approximately $18.6 million, or 20% of this increase,
was attributable to increased hemophilia factor and IVIG
revenue. Approximately $10.6 million, or 11%, of the increase
was attributable to the increased sales of growth hormone
products. Synagis® drug sales increased approximately $2.6
million, or 3% of the increase, as a result of increased
patients. The remaining $0.7 million, or 1%, of our revenue
increase was primarily attributable to increased sales of other
ancillary drugs that we dispense as part of the patients
primary therapy or under

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contractual obligations within some managed care
contracts. Total revenues included approximately $16.1 million
of revenues from companies that we acquired during the year
ended June 30, 2000.


Cost of Sales.Cost
of sales increased 37% from $220.5 million to $301.0 million
from fiscal year 1999 to fiscal year 2000. This increase is
commensurate with the increase in our revenues. As a percentage
of revenues, cost of sales decreased from 85.4% to 85.2% from
fiscal year 1999 to fiscal year 2000. The decrease is primarily
the result of changes in the revenue mix by therapy type and
more specifically increased sales of IVIG drugs which have a
lower acquisition cost as a percentage of revenues than the
other drugs we distribute.

General and
Administrative.General and
administrative expenses increased from $17.6 million to $23.8
million, or 35%, from fiscal year 1999 to fiscal year 2000. This
increase was primarily the result of increased salaries and
benefits associated with the expansion of our reimbursement,
sales, marketing, administrative and support staffs due to
existing product line revenue growth, new product line launches
and the acquisitions we made during the year ended June 30,
2000. General and administrative expenses represented 6.8% of
our revenues for both fiscal years 1999 and 2000.

Bad Debts.Bad debts
increased from $4.7 million to $6.1 million, or 30%, from fiscal
year 1999 to fiscal year 2000. As a percentage of revenues, bad
debt expense decreased from 1.8% to 1.7% from fiscal year 1999
to fiscal year 2000.

Depreciation and
Amortization.Depreciation expense
increased from $614,000 to $1,094,000 from fiscal year 1999 to
fiscal year 2000 as a result of purchases of property and
equipment associated with our revenue growth and the expansion
of our leasehold facility improvements. Amortization expense
associated with goodwill and other intangible assets decreased
from $3,297,000 to $2,303,000 from fiscal year 1999 to fiscal
year 2000 due to some contract intangibles and a non-compete
covenant that were fully amortized by the end of fiscal year
1999. Amortization expense attributable to the acquisitions made
during fiscal year 2000 amounted to approximately $550,000.

Interest Expense,
Net.Interest expense, net, decreased
from $3,165,000 to $2,136,000 from fiscal year 1999 to fiscal
year 2000. This decrease was due to lower interest and margin
rates payable under our existing revolving line of credit, lower
fixed interest rate payments associated with our interest rate
swap agreement, and the payoff of the senior subordinated notes,
with an effective interest rate of 16%, in fiscal year 1999. We
had interest income of approximately $181,000 and $323,000 in
fiscal years 1999 and 2000, respectively.

Income Tax Expense.Our effective tax rate decreased from 47.7% to 39.7% from fiscal
year 1999 to fiscal year 2000 as a result of the increase in
income before taxes while nondeductible amortization expense
decreased. The difference between the recognized effective tax
rate and the statutory tax rate is primarily attributed to
approximately $2,300,000 and $816,000 of nondeductible
amortization expense in fiscal years 1999 and 2000,
respectively, and state income taxes.

Liquidity and Capital Resources

As of June 30, 2001 and June 30, 2000,
we had working capital of $88.3 million and $35.6 million,
respectively. Our net cash provided by operating activities was
approximately $23.2 million for the year ended June 30,
2001 and $17.9 million for the year ended June 30, 2000.
These increases are due primarily to our revenue growth and the
timing of the collection of receivables, inventory purchases and
payments of accounts payable.

Net cash used by investing activities was $33.1
million for the year ended June 30, 2001 and $30.6 million for
the year ended June 30, 2000. Cash used by investing
activities in the year ended June 30, 2001 consisted
primarily of $27.1 million for acquisitions, $2.6 million for
purchases of property and equipment, $2.0 million for net
purchases of marketable securities and $1.3 million of
undistributed earnings from our joint ventures. Cash used by
investing activities in fiscal 2000 consisted primarily of $24.5
million for acquisitions, $4.4 million for purchases of property
and equipment and $1.7 million of undistributed earnings from
our joint ventures.

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Net cash provided by financing activities was
$54.2 million for the year ended June 30, 2001 and $17.4
million for the year ended June 30, 2000. Cash provided by
financing activities for the year ended June 30, 2001
consisted primarily of $88.3 million of net proceeds from the
common stock offering completed in the first quarter plus $3.1
million from the proceeds of stock option exercises less $37.2
million of net repayments on the revolving line of credit. Cash
provided by financing activities for the year ended
June 30, 2000 consisted primarily of $16.0 million of net
borrowings on our revolving line of credit to finance our
acquisitions and $1.9 million from the proceeds of stock option
exercises less $.5 million of payments for costs of the initial
public offering.

Historically, we have funded our operations and
continued internal growth through cash provided by operations.
Capital expenditures amounted to $2.6 million in fiscal year
2001 and $4.4 million in fiscal year 2000. We anticipate that
our capital expenditures for the fiscal year ending
June 30, 2002 will consist primarily of additional computer
hardware, a fully integrated pharmacy and reimbursement software
system and costs to build out and furnish additional space
needed to meet the needs of our growth. We expect the cost of
our capital expenditures in fiscal year 2002 to be approximately
$7.0 million, exclusive of any acquisitions of businesses. We
expect to fund these expenditures through cash provided by
operating activities and/or borrowings under the revolving
credit agreement with our bank. In addition, in connection with
two of our acquisitions that were completed in 1999 and 2001, we
may be obligated to make up to $6.9 million in earn-out payments
during the next twelve months.

We have amended our $60 million revolving credit
facility under the terms of our existing credit agreement. The
amendment has allowed us to reduce the nonuse fees by decreasing
the commitment on which fees are paid to $30 million and by
reducing the nonuse fee interest rate. We may increase the
commitment up to $60 million upon (i) 15 days written
notice, (ii) the payment of an additional commitment fee
and (iii) delivery of a current compliance certificate
demonstrating no event of default exists and will not exist
following the increase in the commitment. The amendment also
includes changes to the applicable London Inter-Bank Offered
Rate and Prime Rate margins, a change in the funded debt to cash
flow ratio to not more than 2.75 to 1.00, and a two-year
extension to the loan termination date to December 1, 2003.

Interest on loans under the credit agreement
accrues at a variable rate index based on the prime rate or the
London Inter-Bank Offered Rate for one, two, three or six months
(as selected by us), plus a margin depending on the amount of
our debt to cash flow ratio as defined by the credit agreement
and measured at the end of each quarter for prospective periods.
As of June 30, 2001, there were no borrowings outstanding
under the line of credit.

Our obligations under the credit agreement are
secured by a lien on substantially all of our assets, including
a pledge of all of the common stock or partnership interest of
each of our subsidiaries in which we own an 80% or more interest.

The credit agreement contains operating and
financial covenants, including requirements to maintain a
certain debt to equity ratio and minimum leverage and debt
service coverage ratios. In addition, the credit agreement
includes customary affirmative and negative covenants, including
covenants relating to transactions with affiliates, uses of
proceeds, restrictions on subsidiaries, limitations on
indebtedness, limitations on capital expenditures, limitations
on mergers, acquisitions and sales of assets, limitations on
investments, prohibitions on payment of dividends and stock
repurchases, limitations on debt payments (including payment of
subordinated indebtedness) and other distributions. The credit
agreement also contains customary events of default, including
events relating to changes in control of our company.

We have used interest rate swap agreements to
manage our interest rate exposure under the credit agreement. We
had effectively converted, for the period through
October 31, 2001, $25.0 million of floating-rate borrowings
to fixed-rate borrowings. We had secured a 5.5% fixed interest
rate (exclusive of the margin rate) using this interest rate
swap agreement. On August 21, 2000, in conjunction with the
repayment of the outstanding principal balance of our revolving
line of credit, we surrendered our swap agreement and received
$350,000 in consideration for the early termination of the
agreement.

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While we anticipate that our cash from
operations, along with the short-term use of the revolving
credit facility will be sufficient to meet our internal
operating requirements and growth plans for at least the next
12 months, we expect that additional funds may be required
in the future to successfully continue our growth beyond such
period. We may be required to raise additional funds through
sales of equity or debt securities or seek additional financing
from financial institutions. There can be no assurance, however,
that financing will be available on terms that are favorable to
us or, if obtained, will be sufficient for our needs.

Impact of Recently Issued Accounting
Standards

In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards
No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets.Under the new
rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their
useful lives.

The Company will apply the new rules on business
combinations and accounting for goodwill and other intangible
assets beginning in the first quarter of fiscal year 2002.
Application of the non-amortization provisions of the Statement
is expected to result in an increase in net income of
approximately $1,763,000 ($.06 diluted earnings per share) in
fiscal year 2002. The Company will also perform the first of the
required impairment tests of goodwill and indefinite lived
intangible assets as of July 1, 2001. The Company does not
expect these impairment tests to have a material impact on the
earnings and financial position of the Company.

Impact of Inflation

Changes in prices charged by the
biopharmaceutical manufacturers for the drugs we dispense, along
with increasing labor costs, freight and supply costs and other
overhead expenses, affect our cost of services and general and
administrative expenses. Historically, we have been able to pass
all, or a portion, of the effect of such increases to the
biopharmaceutical manufacturers pursuant to negotiated
adjustments made under our preferred distribution agreements. As
a result, changes due to inflation have not had significant
adverse effects on our operations.

Forward Looking Information

Certain of the matters discussed in the preceding
pages of this Form 10-K, particularly regarding
implementation of our strategy, development of new drugs by the
pharmaceutical and biotechnology industries, anticipated growth
and revenues, anticipated working capital and sources of funding
for growth opportunities, expenditures, interest, costs and
income constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended (See Item 1  Risk
Factors).




Item 7A.     Quantitative
and Qualitative Disclosures about Market Risk

Our exposure to the impact of financial market
risk is currently not significant. Our primary financial market
risk exposure consists of interest rate risk related to interest
income from our short term investments in money market and high
quality short term debt securities with maturities of twelve
months or less that we intend to hold to maturity. We have
invested and expect to continue to invest a substantial portion
of our excess cash in such securities. Generally, if the overall
average return on such securities had decreased 10% from the
average return during the twelve months ended June 30,
2001, then our interest income would have decreased, and pre-tax
income would have decreased approximately $324,000 during the
period. This amount was determined by considering the impact of
a hypothetical change in interest rates on our interest income.
Actual changes in rates may differ from the hypothetical
assumptions used in computing this exposure.

In prior periods, we have used derivative
financial instruments to manage our exposure to rising interest
rates on our variable-rate debt, primarily by entering into
variable-to-fixed interest rate swap agreements. Since we
currently do not have an outstanding balance on our revolving
line of credit nor any outstanding

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interest rate swap agreements, we do not have an
exposure to financial market risk associated with our revolving
line of credit or any derivative financial instruments.





Item 8.     Financial
Statements and Supplementary Data

The Consolidated Financial Statements and
financial statement schedule in Part IV, Item 14(a)
(1) and (2) of the report are incorporated by
reference into this Item 8.






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

None.

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PART III




Item 10.     Directors
and Executive Officers of the Company

The information required by this item will appear
in, and is incorporated by reference from, the sections entitled
Proposals for Stockholder Action  Election of
Directors, Section 16(a) Beneficial Ownership
Reporting Compliance, Management and
Compensation Committee Interlocks and Insider
Participation included in the Companys definitive
Proxy Statement relating to the 2001 Annual Meeting of
Stockholders.




Item 11.     Executive
Compensation

The information required by this item will appear
in the section entitled Executive Compensation
included in the Companys definitive Proxy Statement
relating to the 2001 Annual Meeting of Stockholders, which
information, other than the Compensation Committee Report and
Performance Graph required by Items 402(k) and (l) of
Regulation S-K, is incorporated herein by reference.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by this item will appear
in, and is incorporated by reference from, the section entitled
Security Ownership of Directors, Officers and Principal
Stockholders included in the Companys definitive
Proxy Statement relating to the 2001 Annual Meeting of
Stockholders.




Item 13.     Certain
Relationships and Related Transactions

The information required by this item will appear
in, and is incorporated by reference from, the sections entitled
Compensation Committee Interlocks and Insider
Participation and Certain Relationships and Related
Transactions included in the Companys definitive
Proxy Statement relating to the 2001 Annual Meeting of
Stockholders.

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PART IV




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

(a) Documents filed as part of this Report:

|    |  |                                                                                                                                                                                                                                           |  |     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|    |  |                                                                                                                                                                                                                                           |  | Page
|    |  |                                                                                                                                                                                                                                           |  |     
|(1) |  | Financial Statements: Report of Independent
	Auditors                                                                                                                                                                                     |  | F-1 
|    |  | Consolidated Balance Sheets at June 30, 2000
	and 2001                                                                                                                                                                                    |  | F-2 
|    |  | Consolidated Statements of Income for the years
	ended June 30, 1999, 2000, and 2001                                                                                                                                                      |  | F-3 
|    |  | Consolidated Statements of Stockholders
	Equity and Mandatorily Redeemable Cumulative Preferred Stock for
	the years ended June 30, 1999, 2000, and 2001                                                                                 |  | F-4 
|    |  | Consolidated Statements of Cash Flows for the
	years ended June 30, 1999, 2000, and 2001                                                                                                                                                  |  | F-5 
|    |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                |  | F-6 
|(2) |  | Financial Statement Schedules:                                                                                                                                                                                                            |  |     
|    |  | Schedule II  Valuation and
	Qualifying Accounts                                                                                                                                                                                          |  | F-20
|    |  | All other schedules for which provision is made
	in the applicable accounting regulation of the Securities and
	Exchange Commission are not required under the related
	instructions or are inapplicable and therefore have been omitted. |  |     
|(3) |  | The Index of Exhibits required by Item 601
	of Regulation S-K included herewith, is incorporated herein by
	reference.                                                                                                                    |  |     

(b) We filed a report on Form 8-K on
June 15, 2001 to report our acquisition of Pharmacare
Resources, Inc. and its affiliate NCL Management, Inc.

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REPORT OF INDEPENDENT AUDITORS

Board of Directors

Accredo Health, Incorporated


We have audited the accompanying consolidated
balance sheets of Accredo Health, Incorporated (the
Company) as of June 30, 2000 and 2001, and the
related consolidated statements of income, stockholders
equity and mandatorily redeemable cumulative preferred stock,
and cash flows for each of the three years in the period ended
June 30, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(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
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Accredo Health, Incorporated
at June 30, 2000 and 2001, and the results of its
operations and its cash flows for each of the three years in the
period ended June 30, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Memphis, Tennessee

August 7, 2001


F-1



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

CONSOLIDATED BALANCE SHEETS

(000s omitted, except share
data)


|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |         |         |         | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------ | ------ | ------ | ------- | ------ | ------- | ------- | ------- | 
|                                                |                                                                                                                                              |                                
|                                                |                                                                                                                                              | June 30,                       
|                                                |                                                                                                                                              |                                
|                                                |                                                                                                                                              | 2000                            |                                            | 2001  
|                                                |                                                                                                                                              |                                 |                                            |       
|ASSETS                                         
|Current assets:                                 |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                | Cash and cash equivalents                                                                                                                    |                                 | $                                          | 10,204 |        |         | $      | 54,520  |        
|                                                | Marketable securities                                                                                                                        |                                 |                                            |       |        |         |        | 2,000   |        
|                                                | Receivables:                                                                                                                                 |                                 |                                            |        |        |         |        |         |        
|                                                |                                                                                                                                              | Patient accounts                |                                            |        | 76,812 |         |        |         | 87,760  |        
|                                                |                                                                                                                                              | Allowance for doubtful accounts |                                            |        | (8,395 | )       |        |         | (10,808 | )      
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                |                                                                                                                                              |                                 | 68,417                                     |        |        |         | 76,952 |        
|                                                |                                                                                                                                              | Due from affiliates             |                                            |        | 1,634  |         |        |         | 2,440   |        
|                                                |                                                                                                                                              | Other                           |                                            |        | 7,420  |         |        |         | 13,275  |        
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                |                                                                                                                                              |                                 | 77,471                                     |        |        |         | 92,667 |        
|                                                | Inventories                                                                                                                                  |                                 |                                            | 32,342 |        |         |        | 30,711  |        
|                                                | Prepaid expenses and other current assets                                                                                                    |                                 |                                            | 770    |        |         |        | 537     |        
|                                                | Deferred income taxes                                                                                                                        |                                 |                                            | 3,133  |        |         |        | 4,703   |        
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                |                                                                                                                                              |                                 | Total current assets                       |        |        | 123,920 |        |         |         | 185,138 | 
|Property and equipment, net                     |                                                                                                                                              |                                 | 6,992                                      |        |        |         | 8,195  |        
|Other assets:                                   |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                | Joint venture investments                                                                                                                    |                                 |                                            | 2,056  |        |         |        | 2,809   |        
|                                                | Goodwill, net                                                                                                                                |                                 |                                            | 69,053 |        |         |        | 89,359  |        
|                                                | Other intangible assets, net                                                                                                                 |                                 |                                            | 3,208  |        |         |        | 3,743   |        
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                |                                                                                                                                              |                                 | Total assets                               |        | $      | 205,229 |        |         | $       | 289,244 | 
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|LIABILITIES AND STOCKHOLDERS
	EQUITY          
|Current liabilities:                            |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                | Accounts payable                                                                                                                             |                                 | $                                          | 79,677 |        |         | $      | 88,611  |        
|                                                | Accrued expenses                                                                                                                             |                                 |                                            | 7,115  |        |         |        | 7,168   |        
|                                                | Income taxes payable                                                                                                                         |                                 |                                            | 1,289  |        |         |        | 1,071   |        
|                                                | Line of credit                                                                                                                               |                                 |                                            | 200    |        |         |        |        |        
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                |                                                                                                                                              |                                 | Total current liabilities                  |        |        | 88,281  |        |         |         | 96,850  | 
|Long-term notes payable                         |                                                                                                                                              |                                 | 37,000                                     |        |        |         |       |        
|Deferred income taxes                           |                                                                                                                                              |                                 | 1,355                                      |        |        |         | 2,122  |        
|Minority interest in consolidated joint venture |                                                                                                                                              |                                 | 1,049                                      |        |        |         | 1,102  |        
|Stockholders equity:                           |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                | Undesignated preferred stock, 5,000,000 shares
	authorized, no shares issued                                                                 |                                 |                                            |       |        |         |        |        |        
|                                                | Common stock, $.01 par value; 50,000,000 shares
	authorized; 21,160,452 shares in 2000 and 25,954,232 shares in
	2001 issued and outstanding |                                 |                                            | 211    |        |         |        | 259     |        
|                                                | Additional paid-in capital                                                                                                                   |                                 |                                            | 66,768 |        |         |        | 161,091 |        
|                                                | Retained earnings                                                                                                                            |                                 |                                            | 10,565 |        |         |        | 27,820  |        
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                |                                                                                                                                              |                                 | Total stockholders equity                 |        |        | 77,544  |        |         |         | 189,170 | 
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        
|                                                |                                                                                                                                              |                                 | Total liabilities and stockholders equity |        | $      | 205,229 |        |         | $       | 289,244 | 
|                                                |                                                                                                                                              |                                 |                                            |        |        |         |        |        

See accompanying notes.

F-2



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

(000s omitted, except share
data)


|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |         |         | 
|------------------------------------------------------------------------------------------------------------- | -------------------------------------- | --------------------------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                                                              |                                        |                                  
|                                                                                                              |                                        | Years Ended June 30,             
|                                                                                                              |                                        |                                  
|                                                                                                              |                                        | 1999                              |        | 2000    |         | 2001
|                                                                                                              |                                        |                                   |        |         |         |     
|Revenues:                                                                                                     |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              | Net patient revenue                    |                                   | $      | 244,158 |         |      | $      | 335,601 |         |   | $      | 446,007 |        
|                                                                                                              | Other revenue                          |                                   |        | 12,277  |         |      |        | 15,432  |         |   |        | 14,985  |        
|                                                                                                              | Equity in net income of joint ventures |                                   |        | 1,919   |         |      |        | 2,002   |         |   |        | 1,148   |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              |                                        | Total revenues                    |        |         | 258,354 |      |        |         | 353,035 |   |        |         | 462,140 | 
|Operating expenses:                                                                                           |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              | Cost of sales                          |                                   |        | 220,517 |         |      |        | 300,973 |         |   |        | 395,365 |        
|                                                                                                              | General and administrative             |                                   |        | 17,637  |         |      |        | 23,831  |         |   |        | 29,871  |        
|                                                                                                              | Bad debts                              |                                   |        | 4,739   |         |      |        | 6,117   |         |   |        | 6,131   |        
|                                                                                                              | Depreciation                           |                                   |        | 614     |         |      |        | 1,094   |         |   |        | 1,509   |        
|                                                                                                              | Amortization                           |                                   |        | 3,297   |         |      |        | 2,303   |         |   |        | 2,754   |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              |                                        | Total operating expenses          |        |         | 246,804 |      |        |         | 334,318 |   |        |         | 435,630 | 
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Operating income                                                                                              |                                        |                                   | 11,550 |         |         |      | 18,717 |         |         |   | 26,510 |        
|Other income (expense):                                                                                       |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              | Interest expense                       |                                   |        | (3,346  | )       |      |        | (2,459  | )       |   |        | (467    | )      
|                                                                                                              | Interest income                        |                                   |        | 181     |         |      |        | 323     |         |   |        | 3,237   |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              |                                        |                                   | (3,165 | )       |         |      | (2,136 | )       |         |   | 2,770  |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Income before minority interest in income of
	consolidated joint venture, income taxes and extraordinary item |                                        |                                   | 8,385  |         |         |      | 16,581 |         |         |   | 29,280 |        
|Minority interest in income of consolidated joint
	venture                                                    |                                        |                                   |       |         |         |      | (177   | )       |         |   | (692   | )      
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Income before income taxes and extraordinary item                                                             |                                        |                                   | 8,385  |         |         |      | 16,404 |         |         |   | 28,588 |        
|Income tax expense                                                                                            |                                        |                                   | 4,003  |         |         |      | 6,508  |         |         |   | 11,333 |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Income before extraordinary item                                                                              |                                        |                                   | 4,382  |         |         |      | 9,896  |         |         |   | 17,255 |        
|Extraordinary charge for early extinguishment of
	debt, net of income tax benefit                             |                                        |                                   | (1,254 | )       |         |      |       |         |         |   |       |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              |                                        | Net income                        |        |         | 3,128   |      |        |         | 9,896   |   |        |         | 17,255  | 
|Mandatorily redeemable cumulative preferred stock
	dividends                                                  |                                        |                                   | (1,617 | )       |         |      |       |         |         |   |       |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Net income to common stockholders                                                                             |                                        | $                                 | 1,511  |         |         | $    | 9,896  |         |         | $ | 17,255 |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Basic earnings per common share:                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Income before extraordinary item                                                                              |                                        | $                                 | 0.31   |         |         | $    | 0.48   |         |         | $ | 0.69   |        
|Extraordinary charge                                                                                          |                                        |                                   | (0.09  | )       |         |      |       |         |         |   |       |        
|Preferred stock dividends                                                                                     |                                        |                                   | (0.11  | )       |         |      |       |         |         |   |       |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              |                                        | Net income to common stockholders |        | $       | 0.11    |      |        | $       | 0.48    |   |        | $       | 0.69    | 
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Diluted earnings per common share:                                                                            |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|Income before extraordinary item                                                                              |                                        | $                                 | 0.28   |         |         | $    | 0.45   |         |         | $ | 0.66   |        
|Extraordinary charge                                                                                          |                                        |                                   | (0.08  | )       |         |      |       |         |         |   |       |        
|Preferred stock dividends                                                                                     |                                        |                                   | (0.10  | )       |         |      |       |         |         |   |       |        
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        
|                                                                                                              |                                        | Net income to common stockholders |        | $       | 0.10    |      |        | $       | 0.45    |   |        | $       | 0.66    | 
|                                                                                                              |                                        |                                   |        |         |         |      |        |         |         |   |        |        

See accompanying notes.

F-3



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED

Consolidated Statements of Stockholders
Equity and

Mandatorily Redeemable Cumulative Preferred
Stock


(000s omitted, except share
data)


|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         |        |        |   |        |        |   |   |         |        |        |   |        |         |   | 
|------------------------ | -------------------------------------------------------------------------- | ---------------------------- | ---------- | --------- | --------- | ---------- | --- | ------------ | -- | ---------- | --- | --------- | - | ------------- | ---- | ----------- | - | - | ------- | ------ | ------ | - | ------ | ------ | - | - | ------- | ------ | ------ | - | ------ | ------- | - | 
|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      | Mandatorily
|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      | Redeemable 
|                         |                                                                            | Common                       |            |           |           | Common     |     |              |    | Additional |     | Retained  |   | Total         |      | Cumulative 
|                         |                                                                            | Stock                        |            | Common    |           | Stock      |     | Subscription |    | Paid-In    |     | Earnings  |   | Stockholders |      | Preferred  
|                         |                                                                            | Shares                       |            | Stock     |           | Subscribed |     | Receivable   |    | Capital    |     | (Deficit) |   | Equity        |      | Stock      
|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |            
|Balance at June 30, 1998 |                                                                            |                              | 12,578,822 |           |           | $          | 126 |              |    | $          | 204 |           |   | $             | (204 | )           |   | $ | 13,969  |        |        | $ | (1,294 | )      |   | $ | 12,801  |        |        | $ | 29,792 |        
|                         | Issuance of common stock                                                   |                              |            | 7,844,625 |           |            |     | 78           |    |            |     | (204      | ) |               |      | 204         |   |   |         | 51,470 |        |   |        |       |   |   |         | 51,548 |        |   |        |        |  
|                         | Costs related to public offering                                           |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         | (1,849 | )      |   |        |       |   |   |         | (1,849 | )      |   |        |        |  
|                         | Accrued dividends on mandatorily redeemable
	cumulative preferred stock    |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         | (452   | )      |   |        | (1,165 | ) |   |         | (1,617 | )      |   |        | 1,617   |  
|                         | Redemption of mandatorily redeemable cumulative
	preferred stock           |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         |       |        |   |        |       |   |   |         |       |        |   |        | (31,409 | )
|                         | Compensation resulting from stock transactions,
	net of income tax benefit |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         | 116    |        |   |        |       |   |   |         | 116    |        |   |        |        |  
|                         | Net income                                                                 |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         |       |        |   |        | 3,128  |   |   |         | 3,128  |        |   |        |        |  
|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         |        |        |   |        |        |   |   |         |        |        |   |        |        
|Balance at June 30, 1999 |                                                                            |                              | 20,423,447 |           |           |            | 204 |              |    |            |    |           |   |               |     |             |   |   | 63,254  |        |        |   | 669    |        |   |   | 64,127  |        |        |   |       |        
|                         | Issuance of common stock:                                                  |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         |        |        |   |        |        |   |   |         |        |        |   |        |         |  
|                         |                                                                            | Exercise of stock options    |            |           | 630,721   |            |     |              | 6  |            |     |           |  |               |      |             |  |   |         |        | 1,093  |   |        |        |  |   |         |        | 1,099  |   |        |         |  | 
|                         |                                                                            | Employee stock purchase plan |            |           | 106,284   |            |     |              | 1  |            |     |           |  |               |      |             |  |   |         |        | 769    |   |        |        |  |   |         |        | 770    |   |        |         |  | 
|                         | Tax benefit of disqualifying dispositions of
	stock options                |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         | 1,536  |        |   |        |       |   |   |         | 1,536  |        |   |        |        |  
|                         | Compensation resulting from stock transactions,
	net of income tax benefit |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         | 116    |        |   |        |       |   |   |         | 116    |        |   |        |        |  
|                         | Net income                                                                 |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         |       |        |   |        | 9,896  |   |   |         | 9,896  |        |   |        |        |  
|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         |        |        |   |        |        |   |   |         |        |        |   |        |        
|Balance at June 30, 2000 |                                                                            |                              | 21,160,452 |           |           |            | 211 |              |    |            |    |           |   |               |     |             |   |   | 66,768  |        |        |   | 10,565 |        |   |   | 77,544  |        |        |   |       |        
|                         | Issuance of common stock:                                                  |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         |        |        |   |        |        |   |   |         |        |        |   |        |         |  
|                         |                                                                            | Public offering              |            |           | 4,140,000 |            |     |              | 41 |            |     |           |  |               |      |             |  |   |         |        | 88,886 |   |        |        |  |   |         |        | 88,927 |   |        |         |   | 
|                         |                                                                            | Exercise of stock options    |            |           | 625,059   |            |     |              | 6  |            |     |           |  |               |      |             |  |   |         |        | 2,436  |   |        |        |  |   |         |        | 2,442  |   |        |         |  | 
|                         |                                                                            | Employee stock purchase plan |            |           | 28,721    |            |     |              | 1  |            |     |           |  |               |      |             |  |   |         |        | 651    |   |        |        |  |   |         |        | 652    |   |        |         |  | 
|                         | Costs related to public offering                                           |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         | (605   | )      |   |        |        |   |   |         | (605   | )      |   |        |         |  
|                         | Tax benefit of disqualifying dispositions of
	stock options                |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         | 2,839  |        |   |        |       |   |   |         | 2,839  |        |   |        |        |  
|                         | Compensation resulting from stock transactions,
	net of income tax benefit |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         | 116    |        |   |        |       |   |   |         | 116    |        |   |        |        |  
|                         | Net income                                                                 |                              |            |          |           |            |     |             |    |            |     |          |   |               |      |            |   |   |         |       |        |   |        | 17,255 |   |   |         | 17,255 |        |   |        |        |  
|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         |        |        |   |        |        |   |   |         |        |        |   |        |        
|Balance at June 30, 2001 |                                                                            |                              | 25,954,232 |           |           | $          | 259 |              |    | $          |    |           |   | $             |     |             |   | $ | 161,091 |        |        | $ | 27,820 |        |   | $ | 189,170 |        |        | $ |       |        
|                         |                                                                            |                              |            |           |           |            |     |              |    |            |     |           |   |               |      |             |   |   |         |        |        |   |        |        |   |   |         |        |        |   |        |        

See accompanying notes.

F-4



---



##### Table of Contents



ACCREDO HEALTH, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(000s omitted)


|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |         |  
|--------------------------------------------------------------------------------------- | ---------------------------------------------------------- | -------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                        |                                                            |                     
|                                                                                        |                                                            | Years Ended June 30,
|                                                                                        |                                                            |                     
|                                                                                        |                                                            | 1999                 |         | 2000    |   | 2001
|                                                                                        |                                                            |                      |         |         |   |     
|Operating activities:                                                                   |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Net income                                                                              |                                                            | $                    | 3,128   |         |   | $    | 9,896   |         |   | $ | 17,255  |        
|Adjustments to reconcile net income to net cash
	provided by operating activities:      |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|                                                                                        | Depreciation and amortization                              |                      |         | 3,911   |   |      |         | 3,397   |   |   |         | 4,263   |  
|                                                                                        | Original issue discount amortization                       |                      |         | 198     |   |      |         |        |   |   |         |        |  
|                                                                                        | Extraordinary charge for early retirement of debt          |                      |         | 2,000   |   |      |         |        |   |   |         |        |  
|                                                                                        | Provision for losses on accounts receivable                |                      |         | 4,739   |   |      |         | 6,117   |   |   |         | 6,131   |  
|                                                                                        | Deferred income taxes                                      |                      |         | (969    | ) |      |         | (1,158  | ) |   |         | (872    | )
|                                                                                        | Compensation resulting from stock transactions             |                      |         | 185     |   |      |         | 185     |   |   |         | 185     |  
|                                                                                        | Tax benefit of disqualifying disposition of stock
	options |                      |         |        |   |      |         | 1,536   |   |   |         | 2,840   |  
|                                                                                        | Minority interest in income of consolidated joint
	venture |                      |         |        |   |      |         | 177     |   |   |         | 692     |  
|Changes in operating assets and liabilities, net
	of effect from business acquisitions: |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|                                                                                        | Patient receivables and other                              |                      |         | (25,858 | ) |      |         | (13,419 | ) |   |         | (18,050 | )
|                                                                                        | Due from affiliates                                        |                      |         | (1,784  | ) |      |         | (990    | ) |   |         | (806    | )
|                                                                                        | Inventories                                                |                      |         | (7,796  | ) |      |         | (11,950 | ) |   |         | 2,192   |  
|                                                                                        | Prepaid expenses and other current assets                  |                      |         | (49     | ) |      |         | (406    | ) |   |         | 115     |  
|                                                                                        | Recoverable income taxes                                   |                      |         | 151     |   |      |         |        |   |   |         |        |  
|                                                                                        | Accounts payable and accrued expenses                      |                      |         | 25,891  |   |      |         | 23,618  |   |   |         | 9,439   |  
|                                                                                        | Income taxes payable                                       |                      |         | 393     |   |      |         | 896     |   |   |         | (218    | )
|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Net cash provided by operating activities                                               |                                                            |                      | 4,140   |         |   |      | 17,899  |         |   |   | 23,166  |        
|Investing activities:                                                                   |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Purchases of marketable securities                                                      |                                                            |                      |        |         |   |      |        |         |   |   | (13,500 | )      
|Proceeds from sales and maturities of marketable
	securities                            |                                                            |                      |        |         |   |      |        |         |   |   | 11,500  |        
|Purchases of property and equipment                                                     |                                                            |                      | (1,511  | )       |   |      | (4,452  | )       |   |   | (2,635  | )      
|Business acquisitions and joint venture
	investments                                    |                                                            |                      | (1,298  | )       |   |      | (24,480 | )       |   |   | (27,088 | )      
|Change in joint venture investments, net                                                |                                                            |                      | (1,489  | )       |   |      | (1,707  | )       |   |   | (1,343  | )      
|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Net cash used in investing activities                                                   |                                                            |                      | (4,298  | )       |   |      | (30,639 | )       |   |   | (33,066 | )      
|Financing activities:                                                                   |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Proceeds from (payment of) notes payable and line
	of credit                            |                                                            |                      | (18,116 | )       |   |      | 16,000  |         |   |   | (37,200 | )      
|Redemption of preferred stock                                                           |                                                            |                      | (31,409 | )       |   |      |        |         |   |   |        |        
|Capitalized loan fees                                                                   |                                                            |                      | (27     | )       |   |      |        |         |   |   |        |        
|Issuance of common stock                                                                |                                                            |                      | 51,547  |         |   |      | 1,869   |         |   |   | 92,021  |        
|Payment of costs related to public offering                                             |                                                            |                      | (1,382  | )       |   |      | (467    | )       |   |   | (605    | )      
|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Net cash provided by financing activities                                               |                                                            |                      | 613     |         |   |      | 17,402  |         |   |   | 54,216  |        
|Increase in cash and cash equivalents                                                   |                                                            |                      | 455     |         |   |      | 4,662   |         |   |   | 44,316  |        
|Cash and cash equivalents at beginning of year                                          |                                                            |                      | 5,087   |         |   |      | 5,542   |         |   |   | 10,204  |        
|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Cash and cash equivalents at end of year                                                |                                                            | $                    | 5,542   |         |   | $    | 10,204  |         |   | $ | 54,520  |        
|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Supplementary cash flow disclosures:                                                    |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Income taxes paid                                                                       |                                                            | $                    | 3,731   |         |   | $    | 5,235   |         |   | $ | 9,593   |        
|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |        
|Interest paid                                                                           |                                                            | $                    | 3,836   |         |   | $    | 2,529   |         |   | $ | 555     |        
|                                                                                        |                                                            |                      |         |         |   |      |         |         |   |   |         |        

See accompanying notes.

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##### Table of Contents



ACCREDO HEALTH, INCORPORATED






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


1. Description of Business

The consolidated financial statements and related
notes to the consolidated financial statements include the
accounts of Accredo Health, Incorporated (the Company), its
wholly-owned subsidiaries and its 80% owned joint venture.
Significant intercompany accounts have been eliminated in
consolidation.

The Company provides specialized contract
pharmacy and related services pursuant to agreements with
biotechnology drug manufacturers relating to the treatment of
patients with certain costly chronic diseases. Because of the
unique needs of patients suffering from chronic diseases,
biotechnology drug manufacturers have recognized the benefits of
customized programs to facilitate alternate site drug
administration, ensure compliance with treatment regimens,
provide reimbursement assistance and capture valuable clinical
and patient demographic information. The Company addresses the
needs of the manufacturers by providing specialized services
that facilitate product launch and patient acceptance including
the collection of timely drug utilization and patient compliance
information, patient education and monitoring through the use of
written materials and telephonic consultation, reimbursement
expertise and overnight drug delivery.

The Company has designed its specialty services
to focus primarily on biotechnology drugs that: (i) are
used on a recurring basis to treat chronic, and potentially life
threatening diseases; (ii) are expensive; (iii) are
administered through injection; and (iv) require
temperature control or other specialized handling as part of
their distribution process. Currently, the Company provides
specialized contract pharmacy and related services that address
the needs of patients with the following diseases: Multiple
Sclerosis, Gaucher Disease, hemophilia, growth hormone related
disorders, primary immune deficiencies, auto-immune disorders,
Crohns Disease, rheumatoid arthritis, and respiratory
syncytial virus.

2. Significant Accounting
Policies

Cash Equivalents

The Company considers all highly liquid
investments with an initial maturity of three months or less to
be cash equivalents.

Marketable Securities

The Company has classified all of its investments
in marketable securities as held-to-maturity. Debt securities
are classified as held-to-maturity when there is the positive
intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost,
adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization and accretion and the interest
earned on the securities are included in interest income.
Investments with an original maturity of less than three months
are included in cash equivalents.

Concentrations of Risks

The Companys primary concentration of
credit risk is patient accounts receivable, which consists of
amounts owed by various governmental agencies, insurance
companies and private patients. The Company manages the
receivables by regularly reviewing its accounts and contracts
and by providing appropriate allowances for uncollectible
amounts. Significant concentrations of gross patient accounts
receivable consist of the following at June 30:

|         |  |      |    |      |  |  |    |  
|-------- |  | ---- | -- | ---- |  |  | -- | -
|         |  | 2000 |    | 2001
|         |  |      |    |     
|Medicare |  |      | 2  | %    |  |  | 2  | %
|Medicaid |  |      | 25 | %    |  |  | 21 | %

F-6



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Concentration of credit risk relating to accounts
receivable is limited to some extent by the diversity and number
of patients and payors and the geographic dispersion of the
Companys operations. The Company grants credit without
collateral to its patients and payors.

The Company derives a substantial portion of its
revenue from the sale of drugs provided by a limited number of
biopharmaceutical suppliers. The table below shows the
concentration of the Companys revenue derived from the
sale of drugs provided by these suppliers for the years ended
June 30:

|          |  |      |    |      |  |      |    |   |  |  |    |  
|--------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|          |  | 1999 |    | 2000 |  | 2001
|          |  |      |    |      |  |     
|Biogen    |  |      | 31 | %    |  |      | 37 | % |  |  | 38 | %
|Genzyme   |  |      | 37 | %    |  |      | 30 | % |  |  | 23 | %
|MedImmune |  |      | 1  | %    |  |      | 1  | % |  |  | 6  | %
|Genentech |  |      | 4  | %    |  |      | 4  | % |  |  | 5  | %

The Company derived approximately 15% of its
revenue from a single non-governmental payor for the year ended
June 30, 2001.

Cash, cash equivalents and marketable securities
are placed with major high credit quality financial institutions
and issuers. Management believes that there is minimal credit
risk associated with these financial institutions and issuers.

Inventories

Inventories are stated at the lower of cost,
determined by the first-in, first-out method, or market.

Fair Value of Financial Instruments

The carrying value of accounts receivable,
accounts payable and notes payable approximates fair value of
these financial instruments at June 30, 2000 and 2001.

Property and Equipment

Property and equipment is stated at cost.
Provisions for depreciation are computed primarily by the
straight-line method based on the estimated useful lives of the
related assets of 2 to 7 years.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of
businesses acquired over fair value of net tangible and
identifiable intangible assets at the date of acquisition. Other
intangible assets consist primarily of non-compete agreements
and acquired patient relationships in connection with business
acquisitions. These assets are being amortized using the
straight-line method over their estimated useful lives of
40 years for goodwill, 3 to 10 years for the
non-compete agreements, 4 to 8 years for acquired patient
relationships, and 5 to 10 years for other intangible
assets. Goodwill and other intangible assets consist of the
following at June 30 (in thousands):

|                         |  |      |        |      |  |   |        |  
|------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                         |  | 2000 |        | 2001
|                         |  |      |        |     
|Goodwill                 |  | $    | 74,096 |      |  | $ | 96,356 |  
|Accumulated amortization |  |      | (5,043 | )    |  |   | (6,997 | )
|                         |  |      |        |      |  |   |        |  
|                         |  | $    | 69,053 |      |  | $ | 89,359 |  
|                         |  |      |        |      |  |   |        |  
|Other intangible assets  |  | $    | 5,028  |      |  | $ | 6,363  |  
|Accumulated amortization |  |      | (1,820 | )    |  |   | (2,620 | )
|                         |  |      |        |      |  |   |        |  
|                         |  | $    | 3,208  |      |  | $ | 3,743  |  
|                         |  |      |        |      |  |   |        |  

F-7



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Valuation of Long-Lived Assets

Management periodically evaluates carrying values
of long-lived assets, including property and equipment,
strategic investments, goodwill and other intangible assets, to
determine whether events and circumstances indicate that these
assets have been impaired. An asset is considered impaired when
undiscounted cash flows to be realized from such asset are less
than its carrying value. In that event, a loss is determined
based on the amount the carrying value exceeds the fair market
value of such asset.

Stock-Based Compensation

The Company recognizes stock-based compensation
using the intrinsic value method as permitted by Financial
Accounting Standards Board Statement (FASB) No. 123,
Accounting for Stock-Based Compensation(Statement 123). Accordingly, no compensation expense
is recorded for employee stock-based awards issued at market
value at the date such awards are granted. For employee
stock-based awards issued below market value at the date such
awards are granted, the intrinsic value of the options is
amortized over the vesting period.

Revenue Recognition

Net patient revenues are from the sale of
biopharmaceutical drugs to patients and are reported at the net
amount billed to patients, third-party payors and others in the
period the products are delivered. The Company has agreements
with certain third-party payors that provide for payments to the
Company at amounts discounted from its established rates.

Approximately 18%, 18% and 19% of gross patient
revenues for the years ended June 30, 1999, 2000 and 2001,
respectively, is from participation in the Medicare and
state-sponsored Medicaid programs.

The Company from time to time enters into
management contracts with Hemophilia Treatment Centers, Medical
Centers and Joint Ventures in which the Company has an interest.
Pursuant to these contracts, the Company will provide certain
billing, pharmacy dispensing, inventory management, shipping,
reimbursement, collection and other management services in
exchange for fees that range from a reimbursement of the
Companys costs to a percentage of the managed entities
billed charges, less contractual allowances. These agreements
are for terms of up to five years and are usually cancelable on
short notice. Revenue from the management contracts is
recognized when the services are rendered and is included in
other revenue.

Shipping and Handling Costs

Shipping and handling costs are included in cost
of services.

Interest Rate Swap Agreements

The Company enters into interest rate swap
agreements as a means of managing its interest rate exposure.
The differential to be paid or received is recognized over the
life of the agreement as an adjustment to interest expense.

Earnings Per Share

The Company presents earnings per share in
accordance with FASB Statement No. 128, Earnings Per
Share. All per share amounts have been calculated using the
weighted average number of shares outstanding during each
period. Diluted earnings per share are adjusted for the impact
of common stock equivalents using the treasury stock method when
the effect is dilutive.

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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Use of Estimates

The preparation of the consolidated 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 consolidated financial statements and accompanying notes.
Actual results could differ from those estimates. Estimates are
used primarily in recording the allowance for doubtful accounts.

Risk Management

During 1999, the Company adopted a self-insured
medical and dental plan for employees. Claims are accrued under
these plans as the incidents that give rise to them occur.
Unpaid claim accruals are based on the estimated ultimate cost
of settlement, including claim settlement expenses. The Company
has entered into a reinsurance agreement with an independent
insurance company to limit its losses on claims. Under the terms
of this agreement, the insurance company will reimburse the
Company for individual claims generally in excess of $50,000 and
when total claims exceed an aggregate amount based on the number
of covered lives. These reimbursements are included in general
and administrative expense in the accompanying consolidated
statements of income.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards
No. 141, Business Combinations, and No. 142, Goodwill
and Other Intangible Assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will
continue to be amortized over their estimated useful lives.

The Company will apply the new rules on business
combinations and accounting for goodwill and other intangible
assets beginning in the first quarter of fiscal year 2002.
Application of the non-amortization provisions of the Statement
is expected to result in an increase in net income of
approximately $1,763,000 ($.06 diluted earnings per share) in
fiscal year 2002. The Company will also perform the first of the
required impairment tests of goodwill and indefinite lived
intangible assets as of July 1, 2001. The Company does not
expect these impairment tests to have a material impact on the
earnings and financial position of the Company.

3. Business Acquisitions

On October 20, 1999, the Company acquired
the majority of the operating assets of the specialty pharmacy
businesses operated by certain affiliates of Home Medical of
America, Inc. (HMA), a company engaged in the sale
and distribution of blood clotting factors and growth hormone
products. This transaction was accounted for using the purchase
method of accounting. The price paid by the Company for this
acquisition was $7,765,000. The Company also paid an additional
$482,000 for a related earn-out payment based upon the
achievement of certain revenue goals in the six-month period
ended April 30, 2000, resulting in a total purchase price
of $8,247,000. The total value of tangible assets acquired was
$234,000 and no indebtedness was assumed. The excess of the
total purchase price, including acquisition costs of $91,000,
over the fair value of the tangible assets acquired was
allocated as follows: $7,663,000 to goodwill, $300,000 to
acquired patient relationships and $50,000 to other intangible
assets. The Company also paid $500,000 as consideration for an
agreement from HMA and certain of its other affiliates not to
compete for a period of five years.

The Company acquired all of the outstanding stock
of Sunrise Health Management, Inc. (Sunrise) from
its shareholders effective December 1, 1999. Sunrise is
headquartered in Norcross, Georgia and is a provider of
pharmaceutical care for certain chronic, long-term patient
populations, including those requiring

F-9



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

intravenous immunoglobulin (IVIG),
clotting factor and growth hormone. This transaction was
accounted for using the purchase method of accounting. The price
paid by the Company for this acquisition was $13,724,000. The
Company also paid an additional $1,000,000 for a related
earn-out payment based upon the achievement of certain financial
results for the six-month period ended May 31, 2000, resulting
in a total purchase price of $14,724,000. Total assets acquired
and liabilities assumed were $1,903,000 and $882,000,
respectively. The excess of the total purchase price, including
acquisition costs of $45,000, over the fair value of the net
assets acquired of $1,021,000 was allocated as follows:
$12,987,000 to goodwill, $646,000 to acquired patient
relationships and $70,000 to other intangible assets. The
Company also paid $500,000 as consideration for an agreement
with the selling shareholders and a prior officer of Sunrise not
to compete with the Company in certain product lines for a
period of ten years.

Effective April 1, 2000, the Company
acquired an additional 30% interest in one of its joint
ventures, Childrens Hemophilia Services, increasing its
ownership in the joint venture to 80%. Childrens Hemophilia
Services is located in Los Angeles, California and is a provider
of blood clotting factors and ancillary supplies to hemophilia
patients. This transaction was accounted for using the purchase
method of accounting. The price paid by the Company for this
acquisition was $2,086,000. Total assets acquired and
liabilities assumed were $1,788,000 and $479,000, respectively.
The excess of the purchase price over the fair value of the net
assets acquired of $1,309,000, which amounted to $777,000, was
allocated to goodwill. The Company also paid an additional
$417,000 for an earn-out payment based upon the achievement of
targeted earnings during the twelve-month period ended November
2000 as specified in the purchase agreement for the acquisition
of the original 50% interest. In addition, the Company will pay
up to an additional $417,000 in earn-out if targeted earnings
specified in the purchase agreement are achieved in the
twelve-month period ending November 2001.

The Company acquired all of the outstanding stock
of Pharmacare Resources, Inc. (Pharmacare) and its
sister company, NCL Management, Inc. from its shareholders
effective May 1, 2001. Pharmacare is headquartered in
Elmsford, New York and is a provider of pharmaceutical care for
certain chronic, long-term patient populations, including those
requiring intravenous immunoglobulin (IVIG). This
transaction was accounted for using the purchase method of
accounting. The price paid by the Company for this acquisition
was $25,074,000. In addition, the Company will make an earn-out
payment of up to $6,475,000 if Pharmacare achieves certain
financial results in the twelve-month period ended
December 31, 2001. Total assets acquired and liabilities
assumed were $3,659,000 and $1,030,000, respectively. The excess
of the total purchase price, including acquisition costs of
$63,000, over the fair value of the net assets acquired of
$2,629,000 was allocated as follows: $21,767,000 to goodwill,
$617,000 to acquired patient relationships and $61,000 to other
intangible assets. The Company also paid $500,000 as
consideration for an agreement with the selling shareholders not
to compete with the Company in certain product lines for a
period of six years.

Any additional earn-out payments made under these
purchase agreements will be treated as additional purchase cost
and added to goodwill.

The results of these acquisitions have been
included in the Companys results from their respective
dates of acquisition.

F-10



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The pro forma results of operations for the years
ended June 30, 1999, 2000 and 2001, as if the 1999 and 2000
acquisitions had occurred on July 1, 1998, and the 2001
acquisition had occurred on July 1, 1999, are as follows
(in thousands, except per share data):

|                                 |         |      |         |      |  |      |         |     |  |   |         |     | 
|-------------------------------- | ------- | ---- | ------- | ---- |  | ---- | ------- | --- |  | - | ------- | --- | 
|                                 |         | 1999 |         | 2000 |  | 2001
|                                 |         |      |         |      |  |     
|Total revenues                   |         | $    | 270,237 |      |  | $    | 372,191 |     |  | $ | 471,735 |    
|Income before extraordinary item |         |      | 5,187   |      |  |      | 11,450  |     |  |   | 17,461  |    
|Net income                       |         |      | 3,933   |      |  |      | 11,450  |     |  |   | 17,461  |    
|Net income per common share:     |         |      |         |      |  |      |         |     |  |   |         |    
|                                 | Basic   |      | $       | .28  |  |      | $       | .55 |  |   | $       | .70 | 
|                                 | Diluted |      | $       | .25  |  |      | $       | .52 |  |   | $       | .67 | 

4. Marketable Securities

At June 30, 2001, all of the Companys
investments in marketable securities were investment-grade
corporate debt instruments. The estimated fair value of the
marketable securities approximated the amortized cost, which
amounted to $16.5 million as of June 30, 2001 of which
$14.5 million were classified as cash equivalents. All of the
investments mature within one year from June 30, 2001.
There were no marketable securities at June 30, 2000.

5. Property and Equipment

Property and equipment consists of the following
at June 30 (in thousands):

|                         |  |      |        |      |  |   |        |  
|------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                         |  | 2000 |        | 2001
|                         |  |      |        |     
|Equipment                |  | $    | 4,638  |      |  | $ | 7,032  |  
|Furniture and fixtures   |  |      | 4,709  |      |  |   | 5,027  |  
|                         |  |      |        |      |  |   |        |  
|                         |  |      | 9,347  |      |  |   | 12,059 |  
|Accumulated depreciation |  |      | (2,355 | )    |  |   | (3,864 | )
|                         |  |      |        |      |  |   |        |  
|                         |  | $    | 6,992  |      |  | $ | 8,195  |  
|                         |  |      |        |      |  |   |        |  

6. Notes Payable

At June 30, 2001, the Company has a
revolving line of credit agreement for up to $60 million with
banks, which expires December 1, 2003. At June 30,
2001, the commitment under the line of credit agreement is
$30,000,000. The Company may increase the commitment to
$60,000,000 upon (i) 15 days written notice
(ii) the payment of an additional commitment fee and
(iii) delivery of a current compliance certificate
demonstrating no event of default exists and will not exist
following the increase in the commitment. Amounts outstanding
under the line of credit bear interest at varying rates based
upon a LIBOR or prime rate of interest at the periodic election
of the Company, plus a variable margin rate based on the
Companys debt to cash flow ratio as defined by the banks.
The combination of a variable rate margin and LIBOR base rate
resulted in an effective rate of 8.15% at June 30, 2000.
The line of credit is secured by substantially all assets of the
Company. The banks security interest in a portion of the
Companys inventory is subordinate to the liens on that
inventory under the terms of a security agreement between the
Company and one of its vendors. The same vendor has a security
interest in certain accounts receivable of the Company which is
subordinate to the rights of the banks. At June 30, 2000,
the balance outstanding under this line of credit was
$37,000,000. There were no borrowings at June 30, 2001.

The credit agreement contains financial covenants
which require the Company to maintain certain levels of net
worth, tangible net worth, working capital, debt to net worth
and liquidity ratios. The credit agreement also restricts
certain changes in management and ownership of the Company.

F-11



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company entered into an interest rate swap
agreement with a bank in October 1997 in order to fix a portion
of its interest rate exposure on this line of credit. The terms
of the agreement were revised and extended on January 21,
1999, and require the Company to pay a fixed interest rate of
5.5% on a $25 million notional amount and receive the 30-day
LIBOR rate in exchange. On August 21, 2000, the Company
surrendered the swap agreement and received $350,000 in
consideration for the early termination of the agreement.

During June 1997, the Company issued $10 million
in senior subordinated notes (the Notes) to certain stockholders
of the Company in connection with an acquisition. The Notes,
which were due June 1, 2004, had a stated interest rate of
10% and an effective rate of 16%. The Notes were unsecured.
Concurrently with the issuance of the Notes, the Company issued
400,000 shares of its common stock to the Note holders. The
excess of the fair market value of the 400,000 shares of common
stock issued over the purchase price of $4,000 was recorded as
an original issue discount. In accordance with the terms of the
Notes, the Company added $1,046,000 of accrued interest due
during 1998 to the unpaid principal balance of the Notes.

The note purchase agreement specified that if at
any time while the Notes were outstanding, the Company
consummated a public offering, or merged or consolidated, the
Company was required to use the net proceeds of such offering to
repay the principal amount of the Notes, plus accrued interest.

In connection with its initial public offering of
common stock in April 1999, the Company repaid in full all
principal and accrued interest on the Notes. As a result of this
repayment, the Company incurred an extraordinary charge related
to the early extinguishment of debt. This extraordinary charge
of $1,254,000, net of a $746,000 income tax benefit for the year
ended June 30, 1999, was due to unamortized original issue
discount remaining on the Notes on the repayment date.

7. Mandatorily Redeemable Cumulative
Preferred Stock

In connection with its formation, the Company
issued, at a $100 redemption amount, 255,361 shares of
Series A mandatorily redeemable preferred stock on
May 31, 1996, for a total of $25,536,100. The nonvoting
mandatorily redeemable cumulative preferred stock was entitled
to an $8 per share annual dividend.

In connection with its initial public offering of
common stock in April 1999, the Company redeemed all the
outstanding shares of the nonvoting Series A mandatorily
redeemable cumulative preferred stock (Series A) and all
accrued and unpaid dividends thereon.

8. Income Taxes

The liability method is used in accounting for
income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

F-12



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income tax expense (benefit) consists of the
following for the years ended June 30 (in thousands):

|          |         |      |       |       |   |      |        |        |   |   |        |        |  
|--------- | ------- | ---- | ----- | ----- | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|          |         | 1999 |       | 2000  |   | 2001
|          |         |      |       |       |   |     
|Current:  |         |      |       |       |   |      |        |        |   |   |        |       
|          | Federal |      | $     | 4,306 |   |      | $      | 6,634  |   |   | $      | 10,574 |  
|          | State   |      |       | 666   |   |      |        | 1,032  |   |   |        | 1,631  |  
|          |         |      |       |       |   |      |        |        |   |   |        |       
|          |         |      | 4,972 |       |   |      | 7,666  |        |   |   | 12,205 |       
|Deferred: |         |      |       |       |   |      |        |        |   |   |        |       
|          | Federal |      |       | (839  | ) |      |        | (1,004 | ) |   |        | (769   | )
|          | State   |      |       | (130  | ) |      |        | (154   | ) |   |        | (103   | )
|          |         |      |       |       |   |      |        |        |   |   |        |       
|          |         |      | (969  | )     |   |      | (1,158 | )      |   |   | (872   | )     
|          |         |      |       |       |   |      |        |        |   |   |        |       
|          |         | $    | 4,003 |       |   | $    | 6,508  |        |   | $ | 11,333 |       
|          |         |      |       |       |   |      |        |        |   |   |        |       

The provision for income taxes differed from the
amount computed by applying the statutory federal income tax
rates for the years ended June 30 due to the following (in
thousands):

|                                                             |  |      |       |      |  |      |       |  |  |   |        | 
|------------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | 
|                                                             |  | 1999 |       | 2000 |  | 2001
|                                                             |  |      |       |      |  |     
|Income tax expense at statutory rate                         |  | $    | 2,851 |      |  | $    | 5,619 |  |  | $ | 10,006 | 
|State income tax expense, net of federal income
	tax benefit |  |      | 354   |      |  |      | 577   |  |  |   | 992    | 
|Goodwill amortization                                        |  |      | 790   |      |  |      | 279   |  |  |   | 276    | 
|Other                                                        |  |      | 8     |      |  |      | 33    |  |  |   | 59     | 
|                                                             |  |      |       |      |  |      |       |  |  |   |        | 
|Income tax expense                                           |  | $    | 4,003 |      |  | $    | 6,508 |  |  | $ | 11,333 | 
|                                                             |  |      |       |      |  |      |       |  |  |   |        | 

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets and liabilities at
June 30 are as follows (in thousands):

|                          |                              |      |        |        |   |   |        |        |  
|------------------------- | ---------------------------- | ---- | ------ | ------ | - | - | ------ | ------ | -
|                          |                              | 2000 |        | 2001  
|                          |                              |      |        |       
|Deferred tax assets:      |                              |      |        |        |   |   |        |       
|                          | Accounts receivable reserves |      | $      | 2,605  |   |   | $      | 4,010  |  
|                          | Accrued expenses             |      |        | 378    |   |   |        | 545    |  
|                          | Joint venture investments    |      |        | 47     |   |   |        | 49     |  
|                          | Other                        |      |        | 103    |   |   |        | 99     |  
|                          |                              |      |        |        |   |   |        |       
|                          |                              |      | 3,133  |        |   |   | 4,703  |       
|Deferred tax liabilities: |                              |      |        |        |   |   |        |       
|                          | Property and equipment       |      |        | (303   | ) |   |        | (330   | )
|                          | Intangible assets            |      |        | (1,015 | ) |   |        | (1,628 | )
|                          | Joint venture investments    |      |        | (37    | ) |   |        | (164   | )
|                          |                              |      |        |        |   |   |        |       
|                          |                              |      | (1,355 | )      |   |   | (2,122 | )     
|                          |                              |      |        |        |   |   |        |       
|Net deferred tax assets   |                              | $    | 1,778  |        |   | $ | 2,581  |       
|                          |                              |      |        |        |   |   |        |       

Management has evaluated the need for a valuation
allowance for the deferred tax assets and believes it is more
likely than not that the assets will ultimately be realized
through future taxable income from operations.

F-13



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9. Commitments

The Company leases office space and equipment
under various operating leases. Rent expense for all operating
leases was approximately $985,000, $1,227,000 and $1,575,000 for
the years ended June 30, 1999, 2000 and 2001, respectively.

Future minimum payments, by year and in the
aggregate, under non-cancelable operating leases with initial
terms of one year or more consist of the following at
June 30, 2001 (in thousands):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2002       |  | $ | 1,968 | 
|2003       |  |   | 2,080 | 
|2004       |  |   | 1,734 | 
|2005       |  |   | 1,730 | 
|2006       |  |   | 1,449 | 
|Thereafter |  |   | 446   | 
|           |  |   |       | 
|           |  | $ | 9,407 | 
|           |  |   |       | 

In connection with the acquisition of Pharmacare
Resources, Inc. made during fiscal year 2001, the Company may be
obligated to make up to $6,475,000 in earn-out payments during
the next twelve months.

10. Investment in Joint
Ventures

Texas Health Pharmaceutical Resources, Teddy Bear
Home Care/ Drug Therapies, Childrens Memorial Home
Hemophilia Services, Childrens Home Services, Childrens Biotech
Pharmacy Services, Childrens National Hemophilia Care and
Specialized Pharmaceutical Services are partnerships in which
the Company has a 50% ownership interest. Campus Home Health
Care-Home Hemophilia is a limited liability company in which the
Company had a 25% ownership interest (this entity was dissolved
during the fiscal year ended June 30, 1999). The Company
uses the equity method of accounting for these joint ventures.
Amounts due from these joint ventures to the Company are
classified as due from affiliates in the accompanying
consolidated balance sheets. The portion of the Companys
retained earnings at June 30, 2000 and 2001 attributable to
undistributed earnings of these joint ventures is $1,385,000 and
$2,088,000, respectively.

On November 10, 1998, the Company acquired a
50% general partnership interest in Childrens Hemophilia
Services, a partnership established to engage in the sale and
distribution of blood clotting factors and ancillary supplies to
hemophilia patients, for an initial purchase price of $917,000.
The Company also paid an additional $417,000 for a related
earn-out payment based upon the achievement of targeted earnings
during the twelve-month period ended November 2000 as specified
in the purchase agreement. In addition, the Company will pay up
to an additional $417,000 in earn-out if targeted earnings
specified in the purchase agreement are achieved in the
twelve-month period ending November 2001. Effective
April 1, 2000, the Company acquired an additional 30%
interest in Childrens Hemophilia Services, increasing its
ownership in the joint venture to 80% (see Note 3).

On October 1, 1999, the Company entered into
a joint venture agreement with Childrens National Medical
Center in Washington, DC, to market, sell, provide and
distribute Synagis® and growth hormone and related services
and supplies. The term of the joint venture is for a period of
five years unless terminated at an earlier date pursuant to the
terms of the agreement. Both companies contributed $40,000 in
capital to the joint venture and will share equally in the
assets, liabilities, profits and losses. In conjunction with the
formation of this joint venture, the Company also entered into a
management, service and sales agreement with the joint venture,
whereby the Company will provide specialty pharmacy and
management services to the joint venture in exchange for a
management fee and the reimbursement of certain expenses.

F-14



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On January 1, 2000, the Company entered into
a joint venture agreement with Specialized Pharmaceutical
Services, Inc. (SPS) to market, sell, provide and
distribute intravenous immunoglobulin (IVIG)
products and related services and supplies in thirteen
northeastern and eastern states. The term of the joint venture
is for a period of six years unless terminated at an earlier
date pursuant to the terms of the agreement. The Company has
contributed $200,000 to this joint venture and has committed to
make an additional $300,000 capital contribution. The companies
will share equally in the assets, liabilities, profits and
losses of the joint venture. In conjunction with the formation
of this joint venture, the Company entered into management,
service and sales agreements with the joint venture, whereby the
Company will provide specialty pharmacy and management services
to the joint venture in exchange for a management fee and the
reimbursement of certain expenses. The Company will also sell
IVIG products to the joint venture.

On August 15, 2000, the Company entered into
a joint venture agreement with Childrens Hospital in
Washington, DC, to market, sell, provide and distribute
hemophilia clotting factor and related services and supplies.
The term of the joint venture is for a period of five years
unless terminated at an earlier date pursuant to the terms of
the agreement. Both companies contributed $50,000 in capital to
the joint venture and will share equally in the assets,
liabilities, profits and losses. In conjunction with the
formation of this joint venture, the Company also entered into a
management, service and sales agreement with the joint venture,
whereby the Company will provide specialty pharmacy and
management services to the joint venture in exchange for a
management fee and the reimbursement of certain expenses.

The Company received fees for management services
from the joint ventures of $589,000, $819,000 and $1,193,000 for
the years ended June 30, 1999, 2000 and 2001, respectively,
which are recorded as other revenues in the accompanying
consolidated statements of income.

Summary financial information for affiliated
joint ventures (20 percent to 50 percent owned) accounted
for by the equity method is as follows as of and for the years
ended June 30 (in thousands):

|                                        |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                        |  | 1999 |        | 2000 |  | 2001
|                                        |  |      |        |      |  |     
|Current assets                          |  | $    | 8,519  |      |  | $    | 6,229  |  |  | $ | 8,753  | 
|Property and equipment and other assets |  |      | 81     |      |  |      | 84     |  |  |   | 69     | 
|Current liabilities                     |  |      | 3,101  |      |  |      | 3,130  |  |  |   | 4,114  | 
|Total revenues                          |  |      | 17,512 |      |  |      | 20,637 |  |  |   | 23,359 | 
|Net income                              |  |      | 3,866  |      |  |      | 4,057  |  |  |   | 2,315  | 

11. Defined Contribution Retirement
Plan

The Company sponsors a qualified, defined
contribution retirement plan under Section 401(k) of the
Internal Revenue Code in which substantially all employees
qualify for participation. The Company matches employee
contributions, as defined in the plan. The Company made annual
matching contributions of approximately $98,000, $152,000 and
$189,000 for the years ended June 30, 1999, 2000 and 2001,
respectively.

12. Stockholders Equity

Common Stock

In April 1999, the Company completed its initial
public offering of 7,762,500 shares of common stock at an
offering price of $7.11 per share. In connection with the
offering, the Companys majority shareholder exchanged
2,475,000 shares of the Companys $.01 par value common
stock for 2,475,000 shares of the Companys $.01 par value
non-voting common stock. The net proceeds from the offering were
used to redeem the outstanding balance of the Series A
redeemable cumulative preferred stock plus accrued dividends,
repay the Companys senior subordinated notes and reduce
the balance of the outstanding revolving line of credit.

F-15



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During fiscal year 2000, the shareholder
converted the 2,475,000 shares of the Companys $.01 par
value non-voting common stock to 2,475,000 shares of the
Companys $.01 par value common stock.

On August 17, 2000, the Company completed a
stock offering of 3,600,000 shares of its common stock. An
additional 540,000 shares of common stock were sold on
September 12, 2000 pursuant to the exercise of the
underwriters over-allotment option. All shares were issued
at a price of $22.67 per share. Net proceeds to the Company,
after deducting underwriting discounts and commissions and other
expenses of the offering, was $88.3 million.

On February 21, 2000, the Company effected a
three-for-two stock split in the form of a 50% stock dividend
for shareholders of record on February 11, 2000, whereby
shareholders received one additional share of common stock for
every two shares held. All share and per share data in the
consolidated financial statements and the notes hereto have been
retroactively adjusted for the split.

On February 23, 2001, the Company effected a
three-for-two stock split in the form of a 50% stock dividend
for shareholders of record on February 9, 2001, whereby
shareholders received one additional share of common stock for
every two shares held. All share and per share data in the
consolidated financial statements and the notes hereto have been
retroactively adjusted for the split.

Preferred Stock

In April 1999, the Companys Board of
Directors and Stockholders authorized the establishment of a new
class of undesignated preferred stock.

13. Employee Stock Purchase
Plan

In April 1999, the Companys Board of
Directors adopted and the stockholders approved the Accredo
Health, Incorporated 1999 Employee Stock Purchase Plan (the
ESPP). Under the ESPP, employees may purchase shares of common
stock at 85% of market price on the first day of an offering
period (usually consisting of a six-month period beginning
January 1 or July 1) or the last day of an offering
period, whichever is lower. The shares are purchased at the end
of each period with funds withheld from employees pay
during the period. A total of 303,750 shares of the
Companys common stock have been reserved for issuance
under the ESPP. Participation in the ESPP commenced on the
effective date of the Companys initial public offering in
April 1999. There were 106,284 and 28,721 shares of common stock
issued during the years ended June 30, 2000 and 2001,
respectively, pursuant to this employee stock purchase plan.

14. Stock Option Plan

The Companys Amended and Restated Stock
Option and Restricted Stock Purchase Plan authorizes the grant
of options to selected employees, officers and directors for up
to 2,171,250 shares of the Companys common stock. As of
June 30, 2001, options to purchase 2,070,036 shares of
stock have been granted under this plan. All options granted
have ten-year terms and generally vest and become fully
exercisable over a period of four years of continued employment.

The Companys 1999 Long-Term Incentive Plan
authorizes the grant of options to selected employees, officers
and directors for up to 1,125,000 shares of the Companys
common stock. As of June 30, 2001, options to purchase
988,147 shares of stock have been granted under this plan under
terms similar to those discussed above.

F-16



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pro forma information regarding net income is
required by Statement 123 and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of Statement 123. Significant assumptions used
by the Company in the Black-Scholes option pricing model
computations are as follows for the years ended June 30:

|                               |  |      |                |      |  |      |                |  |  |  |                | 
|------------------------------ |  | ---- | -------------- | ---- |  | ---- | -------------- |  |  |  | -------------- | 
|                               |  | 1999 |                | 2000 |  | 2001
|                               |  |      |                |      |  |     
|Risk-free interest rate        |  |      | 5.05% to 5.40% |      |  |      | 5.81% to 6.59% |  |  |  | 4.57% to 6.14% | 
|Dividend yield                 |  |      | 0%             |      |  |      | 0%             |  |  |  | 0%             | 
|Volatility factor              |  |      | .50            |      |  |      | .72            |  |  |  | .70            | 
|Weighted-average expected life |  |      | 4.47 years     |      |  |      | 3.19 years     |  |  |  | 4.0 years      | 

The Black-Scholes option 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 employee 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 employee stock options.

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the options vesting period. The Companys pro forma
information for the years ended June 30 is as follows (in
thousands, except share data):

|                                     |  |      |       |      |  |      |       |  |  |   |        | 
|------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | 
|                                     |  | 1999 |       | 2000 |  | 2001
|                                     |  |      |       |      |  |     
|Net income as reported             |  | $    | 3,128 |      |  | $    | 9,896 |  |  | $ | 17,255 | 
|Pro forma net income                 |  | $    | 2,729 |      |  | $    | 8,784 |  |  | $ | 14,094 | 
|Pro forma basic earnings per share   |  | $    | 0.19  |      |  | $    | 0.42  |  |  | $ | 0.56   | 
|Pro forma diluted earnings per share |  | $    | 0.18  |      |  | $    | 0.40  |  |  | $ | 0.54   | 

These pro forma disclosures are not necessarily
representative of the effects of stock options on reported pro
forma net income for future years.

A summary of the Companys stock option
activity and related information for the periods ended
June 30 follows:

|                                                                |  |         |           |           |  |         |      |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|--------------------------------------------------------------- |  | ------- | --------- | --------- |  | ------- | ---- | --------- |  | ------- | --------- | --------- |  | - | ----- |  |  | - | --------- | - |  | - | ----- | 
|                                                                |  |         |           |           |  |        
|                                                                |  | 1999    |           | 2000      |  | 2001   
|                                                                |  |         |           |           |  |        
|                                                                |  |         |           | Weighted- |  |         |      | Weighted- |  |         |           | Weighted-
|                                                                |  |         |           | Average   |  |         |      | Average   |  |         |           | Average  
|                                                                |  |         |           | Exercise  |  |         |      | Exercise  |  |         |           | Exercise 
|                                                                |  | Options |           | Price     |  | Options |      | Price     |  | Options |           | Price    
|                                                                |  |         |           |           |  |         |      |           |  |         |           |          
|Outstanding at beginning of period                              |  |         | 1,926,978 |           |  | $       | 1.62 |           |  |         | 2,101,678 |           |  | $ | 1.90  |  |  |   | 1,780,947 |   |  | $ | 3.97  | 
|Granted                                                         |  |         | 196,075   |           |  |         | 4.56 |           |  |         | 334,294   |           |  |   | 12.92 |  |  |   | 746,393   |   |  |   | 28.10 | 
|Exercised                                                       |  |         | (5,625    | )         |  |         | 1.33 |           |  |         | (630,716  | )         |  |   | 1.75  |  |  |   | (625,067  | ) |  |   | 3.91  | 
|Forfeited                                                       |  |         | (15,750   | )         |  |         | 1.78 |           |  |         | (24,309   | )         |  |   | 5.92  |  |  |   | (105,498  | ) |  |   | 12.30 | 
|                                                                |  |         |           |           |  |         |      |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Outstanding at end of period                                    |  |         | 2,101,678 |           |  | $       | 1.90 |           |  |         | 1,780,947 |           |  | $ | 3.97  |  |  |   | 1,796,775 |   |  | $ | 13.52 | 
|                                                                |  |         |           |           |  |         |      |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Exercisable at end of year                                      |  |         | 912,942   |           |  | $       | 1.53 |           |  |         | 1,092,495 |           |  | $ | 3.13  |  |  |   | 973,029   |   |  | $ | 4.56  | 
|                                                                |  |         |           |           |  |         |      |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Weighted-average fair value of options granted
	during the year |  | $       | 2.21      |           |  |         |      |           |  | $       | 6.68      |           |  |   |       |  |  | $ | 16.03     |   |  |   |       | 
|                                                                |  |         |           |           |  |         |      |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 

F-17



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                         |  |                     |           |                     |  |           |           |             |  |           |       |  |  |  |         |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | --------- | --------- | ----------- |  | --------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                         |  |                     |           |                     |  |          
|                         |  | Options Outstanding |           |                    
|                         |  |                     |           | Options Exercisable
|                         |  |                     |           | Weighted-           |  |           |           |            
|                         |  |                     |           | Average             |  | Weighted- |           |             |  | Weighted-
|                         |  | Number              |           | Remaining           |  | Average   |           | Number      |  | Average  
|Range of Exercise prices |  | Outstanding         |           | Contractual         |  | Exercise  |           | Exercisable |  | Exercise 
|(150% increment)         |  | at 6/30/01          |           | Life                |  | Price     |           | at 6/30/01  |  | Price    
|                         |  |                     |           |                     |  |           |           |             |  |          
|$ 1.33   1.33           |  |                     | 629,537   |                     |  |           | 5.0 years |             |  | $         | 1.33  |  |  |  | 629,537 |  |  | $ | 1.33  | 
|2.67   2.67             |  |                     | 234,941   |                     |  |           | 6.6 years |             |  |           | 2.67  |  |  |  | 175,476 |  |  |   | 2.67  | 
|7.11   7.11             |  |                     | 29,930    |                     |  |           | 7.8 years |             |  |           | 7.11  |  |  |  | 7,389   |  |  |   | 7.11  | 
|12.89  13.06            |  |                     | 182,085   |                     |  |           | 8.4 years |             |  |           | 12.91 |  |  |  | 93,127  |  |  |   | 12.90 | 
|23.25  33.73            |  |                     | 720,282   |                     |  |           | 9.4 years |             |  |           | 28.14 |  |  |  | 67,500  |  |  |   | 27.75 | 
|                         |  |                     |           |                     |  |           |           |             |  |           |       |  |  |  |         |  |  |   |       | 
|$ 1.33  33.73           |  |                     | 1,796,775 |                     |  |           | 7.4 years |             |  | $         | 13.52 |  |  |  | 973,029 |  |  | $ | 4.56  | 
|                         |  |                     |           |                     |  |           |           |             |  |           |       |  |  |  |         |  |  |   |       | 

15. Earnings Per Share

The following table sets forth the computation of
basic and diluted earnings (loss) per share for the years
ended June 30 (in thousands, except share data):

|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |            | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ---- | ------ | ---------- | - | ---- | ----- | ---------- |  | - | ------ | ---------- | 
|                                                                          |                                                                                                   | 1999 |        | 2000       |   | 2001
|                                                                          |                                                                                                   |      |        |            |   |     
|Numerator for basic and diluted income per share
	to common stockholders: |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|Income before extraordinary item                                          |                                                                                                   | $    | 4,382  |            |   | $    | 9,896 |            |  | $ | 17,255 |           
|Extraordinary item                                                        |                                                                                                   |      | (1,254 | )          |   |      |      |            |  |   |       |           
|Preferred stock dividends                                                 |                                                                                                   |      | (1,617 | )          |   |      |      |            |  |   |       |           
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|Net income to common stockholders                                         |                                                                                                   | $    | 1,511  |            |   | $    | 9,896 |            |  | $ | 17,255 |           
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|Denominator:                                                              |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|                                                                          | Denominator for basic income per share to common
	stockholders-weighted-average shares            |      |        | 14,252,707 |   |      |       | 20,764,780 |  |   |        | 24,994,496 | 
|                                                                          | Effect of dilutive stock options                                                                  |      |        | 1,395,208  |   |      |       | 1,410,048  |  |   |        | 1,131,033  | 
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|                                                                          | Denominator for diluted income per share to
	common stockholders-adjusted weighted-average shares |      |        | 15,647,915 |   |      |       | 22,174,828 |  |   |        | 26,125,529 | 
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|Basic earnings per common share:                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|                                                                          | Income before extraordinary item                                                                  |      | $      | 0.31       |   |      | $     | 0.48       |  |   | $      | 0.69       | 
|                                                                          | Extraordinary item                                                                                |      |        | (0.09      | ) |      |       |           |  |   |        |           | 
|                                                                          | Preferred stock dividends                                                                         |      |        | (0.11      | ) |      |       |           |  |   |        |           | 
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|                                                                          | Net income to common stockholders                                                                 |      | $      | 0.11       |   |      | $     | 0.48       |  |   | $      | 0.69       | 
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|Diluted earnings per common share:                                        |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|                                                                          | Income before extraordinary item                                                                  |      | $      | 0.28       |   |      | $     | 0.45       |  |   | $      | 0.66       | 
|                                                                          | Extraordinary item                                                                                |      |        | (0.08      | ) |      |       |           |  |   |        |           | 
|                                                                          | Preferred stock dividends                                                                         |      |        | (0.10      | ) |      |       |           |  |   |        |           | 
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           
|                                                                          | Net income to common stockholders                                                                 |      | $      | 0.10       |   |      | $     | 0.45       |  |   | $      | 0.66       | 
|                                                                          |                                                                                                   |      |        |            |   |      |       |            |  |   |        |           

F-18



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##### Table of Contents



ACCREDO HEALTH, INCORPORATED


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16. Quarterly Financial Information
(Unaudited)

Quarterly financial information for the years
ended June 30, 2000 and 2001, is summarized below (in
thousands, except share data):

|                                   |            |         |        |         |  |         |         |         |  |   |         |      |  |   |         |      | 
|---------------------------------- | ---------- | ------- | ------ | ------- |  | ------- | ------- | ------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                   |            |        
|                                   |            | 2001   
|                                   |            |        
|                                   |            | First   |        | Second  |  | Third   |         | Fourth 
|                                   |            | Quarter |        | Quarter |  | Quarter |         | Quarter
|                                   |            |         |        |         |  |         |         |        
|Total revenues                     |            | $       | 99,577 |         |  | $       | 113,870 |         |  | $ | 124,280 |      |  | $ | 124,413 |     
|Operating income                   |            |         | 5,368  |         |  |         | 6,175   |         |  |   | 7,213   |      |  |   | 7,754   |     
|Income before income taxes         |            |         | 5,593  |         |  |         | 6,900   |         |  |   | 7,913   |      |  |   | 8,182   |     
|Net income                         |            |         | 3,364  |         |  |         | 4,167   |         |  |   | 4,789   |      |  |   | 4,935   |     
|Basic earnings per common share:   |            |         |        |         |  |         |         |         |  |   |         |      |  |   |         |     
|                                   | Net income |         |        | 0.15    |  |         |         | 0.16    |  |   |         | 0.19 |  |   |         | 0.19 | 
|Diluted earnings per common share: |            |         |        |         |  |         |         |         |  |   |         |      |  |   |         |     
|                                   | Net income |         |        | 0.14    |  |         |         | 0.16    |  |   |         | 0.18 |  |   |         | 0.18 | 

|                                   |            |         |        |         |  |         |        |         |  |   |        |      |  |   |        |      | 
|---------------------------------- | ---------- | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                   |            |        
|                                   |            | 2000   
|                                   |            |        
|                                   |            | First   |        | Second  |  | Third   |        | Fourth 
|                                   |            | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                   |            |         |        |         |  |         |        |        
|Total revenues                     |            | $       | 76,871 |         |  | $       | 86,356 |         |  | $ | 91,392 |      |  | $ | 98,417 |     
|Operating income                   |            |         | 3,625  |         |  |         | 4,316  |         |  |   | 5,186  |      |  |   | 5,590  |     
|Income before income taxes         |            |         | 3,273  |         |  |         | 3,884  |         |  |   | 4,472  |      |  |   | 4,775  |     
|Net income                         |            |         | 1,968  |         |  |         | 2,349  |         |  |   | 2,732  |      |  |   | 2,847  |     
|Basic earnings per common share:   |            |         |        |         |  |         |        |         |  |   |        |      |  |   |        |     
|                                   | Net income |         |        | 0.10    |  |         |        | 0.11    |  |   |        | 0.13 |  |   |        | 0.13 | 
|Diluted earnings per common share: |            |         |        |         |  |         |        |         |  |   |        |      |  |   |        |     
|                                   | Net income |         |        | 0.09    |  |         |        | 0.11    |  |   |        | 0.12 |  |   |        | 0.13 | 

F-19



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ACCREDO HEALTH, INCORPORATED






SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS


(In Thousands)


|                          |                                 |                     |   |            |  |            |   |            |  |               |   |    |     |  |   |       |     |  |   |        | 
|------------------------- | ------------------------------- | ------------------- | - | ---------- |  | ---------- | - | ---------- |  | ------------- | - | -- | --- |  | - | ----- | --- |  | - | ------ | 
|                          |                                 |                     |   |            |  |            |   |           
|Col. A                    |                                 | Col. B              |   | Col. C     |  | Col. D     |   | Col. E    
|                          |                                 |                     |   |            |  |            |   |           
|                          |                                 |                     |   |            |  |            |   |           
|                          |                                 |                     |   | Additions  |  |            |   |           
|                          |                                 |                     |   |            |  |            |   |           
|                          |                                 |                     |   | Charged to |  | Charged to |   |            |  |              
|                          |                                 | Balance at          |   | Costs and  |  | Other      |   |            |  | Balance at   
|Description               |                                 | Beginning of Period |   | Expenses   |  | Accounts   |   | Deductions |  | End of Period
|                          |                                 |                     |   |            |  |            |   |            |  |              
|Year ended June 30, 1999: |                                 |                     |   |            |  |            |   |            |  |               |   |    |     |  |   |       |     |  |   |       
|                          | Allowance for doubtful accounts |                     | $ | 3,430      |  |            | $ | 4,739      |  |               | $ |   |     |  | $ | 2,869 | (2) |  | $ | 5,300  | 
|Year ended June 30, 2000: |                                 |                     |   |            |  |            |   |            |  |               |   |    |     |  |   |       |     |  |   |       
|                          | Allowance for doubtful accounts |                     |   | 5,300      |  |            |   | 6,117      |  |               |   | 76 | (1) |  |   | 3,098 | (2) |  |   | 8,395  | 
|Year ended June 30, 2001: |                                 |                     |   |            |  |            |   |            |  |               |   |    |     |  |   |       |     |  |   |       
|                          | Allowance for doubtful accounts |                     |   | 8,395      |  |            |   | 6,131      |  |               |   |   |     |  |   | 3,718 | (2) |  |   | 10,808 | 






|    |                                                       
|--- | ------------------------------------------------------
|(1) | Allowance as a result of acquisitions                 
|(2) | Uncollectible accounts written off, net of
	recoveries

F-20



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Amended Report on Form 10-K/A to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of Memphis, State of Tennessee, on the
10th day of May, 2002.



| |                             
| | ----------------------------
| | ACCREDO HEALTH, INCORPORATED



| |     |                      
| | --- | ---------------------
| | By: | /s/ JOEL R. KIMBROUGH

| |                                
| | -------------------------------
| |                                
| | Joel R. Kimbrough              
| | Senior Vice President, Chief   
| | Financial Officer and Treasurer



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##### Table of Contents






EXHIBIT INDEX

|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                               
|------- | ----- |  |  | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 2.1   |  |  |                        |  | Stock Purchase Agreement, dated as of
	December 1, 1999, among Margo Grbinich-Hunt, Mark B.
	Epstein, Hemophilia Health Services, Inc. and Sunrise Health
	Management, Inc. (incorporated by reference to Exhibit 2.1
	to our Current Report on Form 8-K dated December 3,
	1999 and filed December 16, 1999).
|        | 3.1   |  |  |                        |  | Amended and Restated Certificate of Incorporation
	of Accredo Health, Incorporated (incorporated by reference to
	Exhibit 3.1 to our Registration Statement on Form S-1
	(File Number 333-62679)).                                                                                                            
|        | 3.2   |  |  |                        |  | Certificate of Amendment of the Certificate of
	Incorporation of Accredo Health, Incorporated (incorporated by
	reference to Exhibit 3.1 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	2000).                                                                              
|        | 3.3   |  |  |                        |  | Amended and Restated Bylaws of Accredo Health,
	Incorporated (incorporated by reference to Exhibit 3.2 to
	our Registration Statement on Form S-1 (File Number
	333-62679)).                                                                                                                                  
|        | 4.1   |  |  |                        |  | Form of Common Stock Certificate (incorporated by
	reference to Exhibit 4.1 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                              
|        | 10.1  |  |  |                        |  | Accredo Health 1999 Long-Term Incentive Plan
	(incorporated by reference to Exhibit 10.6 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                 
|        | 10.2  |  |  |                        |  | Accredo Health 1999 Employee Stock Purchase Plan
	(incorporated by reference to Exhibit 10.7 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                             
|        | 10.3  |  |  |                        |  | Nova Holdings, Inc. and its Subsidiaries Stock
	Option and Restricted Purchase Plan, as amended and restated
	(incorporated by reference to Exhibit 10.8 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                 
|        | 10.4  |  |  |                        |  | Registration Rights Agreement dated May 31,
	1996 among the Company, Welsh, Carson, Anderson &
	Stowe VII, L.P. and certain other investors (incorporated
	by reference to Exhibit 10.10 to our Registration Statement
	on Form S-1 (File Number 333-62679)).                                                 
|        | 10.5  |  |  |                        |  | Amendment Number One to the Registration Rights
	Agreement dated October 27, 1997 among the Company, Welsh,
	Carson, Anderson & Stowe VII, L.P. and certain other
	investors (incorporated by reference to Exhibit 10.11 to
	our Registration Statement on Form S-1 (File Number
	333-62679)).                
|        | 10.6  |  |  |                        |  | Amendment Number Two to the Registration Rights
	Agreement dated July 24, 1998 among the Company, Welsh,
	Carson, Anderson & Stowe VII, L.P. and certain other
	investors (incorporated by reference to Exhibit 10.12 to
	our Registration Statement on Form S-1 (File Number
	333-62679)).                   
|        | 10.7  |  |  |                        |  | Stock Purchase Agreement dated as of June 5,
	1997 among Dianne R. Martz, A.B. Charlton, III,
	the Company and Horizon Health Systems, Inc. (incorporated by
	reference to Exhibit 10.17 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                 
|        | 10.8  |  |  |                        |  | Non-Disclosure and Non-Compete Agreement dated as
	of June 5, 1997 by and among Horizon Health Systems, Inc.,
	the Company and Dianne R. Martz (incorporated by reference
	to Exhibit 10.18 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                              
|        | 10.9  |  |  |                        |  | Grant Agreement dated as of June 5, 1997 by
	and between Kyle Callahan and the Company (incorporated by
	reference to Exhibit 10.19 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                      
|        | 10.10 |  |  |                        |  | Subscription and Restriction Agreement dated as
	of June 5, 1997 by and between the Company and Kyle
	Callahan (incorporated by reference to Exhibit 10.20 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                               
|        | 10.11 |  |  |                        |  | Consulting and Transition Agreement dated as of
	June 5, 1997 by and between Dianne Martz and Horizon Health
	Systems, Inc. (incorporated by reference to Exhibit 10.21
	to our Registration Statement on Form S-1 (File Number
	333-62679)).                                                                 



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|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ----- |  |  | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.12 |  |  |                        |  | Lease Agreement dated September 1, 1994
	between Dianne Martz and Horizon Health Systems, Inc.
	(incorporated by reference to Exhibit 10.23 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                        
|        | 10.13 |  |  |                        |  | Addendum to Lease Agreement dated
	September 1, 1994 amending the square footage of Premises
	and annual rental payments (incorporated by reference to
	Exhibit 10.24 to our Registration Statement on Form S-1
	(File Number 333-62679)).                                                                                                                                                                                                              
|        | 10.14 |  |  |                        |  | Second Lease Amendment, dated May 25, 1999,
	between Dianne R. Griffith, as landlord, and Hemophilia Health
	Services, Inc. as tenant. (incorporated by reference to
	Exhibit 10.67 to our Annual Report on Form 10-K for
	the fiscal year ended June 30, 1999).                                                                                                                                                                                        
|        | 10.15 |  |  |                        |  | Refunds Payable Escrow Agreement dated
	June 5, 1997 among First American National Bank, Nova
	Holdings, Inc. and Dianne Martz and A. B. Charlton, III
	(incorporated by reference to Exhibit 10.26 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                                
|        | 10.16 |  |  |                        |  | Loan and Security Agreement dated as of
	June 5, 1997 among Nova Holdings, Inc. and its Subsidiaries
	and NationsBank of Tennessee, N.A. and First Tennessee Bank
	National Association. (incorporated by reference to
	Exhibit 10.38 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                              
|        | 10.17 |  |  |                        |  | Amendment No. 1 Loan and Security Agreement
	dated as of August 28, 1998 among Nova Holdings, Inc., a
	Delaware corporation, and its Subsidiaries and NationsBank of
	Tennessee, N.A. and First Tennessee Bank National Association
	(incorporated by reference to Exhibit 10.56 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                   
|        | 10.18 |  |  |                        |  | Amendment No. 2 dated March 2, 1999 to
	Loan and Security Agreement as amended on June 5, 1997
	among Accredo Health, Incorporated and its Subsidiaries and
	NationsBank, N.A. and First Tennessee Bank National Association
	and NationsBank, N.A. as Agent (incorporated by reference to
	Exhibit 10.66 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                          
|        | 10.19 |  |  |                        |  | Amendment No. 3 dated October 14, 1999
	to Loan and Security Agreement as amended on June 5, 1997
	among Accredo Health, Incorporated and its Subsidiaries and Bank
	of America, N.A. and First Tennessee Bank National Association
	and Brown Brothers Harriman & Co. and Bank of America, N.A.
	as Agent (incorporated by reference to Exhibit 10.1 to our
	Quarterly Report on Form 10-Q for the fiscal quarter ended
	September 30, 1999).          
|        | 10.20 |  |  |                        |  | Amendment No. 4 dated December 3, 1999
	to Loan and Security Agreement as amended on June 5, 1997
	among Accredo Health, Incorporated and its Subsidiaries and Bank
	of America, N.A. and First Tennessee Bank National Association
	and Brown Brothers Harriman & Co. and Bank of America, N.A.
	as Agent (incorporated by reference to Exhibit 10.1 to our
	Quarterly Report on Form 10-Q for the fiscal quarter ended
	December 31, 1999).           
|        | 10.21 |  |  |                        |  | Amendment No. 5 dated July 7, 2000 to
	Loan and Security Agreement as amended on June 5, 1997
	among Accredo Health, Incorporated and its Subsidiaries and Bank
	of America, N.A. and First Tennessee Bank National Association
	and Brown Brothers Harriman & Co. and Bank of America, N.A.
	as Agent (incorporated by reference to Exhibit 10.21 to our
	Annual Report on Form 10-K for the fiscal year ended
	June 30, 2000).                        
|        | 10.22 |  |  |                        |  | Amendment No. 6 dated as of January 1,
	2001 to Loan and Security Agreement as amended dated as of
	June 5, 1997 among Accredo Health, Incorporated and its
	Subsidiaries and Bank of America, N.A. and First Tennessee Bank
	National Association and Brown Brothers Harriman & Co. and
	Bank of America, N.A. as Agent (incorporated by reference to
	Exhibit 10.1 to our Quarterly Report on Form 10-Q for
	the fiscal quarter ended March 31, 2001).
|        | 10.23 |  |  |                        |  | Swing Line Note dated December 1, 1997
	entered into by Nova Holdings, Inc. with NationsBank of
	Tennessee, N.A. (incorporated by reference to Exhibit 10.39
	to our Registration Statement on Form S-1 (File Number
	333-62679)).                                                                                                                                                                                                                      



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|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ----- |  |  | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.24 |  |  |                        |  | ISDA Master Agreement dated August 7, 1997
	between NationsBank of Tennessee, N.A. and Nova Holdings, Inc.
	(incorporated by reference to Exhibit 10.40 to our Registration
	Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                
|        | 10.25 |  |  |                        |  | Loan Agreement dated November 24, 1998
	between NationsBank, N.A. and Childrens Hemophilia
	Services, a California general partnership composed of
	Childrens Home Care, a California not-for-profit public
	benefit corporation and Horizon Health Systems, Inc., a
	Tennessee Corporation (incorporated by reference to
	Exhibit 10.57 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                             
|        | 10.26 |  |  |                        |  | Limited Guaranty dated November 24, 1998
	between NationsBank, N.A. and Accredo Health, Incorporated
	(incorporated by reference to Exhibit 10.58 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                      
|        | 10.27 |  |  |                        |  | Promissory Note dated December 24, 1998
	between NationsBank, N.A. and Childrens Hemophilia
	Services (incorporated by reference to Exhibit 10.59 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                     
|        | 10.28 |  |  |                        |  | Amended and Restated General Partnership
	Agreement of Childrens Hemophilia Services (incorporated
	by reference to Exhibit 10.61 to our Registration Statement
	on Form S-1 (File Number 333-62679)).                                                                                                                                                                                                                                                     
|        | 10.29 |  |  |                        |  | Amendment Number One to Amended and Restated
	General Partnership Agreement of Childrens Hemophilia
	Services and Restrictive Agreement dated January 5, 2000
	(incorporated by reference to Exhibit 10.28 to our Annual
	Report on Form 10-K for the fiscal year ended June 30,
	2000).                                                                                                                                                                   
|        | 10.30 |  |  |                        |  | First Amendment to Amended and Restated General
	Partnership Agreement of Childrens Hemophilia Services
	dated June 30, 2000 (incorporated by reference to
	Exhibit 10.29 to our Annual Report on Form 10-K for
	the fiscal year ended June 30, 2000).                                                                                                                                                                                                     
|        | 10.31 |  |  |                        |  | Hemophilia Therapy Business Management, Services
	and Sales Agreement, dated November 10, 1998 between
	Horizon Health Systems, Inc., a Tennessee corporation, and
	Childrens Hemophilia Services, a California general
	partnership (The Company has obtained confidential treatment
	with respect to certain portions of this Exhibit.) (incorporated
	by reference to Exhibit 10.63 to our Registration Statement
	on Form S-1 (File Number 333-62679)).
|        | 10.32 |  |  |                        |  | Amended and Restated Contract for the Sale and
	Distribution of Genentech Human Growth Hormone effective as of
	April 8, 2000 by and between Genentech, Inc. and Nova
	Factor, Inc. (The Company has obtained confidential treatment
	with respect to certain portions of this Exhibit.) (incorporated
	by reference to Exhibit 10.3 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended March 31, 2000).                                    
|        | 10.33 |  |  |                        |  | Amended and Restated Distribution and Services
	Agreement effective as of January 1, 2000 by and between
	Biogen, Inc. and Nova Factor, Inc. (The Company has obtained
	confidential treatment with respect to certain portions of this
	Exhibit.) (incorporated by reference to Exhibit 10.1 to our
	Quarterly Report on Form 10-Q for the fiscal quarter ended
	March 31, 2000).                                                                          
|        | 10.34 |  |  |                        |  | Additional Services Agreement dated
	January 1, 2000 by and between Biogen, Inc. and Nova
	Factor, Inc. (The Company has obtained confidential treatment
	with respect to certain portions of this Exhibit.) (incorporated
	by reference to Exhibit 10.2 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended March 31, 2000).                                                                                                                
|        | 10.35 |  |  |                        |  | Distribution and Services Agreement dated
	August 28, 1998 between Centocor, Inc. and its affiliates
	and Nova Factor, Inc. (The Company has obtained confidential
	treatment with respect to certain portions of this Exhibit.)
	(incorporated by reference to Exhibit 10.65 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                          
|        | 10.36 |  |  |                        |  | Amendment No. 1 to Distribution and Service
	Agreement dated January 11, 1999 by and between Centocor,
	Inc. and its Affiliates and Nova Factor, Inc. (incorporated by
	reference to Exhibit 10.67 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                                                     



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##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                              
|------- | ----- |  |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.37 |  |  |                        |  | Services Agreement, dated July 26, 1999, by
	and between Centocor, Inc. and Nova Factor, Inc. (The Company
	has obtained confidential treatment with respect to certain
	portions of this Exhibit.) (incorporated by reference to
	Exhibit 10.63 to our Annual Report on Form 10-K for
	the fiscal year ended June 30, 1999).                                
|        | 10.38 |  |  |                        |  | Distribution Agreement, dated October 3,
	2000, between MedImmune, Incorporated and Nova Factor, Inc. (The
	Company has obtained confidential treatment with respect to
	certain portions of this Exhibit.) (incorporated by reference to
	Exhibit 10.1 to our Quarterly Report on Form 10-Q for
	the fiscal quarter ended December 31, 2000).               
|        | 10.39 |  |  |                        |  | Amended and Restated Distribution Agreement,
	dated January 1, 1998, by and between Nova Factor, Inc. and
	Genzyme Corporation (The Company has obtained confidential
	treatment with respect to certain portions of this Exhibit.)
	(incorporated by reference to Exhibit 10.65 to our Annual Report
	on Form 10-K for the fiscal year ended June 30, 1999).
|        | 10.40 |  |  |                        |  | Incentive Stock Option Agreement of David Stevens
	dated May 31, 1996 (incorporated by reference to
	Exhibit 10.46 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                                      
|        | 10.41 |  |  |                        |  | Incentive Stock Option Agreement of Joel R.
	Kimbrough dated May 31, 1996 (incorporated by reference to
	Exhibit 10.47 to our Registration Statement on
	Form S-1 (File Number 333-62679) ).                                                                                                                                                                 
|        | 10.42 |  |  |                        |  | Incentive Stock Option Agreement of John R. Grow
	dated May 31, 1996 (incorporated by reference to
	Exhibit 10.48 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                                       
|        | 10.43 |  |  |                        |  | Incentive Stock Option Agreement of Kyle Callahan
	dated September 3, 1997 (incorporated by reference to
	Exhibit 10.49 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                                 
|        | 10.44 |  |  |                        |  | Non-Qualified Stock Option Agreement of Patrick
	J. Welsh dated February 9, 1998 (incorporated by reference
	to Exhibit 10.50 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                           
|        | 10.45 |  |  |                        |  | Non-Qualified Stock Option Agreement of Ken
	Melkus dated February 9, 1998 (incorporated by reference to
	Exhibit 10.51 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                                 
|        | 10.46 |  |  |                        |  | Incentive Stock Option Agreement of Kyle Callahan
	dated February 9, 1998 (incorporated by reference to
	Exhibit 10.52 to our Registration Statement on
	Form S-1 (File Number 333-62679)).                                                                                                                                                                  
|        | 10.47 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kenneth R. Masterson dated April 30, 1998
	(incorporated by reference to Exhibit 10.54 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                         
|        | 10.48 |  |  |                        |  | Incentive Stock Option Agreement of
	Thomas W. Bell, Jr. dated July 10, 1998
	(incorporated by reference to Exhibit 10.55 to our
	Registration Statement on Form S-1 (File Number 333-62679)).                                                                                                                                                               
|        | 10.49 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Patrick J. Welsh dated November 10, 1999 (incorporated
	by reference to Exhibit 10.2 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	1999).                                                                                                                                        
|        | 10.50 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kenneth J. Melkus dated November 10, 1999
	(incorporated by reference to Exhibit 10.4 to our Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	December 31, 1999).                                                                                                                                       
|        | 10.51 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kenneth R. Masterson dated November 10, 1999
	(incorporated by reference to Exhibit 10.5 to our Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	December 31, 1999).                                                                                                                                    



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##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                          
|------- | ----- |  |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.52 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kevin L. Roberg dated November 10, 1999 (incorporated
	by reference to Exhibit 10.6 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	1999).                     
|        | 10.53 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kevin L. Roberg dated November 18, 1999 (incorporated
	by reference to Exhibit 10.7 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	1999).                     
|        | 10.54 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Patrick J. Welsh dated November 1, 2000 (incorporated
	by reference to Exhibit 10.2 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	2000).                     
|        | 10.55 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kevin L. Roberg dated November 1, 2000 (incorporated
	by reference to Exhibit 10.3 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	2000).                      
|        | 10.56 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kenneth J. Melkus dated November 1, 2000 (incorporated
	by reference to Exhibit 10.4 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	2000).                    
|        | 10.57 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Kenneth R. Masterson dated November 1, 2000
	(incorporated by reference to Exhibit 10.5 to our Quarterly
	Report on Form 10-Q for the fiscal quarter ended
	December 31, 2000).                 
|        | 10.58 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Dick R. Gourley dated November 1, 2000 (incorporated
	by reference to Exhibit 10.6 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	2000).                      
|        | 10.59 |  |  |                        |  | Non-Qualified Stock Option Agreement of
	Dick R. Gourley dated November 16, 2000 (incorporated
	by reference to Exhibit 10.7 to our Quarterly Report on
	Form 10-Q for the fiscal quarter ended December 31,
	2000).                     
|        | 10.60 |  |  |                        |  | Incentive Stock Option Agreement of David Stevens
	dated November 1, 2000 (incorporated by reference to
	Exhibit 10.8 to our Quarterly Report on Form 10-Q for
	the fiscal quarter ended December 31, 2000).                             
|        | 10.61 |  |  |                        |  | Incentive Stock Option Agreement of John R.
	Grow dated November 1, 2000 (incorporated by reference to
	Exhibit 10.9 to our Quarterly Report on Form 10-Q for
	the fiscal quarter ended December 31, 2000).                              
|        | 10.62 |  |  |                        |  | Incentive Stock Option Agreement of Joel R.
	Kimbrough dated November 1, 2000 (incorporated by reference
	to Exhibit 10.10 to our Quarterly Report on Form 10-Q
	for the fiscal quarter ended December 31, 2000).                        
|        | 10.63 |  |  |                        |  | Incentive Stock Option Agreement of
	Thomas W. Bell, Jr. dated November 1, 2000
	(incorporated by reference to Exhibit 10.11 to our
	Quarterly Report on Form 10-Q for the fiscal quarter ended
	December 31, 2000).                     
|        | 10.64 |  |  |                        |  | Incentive Stock Option Agreement of Kyle J.
	Callahan dated November 1, 2000 (incorporated by reference
	to Exhibit 10.12 to our Quarterly Report on Form 10-Q
	for the fiscal quarter ended December 31, 2000).                         
|        | 10.65 |  |  |                        |  | Employment Agreement dated as of
	September 1, 1999 between Accredo Health, Incorporated and
	David D. Stevens (incorporated by reference to
	Exhibit 10.55 to our Annual Report on Form 10-K for
	the fiscal year ended June 30, 2000). 
|        | 10.66 |  |  |                        |  | Employment Agreement dated as of
	September 1, 1999 between Accredo Health, Incorporated and
	John R. Grow (incorporated by reference to
	Exhibit 10.56 to our Annual Report on Form 10-K for
	the fiscal year ended June 30, 2000).     
|        | 10.67 |  |  |                        |  | Employment Agreement dated as of
	September 1, 1999 between Accredo Health, Incorporated and
	Joel R. Kimbrough (incorporated by reference to
	Exhibit 10.57 to our Annual Report on Form 10-K for
	the fiscal year ended June 30, 2000).



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##### Table of Contents



|        |       |  |  |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ----- |  |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                        
|Number  |       |  |  | Description of Exhibits
|        |       |  |  |                        
|        | 10.68 |  |  |                        |  | Employment Agreement dated as of
    September 1, 1999 between Accredo Health, Incorporated and
    Kyle J. Callahan (incorporated by reference to
    Exhibit 10.58 to our Annual Report on Form 10-K for
    the fiscal year ended June 30, 2000).                                                                                                                                                                     
|        | 10.69 |  |  |                        |  | Employment Agreement dated as of
    September 1, 1999 between Accredo Health, Incorporated and
    Thomas W. Bell, Jr. (incorporated by reference to
    Exhibit 10.59 to our Annual Report on Form 10-K for
    the fiscal year ended June 30, 2000).                                                                                                                                                                  
|        | 10.70 |  |  |                        |  | Amendment Number One to Employment Agreement
    effective as of September 1, 2000 between Accredo Health,
    Incorporated and David D. Stevens (incorporated by
    reference to Exhibit 10.13 to our Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 31,
    2000).                                                                                                                           
|        | 10.71 |  |  |                        |  | Amendment Number One to Employment Agreement
    effective as of September 1, 2000 between Accredo Health,
    Incorporated and John R. Grow (incorporated by reference to
    Exhibit 10.14 to our Quarterly Report on Form 10-Q for
    the fiscal quarter ended December 31, 2000).                                                                                                                                   
|        | 10.72 |  |  |                        |  | Amendment Number One to Employment Agreement
    effective as of September 1, 2000 between Accredo Health,
    Incorporated and Joel R. Kimbrough (incorporated by
    reference to Exhibit 10.15 to our Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 31,
    2000).                                                                                                                          
|        | 10.73 |  |  |                        |  | Amendment Number One to Employment Agreement
    effective as of September 1, 2000 between Accredo Health,
    Incorporated and Kyle J. Callahan (incorporated by
    reference to Exhibit 10.16 to our Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 31,
    2000).                                                                                                                           
|        | 10.74 |  |  |                        |  | Amendment Number One to Employment Agreement
    effective as of September 1, 2000 between Accredo Health,
    Incorporated and Thomas W. Bell, Jr. (incorporated by
    reference to Exhibit 10.17 to our Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 31,
    2000).                                                                                                                        
|        | 10.75 |  |  |                        |  | Amendment Number 7 dated as of June 1, 2001
    to Loan and Security Agreement as Amended dated as of
    June 5, 1997 among Accredo Health, Incorporated and its
    Subsidiaries and Bank of America, N.A., First Tennessee Bank
    National Association and Brown Brother Harriman & Co. and
    Bank of America, N.A., as Agent (Filed with Annual Report on
    Form 10-K for the fiscal year ended June 30, 2001).
|        | 10.76 |  |  |                        |  | Amendment Number One to Amended and Restated
    Contract for the Sale and Distribution of Genentech Human Growth
    Hormone effective as of June 8, 2001 by and between
    Genentech, Inc. and Nova Factor, Inc. (The Company has requested
    confidential treatment with respect to certain portions of this
    Exhibit.) (Filed with Annual Report on Form 10-K for the fiscal
    year ended June 30, 2001).    
|        | 21.1  |  |  |                        |  | Subsidiaries (Filed with Annual Report on Form
    10-K for the fiscal year ended June 30, 2001).                                                                                                                                                                                                                                                                                                                        
|        | 23.1  |  |  |                        |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                                                                                                                             
|        | 24.1  |  |  |                        |  | Power of Attorney (Filed with Annual Report on
    Form 10-K for the fiscal year ended June 30, 2001).