CORAM HEALTHCARE CORP, 10-Q, 1999-05-17

CORAM HEALTHCARE CORP
10-Q, 1999-05-17
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-11343

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

CORAM HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 33-0615337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1125 SEVENTEENTH STREET
SUITE 2100 80202
DENVER, CO (Zip Code)
(Address of principal executive offices)
</TABLE>

Registrant's telephone number, including area code: (303) 292-4973

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

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 [ ]

The number of shares outstanding of the Registrant's Common Stock, $.001
par value, as of May 12, 1999, was 49,499,663.

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,817 $ 53
Cash limited as to use.................................... 1,349 1,557
Accounts receivable, net of allowance of $19,178 and
$18,128................................................ 129,896 113,697
Inventories............................................... 27,758 27,203
Deferred income taxes, net................................ 714 705
Other current assets...................................... 6,661 4,963
--------- ---------
Total current assets.............................. 170,195 148,178
Property and equipment, net................................. 27,459 26,563
Deferred income taxes, net.................................. 4,448 4,365
Other assets................................................ 17,740 17,574
Other deferred costs........................................ 4,634 5,243
Goodwill, net of accumulated amortization of $69,979 and
$67,247................................................... 233,224 235,696
--------- ---------
Total assets...................................... $ 457,700 $ 437,619
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 58,398 $ 52,930
Accrued compensation...................................... 11,489 11,205
Interest payable.......................................... 4,777 4,671
Current maturities of long-term debt...................... 379 260
Income taxes payable...................................... 288 300
Deferred income taxes..................................... 1,383 1,060
Reserve for litigation.................................... 1,308 2,987
Accrued merger and restructuring.......................... 4,090 3,935
Other current liabilities................................. 7,226 6,271
--------- ---------
Total current liabilities......................... 89,338 83,619
Long-term debt.............................................. 257,239 242,162
Minority interest in consolidated joint ventures............ 2,063 2,024
Other liabilities........................................... 12,785 12,947
Deferred income taxes....................................... 3,779 4,010
Commitments and contingencies............................... -- --
--------- ---------
Total liabilities................................. 365,204 344,762
Stockholders' equity:
Preferred stock, par value $.001, authorized 10,000
shares, none issued.................................... -- --
Common stock, par value $.001, authorized 100,000 shares,
issued and outstanding 49,434 at March 31, 1999 and
49,201 at December 31, 1998............................ 49 49
Additional paid-in capital................................ 427,157 427,133
Accumulated deficit....................................... (334,710) (334,325)
--------- ---------
Total stockholders' equity........................ 92,496 92,857
--------- ---------
Total liabilities and stockholders' equity........ $ 457,700 $ 437,619
========= =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

1
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CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Net revenue................................................. $160,954 $107,689
Cost of service............................................. 122,815 80,500
-------- --------
Gross profit................................................ 38,139 27,189
Operating expenses:
Selling, general and administrative expenses.............. 23,829 21,073
Provision for estimated uncollectible accounts............ 4,161 3,666
Amortization of goodwill.................................. 2,732 2,765
Restructuring costs....................................... 950 --
-------- --------
Total operating expenses.......................... 31,672 27,504
-------- --------
Operating income (loss)..................................... 6,467 (315)
Other income (expenses):
Interest expense.......................................... (6,559) (14,175)
Other income, net......................................... 210 777
-------- --------
Income (loss) before income taxes and minority interests.... 118 (13,713)
Income tax expense.......................................... 75 1,000
Minority interests in net income of consolidated joint
ventures.................................................. 428 411
-------- --------
Net loss.................................................... $ (385) $(15,124)
======== ========
Loss per common share....................................... $ (0.01) $ (0.31)
======== ========
Loss per common share -- assuming dilution.................. $ (0.01) $ (0.31)
======== ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

2
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CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
------- --------
<S> <C> <C>
Net cash used in operating activities....................... $(7,622) $(10,585)
Cash flows from investing activities:
Purchases of property and equipment....................... (3,238) (1,679)
Other..................................................... (312) (1,210)
------- --------
Net cash used in investing activities............. (3,550) (2,889)
------- --------
Cash flows from financing activities:
Borrowings on line of credit.............................. 21,000 --
Repayment of debt......................................... (6,064) (80,245)
Sales of stock, including exercise of stock options....... -- 9
------- --------
Net cash provided by (used in) financing
activities....................................... 14,936 (80,236)
------- --------
Net increase (decrease) in cash and cash
equivalents...................................... $ 3,764 $(93,710)
======= ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

3
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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1999

1. BASIS OF PRESENTATION

Business Activity. Coram Healthcare Corporation and its subsidiaries
("Coram" or the "Company") are engaged in three principal lines of business:
alternate site (outside the hospital) infusion therapy and related services,
ancillary network management services, and pharmacy benefit management and
specialty mail-order pharmacy services. Other services offered by Coram include
centralized management, administrative and clinical support for clinical
research trials, medical informatics and non-intravenous home health products
such as durable medical equipment and respiratory therapy services.

Coram delivers its alternate site infusion therapy services through
approximately 90 branch offices located in 44 states and Ontario, Canada.
Infusion therapy involves the intravenous administration of anti-infective
therapy, intravenous immunoglobulin ("IVIG"), chemotherapy, pain management,
nutrition and other therapies.

The Company provides ancillary network management services through its
Resource Network division ("R-Net"), which manages networks of home health care
providers on behalf of health maintenance organizations ("HMOs"), preferred
provider organizations ("PPOs"), at-risk physician groups and other managed care
organizations. R-Net serves its customers through two primary call centers and
three satellite offices.

The Company delivers pharmacy benefit management and specialty mail-order
pharmacy services through its Coram Prescription Services division ("CPS") from
two primary mail order facilities and three branch locations. The pharmacy
benefit management service provides on-line claims administration, formulary
management and certain drug utilization review services through a nationwide
network of retail pharmacies. CPS's specialty mail-order pharmacy services are
delivered through two main facilities which provide centralized distribution,
compliance monitoring, patient education and clinical support to a wide variety
of patients.

Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such regulations. The unaudited condensed consolidated
financial statements reflect all adjustments and disclosures that are, in the
opinion of management, necessary for a fair presentation. All such adjustments
are of a normal recurring nature. The results of operations for the interim
period ended March 31, 1999, are not necessarily indicative of the results of
the full fiscal year. For further information, refer to the audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1998.

Provision for Estimated Uncollectible Accounts. Management believes the net
carrying amount of accounts receivable is fairly stated and that the Company has
made adequate provision for uncollectible accounts based on all information
available. However, no assurance can be given as to the level of future
provisions for uncollectible accounts, or how they will compare to the levels
experienced in the past.

Earnings (Loss) per Share. In 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share ("Statement 128"). In
accordance with Statement 128, basic earnings per share

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

excludes any dilutive effects of options, warrants and convertible securities.
The following table sets forth the computation of basic and diluted earnings per
share for the three months ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Numerator for basic and diluted loss per share.............. $ (385) $(15,124)
======= ========
Weighted average shares -- denominator for basic earnings
per share................................................. 49,402 48,482
Effect of other dilutive securities:
Stock options............................................. -- --
Warrants.................................................. -- --
------- --------
Denominator for diluted earnings per share -- adjusted
weighted average shares and assumed conversion......... 49,402 48,482
======= ========
Loss per common share....................................... $ (0.01) $ (0.31)
======= ========
Loss per common share -- assuming dilution.................. $ (0.01) $ (0.31)
======= ========
</TABLE>

Diluted earnings (loss) per share computations do not give effect to stock
options or warrants to purchase common stock as their effect would have been
anti-dilutive.

Derivatives and Hedging Activities. In June 1998, the FASB issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("Statement 133"), which requires recording all
derivative instruments as assets or liabilities, measured at fair value.
Statement 133 is effective for fiscal years beginning after June 15, 1999. The
Company does not believe that adoption of the new requirement will have a
material effect on the Company's future financial position or operating results.

Start-up Costs. In 1998, the AICPA issued SOP 98-5 "Reporting on the Costs
of Start-Up Activities," which requires that the costs of start-up activities be
expensed as incurred. Initial adoption of SOP 98-5 was accounted for as a
cumulative effect of an accounting change. The Company adopted the SOP 98-5
effective January 1, 1999 and such adoption did not have a significant effect on
the results of operations or financial position.

2. ACQUISITIONS AND RESTRUCTURING

Acquisitions. Certain agreements related to previously acquired businesses
or interests therein provide for additional contingent consideration to be paid
by the Company. The amount of additional consideration, if any, is generally
based on the financial performance levels of the acquired companies. As of March
31, 1999, the Company may be required to pay a minimum of approximately $2.0
million, subject to increase based, in certain cases, on the Company or its
subsidiaries exceeding certain revenue or income targets and changes in the
market value of the Company's stock. These minimum contingent obligations have
been recorded as additional goodwill. Subject to certain elections by the
Company or the sellers, a maximum of approximately $1.1 million of these
contingent obligations, subject to increase, may be paid in cash with the
remaining to be paid in common stock of the Company. If these contingent
payments exceed the minimum contingent amounts, they will be recorded as
additional goodwill in the period in which the payment becomes probable.
Payments made during the three months ended March 31, 1999 and 1998 totaled $0.2
million and $0.1 million, respectively.

Merger and Restructuring. As a result of the formation of Coram and the
acquisition of substantially all of the assets of the alternate site infusion
business of Caremark, Inc., a subsidiary of Caremark International, Inc. (the
"Caremark Business"), during May 1995, the Company initiated a restructuring
plan (the "Caremark Business Consolidation Plan") and charged $25.8 million to
operations as a restructuring cost.

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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

Certain additional restructuring costs totaling approximately $11.4 million were
accounted for as adjustments to the purchase price of the Caremark Business in
1995. In December 1998, the Company evaluated the estimated costs to complete
the Caremark Business Consolidation Plan and other accruals and recognized a
restructure reversal benefit of $0.7 million.

Under the Caremark Business Consolidation plan, the Company has made total
payments, disposals and reversals as follows (in thousands):

<TABLE>
<CAPTION>
BALANCE AT
THROUGH MARCH 31, 1999 MARCH 31, 1999
----------------------------------------------- ----------------------
CASH NON-CASH RESTRUCTURE FUTURE CASH TOTAL
EXPENDITURES CHARGES TOTAL REVERSAL EXPENDITURES CHARGES
------------ -------- ------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Caremark Business Consolidation
Plan:
Personnel Reduction Costs...... $11,300 $ -- $11,300 $ -- $ -- $11,300
Facility Reduction Costs....... 9,172 3,900 13,072 714 2,914 16,700
------- ------ ------- ---- ------ -------
Total Restructuring
Costs................ $20,472 $3,900 $24,372 $714 $2,914 $28,000
======= ====== ======= ==== ====== =======
</TABLE>

During January 1999, the Company adopted a restructure plan which was
initiated in the first quarter of 1999. The plan resulted in an organizational
restructure in which $0.9 million of expense was recognized for severance costs.
The balance in the "Accrued Merger and Restructuring" liability at March 31,
1999 consists of future cash expenditures related to the Caremark Business
Consolidation Plan of $2.9 million, the 1999 restructure plan of $0.7 million
and other accruals of $0.5 million.

The Company estimates that the future cash expenditures related to the
Caremark Business Consolidation Plan and the 1999 restructure plan will be made
in the following periods: 50% through March 31, 2000, 10% through March 31,
2001, 12% through March 31, 2002, and 28% through March 31, 2003, and
thereafter.

3. LONG-TERM DEBT

Long-term debt is as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Series A Senior Subordinated Unsecured Notes................ $153,785 $153,785
Series B Senior Subordinated Convertible Notes.............. 87,922 87,922
New Senior Credit Facility.................................. 15,000 --
Other obligations, including capital leases, at interest
rates ranging from 6% to 16%, collateralized by certain
property and equipment.................................... 911 715
-------- --------
257,618 242,422
Less current scheduled maturities........................... (379) (260)
-------- --------
$257,239 $242,162
======== ========
</TABLE>

As of March 31, 1999, the Company's principal credit and debt agreements
included (i) a Securities Exchange Agreement (the "Securities Exchange
Agreement") dated May 6, 1998 with Cerberus Partners, L.P., Goldman Sachs Credit
Partners, L.P. and Foothill Capital Corporation (collectively known as the
"Holders") and the related Series A Senior Subordinated Unsecured Notes (the
"Series A Notes") and the Series B Senior Subordinated Convertible Notes (the
"Series B Notes") contemplated thereby and (ii) a new senior credit facility
with Foothill Income Trust, L.P., Cerberus Partners, L.P. and Goldman Sachs
Credit Partners L.P. (collectively known as the "Lenders") and Foothill Capital
Corporation, as Agent, dated as of

6
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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

August 20, 1998 (the "New Senior Credit Facility"). Under the outstanding credit
and debt agreements, the Company is precluded from paying cash dividends during
the term of the debt agreement.

Securities Exchange Agreement. On May 6, 1998, the Company entered into the
Securities Exchange Agreement with the Holders of its subordinated rollover note
(the "Rollover Note"). As long as the Rollover Note was outstanding, the Holders
had the right to receive warrants to purchase up to 20% of the outstanding
shares of the common stock of the Company (the "Warrants") on a fully diluted
basis. The Securities Exchange Agreement provided for the cancellation of the
Rollover Note (including deferred interest and fees) and the Warrants in an
exchange (the "Exchange"), effective April 13, 1998, for the payment of $4.3
million in cash and the issuance by the Company to the Holders of (i) $150.0
million in principal amount Series A Notes and (ii) $87.9 million in original
principal amount of Series B Notes. In addition, under the Securities Exchange
Agreement, the Holders of the Series A and Series B Notes were given the right
to approve certain new debt and the right to name one director to the Company's
Board of Directors, who was elected to the board in June 1998.

On April 9, 1999, the Company entered into Amendment No. 2 (the "Note
Amendment") to the Securities Exchange Agreement with the Holders. Pursuant to
the Note Amendment, the outstanding principal amount of Series B Notes is
convertible into shares of the Company's common stock, par value $.001 per share
(the "Common Stock"), at a price of $2.00 per share (subject to customary
anti-dilution adjustments). Prior to entering into the Note Amendment, the
Series B Notes were convertible into Common Stock at a price of $3.00, which
price was subject to downward (but not upward) adjustment based on prevailing
market prices for the Common Stock on each of April 13, 1999 and October 13,
1999. Based on reported closing prices for trading in the Common Stock prior to
April 13, 1999, this conversion price would have been adjusted to below $2.00 on
such date had the Company not entered into the Note Amendment. Pursuant to the
Note Amendment, the parties also increased the interest rate applicable to the
Series A Notes from 9.875% to 11.5% per annum. The Securities Exchange Agreement
pursuant to which the Series A Notes and the Series B Notes were issued contains
certain other customary covenants and events of default. At March 31, 1999, the
Company was in compliance with all of these covenants.

Series A Notes. The Series A Notes mature in May 2001 and bore interest at
an initial rate of 9.875% per annum payable quarterly in arrears in cash or
through the issuance of additional Series A Notes at the election of the
Company. Pursuant to the Note Amendment, the parties increased the interest rate
applicable to the Series A Notes to 11.5% per annum. The Holders can require the
Company to pay interest in cash if the Company exceeds a certain interest
coverage ratio. During the quarter ended March 31, 1999, interest expense on the
Series A Notes was $3.8 million. On April 15, 1999, Series A Notes totaling
approximately $3.8 million were issued in lieu of a cash payment of interest due
through such date.

Series B Notes. The Series B Notes mature in April 2008 and bear interest
at the rate of 8% per annum, payable quarterly in arrears in cash or through the
issuance of additional Series B Notes at the election of the Company. During the
quarter ended March 31, 1999, interest expense on the Series B Notes was
approximately $1.7 million. Pursuant to the Note Amendment, the outstanding
principal amount of Series B Notes will be convertible into shares of the
Company's Common Stock at a price of $2.00 per share subject to customary
anti-dilution adjustments including adjustments for sale of common stock other
than pursuant to existing obligations or employee benefit plans at a price below
the conversion price prevailing at the time of such sale. Cash will be paid in
lieu of fractional shares upon conversion of the Series B Notes.

The Series A and Series B Notes are redeemable, in whole or in part, at the
option of the Holders thereof in connection with any change of control of the
Company (as defined in the Securities Exchange Agreement), if the Company ceases
to hold and control certain interests in its significant subsidiaries, or upon
the acquisition of the Company or certain of its subsidiaries by a third party.
In such instances, the Series A and Series B Notes are redeemable at 103% of the
then outstanding principal amount plus accrued interest. The
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CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

Series B Notes are also redeemable at the option of the Holders thereof upon
maturity of the Series A Notes at the outstanding principal amount thereof plus
accrued interest. In addition, the Series A Notes are callable at any time at
103% of the then outstanding principal amount plus accrued interest at the
option of the Company.

Exchange; New Senior Credit Facility. The consummation of the Exchange was
contingent upon the satisfaction of certain conditions prior to closing of the
Securities Exchange Agreement on June 30, 1998. All conditions were satisfied
with the exception of the condition requiring the Company to execute an
agreement for a new senior credit facility. Accordingly, on June 30, 1998, the
Company entered into the First Amendment and Waiver (the "Amendment") to the
Securities Exchange Agreement, and the Exchange was consummated. The Amendment
waived the condition under the Securities Exchange Agreement requiring the
Company to execute an agreement for a new senior credit facility on or prior to
June 30, 1998. In addition, under the Amendment, the Holders of the Series A and
Series B Notes agreed to extend the Company up to $60.0 million of senior
secured debt (the "New Senior Credit Facility"), subject to the completion of
definitive agreements on or prior to September 30, 1998. On August 20, 1998, the
Company entered into a definitive agreement for the New Senior Credit Facility
providing for the availability of the $60.0 million facility for acquisitions,
working capital, letters of credit and other corporate purposes. The
availability is subject to certain borrowing base calculations as defined in the
underlying agreement. The New Senior Credit Facility matures February 26, 2001
and bears an interest rate of prime plus 1.5%, payable in arrears on the first
business day of each month. The interest rate was 9.25% at March 31, 1999. The
New Senior Credit Facility is secured by the capital stock of the Company's
subsidiaries, as well as the accounts receivable and certain other assets held
by the Company and its subsidiaries. Under the New Senior Credit Facility, among
other nominal fees, the Company was required to pay an upfront fee of 1.0% or
$0.6 million and is liable for commitment fees on the unused facility of 3/8 of
1.0% per annum, due quarterly in arrears. During the quarter ended March 31,
1999, interest and related fees on the New Senior Credit Facility were
approximately $0.5 million. In addition, the terms of the New Senior Credit
Facility provide for the issuance of warrants to purchase up to 1.9 million
shares of common stock of the Company at $0.01 per share, subject to customary
adjustments (the "1998 Warrants"). The 1998 Warrants were valued at their fair
value at the date of issuance, and were accounted for as deferred costs to be
amortized over the life of the New Senior Credit Facility. The Company charged
$0.4 million to interest expense during the quarter ended March 31, 1999 related
to the 1998 Warrants. The terms of the New Senior Credit Facility also provide
for the issuance of letters of credit of up to $25.0 million provided that
available credit would not fall below zero. As of March 31, 1999, the Holders
had issued letters of credit totaling approximately $19.6 million thereby
reducing the Company's availability under the New Senior Credit Facility by that
amount. The terms of the New Senior Credit Facility also provide for a fee of
1.0% per annum on the outstanding letter of credit obligations, due in arrears
on the first business day of each month. The terms of the New Senior Credit
Facility also provide for additional fees to be paid on demand to any letter of
credit issuer pursuant to the application and related documentation under which
such letters of credit are issued. As of March 31, 1999, such fees were 0.825%
per annum on the amount of outstanding letter of credit obligations. The New
Senior Credit Facility contains certain other customary covenants and events of
default. At March 31, 1999, the Company was in compliance with all of these
covenants.

At May 12, 1999, the New Senior Credit Facility had an available borrowing
base of $60.0 million. Offset by letter of credit obligations of $17.1 million
and revolver borrowings of $22.5 million, the total available credit under the
New Senior Credit Facility was $20.4 million as of May 12, 1999.

4. LITIGATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

Litigation. Plaintiffs filed an Amended Class Action Complaint on February 28,
1996, in which they allege that the Defendants made false and misleading
statements that caused a fraud on the market and artificially inflated the price
of the Company's stock during the period from August 1994 through August 1995.
Such Complaint alleges violations of Section 10(b) of the Securities Act of
1934, and Rule 10b-5 promulgated thereunder, against all of the Defendants. The
Complaint also alleges controlling person liability against the individual
defendants under Section 20(a) of the Securities and Exchange Act, and further
alleges fraud by all of the Defendants under Georgia law. Finally, Plaintiffs
allege a breach of the covenant of good faith and fair dealing by all
Defendants. Plaintiffs seek compensatory damages reflecting the difference in
value between the warrants as issued pursuant to the settlement of In re T2
Medical, Inc. Shareholder Litigation with the trading price of the Company's
common stock at its actual price and the same number of warrants at the same
exercise price with the Company's stock trading at its alleged true value. The
Defendants filed a Motion to dismiss the Amended Class Action Complaint on March
13, 1996. The Court granted the Company's Motion to Dismiss the Complaint on
February 12, 1997. The Plaintiffs appealed the dismissal to the Eleventh Circuit
Court of Appeals which affirmed the dismissal on October 15, 1998. The
plaintiffs filed a petition with the United States Supreme Court on March 15,
1999 for a writ of certiorari. In April 1999, the Company filed a brief in
opposition to the petition.

The Company intends vigorously to defend itself in the matter described
above. Nevertheless, due to the uncertainties inherent in litigation, the
ultimate disposition of the matter described in the preceding paragraph cannot
presently be determined. Accordingly, no provision for any loss that may result
upon resolution of this matter has been made in the Company's Consolidated
Financial Statements. An adverse outcome in such litigation could have a
material adverse effect on the financial position, results of operations and
liquidity of the Company.

The Company is also a party to various other legal actions arising out of
the normal course of its business. Management believes that the ultimate
resolution of such other actions will not have a material adverse effect on the
Company's financial position, results of operations or liquidity of the Company
except as set forth in the discussion of certain legal proceedings to which the
Company is a party described in Part I -- "Legal Proceedings" in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1998.

5. INCOME TAXES

During the three months ended March 31, 1999 and 1998, the Company recorded
an income tax expense of $0.1 million and $1.0 million, respectively. The
effective income tax rates for the three month periods ended March 31, 1999 and
1998 differ substantially from the expected combined federal and state income
tax rates calculated using applicable statutory rates as a result of the Company
providing a full valuation reserve against its deferred tax assets.

As of March 31, 1999, deferred tax assets are net of a $118.3 million
valuation allowance. Realization of deferred tax assets is dependent upon the
ability of the Company to generate taxable income in the future. Deferred taxes
relate primarily to temporary differences consisting, in part, of accrued
restructuring costs, the charge for goodwill and other long-lived assets,
allowances for doubtful accounts and other accrued liabilities that are not
deductible for income tax purposes until paid or realized and to net operating
loss carryforwards that are deductible against future taxable income.

In January 1999, the Internal Revenue Service ("IRS") completed the
examination of the federal income tax return of the Company for the year ended
September 30, 1995, and proposed substantial adjustments to the prior tax
liabilities of the Company. The Company has agreed to adjustments of $24.4
million that only affect the net operating loss carryforwards available. The
Company does not agree with the other proposed adjustments regarding the
deduction of warrants, write-off of goodwill and the specified liability portion
of the 1995 loss which affect the prior years' tax liabilities. The Company has
been advised by

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<PAGE> 11
CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

the IRS that it will receive a notice of deficiency with respect to the proposed
adjustments. The Company will contest the notice of deficiency through
administrative proceedings or litigation, and will vigorously defend its current
position. The most significant proposed adjustment relates to the ability of the
Company to categorize certain net operating losses as specified liability losses
and offset income in prior years, for which the Company has previously received
refunds in the amount of approximately $12.7 million. Due to the uncertainty of
final resolution, the Company has established a reserve for these issues. The
Company would, however, be required to pay from its cash resources any
deficiency resulting from resolution of the proposed adjustments, plus interest.
Due to the early phase of this matter and the uncertainties inherent in any
proceeding with the IRS or in litigation, no assurance can be given that the
Company will prevail. If the Company does not prevail with respect to the
proposed material adjustments, the financial position and liquidity of the
Company could be materially adversely affected.

6. INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS

Management regularly evaluates the operating performance of the Company by
reviewing results on a product or service provided basis. The Company's
reportable segments are Infusion, R-Net, and CPS. Infusion is the Company's base
business which derives its revenue primarily from alternate site infusion
therapy. R-Net's revenue is derived primarily from management services offered
to HMOs, PPOs, at-risk physician groups and other managed care organizations for
home health services. CPS primarily provides specialty mail-order pharmacy and
pharmacy benefit management services. The other non-reportable segment
represents lithotripsy services for the three months ended March 31, 1998 and
clinical research services for the three months ended March 31, 1999.

Coram uses earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") for purposes of performance measurement. The measurement
basis for segment assets includes net accounts receivable, inventory, net
property and equipment, and other current assets.

Summary information by segment is as follows (in thousands):

<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
INFUSION
Revenue from external customers............................. $105,605 $ 88,798
Intersegment revenue........................................ 7,203 3,532
Interest income............................................. 22 15
Equity in net income of unconsolidated joint ventures....... -- 31
Segment EBITDA profit....................................... 11,796 13,668
Segment assets.............................................. 142,482 113,473
Segment asset expenditures.................................. 1,491 1,340
R-NET
Revenue from external customers............................. $ 36,606 $ 9,772
Intersegment revenue........................................ -- --
Interest income............................................. 7 3
Equity in net income of unconsolidated joint ventures....... -- --
Segment EBITDA profit (loss)................................ 4,931 (992)
Segment assets.............................................. 17,845 3,537
Segment asset expenditures.................................. 526 101
</TABLE>

10
<PAGE> 12
CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
CPS
Revenue from external customers............................. $ 18,655 $ 8,720
Intersegment revenue........................................ 82 219
Interest income............................................. -- --
Equity in net income of unconsolidated joint ventures....... -- --
Segment EBITDA profit....................................... 567 318
Segment assets.............................................. 16,402 5,060
Segment asset expenditures.................................. 456 82
ALL OTHER
Revenue from external customers............................. $ 88 $ 399
Intersegment revenue........................................ -- --
Interest income............................................. -- --
Equity in net income of unconsolidated joint ventures....... -- --
Segment EBITDA profit (loss)................................ (55) 335
Segment assets.............................................. 103 222
Segment asset expenditures.................................. -- --
</TABLE>

A reconciliation of the Company's segment revenue, segment EBITDA profit
(loss), segment assets and other significant items to the corresponding amounts
in the Consolidated Financial Statements are as follows (in thousands):

<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
NET REVENUES
Total for reportable segments............................... $168,151 $111,041
Other revenue............................................... 88 399
Elimination of intersegment revenue......................... (7,285) (3,751)
-------- --------
Total consolidated revenue........................ $160,954 $107,689
======== ========
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS
Total EBITDA profit for reportable segments................. $ 17,294 $ 12,994
Other EBITDA profit (loss).................................. (55) 335
Goodwill amortization expense............................... (2,732) (2,765)
Depreciation and other amortization expense................. (2,799) (3,000)
Interest expense............................................ (6,559) (14,175)
All other income (expense), net............................. (5,031) (7,102)
-------- --------
Income (loss) before income taxes and minority
interests....................................... $ 118 $(13,713)
======== ========
ASSETS
Total assets for reportable segment......................... $176,729 $122,070
Other assets................................................ 280,971 297,377
-------- --------
Consolidated total assets......................... $457,700 $419,447
======== ========
</TABLE>

11
<PAGE> 13
CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

For each of the years presented, the Company's primary operations and
assets were within the United States. The Company maintains an infusion
operation in Canada; however, the assets and revenue generated from this
business are not material to the Company's operations.

Sales to one customer for the Company's Infusion and R-Net segments
represented approximately 21% and 3% of the Company's total consolidated net
revenue for the three months ended March 31, 1999 and 1998, respectively. Sales
from the Medicare and Medicaid programs for the Company's Infusion and CPS
segments represented approximately 16% and 23% of the Company's total
consolidated net revenue for the three months ended March 31, 1999 and 1998,
respectively.

12
<PAGE> 14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to Coram that are based on the beliefs of
the management of Coram as well as assumptions made by and information currently
available to the management of Coram. The Company's actual results may vary
materially from the forward-looking statements made in this report due to
important factors such as: history of operating losses and uncertainties
associated with future operating results; significant outstanding indebtedness;
equity conversion rights held by existing debt holders; limited liquidity;
reimbursement related risks; shifts in the mix of parties that pay for the
Company's services; dependence on relationships with third parties;
concentration of large payors; industry competition; timing of or ability to
complete acquisitions; government regulation of the home health care industry;
certain legal proceedings; dependence on key personnel; recruitment and
retention of trained personnel; potential volatility of stock price; New York
Stock Exchange listing status; and unanticipated impacts from the Year 2000
Issue. See Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Factors" in the Company's Annual
Report on Form 10-K, as amended, for the year ended December 31, 1998. When used
in this report, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the current views of Coram
with respect to future events based on currently available information and are
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Coram does not undertake any obligation
to release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

BACKGROUND

General. The Company is engaged in three principal lines of business:
alternate site (outside the hospital) infusion therapy and related services,
ancillary network management services, and pharmacy benefit management and
specialty mail-order pharmacy services. Other services offered by Coram include
centralized management, administrative and clinical support for clinical
research trials, medical informatics and non-intravenous home health products
such as durable medical equipment and respiratory therapy services.

Business Strategy. The Company's overall business strategy is focused on
the basic factors that could lead to profitability: strategic revenue generation
programs, cost reduction and control, quality improvement and cash collections.
The Company's revenue generation programs include a focus on business
relationships where the Company can provide high quality of care while operating
profitably. In the Company's alternate site infusion therapy business, the
Company is continuing to emphasize marketing efforts aimed at improving its
therapy mix, physician relationships and payor relationships. It also has
continued the development of its specialty programs aimed at serving patients
requiring intravenous nutrition; pre- and post-transplant patients; patients
with HIV/AIDS; and patients with chronic disorders such as hemophilia, immune
deficiencies and alpha-one antitrypsin deficiency. The R-Net division remains
focused on marketing to HMOs, PPOs, at-risk physician groups and other managed
care payors desiring to reduce the overall cost of their health care
expenditures through management of the home health services utilized by their
members. Meanwhile, the CPS division has focused its marketing efforts on
smaller health plans, including companies with self-insured plans, self-funded
employer health plans, labor unions, managed care payors and patient populations
with specialized needs such as pre- and post-transplant patients, patients with
HIV/AIDS and chronic conditions such as diabetes and asthma. In 1999, the
Company is pursuing a plan to expand the reach of the CPS division by developing
the capability to accept orders for its specialty mail-order pharmacy services
over the Internet.

The Company has implemented cost reduction and control programs focused on
the reduction and control of cost of services and operating expenses, assessment
of poorly performing branches and review of branch efficiencies. Delivery of
quality service in the Company's infusion therapy division in particular is
being closely monitored through an internal task force, more rigorous reporting
and independent patient satisfaction surveys. Furthermore, management throughout
the Company is continuing to concentrate on reimbursement by emphasizing
improved billing and cash collections methods and continued assessment of
systems support
13
<PAGE> 15

and support for reimbursement. While management believes the implementation of
its overall business strategy has improved operating performance throughout the
Company, no assurances can be given as to its ultimate success.

Events that impacted the Company in 1998 and the first quarter of 1999 or
which may impact the Company in the future include the Note Amendment to the
Securities Exchange Agreement, restructuring of the former credit facilities of
the Company and related reduction of interest expense, reorganization of the
management structure and entering into a five-year capitated agreement with
Aetna U.S. Healthcare, Inc. ("Aetna USHC"). Strategic alternatives currently
being considered by the Company include, among others: (i) the evaluation of
potential acquisitions in markets that would permit the Company to grow its
local or regional business either through one of its three principal lines of
business or through complimentary home health services such as respiratory
therapy, durable medical equipment and home health nursing; (ii) CPS's entrance
into the E-commerce market which would allow the division to receive orders over
the Internet; and (iii) the continued investment into and development of
services provided by the Clinical Research and Medical Informatics division.
Combined, management believes that the foregoing will improve the Company's
financial prospects, improve and stabilize relationships with payors and
referral sources, and improve its position within the alternate site health care
services industry.

There can be no assurance that any acquisitions or other strategic
alternatives will be consummated or will be available to the Company on
commercially acceptable terms.

Factors Affecting Recent Operating Results. The most significant factors
affecting the Company's operating performance and financial condition are as
follows:

(i) execution of the Note Amendment to the Securities Exchange
Agreement with the Holders;

(ii) restructure of its credit facilities through the repayment of its
former senior credit facility in January 1998, the exchange of its former
subordinated debt for the issuance of the Series A Notes and the Series B
Notes in June 1998 and the establishment of the New Senior Credit Facility
in August 1998;

(iii) growth in the Company's R-Net division with the addition of the
five-year capitated agreement with Aetna USHC beginning in July 1998;

(iv) expansion and improved sales efforts in the Company's CPS
division;

(v) sale of substantially all of the Company's controlling interest in
11 lithotripsy partnerships, two wholly-owned lithotripsy entities, a
lithotripsy management company and stock in an equipment service company
and certain related assets (the "Lithotripsy Business") in the third
quarter of 1997, with the remaining interest sold in the second quarter of
1998, allowing the Company to significantly reduce its debt obligations and
its contingent liabilities associated with the Company's former commitments
to its partners in the Lithotripsy Business;

(vi) ongoing pricing pressure in the Company's infusion business as a
result of an unfavorable shift in payor mix from private indemnity insurers
to managed care organizations and other contracted payors, and intense
competition among infusion providers. The following table sets forth the
approximate percentages of the Company's infusion therapy net revenue from
certain categories of payors:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
1999 1998 1998
--------- ------------ ---------
<S> <C> <C> <C>
Private Indemnity Insurance and Other Non-
Contracted Payors....................... 23% 24% 27%
Managed Care Organizations and Other
Contracted Payors....................... 54% 53% 47%
Medicare and Medicaid Programs............ 23% 23% 26%
--- --- ---
Total........................... 100% 100% 100%
=== === ===
</TABLE>

14
<PAGE> 16

(vii) increased competition from hospitals and physicians that have
sought to increase the scope of services they offer through their
facilities and offices, including services similar to those offered by the
Company, or that have entered into risk-bearing relationships with
third-party payors pursuant to which they have been delegated control over
the provision of a wide variety of health care services, including the
services offered by the Company.

RESULTS OF OPERATIONS

CERTAIN QUARTERLY COMPARISONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
1999 1998 1998
--------- ------------ ---------
<S> <C> <C> <C>
Net revenue........................................ $160,954 $158,047 $107,689
Cost of service.................................... 122,815 117,048 80,500
-------- -------- --------
Gross profit....................................... 38,139 40,999 27,189
Operating expenses:
Selling, general and administrative expenses..... 23,829 29,628 21,073
Provision for estimated uncollectible accounts... 4,161 4,203 3,666
Amortization of goodwill......................... 2,732 2,802 2,765
Accrual for (reversal of) restructuring costs.... 950 (3,900) --
-------- -------- --------
Total operating expenses................. 31,672 32,733 27,504
-------- -------- --------
Operating income (loss)............................ 6,467 8,266 (315)
Other income (expenses):
Interest expense................................. (6,559) (6,362) (14,175)
Other income, net................................ 210 (223) 777
-------- -------- --------
Income (loss) before income taxes and minority
interests........................................ 118 1,681 (13,713)
Income tax expense................................. 75 450 1,000
Minority interests in net income of consolidated
joint ventures................................... 428 425 411
-------- -------- --------
Net income (loss).................................. $ (385) $ 806 $(15,124)
======== ======== ========
Income (loss) per common share..................... $ (0.01) $ 0.02 $ (0.31)
======== ======== ========
Income (loss) per common share -- assuming
dilution......................................... $ (0.01) $ 0.02 $ (0.31)
======== ======== ========
</TABLE>

Three Months Ended March 31, 1999 Compared With Three Months Ended December
31, 1998 (unaudited, in thousands except per share data):

Net Revenue. Net revenue increased $2.9 million or 1.8%, from $158.1
million in the quarter ended December 31, 1998 to $161.0 million in the quarter
ended March 31, 1999. The increase can be attributed to (i) an increase in sales
at the R-Net division of $12.9 million with approximately 38.0% of this increase
due to the Aetna USHC capitated agreement that became effective in July 1998 and
(ii) an increase in sales at CPS division of $2.7 million, largely offset by a
decrease in infusion net revenue of $12.8 million due to such seasonal factors
as termination of payor contracts in the fourth quarter of 1998, the
implementation of new contracts beginning in the first quarter of 1999 and
declines in flu-related treatments. See "Factors Affecting Recent Operating
Results."

Gross Profit. Gross profit decreased $2.9 million from $41.0 million or a
gross margin of 25.9% in the quarter ended December 31, 1998 to $38.1 million or
a gross margin of 23.7% in the quarter ended March 31, 1999. The reduction is
due to a higher cost of service in the infusion business relating to current
market shortages of blood products, more expensive seasonal therapies and the
timing of discounts earned on product between the quarters. This reduction was
offset partially by increased gross profit from the R-Net and CPS divisions in
the first quarter due to sales increases noted above. In addition, as these two
divisions continue to grow, the Company will realize some deterioration of
consolidated gross profit margin as the services provided
15
<PAGE> 17

by the R-Net and CPS divisions typically have lower gross profit margins than
the services typically provided by the Company's infusion business. See "Factors
Affecting Recent Operating Results."

Selling, General and Administrative Expenses. SG&A decreased $5.8 million
or 19.6% from $29.6 million in the quarter ended December 31, 1998 to $23.8
million in the quarter ended March 31, 1999. Excluding financing costs of
approximately $1.0 million in the fourth quarter of 1998 and recovery of a note
receivable of approximately $1.8 million recognized in the first quarter of
1999, the adjusted $2.9 million decrease in SG&A is primarily due to a $1.9
million reduction in the Company's bonus expense in the first quarter of 1999.
See "Factors Affecting Recent Operating Results."

Accrual For (Reversal of) Restructuring Costs. The Company recorded
approximately $0.9 million of charges in March 1999 relating to reorganization
of the Company's management structure with communication and implementation
completed during the first quarter of 1999. The Company substantially completed
the consolidation plans reserved for in 1994 and 1995 and reversed restructure
charges of $3.9 million in the quarter ended December 31, 1998. See "Factors
Affecting Recent Operating Results."

Operating Income. The Company recorded operating income of $6.5 million
during the three months ended March 31, 1999 compared to $8.3 million during the
three months ended December 31, 1998. Before adjustments for restructuring costs
referred to above, operating income was $7.5 million for the three months ended
March 31, 1999 compared to $4.4 million for the three months ended December 31,
1998. The improvement is due primarily to the decrease in SG&A costs of $5.8
million, as described above, partially offset by the decrease in gross profit.

Net Income (loss). Net loss for the quarter ended March 31, 1999 was $0.4
million compared to net income of $0.8 million for the quarter ended December
31, 1998. Eliminating the effect of adjustments for restructuring costs referred
to above, net loss improved by $3.7 million. As discussed above, the improvement
can be attributed to the decrease in SG&A expense.

Three Months Ended March 31, 1999 Compared With Three Months Ended March 31,
1998 (unaudited; in thousands except per share data):

Net Revenue. Net revenue increased $53.3 million or 49.5%, from $107.7
million in the quarter ended March 31, 1998 to $161.0 million in the quarter
ended March 31, 1999. The increase can be attributed to a (i) $13.3 million
increase in net revenue from the infusion business primarily due to a 10.0%
increase in patient census partially offset by an unfavorable shift in payor
mix, (ii) $30.6 million increase in net revenue from the R-Net division
primarily relating to the Aetna USHC capitated agreement that became effective
in July 1998, and (iii) $9.7 million increase in net revenue from the CPS
division. See "Factors Affecting Recent Operating Results."

Gross Profit. Gross profit increased $11.0 million, from $27.2 million or a
gross margin of 25.2% in the quarter ended March 31, 1998 to $38.1 million or a
gross margin of 23.7% in the quarter ended March 31, 1999. The increase results
primarily from the increase in net revenue discussed above offset by an increase
in cost of service that is approximately the same as a percent of net revenue
for the periods presented. See "Factors Affecting Recent Operating Results."

Selling, General and Administrative Expenses. SG&A increased $2.8 million
or 13.1% from $21.1 million in the quarter ended March 31, 1998 to $23.8 million
in the quarter ended March 31, 1999. Excluding recovery of a note receivable of
approximately $1.8 million recognized in the first quarter of 1999, the adjusted
increase of $4.5 million is due primarily to the growth of the R-Net and CPS
divisions. See "Factors Affecting Recent Operating Results."

Accrual For (Reversal of) Restructuring Costs. The Company recorded $0.9
million of charges in March 1999 relating to reorganization of the management
structure. No restructure costs were recorded in the first quarter of 1998. See
"Business Strategy."

Operating Income (Loss). The Company recorded operating income of $6.5
million during the three months ended March 31, 1999 compared to an operating
loss of $(0.3) million during the three months ended

16
<PAGE> 18

March 31, 1998. Excluding the restructure costs in the three months ended March
31, 1999, the loss improved by $7.7 million. The improvement is due primarily to
the increase in gross profit of $11.0 million offset by the increase in SG&A of
$2.8 million described above.

Interest Expense. Interest expense decreased by $7.6 million or 53.7%, from
$14.2 million in the quarter ended March 31, 1998 to $6.6 million in the quarter
ended March 31, 1999. The improvement is due primarily to a decrease of $1.9
million in interest related to the Company's former senior credit facility which
was paid in full and terminated in January 1998, a decrease of $8.9 million in
interest related to the Rollover Note which was cancelled in connection with the
Securities Exchange Agreement and a decrease of $3.2 million in interest
relating to the Warrants issued under the Rollover Note, offset by interest
related to the Securities Exchange Agreement of $5.6 million. See Note 3 to the
Unaudited Condensed Consolidated Financial Statements as of March 31, 1999.

Income Tax Expense. During the three months ended March 31, 1999, the
Company recorded income tax expense of $0.1 million compared to $1.0 million in
the three months ended March 31, 1998. The decrease is due to adjustments
recorded in 1998 relating to the dispute with the Internal Revenue Service as
described in Note 5 to the Unaudited Condensed Consolidated Financial Statements
as of March 31, 1999.

Net Loss. Net loss for the quarter ended March 31, 1999 was $0.4 million
compared to $15.1 million for the quarter ended March 31, 1998. As discussed
above, the improvement can be attributed to the increase in operating income and
the decrease in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Overview. The Company uses cash generated from operations and available
credit under the New Senior Credit Facility to fund its working capital
requirements and operations. The Company's working capital as of March 31, 1999
was $80.9 million compared to $64.6 million at December 31, 1998, an increase of
$16.3 million. Under the terms of the New Senior Credit Facility, the maximum
funds available to the Company (defined as the "Revolving Credit Commitment") is
an amount equal to the lesser of (a) the Company's borrowing base as calculated
pursuant to the agreement or (b) the total revolving credit commitment of $60.0
million. As of March 31, 1999, the Company's Revolving Credit Commitment was
$60.0 million. Offset by letter of credit obligations of $19.6 million and
revolver borrowings of $15.0 million, the total available credit under the New
Senior Credit Facility was $25.4 million as of March 31, 1999. At May 12, 1999,
the Revolving Credit Commitment was $60.0 million. Offset by letter of credit
obligations of $17.1 million and revolver borrowings of $22.5 million, the total
available credit under the New Senior Credit Facility was $20.4 million as of
May 12, 1999.

The Company from time to time evaluates strategic alternatives for
operating and growing its business. The strategic alternatives which the Company
considers include, but are not limited to, the pursuit of opportunities in its
alternate site infusion therapy business, including consolidation with or the
acquisition of other companies in its infusion business or in businesses
complimentary to the Company's infusion business. Any such future acquisitions
may require a change in the Company's capital structure and may entail
additional equity and/or debt financing. There can be no assurance that any such
consolidations or acquisitions will occur. Even if a strategic transaction
becomes available, there can be no assurance that the necessary financing will
be available to the Company on commercially acceptable terms.

The Company continues to have discussions with commercial as well as
investment banks regarding the availability of alternative capital markets
financing for refinancing of the Company's debt. While the Company cannot
predict future financing availability or pricing, it believes that the improving
operations of the Company as well as its continued discussions with financing
resources are positioning the Company to be prepared to take advantage of and
secure financing when appropriate.

As of March 31, 1999 the Company did not have any material commitments for
capital expenditures.

Working Capital. In comparing the first quarter of 1999 with the year ended
1998, the primary increases in current assets related to (i) an increase in cash
and cash equivalents of $3.8 million; (ii) an increase in net accounts
receivable of $16.2 million, primarily due to an approximate three day increase
in days sales
17
<PAGE> 19

outstanding (DSO) representing approximately $9.0 million and additional sales
volume at the CPS and R-Net divisions; and (iii) an increase in other current
assets of $1.7 million, primarily due to the recovery of a fully reserved note
receivable. The increase in cash and cash equivalents was primarily due to
borrowings, net of repayments, on the line of credit of $15.0 million offset by
purchases of property and equipment of $3.2 million and a decrease in cash used
for operations of $7.6 million. Property and equipment purchases primarily
consisted of $1.4 million for computer systems and software and the purchase of
durable medical equipment for $1.1 million to support a new payor contract
signed in the fourth quarter of 1998.

Total current liabilities increased in the first quarter of 1999 primarily
due to an increase in accounts payable and other current liabilities of $6.4
million due to timing of payments to vendors, accrual for restructure costs and
an increase in pharmacy benefit management operations.

Year 2000 Issues. The Company believes the most significant risk with the
Year 2000 problem is the effect such issues may have on third party payors, such
as Medicare. While all of the effects of such noncompliance have not been
identified by the Company, any failure of these third party payors to resolve
Year 2000 problems in a timely manner could impact the Company's capital
requirements due to a slow down in the payment of accounts receivable associated
with these payors. While the Company has not incurred any payment issues to date
which management can directly attribute to the Year 2000 problem at any specific
payor, no assurance can be made that payment issues will not occur. Such an
impact could have a material adverse effect on the Company's ability to generate
cash from operations and require the Company to use available capital from the
New Senior Credit Facility. Significant delays in collecting accounts receivable
due to Year 2000 problems experienced by third party payors could reduce the
capital available to the Company by reducing the borrowing base under the terms
of the New Senior Credit Facility. In addition, such payment delays due to the
Year 2000 problem could impact the Company's ability to meet its debt
obligations.

Restructure Costs. Of the $4.1 million of accrued restructure costs, the
Company estimates that the future cash expenditures will be made in the
following periods: 50% through March 31, 2000, 10% through March 31, 2001, 12%
through March 31, 2002, and 28% through March 31, 2003, and thereafter. Although
subject to future adjustment and the Company's ability to successfully implement
its business strategy, the Company believes it has adequate reserves and
liquidity as of March 31, 1999 to meet future expenditures related to the plans.
However, there is no assurance that the reserves will be adequate or that the
Company will generate sufficient working capital to meet future expenditures.

YEAR 2000 ISSUES

Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."

Assessment. The Year 2000 Problem could affect computers, software, and
other equipment used, operated or maintained by the Company. Accordingly, the
Company is reviewing its internal computer programs and systems to ensure that
the programs and systems will be Year 2000 compliant.

Internal Infrastructure. The Company believes that it has identified
substantially all of the major computers, software applications, and related
equipment used in connection with its internal operations that must be modified,
upgraded, or replaced to minimize the possibility of a material disruption to
its business. The Company has commenced the process of modifying, upgrading, and
replacing major systems that have been identified as adversely affected. To
date, internal financial systems have been modified for asset tracking, general
ledger accounting and payroll. Current plans call for the Company to complete
other major systems remediation by September 30, 1999.

Medical Equipment and Systems Other Than Information Technology Systems. In
addition to computers and related systems, the operation of medical equipment,
office and facilities equipment and other common devices may be affected by the
Year 2000 Problem. The Company is currently assessing the potential

18
<PAGE> 20

effect of, and costs of remediating, the Year 2000 Problem on its office and
facilities equipment through certification by manufacturers and vendors.
However, the Company has limited control over the actions of these manufactures
and vendors. Thus, while the Company expects that it will be able to resolve any
significant Year 2000 Problems identified with this equipment, there can be no
assurance that the manufacturers or vendors will resolve any or all Year 2000
Problems with any of their equipment. Current plans for the Company to complete
this assessment and remediation are anticipated to be September 30, 1999. Any
failure of these manufacturers or vendors to resolve Year 2000 Problems with
their products in a timely manner could have a material adverse effect on the
Company's business, financial condition, and results of operations.

Suppliers. The Company has initiated communications with its major
suppliers to identify and, to the extent possible, to resolve issues involving
the Year 2000 Problem. However, the Company has limited or no control over the
actions of these suppliers. Thus, while the Company expects that it will be able
to resolve any significant Year 2000 Problems with these systems by September
30, 1999, there can be no assurance that these suppliers will resolve any or all
Year 2000 Problems with any of its customers. Any failure of these suppliers to
resolve Year 2000 Problems with their systems in a timely manner could have a
material adverse effect on the Company's business, financial condition, and
results of operations.

Third Party Payors. Management believes that the most significant risk to
the Company for the Year 2000 Problem is the effect such issues may have on
third party payors, such as Medicare. News reports have indicated that various
agencies of the federal government are having difficulty becoming Year 2000
compliant before the Year 2000. The Company has not yet undertaken
quantification of the effects of such noncompliance or to determine whether such
quantification is even possible. The Company has initiated communications with
its third party payors to identify and, to the extent possible, to resolve
issues involving the Year 2000 Problem. However, the Company has limited or no
control over the actions of these third party payors. Thus, while the Company
expects that it will be able to resolve any significant Year 2000 Problems with
these payors, there can be no assurance that these payors will resolve any or
all Year 2000 Problems with their systems before the occurrence of a material
disruption to the business of the Company. Any failure of these third party
payors to resolve Year 2000 Problems with their systems in a timely manner could
have a material adverse effect on the Company's business, financial condition,
and results of operations.

Remediation Costs. The Company is using internal and external resources to
reprogram or replace, test and implement the software and equipment
modifications required under this project. The total cost of the Year 2000
remediation project is estimated at $0.8 million and is being funded through
operating cash flows. As of March 31, 1999, the Company has incurred
approximately $0.4 million related to this remediation process. Of these costs,
$0.3 million has been expensed and $0.1 million was capitalized as new equipment
or software. Of the remaining estimated remediation costs of $0.4 million,
expenses are estimated to be $0.2 million with capitalized equipment and
software costs estimated at $0.2 million. This estimate is being monitored and
will be revised in future public filings by the Company as additional
information becomes available.

Contingency Plans. The Company is currently assessing the development of
contingency plans to be implemented as part of its efforts to identify and
correct Year 2000 Problems affecting its internal systems. As the Company
anticipates remediation completion by September 30, 1999, its contingency plans
have not been formulated in detail as of the date of this report. Depending on
systems affected, these plans could include accelerated replacement of affected
equipment or software, short to medium-term use of backup equipment and
software, increased work hours for Company personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 Problems that
arise. To date, none of these types of actions has been called for, however, no
assurance can be given that such resolution will not be required. If the Company
is required to implement any of these type of contingency plans, it could have a
material adverse effect on the Company's financial condition and results of
operations.

Management believes that it is not possible to determine with complete
certainty that all Year 2000 Problems affecting the Company have been identified
or corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, the Company cannot

19
<PAGE> 21

accurately predict how many Year 2000 Problems related failures will occur or
the severity, duration or financial consequences of any inevitable failures.

FUTURE HEALTH CARE PROPOSALS AND LEGISLATION

In recent years, an increasing number of legislative initiatives have been
introduced or proposed in Congress and in state legislatures that would effect
major changes in the health care system, either nationally or at the state
level. Among the proposals under consideration are various insurance market
reforms, forms of price control, including competitive bidding by market,
expanded fraud and abuse and anti-referral legislation and further reductions in
Medicare and Medicaid reimbursement. Most recently, on August 5, 1997, President
Clinton signed into law the Budget Reconciliation Act of 1997, which provides
for reductions in Medicare and Medicaid of over $115 billion and $13 billion,
respectively, over five years. The impact of these reductions on the health care
industry in general and the Company specifically cannot be determined at this
time. Further, the Company cannot predict whether any of the above proposals or
any other proposals will be adopted. No assurance can be given that the
implementation of the Budget Reconciliation Act or any other reforms will not
have a material adverse effect on the business of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discusses the Company's exposure to market risk related to
changes in interest rates. This discussion contains forward-looking statements
that are subject to risks and uncertainties. Actual results could vary
materially as a result of a number of factors, including but not limited to,
changes in interest rates, and those set forth under Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations:
Background -- Factors Affecting Recent Operating Results."

As of March 31, 1999, the Company had outstanding debt of $257.2 million of
which $153.8 of this outstanding debt that matures in May 2001 bears interest at
11.5% per annum and $87.9 of the outstanding debt matures in April 2008 and
bears interest at the rate of 8% per annum. On April 15, 1999, Series A Notes
totaling approximately $3.8 million were issued in lieu of a cash payment of
interest due through such date. The Company also has a New Senior Credit
Facility providing for the availability of up to $60.0 million for acquisitions,
working capital, letters of credit and other corporate purposes. The facility
matures in February 2001 and bears an interest rate of prime plus 1.5%, which
was 9.25% as of May 12, 1999. As of May 12, 1999, the principal amount
outstanding under the New Senior Credit Facility was approximately $22.5
million. Because substantially all of the interest on the Company's debt is
fixed, a hypothetical 10.0% decrease in interest rates would not have a material
impact on the Company. Increases in interest rates could, however, increase
interest expenses associated with future borrowings by the Company, if any. The
Company does not hedge against interest rate changes.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On November 21, 1995, a suit captioned William Hall and Barbara Lisser v.
Coram Healthcare Corporation, James W. Sweeney, Patrick Fortune, and Sam Leno,No
1:95-CV-2994(WHB) was filed in the United States District Court for the Northern
District of Georgia on behalf of a purported class of plaintiffs who were
entitled to receive warrants pursuant to the settlement of In re T2 Medical,
Inc. Shareholder Litigation. Plaintiffs filed an Amended Class Action Complaint
on February 28, 1996, in which they allege that the Defendants made false and
misleading statements that caused a fraud on the market and artificially
inflated the price of the Company's stock during the period from August 1994
through August 1995. Such Complaint alleges violations of Section 10(b) of the
Securities Act of 1934, and Rule 10b-5 promulgated thereunder, against all of
the Defendants. The Complaint also alleges controlling person liability against
the individual defendants under Section 20(a) of the Securities and Exchange
Act, and further alleges fraud by all

20
<PAGE> 22

of the Defendants under Georgia law. Finally, Plaintiffs allege a breach of the
covenant of good faith and fair dealing by all Defendants. Plaintiffs seek
compensatory damages reflecting the difference in value between the warrants as
issued pursuant to the settlement of In re T2 Medical, Inc. Shareholder
Litigation with the trading price of the Company's common stock at its actual
price and the same number of warrants at the same exercise price with the
Company's stock trading at its alleged true value. The Defendants filed a Motion
to dismiss the Amended Class Action Complaint on March 13, 1996. The Court
granted the Company's Motion to Dismiss the Complaint on February 12, 1997. The
Plaintiffs appealed the dismissal to the Eleventh Circuit Court of Appeals which
affirmed the dismissal on October 15, 1998. The plaintiffs filed a petition with
the United States Supreme Court on March 15, 1999 for a writ of certiorari. In
April 1999, the Company filed a brief in opposition to the petition.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 -- Financial Data Schedule
</TABLE>

(B) Reports on Form 8-K.

On April 19, 1999, the Company filed a report on Form 8-K announcing the
completion of an amendment to the Securities Exchange Agreement dated as of May
6, 1998, as amended between the Company, Coram, Inc. and Cerberus Partners,
L.P.; Goldman Sachs Credit Partners, L.P. and Foothill Capital Corporation
resulting in certain changes in the terms of certain debt instruments and a
change in its Stockholder Rights Agreement, dated as of June 25, 1997 between
the Company and BankBoston, N.A., as Rights Agent.

21
<PAGE> 23

SIGNATURES

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

CORAM HEALTHCARE CORPORATION

By: /s/ WENDY L. SIMPSON
----------------------------------
Wendy L. Simpson
Executive Vice President and
Chief Financial Officer

May 17, 1999

22
<PAGE> 24

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 -- Financial Data Schedule
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CORAM HEALTHCARE CORPORATION FOR
THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,166
<SECURITIES> 0
<RECEIVABLES> 149,074
<ALLOWANCES> 19,178
<INVENTORY> 27,758
<CURRENT-ASSETS> 170,195
<PP&E> 83,613
<DEPRECIATION> (56,154)
<TOTAL-ASSETS> 457,700
<CURRENT-LIABILITIES> 89,338
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 92,447
<TOTAL-LIABILITY-AND-EQUITY> 457,700
<SALES> 160,954
<TOTAL-REVENUES> 160,954
<CGS> 122,815
<TOTAL-COSTS> 122,815
<OTHER-EXPENSES> 27,511
<LOSS-PROVISION> 4,161
<INTEREST-EXPENSE> 6,559
<INCOME-PRETAX> 118
<INCOME-TAX> 75
<INCOME-CONTINUING> (385)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (385)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)

</TABLE>