<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

               (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                   OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                                       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        (I.R.S. EMPLOYER IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)

         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 [ ]


         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. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the Company was $163,296,441 as of September 17, 1999, 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 9,144,887 shares of common stock, $.01 par value, outstanding at
September 17, 1999.

                      DOCUMENTS INCORPORATED BY REFERENCE

         Parts of the Registrant's Proxy Statement for its 1999 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Annual
Report.
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                                     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 Accredo's services, our ability to
expand through joint ventures and acquisitions, our ability to maintain
existing pricing arrangements with suppliers, the impact of government
regulation, the impact of year 2000 issues, 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.

ITEM 1.  BUSINESS

OVERVIEW

         Accredo Health, Incorporated ("Accredo") 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. The Company focuses primarily on biotechnology drugs that:
(i) are used on a recurring basis to treat chronic and potentially life
threatening diseases; (ii) are expensive, with annual therapy costs generally
ranging from $6,000 to $200,000 per patient; (iii) are administered through
injection; and (iv) require temperature control or other specialized handling
as part of their distribution process.

         Currently, the Company provides services that address the needs of
patients with the following diseases: Gaucher Disease, a hereditary liver
enzyme deficiency; hemophilia, a hereditary bleeding disorder; Multiple
Sclerosis, a debilitating disease of the central nervous system; growth
hormone-related disorders; Crohn's Disease, a chronic inflammatory disease
affecting the gastrointestinal tract, and Respiratory Synctial Virus (RSV), a
serious lower respiratory tract disease affecting infants.

         The Company addresses the needs of biotechnology 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 currently has relationships with Genzyme
Corporation, Biogen, Inc., Genentech, Inc., Centocor, Inc., and MedImmune, Inc.
These relationships are not exclusive, but generally involve a designation of
the Company as a preferred or recommended provider of the manufacturer's drugs,
direct marketing of the Company's services, customized pricing reflecting the
Company's specialized services and flexibility in adjusting prices and other
terms in the event of changed market conditions or service levels.

         The Company's objective is to be the leading provider of specialized
contract pharmacy and related services. Key elements of the Company's strategy
include: (i) expanding the number of chronic diseases served; (ii) leveraging
its



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expertise to expand its service offerings; (iii) establishing additional
relationships with academic medical centers and children's hospitals that treat
patients with costly, chronic diseases; (iv) increasing its number of payor
contracts; and (v) pursuing acquisitions of similar or complementary
businesses.

         Accredo, formerly known as Nova Holdings, Inc., was incorporated in
Delaware in 1996. Accredo acquired Southern Health Systems, Inc. ("SHS") and
its wholly owned subsidiary Nova Factor, Inc. ("Nova Factor") in 1996 and
continues to own SHS and its subsidiary, Nova Factor. In June 1997, Accredo
acquired all of the outstanding stock of Hemophilia Health Services, Inc.
("HHS") (formerly known as Horizon Health Systems, Inc.). The Company
consummated an initial public offering of its common stock in April 1999.
Unless otherwise indicated, Company refers to Accredo Health, Incorporated and
its subsidiaries. The principal executive offices of the Company are located at
1640 Century Center Parkway, Suite 101, Memphis, Tennessee 38134. Its telephone
number at that address is 901-385-3688.

SERVICES

         The Company's services include specialized contract pharmacy,
clinical, reimbursement and delivery services.

Contract Pharmacy Services. The Company offers customized services to
biotechnology drug manufacturers designed to meet specific needs that arise at
various stages in the life cycles of their products. During the pre-launch
stage of product development, the Company provides consulting services related
to strategic pricing decisions and the impact those decisions may have on
private insurance and Medicaid and Medicare reimbursement policies. The Company
also offers analyses and information to assist manufacturers in evaluating
payor mix and pricing strategies for their new drugs. The Company will test a
manufacturer's packaging to assess maintenance of product temperatures and to
determine whether the packaging system will maintain product integrity during
normal shipping conditions. In addition, the Company offers advice on ancillary
injection and infusion supplies and assists in procuring supplies and
customized packaging for infusion supply kits. The Company provides clinical
protocols that assist nurses and caregivers in learning how to safely and
effectively administer a drug, including aseptic techniques, supplies needed
and infusion time required. The Company also has extensive experience with
patient assistance programs for uninsured or underinsured patients and offers
consulting services that assist manufacturers in determining appropriate
admission criteria for such programs.

         Following product launch, the Company offers: (i) clinical hotlines
that allow the physician or patient caregiver to inquire about product usage,
adverse drug reactions and other clinical questions; (ii) reimbursement
hotlines for patients and health care professionals; (iii) support for
manufacturers' patient assistance programs for patients without the financial
ability to otherwise acquire needed drugs and services; (iv) replacement drug
and supply programs that replenish patients' inventory of products or supplies
that become damaged; (v) home care coordination programs that provide patient
assistance in training, the identification of home care providers and the
transfer of clinical information to all caregivers; and (vi) triage services
that refer patients to the appropriate provider based on the patients'
insurance provider network. Results of the Company's interaction with patients
(which is primarily via telephone) are coded and tracked to compile valuable
information, including side effects, drug interactions, administration
problems, supply issues, changes to new products, and reasons for therapy
discontinuation and non-compliance. The Company 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. The Company can also create a wide variety of additional
reports that can be custom tailored to meet specific manufacturers' needs.

Clinical Services. At the initiation of service, the Company works with the
patient and the patient's physician to implement the prescribed plan of care.
In order to assist patients with their complicated treatment program, the
Company provides clinical consultation and education regarding the patient's
disease and treatment program, helps patients set realistic expectations for
their drug therapy, helps coordinate backup care in the event of an acute
episode, provides current information on advances in technology and treatment
regimens, coordinates medication during travel and helps patients establish an
inventory management and record keeping system. The Company maintains frequent
communication with patients to monitor and encourage compliance with the
prescribed plan of care and persistence in staying on therapy for the entire
course of treatment. The Company also helps patients understand their
medication and manage the potential side effects and adverse reactions that can
occur so that patients are less likely to discontinue therapy. In addition, the
Company assists patients and their families in coping with a variety of
difficult social and emotional challenges presented by their disease,
participates in national, state and local patient advocacy organizations,
assists in the formation of patient



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support groups, advocates legislation to advance specific patient interests and
publishes newsletters containing information relevant to its patients.

Reimbursement Services. The Company assists in managing reimbursement issues
related to the patient's condition and treatment program. Generally, the
Company contacts the payor prior to each shipment to determine the patient's
health plan coverage and the portion of costs that the payor will reimburse.
The Company's reimbursement specialists review such issues as pre-certification
or other prior approval requirements, lifetime limits, pre-existing condition
clauses and the availability of special state programs. From time to time, the
Company negotiates with payors to facilitate or expand coverage for the chronic
diseases served by the Company. In addition, the Company accepts assignment of
benefits from numerous payors, which substantially eliminates the claims
submission process for many patients.

Delivery Services. The Company provides timely delivery of drugs and ancillary
supplies directly to the patient or the patient's physician in packaging
specially designed to maintain appropriate temperatures and which typically
contains all of the supplies required for reconstitution and administration in
the patient's home or in other alternate sites. Substantially all products are
shipped from the Company's two primary pharmacy locations in Memphis and
Nashville, Tennessee. The Company also maintains satellite pharmacy locations
in Dallas-Ft. Worth, Texas and Birmingham, Alabama. The Company ships its
products via FedEx.

DISEASE MARKETS, DRUG PRODUCTS AND SUPPLIERS

         Substantially all of the biotechnology drugs sold by the Company,
other than clotting factor products, are available only from single sources.
Currently, the Company provides its specialty services with respect to the
following drugs and diseases:

Gaucher Disease. Type I Gaucher Disease is the most common form of Gaucher
Disease, affecting about 90% of all Gaucher patients. Type I Gaucher Disease is
a seriously debilitating, sometimes fatal, genetic disorder caused by a
deficiency of an important enzyme in the body called glucocerebrosidase
("GCR"). This deficiency results in the accumulation of the glucocerebroside
lipid in the cells of organs in the body. Genzyme's Ceredase(R) and Cerezyme(R)
products are the only FDA approved products used for treating Gaucher Disease.

         The Company has a preferred relationship with Genzyme relating to
Ceredase(R) and Cerezyme(R). Ceredase(R) is a modified form of human GCR which
uses glycoprotein remodeling technology to target GCR to the cells where the
lipid accumulation occurs. Cerezyme(R) is a recombinant form of GCR which has
been remodeled in a similar manner. Ceredase(R) and Cerezyme(R) are generally
administered by intravenous infusion. Dosing frequencies vary, but a typical
dosing regimen involves administration once every two weeks. The current
agreement between the Company and Genzyme (the "Genzyme Agreement"), provides
that the Company dispenses Ceredase(R) and Cerezyme(R) in the United States and
provides various information and other services to Genzyme. The pricing of
Ceredase(R) and Cerezyme(R) under the Genzyme Agreement, as well as the scope
and pricing of services provided by the Company, are subject to periodic
adjustment. The Genzyme Agreement 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 Genzyme
Agreement provides that during its term and for a period of five years after
termination, the Company may not sell any prescription drug for the treatment of
Gaucher Disease other than Ceredase(R) and Cerezyme(R). The Company does not
have exclusive rights to sell Ceredase(R) or Cerezyme(R), and Genzyme has
reserved the right under the Genzyme Agreement to sell these products directly
or to appoint other distributors of these products.

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 are susceptible
to bleeding episodes which 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.
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 patients contracted hepatitis or human
immunodeficiency virus ("HIV") as a result of contaminated plasma 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 ("AIDS"). The Company
offers medications used in treating AIDS as a convenience to its hemophilia
patients that have contracted the HIV virus. 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 plasma-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. The Company has supply contracts with all six
suppliers (Bayer Corporation and Baxter Healthcare Corporation, Alpha
Therapeutic Corporation, Centeon LLC, Genetics Institute, Inc. and the American
Red Cross). No supplier is responsible for a majority of the Company's
hemophilia product purchases.

Multiple Sclerosis. Multiple Sclerosis is a debilitating neurological disease
of the central nervous system that is characterized by episodic symptoms
followed by fixed neurologic deficits, increasing disability and physical
decline over a period of 30 to 40 years. The disease is believed to be caused
by the destruction of myelin sheaths by the body's own immune system. It is
estimated 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. There are currently three FDA
approved products used for treating relapsing Multiple Sclerosis: Avonex(R),
which is manufactured by Biogen; Betaseron(R), which is manufactured by Chiron
Corporation; and Copaxone(R), which is manufactured by Teva Pharmaceutical
Industries Limited. Biogen's Avonex(R) 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(R), 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.

         The Company and Biogen have entered into an agreement (the "Biogen
Agreement"), pursuant to which the Company dispenses Avonex(R) and provides
various services and information to Biogen. The pricing of Avonex(R) under the
Biogen Agreement, as well as the scope and pricing of services provided by the
Company, are subject to periodic adjustment. The Biogen Agreement expires
November 30, 1999 and the parties are in the process of preparing a new
agreement. The Agreement is terminable by either party for any reason with 90
days prior notice. In addition, the Biogen Agreement provides that as long as
the Company is the only preferred home delivery service provider approved by
Biogen (other than providers to Medicaid patients in certain states), the
Company may not without Biogen's approval sell any products that compete with
Avonex(R) for the treatment of Multiple Sclerosis. The Company does not have
any exclusive rights to sell Avonex(R) and Biogen has reserved the right under
the Biogen Agreement to sell Avonex(R) directly or to appoint other providers
of home delivery pharmacy services for Avonex(R), but such action would
eliminate the Company's exclusivity obligations.

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



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hormone therapy. The market for growth hormone products is relatively mature
and currently five manufacturers sell nine 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(R), Nutropin(R) or Nutropin AQ(R).

         The Company has purchasing relationships with all five manufacturers
of growth hormone products used in the United States, including a preferred
relationship with Genentech. Growth hormone products are administered by
injection several times per week, and in some cases daily. Typically, patients
or family members administer the medication at home without the presence of a
nurse. The Company and Genentech have entered into a distribution agreement
(the "Genentech Agreement"), pursuant to which the Company dispenses
Genentech's human growth hormone products, Protropin(R), Nutropin(R) and
Nutropin AQ(R), in the United States and pursuant to which the Company provides
various information and other services to Genentech. The pricing of
Protropin(R), Nutropin(R) and Nutropin AQ(R) under the Genentech Agreement, as
well as the scope and pricing of the services provided by the Company under
such agreement, are subject to periodic adjustment. The Genentech Agreement has
an initial term expiring on December 31, 1999, unless extended by mutual
agreement, and may only 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. In addition, the Genentech Agreement provides
that during the term of the agreement, the Company can (subject to certain
conditions) sell human growth hormone products other than Protropin(R),
Nutropin(R) and Nutropin AQ(R). The Company does not have any exclusive rights
to distribute Protropin(R), Nutropin(R) and Nutropin AQ(R).

 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. Some patients
develop draining fistulae. Remicade(TM), a drug developed by Centocor, has been
approved by the FDA for commercialization for the treatment of moderately to
severely active Crohn's Disease for the reduction of its signs and symptoms in
patients who have an inadequate response to conventional therapy. It has also
been approved as a treatment for patients with fistulizing Crohn's Disease for
reduction in the number of draining fistulae. 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 fistulizing
disease.

         In August 1998, the Company established a preferred relationship with
Centocor relating to Remicade(TM). Under an agreement between the Company and
Centocor (the "Centocor Agreement"), the Company dispenses Remicade(TM) and
provides various information and other services to Centocor. The pricing of
Remicade(TM) under the Centocor Agreement, as well as the scope and pricing of
the services provided by the Company under such agreement, are subject to
periodic adjustment. The Centocor Agreement has an initial term of three years
ending August 2001, with a renewal provision. The Company does not have any
exclusive rights to sell Remicade(TM), and Centocor has reserved the right
under the Centocor Agreement to sell Remicade(TM) directly or to appoint
distributors or other providers of pharmacy services for Remicade(TM).
Centocor's decision to appoint other providers of pharmacy services would
eliminate the Company's exclusivity obligations.

Respiratory Synctial Virus (RSV). RSV is a serious lower respiratory tract
disease that attacks pediatric patients. RSV is the most common cause of
pneumonia and bronchitis in infants and children. Approximately two thirds of
infants are infected with RSV during the first year of life and almost one
hundred percent have been infected by age two. It has been estimated that,
nationwide, RSV infection causes approximately 90,000 hospitalizations.
Synagis(R) manufactured by MedImmune, Inc. significantly advances the
prevention of this serious viral disease in pediatric patients. Studies have
shown that monthly preventive treatment with Synagis(R) was associated with a
55% reduction in hospitalizations due to RSV.

         RSV is seasonal with the disease striking primarily during the period
of November through April. The Company and MedImmune renewed their relationship
for the 1999-2000 RSV season by executing a new distribution agreement on
August 16, 1999. The MedImmune Agreement has a term of one year. The Company
does not have the exclusive right to sell Synagis(R), although it has been
named as one of two national providers of the drug for the 1999-2000 RSV
season. The agreement can be terminated by either party upon thirty (30) days
notice.



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RELATIONSHIPS WITH MEDICAL CENTERS

         The Company currently has joint ventures with four medical centers (or
their affiliates): Childrens Home Care located in Los Angeles, California;
Alternative Care Systems, Inc. located in Dallas, Texas; Cook Childrens Medical
Center located in Ft. Worth, Texas; and Children's Memorial Hospital located in
Chicago, Illinois. In the typical joint venture arrangement, the Company and a
medical center (or its affiliate) form a joint venture entity that then enters
into a management agreement with the Company to obtain specialized contract
pharmacy services. Under the terms of the joint venture agreement, the Company
manages the sales, marketing and provision of specialty pharmacy services in
exchange for a monthly management fee and the reimbursement of certain
expenses. Generally, the Company and the medical center share in the profits
and losses of the joint venture entity in proportion to their respective
capital contributions. The agreements generally have initial terms of between
one and five years and contain certain restrictive covenants and rights of
first refusal.

         In addition to joint venture relationships, the Company has entered
into management agreements with medical centers (or their affiliates) to
provide specialized contract pharmacy services. The Company currently has
contract management relationships with three medical centers (or their
affiliates): LeBonheur Children's Medical Center located in Memphis, Tennessee;
duPont Hospital for Children located in Wilmington, Delaware and Children's
National Medical Center located in Washington D.C. Pursuant to these management
agreements, the Company provides goods and services used in the medical
center's specialized pharmacy business, including drugs and related supplies,
patient education, clinical consultation and certain reimbursement services.
While the payment terms under such management agreements vary, the Company is
generally reimbursed for its costs and is paid a monthly management fee from
the sale of those products and services. 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.

PAYORS

         The following are the approximate percentages of the Company's gross
patient service revenue attributable to various payor categories for the fiscal
years ended June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                               YEAR ENDED           YEAR ENDED
                                                              JUNE 30, 1999       JUNE 30, 1998
                                                              -------------       -------------
<S>                                                           <C>                 <C>
Private payors (including self pay)(1)...............              82%                 80%
Medicaid and other state programs....................              16%                 17%
Medicare and other federal programs..................               2%                  3%
      Total..........................................             100%                100%
</TABLE>

-----------

(1)      Includes sales to private physician practices, whose ultimate payor is
         typically Medicare, which accounted for approximately 6% of gross
         patient service revenue for fiscal year 1999 and 7% of gross patient
         service revenue for fiscal year 1998.

         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 care
providers and competition for patients has 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 becoming more economically focused, with decisions taking
into account 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 the Company's
business, financial condition and results of operations.



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

         The Company derives a significant portion of its 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 and Congress recently enacted the Balanced Budget
Act of 1997 (which establishes a plan to balance the federal budget by 2002)
that 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. Furthermore, federal and state proposals are pending that
would impose further limitations on governmental payments and that would
increase patient co-payments and deductibles. Additionally, a number of states
are considering legislation designed to reduce their Medicaid expenditures and
provide universal coverage and additional care for certain populations,
including proposals to impose additional taxes on providers to help finance or
expand such programs, and some states may require the Company to maintain a
licensed pharmacy in the state in order to qualify for reimbursement under
state-administered reimbursement plans. Any of these changes could result in
significant reductions in payment levels for drugs handled and services
provided by the Company, which would have a material adverse effect on the
Company's business, financial condition and results of operations.

COMPETITION

         The specialty pharmacy services industry is highly competitive and is
experiencing both horizontal and vertical consolidation. The industry is
fragmented, with many public and private companies focusing on different
product or customer niches. Some of the Company's current and potential
competitors include specialty pharmacy divisions of national wholesale drug
distributors; specialty pharmacy distributors, such as Caremark Therapeutic
Services (a subsidiary of MedPartners, Inc.) and Olsten Corporation; pharmacy
benefit management companies; hospital-based pharmacies; retail pharmacies;
home infusion therapy companies; certain 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 the Company's competitors have
greater financial, technical, marketing and managerial resources than the
Company.

         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 the Company's business, financial condition and results of
operations.

         Through federal legislation such as the Social Security Act, as
amended, the Veterans Health Care Act of 1992, and the Public Health Services
Act, and the rules and regulations thereunder, manufacturers of certain types
of outpatient drugs, including clotting factor, are required to provide price
discounts for such drugs to various types of federally funded hemophilia
treatment centers, which is a competitive advantage to such providers not
available to the Company.

         Certain of the medical centers with which the Company has a joint
venture or management relationship have hemophilia treatment centers ("HTC")
that are eligible to purchase factor from manufacturers at a discount pursuant
to a provision of the Public Health Service Act as enacted by the Veteran's
Health Care Act of 1992 ("PHS Pricing"). Manufacturers that sell outpatient
drugs to eligible entities sign an agreement with DHHS under which they agree
to not charge a price for covered outpatient drugs in excess of a statutorily
set amount. The Company does not directly own or operate an HTC that is
eligible for PHS Pricing, which may place it at a competitive disadvantage as a
provider of factor, except in the limited circumstances where its affiliated
medical centers are eligible for PHS Pricing.

         The HRSA published notice in October 1998 proposing to change current
grant award requirements for certain entities eligible under the Section 340B
Drug Discount Program (centers eligible for PHS Pricing). This notice proposes
imposing a grant award requirement in which all entities that receive HRSA
grants listed in Section 340B(a)(4) of the



                                       8
<PAGE>   9

Public Health Service Act and that purchase or reimburse for covered outpatient
drugs must participate in PHS pricing or demonstrate good cause for
nonparticipation. If the proposed change in the grant award requirement is
finalized, the number of treatment centers and hospitals accessing PHS pricing
is expected to increase, thereby providing additional competition to the
Company's sale of clotting factor.

GOVERNMENT REGULATION

         As a provider of prescription drugs and related services, the Company
is subject to extensive regulation by federal, state and local governments.
This regulatory framework is complex and the laws are very broad in scope,
subject to differing interpretations and lack substantive court decisions
addressing many arrangements under which the Company has and expects to conduct
its business. Because civil and criminal sanctions may be imposed for
violations of these laws, compliance is a significant operational requirement
and risk for the Company. Because of the nature of this regulatory framework,
there can be no assurance that all of the Company's business practices would be
construed to comply with these laws in all respects, and any violation or
alleged violation of these laws could have a material adverse effect on the
Company's business, financial condition and results of operations.

Licensure and Registration. In general, the Company's pharmacy operations are
regulated by the statutes and regulations of Tennessee, where it is licensed as
a retail pharmacy and wholesale distributor of pharmaceuticals, as well as the
states of Alabama, and Texas, where it operates satellite retail pharmacies. In
addition, the Company currently delivers prescription products from its
licensed pharmacies to patients in other states in which the Company does not
operate a pharmacy. Many of these states have laws or regulations requiring
out-of-state pharmacies to be licensed as a condition to the delivery of
prescription products to patients in such states.

         Various federal and state pharmacy associations and some boards of
pharmacy have attempted to promote laws or regulations directed at restricting
the activities of out-of-state pharmacies, thereby benefiting local pharmacies
with which the Company competes from time to time. In addition, a number of
states have laws or regulations which, if successfully enforced, would
effectively limit some of the financial incentives available to third-party
payors that offer managed care prescription drug programs. To the extent such
laws or regulations are found to be applicable to the Company, there is no
assurance the Company could comply, and noncompliance could adversely affect
the Company's pharmacy service operations.

         Any person who manufactures, distributes, or dispenses controlled
substances must obtain a registration from the United States Attorney General
and, where required, from the appropriate state agency. A separate registration
is required at each principal place of business where the applicant
manufactures, distributes, or dispenses controlled substances. The laws and
regulations also specify label and packaging requirements for manufacturers and
distributors and record-keeping and reporting requirements for all registrants.
The Company maintains federal and applicable state registrations under these
laws.

Professional Practice. State laws prohibit the practice of pharmacy without a
license. Accordingly, the Company's pharmacists are all licensed in Tennessee,
and other states where required. Although the Company monitors the professional
activities of its employees, to the extent that the Company's employees assist
patients and providers in helping patients comply with prescribed treatment
programs, such activities could be deemed by a state to be the practice of
medicine, nursing, or outside the scope of permitted pharmacy practice.

Pharmacy Counseling Law. Federal support of state Medicaid programs for covered
outpatient drugs is conditioned on the state having a drug use review ("DUR")
program which must consist of prospective drug review, retrospective drug use
review, the application of predetermined standards, and an educational program.
As part of the program, the state must develop standards containing the minimum
specified requirements for the counseling by pharmacists of patients or their
caregivers. The Company believes that its pharmacists monitor these
requirements and provide the requisite counseling in the ordinary course of
their activities.

Federal Mail Order. Federal statutes and regulations establish standards for
the labeling, packaging, repackaging, advertising and adulteration of
prescription drugs and the dispensing of "controlled" substances and
prescription drugs. To the extent that the Company were to use the federal
postal service, Federal Trade Commission and United States Postal



                                       9
<PAGE>   10

Service regulations require mail order sellers to engage in truthful
advertising, to stock a reasonable supply of drugs, to fill mail orders within
thirty days and, if that is impossible, to inform the consumer of his or her
right to a refund.

The Prescription Drug Marketing Act. The federal Prescription Drug Marketing
Act ("PDMA") provides that certain drugs and devices, generally those requiring
a prescription by a physician, are exempted from the federal labeling and
packing requirements, upon the condition that such drugs are not adulterated or
misbranded. The PDMA also generally prohibits the selling, purchasing, or
trading of any drug sample, which is not intended to be sold or intended to
promote the sale of the drug. The PDMA imposes certain documentation and record
keeping requirements, as well as proper drug storage and maintenance
requirements, in connection with the distribution of drug samples.

Anti-Kickback and Self-Referral. The Company is subject to various federal laws
that regulate the relationship between providers of health care services and
referral sources such as physicians and hospitals. Under Medicare, Medicaid and
other programs of government payment and reimbursement of health-related costs,
the federal and state governments enforce a federal statute that prohibits the
offer, payment, solicitation or receipt of any remuneration, directly or
indirectly, overtly or covertly, in cash or in kind to induce or in exchange
for (i) the referral of patients covered by the programs, or (ii) 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 (the
"Anti-Kickback Law"). Penalties include criminal fines, civil monetary
penalties, and imprisonment, and the exclusion of anyone, including an
individual or an entity who has committed any of the prohibited acts, from
participation in the Medicare and Medicaid programs whether such individual or
entity participates in such governmental programs directly or indirectly. If
applied to the Company, any of its personnel, or any significant customer or
business partner of the Company, such sanctions could have a material adverse
effect on the Company's business, financial condition and results of
operations. Additionally, the sanctioning or exclusion of a manufacturer or a
recipient of the Company's services from those programs, for activities
unrelated to those of the Company, could also have a material adverse effect on
the Company's business, financial condition and results of operations.

         In addition, numerous states have existing or proposed laws that
prohibit financial arrangements among health care providers. These state laws
are not necessarily limited to items or services for which payment is made by
Medicare or Medicaid. Violations of these laws include civil and criminal
penalties, as well as the suspension or termination of a provider's ability to
continue to provide services in the state. Federal and state court decisions
interpreting these federal and state statutes are limited, but some courts have
construed the statutes to apply if "one purpose" of remuneration is to induce
referrals or other conduct within the proscriptions of the statute.

         In an effort to curb health care fraud, Congress included several
anti-fraud measures in the Health Insurance Portability and Accountability Act
of 1996 ("HIPAA"). HIPAA, among other things, amends existing crimes and
criminal penalties for Medicare fraud and enacts new federal health care fraud
crimes. HIPAA also expands the federal Anti-Kickback Law to apply to all
federal health care programs, which is any plan or program that provides health
benefits through insurance funded by the federal government. Under HIPAA, the
Secretary of the Department of Health and Human Services ("the Secretary") may
exclude from the Medicare program any individual who has a direct or indirect
ownership or control interest in a health care entity that has been convicted
of a health care fraud crime or that has been excluded from the Medicare
program, if the individual knew or should have known of the action constituting
the basis for the conviction or exclusion of the entity. HIPAA directs the
Secretary to establish a program to collect information on health care fraud
and abuse to encourage individuals to report information concerning fraud and
abuse against the Medicare program and provides for payment of a portion of
amounts collected to such individuals. HIPAA mandates the establishment of a
Fraud and Abuse Program, among other programs, to control fraud and abuse with
respect to health plans and to conduct investigations, audits, evaluations, and
inspections relating to the delivery of and payment for health care in the
United States.

         HIPAA prohibits any person or entity from knowingly and willfully
committing a federal health care offense relating to a health care benefit
program. Under HIPAA, a "health care benefit program" broadly includes "any
public or private plan or contract, affecting commerce, under which any medical
benefit, item, or service is provided to any individual." Among the "federal
health care offenses" prohibited by HIPAA are health care fraud and making
false statements relative to health care matters. Any person or entity that
knowingly and willfully defrauds or attempts to defraud a health care benefit
program or obtains by means of false or fraudulent pretenses, representations,
or promises,



                                      10
<PAGE>   11

any of the money or property of any health care benefit program in connection
with the delivery of health care services is subject to a fine and/or
imprisonment. In addition, HIPAA provides that any person or entity that
knowingly and willfully falsifies or conceals or covers up a material fact or
makes any materially false or fraudulent statements in connection with the
delivery of or payment of health care services by a health care benefit plan is
subject to a fine and/or imprisonment. These provisions of HIPAA represent the
criminalization of situations which previously would have been handled civilly
through the administrative processes of repayments of overpayments, offsets,
and fines.

         In an attempt to clarify which arrangements are not subject to
prosecution under the Anti-Kickback Law, the Department of Health and Human
Services ("DHHS") adopted a set of "safe harbor" regulations and continues to
publish clarifications to such safe harbors. Arrangements that comply with all
the requirements of all applicable safe harbors are deemed not to violate the
Anti-Kickback Law. The Company has several business arrangements, such as,
without limitation, 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, and there is not safe harbor protection for each and
every Company arrangement. Due to the breadth and complexity of these laws and
regulations, and the absence in many instances of court decisions addressing
arrangements by which the Company has conducted and expects to conduct its
business, it is possible that some of the Company's practices could be
challenged. Although failure of a transaction or arrangement to fit within a
specific safe harbor provision does not necessarily mean that the structure of
the transaction is illegal or that prosecution under the Anti-Kickback Law will
be pursued, there can be no assurance that the Company's practices will not be
challenged, or that the Company will not be subject to sanctions or be required
to alter or discontinue certain of its practices, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

OIG Fraud Alerts. The Office of Inspector General ("OIG") has issued "Fraud
Alerts" identifying certain arrangements and practices which it believes may
implicate the federal fraud and abuse laws. The OIG has issued a Fraud Alert
providing its views on certain joint venture and contractual arrangements
between health care providers. The OIG has issued a Fraud Alert concerning
prescription drug marketing practices that could potentially violate federal
fraud and abuse laws. Pharmaceutical marketing activities may implicate the
federal fraud and abuse laws because drugs are often paid for by Medicare and
the Medicaid program. According to the Fraud Alert, examples of practices that
may implicate the fraud and abuse laws include arrangements under which
remuneration is made to pharmacists to recommend the use of a particular
pharmaceutical product. In addition, a number of states have recently
undertaken enforcement actions against pharmaceutical manufacturers involving
pharmaceutical marketing programs, including programs containing incentives for
pharmacists to dispense one particular product rather than another. These
enforcement actions arise under state consumer protection laws which generally
prohibit false advertising, deceptive trade practices and the like. Further, a
number of the states involved in these enforcement actions 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 the Company's operations.

The Stark Law. The Company and any physician (or the physician's immediate
family members) with whom the Company may have business dealings are also
subject to the Ethics in Patient Referrals Act of 1989, commonly called the
"Stark Law." Unless excepted, the Stark Law prohibits physicians from making a
referral for the rendering of certain health-related items or services if such
practitioner or his or her family member has a financial relationship with the
entity receiving the referral. Correspondingly, such entity cannot bill for a
service or item provided pursuant to a prohibited referral. The prohibitions of
the Stark Law apply to the products and services provided by the Company. Among
other sanctions, a civil monetary penalty may be levied for each product or
service provided pursuant to a prohibited referral 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 prohibitions of
the Stark Law apply to the Company's products and services. Due to the breadth
and complexity of the Stark Law and the absence of court decisions construing
such law, it is possible that some of the Company's practices could be
challenged and there can be no assurance that the Company will not be subject
to sanctions or be required to alter or discontinue certain of its practices,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations.

Beneficiary Inducement. HIPAA created new civil monetary penalties for
individuals and entities that offer remuneration or other inducements to the
beneficiaries of federal health care programs, such as Medicare, Medicaid and
CHAMPUS, which the provider knows or should know will influence the
beneficiaries' decision to seek specific governmentally



                                      11
<PAGE>   12

reimbursable items or services or to choose a particular provider to provide
those items or medical services. HIPAA provides an exception to this
prohibition by excluding items provided to promote the delivery of preventive
care. Under the statutory exemption, it would not be considered impermissible
remuneration for a provider to give certain types of incentives to a
beneficiary to encourage the beneficiary to receive 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 has issued proposed regulations concerning the HIPAA
prohibition against inducements to beneficiaries (the "Proposed Regulations").
In contrast to the statute, the OIG has taken the position that the statutory
exception for incentives to promote preventive care does not include the
"direct rendering of preventive medical care." The Company from time to time
provides certain items at no charge to its patients in connection with their
drug therapies. Although the Company believes these items fall within the scope
of the statutory preventive care exception, or are otherwise of nominal value,
there can be no assurance regarding the scope of any final regulations, or that
the Company will not be challenged on its practices and suffer applicable
sanctions or be required to alter or discontinue its "no charge" practices, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.

The False Claims Act. The federal False Claim Act, prohibits an individual or
entity from knowingly and willfully presenting claims for payment (by Medicare,
Medicaid, or other third party payors) that contain false or fraudulent
information. Violation can result in both criminal and civil penalties.
Furthermore, providers found to have submitted 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. There is increasing scrutiny by law enforcement
authorities, the OIG, the courts, and Congress of arrangements between health
care providers and potential referral sources to ensure that the arrangements
are not designed as a mechanism to exchange remuneration for patient care
referrals and opportunities. Investigators have demonstrated a willingness to
look behind the formalities of a business transaction to determine the
underlying purpose of payments between health care providers and potential
referral sources. Although, to its knowledge, the Company is not currently the
subject of any investigation, there can be no assurance that the Company will
not be the subject of investigations or inquiries in the future nor that any
such investigation would not have a material adverse effect on the Company's
business, financial condition and results of operations.

         Health care companies may also be the subject of qui tam actions
brought under the False Claims Act by private individuals on behalf of the
government. Furthermore, actions under the False Claims Act, commonly known as
"whistleblower" lawsuits are generally filed under 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. In the course of its business, the Company maintains medical
records for each patient to whom it dispenses drugs. As a result, it is subject
to various federal and state laws that establish minimum standards for the
maintenance of medical records and protect the confidentiality of patient
medical information. In addition, the Company may become subject to new rules
recently mandated by HIPAA, and proposed by HCFA to ensure the integrity and
confidentiality of patient data by creating mandatory security standards for
entities which maintain or transmit health information electronically.
Unauthorized disclosure of confidential patient information, or other failure
to comply with any applicable laws and regulations regarding the maintenance of
patient records and the confidentiality of medical information, could have a
material adverse effect on the Company's business, financial condition and
results of operation.

Balanced Budget Act. 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.
Congress recently enacted the Balanced Budget Act of 1997, which establishes a
plan to balance the federal budget by fiscal year 2002, and includes
significant additional reductions in spending levels for the Medicare and
Medicaid programs.

         The Medicare, Medicaid, CHAMPUS and other governmental programs are
subject to statutory and regulatory changes, administrative rulings,
interpretations and determinations, requirements for utilization review and new
governmental funding restrictions, all of which may materially increase or
decrease program payments as well as affect



                                      12
<PAGE>   13

the cost of providing services and the timing of payments. The final
determination of amounts earned under the programs often requires many years,
because of audits by the program representatives, providers' rights of appeal
and the application of numerous technical provisions. The Company believes
adequate provision has been made for such adjustments. Until final adjustment,
however, significant issues remain unresolved and payments received could be
recouped.

EMPLOYEES

         The Company had 339 full-time and 31 part-time employees as of June
30, 1999, which included 32 full-time and 6 part-time pharmacists. None of the
Company's employees are represented by a labor union, and management considers
its relations with its employees to be good.

LIABILITY INSURANCE

         Providing health care services and products entails an inherent risk
of liability. The Company maintains general liability insurance, including
professional and product liability, in an amount deemed adequate by management.
There can be no assurance, however, that claims in excess of, or beyond the
scope of, the Company's insurance coverage will not arise. In addition, the
Company's insurance policies must be renewed annually. Although the Company has
not experienced difficulty in obtaining insurance coverage in the past, there
can be no assurance that it will be able to do so in the future on acceptable
terms or at all.

                                  RISK FACTORS

         You should carefully consider the risks we describe below before
investing in Accredo. The risks and uncertainties described below are NOT the
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.

         OUR BUSINESS IS HIGHLY DEPENDENT ON RELATIONSHIPS WITH A LIMITED
NUMBER OF BIOTECHNOLOGY DRUG SUPPLIERS

         The substantial majority of Accredo's revenue and profitability is
derived from our relationships with three biotechnology drug companies, Genzyme
Corporation, Biogen, Inc. and Genentech, Inc. The concentration of our revenue
derived from these relationships is shown in the table below as a percentage of
revenue for the years indicated:

<TABLE>
<CAPTION>
                                         FISCAL YEAR ENDED
                     ----------------------------------------------------------
                     JUNE 30, 1999          JUNE 30, 1998         JUNE 30, 1997
    <S>              <C>                    <C>                   <C>
    Genzyme               37%                    46%                   64%
    Biogen                31%                    23%                   14%
    Genentech              5%                     6%                    9%
</TABLE>

         Our agreements with these suppliers are generally short term and
cancelable by either party without cause on 60 to 90 days prior notice. Our
current agreement with Biogen has been extended to November 30, 1999 and
renewal terms are currently under negotiation. 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 Accredo. Further, the pricing and other terms of these relationships
are periodically adjusted. Any termination or adverse adjustment to any of
these relationships could have a material adverse affect on our business,
financial condition and results of operation.



                                      13
<PAGE>   14

         OUR BUSINESS IS FOCUSED ON A LIMITED NUMBER OF DRUGS FOR SPECIFIC
DISEASES

         Drugs handled and diseases served. We focus almost exclusively on a
limited number of complex and expensive drugs that serve small patient
populations. The primary diseases treated by the drugs we handle are as
follows:

         -        Gaucher Disease, for which we offer Ceredase(R) and
                  Cerezyme(R) supplied by Genzyme;
         -        Multiple Sclerosis, for which we primarily offer Biogen's
                  Avonex(R) (Interferon Beta-la);
         -        Growth hormone-related disorders, for which we primarily
                  offer Protropin(R), Nutropin(R) and o Nutropin AQ(R) supplied
                  by Genentech;
         -        Hemophilia, for which we offer all currently approved
                  clotting factor products;
         -        Crohn's Disease, for which we began offering Remicade(TM)
                  supplied by Centocor during fiscal year 1999; and
         -        Respiratory Synctial Virus (RSV) for which we began offering
                  Synagis supplied by MedImmune during fiscal year 1999.

         The concentration of our revenue related to these drugs is shown in
the table below as a percentage of revenue for the years indicated:


<TABLE>
<CAPTION>
                                                        FISCAL YEAR ENDED
                                   -----------------------------------------------------------
                                   JUNE 30, 1999          JUNE 30, 1998          JUNE 30, 1997
<S>                                <C>                    <C>                    <C>
Gaucher Disease                         37%                    46%                     64%
Multiple Sclerosis                      31%                    23%                     14%
Hemophilia                              21%                    23%                      9%
Growth Hormone
Disorders                                6%                     7%                     10%
Crohn's Disease                          1%                   N/A                     N/A
RSV                                      1%                   N/A                     N/A
</TABLE>

         Factors affecting demand for services. Reduced demand for our services
could be caused by a number of circumstances, including:

         -        Patient shift to other available treatments;
         -        A new treatment that does not require our specialty services;
         -        The recall of or adverse reaction caused by a drug;
         -        The expiration or challenge of a drug patient;
         -        A 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.

         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 to four 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 seven years unless the new drug is physiochemically different or
clinically superior. The "orphan drug" status applicable to drugs handled by
Accredo expires as follows: Nutropin(R) expires November 2000; Cerezyme(R)
expires May 2001; Avonex(R) expires May 2003 and Remicade(TM) expires September
2005. The loss of orphan drug status could result in competitive drugs entering
the market.

         Our ability to continue to service Avonex(R) 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(R). No trial date has been set in this
case.



                                      14
<PAGE>   15

         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 our business,
financial condition and results of operation.

         A DISRUPTION OF OUR RELATIONSHIPS WITH CERTAIN MEDICAL CENTERS COULD
HURT OUR BUSINESS

         Accredo has significant relationships with seven medical centers that
involve services primarily related to hemophilia and growth hormone-related
disorders. For the fiscal years ended June 30, 1999 and 1998, we received
approximately 23% and 30%, respectively, of our income before income taxes and
extraordinary items from equity in the net income from our joint ventures
related to hemophilia and growth hormone-related disorders. Specifically, we
derived 5% and 16%, respectively, from our joint venture with Alternative Care
Systems, located in Dallas, Texas, and 5% and 9%, respectively, from our joint
venture with CM Healthcare Resources, Inc. located in Chicago, Illinois, and
11% and 0%, respectively, from our joint ventures with Children's Home Care
located in Los Angeles, California for such periods.

         Our agreements with the medical centers are short-term, 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.

         OUR BUSINESS IS HIGHLY DEPENDENT ON CONTINUED RESEARCH, DEVELOPMENT
AND PRODUCTION IN THE BIOTECHNOLOGY DRUG INDUSTRY

         Our business is highly dependent on continued research, development,
manufacturing and marketing expenditures of biotechnology drug 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 biotechnology drug industry suffers
from unfavorable developments, including:

         -        Supply shortages;
         -        Adverse drug reactions;
         -        Drug recalls;
         -        Increased competition among biotechnology drug 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 because of
                  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.

         DECREASES IN PAYMENTS BY THIRD-PARTY PAYORS COULD HURT OUR BUSINESS

         Our profitability depends on payment from governmental and
nongovernmental third-party payors, and we could be materially and adversely
affected by trends toward cost containment measures in the health care industry
or by financial difficulties suffered by private payors. Cost containment
measures affect pricing, purchasing and usage patterns in health care. Private
payors, managed care organizations and similar groups 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 private payors, including large managed care organizations and some
private physician



                                      15
<PAGE>   16

practices, have recently experienced financial trouble. The ability to collect
from third-party payors also affects Accredo's revenue and profitability. If
the Company is unable to collect from third-party payors, it could have a
material adverse impact on our business and financial condition.

         Our dependence on reimbursement from private payors is evident from
the portion of total revenue they constitute. For the fiscal years ended June
30, 1999, 1998 and 1997, we derived approximately 82%, 80% and 83%,
respectively, of our gross patient service revenue from private payors
(including self-pay), which included 6%, 7% and 11%, respectively, from sales
to private physician practices whose ultimate payor is typically Medicare.

         CHANGES IN MEDICARE OR MEDICAID COULD HURT OUR BUSINESS

         Changes in the Medicare, Medicaid or similar government programs or
the rates paid by those programs for our services may adversely affect our
earnings. We estimate that approximately 18% of our gross patient service
revenue for the fiscal year ended June 30, 1999, 20% of our gross patient
service revenue for the fiscal year ended June 30, 1998 and 17% of our gross
patient service revenue for the fiscal year ended June 30, 1997 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 effect
our business, financial condition and results of operations:

         OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY

         Our financial results have historically fluctuated on a quarterly
basis, and this pattern is expected to continue. These quarterly fluctuations
could adversely affect the market price of our common stock and are
attributable to many factors, including:

         -        Below-expected sales of a new drug;
         -        Increases in our operating expenses in anticipation of the
                  launch of a new drug;
         -        Price and term adjustments with our suppliers;
         -        Inaccuracies in our estimates of the cost of ongoing
                  programs;
         -        The timing and integration of our acquisitions;
         -        Changes in governmental regulations;
         -        The annual renewal of deductible and co-payment requirements,
                  so that patient ordering patterns are affected, causing a
                  seasonal reduction in revenue from existing drug programs for
                  our third fiscal quarter;
         -        Our provision of drugs, now or in the future, to treat
                  seasonal illnesses such as RSV;
         -        Physician prescribing patterns; and
         -        General economic conditions.

         LIABILITIES AND COSTS MAY ARISE FROM OUR JOINT VENTURES AND
ACQUISITIONS

         As part of our growth strategy we continually evaluate joint venture
and acquisition opportunities. Although we cannot predict or provide assurance
that Accredo will complete any future acquisitions or joint ventures, if we do,
Accredo will be exposed to a number of risks, including:

         -        Difficulty in assimilating the new operations;
         -        Increased transaction costs;
         -        Diversion of management's attention from existing operations;
         -        Dilutive issuances of equity securities that may negatively
                  impact the market price of our stock;
         -        Increased debt;
         -        Increased amortization expense related to goodwill and other
                  intangible assets that would decrease our earnings.



                                      16
<PAGE>   17

         Accredo may also expose itself to unknown or contingent liabilities
resulting from the pre-acquisition operations of the entities it acquires, such
as liability for failure to comply with health care or reimbursement laws.
Accredo could be exposed to liability for pre-acquisition operations with
respect to the following transactions:

         -        The purchase in May 1996 of Southern Health Systems, Inc.
                  Southern Health had four subsidiaries, each of which had
                  prior operating histories. While Southern Health divested all
                  of its subsidiaries with unrelated businesses before closing,
                  Accredo could potentially be held liable for matters relating
                  to the operations of the divested subsidiaries for periods
                  before the divestiture.
         -        The purchase in June 1997 of Hemophilia Health Services,
                  Inc., which had an extensive operating history.
         -        The purchase in November 1998 of a 50% interest in two
                  California general partnerships.

         OUR INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION

         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 to our business, financial condition and results of
operations. Our business could also be materially and adversely effected 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
                  ("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 certain "safe harbor"
                  regulations attempt to clarify when an arrangement may fall
                  outside of the scope of the Anti-Kickback Law, our business
                  arrangements and the services we provide may not fit within
                  these exceptions.
         -        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 member has 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.
         -        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.
         -        Federal and state investigations and enforcement actions have
                  recently begun focusing 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, and can result in
                  significant financial sanctions.

         OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR
GROWTH

         Our rapid growth over the past two fiscal 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. If this growth
continues, the strain could cause us to relocate our operations to a new city
or area. Our ability



                                      17
<PAGE>   18

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.

         OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE SUBSTANTIAL
COMPETITION WITHIN OUR INDUSTRY.

         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. Accredo's current and
potential competitors include:

         -        Specialty pharmacy divisions of wholesale drug distributors;
         -        Specialty pharmacy 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 Accredo. We are particularly at
risk for one of our suppliers deciding to pursue its own distribution and
services. Some of our competitors, such as hospitals and hemophilia treatment
centers, have the advantage of federally mandated drug discounts that are not
available to Accredo, and which are proposed to be available to even more
potentially competing centers. 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.

         OUR PRODUCT DELIVERY REQUIREMENTS DEPEND HEAVILY ON AVAILABLE SHIPPING
SERVICES APPROPRIATE TO OUR PRODUCTS

         Since almost all of our revenues result from the sale of drugs we
deliver to our patients, we depend heavily on our shipping services for
efficient, cost effective delivery of our product. There are many risks
associated with this dependence, all of which could materially and adversely
affect our business. Those risks include:

         -        Any significant increase in shipping rates;
         -        Strikes or other service interruptions by our primary
                  carrier, Federal Express, or by another carrier that could
                  affect Federal Express; or
         -        Product spoilage during shipment, since our drugs are
                  expensive and often require special handling, such as
                  refrigeration. We do not maintain insurance against product
                  spoilage during shipment and the loss of even small shipments
                  could represent a significant cost.

         WE RELY ON A FEW KEY PEOPLE

         We depend on a number of our 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, Accredo is not insured against the losses resulting from the death of
its key executives. Further, we must be able to attract and retain other
qualified, essential employees for our technical operating and professional
staff, such as pharmacists.

         WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR GROWTH AND CAPITAL
REQUIREMENTS

         In order to implement our growth strategy, we will need substantial
capital resources and will incur, from time to time, additional 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



                                      18
<PAGE>   19

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.

         WE COULD BE ADVERSELY AFFECTED BY AN IMPAIRMENT OF THE SIGNIFICANT
AMOUNT OF GOODWILL ON OUR FINANCIAL STATEMENTS

         The formation of Accredo and our acquisitions of Southern Health
Systems and Hemophilia Health Services resulted in the recording of a
significant amount of goodwill on our financial statements. The goodwill was
recorded because the value of the tangible and intangible assets owned by those
companies at the time they were acquired was less than the purchase price. We
have determined that the goodwill recorded as a result of those acquisitions
will benefit Accredo for a period of no less than 40 years and, as a result, we
amortize this goodwill evenly over a 40-year period. There can be no assurance
that Accredo 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.

         If the amortization period for a material portion of goodwill is
overly long, it causes an overstatement of earnings in periods immediately
following the transaction in which the goodwill was recorded. In later periods,
it causes earnings to be understated because of an amortization charge for an
asset that no longer provides a corresponding benefit. Earnings in later
periods could also be significantly affected if the remaining balance of
goodwill is impaired and written off as a charge against 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,
1999, Accredo had goodwill, net of accumulated amortization, of approximately
$48.4 million, or 33% of total assets and 75% of stockholders' equity.

         Since our growth strategy may involve the acquisition of other
companies, we may record additional goodwill in the future. The amortization
and possible write-off of this goodwill could negatively impact our future
earnings. Also, in future acquisitions we may be required to allocate a portion
of the purchase price to the value of non-competition agreements, patient base
and contracts that are acquired. The value of any amounts allocated to these
items could be amortized over a period much shorter than 40 years. As a result,
our earnings and potentially our stock price could be negatively impacted.

         THE PRICE OF OUR STOCK COULD BE VOLATILE AND SUBJECT TO SUBSTANTIAL
FLUCTUATIONS

         Our common stock is traded on the Nasdaq National Market. Since our
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 or the
                  health care market;
         -        Changes in government regulations;
         -        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 demand or reimbursement levels for our services and
general economic, political and market conditions, may adversely affect the
market price of our common stock.

         CERTAIN OF OUR STOCKHOLDERS COULD ACT TOGETHER TO EXERT CONTROL OVER
ACCREDO

         As of September 17, 1999, our directors, executive officers and their
affiliates, as a group, including Welsh, Carson, Anderson & Stowe, VII, L.P.,
beneficially own approximately 45% of our outstanding voting common stock. If
those stockholders acted together, they could control the election of
directors, and influence other matters that require a vote by our stockholders,
potentially using that power to prevent a change in control at a premium over
the prevailing market price of our common stock.



                                      19
<PAGE>   20

         FUTURE SALES OF OUR COMMON STOCK COULD CAUSE THE PRICE OF OUR SHARES
TO DECLINE

         Sales of substantial amounts of our common stock in the public market,
or the belief those sales might occur, could cause the price of our stock to
decline. As of September 17, 1999, we have outstanding 9,144,887 shares of
common stock, 3,450,000 of which were sold in our initial public offering in
April 1999 and are freely tradable.

         Subject to certain volume and other limitations of Rule 144, holders
of 5,627,087 restricted shares of common stock will be eligible to sell their
shares to the public upon the expiration of a "lock-up" period of 180 days
following April 15, 1999, which was the effective date of the registration
statement relating to our initial public offering. Approximately 60% of the
shares have already been released from the lock-up period as of September 21,
1999. These holders also have contractual rights to have their shares
registered for resale after the lock up period expires free of any limitations
imposed by Rule 144. If those holders, after the 180-day lockup period, cause a
large number of shares to be sold in the public market, the market for the
common stock could be adversely affected.

         In addition, as of September 17, 1999, 1,529,700 shares of Accredo's
registered common stock have been reserved for future stock awards under
Company stock plans, and for issuance upon the exercise of outstanding awards.
As of September 17, 1999, options to purchase 860,683 of these registered
shares have been granted and not yet exercised. Those shares are freely
tradable upon exercise, except to the extent that the holders are deemed to be
affiliates of Accredo, in which case the transferability of such shares will be
subject to the volume limitations of Rule 144, and except to the extent the
holders are subject to "lock up" agreements.

         OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD INHIBIT A TAKEOVER
OF ACCREDO, RESULTING IN A DECLINE IN THE MARKET PRICE FOR THE COMMON STOCK

         Certain provisions of our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws could make it more difficult for
a third party to acquire control of Accredo, or could discourage a third party
from attempting to acquire our company. These provisions might limit the price
that investors would pay in the future for shares of our common stock. Examples
of these provisions include:

         -        The classification of our Board of Directors into three
                  classes;
         -        Blank check preferred stock that may be issued by our Board
                  of Directors, without stockholder approval, containing
                  preferences or rights objectionable to an acquiror;
         -        Restrictions on calling special meetings at which an
                  acquisition or change in control might be brought to a vote
                  of the stockholders;
         -        The right to impose procedural and other requirements that
                  could make it more difficult for stockholders to effect
                  certain corporate actions.

         We are subject to a provision of the Delaware General Corporation Law
(Section 203), that restricts certain business combinations with an "interested
stockholder" and could delay, defer or prevent a change in control of Accredo.



                                      20
<PAGE>   21

ITEM 2. PROPERTIES

FACILITIES

         The Company's corporate headquarters are located in Memphis, Tennessee
and its primary pharmacy locations are in Memphis and Nashville, Tennessee. In
addition, the Company has a satellite pharmacy location in the Birmingham,
Alabama area and two satellite pharmacy locations in the Dallas/Ft. Worth,
Texas area that are leased by partnerships in which the Company is a general
partner.

Memphis, Tennessee. The Company currently leases an aggregate of approximately
42,000 square feet of space in an office/warehouse business park in Memphis,
Tennessee pursuant to two lease agreements that expire in 2003, each with an
option to extend the lease term for one additional five year period. The
Company is negotiating to lease an additional 30,000 square feet of space in
the same location and the construction of a parking lot.

Nashville, Tennessee. The Company currently leases approximately 28,000 square
feet of space in Nashville, Tennessee pursuant to a lease agreement that
expires in October 1999, with an option to extend the lease term for one
additional five year period.

Birmingham, Alabama. The Company currently leases approximately 2,400 square
feet of space in the Birmingham, Alabama area pursuant to a lease agreement
that expires in February 2000.

Dallas/Fort Worth, Texas. Partnerships in which the Company is 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 pursuant to two
lease agreements that expire in May 2002, each with an option to extend the
lease term for one additional three year period.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is subject to claims and suits in the ordinary course of
business. In the opinion of Company management, although outcomes of these
lawsuits and claims are uncertain, in the aggregate they should not have a
material adverse effect on the Company's business, financial condition or
results of operations.

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

         The shareholders of the Company acted by written consent on April 12,
1999 as disclosed in the Company's quarterly report on Form 10-Q filed May 14,
1999.



                                      21
<PAGE>   22

                                    PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         PRICE RANGE OF COMMON STOCK

         The Company's common stock has been traded on the Nasdaq National
Market System under the symbol "ACDO" since April 16, 1999. The following table
sets forth the quarterly high and low closing sales prices as reported on the
Nasdaq National Market System from April 16, 1999 through June 30, 1999.

<TABLE>
<CAPTION>
                   FY 1999                 HIGH            LOW

               <S>                         <C>           <C>
               First Quarter                  N/A             N/A
               Second Quarter                 N/A             N/A
               Third Quarter                  N/A             N/A
               Fourth Quarter (1)          $32.75        $19.0625
</TABLE>

(1) Represents trading from April 16, 1999 through June 30, 1999.

         HOLDERS

         As of September 17, 1999, the approximate number of registered
stockholders was 640 including 37 stockholders of record and approximately 603
persons or entities holding common stock in nominee name.

         DIVIDEND POLICY

         Accredo has never paid any cash dividend on its capital stock. Accredo
currently anticipates that all of its earnings will be retained to finance the
growth and development of its business, and therefore, does not anticipate that
any cash dividend will be declared or paid on the common stock in the
foreseeable future. Any future declaration of dividends will be subject to the
discretion of Accredo's Board of Directors and its review of Accredo's
earnings, financial condition, capital requirements and surplus, contractual
restrictions to pay such dividends and other factors it deems relevant.

         SALES OF UNREGISTERED SECURITIES

         In connection with the Company's initial public offering (effective
April 15, 1999), Welsh, Carson, Anderson & Stowe VII, L.P. ("Welsh Carson"),
the largest shareholder of the Company, exchanged 1,100,000 shares of
unregistered "restricted" Common Stock of the Company for 1,100,000 shares of
the Company's unregistered "restricted" Non-Voting Common Stock. Subsequent to
this exchange, and following the partial release of the shareholder lock-up
agreement, Welsh Carson distributed 30% of its ownership in the Company's
Common Stock to its partners. Following this distribution, Welsh Carson
converted the 1,100,000 shares of Non-Voting Common Stock back to Common Stock.



                                      22
<PAGE>   23

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

                            SELECTED FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

         The following tables summarize selected financial data, which are
qualified by and should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Financial Statements and the Notes thereto included elsewhere in
this Annual Report on Form 10-K. The selected financial data with respect to
(a) Nova Factor ("Predecessor") as of and for the fiscal year ended June 30,
1995, and as of May 31, 1996 and for the period July 1, 1995 through May 31,
1996, and (b) the Company as of June 30, 1996 and for the period from inception
(May 24, 1996) through June 30, 1996, and as of and for the fiscal years ended
June 30, 1997, 1998 and 1999 has been derived from audited financial statements
of the Predecessor and the Company. The information set forth below is not
necessarily indicative of the results of future operations.



                                      23
<PAGE>   24

<TABLE>
<CAPTION>
                                                          PREDECESSOR(1)                                 COMPANY(1)
                                                        ---------------------  ------------------------------------------------
                                                                                 MAY 24,
                                                                      JULY 1,     1996
                                                                       1995    (INCEPTION)
                                                        YEAR ENDED   THROUGH     THROUGH
                                                         JUNE 30,     MAY 31,    JUNE 30,            YEARS ENDED JUNE 30,
                                                         -------      -------    --------     ---------------------------------
                                                           1995        1996        1996         1997          1998       1999
                                                           ----        -----       ----         ----          ----       ----

<S>                                                     <C>          <C>       <C>            <C>             <C>       <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
   Net patient service revenue ......................     $71,513    $ 68,585     $ 6,647     $ 106,143     $170,002    $244,158
   Other revenue ....................................       6,710       6,346         597         8,049        9,806      12,277
   Equity in net income (loss) of joint ventures ....         646        (139)         49         1,017        1,150       1,919
                                                          -------    --------     -------     ---------     --------    --------
      Total revenues ................................      78,869      74,792       7,293       115,209      180,958     258,354
Operating expenses:
   Cost of services .................................      68,273      65,867       6,450       101,080      154,046     220,517
   General and administrative .......................       2,714       2,753         627         5,939       12,489      17,637
   Bad debts ........................................       1,322       1,860         251         2,977        3,165       4,739
   Depreciation and amortization ....................          76         104         456         4,877        3,861       3,911
   Corporate overhead allocation(2) .................       1,900       4,206          --            --           --          --
                                                          -------    --------     -------     ---------     --------    --------
      Total operating expenses ......................      74,285      74,790       7,784       114,873      173,561     246,804
                                                          -------    --------     -------     ---------     --------    --------
Operating income (loss) .............................       4,584           2        (491)          336        7,397      11,550
Interest expense, net ...............................         943         266         106           984        3,552       3,165
                                                          -------    --------     -------     ---------     --------    --------
Income (loss) before income taxes and ...............       3,641        (264)       (597)         (648)       3,845       8,385
   extraordinary item
Income tax expense (benefit) ........................       1,387         (72)        (28)        1,502        2,420       4,003
                                                          -------    --------     -------     ---------     --------    --------
Income (loss) before extra-ordinary item ............     $ 2,254    $   (192)       (569)       (2,150)       1,425       4,382
                                                          =======    ========
Extraordinary charge for early extinguishment of
   debt, net of income tax benefit...................                                  --            --           --      (1,254)
                                                                                  -------     ---------     --------    --------
Net income (loss)....................................                                (569)       (2,150)       1,425       3,128
Mandatorily redeemable cumulative
   preferred stock dividends.........................                                (170)       (2,043)      (2,043)     (1,617)
                                                                                  -------     ---------     --------    --------
Net income (loss) to common stockholders.............                             $  (739)    $  (4,193)    $   (618)   $  1,511
                                                                                  =======     =========     ========    ========

Diluted earnings per common share:
Income (loss) before extraordinary item..............                             $  (.11)    $    (.42)    $    .26    $    .63
Extraordinary charge.................................                                  --            --           --        (.18)
Preferred stock dividends............................                                (.03)         (.40)        (.37)       (.23)
                                                                                  -------     ---------     --------    --------
Net income (loss) to common stockholders(3)..........                             $  (.14)    $    (.82)    $   (.11)   $    .22
                                                                                  =======     =========     ========    ========
Cash Dividends declared on common stock..............                             $    --     $      --     $     --    $     --
                                                                                  =======     =========     ========    ========
<CAPTION>
                                                          JUNE 30,    MAY 31,                        JUNE 30,
                                                          --------    -------                        --------
                                                            1995       1996        1996         1997          1998       1999
                                                            ----       ----        ----         ----          ----       ----

<S>                                                       <C>        <C>          <C>         <C>           <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...........................     $   645    $  1,995     $ 3,576     $   3,676     $  5,087    $  5,542
Working capital .....................................      13,523       1,148       1,384        16,894       23,377      28,906
Total assets(4) .....................................      44,808      27,538      72,036       113,309      114,049     146,746
Long-term debt ......................................       4,000          --          --        35,195       36,418      20,500
Mandatorily redeemable cumulative preferred stock ...          --          --      25,706        27,749       29,792          --
Stockholders' equity ................................      11,315       3,327      14,583        12,790       12,801      64,127
</TABLE>

-----------

(1)  The Company was incorporated on May 24, 1996. On May 31, 1996, the Company
     acquired SHS, a holding company, and its wholly-owned subsidiary, Nova
     Factor (the "Predecessor"). Since the Company was newly formed at May 24,
     1996, and because the Predecessor had been in existence for several years,
     the Company is considered the successor to the Predecessor's operations.
     The balance sheet data of the Predecessor represents the historical cost
     basis of the Predecessor's assets and liabilities prior to its acquisition
     by the Company. The acquisition of the Predecessor by the Company resulted
     in a new basis of accounting such that the Predecessor's assets and
     liabilities were recorded at their fair value in the Company's
     consolidated balance sheet upon consummation of the acquisition.
     Additionally, the Company acquired HHS on June 1, 1997. Accordingly, the
     Selected Financial Data are not strictly comparable for the periods
     presented.

(2)  The Predecessor has been allocated expenses for certain services provided
     by its parent, SHS, including cash management, tax reporting, risk
     management and executive management services. Charges for these services
     were based upon a general allocation methodology determined by SHS (used
     to allocate all corporate overhead expenses to SHS subsidiaries), and were
     not necessarily allocated based on specific identification of expenses.
     Management believes the allocation methodology is reasonable.

(3)  Historical diluted loss per share for the periods ended June 30, 1996,
     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.

(4)  In May 1996, the Predecessor settled various intercompany accounts with
     subsidiaries of SHS.



                                      24
<PAGE>   25

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 the Company's 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 of the Company's 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. The Company's 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

         Accredo provides specialized contract pharmacy and related services
for the treatment of patients with certain costly, chronic diseases. The
Company derives revenues primarily from the sale of biotechnology drugs to
patients. The majority of the Company's revenues are derived from products and
services provided with respect to the following diseases: Gaucher Disease,
hemophilia, Multiple Sclerosis and growth hormone-related disorders. The
products provided by the Company are purchased directly from biotechnology drug
manufacturers pursuant to preferred relationship agreements in the case of
Gaucher Disease, Multiple Sclerosis, and growth hormone-related disorders and
purchase agreements in the case of hemophilia. Approximately 37%, 31% and 6% of
the Company's total revenues in fiscal year 1999 were generated from sales and
services provided with respect to Gaucher Disease, Multiple Sclerosis and
growth hormone-related disorders, respectively. These sales and services were
(and will continue to be) dependent upon the Company's preferred relationships
with Genzyme, Biogen and Genentech, respectively. Sales and services provided
with respect to hemophilia represented approximately 21% of the Company's total
revenues for fiscal year 1999.

         The Company's manufacturer agreements describe certain services to be
provided by the Company, including contract pharmacy, information, clinical,
reimbursement and customized delivery services. The agreements generally limit
the Company's ability to supply competing drugs during (and in some cases for
up to five years after) the term of the agreement, allow the manufacturer to
distribute directly or through other parties, are generally short term and may
be cancelled by either party, without cause, upon between 60 and 90 days prior
notice. The agreements vary in scope of services provided. The Company
typically purchases products at prices below the manufacturers' average
wholesale sales prices, and the Company's resulting contribution margins vary
for each product line. Pricing is customized to reflect specific services to be
provided by Accredo and is subject to periodic adjustments to reflect changing
market conditions.

         The Company recognizes revenue at the time the biotechnology drug is
dispensed or when the contractual service has been performed. While the Company
may experience revenue changes from price fluctuations on its existing product
lines, its revenue growth will depend principally on the introduction of new
drugs and to a lesser extent on volume growth in existing drug lines. In May
1996, the Company entered into a preferred relationship with Biogen and
initiated sales and services with respect to Avonex(R) for the treatment of
Multiple Sclerosis. In August 1998, the Company entered into a preferred
relationship with Centocor and in October 1998 initiated sales and services
with respect to Remicade(TM) for the treatment of Crohn's Disease. In addition,
the Company also began distributing Synagis(R), a drug used for the treatment
of RSV in pediatric patients which is manufactured by MedImmune, Inc., during
fiscal year 1999. The Company and MedImmune renewed their relationship for the
1999-2000 RSV season by executing a new distribution agreement on August 16,
1999. The Company is one of two national providers of the drug for the
1999-2000 RSV season.

         The Company has expanded its existing relationships with biotechnology
manufacturers through the development of new or complementary services that fit
the specialized needs of the manufacturer and the patients they serve such as
referral triage services that refer patients to the appropriate provider based
on the patient's insurance provider network. This service helps the
manufacturers increase market penetration by obtaining access to patients
regardless of whether the Company is able to act as the provider. Although the
revenue received from the referral triage service is not material, the referral
triage service and the other complimentary services have provided an additional
source



                                      25
<PAGE>   26

of revenue for the Company in fiscal years 1999, 1998 and 1997, and management
believes that the need for additional services will continue to expand and will
constitute an increasing percentage of the Company's revenues in the future.

         The acquisition of HHS in June 1997 enabled the Company to
significantly increase its presence in the hemophilia market. Subsequent to the
acquisition, the Company consolidated its existing hemophilia operations into
HHS to take advantage of volume purchasing discounts, disease management
systems and increased access to certain state Medicaid and managed care
relationships.

         Accredo has five joint venture agreements with four medical centers
(or their affiliates) in which the Company owns 50% of the venture. Many of the
Company's patient populations have diseases that are discovered before or
during adolescence and require on-going 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 and growth hormone-related disorders. The Company and
its joint venture partners share profits and losses in equal proportion to
their respective equity ownership. The Company accounts for its interests in
the net income or loss in its joint ventures under the equity method of
accounting. The Company's equity interest in the net income of these joint
ventures represented approximately 23%, of the Company's income before income
taxes and extraordinary item for fiscal year 1999. In addition to joint venture
relationships, the Company has management agreements with three medical centers
(or their affiliates) for the provision of specialized contract pharmacy
services. The Company receives a management fee for these services which is
classified as other revenue.

         Cost of services include drug acquisition costs, pharmacy and
warehouse personnel costs, freight and other direct costs associated with the
delivery of the 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 the Company's provision
for patient accounts receivable which prove to be uncollectable after routine
collection efforts have been exhausted. The Company typically hires personnel
and incurs legal, recruiting, marketing and other expenses in anticipation of
the commercial launch of a new biotechnology drug. In certain instances, a
portion of these expenses are reimbursed to the Company by the biotechnology
drug manufacturer. The Company historically has not capitalized any of these
start up expenses.

         Due to the increasing sensitivity to drug cost within governmental and
private payors, the Company is continuously susceptible to reimbursement and
operating margin pressures. In recent years, pharmacy benefit managers and
other private payors have aggressively attempted to discount their
reimbursement rates for the Company's products. While this aggressive
discounting has resulted in some reduced margins for the Company's services,
the Company's agreements with many of its biotechnology manufacturers provide
terms which allow the Company to negotiate compensation for much of these
discounts through negotiated adjustments in product acquisition cost.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                                               YEARS ENDED JUNE 30,
                                                                                               --------------------
                                                                                          1997        1998         1999
                                                                                          ----        ----         ----
         <S>                                                                              <C>         <C>          <C>
         Revenues:
               Net patient service revenue ....................................            92.1%       94.0%        94.5%
               Other revenue ..................................................             7.0         5.4          4.8
               Equity in net income of joint ventures .........................             0.9         0.6          0.7


                    Total revenues ............................................           100.0       100.0        100.0
         Operating expenses:
               Cost of services ...............................................            87.7        85.1         85.4
               General and administrative .....................................             5.2         6.9          6.8
               Bad debts ......................................................             2.6         1.8          1.8
               Depreciation and amortization ..................................             4.2         2.1          1.5
                    Total operating expenses ..................................            99.7        95.9         95.5


         Operating income .....................................................             0.3         4.1          4.5
         Interest expense, net ................................................             0.9         2.0          1.3


         Income (loss) before income taxes and extraordinary item .............            (0.6)        2.1          3.2
         Income tax expense ...................................................             1.3         1.3          1.5


         Income (loss) before extraordinary item ..............................            (1.9)        0.8          1.7
         Extraordinary charge, net of income tax benefit ......................              --          --         (0.5)


         Net income (loss) ....................................................            (1.9)%       0.8%         1.2%
</TABLE>



                                      26
<PAGE>   27

FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR 1998.

Revenues. Total revenues increased from $181.0 million to $258.4 million, or
43%, from fiscal year 1998 to fiscal year 1999. Approximately, $39.5 million,
or 51%, of this increase was attributable to the increased sales volume of
Avonex(R). Approximately $14.2 million, or 18%, of this increase was
attributable to the increased hemophilia revenue associated with increased
patient volume and wholesale sales. Cerezyme(R) and Ceredase(R) drug sales
increased approximately $12.6 million, or 16% of the revenue increase, as a
result of increased patient volume. Approximately $2.4 million, or 3%, of the
increase was attributable to the sale of the new drug Remicade(TM) for the
treatment of Crohn's Disease and approximately $2.3 million, or 3%, of the
increase was attributable to the sale of Synagis, a drug, used in the treatment
of respiratory synctial virus (RSV) in pediatric patients. The remaining $6.4
million, or approximately 9%, of the revenue increase was primarily
attributable to increased sales of growth hormone, service fees associated with
the sales of Ceredase(R), Cerezyme(R), and Avonex(R), increased sales of other
ancillary drugs the Company dispenses as part of a patient's primary therapy or
under contractual obligations within certain managed care contracts and an
increase of approximately $769,000 from the Company's equity in net income of
joint ventures.

Cost of Services. Cost of services increased from $154.0 million to $220.5
million, or 43%, from fiscal year 1998 to fiscal year 1999. This increase was
commensurate with the increase in sales referred to above. As a percentage of
revenues, cost of services increased from 85.1% to 85.4% from fiscal year 1998
to fiscal year 1999. This increase is primarily as a result of an increase in
certain hemophilia factor acquisition costs without an associated increase in
selling price during fiscal year 1999 in addition to changes in the Company's
volume of net patient service revenue by therapy type.

General and Administrative. General and administrative expenses increased from
$12.5 million to $17.6 million, or 41%, from fiscal year 1998 to fiscal year
1999. This increase is primarily the result of increased salaries and benefits
associated with the expansion of the Company's reimbursement, sales, marketing,
administrative and support staffs due to existing product line revenue growth
and new product line launches. General and administrative expenses represented
6.9% and 6.8% of revenues for the fiscal years 1998 and 1999, respectively.

Bad Debts. Bad debts increased from $3.2 million to $4.7 million from fiscal
year 1998 to fiscal year 1999. Bad debt expense was 1.8% of revenue in both
periods.

Depreciation and Amortization. Depreciation expense increased from $430,000 to
$614,000 from fiscal year 1998 to fiscal year 1999 as a result of $1.5 million
in purchases of property and equipment in fiscal year 1999 associated with the
Company's revenue growth and expansion of its leasehold facility improvements.
Amortization expense associated with the goodwill and other intangible assets
decreased from $3.4 million to $3.3 million from fiscal year 1998 to fiscal
year 1999 due to certain contract intangibles and a non-compete covenant that
were fully amortized by the end of fiscal year 1999.

Interest Expense, Net. Interest expense, net, decreased from $3.6 million to
$3.2 million from fiscal year 1998 to fiscal year 1999 due to lower interest and
margin rates payable under the Company's existing revolving line of credit
agreement with its lenders, lower fixed interest rate payments associated with
its renegotiated interest rate swap agreement, and a reduced level of debt
resulting from the early payoff of a significant portion of the Company's debt
with a portion of the proceeds from the initial public offering completed in
April 1999. The Company generated interest



                                      27
<PAGE>   28

income of approximately $181,000 in fiscal year 1999 and $169,000 in fiscal
year 1998 as a result of cash management programs which utilized the Company's
increased short-term excess cash balances.

Income Tax Expense. The Company's effective tax rate decreased from 62.9% to
47.7% from fiscal year 1998 to fiscal year 1999 as a result of the increase in
income before taxes while nondeductible amortization expense decreased. The
difference between the recognized tax rate and the statutory tax rate was
primarily attributed to approximately $2.5 million and $2.3 million of
nondeductible amortization expense in fiscal year 1998 and 1999, respectively,
and state income taxes.

FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR 1997

Revenues. Total revenues increased from $115.2 million to $181.0 million, or
57%, from fiscal year 1997 to fiscal year 1998. Approximately $25.1 million, or
38%, of this increase was attributed to increased sales volume of Avonex(R),
which was launched in May 1996. Approximately $30.0 million, or 46%, of the
increase was attributed to the increased hemophilia revenue associated with the
acquisition of HHS in June 1997 and increased patient volume. The remaining
$10.7 million, or 16%, of the revenue increase was attributable primarily to
growth in the Company's Ceredase(R) and Cerezyme(R) drug sales and associated
service fees. The Company's equity in net income of joint ventures increased
from approximately $1.0 million to approximately $1.2 million from fiscal year
1997 to fiscal year 1998.

Cost of Services. Cost of services increased from $101.1 million to $154.0
million, or 52%, from fiscal year 1997 to fiscal year 1998. This increase was
primarily attributable to the expanded revenue volume of Avonex(R), hemophilia
clotting factor and Ceredase(R) and Cerezyme(R) along with personnel and other
direct expenses associated with this growth. As a percentage of revenues, cost
of services decreased from 87.7% to 85.1% from fiscal year 1997 to fiscal year
1998 primarily as a result of an increase in revenue from drugs with lower
acquisition costs as a percentage of revenue.

General and Administrative. General and administrative expenses increased from
$5.9 million to $12.5 million, or 112%, from fiscal year 1997 to fiscal year
1998. Approximately $4.2 million, or 66%, of this increase was associated with
the acquisition of HHS in June 1997. The remaining $2.4 million of this
increase was primarily the result of increased salaries and benefits associated
with the expansion of the Company's reimbursement, sales, marketing,
administrative and support staffs in anticipation of revenue growth and new
strategic sales and marketing efforts and approximately $138,000 in
compensation expense recognized primarily due to stock that was sold to a
director at less than estimated fair value. As a percentage of revenues,
general and administrative expenses increased from 5.2% to 6.9% from fiscal
year 1997 to fiscal year 1998 primarily as a result of the acquisition of HHS
which involves a more cost intensive service model than that of the Company's
other drug therapies.

Bad Debts. Bad debts increased from $3.0 million to $3.2 million from fiscal
year 1997 to fiscal year 1998. As a percentage of revenue, bad debt expense
decreased from 2.6% to 1.8% from fiscal year 1997 to fiscal year 1998 primarily
as a result of the increased percentage of the Company's revenues being
reimbursed by prescription benefit managers and other payors which reduces the
Company's exposure to the uncollectability of patient co-payments.

Depreciation and Amortization. Depreciation expense increased from $231,000 to
$430,000 from fiscal year 1997 to fiscal year 1998. Of this increase, $94,000
was attributable to the assets acquired as a result of the acquisition of HHS
in June 1997. The remaining increase is a result of approximately $992,000 of
capital expenditures made in fiscal 1998 for the purchases of property and
equipment associated with the Company's revenue growth and expansion of its
leasehold facility improvements. Amortization expense decreased from $4.6
million in fiscal year 1997 to $3.4 million in fiscal year 1998. This decrease
was primarily attributable to several significant contract intangibles that
were fully amortized by the end of fiscal year 1997. Additional amortization
expense was recognized as a result of the acquisition of HHS in June 1997,
which resulted in approximately $24.4 million of goodwill and other intangible
assets. Approximately $804,000 of additional amortization was attributable to
HHS intangibles in fiscal year 1998. Amortization expenses attributable to Nova
Factor intangibles decreased from $4.6 million in fiscal year 1997 to $2.5
million in fiscal year 1998.

Interest Expense, Net. Interest expense, net, increased from $ 984,000 to $3.6
million, from fiscal year 1997 to fiscal year 1998 primarily as a result of the
issuance of $27.5 million of long-term notes payable and $10.0 million of
Senior



                                      28
<PAGE>   29

Subordinated Notes payable issued as part of the acquisition of HHS in June
1997. The Company generated interest income of approximately $169,000 in fiscal
year 1998 and $100,000 in fiscal year 1997 resulting from cash management
programs which utilized the Company's increased short-term excess cash
balances.

Income Tax Expense. The Company's effective tax rate decreased from over 100%
to 62.9% from fiscal year 1997 to fiscal year 1998 as a result of increased
income before income taxes while nondeductible amortization expense decreased
substantially. The difference between the recognized effective tax rate and the
statutory tax rate is primarily attributed to approximately $4.6 million and
$2.5 million of nondeductible amortization expense in fiscal year 1997 and
1998, respectively, and state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

         As of June 30, 1999 and 1998, the Company had working capital of $28.9
million and $23.4 million, respectively. The increase in working capital for
each period resulted principally from the increase in patient accounts
receivable in connection with the Company's revenue growth. The Company's net
cash provided by operating activities was approximately $4.1 million for the
fiscal year ended June 30, 1999, while $1.9 million was provided by operating
activities during the fiscal year ended June 30, 1998. This increase is
primarily due to the Company's continued growth in income and the timing of
receivables, inventory purchases and payables. In regards to the timing of
receivables, in particular, the Company is owed $2.7 million as of June 30,
1999 from one of its joint venture partners that has been outstanding for more
than 180 days. Although the Company expects to collect this amount, and has
collected approximately $700,000 against a balance of approximately $3.4
million at the start of the quarter ended June 30, 1999, the length of time
these receivables have been outstanding has reduced the amount of cash that
would have otherwise been provided by operations during fiscal year 1999.

         Net cash used by investing activities was $4.3 million for the fiscal
year ended June 30, 1999 and $967,000 for the fiscal year ended June 30, 1998.
The increase in cash used by investing activities was primarily due to the
acquisition of a 50% interest in two California partnerships in November, 1998,
an increase in the purchase of property and equipment during fiscal year 1999
as a result of the Company's continued growth, and an increase in the amount of
undistributed earnings from the Company's joint ventures. During the fiscal
years ended June 30, 1999 and 1998, the Company received cash distributions
from its joint ventures of approximately $580,000 and $1.2 million,
respectively, while its associated equity in the net income of these joint
ventures was approximately $1.9 million and $1.2 million, respectively. In
addition, a $150,000 capital contribution was also made to the two California
partnerships during fiscal year 1999.

         Net cash provided by financing activities was $613,000 for fiscal year
1999 and $500,000 for fiscal year 1998. In April 1999 the Company completed its
initial public offering of 3,450,000 shares of common stock. The aggregate net
proceeds from the offering of approximately $51.3 million were used to pay
expenses of the offering ($1.4 million paid through June 30, 1999), redeem all
outstanding shares of Series A Preferred Stock plus accrued dividends ($31.4
million), prepay in full all principal and accrued interest on the Company's
Senior Subordinated Notes ($11.2 million) and reduce the outstanding balance of
the Company's revolving line of credit ($7.0 million). The remaining balance of
the offering proceeds will be used for working capital and other general
corporate purposes including payment of remaining unpaid expenses of the
offering as of June 30, 1999 ($0.3 million). In connection with the prepayment
of the Senior Subordinated Notes with the offering proceeds, the Company
incurred an extraordinary charge of approximately $1.3 million, net of tax, to
its operating results for the year. During fiscal year 1999 and 1998, the
Company also received approximately $200,000 and $500,000, respectively from
the private sale of its common stock.

         Historically, the Company has funded its operations and continued
internal growth through cash provided by operations. The Company anticipates
its capital expenditures for the year ending June 30, 2000 will consist
primarily of additional leasehold improvements and equipment for the continuing
expansion of the Company's leasehold to accommodate personnel necessary to
manage the Company's growth. The Company expects the cost of its capital
expenditures in fiscal year 2000 to be approximately $3.1 million, exclusive of
any acquisitions of businesses, and expects to fund these expenditures through
cash provided by operating activities and/or borrowings under the revolving
credit agreement with its bank. The Company is also currently in the process of
negotiating leases for an additional 30,000 square feet of office and warehouse
space and for additional parking space.



                                      29
<PAGE>   30

         Under the terms of the Company's 1999 amendment to its Credit
Agreement, and upon the completion of the Company's initial public offering,
the Company's available line of credit was increased from a $40.0 million
revolving credit facility to a $60.0 million revolving credit facility under
the terms of the Agreement. The Credit Agreement contains a $20.0 million
sublimit for working capital loans and letters of credit and is subject to a
borrowing base limit that is based on the Company's cash flow. All outstanding
principal and interest on loans made under the Credit Agreement is due and
payable on December 1, 2001. Interest on loans under the Credit Agreement
accrues at a variable rate index, at the Company's option, based on the prime
rate or London InterBank Offered Rate ("LIBOR") for one, two, three or six
months (as selected by the Company), plus in each case, a margin depending on
the amount of the Company's debt to cash flow ratio as defined by the Credit
Agreement and measured at the end of each quarter for prospective periods.
During most of fiscal year 1999 the Company paid a margin rate of 1.5%. Due to
the Company's continued improvement in its debt to cash flow ratios as a result
of its earnings growth and the reduction in the balance of its outstanding
debt, the Company will be paying a lower margin rate in fiscal year 2000
provided the current ratio levels are maintained.

         The Company's obligations under the Credit Agreement are secured by a
lien on substantially all of the assets of the Company, including a pledge of
all of the common stock of each direct or indirect wholly owned subsidiary of
the Company. Each wholly owned subsidiary has also guaranteed all of the
obligations of the Company under the Credit Agreement, which guarantee
obligations are secured by a lien on substantially all of the assets of each
such subsidiary.

         The Credit Agreement contains operating and financial covenants,
including requirements to maintain a certain debt to equity ratio and certain
leverage and debt coverage ratios. In addition, the Credit Agreement includes
customary affirmative and negative covenants, including covenants relating to
transactions with affiliates, use of proceeds, restrictions on subsidiaries,
limitations on indebtedness, limitations on liens, limitations on capital
expenditures, limitations on certain mergers, acquisitions and sale of assets,
limitations on investments, prohibitions on payment of dividends and stock
repurchases, and limitations on certain debt payments (including payment of
subordinated indebtedness) and other distributions. The Credit Agreement also
contains customary events of default, including certain events relating to
changes in control of the Company. The Company is also a guarantor of a bank
loan made to Children's Hemophilia Services ("CHS"), a California general
partnership in which the Company owns a 50% interest. This line of credit
allows the partnership to borrow up to $1.5 million which is repayable in full
on November 24, 2000. As of June 30, 1999, CHS had borrowed $1,150,000 against
the line of credit.

         Interest rate swap agreements are used to manage the Company's
interest rate exposure under the Credit Agreement. In January 1999, the Company
renegotiated its previous interest rate swap agreement and effectively
converted, for the period through October 31, 2001, $25.0 million of
floating-rate borrowings to fixed-rate borrowings. The Company secured a 5.5%
fixed interest rate (exclusive of the margin rate) under its current interest
rate swap agreement as compared to 6.15% under the previous agreement.

         While the Company anticipates its cash from operations, along with the
short term use of the Credit Agreement and the net proceeds received from its
initial public offering, will be sufficient to meet its internal operating
requirements and growth plans for at least the next 12 months, the Company
expects that additional funds would be required in the future to successfully
continue any growth that would extend beyond that 12-month period or in the
event that the Company grows more than expected within such period. The Company
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 the Company or, if obtained, will be sufficient for the Company's
needs.



                                      30
<PAGE>   31

YEAR 2000 COMPLIANCE

         Introduction. The term "year 2000 issue" is a general term used to
describe the various problems that may result from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
year 2000 is approached and reached. These problems arise from hardware and
software unable to distinguish dates in the "2000's" from dates in the "1900's"
and from other sources such as the use of special codes and conventions in
software that make use of a date field.

         The Company's State of Readiness. The Company's efforts in addressing
the year 2000 issue focused in the following three areas: (i) implementing
procedures to determine whether the Company's software systems and hardware
platforms are year 2000 compliant; (ii) communicating with suppliers and third
party payors to determine whether there will be any interruption in their
systems that could affect the Company's ability to receive timely shipments of
inventory or payment for services as a result of the year 2000 issue; (iii)
evaluating and making necessary modifications to other systems that contain
embedded chips, such as phone systems, which process dates and date sensitive
material.

         The Company has completed its process of obtaining written
verification from vendors to the effect that the Company's software
applications and hardware platforms acquired from such vendors will correctly
manipulate dates and date-related data as the year 2000 is approached and
reached. Additionally, as of June 30, 1999, the Company has completed upgrades
on its pharmacy management systems, including its billing and accounts
receivable systems, in order to address the year 2000 issue. Nevertheless,
there can be no assurance that the software applications and hardware platforms
on which the Company's business relies will correctly manipulate dates and
date-related data as the year 2000 is approached and reached. Such failures
could have a material adverse effect on the Company's business, financial
condition and results of operations.

         The Company's business relies heavily upon its ability to obtain
pharmaceuticals from a limited number of biotechnology manufacturers and from
its ability to obtain reimbursement from third party payors, including Medicare
and Medicaid. The Company has completed its process of obtaining written
verification from its suppliers, and third party payors, to determine whether
there will be any interruption in the provision of pharmaceuticals or receipt
of payment resulting from the year 2000 issue. As a result of the analysis of
those written responses received from its third party payors, the Company
believes that there is minimal cash flow risk associated with the issue of year
2000 compliance of its significant third party payors. However, the Company has
been unable to assess the year 2000 compliance status of all of its third party
payors. The Health Care Financing Administration ("HCFA"), which administers
the Medicare and Medicaid programs, has stated that progress on its efforts to
renovate, test and certify the systems operated by its contractors that process
and pay Medicare claims have lead to its expectation of being ready on January
1, 2000 to process and pay claims. The failure of HCFA or any of the Company's
other significant third party payors to remedy year 2000 related problems could
result in a delay in the Company's receipt of payments for services which could
have a material adverse impact on the Company's business, financial condition
and results of operations. However, the Company does have contingency plans in
place in order to respond to a year 2000 related failure of a third party
payor. Those contingency plans include lines of credit sufficient to minimize
the impact which could result from any disruption in the Company's cash flow
from third party payors. Furthermore, a delay in receiving pharmaceuticals from
certain key biotechnology manufacturers could hinder the Company's ability to
provide services to its customers which could have a material adverse impact on
the Company's business, financial condition and results of operations.

         The Company is aware that certain of its systems, such as phone
systems, facsimile machines, heating and air conditioning, security systems and
other non-data processing oriented systems may include embedded chips which
process dates and date sensitive material. These embedded chips are both
difficult to identify in all instances and difficult to repair; often, total
replacement of the chips is necessary. The inventory and evaluation for year
2000 compliance of Company hardware, telecommunications, and environmental
support systems was completed in the first quarter of fiscal year 1999 and
those systems requiring remediation (repair), rebuilding or replacing
(re-engineering) were identified. During fiscal year 1999, all identified
re-engineering, remediation, and replacement requirements have been completed
and tested. However, failure of the Company to identify or remediate any
embedded chips (either on an individual or an aggregate basis) on which
significant business operations depend, such as phone systems, could have a
material adverse impact on the Company's business, financial condition and
results of operations.



                                      31
<PAGE>   32

         Costs to Address the Company's Year 2000 Issues. The Company completed
its year 2000 related software and hardware upgrades during fiscal year 1999.
Although the Company is continuing to monitor its internal systems for year
2000 compliance, no material additional expenses are anticipated. In the
unlikely event that any additional year 2000 software or hardware related
requirements are identified as part of the Company's ongoing due diligence
process, the Company plans to fund the costs of installing those year 2000
modifications from cash flows resulting from operations and does not expect
such costs to have a material effect on the financial condition of the Company
or its results of operations.

         Risks Presented by Year 2000 Issues. The Company maintains an ongoing
process of evaluating potential disruptions or complications that might result
from year 2000 related problems. However, at this time the Company has not
identified any specific business functions that will suffer material disruption
as a result of year 2000 related events. It is possible, however, that the
Company may identify business functions in the future that are specifically at
risk of year 2000 disruption. The absence of any such determination at this
point represents only the Company's current status of evaluating potential year
2000 related problems and facts presently known to the Company, and should not
be construed to mean that there is no risk of year 2000 related disruption.
Moreover, due to the unique and pervasive nature of the year 2000 issue, it is
impracticable to anticipate each of the wide variety of year 2000 events,
particularly outside of the Company, that might arise in a worst case scenario
which might have a material adverse impact on the Company's business, financial
condition and results of operations.

         The Company's Contingency Plans. The Company has in place and is
continually updating its contingency plans for significant business risks that
might result from year 2000 related events. To date, the Company has not
identified any specific internal business function that will be materially at
risk of significant year 2000 related disruptions. However, these contingency
plans will be monitored and adjusted as required for any risks identified
during the remainder of this calendar year 1999 and the year 2000.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         As of July 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
Statement No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. The Company had no items of other
comprehensive income, and accordingly, adoption of the statement had no effect
on the consolidated financial statements.

         Effective July 1, 1998, the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. Statement
no. 131 established standards for reporting of information about operating
segments. The Company's assets, revenues and income are derived from one
segment. Accordingly, segment disclosures are not presented in these financial
statements.

         In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued, and is required to be adopted in years
beginning after June 15, 2000. The Company expects to adopt the new Statement
in fiscal year 2001. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in the
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a hedge's derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.



                                      32
<PAGE>   33

IMPACT OF INFLATION

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

FORWARD LOOKING INFORMATION

Certain of the matters discussed in the preceding pages of this Form 10-K,
particularly regarding implementation of the Company's 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, and the effects
of year 2000 issues 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

The Company uses derivative financial instruments to manage its exposure to
rising interest rates on its variable-rate debt, primarily by entering into
variable-to-fixed interest rate swaps. Since the Company has fixed its interest
rate through October 31, 2001 on $25.0 million of its revolving credit facility
through such a financial instrument, the Company would not benefit from any
decrease in interest rates on this portion of its credit facility. Accordingly,
a 100 basis point decrease in interest rates along the entire yield curve would
not increase pre-tax income by $250,000 for the year as would be expected
without this financial instrument. However, a 100 point increase in interest
rates along the entire yield curve would also not decrease pre-tax income by
$250,000 for the same period as a result of using this derivative financial
instrument. Actual changes in rates may differ from the hypothetical
assumptions used in computing this exposure.

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.



                                      33
<PAGE>   34

                                    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 1999 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this item will appear in the sections
entitled "Executive Compensation" included in the Company's definitive Proxy
Statement relating to the 1999 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 1999 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 1999 Annual Meeting of Stockholders.



                                      34
<PAGE>   35

                                    PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      Documents filed as part of this Report:

<TABLE>
<CAPTION>
                                                                                            Page
                  <S>                                                                       <C>
                  (1)      Financial Statements:
                           Report of Independent Auditors                                   F-1

                           Consolidated Balance Sheets at June 30, 1998
                           and 1999                                                         F-2

                           Consolidated Statements of Operations for the years
                           ended June 30, 1997, 1998, and 1999                              F-4

                           Consolidated Statements of Stockholders' Equity and
                           Mandatorily Redeemable Preferred Stock
                           for the years ended June 30, 1997, 1998, and 1999                F-5

                           Consolidated Statements of Cash Flows for the years
                           ended June 30, 1997, 1998, and 1999                              F-6

                           Notes to Consolidated Financial Statements                       F-7

                  (2)      Financial Statement Schedules:

                           Schedule II - Consolidated Schedule -- Valuation and
                             Qualifying Accounts                                            F-24

                           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, which is incorporated
                           herein by reference.
</TABLE>

(b)      No reports on Form 8-K were filed by the Company during the fiscal
         quarter ended June 30, 1999.



                                      35
<PAGE>   36

                         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, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and mandatorily
redeemable cumulative preferred stock, and cash flows for each of the three
years in the period ended June 30, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and the schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, 1998 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1999,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.


                                          /s/Ernst & Young LLP


Memphis, Tennessee
August 9, 1999



                                      F-1
<PAGE>   37

                          ACCREDO HEALTH, INCORPORATED

                          CONSOLIDATED BALANCE SHEETS
                       (000's omitted, except share data)


<TABLE>
<CAPTION>
                                                               JUNE 30
                                                           1998          1999
                                                       ------------------------

<S>                                                    <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents                           $   5,087      $   5,542
   Receivables:
     Patient accounts                                     40,062         60,116
     Allowance for doubtful accounts                      (3,430)        (5,300)
                                                       ------------------------
                                                          36,632         54,816
     Due from affiliates                                     321          2,105
     Other                                                 2,922          5,856
                                                       ------------------------
                                                          39,875         62,777
   Recoverable income taxes                                  151             --
   Inventories                                            12,131         19,927
   Prepaids and other current assets                         310            359
   Deferred income taxes                                     324          1,554
                                                       ------------------------
Total current assets                                      57,878         90,159

Property and equipment, net                                2,128          3,025
Other assets:
   Joint venture investments                                 628          3,415
   Goodwill, net                                          49,647         48,353
   Other intangible assets, net                            3,768          1,794


                                                       ------------------------
Total assets                                           $ 114,049      $ 146,746
                                                       ========================
</TABLE>



                                      F-2
<PAGE>   38

<TABLE>
<CAPTION>
                                                                                                JUNE 30
                                                                                          1998             1999
                                                                                       --------------------------

<S>                                                                                    <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
   Accounts payable                                                                    $  31,305        $  56,029
   Accrued expenses                                                                        3,197            4,831
   Income taxes payable                                                                       --              393
                                                                                       --------------------------
Total current liabilities                                                                 34,502           61,253

Long-term notes payable                                                                   27,498           20,500
Senior subordinated notes payable                                                          8,920               --
Deferred income taxes                                                                        536              866
Mandatorily redeemable cumulative preferred stock, at redemption amount,
   300,000 shares authorized, 255,361 shares issued and outstanding in
   1998; no shares issued and outstanding in 1999                                         29,792               --

Stockholders' equity:
   Undesignated preferred stock, 5,000,000 shares authorized, no shares
     issued                                                                                   --               --

   Non-voting common stock, $.01 par value; 2,500,000 shares authorized;
     no shares issued and outstanding in 1998; 1,100,000 shares issued and
     outstanding in 1999                                                                      --               11

   Common stock, $.01 par value; 30,000,000 shares authorized; 5,590,587
     shares in 1998 and 7,977,087 shares in 1999 issued and outstanding                       56               80

   Common stock subscribed - 34,000 shares in 1998 and none in 1999                          204               --
   Additional paid-in capital                                                             14,039           63,367
   Retained earnings (deficit)                                                            (1,294)             669
                                                                                       --------------------------
                                                                                          13,005           64,127
Subscription receivable                                                                     (204)              --
                                                                                       --------------------------
Total stockholders' equity                                                                12,801           64,127
                                                                                       --------------------------
Total liabilities and stockholders' equity                                             $ 114,049        $ 146,746
                                                                                       ==========================
</TABLE>

See accompanying notes.



                                      F-3

<PAGE>   39




                          ACCREDO HEALTH, INCORPORATED

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       (000's omitted, except share data)



<TABLE>
<CAPTION>
                                                                                      YEARS ENDED JUNE 30
                                                                                                                  (NOTE 15)
                                                                                                                  PRO FORMA
                                                                                                                 (UNAUDITED)
                                                                    1997            1998            1999             1999
                                                                   ---------------------------------------------------------

<S>                                                                <C>             <C>              <C>           <C>
Revenues:
   Net patient service revenue                                     $106,143        $170,002         $244,158        $244,158
   Other revenue                                                      8,049           9,806           12,277          12,277
   Equity in net income of joint ventures                             1,017           1,150            1,919           1,919
                                                                   ---------------------------------------------------------
Total revenues                                                      115,209         180,958          258,354         258,354

Operating expenses:
   Cost of services                                                 101,080         154,046          220,517         220,517
   General and administrative                                         5,939          12,489           17,637          17,637
   Bad debts                                                          2,977           3,165            4,739           4,739
   Depreciation                                                         231             430              614             614
   Amortization                                                       4,646           3,431            3,297           3,297
                                                                   ---------------------------------------------------------
Total operating expenses                                            114,873         173,561          246,804         246,804
                                                                   ---------------------------------------------------------
Operating income                                                        336           7,397           11,550          11,550

Other expense (income):
   Interest expense                                                   1,084           3,721            3,346           1,888
   Interest income                                                     (100)           (169)            (181)           (181)
                                                                   ---------------------------------------------------------
                                                                        984           3,552            3,165           1,707
                                                                   ---------------------------------------------------------
Income (loss) before income taxes and extraordinary item               (648)          3,845            8,385           9,843
Income tax expense                                                    1,502           2,420            4,003           4,547
                                                                   ---------------------------------------------------------
Income (loss) before extraordinary item                              (2,150)          1,425            4,382           5,296
Extraordinary charge for early extinguishment of debt, net of
   income tax benefit                                                    --              --           (1,254)             --
                                                                   ---------------------------------------------------------
Net income (loss)                                                    (2,150)          1,425            3,128           5,296

Mandatorily redeemable cumulative preferred stock dividends          (2,043)         (2,043)          (1,617)             --
                                                                   ---------------------------------------------------------
Net income (loss) to common stockholders                           $ (4,193)       $   (618)       $   1,511        $  5,296
                                                                   =========================================================

Basic earnings per common share:
Income (loss) before extraordinary item                            $  (0.42)       $   0.26        $   0.69         $   0.58
Extraordinary charge                                                     --              --           (0.20)              --
Preferred stock dividends                                             (0.40)          (0.37)          (0.25)              --
                                                                   ---------------------------------------------------------
Net income (loss) to common stockholders                           $  (0.82)       $  (0.11)       $   0.24         $   0.58
                                                                   =========================================================

Diluted earnings per common share:
Income (loss) before extraordinary item                            $  (0.42)       $   0.26        $   0.63         $   0.55
Extraordinary charge                                                     --              --           (0.18)              --
Preferred stock dividends                                             (0.40)          (0.37)          (0.23)              --
                                                                   ---------------------------------------------------------
Net income (loss) to common stockholders                           $  (0.82)       $  (0.11)       $   0.22         $   0.55
                                                                   =========================================================
</TABLE>

See accompanying notes.


                                      F-4
<PAGE>   40

                          ACCREDO HEALTH, INCORPORATED

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
               MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK
                       (000's omitted, except share data)


<TABLE>
<CAPTION>
                                                                                                                        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
                                      ---------------------------------------------------------------------------------------------

<S>                                   <C>       <C>     <C>         <C>           <C>           <C>       <C>           <C>
Balance at June 30, 1996              5,107,253  $ 51     $  --        $  --       $ 15,101     $  (569)    $ 14,583     $ 25,706

Issuance of common stock                400,000     4        --           --          2,396          --        2,400           --
Common stock subscribed
  (83,334 shares)                            --    --       500           --             --          --          500           --
Subscription receivable                      --    --        --         (500)            --          --         (500)          --
Accrued dividends on mandatorily
  redeemable cumulative preferred
  stock                                      --    --        --           --         (2,043)         --       (2,043)       2,043
Net loss                                     --    --        --           --             --      (2,150)      (2,150)          --
                                      -------------------------------------------------------------------------------------------
Balance at June 30, 1997              5,507,253    55       500         (500)        15,454      (2,719)      12,790       27,749

Issuance of common stock                 83,334     1      (500)         500            499          --          500           --
Common stock subscribed
  (34,000 shares)                            --    --       204           --             --          --          204           --
Subscription receivable                      --    --        --         (204)            --          --         (204)          --
Accrued dividends on mandatorily
  redeemable cumulative preferred
  stock                                      --    --        --           --         (2,043)         --       (2,043)       2,043
Compensation resulting from stock
  transactions, net of income tax
  benefit                                    --    --        --           --            129          --          129           --
Net income                                   --    --        --           --             --       1,425        1,425           --
                                      -------------------------------------------------------------------------------------------
Balance at June 30, 1998              5,590,587    56       204         (204)        14,039      (1,294)      12,801       29,792

Issuance of common stock              3,486,500    35      (204)         204         51,513          --       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              9,077,087  $ 91     $  --        $  --       $ 63,367     $   669     $ 64,127     $     --
                                      ===========================================================================================
</TABLE>

See accompanying notes.


                                      F-5
<PAGE>   41

                          ACCREDO HEALTH, INCORPORATED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (000's omitted)


<TABLE>
<CAPTION>
                                                                                        YEARS ENDED JUNE 30
                                                                                1997           1998           1999
                                                                              --------------------------------------

<S>                                                                           <C>            <C>            <C>
OPERATING ACTIVITIES
Net income (loss)                                                             $ (2,150)      $  1,425       $  3,128
Adjustments to reconcile net income (loss) to net cash provided by
    (used in) operating activities:
    Depreciation and amortization                                                4,877          3,861          3,911
    Original issue discount amortization                                            12            177            198
    Interest added to long term obligations                                         85          1,046             --
    Extraordinary charge for early retirement of debt                               --             --          2,000
    Provision for losses on accounts receivable                                  2,977          3,165          4,739
    Deferred income taxes                                                          111          1,466           (969)
    Compensation resulting from stock transactions                                  --            138            184
Changes in operating assets and liabilities, net of effect from business
   acquisitions:
    Patient receivables and other                                              (11,060)       (10,522)       (25,857)
    Due from affiliates                                                            479             93         (1,784)
    Inventories                                                                 (5,260)         3,885         (7,796)
    Prepaids and other current assets                                             (216)           144            (49)
    Recoverable income taxes                                                        --           (151)           151
    Accounts payable and accrued expenses                                        9,378         (1,047)        25,891
    Income taxes payable                                                           261         (1,802)           393
                                                                              --------------------------------------
Net cash provided by (used in) operating activities                               (506)         1,878          4,140

INVESTING ACTIVITIES
Purchases of property and equipment                                               (349)          (992)        (1,511)
Business acquisition and joint venture investments                             (29,721)            --         (1,298)
Change in joint venture investments, net                                           378             25         (1,489)
                                                                              --------------------------------------
Net cash used in investing activities                                          (29,692)          (967)        (4,298)

FINANCING ACTIVITIES
Proceeds from (payment of) long-term obligations                                27,898             --        (18,116)
Redemption of preferred stock                                                       --             --        (31,409)
Capitalized loan fees                                                               --             --            (27)
Issuance of common stock                                                         2,400            500         51,547
Payment of costs related to public offering                                         --             --         (1,382)
                                                                              --------------------------------------
Net cash provided by financing activities                                       30,298            500            613

                                                                              --------------------------------------
Increase in cash and cash equivalents                                              100          1,411            455
Cash and cash equivalents at beginning of year                                   3,576          3,676          5,087
                                                                              --------------------------------------
Cash and cash equivalents at end of year                                      $  3,676       $  5,087       $  5,542
                                                                              ======================================

SUPPLEMENTARY CASH FLOW DISCLOSURES
Income taxes paid                                                             $    859       $  1,532       $  3,731
                                                                              ======================================

Cash paid for interest                                                        $    568       $  1,826       $  3,836
                                                                              ======================================
</TABLE>

See accompanying notes.


                                      F-6
<PAGE>   42

                          Accredo Health, Incorporated

                   Notes to Consolidated Financial Statements

                                 June 30, 1999


1. DESCRIPTION OF BUSINESS

The consolidated financial statements include the accounts and transactions of
Accredo Health, Incorporated (the Company) and its subsidiaries for the years
ended June 30, 1997, 1998 and 1999, and its subsidiary Hemophilia Health
Services, Inc. (HHS) for the period from the date of its acquisition, June 1,
1997. 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: Gaucher Disease, a
hereditary liver enzyme deficiency; hemophilia, a hereditary bleeding disorder;
Multiple Sclerosis, a debilitating disease of the central nervous system;
growth hormone related disorders; and Crohn's Disease, a chronic inflammatory
disease affecting the gastrointestinal tract. These diseases generally require
life-long therapy, except for the treatment of growth hormone-related disorders
which typically require treatment for six to ten years.

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.


                                      F-7
<PAGE>   43

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATIONS OF CREDIT

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:

<TABLE>
<CAPTION>
                                                            1998           1999
                                                            -------------------

         <S>                                                <C>            <C>
         Medicare                                             3%             4%
         Medicaid                                            23%            19%
</TABLE>

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.

Federal deposit insurance is limited to $100,000 per depositor. Management has
weighed the risks involved in entrusting a single depository bank with these
assets and has considered the bank's financial stability and FDIC risk rating.
Management believes that there is low risk associated with this practice.
Included in cash and cash equivalents at June 30, 1998 and 1999, are cash
balances at several institutions, which exceed the federal deposit insured
limit, of $4,786,000 and $5,241,000, respectively.

INVENTORIES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of receivables, accounts payable and notes payable
approximates fair value of these financial instruments at June 30, 1998 and
1999.

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.


                                      F-8
<PAGE>   44

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. The Company recorded $22,388,000 in goodwill, $1,000,000 in
non-compete agreements, and $1,008,000 in acquired patient population on June
1, 1997, and $29,396,000 in goodwill, $1,118,000 in non-compete agreements,
$6,137,000 in value associated with agreements with drug manufacturers and
medical centers, $247,000 in acquired patient population, and $361,000 in other
intangible assets on May 31, 1996, 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 and 10 years for the
non-compete agreements, 3 months to 3 years for the value associated with
agreements with drug manufacturers and medical centers, 4 to 8 years for
acquired patient population, and 10 years for the other intangible assets.
Goodwill is net of accumulated amortization of $2,137,000 and $3,432,000 at
June 30, 1998 and 1999, respectively. Other intangible assets are net of
accumulated amortization of $6,379,000 and $8,382,000 at June 30, 1998 and
1999, respectively.

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 stock-based awards issued at market
value at the date such awards are granted. However, the Company incurred
$436,000 and $420,000 in compensation cost in 1998 and 1999, respectively, for
stock transactions at less than fair market value. The Company makes pro forma
disclosures of net income as if the market-value method was followed.


                                      F-9
<PAGE>   45

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are
rendered. The Company has agreements with certain third-party payors that
provide for payments to the Company at amounts discounted from its established
rates.

Approximately 17%, 20% and 18% of gross patient service revenues for the years
ended June 30, 1997, 1998 and 1999, respectively, is from participation in the
Medicare and state-sponsored Medicaid programs.

Other revenues primarily consist of management fees from biotech manufacturers
and various management agreements with hospitals and joint ventures. The
Company recognizes revenues in the period the services are rendered.

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

In 1998, the Company adopted FASB Statement No. 128, Earnings Per Share. All
per share amounts have been calculated in accordance with the statement using
the weighted average number of shares outstanding during each period, adjusted
for the impact of common stock equivalents using the treasury stock method when
the effect is dilutive.

USE OF ESTIMATES

The preparation of financial statements 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.


                                     F-10
<PAGE>   46

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 $25,000 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 operations.

RECENT ACCOUNTING PRONOUNCEMENT

In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 2000. Management of the Company does not anticipate
that the adoption of the new Statement will have a significant effect on
results of operations or the financial position of the Company.

Effective July 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. Statement No. 131
established standards for reporting of information about operating segments.
The Company's assets, revenues and income are derived from one segment.
Accordingly, segment disclosures are not presented in these financial
statements.

3. BUSINESS ACQUISITION

On June 1, 1997, the Company acquired substantially all the assets of HHS, a
Company engaged in the sale and distribution of blood clotting factors and
ancillary supplies to hemophilia patients, through an acquisition accounted for
using the purchase method of accounting. The consideration paid by the Company
related to this acquisition was $29,996,000. Total assets acquired and
liabilities assumed were $9,019,000 and $3,152,000, respectively. The excess of
the purchase price of $24,396,000, including acquisition costs of $266,000,
over the fair market value of the net assets acquired was allocated to goodwill
and other identifiable intangible assets. The Company recorded $22,388,000 in
goodwill, $1,000,000 in non-compete agreements, and $1,008,000 in acquired
patient population. The operating results of HHS are included in the Company's
consolidated statements of operations beginning June 1, 1997.

Pro forma amounts for the year ended June 30, 1997, as if the acquisition had
occurred on July 1, 1996, are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                        1997
                                                                                     ---------

         <S>                                                                         <C>
         Pro forma total revenues                                                    $ 142,777
         Pro forma net loss attributable to common stockholders                      $  (4,571)
         Pro forma loss per share attributable to common stockholders                $   (0.89)
</TABLE>


                                     F-11
<PAGE>   47

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


4. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                      1998          1999
                                                     --------------------

         <S>                                         <C>          <C>
         Equipment                                   $1,305       $ 1,936
         Furniture and fixtures                       1,488         2,362
                                                     --------------------
                                                      2,793         4,298
         Accumulated depreciation                      (665)       (1,273)
                                                     --------------------
                                                     $2,128       $ 3,025
                                                     ====================
</TABLE>

5. NOTES PAYABLE

At June 30, 1999, the Company has a revolving line of credit agreement for up
to $60 million with banks, which expires December 1, 2001. The Company's
borrowing base, as defined in the agreement, was approximately $39,843,000 and
$54,112,000 at June 30, 1998 and 1999, respectively. 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
effective rates of 7.625% at June 30, 1998, and 6.44% at June 30, 1999). 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. The
interest rate swap agreement terminates October 31, 2001. 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, 1999, the balance outstanding under this line of credit was
$20,500,000.

As defined in the credit agreements, the line of credit 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-12
<PAGE>   48

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


5. NOTES PAYABLE (CONTINUED)

During June 1997, the Company issued $10 million in senior subordinated notes
(the Notes) to certain stockholders of the Company in connection with the
purchase of HHS. 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 Noteholders. 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. This original issue discount, which was
accreted over the life of the related obligation using the effective interest
method, is reflected as a reduction of the Notes in the accompanying
consolidated balance sheets at June 30, 1998.

In accordance with the terms of the Notes, the Company added $85,000 and
$1,046,000, respectively, of accrued interest due during 1997 and 1998 to the
unpaid principal balance of the Notes.

If at any time while the Notes were outstanding, the Company consummated a
public offering, as defined in the note purchase agreement, or merged or
consolidated, as defined in the note purchase agreement, 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, 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, is due to unamortized original issue discount
remaining on the Notes on the repayment date.

6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK

The Company is authorized to issue up to 300,000 shares of nonvoting
mandatorily redeemable cumulative preferred stock (Series A). In connection
with its formation, the Company issued, at the $100 redemption amount, 255,361
shares of the preferred stock on May 31, 1996, for a total of $25,536,100. The
nonvoting mandatorily redeemable cumulative preferred stock is entitled to an
$8 per share annual dividend.

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


                                     F-13
<PAGE>   49

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


7. 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. The Company is indemnified for income tax
liabilities arising prior to May 31, 1996, by its former parent.

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

<TABLE>
<CAPTION>
                                                                  1997        1998          1999
                                                                 ---------------------------------

                  <S>                                            <C>         <C>           <C>
                  Current:
                     Federal                                     $1,160      $   850       $ 4,306
                     State                                          231          104           666
                                                                 ---------------------------------
                                                                  1,391          954         4,972
                  Deferred:
                     Federal                                         95        1,239          (839)
                     State                                           16          227          (130)
                                                                 ---------------------------------
                                                                    111        1,466          (969)
                                                                 ---------------------------------
                                                                 $1,502      $ 2,420       $ 4,003
                                                                 =================================
 </TABLE>

The provision (benefit) for income taxes differed from the amount computed by
applying the statutory federal income tax rate of 34% for the years ended June
30 due to the following (in thousands):

<TABLE>
<CAPTION>
                                                                  1997        1998          1999
                                                                 ---------------------------------


         <S>                                                     <C>         <C>           <C>
         Income tax expense (benefit) at statutory rate          $ (220)     $ 1,307       $ 2,851
         State income tax expense, net of federal income tax
           benefit
                                                                    164          219           354
         Goodwill amortization                                    1,553          836           790
         Other                                                        5           58             8
                                                                 ---------------------------------
         Income tax expense                                      $1,502      $ 2,420       $ 4,003
                                                                 =================================
</TABLE>


                                     F-14
<PAGE>   50

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


7. INCOME TAXES (CONTINUED)

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):

<TABLE>
<CAPTION>
                                                                     1998           1999
                                                                   -----------------------

         <S>                                                       <C>             <C>
         Deferred tax assets:
            Accounts receivable reserves                           $   176         $ 1,186
            Accrued expenses                                            97             295
            Joint venture investments                                   17              11
            Other                                                       34              62
                                                                   -----------------------
                                                                       324           1,554
         Deferred tax liabilities:
            Property and equipment                                    (151)           (235)
            Intangible assets                                         (301)           (587)
            Joint venture investments                                  (84)            (44)
                                                                   -----------------------
                                                                      (536)           (866)
                                                                   -----------------------
         Net deferred tax assets (liabilities)                     $  (212)        $   688
                                                                   =======================
</TABLE>

Management has evaluated the need for a valuation allowance for the deferred
tax asset in 1999 and believes it is more likely than not that the assets will
ultimately be realized through future taxable income from operations.

8. COMMITMENTS

The Company leases office space and equipment under various operating leases.
Rent expense for all operating leases was approximately $429,000, $758,000 and
$985,000 for the years ended June 30, 1997, 1998 and 1999, respectively.

Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial terms of one year or more consist of the
following at June 30, 1999 (in thousands):

<TABLE>
         <S>                                                                      <C>
         2000                                                                     $   592
         2001                                                                         360
         2002                                                                         388
         2003                                                                         388
         2004                                                                          65
                                                                                  -------
                                                                                  $ 1,793
                                                                                  =======
</TABLE>


                                     F-15
<PAGE>   51

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


8. COMMITMENTS (CONTINUED)

The Company has guaranteed a bank line of credit made to one of the
partnerships in which the Company owns a 50% interest. This line of credit
allows the partnership to borrow up to $1,500,000, which is repayable in full
on November 24, 2000.

9. INVESTMENT IN JOINT VENTURES

Texas Health Pharmaceutical Resources, Teddy Bear Home Care/Drug Therapies,
Children's Memorial Home Hemophilia Services, Childrens Hemophilia Services and
Childrens Home 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 has a 25% ownership interest (This
entity was dissolved during the fiscal year ended June 30, 1999.). These joint
ventures are accounted for by the Company under the equity method of
accounting. 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, 1998 and 1999,
attributable to undistributed earnings of these joint ventures is $628,000 and
$1,968,000, 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. In addition to
the purchase price paid on the acquisition date, the Company will pay up to an
additional $833,000 in two installments if targeted earnings specified in the
purchase agreement are achieved for the twelve-month periods ending twenty-four
months and thirty-six months from the acquisition date.

On November 10, 1998, the Company acquired a 50% general partnership interest
in Childrens Home Services, a partnership established to engage in the sale and
distribution of human growth hormone and ancillary supplies to patients with
growth hormone-related disorders, for a purchase price of $381,000.

The difference in the purchase price and the Company's interest in the fair
value of net tangible assets of these partnerships of $1,298,000 is being
amortized over its estimated useful life of 40 years. Any additional payments
made under the purchase agreement will be treated as additional purchase cost
and amortized over the remaining useful life on the date of payment.


                                     F-16
<PAGE>   52

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


9. INVESTMENT IN JOINT VENTURES (CONTINUED)

The Company received fees for management services from these joint ventures of
$362,000, $413,000 and $589,000 for the years ended June 30, 1997, 1998 and
1999, respectively, which are recorded as other revenues in the accompanying
consolidated statements of operations.

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):

<TABLE>
<CAPTION>
                                                                  1997         1998         1999
                                                                 ---------------------------------

         <S>                                                     <C>         <C>           <C>
         Current assets                                          $ 2,783     $ 2,322       $ 8,519
         Property and equipment and other assets                      84          78            81
         Current liabilities                                       1,546       1,133         3,101
         Total revenues                                           12,736      10,215        17,512
         Net income                                                2,050       2,315         3,866
</TABLE>

10. 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 $41,000, $43,000 and $70,000 for the years ended
June 30, 1997, 1998 and 1999, respectively.

11.  STOCKHOLDERS' EQUITY

COMMON STOCK

In April 1999, the Company completed its initial public offering of 3,450,000
shares of common stock at an offering price of $16.00 per share. In connection
with the offering, the Company's majority shareholder exchanged 1,100,000
shares of the Company's $.01 par value common stock for 1,100,000 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-17
<PAGE>   53


                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)



11. STOCKHOLDERS' EQUITY (CONTINUED)

PREFERRED STOCK

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

12. 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 135,000 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 and the first date shares
may be purchased is December 31, 1999.

13. 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 965,000 shares of the Company's common stock. All options
granted have ten-year terms and vest and become fully exercisable over a period
of 1 to 6 years of continued employment. Certain options granted with up to six
year vesting terms also have provisions for accelerated vesting over the first
4 years if certain Company income targets are achieved during that period.
Otherwise, these options become fully exercisable at the end of up to 6 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 500,000 shares of the
Company's common stock. No options have been granted under this plan.


                                     F-18
<PAGE>   54

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


13. STOCK OPTION PLAN (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:

<TABLE>
<CAPTION>
                                                  1997                1998                1999
                                             -----------------------------------------------------

         <S>                                 <C>                 <C>                 <C>
         Risk-free interest rates            6.08% to 6.93%      5.48% to 6.22%      5.05% to 5.40%
         Dividend yield                             0%                  0%                  0%
         Volatility factor                        .60                 .60                 .50
         Weighted-average expected life         4.50 years         4.45 years          4.47 years
</TABLE>

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):

<TABLE>
<CAPTION>
                                                                   1997        1998          1999
                                                                 ----------------------------------

         <S>                                                     <C>         <C>           <C>
         Net income (loss) "as reported"                         $ (2,150)   $  1,425      $  3,128
         Pro forma net income (loss)                             $ (2,358)   $  1,119      $  2,729
         Pro forma basic earnings (loss) per share               $  (0.46)   $   0.20      $   0.43
         Pro forma diluted earnings (loss) per share             $  (0.46)   $   0.19      $   0.40
</TABLE>

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


                                     F-19
<PAGE>   55

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


13. STOCK OPTION PLAN (CONTINUED)

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

<TABLE>
<CAPTION>
                                            1997                              1998                              1999
                                 ---------------------------       --------------------------        ---------------------------
                                            WEIGHTED-AVERAGE                 WEIGHTED-AVERAGE                   WEIGHTED-AVERAGE
                                               EXERCISE                         EXERCISE                           EXERCISE
                                  OPTIONS        PRICE              OPTIONS       PRICE               OPTIONS        PRICE
                                 ---------------------------       --------------------------        ---------------------------

<S>                              <C>        <C>                    <C>       <C>                     <C>        <C>
Outstanding at beginning
  of period                         542,857       $ 3.00              670,858       $ 3.00              856,429       $  3.65
Granted                             130,001         3.00              186,428         6.00               87,143         10.26
Exercised                                --           --                   --           --               (2,500)         3.00
Forfeited                            (2,000)        3.00                 (857)        3.00               (7,000)         4.01
                                 ---------------------------       --------------------------        ---------------------------
Outstanding at end of
  period                            670,858       $ 3.00              856,429       $ 3.65              934,072       $  4.27
                                 ===========================       ==========================        ===========================

Exerciseable at end of year         116,000       $ 3.00              247,001       $ 3.17              405,752       $  3.44
                                 ===========================       ==========================        ===========================

Weighted-average fair
  value of options granted
  during the year                $   1.63                          $   2.61                          $   4.98
                                 ========                          ========                          ========
</TABLE>

The range of exercise prices for the Company's stock options outstanding at
June 30, 1999, is $3.00 to $16.00. The weighted-average remaining contractual
life of those outstanding options is 7.5 years at June 30, 1999.


                                     F-20
<PAGE>   56

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


14. 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):

<TABLE>
<CAPTION>
                                                                                                                (NOTE 15)
                                                                                                                PRO FORMA
                                                                                                               (UNAUDITED)
                                                       1997                1998                1999                1999
                                                    ----------------------------------------------------------------------

<S>                                                 <C>                 <C>                 <C>                 <C>
Numerator for basic and diluted income (loss)
 per share to common stockholders:
Income (loss) before extraordinary item             $   (2,150)         $    1,425          $    4,382          $    5,296
Extraordinary item                                          --                  --              (1,254)                 --
Preferred stock dividends                               (2,043)             (2,043)             (1,617)                 --
                                                    ----------------------------------------------------------------------

Net income (loss) to common stockholders            $   (4,193)         $     (618)         $    1,511          $    5,296
                                                    ======================================================================

Denominator:
 Denominator for basic income (loss) per share
  to common stockholders-weighted-average
  shares                                             5,140,586           5,566,281           6,334,537           9,073,578
 Effect of dilutive stock options                      277,138             474,492             620,093             620,093
                                                    ----------------------------------------------------------------------
 Denominator for diluted income (loss) per
  share to common stockholders-adjusted
  weighted-average shares                            5,417,724           6,040,773           6,954,630           9,693,671
                                                    ======================================================================

Basic earnings per common share:
 Income (loss) before extraordinary item            $    (0.42)         $     0.26          $     0.69          $     0.58
 Extraordinary item                                         --                  --               (0.20)                 --
 Preferred stock dividends                               (0.40)              (0.37)              (0.25)                 --
                                                    ----------------------------------------------------------------------
 Net income (loss) to common stockholders           $    (0.82)         $    (0.11)         $     0.24          $     0.58
                                                    ======================================================================

Diluted earnings per common share:
 Income (loss) before extraordinary item            $    (0.42)         $     0.26          $     0.63          $     0.55
 Extraordinary item                                         --                  --               (0.18)                 --
 Preferred stock dividends                               (0.40)              (0.37)              (0.23)                 --
                                                    ----------------------------------------------------------------------
 Net income (loss) to common stockholders (1)       $    (0.82)         $    (0.11)         $     0.22          $     0.55
                                                    ======================================================================
</TABLE>

(1) Historical diluted loss per share amounts for 1997 and 1998 have been
calculated using the same denominator as used in the basic loss per share
calculation since the inclusion of dilutive securities in the denominator of
the calculation would have an anti-dilutive effect.


                                     F-21
<PAGE>   57

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


15. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The pro forma consolidated statement of operations for the year ended June 30,
1999, gives effect to the sale of common stock in the Company's initial public
offering and the application of the net proceeds thereof to the prepayment in
full of all principal and accrued interest on the Company's outstanding Senior
Subordinated Notes, the redemption of all outstanding shares of Series A
Preferred Stock, including all accrued dividends thereon, and the reduction of
$7,000,000 in the balance of the Company's outstanding line of credit, as if
all such transactions had been completed as of July 1, 1998, as follows:

         The elimination of interest expense (including original issue discount
         amortization) associated with the prepayment of the Senior
         Subordinated Notes and the reduction of the line of credit with a
         portion of the net proceeds of the offering, and the elimination of
         the related income tax benefit based on the combined federal and state
         statutory rate of 37.3%.

         The elimination of the dividends on the Series A Preferred Stock
         redeemed with a portion of the net proceeds of the Offering.

In connection with the prepayment of the Senior Subordinated Notes, the Company
incurred an extraordinary charge related to the early extinguishment of debt.
This extraordinary charge of approximately $1,254,000, net of a $746,000 tax
benefit, is due to the unamortized original issue discount remaining on the
debt on the prepayment date. This charge is reflected as an extraordinary
nonrecurring charge in the Company's financial results for the year ended June
30, 1999. This charge is not reflected in the pro forma statement of
operations.


                                     F-22
<PAGE>   58

                          Accredo Health, Incorporated

             Notes to Consolidated Financial Statements (continued)


16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly financial information for the years ended June 30, 1998 and 1999, is
summarized below (in thousands, except share data):

<TABLE>
<CAPTION>
                                                                                1999
                                                           ---------------------------------------------
                                                            FIRST        SECOND       THIRD       FOURTH
                                                           QUARTER      QUARTER      QUARTER     QUARTER
                                                           ---------------------------------------------

<S>                                                        <C>          <C>          <C>         <C>
Total revenues                                             $57,348      $62,678      $66,881     $71,447
Operating income                                             2,709        2,747        2,922       3,170
Income before income taxes and extraordinary item            1,844        1,882        2,000       2,659
Income before extraordinary item                               915          948        1,020       1,499
Net income                                                     915          948        1,020         245
Net income to common stockholders                              405          437          509         160

Basic earnings per common share:
  Income before extraordinary item                            0.16         0.17         0.18        0.18
  Net income                                                  0.16         0.17         0.18        0.03
  Net income to common stockholders                           0.07         0.08         0.09        0.02

Diluted earnings per common share:
  Income before extraordinary item                            0.15         0.15         0.16        0.16
  Net income                                                  0.15         0.15         0.16        0.03
  Net income to common stockholders                           0.07         0.07         0.08        0.02
</TABLE>

<TABLE>
<CAPTION>
                                                                                1998
                                                           ---------------------------------------------
                                                            FIRST        SECOND       THIRD       FOURTH
                                                           QUARTER      QUARTER      QUARTER     QUARTER
                                                           ---------------------------------------------

<S>                                                        <C>          <C>          <C>         <C>
Total revenues                                             $40,886      $44,700      $44,813     $50,559
Operating income                                             1,558        1,717        1,908       2,214
Income before income taxes                                     667          829          986       1,363
Net income                                                     175          253          378         619
Net income (loss) to common stockholders                      (335)        (257)        (133)        107

Basic earnings per common share:
  Net income                                                  0.03         0.05         0.07        0.11
  Net income (loss) to common stockholders                   (0.06)       (0.04)       (0.02)       0.02

Diluted earnings per common share:
  Net income                                                  0.03         0.05         0.07        0.10
  Net income (loss) to common stockholders                   (0.06)       (0.04)       (0.02)       0.02
</TABLE>


                                     F-23
<PAGE>   59

                          ACCREDO HEALTH, INCORPORATED

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (In Thousands)


<TABLE>
<CAPTION>

         COL. A                           COL. B                           COL. C                    COL. D             COL. E
-------------------------         -----------------------       ----------------------------       ----------       --------------

                                                                         Additions
                                                                ----------------------------

                                  BALANCE AT BEGINNING OF       CHARGED TO        CHARGED TO                        BALANCE AT END
                                           PERIOD               COSTS AND           OTHER                             OF PERIOD
       DESCRIPTION                                               EXPENSES          ACCOUNTS        DEDUCTIONS
-------------------------         -----------------------       ---------         ----------       ----------       --------------

<S>                               <C>                           <C>               <C>              <C>              <C>
Year ended June 30, 1997:
  Allowance for doubtful                   $2,710                 $2,977           $     --           $1,885 (1)         $3,802
  accounts

Year ended June 30, 1998:
  Allowance for doubtful                    3,802                  3,165                 --            3,537 (1)          3,430
  accounts

Year ended June 30, 1999:
  Allowance for doubtful                    3,430                  4,739                 --            2,869 (1)          5,300
  accounts
</TABLE>

         (1) Uncollectible accounts written off, net of recoveries.


                                     F-24
<PAGE>   60

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Memphis, State of Tennessee, on the 28th day of September, 1999.

                            Accredo Health, Incorporated

                            By: /s/ David D. Stevens
                                -------------------------
                                David D. Stevens
                                Chairman of the Board and
                                Chief Executive Officer

<PAGE>   61

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David D. Stevens and Joel R. Kimbrough
and either of them (with full power in each to act alone) as true and lawful
attorneys-in-fact with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.


<TABLE>
<S>                                          <C>                                 <C>
/s/ David D. Stevens                           Chairman of the Board,            September 28, 1999
-------------------------------------             Chief Executive
David D. Stevens                                Officer and Director
                                            (Principal Executive Officer)

/s/ Joel R. Kimbrough                          Senior Vice President,            September 28, 1999
-------------------------------------         Chief Financial Officer
Joel R. Kimbrough                              Treasurer (Principal
                                             Financial and Accounting
                                                     Officer)

/s/ John R. Grow                                    Director                     September 28, 1999
-------------------------------------
John R. Grow

/s/ Kyle J. Callahan                                Director                     September 28, 1999
-------------------------------------
Kyle J. Callahan

                                                    Director                     September 28, 1999
-------------------------------------
Kenneth R. Masterson

/s/ Kenneth J. Melkus                               Director                     September 28, 1999
-------------------------------------
Kenneth J. Melkus

                                                    Director                     September 28, 1999
-------------------------------------
Andrew M. Paul

                                                    Director                     September 28, 1999
-------------------------------------
Patrick J. Welsh
</TABLE>

<PAGE>   62

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                            Description of Exhibits
-------                           -----------------------

<S>         <C>
   3.1      Amended and Restated Certificate of Incorporation of the Company(1)

   3.2      Amended and Restated Bylaws of the Company(1)

   4.1      Form of Common Stock Certificate(1)

  10.1      Employment Agreement dated May 31, 1996 between the Company and
            David D. Stevens(1)

  10.2      Employment Agreement dated May 31, 1996 between the Company and
            John R. Grow(1)

  10.3      Employment Agreement dated May 31, 1996 between the Company and
            Joel R. Kimbrough(1)

  10.4      Employment Agreement dated June 5, 1997 between the Company and
            Kyle J. Callahan(1)

  10.5      Employment Agreement dated July 10, 1998 between the Company and
            Thomas W. Bell, Jr.(1)

  10.6      Accredo Health 1999 Long-Term Incentive Plan(1)

  10.7      Accredo Health 1999 Employee Stock Purchase Plan(1)

  10.8      Nova Holdings, Inc. and its Subsidiaries Stock Option and Restricted
            Purchase(1) Plan, as amended and restated(1)

  10.9      Note Purchase Agreement dated June 4, 1997 among the Company, Welsh,
            Carson, Anderson & Stowe VII, L.P. and certain other investors(1)

 10.10      Registration Rights Agreement dated May 31, 1996 among the Company,
            Welsh, Carson, Anderson & Stowe VII, L.P. and certain other
            investors(1)

 10.11      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(1)

 10.12      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(1)

 10.13      Subscription and Exchange Agreement dated May 31, 1996 among the
            Company and certain purchasers and exchanging shareholders(1)

 10.14      Stock Purchase Agreement dated May 31, 1996 among Le Bonheur Health
            Systems, Inc., Southern Health Systems, Inc., the Company and
            Welsh, Carson, Anderson & Stowe VII, L.P.(1)

 10.15      Modification Agreement dated May 31, 1996 among Le Bonheur Health
            Systems, Inc., Southern Health Systems, Inc., Nova Holdings, Inc.
            and Welsh, Carson Anderson & Stowe VII, L.P.(1)

 10.16      Non-Disclosure and Non-Competition Agreement dated May 31, 1996 by
            and among Le Bonheur Health Systems, Inc., PharmaThera, Inc.,
            Welsh, Carson, Anderson & Stowe VII, L.P., Southern Health Systems,
            Inc., Nova Factor, Inc. and Nova Holdings, Inc.(1)
</TABLE>

<PAGE>   63

<TABLE>
 <S>        <C>
 10.17      Stock Purchase Agreement dated as of June 5, 1997 among Dianne R.
            Martz, A.B. Charlton, III, the Company and Horizon Health Systems,
            Inc.(1)

 10.18      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(1)

 10.19      Grant Agreement dated as of June 5, 1997 by and between Kyle Callahan
            and the Company(1)

 10.20      Subscription and Restriction Agreement dated as of June 5, 1997 by
            and between the Company and Kyle Callahan(1)

 10.21      Consulting and Transition Agreement dated as of June 5, 1997 by and
            between Dianne Martz and Horizon Health Systems, Inc.(1)

 10.22      Letter Agreement dated as of June 3, 1997 from Andrew M. Paul to
            Kyle Callahan regarding Mr. Callahan's election to the Board of
            Directors of the Company(1)

 10.23      Lease Agreement dated September 1, 1994 between Dianne Martz and
            Horizon Health Systems, Inc.(1)

 10.24      Addendum to Lease Agreement dated September 1, 1994 amending the
            square footage of Premises and annual rental payments(1)

 10.25      Escrow Agreement dated June 5, 1997 among First American National
            Bank, Nova Holdings, Inc. and Dianne Martz and A. B. Charlton, III(1)

 10.26      Refunds Payable Escrow Agreement dated June 5, 1997 among First
            American National Bank, Nova Holdings, Inc. and Dianne Martz and
            A. B. Charlton, III(1)

 10.27      Contract for the Sale and Distribution of Genentech Human Growth
            Hormone dated March 1, 1997 by and between Genentech, Inc. and Nova
            Factor, Inc. (The Company has obtained confidential treatment with
            respect to certain portions of this Exhibit.)(1)

 10.28      Distribution and Services Agreement dated November 1, 1995 by and
            between Biogen, Inc. and Nova Factor, Inc. (The Company has obtained
            confidential treatment with respect to certain portions of this
            Exhibit.)(1)

 10.29      Amendment No. 1 to Distribution and Services Agreement dated May 17,
            1996 by and between Biogen, Inc. and Nova Factor, Inc. (The Company
            has obtained confidential treatment with respect to certain portions
            of this Exhibit.)(1)

 10.30      Addendum and Amendment No. 2 to Distribution and Services Agreement
            dated May 21, 1997 by and between Biogen, Inc. and Nova Factor, Inc.
            (The Company has obtained confidential treatment with respect to
            certain portions of this Exhibit.)(1)

 10.31      Addendum and Amendment No. 3 to Distribution and Services Agreement
            dated July 1, 1997 by and between Biogen, Inc. and Nova Factor, Inc.
            (The Company has obtained confidential treatment with respect to
            certain portions of this Exhibit.)(1)

 10.32      Addendum and Amendment No. 4 to Distribution and Services Agreement
            dated January 1, 1998 by and between Biogen, Inc. and Nova Factor,
            Inc. (The Company has obtained confidential treatment with respect to
            certain portions of this Exhibit.)(1)

 10.33      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.(1)
</TABLE>

<PAGE>   64

<TABLE>
 <S>        <C>
 10.34      Swing Line Note dated December 1, 1997 entered into by Nova Holdings,
            Inc. with NationsBank of Tennessee, N.A.(1)

 10.35      ISDA Master Agreement dated August 7, 1997 between NationsBank of
            Tennessee, N.A. and Nova Holdings, Inc.(1)

 10.36      Texas Health Pharmaceutical Resources Partnership Agreement dated
            July 1, 1994 (The Company has obtained confidential treatment with
            respect to certain portions of this Exhibit.)(1)

 10.37      Distribution Business Management and Service Agreement dated July
            1, 1994 by and among Southern Health Systems, Inc. and Texas Health
            Pharmaceutical Resources (The Company has obtained confidential
            treatment with respect to certain portions of this Exhibit.)(1)

 10.38      Amendment No. 1 to Distribution Business Management and Service
            Agreement dated July 1, 1994 by and among Southern Health Systems,
            Inc. and Texas Health Pharmaceutical Resources (The Company has
            obtained confidential treatment with respect to certain portions of
            this Exhibit.)(1)

 10.39      Hemophilia Therapy Pharmacy Management Agreement dated May 9, 1997
            by and among Texas Health Pharmaceutical Resources and Children's
            Medical Center of Dallas (The Company has obtained confidential
            treatment with respect to certain portions of this Exhibit.)(1)

 10.40      Amendment No. 1 to Hemophilia Therapy Pharmacy Management
            Agreement, dated February 28, 1998, by and among Texas Health
            Pharmaceutical Resources and Children's Medical Center of Dallas
            (The Company has obtained confidential treatment with respect to
            certain portions of this Exhibit.)(1)

 10.41      Incentive Stock Option Agreement of David Stevens dated May 31,
            1996(1)

 10.42      Incentive Stock Option Agreement of Joel R. Kimbrough dated May 31,
            1996(1)

 10.43      Incentive Stock Option Agreement of John R. Grow dated May 31, 1996(1)

 10.44      Incentive Stock Option Agreement of Kyle Callahan dated September 3,
            1997(1)

 10.45      Non-Qualified Stock Option Agreement of Patrick J. Welsh dated
            February 9, 1998(1)

 10.46      Non-Qualified Stock Option Agreement of Ken Melkus dated February 9,
            1998(1)

 10.47      Incentive Stock Option Agreement of Kyle Callahan dated February 9,
            1998(1)

 10.48      Non-Qualified Stock Option Agreement of Andrew M. Paul dated
            February 9, 1998(1)

 10.49      Non-Qualified Stock Option Agreement of Kenneth R. Masterson dated
            April 30, 1998(1)

 10.50      Incentive Stock Option Agreement of Thomas W. Bell, Jr. dated
            July 10, 1998(1)

 10.51      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(1)

 10.52      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(1)
</TABLE>

<PAGE>   65

<TABLE>
 <S>        <C>
 10.53      Limited Guaranty dated November 24, 1998 between NationsBank, N.A.
            and Accredo Health, Incorporated(1)

 10.54      Promissory Note dated December 24, 1998 between NationsBank, N.A.
            and Children's Hemophilia Services(1)

 10.55      Amended and Restated General Partnership Agreement of Children's
            Home Services(1)

 10.56      Amended and Restated General Partnership Agreement of Children's
            Hemophilia Services(1)

 10.57      Growth Hormone Drug Therapy Business Management, Service and Sales
            Agreement dated November 10, 1998 between Nova Factor, Inc., a
            Tennessee corporation, and Children's Home Services, a California
            general partnership (The Company has obtained confidential
            treatment with respect to certain portions of this Exhibit.)(1)

 10.58      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.)(1)

 10.59      Product Supply and Service Agreement dated November 10, 1998
            between Nova Factor, Inc., a Tennessee corporation, and Children's
            Home Care, a California non-profit benefit corporation (The Company
            has obtained confidential treatment with respect to certain
            portions of this Exhibit.)(1)

 10.60      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.)(1)

 10.61      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(1)

 10.62      Amendment No. 1 to Distribution and Service Agreement dated
            January 11, 1999 by and between Centocor, Inc. and its Affiliates and
            Nova Factor, Inc.(1)

 10.63      Services Agreement, dated July 26, 1999, by and between Centocor,
            Inc. and Nova Factor, Inc. (The Company has requested confidential
            treatment with respect to certain portions of this Exhibit.)

 10.64      Distribution Agreement, dated August 17, 1999, between MedImmune,
            Incorporated and Nova Factor, Inc. (The Company has requested
            confidential treatment with respect to certain portions of this
            Exhibit.)

 10.65      Amended and Restated Distribution Agreement, dated January 1, 1998,
            by and between Nova Factor, Inc. and Genzyme Corporation (The
            Company has requested confidential treatment with respect to
            certain portions of this Exhibit.)

 10.66      Extension of Distribution and Services Agreement, dated August 23,
            1999, between Biogen, Inc. and Nova Factor, Inc.

 10.67      Second Lease Amendment, dated May 25, 1999,  between Dianne R.
            Griffith, as landlord, and Hemophilia Health Services, Inc. as
            tenant.

 10.68      Amendment No. 1 to Nova Holdings, Inc. Incentive Stock Option
            Agreement, dated April 23, 1999, between the Company and John
            R. Grow.

 10.69      Amendment No. 1 to Nova Holdings, Inc. Incentive Stock Option
            Agreement, dated April 23, 1999, between the Company and Joel
            R. Kimbrough.

 10.70      Amendment No. 1 to Nova Holdings, Inc. Incentive Stock Option
            Agreement, dated April 23, 1999, between the Company and David
            D. Stevens.

 10.71      Amendment No. 1 to Nova Holdings, Inc. Incentive Stock Option
            Agreement dated April 23, 1999, between the Company and Thomas
            W. Bell, Jr.

 10.72      Amendment No. 1 to Nova Holdings, Inc. Incentive Stock Option
            Agreement, dated May 6, 1999, between the Company and Kyle Callahan.

 10.73      Amendment No. 1 to Nova Holdings, Inc. Incentive Stock Option
            Agreement, dated May 6, 1999, between the Company and Kyle Callahan.

  21.1      Subsidiaries of the Company

  23.1      Consent of Ernst & Young LLP
</TABLE>

<PAGE>   66

<TABLE>
 <S>        <C>
 24.1       Power of Attorney (contained on the signature page of this report)

 27.1       Financial Data Schedule for the year ended June 30, 1999
</TABLE>


(1)      Incorporated by reference to the Company's Registration Statement on
         Form S-1 (Reg. No. 333-62679) effective April 15, 1999.