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

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

FORM 10-Q

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

(Mark One)

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

For the quarterly period ended June 30, 2003

OR

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

Commission File Number: 000-19370


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


MINNESOTA 41-1503914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)


150 Motor Parkway
Hauppauge, New York 11788
(631) 232-7000

(Address and phone number of principal executive offices)


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

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

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

As of August 1, 2003, there were 12,697,612 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
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INDEX


Part I Financial Information Page No.
- ----------------------------------------------------------------------------
Item 1 Financial Statements:

Condensed Consolidated Income Statements 3
Three and Six Months ended June 30, 2003 and 2002

Condensed Consolidated Balance Sheets 4
June 30, 2003 and December 31, 2002

Condensed Consolidated Statements of Cash Flows 5
Six Months ended June 30, 2003 and 2002

Notes to Condensed Consolidated Financial Statements 6

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

Item 3 Quantitative and Qualitative Disclosures About 22
Market Risk

Item 4 Controls and Procedures 23


Part II Other Information Page No.
- ----------------------------------------------------------------------------

Item 1 Legal Proceedings 24

Item 4 Submission of Matters to a Vote of Security Holder 24

Item 5 Other Information 24

Item 6 Exhibits and Reports on Form 8-K 25

Signatures 26




-2-





Part I Financial Information

Item 1 Financial Statements


Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)



Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------------------- -------------------

Revenues:
Products $ 37,373 $ 22,956 $ 87,823 $ 36,825
Services 7,316 8,964 14,886 17,859
------ ------ ------- ------
Total revenues 44,689 31,920 102,709 54,684

Costs and operating expenses:
Cost of product sales 25,168 16,468 62,555 26,267
Cost of services 3,382 3,976 6,860 8,434
Selling, general and administrative 9,776 6,610 20,834 11,533
------ ------ ------- ------
Total costs and operating expenses 38,326 27,054 90,249 46,234
------ ------ ------- ------
Income from operations 6,363 4,866 12,460 8,450

Interest income 2 17 4 53

Interest expense (525) (145) (1,012) (282)
------ ------ ------- ------
Income before income taxes 5,840 4,738 11,452 8,221

Income taxes 2,307 1,907 4,524 3,340
------ ------ ------- ------
Net income $ 3,533 $ 2,831 $ 6,928 $ 4,881
====== ====== ======= ======
Net income per common share, basic $ .29 $ .25 $ .57 $ .46
====== ====== ======= ======
Net income per common share, diluted $ .26 $ .23 $ .51 $ .42
====== ====== ======= ======
Weighted average common shares, basic 12,378 11,536 12,299 10,582
====== ====== ======= ======
Weighted average common shares, diluted 13,797 12,349 13,864 11,608
====== ====== ======= ======


See accompanying notes


-3-





Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)




(Unaudited)
June 30, 2003 December 31, 2002
------------- -----------------

ASSETS
Current assets:
Cash and cash equivalents $ 998 $ 2,643
Accounts receivable, net 40,640 36,438
Inventories 10,307 12,766
Prepaids and other current assets 2,483 2,212
Deferred tax assets 3,088 2,957
------- -------
Total current assets 57,516 57,016

Property and equipment, net 5,259 3,284
Intangibles subject to amortization, net 1,672 1,652
Intangibles not subject to amortization (trade names) 637 636
Goodwill 146,147 122,877
Other assets 1,732 979
------- -------
Total assets $ 212,963 $ 186,444
======= =======


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,583 $ 21,786
Accrued expenses 10,540 11,579
Current portion of long-term liabilities 7,138 6,102
------- -------
Total current liabilities 39,261 39,467

Long-term liabilities 44,115 26,076

Stockholders' equity:
Common stock 123 121
Additional paid in capital 107,100 106,124
Retained earnings 23,971 17,043
Notes receivable - stockholders (1,607) (2,387)
------- -------
Total stockholders' equity 129,587 120,901
------- -------
Total liabilities and stockholders' equity $ 212,963 $ 186,444
======= =======



See accompanying notes



-4-




Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)



Six Months Ended
June 30,
2003 2002
--------- --------

OPERATING ACTIVITIES:
Net income $ 6,928 $ 4,881
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,184 1,138
Provision for doubtful accounts 1,849 124
Equity in operations of investee - (45)
Changes in operating assets and liabilities, net of effects from
Specialty Pharmacy acquisitions:
Accounts receivable (4,101) (454)
Other operating assets, net 3,095 (2,264)
Accounts payable and accrued expenses (4,944) (6,060)
------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,011 (2,680)

INVESTING ACTIVITIES:
Specialty Pharmacy acquisitions, net of cash acquired (22,868) (39,100)
Purchases of property and equipment (2,841) (330)
------ ------
NET CASH USED IN INVESTING ACTIVITIES (25,709) (39,430)

FINANCING ACTIVITIES:
Proceeds from private placement, net of fees - 16,493
Stock repurchases (1,524) -
Proceeds from exercise of stock options 2,432 3,856
Proceeds from repayment of notes receivable - stockholders 780 -
Borrowing from credit facilities 31,733 11,617
Repayment on credit facilities (13,368) -
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,053 31,966
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,645) (10,144)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,643 12,264
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 998 $ 2,120
====== =====
SUPPLEMENTAL INFORMATION
Interest paid $ 1,015 $ 7
====== ======
Income taxes paid $ 3,994 $ 1,273
====== ======

See accompanying notes


-5-





Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1. Basis of Presentation

The condensed consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2002 and notes
thereto contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the three and
six months ended June 30, 2003 are not necessarily indicative of the results to
be expected for the entire fiscal year ending December 31, 2003.

Stock Based Compensation Plans

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and Accounting Principles Board
("APB") No. 28, "Interim Financial Reporting," to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on
reported net income and earnings per share in annual and interim financial
statements. While SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method,
the disclosure provisions of SFAS No. 148 are applicable to all companies
with stock-based employee compensation, regardless of whether they account
for that compensation using the fair value method of SFAS No. 123 or the
intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees." The Company adopted SFAS No. 148 effective December 31, 2002.

The Company grants options for a fixed number of shares to employees, directors,
consultants and advisors with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants under
the recognition and measurement principles of APB No. 25 and related
Interpretations because the Company believes the alternate fair value accounting
provided for under SFAS No. 123 requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded.

The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of SFAS No.
123 to stock-based compensation for the three and six months ended June 30, 2003
and 2002 (in thousands, except per share data):


-6-





Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1. Basis of Presentation (continued)


Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------------------ ------------------

Adjusted net income (see Note 3) $ 3,598 $ 2,831 $ 7,059 $ 4,881
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects 1,193 787 2,325 1,424
----- ----- ----- -----
Pro forma net income $ 2,405 $ 2,044 $ 4,734 $ 3,457
===== ===== ===== =====
Earnings per share:
Basic - as reported $ .29 $ .25 $ .57 $ .46
Basic - pro forma .19 .18 .38 .33

Diluted - as reported $ .26 $ .23 $ .51 $ .42
Diluted - pro forma .17 .17 .34 .30



Note 2. Reclassifications

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

Note 3. Net Income per Common Share

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



Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
----------------- ----------------

Weighted average shares, basic 12,378 11,536 12,299 10,582
Effect of dilutive stock options and convertible notes 1,419 813 1,565 1,026
------ ------ ------ ------
Weighted average shares, diluted 13,797 12,349 13,864 11,608
====== ====== ====== ======



-7-





Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 3. Net Income per Common Share (continued)

Adjusted net income and net income per common share, diluted, for the three and
six months ended June 30, 2003 and 2002 were computed as follows (in thousands,
except per share data):



Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
----------------- -----------------

Net income, as reported $ 3,533 $ 2,831 $ 6,928 $ 4,881
Add back interest related to convertible notes, net of tax 65 - 131 -
------ ------ ------ ------
Adjusted net income $ 3,598 $ 2,831 $ 7,059 $ 4,881
====== ====== ====== ======
Net income per common share, diluted $ .26 $ .23 $ .51 $ .42
====== ====== ====== ======
Weighted average shares, diluted 13,797 12,349 13,864 11,608
====== ====== ====== ======




In accordance with SFAS No. 128, "Earnings Per Share," net income per common
share, diluted, for the three and six months ended June 30, 2003 was calculated
under the "as if converted" method, which requires adding shares related to
convertible notes that have no contingencies to the denominator for diluted
earnings per share and adding to net income, the numerator, tax effected
interest expense relating to those convertible notes.

Note 4. Specialty Pharmacy Acquisitions

On February 3, 2003, the Company acquired MedCare, Inc. ("MedCare"), a specialty
pharmacy with locations in Alabama, Mississippi, West Virginia and Florida.
MedCare's primary product line is Synagis(R) for the prevention of respiratory
syncytial virus, while other product lines include growth hormone and hemophilia
clotting factor. The purchase price for MedCare was $6.6 million, of which $5.5
million was paid in cash, $.6 million in cash was placed into escrow for
purposes of providing for any indemnifications due to the Company and $.5
million in cash which was withheld pending delivery of agreed-upon working
capital. The Company acquired approximately $1.8 million of MedCare's assets,
including $1.5 million in accounts receivable and $.3 million in inventory. The
Company also assumed $1.6 million of MedCare's liabilities. The excess of the
acquisition cost over the fair value of identifiable net assets acquired was
approximately $6.4 million, consisting of approximately $.1 million in covenants
not to compete, which are being amortized over three years from the date of
acquisition, and trade name and goodwill of approximately $.1 million and $6.2
million, respectively, which are not being amortized for book purposes per SFAS
No. 142, "Goodwill and Other Intangible Assets." Fair market valuations have not
yet been completed and, as such, the allocation of the purchase price is
preliminary, pending receipt of a formal valuation from the Company's valuation
consultants.

On April 23, 2003, the Company acquired the assets and specialty pharmacy
business of All Care Medical, Inc. ("All Care"), a Louisiana-based Synagis(R)
pharmacy. The purchase price of All Care was $2.1 million, of which $1.0 million
was paid in cash at closing and $1.1 million was paid in cash in July 2003 which
consisted of approximately $.8 million paid to the sellers and approximately $.3
millin to be held in escrow for 18 months until indemnifications rights under
the purchase agreement expire. The Company acquired approximately $.7 million


-8-




Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 4. Specialty Pharmacy Acquisitions (continued)

of All Care's assets, including $.6 million in accounts receivable, $.06 million
in inventory and $.04 million in fixed assets. The Company also assumed $.1
million of All Care's liabilities. The excess of the acquisition cost over the
fair value of identifiable net assets acquired was approximately $1.5 million,
consisting of approximately $.05 million in covenants not to compete, which are
being amortized over two years from the date of acquisition, and trade name and
goodwill of approximately $.02 million and $1.4 million, respectively, which
are not being amortized for book purposes per SFAS No. 142. Fair market
valuations have not yet been completed and, as such, the allocation of the
purchase price is preliminary, pending receipt of a formal valuation from the
Company's valuation consultants.

On June 10, 2003, the Company acquired Prescription City, Inc. ("Prescription
City"), a Spring Valley, NY, specialty pharmacy business specializing in the
provision of chemotherapy and cancer drugs. Prescription City's service area
includes southern New York and some areas of northeastern Pennsylvania. Drug
therapies provided by Prescription City include chemotherapy, HIV/AIDS drugs,
Synagis(R), intravenous immune globulins ("IVIG"), pain management and
Remicade(R). The purchase price for Prescription City was $17.5 million, of
which $16.5 million was paid in cash and $1.0 million in a one-year note bearing
interest at a rate of three percent which matures on June 9, 2004. The Company
acquired approximately $.4 million of Prescription City's inventory and assumed
none of Prescription City's liabilities. The excess of the acquisition cost over
the fair value of identifiable net assets acquired was approximately $17.1
million, consisting of approximately $.1 million in covenants not to compete,
which are being amortized over two years from the date of acquisition, and trade
name and goodwill of approximately $.02 million and $17.0 million, respectively,
which are not being amortized for book purposes per SFAS No. 142. Fair market
valuations have not yet been completed and, as such, the allocation of the
purchase price is preliminary, pending receipt of a formal valuation from the
Company's valuation consultants.

The acquisitions of MedCare, All Care and Prescription City were consummated for
purposes of expanding the Company's Specialty Pharmacy business and were
accounted for using the purchase method of accounting. The accounts of MedCare,
All Care and Prescription City and related goodwill are included in the
accompanying condensed consolidated balance sheets, and the operating results
are included in the accompanying condensed consolidated income statements from
the dates of acquisition.

Unaudited pro forma amounts for the three and six months ended June 30, 2003 and
2002, assuming the MedCare, All Care and Prescription City acquisitions had
occurred on January 1, 2002, are as follows (in thousands, except per share
data):

Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
-------------------- --------------------
Revenues $ 48,362 $ 39,910 $115,912 $ 82,867
Net income $ 4,254 $ 4,113 $ 8,866 $ 9,208
Net income per share, diluted $ .31 $ .30 $ .64 $ .71


-9-




Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 4. Specialty Pharmacy Acquisitions (continued)

The pro forma operating results shown above are not necessarily indicative of
operations in the periods following the acquisitions. The unaudited pro forma
operating results include the results of Apex Therapeutic Care, Inc. ("Apex")
and Infinity Infusion Care, Inc. ("Infinity") as if the Apex and Infinity
acquisitions, which occurred on February 28, 2002 and June 28, 2002,
respectively, had occurred on January 1, 2002.

Note 5. Segment Information

The Company adheres to the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company has two
reportable segments: Specialty Pharmacy Services and Specialty Healthcare
Services. In its Specialty Pharmacy Services business unit, the Company
contracts with insurance companies and other payors to provide direct to patient
distribution of, and other support services, including the provision or
coordination of injection or infusion services related to, biopharmaceutical and
pharmaceutical products, including Synagis(R) for the prevention of respiratory
syncytial virus. Revenues from Synagis(R) sales for the three and six months
ended June 30, 2003 were approximately $1.5 million and $18.3 million,
respectively. As respiratory syncytial virus occurs primarily during the winter
months, the major portion of the Company's Synagis(R) sales may be higher during
the first and fourth quarters of the calendar year which may result in
significant fluctuations in the Company's quarterly operating results.

In its Specialty Healthcare Services business unit, the Company contracts with
hospitals to manage outpatient Wound Care Center(R) programs. The Company
evaluates segment performance based on income from operations. At and for the
three months ended June 30, 2003, management estimates that corporate general
and administrative expenses allocated to the reportable segments are 57 percent
for Specialty Pharmacy Services and 43 percent for Specialty Healthcare
Services. At and for the six months ended June 30, 2003, management estimates
that corporate general and administrative expenses allocated to the reportable
segments are 55 percent for Specialty Pharmacy Services and 45 percent for
Specialty Healthcare Services. Such allocations are not necessarily indicative
of costs that would be absorbed or eliminated in the event of a sale of the
Specialty Healthcare Services business which the Company is currently exploring.
Intercompany transactions are eliminated to arrive at consolidated totals.

The following tables present the results of operations and total assets of the
reportable segments of the Company at and for the three and six months ended
June 30, 2003 and 2002 (in thousands):

At and for the three months ended June 30, 2003
-----------------------------------------------
Specialty Specialty Eliminating
Pharmacy Healthcare Entries Total
--------- ---------- ----------- ----------
Revenues $ 37,373 $ 7,316 - $ 44,689
Income from operations $ 5,549 $ 814 - $ 6,363
Total assets $ 187,388 $ 8,526 $ 17,049 $ 212,963


-10-





Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 5. Segment Information (continued)

At and for the three months ended June 30, 2002
-----------------------------------------------
Specialty Specialty Eliminating
Pharmacy Healthcare Entries Total
--------- ---------- ----------- ----------
Revenues $ 22,956 $ 8,964 - $ 31,920
Income from operations $ 3,184 $ 1,682 - $ 4,866
Total assets $ 119,431 $ 41,996 $ 3,285 $ 164,712


At and for the six months ended June 30, 2003
----------------------------------------------
Specialty Specialty Eliminating
Pharmacy Healthcare Entries Total
--------- ---------- ----------- ----------
Revenues $ 87,823 $ 14,886 - $ 102,709
Income from operations $ 10,646 $ 1,814 - $ 12,460
Total assets $ 187,388 $ 8,526 $ 17,049 $ 212,963


At and for the six months ended June 30, 2002
----------------------------------------------
Specialty Specialty Eliminating
Pharmacy Healthcare Entries Total
--------- ---------- ----------- ----------
Revenues $ 36,825 $ 17,859 - $ 54,684
Income from operations $ 4,565 $ 3,885 - $ 8,450
Total assets $ 119,431 $ 41,996 $ 3,285 $ 164,712

The change in total assets for Specialty Healthcare business to $8.5 million at
June 30, 2003 from $42.0 million at June 30, 2002 is the result of the pushdown
of goodwill, resulting from the Company's Specialty Pharmacy acquisitions, to
the Specialty Pharmacy business.

Note 6. Employee and Facility Termination Costs

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which nullifies Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities initiated after December 31,
2002. SFAS No. 146 establishes fair value as the objective for initial
measurement of liabilities related to exit or disposal activities and requires
that such liabilities be recognized when incurred.

In the first quarter of 2003, the Company consolidated its pharmacy operations
in California which resulted in the termination of a total of 25 employees and
the vacating of a leased facility. The Company recorded a charge of $1.6 million
related to this activity.

The following provides a reconciliation of the related accrued costs associated
with the pharmacy consolidation, which are included in Selling, General and
Administrative expenses on the accompanying condensed consolidated income
statement at and for the three and six months ended June 30, 2003 (in
thousands):

-11-




Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 6. Employee and Facility Termination Costs (continued)


At and for the three months ended June, 30, 2003
-------------------------------------------------------
Beginning Costs Charged Costs Paid or Ending
Balance To Expense Otherwise Settled Balance
--------- ------------- ----------------- -------

Employee termination costs $ 275 $ - $ 143 $ 132
Facility termination costs 691 - 150 541
--- - --- ---
$ 966 $ - $ 293 $ 673
=== = === ===

At and for the six months ended June, 30, 2003
-------------------------------------------------------
Beginning Costs Charged Costs Paid or Ending
Balance To Expense Otherwise Settled Balance
--------- ------------- ----------------- -------
Employee termination costs $ - $ 871 $ 739 $ 132
Facility termination costs - 759 218 541
- ----- --- ---
$ - $ 1,630 $ 957 $ 673
= ===== === ===



Note 7. Credit Facility

In June 2003, the Company completed a new senior secured credit facility with
General Electric Capital Corporation ("GE Capital"). Under the credit agreement,
the Company obtained a secured revolving credit facility of up to $15 million,
of which it can utilize up to $5 million as a letter of credit subfacility and
up to $5 million as a swingline subfacility (i.e., a short-term loan advance
facility), and a $20 million secured term loan. The Company used the funds
available under this new credit facility to immediately pay all of its
outstanding borrowings, accrued interest and termination fees under its credit
facility with Healthcare Business Credit Corporation and to finance its
acquisition of Prescription City, Inc. If GE Capital, using its best efforts, is
able to syndicate this credit facility with other lenders, then funds available
to the Company under the credit facility may be increased by up to $45 million
to fund future acquisitions.

The revolving credit facility will mature on July 15, 2007. The Company will pay
all accrued interest on outstanding LIBOR loans on the last day of the
applicable LIBOR period, provided in the case of any LIBOR period greater than
three months in duration, interest shall be payable at three month intervals and
on the last day of such LIBOR period. All accrued interest on outstanding
revolving credit LIBOR loan advances will bear interest at an annual rate equal
to the LIBOR rate plus an additional amount based on the borrowers' senior
leverage ratio, which additional amounts may range from 3.0 percent to 3.5
percent. Currently, the applicable margin for revolving credit LIBOR loan
advances is 3.5 percent. For outstanding base rate loans, the Company will pay
all accrued interest on the first business day of each calendar quarter. All
accrued interest on outstanding revolving credit base rate loans will bear
interest at an annual rate equal to the base rate plus an additional amount
based on the borrowers' senior leverage ratio, which additional amounts may
range from 1.75 percent to 2.25 percent for the revolving credit base rate
loans. Currently, the applicable margin for revolving credit base rate advances
is 2.25 percent. During a default, interest on all loans may be increased by an
additional 2.0 percent.

-12-




Curative Health Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 7. Credit Facility (continued)

In the credit agreement, the Company has made certain representations and
warranties to GE Capital and is subject to certain reporting requirements and
financial and other covenants. The credit facility restricts the Company's
ability to incur or to permit any of its properties or assets to be encumbered
by liens. The credit facility also restricts the Company's ability to make
certain types of payments relating to its capital stock, including the
declaration or payment of dividends. Consolidations, mergers, sales of assets
and the creation of additional subsidiaries are also restricted, as is the
Company's ability to purchase assets and to make investments. The Company may
purchase other businesses that are preferred healthcare provider organizations
or are otherwise related to its line of business as long as the price for any
particular such acquisition does not exceed $25 million and the aggregate
purchase price for all such acquisitions during any fiscal year does not exceed
$40 million. After the Company's acquisition of Prescription City for
approximately $17.5 million, the Company may purchase other businesses with an
aggregate purchase price of $22.5 million for the fiscal year ending December
31, 2003. Acquisitions that do not comply with the covenant can be made only
with the consent of GE Capital. The covenants also restrict transactions with
the Company's affiliates and require the Company to maintain certain levels with
respect to its total leverage ratio, senior leverage ratio and fixed charge
coverage ratio.

Note 8. Changes in Capital Structure

During the first six months of 2003, the Company had the following significant
changes in capital structure:

Repurchase of Common Stock. On January 29, 2003, the selling shareholder of
Hemophilia Access, Inc. ("HAI") exercised a put option right under the Stock
Purchase Agreement of HAI, requiring the Company to repurchase shares issued to
acquire HAI. The Company repurchased 97,070 of such shares of common stock for
approximately $1.5 million.

Note 9. Subsequent Event

In July 2003, certain selling shareholders of Infinity exercised their rights
under convertible notes and converted approximately $4.9 million of such notes
into 300,389 shares of the Company's common stock.


-13-





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

Overview

Curative Health Services, Inc. ("Curative" or the "Company"), through its two
business units, Specialty Pharmacy Services and Specialty Healthcare Services,
seeks to deliver high-quality results and exceptional patient satisfaction for
patients experiencing serious or chronic medical conditions.

In its Specialty Pharmacy operations, the Company purchases various
pharmaceutical products, including both biopharmaceuticals (biological products,
e.g., hemophilia factor and intravenous immune globulins), as well as
pharmaceuticals (i.e., MedImmune Inc.'s Synagis(R) and Centocor, Inc.'s
Remicade(R)), from suppliers to provide direct-to-patient distribution of,
education about, reimbursement and other support services, including injection
or infusion services, related to these biopharmaceutical and pharmaceutical
products. The Company's Specialty Pharmacy Services revenues are derived
primarily from fees paid by insurance companies and other payors for the
purchase and distribution of these biopharmaceuticals and pharmaceuticals and
for injection or infusion services provided. Further, as part of its Specialty
Pharmacy Services operations, the Company provides biopharmaceutical and
pharmaceutical product distribution and support services under contract with
retail pharmacies for which it receives product supply and related service fees.
The biopharmaceutical and pharmaceutical products distributed and the injection
and infusion therapies offered by the Company are used by patients with chronic
or severe conditions such as hemophilia, respiratory syncytial virus, immune
system disorders, rheumatoid arthritis, hepatitis C, multiple sclerosis, post
chemotherapy, growth hormone deficiency and cancer. As of June 30, 2003, the
Specialty Pharmacy Services business unit had approximately 260 payor contracts
and 20 retail pharmacy contracts. The Special Pharmacy Services business unit
operates in at least 40 states.

The Company entered the Specialty Pharmacy Services business with its
acquisition of eBioCare.com, Inc. ("eBioCare") in March 2001, which was its
first acquisition of a specialty pharmacy services business. Since then, the
Company has completed ten specialty pharmacy acquisitions (including the
acquisition of eBioCare). As a result of these acquisitions and the Company's
entry into the Specialty Pharmacy Services business, the Company's product
revenues, all of which are attributable to the Specialty Pharmacy Services
business unit, increased 184 percent to $104.6 million in 2002 from $36.8
million in 2001.

The following provides approximate percentages of Specialty Pharmacy Services'
patient revenues for the six months ended June 30, 2003 and for the years ended
December 31, 2002 and 2001:

June 30, December 31,
2003 2002 2001
-------- --------------
Private Payors 43.9% 37.1% 61.4%
Medicaid 49.2% 54.1% 35.7%
Medicare 6.9% 8.8% 2.9%

The decrease in the percentage of the Company's revenues from Medicaid payors
and the increase in the percentage of its revenues from private payors for the
six months ended June 30, 2003 compared to the year ended December 31, 2002 is
the result of increased sales of Synagis(R).

-14-




The decrease in the percentage of the Company's revenues from private payors and
the increase in the percentage of its revenues from Medicaid for the year ended
December 2002 compared to the year ended December 31, 2001 was primarily a
result of an increase in the Company's hemophilia revenues, both organically and
through acquisitions, and a decrease in the number of its private payors due to
the Company's termination of a number of private payor contracts.

The Specialty Healthcare Services business unit contracts with hospitals to
manage outpatient Wound Care Center programs. These Wound Care Center programs
offer a comprehensive range of services that enable the Company to provide
patient-specific wound care diagnosis and treatments on a cost-effective basis.
Specialty Healthcare Services currently operates two types of Wound Care Center
programs with hospitals: a management model and an "under arrangement" model.
The Company is currently exploring the possible sale of this business. The
Company's Wound Care Center network consists of approximately 87 out patient
clinics located on or near campuses of acute care hospitals in 30 states.

In the management model, Specialty Healthcare Services provides management and
support services for a chronic wound care facility owned or leased by the
hospital and staffed by employees of the hospital, and generally receives a
fixed monthly management fee or a combination of a fixed monthly management fee
and a variable case management fee. In the "under arrangement" model, Specialty
Healthcare Services provides management and support services, as well as the
clinical and administrative staff, for a chronic wound care facility owned or
leased by the hospital, and generally receives fees based on the services
provided to each patient. In both models, physicians remain independent.
Specialty Healthcare Services offers assistance in recruiting and provides
training in wound care to the physicians and staff associated with the Wound
Care Center programs. As of June 30, 2003, the Company had 79 management and
eight "under arrangement" Wound Care Center programs.

The period-to-period comparability of the Company's financial statements is
affected by its acquisition activity. In addition, the Company recognized a
charge in the second quarter of 2003 of $.03 per diluted share in connection
with the extinguishment of the Healthcare Business Credit Corporation credit
facility and a charge of $.01 per diluted share related to the Company's planned
reorganization. The Company also recognized a charge in the first quarter of
2003 of $.07 per diluted share associated with the Company's consolidation of
its Specialty Pharmacy Services business and a charge of $.05 per diluted share
associated with settlements, including severance agreements with some of the
Company's former executives terminated in March 2002. Upon a sale of the
Company's wound care business, the Company anticipates that it may have to take
some charges in connection with such sale.

Critical Accounting Policies and Estimates

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

-15-




Revenue recognition. Specialty Pharmacy Services' revenues are recognized, net
of any contractual allowances, when the product is shipped to a patient, retail
pharmacy or a physician's office. Specialty Healthcare Services' revenues are
recognized after the management services are rendered and are billed monthly in
arrears.

Trade receivables: Considerable judgment is required in assessing the ultimate
realization of receivables, including the current financial condition of the
customer, age of the receivable and the relationship with the customer. The
Company estimates its allowances for doubtful accounts using these factors. If
the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. In circumstances where the Company is aware of a
specific customer's inability to meet its financial obligations (e.g.,
bankruptcy filings), a specific reserve for bad debts is recorded against
amounts due to reduce the receivable to the amount the Company reasonably
believes will be collected. For all other customers, the Company has reserves
for bad debt based upon the total accounts receivable balance. As of June 30,
2003, the Company's reserve for accounts receivable was approximately eight
percent of total receivables.

Inventories: Inventories are carried at the lower of cost or market on a first
in, first out basis. Inventories consist of high cost biopharmaceutical and
pharmaceutical products that, in many cases, require refrigeration or other
special handling. As a result, inventories are subject to spoilage or shrinkage.
On a quarterly basis, the Company performs a physical inventory and determines
whether any shrinkage or spoilage adjustments are needed. Although the Company
believes its inventories balances at June 30, 2003 are reasonably accurate, the
Company cannot assure that spoilage or shrinkage adjustments will not be needed
in the future. The recording of any such reserve may have a negative impact on
the Company's operating results.

Deferred tax assets: The Company has approximately $3.1 million in deferred tax
assets as of June 30, 2003 to record against future income. The Company does not
have a valuation allowance against this asset as it believes it is more likely
than not that the tax assets will be realized. The Company has considered future
income expectations and prudent tax strategies in assessing the need for a
valuation allowance. In the event the Company determines in the future that it
needs to record a valuation allowance, an adjustment to deferred tax assets
would be charged against income in the period of determination.

Goodwill and intangibles: Goodwill represents the excess of purchase price over
the fair value of net assets acquired. Intangibles consist of the separately
identifiable intangibles, such as pharmacy and customer relationships, covenants
not to compete and trademarks. Effective January 1, 2002, the Company adopted
SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that
goodwill and intangible assets with indefinite lives no longer be amortized but
rather be reviewed annually, or more frequently if impairment indicators arise,
for impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. In
assessing the recoverability of the Company's goodwill and intangibles, the
Company must make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
or assumptions change in the future, the Company may need to record an
impairment charge for these assets. An impairment charge would reduce operating
income in the period it was determined that the charge was needed.

-16-



Results of Operations

Revenues. The Company's revenues for the second quarter of 2003 increased 40
percent to $44.7 million compared to $31.9 million for the second quarter of the
prior fiscal year. For the first six months of 2003, revenues increased 88
percent to $102.7 million from $54.7 million for the same period in 2002. The
increase in revenues is the result of the Specialty Pharmacy acquisitions the
Company has completed in the first six months of 2003 and all of 2002, as well
as internal growth in hemophilia products, offset by a reduction in service
revenues in the Specialty Healthcare business unit.

Product revenues increased $14.4 million, or 63 percent, to $37.4 million in the
second quarter of 2003 from $23.0 million in the second quarter of 2002. For the
second quarter of 2003, product revenues included $28.7 million of hemophilia
related products, $1.5 million in Synagis(R) sales, $4.7 million in IVIG and
infusables sales, $.8 million in Oncology sales related to the purchase of
Prescription City and $1.7 million of other injectable products. For the same
period in 2002, product revenues included $21.1 million of hemophilia related
products and $1.9 million of other injectable products. For the first six months
of 2003, product revenues increased $51.0 million, or 138 percent, to $87.8
million compared to $36.8 million for the same period in 2002. The increases in
revenues for the three and six months ended June 30, 2003 compared to the same
periods in 2002 are primarily the result of growth of hemophilia patient related
revenues and the inclusion of Synagis(R), IVIG and infusable revenues and
Oncology sales as the result of the Specialty Pharmacy acquisitions completed in
the first six months of 2003 and throughout 2002. As respiratory syncytial virus
occurs primarily during the winter months, the major portion of the Company's
Synagis(R) sales may be higher during the first and fourth quarters of the
calendar year which may result in significant fluctuations in the Company's
quarterly operating results.

Service revenues, attributed entirely to the Specialty Healthcare Services
business unit, decreased 19 percent to $7.3 million in the second quarter of
2003 from $9.0 million in the second quarter of 2002. For the first six months
of 2003, service revenues decreased 17 percent to $14.9 million compared to
$17.9 million for the same period in 2002. The service revenues decreases of
$1.7 million for the second quarter 2003 and $3.0 million for the first six
months of 2003 are attributable to the operation of 87 Wound Care Center
programs at the end of the second quarter of 2003 as compared to 96 at the end
of the second quarter of 2002 as the result of contract terminations. For the
second quarter of 2003, the Company signed four new Wound Care Management
contracts and had one contract terminated. For the first six month of 2003, the
Company signed four new contracts and had six contracts terminated. Program
terminations by client hospitals have been effected for reasons such as reduced
reimbursement, financial restructuring, layoffs, bankruptcies, hospital closings
or a hospital's decision to maintain a wound care center without external
management. The continued termination, non-renewal or renegotiations of a
material number of management contracts or the inability to sign new contracts
could result in a continued decline in the Company's Specialty Healthcare
Services business unit revenue. The Company is currently exploring the
possibility of a sale of the Specialty Healthcare Services business unit.

Cost of Product Sales. Cost of product sales increased 53 percent to $25.2
million in the second quarter 2003 from $16.5 million in the second quarter of
2002. For the first six months of 2003, cost of product sales increased 138
percent to $62.6 million compared to $26.3 million for the same period in 2002.
The increases of $8.7 million for the second quarter of 2003 and $36.3 million
for the first six months of 2003 are attributable to the internal growth of
hemophilia patient revenues and the inclusion of the Specialty Pharmacy
acquisitions completed in the first six months of 2003 and throughout 2002. As a
percentage of product sales, cost of product sales for the second quarter of
2003 was 67 percent compared to 72 percent for the same period in 2002. For the
first six months of 2003, cost of product sales as a percentage of product
revenue was flat at 71 percent compared to the first six months of 2002.

-17-



Cost of Services. Cost of services, attributed entirely to the Specialty
Healthcare Services business unit, decreased 15 percent to $3.4 million in the
second quarter of 2003 from $4.0 million in the second quarter of 2002. For the
first six months of 2003, cost of services decreased 18 percent to $6.9 million
compared to $8.4 million for the same period in 2002. The decreases of $.6
million for the second quarter and $1.5 million for the first six months of 2003
compared to the same periods in 2002 are attributable to reduced staffing and
operating expenses of approximately $.5 million for the second quarter of 2003
and $.9 million for the first six months of 2003 related to the operation of 87
programs at the end of the second quarter of 2003 as compared to 96 programs
operating at the end of the second quarter 2002. Additionally, there were two
fewer under-arrangement programs in operation at the end of the second quarter
of 2003 as compared to the same period in 2002, at which the services component
of costs is higher than at the Company's other centers due to the additional
clinical staffing and expenses that these models require. For the second quarter
of 2003, this reduction in the number of under-arrangement programs accounted
for approximately $.1 million of the decrease in the cost of services and $.3
million for the first six months of 2003. As a percentage of service revenues,
cost of services for the second quarter of 2003 was 46 percent compared to 44
percent for the same period in 2002. This increase is primarily attributable to
the decline in service revenues. For the first six months of 2003, cost of
services as a percentage of service revenues was 46 percent compared to 47
percent for the same period in 2002.

Selling, General and Administrative. Selling, general and administrative
expenses increased $3.2 million, or 48 percent, to $9.8 million for the second
quarter of 2003 from $6.6 million for the same period in 2002. For the second
quarter of 2003, selling, general and administrative expenses consisted of $4.0
million related to the Specialty Pharmacy Services business, $1.2 million
related to the Specialty Healthcare Services business, $3.8 million related to
corporate services and $.8 million in charges, including $.6 million in charges
for early termination of the Company's previous credit line and $.2 million in
legal and other costs associated with a proposed corporate legal structure
reorganization, including the setting up of a holding company structure. The
increase of $3.2 million is primarily due to an increase of $2.0 million of
Specialty Pharmacy Services expenses attributable to the Specialty Pharmacy
acquisitions completed in the second quarter of 2003 and throughout 2002,
increased costs of $.4 million related to additional corporate staff to support
these acquisitions and $.8 million in charges.

For the first six months of 2003, selling general and administrative expenses
increased $9.3 million, or 81 percent, to $20.8 million from $11.5 million for
the same period in 2002 and consisted of $8.3 million related to the Specialty
Pharmacy Services business, $2.3 million related to the Specialty Healthcare
Services business, $6.7 million related to corporate services and $3.5 million
in charges, including $.8 million in charges for early termination of the
Company's previous credit line and legal and other costs associated with a
proposed corporate legal structure reorganization (recorded in the second
quarter of 2003) and $2.7 million related to the Company's consolidation of its
pharmacy operations in California and other costs associated with the settlement
of executive departures in March 2002 (recorded in the first quarter of 2003).
The increase of $9.3 million is primarily due to an increase of $5.0 million of
Specialty Pharmacy Services expenses attributable to the Specialty Pharmacy
acquisitions completed in the first six months of 2003 and throughout 2002,
increased costs of $.7 million related to additional corporate staff to support
these acquisitions and $3.5 million in charges.

As a percentage of revenues, selling, general and administrative expenses were
22 percent in the second quarter of 2003 compared to 21 percent for same period
in 2002, and 20 percent for the first six months of 2003 compared to 21 percent
for the same period in 2002.

-18-




Net Income. Net income was $3.5 million, or $.26 per diluted share, in the
second quarter of 2003 compared to $2.8 million, or $.23 per diluted share, in
the second quarter of 2002. For the first six months of 2003, net income was
$6.9 million, or $.51 per diluted share, compared to net income of $4.9 million,
or $.42 per diluted share, for the same period in 2002. The increases in
earnings of $.7 million for the second quarter of 2003 and $2.0 million for the
first six months of 2003, including charges of $3.5 million for the first six
months of 2003, are primarily attributable to the inclusion of the Specialty
Pharmacy acquisitions completed in the first six months of 2003 and throughout
2002.

Liquidity and Capital Resources

Working capital was $18.3 million at June 30, 2003 compared to $17.5 million at
December 31, 2002. Total cash and cash equivalents as of June 30, 2003 was $1.0
million. The ratio of current assets to current liabilities was 1.5:1 at June
30, 2003 and 1.4:1 at December 31, 2002.

Cash flows provided by operating activities for the six months ended June 30,
2003 totaled $4.0 million, primarily attributable to the $6.9 million in net
income, $1.2 million in depreciation and amortization, a decrease of $3.1
million in other operating assets, net, offset by an increase of $2.3 million
accounts receivable, net, and a decrease of $4.9 million of accounts payable and
accrued expenses.

Cash flows used in investing activities totaled $25.7 million attributable to
$24.4 million used in the acquisitions completed during the first six months of
2003 and $2.8 million used in fixed asset purchases, offset by $1.5 million in
proceeds received from accounts receivable, indemnification and other claims
related to the purchases of eBioCare and Apex, transactions which were recorded
as purchase price adjustments in the first quarter of 2003.

Cash flows used in financing activities totaled $20.0 million, attributable to
$1.5 million of cash used for repurchase of stock used in the purchase of HAI
and $13.4 million used in repayments of debt obligations, offset by proceeds of
$31.7 million in borrowings from the Company's credit facilities, $2.4 million
in proceeds from the exercise of stock options and $.8 million in proceeds from
repayment of notes receivable - stockholders.

For the first six months of 2003, the Company experienced a net increase in
accounts receivable of $4.2 million attributable to the growth in revenues as
the result of the Specialty Pharmacy acquisitions and an increase in accounts
days outstanding. Days sales outstanding were 79 days as of June 30, 2003, as
compared to 62 days at December 31, 2002. At June 30, 2003, days sales
outstanding for the Specialty Pharmacy Services business were 81 days and 69
days for the Specialty Healthcare business. The Company has significant
receivables from the State of California Medicaid Program, Medi-Cal. During the
second quarter of 2003, the Company experienced an increase in receivable days
outstanding from Medi-Cal, growing by approximately 22 days. The State of
California announced large budget deficits, and this has seemingly caused this
temporary increase in days sales outstanding. The Company expects to see a
return to normal collection periods for its Medi-Cal receivable as the State of
California has now passed its current year budget, and Medi-Cal has stated it
will begin paying all withheld claims.

As of June 30, 2003, the Company's current portion of long-term liabilities of
$7.1 million included $2.0 million representing the current portion of the
Company's borrowings from its commercial lender, $2.0 million representing the
current portion of the Department of Justice ("DOJ") obligation, $2.1 million
representing the current portion of a convertible note payable used in
connection with the purchase of Apex in February 2002 and $1.0 million
representing the note payable used in connection with the purchase of
Prescription City in June 2003. As of June 30, 2003, the Company's long-term
liabilities of $44.1 million included $3.0 million related to the DOJ
obligation, a $2.4 million promissory note representing the long-term portion of
the convertible note used in the purchase of Apex, $6.0 million in convertible
notes payable related to the purchase of Infinity Infusion Care, Ltd. in June
2002, $3.0 million in a convertible note payable related to the purchase of Home
Care of New York, Inc. in October 2002 and $29.7 million in borrowed funds from
the Company's commercial lender.

-19-



The Company's current portion of long-term liabilities and long-term liabilities
increased $19.1 million to $51.3 million as of June 30, 2003 compared to $32.2
million as of December 31, 2002. The increase is due to the acquisitions of
MedCare, All Care and Prescription City during the first six month of 2003, for
which the Company drew upon its credit facilities.

The Company's longer term cash requirements include working capital for the
expansion of its Specialty Pharmacy Services business and for acquisitions.
Other cash requirements are anticipated for capital expenditures in the normal
course of business, including the acquisition of software, computers and
equipment related to the Company's management information systems. Additionally,
as of June 30, 2003, the Company has a $5.0 million obligation, payable over
approximately three years, to the DOJ related to the settlement of its
litigation previously disclosed, as well as bank debt and convertible and
promissory notes totaling $46.2 million payable over various periods through
2007.

In July 2003, certain selling shareholders of Infinity exercised their right
under the convertible notes and converted approximately $4.9 million of the
notes into 300,389 shares of the Company's common stock.

Credit Facility

In June 2003, the Company completed a new senior secured credit facility with GE
Capital. Under the credit agreement, the Company obtained a secured revolving
credit facility of up to $15 million, of which it can utilize up to $5 million
as a letter of credit subfacility and up to $5 million as a swingline
subfacility (i.e., a short-term loan advance facility), and a $20 million
secured term loan. The Company used the funds available under this new credit
facility to immediately pay all of its outstanding borrowings, accrued interest
and termination fees under its credit facility with Healthcare Business Credit
Corporation and to finance its acquisition of Prescription City, Inc. If GE
Capital, using its best efforts, is able to syndicate this credit facility with
other lenders, then funds available to the Company under the credit facility may
be increased by up to $45 million to fund future acquisitions.

In connection with the credit agreement, the Company will pay to GE Capital a
monthly fee based on a percentage of the amount of available funds to the
Company under the credit facility. For the period through but not including
October 31, 2003, the Company will pay to GE Capital a monthly fee equal to 0.5
percent of the amount of "available funds" (i.e., the maximum amount available
under the credit facility less the average outstanding balance during that
month); and for the period after October 31, 2003, the Company will pay to GE
Capital a monthly fee equal to: 0.5 percent of the amount of available funds, if
the fraction equal to the average balance outstanding in effect during that
month divided by the maximum available amount under the credit facility (the
"Usage Ratio") is greater than or equal to two-thirds; 0.75 percent of the
amount of available funds, if the Usage Ratio is less than two-thirds but
greater than one-third; and 1 percent of the amount of available funds, if the
Usage Ratio is less than or equal to one-third.

The loans under the credit agreement may, at the Company's option, be made as
base rate loans, LIBOR loans or any combination thereof. LIBOR loans bear
interest at a fixed rate for periods of one, two, three or six months and base
rate loans bear interest at a floating rate throughout the term of the loan. At
the Company's option, any base rate loans may be converted into one or more
LIBOR loans and LIBOR loans may be continued for additional LIBOR periods.

-20-




The revolving credit facility will mature on July 15, 2007. The Company will pay
all accrued interest on outstanding LIBOR loans on the last day of the
applicable LIBOR period, provided in the case of any LIBOR period greater than
three months in duration, interest shall be payable at three month intervals and
on the last day of such LIBOR period. All accrued interest on outstanding
revolving credit LIBOR loan advances will bear interest at an annual rate equal
to the LIBOR rate plus an additional amount based on the borrowers' senior
leverage ratio, which additional amounts may range from 3.0 percent to 3.5
percent. Currently, the applicable margin for revolving credit LIBOR loan
advances is 3.5 percent. For outstanding base rate loans, the Company will pay
all accrued interest on the first business day of each calendar quarter. All
accrued interest on outstanding revolving credit base rate loans will bear
interest at an annual rate equal to the base rate plus an additional amount
based on the borrowers' senior leverage ratio, which additional amounts may
range from 1.75 percent to 2.25 percent for the revolving credit base rate
loans. Currently, the applicable margin for revolving credit base rate advances
is 2.25 percent. During a default, interest on all loans may be increased by an
additional 2.0 percent.

As security for the obligations under the credit agreement, the Company and each
of its subsidiaries have granted a security interest in substantially all of
their assets. This security interest includes a pledge of the stock of all of
the Company's subsidiaries as well as a pledge of the stock of the Company's
subsidiaries' subsidiaries. Each of the Company's subsidiaries is jointly and
severally liable, along with the Company, for all obligations under the credit
agreement. Any new subsidiary will become a co-borrower under the credit
agreement, or will provide a subsidiary guaranty as well as a security interest
in substantially all of its assets.

In the credit agreement, the Company has made certain representations and
warranties to GE Capital and is subject to certain reporting requirements and
financial and other covenants. The credit facility restricts the Company's
ability to incur or to permit any of its properties or assets to be encumbered
by liens. The credit facility also restricts the Company's ability to make
certain types of payments relating to its capital stock, including the
declaration or payment of dividends. Consolidations, mergers, sales of assets
and the creation of additional subsidiaries are also restricted, as is the
Company's ability to purchase assets and to make investments. The Company may
purchase other businesses that are preferred healthcare provider organizations
or are otherwise related to its line of business as long as the price for any
particular such acquisition does not exceed $25 million and the aggregate
purchase price for all such acquisitions during any fiscal year does not exceed
$40 million. After the Company's acquisition of Prescription City for
approximately $17.5 million, the Company may purchase other businesses with an
aggregate purchase price of $22.5 million for the fiscal year ending December
31, 2003. Acquisitions that do not comply with the covenant can be made only
with the consent of GE Capital. The covenants also restrict transactions with
the Company's affiliates and require the Company to maintain certain levels with
respect to its total leverage ratio, senior leverage ratio and fixed charge
coverage ratio.

Events of default under the credit agreement include, among others:

o a default of indebtedness by the Company other than under the credit
agreement in excess of $1 million;

o unsatisfied judgments against the Company equal to or in excess of $1
million;

o a change in control by which (i) any person acquires beneficial
ownership of 20 percent or more of the issued and outstanding
shares of the Company's voting stock, (ii) the Company's
directors during any 12 month period cease to be the directors
for any reason other than death, disability, or election of new
directors approved by two thirds of the existing directors, or
(iii) the Company ceases to own and control all of the economic
and voting rights associated with all of the outstanding stock of
its subsidiaries;

-21-




o agreements relating to acquisitions that fail to constitute a valid
and binding agreement, if liability to the Company or one of its
subsidiaries would exceed $1 million or would be reasonably expected
to result in a material adverse effect;

o the loss, suspension, or revocation of, or failure to renew, any
license or permit now held or hereafter acquired by the Company or
any of its subsidiaries, if such loss, suspension, revocation or
failure to renew could reasonably be expected to have a material
adverse effect; or

o the suspension or exclusion from any Medicaid or Medicare provider
agreement or certification, or any medical reimbursement program,
where such exclusion or suspension arises from fraud or other claims
or allegations that could be reasonably expected to have a material
adverse effect.


Health Insurance Portability and Accountability Act

During 2000, final regulations regarding the protection of the privacy of
personal health information, promulgated by the US Department of Health and
Human Services, were published in the Federal Register. These regulations set
the standards for securing patient records and generally prohibit covered
entities from using or disclosing protected health information. As a result of
these regulations, the Company anticipates expenditures in ensuring patient data
kept on computer networks maintained at Specialty Pharmacy Services operations,
the Specialty Healthcare Services Wound Care Center programs and corporate
offices are in compliance with these regulations. While the Company believes
that it is substantially in compliance with these regulations, there can be no
assurances that the cost of reaching compliance will not have a material impact
on the financial condition of the Company.

Cautionary Statement

This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements include statements regarding
intent, belief or current expectations of the Company and its management. These
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties that may cause the Company's actual results
to differ materially from the results discussed in these statements. Factors
that might cause such differences include, but are not limited to, those
described under the heading, "Critical Accounting Policies and Estimates"
herein, or those described in Exhibit 99.1 to this Form 10-Q and other factors
described in the Company's future filings with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company does not have operations subject to risks of material foreign
currency fluctuations, nor does it use derivative financial instruments in its
operations or investment portfolios. The Company places its investments in
instruments that meet high credit quality standards, as specified in the
Company's investment policy guidelines. The Company does not expect any material
loss with respect to its investment portfolio or exposure to market risks
associated with interest rates.

-22-





Item 4. Controls and Procedures

The Company carried out an evaluation under the supervision and with the
participation of its management, including its Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO"), of the effectiveness of its disclosure
controls and procedures as of June 30, 2003, the end of the period covered by
this report. Disclosure controls and procedures are procedures that are designed
with the objective of ensuring that information required to be disclosed in the
Company's reports filed under the Securities Exchange Act of 1934, such as this
Form 10-Q, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Based on that evaluation, the CEO and CFO have concluded that the disclosure
controls and procedures are effective to satisfy the objectives for which they
are intended.

During the quarter ended June 30, 2003, there has been no change in the
Company's internal controls over financial reporting that has materially
affected or is reasonably likely to materially affect, its internal controls
over financial reporting.



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Curative Health Services, Inc. and Subsidiaries

Part II Other Information

Item 1. Legal Proceedings

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

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

The Company held its 2003 annual meeting of stockholders on May 28, 2003.
Proxies for the meeting were solicited pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended, and there was no solicitation in opposition to
management's nominees as listed in the proxy statement. There were present at
the Annual Meeting in person or by proxy the holders of 10,118,579 votes. At the
meeting, the stockholders elected all seven members of the Company's Board of
Directors to serve for a term of one year.

Elected members of the Board of Directors: (Shares voted affirmative in
parenthesis)

Affirmative Withheld/Against
----------- ----------------

Paul S. Auerbach, MD (9,670,442) 448,137
Daniel E. Berce (9,670,642) 447,937
Lawrence P. English (10,002,723) 115,856
Joseph L. Feshbach (9,997,809) 120,770
Timothy I. Maudlin (7,009,477) 3,109,102
Gerard Moufflet (10,020,909) 97,670
John C. Prior (10,002,438) 116,141

The stockholders also approved the ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors. Number of votes for were
9,973,094, against 137,360 and 8,125 abstained.

Item 5. Other Information

The Company's business operations are subject from time to time to new
regulations and changes to existing regulations enacted by numerous federal and
state governmental authorities. A copy of an updated description of certain
government regulations applicable to the Company's business operations is
attached as Exhibit 99.2, which is incorporated herein by reference under this
Item 5.


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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 3.1 Fifth Restated Articles of Incorporation of Curative
Health Services, Inc.

Exhibit 10.1 Credit Agreement, dated as of June 9, 2003, between
General Electric Capital Corporation and the Company

Exhibit 10.2 Consent and First Amendment to Credit Agreement,
dated as of July 11, 2003, among General Electric
Capital Corporation and the Company

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

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

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

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

Exhibit 99.1 Cautionary Statements

Exhibit 99.2 Description of Government Regulations

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

(b) Form 8-K

Form 8-K filed April 29, 2003, reporting under Item 9 (also Item 12)
on the press release announcing the Company's earnings for the first
quarter ended March 31, 2003.

Form 8-K filed June 24, 2003, reporting under Item 5 on the press
release announcing the Company's acquisition of Prescription City, Inc.
and the entering into a credit agreement with General Electric Capital
Corporation.


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SIGNATURES

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

Date: August 14, 2003

Curative Health Services, Inc.
(Registrant)




/s/ Joseph Feshbach
--------------------
Joseph Feshbach
Chief Executive Officer and Chairman
(Principal Executive Officer)


/s/ Thomas Axmacher
--------------------
Thomas Axmacher
Chief Financial Officer
(Principal Financial and Accounting Officer)




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