CORAM HEALTHCARE CORP, 10-Q, 2000-08-21

CORAM HEALTHCARE CORP
10-Q, 2000-08-21
HOME HEALTH CARE SERVICES

Previous: CAPITAL ONE MASTER TRUST, 424B5, 2000-08-21

Next: CORAM HEALTHCARE CORP, 10-Q, EX-27, 2000-08-21

<PAGE> 1

================================================================================

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, 2000

[ ] 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)

Delaware 33-0615337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1125 Seventeenth Street
Suite 2100
Denver, CO 80202
(Address of principal executive offices) (Zip Code)

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 July 24, 2000, was 49,638,452.

================================================================================

<PAGE> 2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,635 $ 6,242
Cash limited as to use............................. 1,659 1,004
Accounts receivable, net of allowances of
$25,415 and $30,448............................. 100,445 107,406
Inventories........................................ 15,118 22,966
Deferred income taxes, net......................... 504 364
Other current assets............................... 5,962 5,614
--------- ---------
Total current assets....................... 130,323 143,596
Property and equipment, net.......................... 20,103 22,198
Deferred income taxes, net........................... 2,372 1,481
Other deferred costs................................. 1,349 2,434
Goodwill, net of accumulated amortization of
$83,135 and $78,027................................ 210,615 216,062
Other assets......................................... 16,238 17,451
--------- ---------
Total assets............................... $ 381,000 $ 403,222
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................... $ 24,324 $ 36,090
Accrued compensation............................... 16,896 11,273
Interest payable................................... 13,057 5,100
Current maturities of long-term debt............... 289,458 390
Income taxes payable............................... 271 240
Deferred income taxes.............................. 531 419
Accrued merger and restructuring................... 4,854 7,392
Other accrued liabilities.......................... 11,382 9,666
Net liabilities of discontinued operations......... 34,649 34,518
--------- ---------
Total current liabilities.................. 395,422 105,088
Long-term debt, less current maturities.............. 78 302,662
Minority interests in consolidated joint ventures.... 1,140 1,652
Other liabilities.................................... 12,530 14,092
Deferred income taxes................................ 2,345 1,427
Commitments and contingencies........................ -- --
--------- ---------
Total liabilities.......................... 411,515 424,921
Stockholders' deficit:
Preferred stock, par value $.001, authorized
10,000 shares, none issued...................... -- --
Common stock, par value $.001, authorized
150,000 shares, issued and outstanding 49,638... 50 50
Additional paid-in capital......................... 427,417 427,399
Accumulated deficit................................ (457,982) (449,148)
--------- ---------
Total stockholders' deficit................ (30,515) (21,699)
--------- ---------
Total liabilities and
stockholders' deficit................... $ 381,000 $ 403,222
========= =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

2
<PAGE> 3

CORAM HEALTHCARE CORPORATION

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------

<S> <C> <C> <C> <C>
Net revenue ................................................ $ 130,224 $ 129,571 $ 265,020 $ 253,919
Cost of service ............................................ 96,069 101,150 196,724 197,870
--------- --------- --------- ---------
Gross profit ............................................... 34,155 28,421 68,296 56,049
Operating expenses:
Selling, general and administrative expenses ............. 25,053 23,612 48,509 42,553
Provision for estimated uncollectible accounts ........... 3,548 4,141 6,791 8,189
Amortization of goodwill ................................. 2,530 2,716 5,108 5,448
Restructuring costs ...................................... -- -- -- 950
--------- --------- --------- ---------
Total operating expenses ......................... 31,131 30,469 60,408 57,140
--------- --------- --------- ---------
Operating income (loss) from continuing operations ......... 3,024 (2,048) 7,888 (1,091)
Other income (expenses):
Interest expense ......................................... (6,771) (7,524) (13,447) (14,083)
Other income, net ........................................ 314 174 718 377
--------- --------- --------- ---------
Loss from continuing operations before income taxes and
minority interests ....................................... (3,433) (9,398) (4,841) (14,797)
Income tax expense ......................................... 75 175 175 250
Minority interests in net income of consolidated joint
ventures ................................................. 356 579 337 1,007
--------- --------- --------- ---------
Loss from continuing operations after income taxes and
minority interests ....................................... (3,864) (10,152) (5,353) (16,054)
Discontinued Operations:
Loss from operations ..................................... -- (27,841) -- (22,324)
Loss from disposal ....................................... (98) -- (3,481) --
--------- --------- --------- ---------
Net loss ................................................... $ (3,962) $ (37,993) $ (8,834) $ (38,378)
========= ========= ========= =========
Basic and Diluted Loss Per Share:
Loss from continuing operations .......................... $ (0.08) $ (0.21) $ (0.11) $ (0.33)
Loss from discontinued operations ........................ -- (0.56) (0.07) (0.45)
--------- --------- --------- ---------
Net loss ................................................. $ (0.08) $ (0.77) $ (0.18) $ (0.78)
========= ========= ========= =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

3
<PAGE> 4

CORAM HEALTHCARE CORPORATION

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Net cash provided by (used in) continuing operations... $ 22,182 $(14,406)
Cash flows from investing activities:
Purchases of property and equipment ................ (2,194) (4,261)
Other .............................................. 57 (525)
-------- --------
Net cash used in investing activities ................. (2,137) (4,786)
Cash flows from financing activities:
Borrowings on line of credit ....................... 1,500 28,500
Repayment of debt .................................. (17,311) (6,065)
Cash distributions paid to minority interests ...... (491) (901)
-------- --------
Net cash provided by (used in) financing activities.... (16,302) 21,534
-------- --------
Net increase in cash from continuing operations ....... $ 3,743 $ 2,342
======== ========
Net cash provided by (used in) discontinued
operations ......................................... $ (3,350) $ 5,606
======== ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

4
<PAGE> 5

CORAM HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2000

1. BASIS OF PRESENTATION

Business Activity. Coram Healthcare Corporation ("CHC") and its
subsidiaries ("Coram" or the "company"), as of June 30, 2000, were engaged in
two principal lines of business: alternate site (outside the hospital) infusion
therapy and related services and, through July 31, 2000, 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 77 branch offices located in 40 states and Ontario, Canada. CHC
and its first tier wholly owned subsidiary, Coram, Inc. ("CI") (collectively,
the "Debtors"), filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") on August 8, 2000. Accordingly, as of
such date the Debtors are operating as debtors-in-possession subject to the
jurisdiction of the United States Bankruptcy Court in Delaware (the "Bankruptcy
Court"). None of the company's other subsidiaries is a debtor in the proceeding.
See Note 9 for further details.

In December 1999, Coram announced that it was repositioning its business to
focus on its core alternate site infusion therapy business and the clinical
research and medical informatics business operated by its subsidiary, CTI
Network, Inc. ("CTI"). Accordingly, Coram's primary business strategy is to
focus its efforts on the delivery of its core infusion therapies, such as
nutrition, anti-infective therapies, intravenous immunoglobulin ("IVIG"),
therapy for persons receiving transplants, and coagulant and blood clotting
therapies for persons with hemophilia. Coram has also implemented programs
focused on the reduction and control of the costs of providing services and
operating expenses, assessment of under performing branches and review of branch
efficiencies. Pursuant to this review, several branches have been closed or
scaled back to serve as satellites for other branches and personnel have been
eliminated. See Note 4. Most of the company's alternate site infusion therapy
net revenue is derived from third-party payers such as private indemnity
insurers, managed care organizations and governmental payers.

Prior to August 1, 2000, the company delivered pharmacy benefit management
and specialty mail-order pharmacy services through its Coram Prescription
Services business ("CPS"), which provided pharmacy benefit management services
as well as specialty mail-order prescription drugs for chronically ill patients
from one primary mail order facility, four satellite mail order facilities, and
one retail pharmacy. On July 31, 2000, Coram completed the sale of its CPS
business to a management-led group financed by GTCR Golder Rauner, L.L.C. for a
one-time payment of $41.3 million. See Note 2. The pharmacy benefit management
service provided 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 were delivered through
its six facilities, which provided distribution, compliance monitoring, patient
education and clinical support to a wide variety of patients.

Prior to January 1, 2000, the company provided ancillary network management
services through its subsidiaries, Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc. (the "Resource Network Subsidiaries" or
"R-Net"), which managed networks of home health care providers on behalf of
HMOs, PPOs, at-risk physician groups and other managed care organizations. R-Net
served its customers through two primary call centers and three satellite
offices. In April 1998, the company entered into a five-year capitated agreement
with Aetna U.S. Healthcare, Inc. ("Aetna") (the "Master Agreement") for the
management and provision of certain home health services, including home
infusion, home nursing, respiratory therapy, durable medical equipment, hospice
care and home nursing support for several of Aetna's disease management
programs. Effective July 1, 1998, the company began receiving capitated payments
on a monthly basis for members covered under the Master Agreement, assumed
certain financial risk for certain home health services and began providing
management services for a network of home health providers through R-Net. The
agreements that R-Net had for the provision of ancillary network management
services have been terminated and R-Net is no longer providing any ancillary
network management services. Coram and Aetna were previously involved in
litigation over the Master Agreement; however, the litigation was resolved and
the case was dismissed on April 20, 2000. The Resource Network Subsidiaries
filed voluntary bankruptcy petitions on November 12, 1999 with the U.S.
Bankruptcy Court for the District of Delaware under Chapter 11 of the U.S.
Bankruptcy Code, and the Resource Network Subsidiaries are being liquidated
pursuant to such proceedings. See Notes 3 and 6.

5
<PAGE> 6

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
periods ended June 30, 2000 are not necessarily indicative of the results for
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 for the year ended December 31, 1999.

The financial statements set forth herein do not reflect adjustments made
for the Chapter 11 filings made by CHC and CI after the close of the periods
reported herein. See Note 9.

Reclassifications. Certain amounts in Coram's 1999 financial statements
have been reclassified to exclude the discontinued operations for R-Net and to
conform to the 2000 presentation.

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.

Loss per Share. Basic loss per share excludes any dilutive effects of
options, warrants and convertible securities. The following table sets forth the
computations of basic and diluted loss per share for the three and six months
ended June 30, 2000 and 1999 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator for basic and diluted loss per share
Loss from continuing operations ..................... $ (3,864) $(10,152) $ (5,353) $(16,054)

Loss from discontinued operations ................... (98) (27,841) (3,481) (22,324)
-------- -------- -------- --------
Net loss .............................................. $ (3,962) $(37,993) $ (8,834) $(38,378)
======== ======== ======== ========
Weighted average shares -- denominator for basic
loss per share ...................................... 49,638 49,495 49,638 49,448
Effect of other dilutive securities:
Stock options ....................................... -- -- -- --
Warrants ............................................ -- -- -- --
Series B Senior Subordinated Convertible Notes ...... -- -- -- --
-------- -------- -------- --------
Denominator for diluted loss per share -- adjusted
weighted average shares and assumed conversion ...... 49,638 49,495 49,638 49,448
======== ======== ======== ========
Basic and Diluted Loss Per Share:
Loss from continuing operations ..................... $ (0.08) $ (0.21) $ (0.11) $ (0.33)
Loss from discontinued operations ................... -- (0.56) (0.07) (0.45)
-------- -------- -------- --------
Net Loss ............................................ $ (0.08) $ (0.77) $ (0.18) $ (0.78)
======== ======== ======== ========
</TABLE>

Diluted loss per share computations do not give effect to stock options,
warrants or the Series B Senior Subordinated Convertible Notes because their
effect would have been anti-dilutive.

Derivatives and Hedging Activities. In June 1998, the Financial Accounting
Standards Board ("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. The FASB issued, in June 1999, Statement of
Financial Accounting Standards Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement 133 ("Statement 137"), which amends Statement 133. Statement 137
defers adoption of Statement 133 to fiscal years beginning after June 15, 2000
and any interim periods during the year of adoption. As of June 30, 2000, the
company had not entered into any derivative or hedging transactions, and as
such, the company does not believe that adoption of the new requirement will
have an effect on the company's future financial position or operating results.

2. SALE OF CPS BUSINESS - DISPOSITION AFTER JUNE 30, 2000

On July 31, 2000, the company completed the sale of substantially all of
the assets and assignment of certain related liabilities of the CPS business to
Curascript Pharmacy, Inc. and Curascript PBM Services, Inc. (collectively the
"Buyers") for a one-time cash payment of approximately $41.3 million. The
company's estimated gain on the sale of the CPS business is approximately $18.0

6
<PAGE> 7

million. The sale generated net cash proceeds of approximately $38.0 million
after related expenses. These cash proceeds were applied to the remaining
principal balance under Coram's revolving line of credit of $28.5 million, and
an additional $9.5 million has been applied to the principal balance of the
Series A Senior Subordinated Notes. See Note 5.

3. LOSS ON DISCONTINUED OPERATIONS

In November 1999, following the filing of voluntary bankruptcy petitions
for the Resource Network Subsidiaries, Coram disclosed as Net Liabilities of
Discontinued Operations in the Condensed Consolidated Financial Statements the
excess of R-Net's liabilities over assets. Coram also reflected separately
R-Net's operating results in the Condensed Consolidated Statements of Operation
as Discontinued Operations.

The Loss from Operations of Discontinued Operations of R-Net reflected in
the company's Condensed Consolidated Statements of Operations includes the
following (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- ---------
<S> <C> <C>
Net Sales ............................... $ -- $ 59,832
======== ========
Gross Profit (Deficit) .................. $ -- $(11,959)
======== ========
Loss from Operations of Discontinued
Operations .............................. $ -- $(22,324)
======== ========
</TABLE>

The Loss from Disposal of Discontinued Operations of approximately $3.5
million for the six months ended June 30, 2000 included additional reserves for
litigation and other wind-down costs.

The components of the net liabilities of the discontinued operations
included in the Condensed Consolidated Balance Sheets are summarized as follows
(in thousands):

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Cash ............................... $ 1,471 $ 2,022
Accounts receivable, net ........... -- --
Other current assets ............... -- --
Property & equipment, net .......... -- --
Intercompany payable ............... (46) (437)
Accounts payable ................... (31,585) (31,490)
Accrued expenses ................... (4,489) (4,613)
-------- --------
Net liabilities of Discontinued
Operations ......................... $(34,649) $(34,518)
======== ========
</TABLE>

4. 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 June
30, 2000, the company may be required to pay, under such contingent obligations,
approximately $1.3 million, which is subject to increase based on certain
revenue or income targets. Subject to certain elections by the company or the
sellers, approximately $0.7 million of these contingent obligations may be paid
in cash. In the period these payments become probable, they are recorded as
additional goodwill. Payments made during the six months ended June 30, 2000 and
1999 were $0.1 million and $0.3 million, respectively. See Note 6 for further
details concerning contingencies relative to earn-out payments.

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. Certain additional restructuring costs
totaling approximately $11.4 million were incurred and accounted for as
adjustments to the purchase price of the Caremark Business in 1995. In December
1998 and 1999, the company evaluated the estimated costs to complete the
Caremark Business Consolidation Plan and other accruals and recognized
restructure reversal benefits of $0.7 million and $0.2 million, respectively.

During December 1999, the company initiated an organizational restructure
and strategic repositioning plan (the "Coram Restructure Plan") and charged $4.8
million to operations as a restructuring cost. The Coram Restructure Plan will
result in the closing of facilities and reduction of personnel. Personnel
reduction costs of $2.5 million include severance payments, fringe benefits and

7
<PAGE> 8

taxes related to over 200 employees that have been or may be terminated in
accordance with the Coram Restructure Plan. Facility closing costs include $2.3
million of rent, common area maintenance and utility costs, offset by sublease
arrangements, as applicable, for fulfilling lease commitments on approximately
fifteen branch and corporate facilities that have been or may be closed or
downsized as part of the restructuring.

During July 1999, the company adopted a restructuring plan associated with
the reorganization of the R-Net call center operations responsible for managing
the Master Agreement with Aetna (the "R-Net Restructure Plan"). The R-Net
Restructure Plan resulted in an initial charge to operations of $5.1 million. In
November 1999, prior to the R-Net decision to file voluntary Chapter 11
bankruptcy petitions, the company evaluated the estimated cost to complete the
R-Net Plan and revised the initial charge to $4.3 million, which consisted of
accruals for restructuring of $2.8 million for facility costs and $0.6 million
for personnel reduction costs, and a loss on impairment of assets charge for
$0.9 million. As a result of the R-Net liquidation as described in Note 1, these
charges are included in the Loss from Discontinued Operations for the year-ended
December 31, 1999 and the related restructuring accrual and impairment of fixed
assets is reflected in the net liability of discontinued operations.

Under the Caremark Business Consolidation Plan and the Coram Restructure
Plan, the company has made total payments, disposals and reversals as follows
(in thousands):

<TABLE>
<CAPTION>
BALANCE AT
THROUGH JUNE 30, 2000 JUNE 30, 2000
---------------------------------------------- ---------------------
CASH NON-CASH RESTRUCTURE FUTURE CASH TOTAL
EXPENDITURES CHARGES TOTAL REVERSAL EXPENDITURE CHARGES
------------ -------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Caremark Business Consolidation
Plan:
Personnel Reduction Costs ........ $11,300 $ -- $11,300 $ -- $ -- $11,300
Facility Reduction Costs ......... 9,837 3,900 13,737 943 2,020 16,700
------- ------- ------- ------- ------- -------
Total Restructuring Costs ..... $21,137 $ 3,900 $25,037 $ 943 $ 2,020 $28,000
======= ======= ======= ======= ======= =======

Coram Restructure Plan:
Personnel Reduction Costs ........ $ 1,855 $ -- $ 1,855 $ -- $ 707 $ 2,562
Facility Reduction Costs ......... 394 -- 394 -- 1,900 2,294
------- ------- ------- ------- ------- -------
Total Restructuring Costs ..... $ 2,249 $ -- $ 2,249 $ -- $ 2,607 $ 4,856
======= ======= ======= ======= ======= =======
</TABLE>

The balance in the "Accrued Merger and Restructuring" liability at June 30,
2000 consists of future cash expenditures related to the Caremark Business
Consolidation Plan of $2.0 million and the Coram Restructure Plan of $2.6
million, and other accruals of $0.3 million. The other accruals are for
estimated expenditures for other closed facilities and personnel reduction
costs.

The company estimates that the future cash expenditures related to the
restructuring plans stated above will be made in the following periods: 46%
through June 30, 2001, 22% through June 30, 2002, 12% through June 30, 2003, and
20% thereafter.

5. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Series A Senior Subordinated Unsecured Notes ....... $ 168,423 $ 166,825
Series B Senior Subordinated Convertible Notes ..... 92,084 91,474
Senior Credit Facility ............................. 28,500 44,000
Other obligations, including capital leases,
at Interest rates ranging from 11% to 15%,
Collateralized by certain property and
equipment ........................................ 529 753
--------- ---------
289,536 303,052
Less current scheduled maturities .................. (289,458) (390)
--------- ---------
$ 78 $ 302,662
========= =========
</TABLE>

As of June 30, 2000, 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 Unsecured Convertible
Notes (the "Series B Notes") contemplated thereby and (ii) a 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. Under the credit and debt agreements, the company
is precluded from paying cash dividends during the term of indebtedness. The
voluntary Chapter 11 filings made by the Debtors have caused

<PAGE> 9

events of default to occur under these debt instruments and as a result, all
such debts have been classified as current maturities of long-term debt at June
30, 2000. The company is no longer able to borrow under the Senior Credit
Facility. The Debtors have, however, received interim Bankruptcy Court approval
to enter into a debtor-in-possession financing arrangement with Madeline L.L.C.,
an affiliate of Cerberus Partners, L.P. (the "DIP Financing"). Under the DIP
Financing arrangement that is currently being negotiated, credit of up to $40
million would be available to the Debtors for use in connection with the
operation of their businesses and the business of their subsidiaries. The
interim approval from the Bankruptcy Court authorizes the Debtors to obtain
credit up to $10 million once the DIP Financing documentation is completed and
certain conditions precedent are satisfied. The Debtors anticipate finalizing
the DIP Financing arrangement prior to the final hearing on the DIP Financing
which is scheduled for August 31, 2000. See Note 9.

Securities Exchange Agreement. 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 June 30, 2000, the company
was in compliance with all of these covenants, other than covenants relating to
certain contractual relationships its Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc. subsidiaries had with certain parties
that were contracted to provide services pursuant to the Master Agreement,
effective May 1, 1998, with Aetna and to certain covenants relating to the
capitalization of subsidiaries. The company has received waivers from its
lenders regarding such noncompliance. In addition, the filing of the voluntary
Chapter 11 bankruptcy petitions by Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc. caused defaults under the Securities
Exchange Agreement; however, such defaults were waived by the Lenders. In
connection with such waivers and the waivers provided for certain matters of
non-compliance with certain covenants set forth in the Senior Credit Facility,
the company and the Holders entered into an amendment on November 15, 1999
pursuant to which the Holders agreed that no interest on the Series A and Series
B Notes would be due for the period from November 15, 1999 through the earlier
of (i) final resolution of the litigation with Aetna or (ii) May 15, 2000. The
Aetna litigation was settled on April 20, 2000 and, as a result, the obligation
to pay interest on the Series A and Series B Notes resumed on such date.
However, pursuant to the terms of the Securities Exchange Agreement, the Company
was, upon filing of the Chapter 11 cases, in default under the Securities
Exchange Agreement.

Series A Notes. The Series A Notes are scheduled to mature in May 2001 and
bear interest at 11.5% per annum payable quarterly in arrears in cash or through
the issuance of additional Series A Notes at the election of the company except
that Holders can require the company to pay interest in cash if the company
exceeds a certain interest coverage ratio.

Series B Notes. The Series B Notes are scheduled to 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. The outstanding principal amount of Series B Notes are 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.

The Series A and Series B Notes are callable, 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 callable at 103% of the
then outstanding principal amount plus accrued interest. The 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 redeemable at 103% of the then outstanding
principal amount plus accrued interest at the option of the company.

In connection with the sale of CPS, effective July 31, 2000, the company
applied $9.5 million of the net cash proceeds derived from the sale of the CPS
business to prepay a portion the principal amount outstanding under the Series A
Notes. The Holders of the Series A Notes waived the 103% prepayment premium
thereby permitting the company to reduce the principal amount outstanding under
the Series A Notes to approximately $158.9 million as of August 1, 2000.

Senior Credit Facility. On August 20, 1998, the company entered into a
definitive agreement for the Senior Credit Facility providing for availability
of up to $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 Senior
Credit Facility matures February 26, 2001 and bears interest at the rate of
prime plus 1.5%, payable in arrears on the first business day of each month. The
interest rate was 11.0% at June 30, 2000. The 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 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. In addition, the terms of the Senior Credit Facility provided for
the issuance of warrants to purchase up to 1.9 million shares of the company's
common stock 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 are accounted for as deferred costs amortized over the life of the
Senior Credit Facility. The terms of the Senior Credit Facility also

9
<PAGE> 10

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 June 30, 2000, the
Lenders had issued irrevocable letters of credit totaling $2.7 million, thereby
reducing the company's availability under the Senior Credit Facility by that
amount. The terms of the Senior Credit Facility further provide for a fee of
1.0% per annum on the outstanding letter of credit obligations that is due in
arrears on the first business day of each month. The terms of the 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 June 30, 2000, such fees were 0.825%
per annum on the amount of outstanding letter of credit obligations. The Senior
Credit Facility contains certain other customary covenants and events of
default. As discussed above, the company is no longer able to borrow under the
Senior Credit Facility.

In connection with the sale of CPS, effective July 31, 2000, the company
reduced its outstanding borrowings on the Senior Credit Facility by $28.5
million, leaving only irrevocable letter of credit obligations totaling $2.7
million outstanding. In connection with the DIP Financing arrangement, the
company's Senior Credit Facility would be retired if the DIP Financing agreement
is finalized in the form in which it is presently being negotiated. See Note 9.

6. LITIGATION AND CONTINGENCIES

Litigation. The Debtors filed voluntary petitions for relief under Chapter
11 of the United States Bankruptcy Code on August 8, 2000 with the United States
Bankruptcy Court for the District of Delaware, In Re Coram Healthcare
Corporation and Coram, Inc., Case Nos. 00-3299 (MFW) and 00-3300 (MFW) (the
"Chapter 11 Cases"). The proceedings have been consolidated for administrative
purposes only by the United States Bankruptcy Court in Delaware and are being
administered under the docket of In Re Coram Healthcare Corporation, Case No.
00-3299 (MSW). None of the company's other subsidiaries is a debtor in the
proceeding. See Note 9.

Except as may otherwise be determined by the Bankruptcy Court overseeing
the Chapter 11 Cases, the automatic stay protection afforded by Chapter 11
generally automatically stays any litigation proceedings pending against either
or both of the Debtors. All such claims will be addressed through the
proceedings applicable to the Chapter 11 Cases. The automatic stay would not,
however, apply to actions brought against the company's non-debtor subsidiaries.

Beginning in June 1999, Coram Healthcare Corporation ("CHC") had been in
litigation with Aetna U.S. Healthcare, Inc. over the Master Agreement that had
been entered into by CHC and Aetna in 1998. The case was pending in the United
States District Court for the Eastern District of Pennsylvania (Civil Action
Nos. 99-CV-3330 and 99-CV-3378), but was dismissed on April 20, 2000 following
an amicable resolution of the dispute by the parties.

On November 12, 1999, two subsidiaries of Coram, Inc., Coram Resource
Network, Inc. and Coram Independent Practice Association, Inc. (collectively,
the "Resource Network Subsidiaries"), filed voluntary petitions under Chapter 11
of the United States Code in the United States Bankruptcy Court for the District
of Delaware, Case No. 99-2889 (MFW). The Resource Network Subsidiaries are now
being liquidated pursuant to the proceeding. The Chief Restructuring Officer of
the Resource Network Subsidiaries has threatened suit on behalf of the estates
against CHC. The draft complaint included claims for damages against CHC and
certain of its former and current officers and directors in excess of $41
million. The draft complaint included a threat to pierce the corporate veil of
the Resource Network Subsidiaries to reach CHC and included claims of breaches
by the officers and directors of their fiduciary duties to the Resource Network
Subsidiaries and CHC. The company has received no notice that any such complaint
has been filed or that the claim will be pursued.

Apria Healthcare, Inc. and one of its affiliates (collectively "Apria")
filed suit against CHC and the Resource Network Subsidiaries in the Superior
Court of Orange County, California (Apria Healthcare, Inc. and Apria Healthcare
of New York State, Inc. v. Coram Healthcare Corporation, Coram Resource Network,
Inc. and Coram Independent Practice Association, Inc., Case No. 813264). Apria's
claims relate to services that were rendered as part of certain home health
provider networks managed by the Resource Network Subsidiaries. Apria's
complaint alleges, among other things, that the Resource Network Subsidiaries
operated as the alter ego of CHC and, as a result, CHC should be declared
responsible for the alleged breaches of the contracts that the Resource Network
Subsidiaries had with Apria. The complaint includes requests for declaratory,
compensatory and other relief in excess of $1.4 million. A notice has been filed
with the Superior Court notifying it of the bankruptcy proceedings involving the
Resource Network Subsidiaries and contending that the case has, by operation of
certain provisions of the United States Bankruptcy Code, been stayed.

On July 17, 2000, TBOB Enterprises, Inc. ("TBOB") filed an arbitration
demand against CHC, TBOB Enterprises, Inc. f/k/a Medical Management Services of
Omaha, Inc. Against Coram Healthcare Corporation, in the American Arbitration
Association office in Dallas, Texas. In its demand, TBOB claims that Coram
breached its obligations under an agreement entered into by the parties in 1996
relating to a prior earn-out obligation of the company's subsidiary, Curaflex
Health Services, Inc. ("Curaflex"), that originated from Curaflex's acquisition
of the claimant's prescription services business in 1993. Coram and Curaflex
operated the business under the name "Coram Prescription Services" ("CPS") and
the assets of the CPS business were sold on July 31, 2000. See Note 2 for

10
<PAGE> 11

further details. TBOB alleges, among other things, that the company has impaired
the earn-out payments due TBOB by improperly charging certain expenses to the
CPS business and failing to fulfill the company's commitments to enhance the
value of CPS by marketing its services. The TBOB demand alleges damages of more
than $898,000. TBOB contends that this amount must be paid in addition to the
final scheduled earn-out payment of approximately $1.3 million that will be due
from Coram and Curaflex in March 2001. CHC has received a copy of a letter from
TBOB to the American Arbitration Association in which it is attempting to obtain
the return of the filing fees that it has paid in connection with the filing of
this action.

On behalf of its subsidiary, T2 Medical, Inc., CHC is also contesting a
notice of deficiency issued by the Internal Revenue Service through
administrative proceedings and litigation. See Note 7 for further details.

CHC and its subsidiaries intend to defend themselves vigorously in the
matters described above. Nevertheless, due to the uncertainties inherent in
litigation, the ultimate disposition of such matters cannot presently be
determined. An adverse outcome in any such litigation or proceedings could have
a material adverse effect on the financial position, results of operations and
liquidity of the company.

CHC and its subsidiaries are also parties 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 financial position, results of operations or liquidity of the
company.

Government Regulation. Under the physician ownership and referral
provisions of the Omnibus Budget Reconciliation Act of 1993 ("Stark II"), it is
unlawful for a physician to refer patients for certain designated health
services reimbursable under the Medicare or Medicaid programs to an entity with
which the physician has a financial relationship, unless the financial
relationship fits within an exception enumerated in Stark II or regulations
promulgated thereunder. A "financial relationship" under Stark II is defined
broadly as an ownership or investment interest in, or any type of compensation
arrangement in which remuneration flows between the physician and the provider.
Coram has financial relationships with physicians and physician owned entities
in the form of medical director agreements and service agreements pursuant to
which the company provides pharmacy products. In each case the relationship has
been structured using an arrangement the company believes to be consistent with
applicable exceptions set forth in Stark II.

In addition, the company is aware of certain referring physicians that have
had financial interests in the company through ownership of shares of the
company's common stock. The Stark II law includes an exception for the ownership
of publicly traded stock in companies with equity above certain levels. This
exception of Stark II requires the issuing company to have stockholders' equity
of at least $75 million either as of the end of its most recent fiscal year or
on average over the last three fiscal years. As of December 31, 1999, the
company's stockholders equity was below the required level, but average
stockholders' equity over the prior three years was above the required level. As
of June 30, 2000, the total stockholders' deficit was approximately $30.5
million, therefore, CHC would no longer qualify for such exception without a
significant increase in stockholders' equity prior to December 31, 2000. The
penalties for failure to comply with Stark II include civil penalties that could
be imposed upon Coram or the referring physician regardless of whether either
the physician or Coram intended to violate the law.

Coram has been advised that a company whose stock is publicly traded has,
as a practical matter, no reliable way to implement and maintain an effective
compliance plan for addressing the requirements of Stark II other than complying
with the public company exception. Accordingly, if Coram were to remain a
company whose stock is publicly traded after December 31, 2000, Coram would be
forced to cease accepting referrals of patients with government sponsored
benefit programs or run a significant risk of non-compliance with Stark II.
Because referrals of patients with government sponsored benefit programs
comprise approximately 22% of the company's revenue (excluding CPS) for the six
months ended June 30, 2000, discontinuing the acceptance of patients with
government sponsored benefit programs would have a material adverse effect on
the financial condition and results of operations of the company. Additionally,
ceasing to accept such referrals could materially adversely affect the company's
business reputation in the market as it may cause the company to be a less
attractive provider to which a physician could refer his or her patients.

7. INCOME TAXES

During the six months ended June 30, 2000 and 1999, the company recorded
income tax expense of approximately $0.2 million and $0.3 million, respectively.
The effective income tax rates for the three and six month periods ended June
30, 2000 and 1999 differ substantially from the expected combined federal and
state statutory income tax rates as a result of the company providing a full
valuation reserve against its deferred tax assets.

11
<PAGE> 12

As of June 30, 2000, deferred tax assets were net of a $174.2 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, R-Net reserves 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 an
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 available net operating loss carryforwards. 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 would, if the IRS prevails, affect prior years' tax
liabilities. In May 1999, the company received a statutory notice of deficiency
with respect to the proposed adjustments. The alleged deficiency totaled
approximately $12.7 million, plus interest and penalties to be determined. The
company is contesting the notice of deficiency through administrative
proceedings and litigation, and will vigorously defend its position. The most
significant adjustment proposed by the IRS 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. In August 1999, the
company filed a petition with the United States Tax Court contesting the notice
of deficiency. The IRS responded to the petition and requested the petition be
denied. The IRS Appeals office currently has jurisdiction over the case. Due to
the uncertainty of final resolution, the company's financial statements include
a reserve for these potential liabilities. No assurance can be given that the
company will prevail given the early phase of this matter and the uncertainties
inherent in any proceeding with the IRS or in litigation. 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.

8. INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS

Management regularly evaluates the operating performance of the company by
reviewing results on a product or services basis. The company's reportable
segments are Infusion and CPS. Infusion is the company's base business, which
derives its revenue primarily from alternate site infusion therapy. CPS, which
was divested by the company on July 31, 2000, primarily provides specialty
mail-order pharmacy and pharmacy benefit management services. The other
non-reportable segment principally represents clinical trials and informatics
services. R-Net, a discontinued operation, is no longer identified as a
reportable segment. See Note 3.

Coram uses earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") for purposes of performance measurement. For the three
months and six months ended June 30, 2000, corporate costs were allocated on a
budgeted revenue basis. For the three months and the six months ended June 30,
1999, EBITDA has been reclassified to conform to the 2000 presentation. The
measurement basis for segment assets includes net accounts receivable,
inventories, net property and equipment and other current assets. The segment
assets as of June 30, 1999 have been reclassified to conform to the 2000
measurement basis.

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

<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INFUSION
Revenue from external customers .......................... $ 102,287 $ 108,430 $ 209,964 $ 214,035
Intersegment revenue ..................................... 699 8,202 1,176 15,405
Interest income .......................................... 19 23 49 45
Equity in net income of unconsolidated joint ventures .... 130 1 389 1
Segment EBITDA profit .................................... 9,363 3,668 18,400 11,207
Segment assets ........................................... 115,413 148,149 115,413 148,149
Segment asset expenditures ............................... 858 1,183 1,847 3,425
CPS
Revenue from external customers .......................... $ 26,778 $ 21,011 $ 53,023 $ 39,666
Intersegment revenue ..................................... -- 533 11 615
Interest income .......................................... 2 -- 3 --
Equity in net income of unconsolidated joint ventures .... -- -- -- --
Segment EBITDA loss ...................................... (570) (458) (1,385) (142)
Segment assets ........................................... 22,945 18,859 22,945 18,859
Segment asset expenditures ............................... 70 366 224 836
ALL OTHER
Revenue from external customers .......................... $ 1,159 $ 130 $ 2,033 $ 218
Intersegment revenue ..................................... -- -- -- --
Interest income .......................................... -- -- -- --
Equity in net income of unconsolidated joint ventures .... -- -- -- --
Segment EBITDA profit (loss) ............................. 280 (156) 243 (212)
Segment assets ........................................... 1,034 131 1,034 131
Segment asset expenditures ............................... -- -- -- --
</TABLE>

12
<PAGE> 13

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

<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUE
Total for reportable segments .............................. $ 129,764 $ 138,176 $ 264,174 $ 269,721
Other revenue .............................................. 1,159 130 2,033 218
Elimination of intersegment revenue ........................ (699) (8,735) (1,187) (16,020)
--------- --------- --------- ---------
Total consolidated revenue ....................... $ 130,224 $ 129,571 $ 265,020 $ 253,919
========= ========= ========= =========
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTERESTS
Total EBITDA profit for reportable segments ................ $ 8,793 $ 3,210 $ 17,015 $ 11,065
Other EBITDA profit (loss) ................................. 280 (156) 243 (212)
Goodwill amortization expense .............................. (2,530) (2,716) (5,108) (5,448)
Depreciation and other amortization expense ................ (2,374) (2,793) (4,932) (5,455)
Interest expense ........................................... (6,771) (7,524) (13,447) (14,083)
All other income (expense), net ............................ (831) 581 1,388 (664)
--------- --------- --------- ---------
Loss from continuing operations before income taxes and
minority interests .................................... $ (3,433) $ (9,398) $ (4,841) $ (14,797)
========= ========= ========= =========
ASSETS
Total assets for reportable segments ....................... $ 139,392 $ 167,139 $ 139,392 $ 167,139
Other assets ............................................... 241,608 266,748 241,608 266,748
--------- --------- --------- ---------
Consolidated total assets ................................ $ 381,000 $ 433,887 $ 381,000 $ 433,887
========= ========= ========= =========
</TABLE>

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 Aetna U.S. Healthcare and its affiliated payers for the company's
Infusion and CPS segments represented approximately 2% and 6% of the company's
total net revenue from continuing operations for the three months ended June 30,
2000 and 1999, respectively, and 3% and 7%, respectively, for the six months
ended June 30, 2000 and 1999. The National Ancillary Services Agreement with
Aetna applicable to the company's home infusion business was terminated
effective April 12, 2000. The company and Aetna have agreed to use their good
faith efforts to negotiate a new agreement for home infusion services. Net
revenue from the Medicare and Medicaid programs for the company's Infusion and
CPS segments represented approximately 20% of the company's total consolidated
net revenue for the three months ended June 30, 2000 and 1999, and 19% and 20%,
respectively, for the six months ended June 30, 2000 and 1999.

9. SUBSEQUENT EVENTS-CHAPTER 11 REORGANIZATION

Following the filing of the Chapter 11 Cases on August 8, 2000, the Debtors
are operating as debtors-in-possession subject to the jurisdiction of the
Bankruptcy Court. None of the company's other subsidiaries is a debtor in the
proceeding. Although the filing of the Chapter 11 Cases constituted defaults
under the company's principal debt instruments, namely, the Series A and Series
B Notes and the Senior Credit Facility, Section 362 of the Bankruptcy Code
imposes an automatic stay that will generally preclude the creditors and other
interested parties under such arrangements from taking remedial action in
response to any such default without prior Bankruptcy Court approval. The
Debtors' need to seek the relief afforded by the Bankruptcy Code was due, in
part, to its need to remain in compliance with Stark II after December 31, 2000
and the pending maturity of the Series A Notes that was scheduled for May 27,
2001. See Notes 5 and 6.

On August 9, 2000, the Bankruptcy Court approved the Debtors' motions for
(i) payment of employee wages and salaries and certain other employee benefits
and obligations; (ii) payment of critical trade vendors, utilities and insurance
in the ordinary course of business for both pre and post-petition expenses;
(iii) access to a debtor-in-possession ("DIP") Financing arrangement, subject to
confirmation of the arrangement at a final hearing scheduled to be held on
August 31, 2000; and (iv) use of all company bank accounts for normal business
operations. Certain other motions filed by the Debtors are presently pending.
The Debtors are currently paying the post-petition

13
<PAGE> 14

claims of their vendors in the ordinary course of business and are, pursuant to
an order of the Bankruptcy Court, causing their subsidiaries to pay their own
debts in the ordinary course of business.

In connection with the Chapter 11 Cases, the Debtors are negotiating the
final terms of a DIP Financing arrangement with Madeline L.L.C., an affiliate of
Cerberus Partners, L.P., pursuant to which credit of up to $40 million would be
made available to the Debtors for use in connection with the operation of their
businesses and the business of their subsidiaries. The proposed DIP Financing
arrangement is scheduled to mature on the earlier of either confirmation of a
plan of reorganization of the Debtors or August 15, 2001. The proposed DIP
Financing arrangement would provide for maximum borrowings equal to the product
of: (i) 65% of Net Eligible Receivables and (ii) 95%. Outstanding borrowings
under the DIP Financing arrangement will bear interest at a rate of prime plus
2.0%, payable in arrears on the first business day of each month. The interest
rate would have been 11.5% on July 31, 2000. The DIP Financing arrangement will
be 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 DIP Financing arrangement, among other nominal fees, the
company will be required to pay an upfront fee of 1% or $0.4 million and will be
liable for commitment fees on the unused facility of 0.5% per annum, due monthly
in arrears. The terms of the DIP Financing arrangement contain certain customary
representations, warranties and covenants of the company, including certain
financial covenants relating to EBITDA and capital expenditures, among others.
The breach of such representations, warranties and covenants of the Debtors
could result in the Debtors being unable to obtain further advances under the
DIP Financing arrangement and possibly the exercise of certain remedies by the
lender.

As of the filing date of this Report, the DIP Financing arrangement had not
been executed, even though the parties have agreed to the principal terms of the
arrangement. The Debtors anticipate that the DIP Financing arrangement will be
finalized prior to the final Bankruptcy Court hearing on the DIP Financing that
is scheduled for August 31, 2000. Pursuant to the order of the Bankruptcy Court
issued on August 9, 2000 regarding the DIP Financing, the Debtors have interim
authority to borrow up to $10 million under the DIP Financing arrangement once
it is finalized and all conditions precedent to borrowings set forth in such
agreement are satisfied. The remaining amount available under the DIP Financing
arrangement would be available following receipt of Bankruptcy Court approval.
No assurance can be given that the DIP Financing arrangement will be finalized
or that the proposed DIP Financing terms described above will be approved by the
Bankruptcy Court at the August 31, 2000 hearing.

On the same day as the Chapter 11 Cases were filed, the Debtors filed their
joint plan of reorganization (the "Joint Plan") and their joint disclosure
statement with the Bankruptcy Court. Among other things, the Joint Plan provides
for: (i) a conversion of all of the Coram, Inc. ("CI") obligations represented
by the company's Series A and Series B Notes into (a) a four-year, interest only
note in the principal amount of $180 million, that would bear interest at the
rate of 9% per annum and (b) all of the equity in the reorganized CI; (ii) the
payment in full of all secured, priority and general unsecured debts of CI;
(iii) the payment in full of all secured and priority claims against Coram
Healthcare Corporation ("CHC"); (iv) the impairment of certain general unsecured
debts of CHC, including, among others, CHC's obligations under the Series A and
Series B Notes; and (v) the complete elimination of the equity interests of CHC.
Furthermore, pursuant to the Joint Plan, CHC would be dissolved as soon as
practicable after the effective date of the Joint Plan, and the stock of CHC
would no longer be publicly traded. Therefore, if the Debtors' Joint Plan were
approved as filed, the existing stockholders of CHC would receive no value for
their shares, all of the outstanding equity of CI as the surviving entity would
be owned by the holders of the company's Series A and Series B Notes.

Representatives of the company had negotiated the principal aspects of the
plan with representatives of the holders of the company's Series A and Series B
Notes and Senior Credit Facility prior to the filing of such plan. The plan of
reorganization must be voted upon by the impaired creditors of the Debtors and
approved by the Bankruptcy Court after certain findings required by the
Bankruptcy Code are made. The Bankruptcy Court may confirm a plan of
reorganization notwithstanding the non-acceptance of the plan by an impaired
class of creditors or equity holders if certain conditions of the Bankruptcy
Code are satisfied. There can be no assurance that the plan of reorganization
will be approved by the requisite holders of claims, confirmed by the Bankruptcy
Court or that it will be consummated.

Under the Bankruptcy Code, actions to collect pre-petition indebtedness are
stayed and other contractual obligations may not be enforced against the
Debtors. In addition, the Debtors may reject executory contracts and unexpired
leases. Parties affected by the rejections may file claims with the Bankruptcy
Court in accordance with the provisions of the Bankruptcy Code and applicable
rules. The Debtors filed a joint plan of reorganization with the Bankruptcy
Court on August 8, 2000. The plan submitted by the Debtors addresses the amounts
that would be paid to various classes of creditors, as described above.

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 is 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: the outcome of bankruptcy

14
<PAGE> 15
proceedings of the Debtors and certain other factors, all of which are described
in greater detail later in this Item 2 under the caption "Risk Factors." 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. For a
discussion of such risks, see "Risk Factors." 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

Business Strategy. Prior to January 1, 2000, Coram and its subsidiaries had
been 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.

In December 1999, Coram announced that it was repositioning its business to
focus on its core alternate site infusion therapy business and the clinical
research and medical informatics business operated by its subsidiary, CTI.
Accordingly, Coram's primary business strategy is to focus its efforts on the
delivery of its core infusion therapies, such as nutrition, anti-infective
therapies, IVIG and coagulant and blood clotting therapies for persons with
hemophilia. To that end, Coram has established product managers with dedicated
sales, marketing and clinical resources aimed at expanding Coram's growth in
these areas. Coram has also implemented programs focused on the reduction and
control of cost of services and operating expenses, assessment of poorly
performing branches and review of branch efficiencies. Coram management is also
reviewing the way the company provides nursing care and is implementing changes
to its practices to maintain Coram's high level of patient satisfaction and
effective clinical results while reducing the actual number of nursing visits.
Furthermore, management throughout the company is continuing to concentrate on
reimbursement by emphasizing improved billing and cash collection methods,
continued assessment of systems support for reimbursement and concentration of
the company's expertise and managerial resources into certain reimbursement
locations.

Meanwhile, Coram's R-Net subsidiaries are being liquidated and its CPS
business has been sold. The liquidation of R-Net is taking place in the
proceedings that are currently pending in the United States Bankruptcy Court for
the District of Delaware. These proceedings originated in August 1999 following
the filing of an involuntary bankruptcy petition against Coram Resource Network,
Inc. in such court. In August 1999, Coram announced that it had hired an
investment advisor to assist it in pursuing strategic alternatives for CPS. On
July 31, 2000, the company sold its CPS business to CuraScript Pharmacy, Inc.
and CuraScript PBM Services, Inc. for a one-time cash payment of approximately
$41.3 million. See Note 2 to the company's Condensed Consolidated Financial
Statements.

Reorganization. On August 8, 2000, CHC and its first tier wholly owned
subsidiary, Coram, Inc. (collectively, the "Debtors"), filed voluntary petitions
under Chapter 11 (the "Chapter 11 Cases") of the United States Bankruptcy Code.
Accordingly, as of such date the Debtors are operating as debtors-in-possession
subject to the jurisdiction of the United States Bankruptcy Court in Delaware
(the "Bankruptcy Court"). On August 9, 2000, the Bankruptcy Court approved the
Debtors' motions for: (i) payment of all employee wages and salaries and certain
benefits and other employee obligations; (ii) payment of critical trade vendors,
utilities and insurance in the ordinary course of business for both pre and
post-petition expenses; (iii) access to a debtor-in-possession ("DIP") Financing
arrangement; and (iv) use of all company bank accounts for normal business
operations. Certain other motions filed by the Debtors are presently pending.
The Debtors are currently paying the post-petition claims of their vendors in
the ordinary course of business and are, pursuant to an order of the Bankruptcy
Court causing its subsidiaries to pay their own debt in the ordinary course of
business. None of the company's other subsidiaries is a debtor in the
proceeding. Even though the filing of the Chapter 11 Cases constituted defaults
under the company's principal debt instruments, the Bankruptcy Code imposes an
automatic stay that will generally preclude the creditors and other interested
parties under such arrangements from taking remedial action in response to any
such resulting default without prior Bankruptcy Court approval. The Debtors have
sought advice and counsel from a variety of sources and concluded that the
bankruptcy and restructuring is the only viable alternative. The Debtors' need
to seek the relief afforded by the Bankruptcy Code was due, in part, to its need
to remain in compliance with the physician ownership and referral provisions of
the Omnibus Budget Reconciliation Act of 1993, commonly known as Stark II, after
December 31, 2000 and the pending maturity of the Series A Notes that was
scheduled for May 27, 2001. See Notes 5, 6 and 9 to the company's Condensed
Consolidated Financial Statements.

15
<PAGE> 16

On the same day as the Chapter 11 Cases were filed, the Debtors filed their
Joint Plan and their joint disclosure statement with the Bankruptcy Court. Among
other things, the Joint Plan provides for: (i) a conversion of all of the
obligations of CI represented by the company's Series A and Series B Notes into
(a) a four-year, interest only note in the principal amount of $180 million,
that would bear interest at the rate of 9% per annum and (b) all of the equity
in the reorganized CI; (ii) the payment in full of all secured, priority and
general unsecured debts of CI; (iii) the payment in full of all secured and
priority claims against CHC; (iv) the impairment of certain general unsecured
debts of CHC, including, among others, CHC's obligations under the Series A and
Series B Notes; and (v) the complete elimination of the equity interests of CHC.
Furthermore, pursuant to the Joint Plan, CHC would be dissolved as soon as
practicable after the effective date of the Joint Plan, and the stock of CHC
would no longer be publicly traded. Therefore, if the Debtors' Joint Plan were
approved as filed, the existing stockholders of CHC would receive no value for
their shares, and all of the outstanding equity of CI as the surviving entity
would be owned by the holders of the company's Series A and Series B Notes.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE DATA):

Discontinued Operations. As discussed in Note 3 to the company's Condensed
Consolidated Financial Statements, the company restated prior year results for
the discontinuance of R-Net operations in 1999. Had R-Net's operations been
included in the continuing operations, the following would have been contributed
to Coram's operations (in millions):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
2000 1999
------ -------
<S> <C> <C>
Net revenue.......... $ -- $ 23.2
Gross profit......... $ -- $(22.5)
Operating loss....... $ -- $(27.8)
</TABLE>

The following discussion of Coram's financial condition and results of
operations during 2000 and 1999 excludes the discontinued operations for R-Net.

Net Revenue. Net revenue increased $0.6 million or 0.5%, to $130.2 million
in the three months ended June 30, 2000 from $129.6 million in the three months
ended June 30, 1999. The net increase is primarily due to (i) a $5.8 million
increase in net revenue from the CPS business that was sold on July 31, 2000,
resulting from expansion of services and improved sales efforts, net of revenue
losses from the termination of its National Ancillary Services Agreement with
Aetna; and (ii) a $1.0 million increase in net revenue from the CTI business
resulting from the expansion of services during the first year of operations.
Such increases were partially offset by a net revenue decrease of approximately
$6.1 million from the infusion operations, primarily due to the loss of Aetna
infusion business.

Gross Profit. Gross profit increased $5.8 million to $34.2 million or a
gross margin of 26.3% in the three months ended June 30, 2000 from $28.4 million
or a gross margin of 22.0% in the three months ended June 30, 1999. The gross
margin percentage increase resulted primarily from increases in CPS and CTI
net revenue, favorable product/therapy mix and implementation of certain cost
reduction programs implemented in December 1999. The components of gross profit
for the three months ended June 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Infusion............. $ 30,017 $ 25,028
CPS.................. 3,612 3,298
CTI.................. 526 95
-------- --------
Total gross profit... $ 34,155 $ 28,421
======== ========
</TABLE>

Selling, General and Administrative ("SG&A") Expenses. SG&A increased $1.5
million or 6.4% to $25.1 million in the three months ended June 30, 2000 from
$23.6 million in the three months ended June 30, 1999. Expenses increased
primarily due an

16
<PAGE> 17

increase in the incentive compensation plan in the three months ended June 30,
2000 compared to the three months ended June 30, 1999. This increase was offset
in part by certain cost reduction programs implemented in December 1999.

Provision for Estimated Uncollectible Accounts. The provision for estimated
uncollectible accounts was $4.1 million or 3.2% of net revenue for the three
months ended June 30, 1999 compared to $3.5 million or 2.7% of net revenue for
the three months ended June 30, 2000. The decrease is due primarily to the
company's increased collection efforts and a recovery of $0.3 million.

Operating Income. The company had operating income of $3.0 million during
the three months ended June 30, 2000 compared an operating loss of $2.0 million
during the three months ended June 30, 1999. The increase in operating income is
due primarily to the increase in gross profit, offset in part by the net
increase in SG&A expenses for the three months ended June 30, 2000.

Interest Expense. Interest expense decreased $0.7 million to $6.8 million
in the three months ended June 30, 2000 from $7.5 million in the three months
ended June 30, 1999. The decrease is primarily due to the forbearance of
interest on the Series A and Series B Notes and lower average outstanding
borrowings under the company's Senior Credit Facility. See Note 5 to the
company's Condensed Consolidated Financial Statements for further details.

Income Tax Expense. See Note 7 to the company's Condensed Consolidated
Financial Statements for discussion of the variance between the statutory income
tax rate and the company's effective income tax rate.

Loss from Discontinued Operations. During December 1999, as a result of the
bankruptcy proceeding pending against the Resource Network Subsidiaries, Coram
classified the operating losses of this business for all periods presented to
discontinued operations. The loss for the three months ended June 30, 1999 for
the R-Net business was primarily related to the Aetna Master Agreement that was
terminated in 1999. The $0.1 million Loss from Disposal of Discontinued
Operations of the segment for the three months ended June 30, 2000 includes
miscellaneous wind-down costs. See Note 3 to the company's Condensed
Consolidated Financial Statements for further details.

SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999 (IN
MILLIONS, EXCEPT PER SHARE DATA):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
2000 1999
---- -------
<S> <C> <C>
Net revenue.......... $ -- $ 59.8
Gross profit......... $ -- $(12.0)
Operating Loss....... $ -- $(22.3)
</TABLE>

The following discussion of Coram's financial condition and results of
operations during 2000 and 1999 excludes the discontinued operations for R-Net.

Net Revenue. Net revenue increased $11.1 million or 4.4%, to $265.0 million
in the six months ended June 30, 2000 from $253.9 million in the six months
ended June 30, 1999. The increase is primarily due to (i) a $13.3 million
increase in net revenue from the CPS business that was sold on July 31, 2000,
resulting from expansion of services and improved sales efforts, net of revenue
losses from the termination of its National Ancillary Services Agreement with
Aetna; and (ii) a $1.8 million increase in net revenue from the CTI business
resulting from expansion of services during the first full year of operations.
Such increases were partially offset by a net revenue decrease of approximately
$4.0 million from the infusion operations, primarily due to a loss of Aetna
infusion business.

Gross Profit. Gross profit increased $12.3 million to $68.3 million or a
gross margin of 25.8% in the six months ended June 30, 2000 from $56.0 million
or a gross margin of 22.1% in the six months ended June 30, 1999. The gross
margin percentage increase resulted primarily from increases in CPS and CTI net
revenue, favorable product/therapy mix and implementation of certain cost
reduction programs implemented in December 1999. The components of gross profit
for the six months ended June 30, 2000 and 1999 are as follows:

17
<PAGE> 18

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Infusion............. $ 60,146 $ 50,431
CPS.................. 7,125 5,449
CTI.................. 1,025 169
-------- --------
Total gross profit... $ 68,296 $ 56,049
======== ========
</TABLE>

Selling, General and Administrative ("SG&A") Expenses. SG&A increased $5.9
million or 13.9% to $48.5 million in the six months ended June 30, 2000 from
$42.6 million in the six months ended June 30, 1999. Expenses increased
primarily due to an increase in the incentive compensation plan for 2000,
offset, in part, by certain cost reduction programs implemented in December
1999. Additionally, 1999 was favorably impacted by a recovery of a note
receivable of approximately $1.8 million and other legal recoveries.

Provision for Estimated Uncollectible Accounts. The provision for estimated
uncollectible accounts was $8.2 million or 3.3% of net revenue in the six months
ended June 30, 1999 compared to $6.8 million or 2.6% of net revenue in the six
months ended June 30, 2000. The decrease is due primarily to the company's
increased collection efforts.

Restructuring Costs, Net. During the first quarter of 1999, the company
recorded approximately $1.0 million of charges relating to reorganization of the
company's management structure. See Note 4 to the company's Condensed
Consolidated Financial Statements for further details.

Operating Income. The company had operating income of $7.9 million during
the six months ended June 30, 2000 compared to a loss of $1.1 million during the
six months ended June 30, 1999. The increase in operating income is due
primarily to the increase in gross profit, offset in part by the net increase in
SG&A expenses for the six months ended June 30, 2000.

Interest Expense. Interest expense decreased $0.6 million to $13.5 million
in the six months ended June 30, 2000 from $14.1 million in the six months ended
June 30, 1999. The decrease is primarily due to the forbearance of interest on
the Series A and Series B Notes and lower average outstanding borrowings under
the company's Senior Credit Facility. See Note 5 to the company's Condensed
Consolidated Financial Statements for further details.

Minority Interests in Net Income of Consolidated Joint Ventures. Minority
interests in net income of consolidated joint ventures decreased $0.7 million to
$0.3 million in the six months ended June 30, 2000 from $1.0 million in the six
months ended June 30, 1999. The reduction was primarily due to reduced
profitability of joint venture entities and the closure of certain joint
ventures.

Loss from Discontinued Operations. During December 1999, as a result of the
bankruptcy proceeding pending against the Resource Network Subsidiaries, Coram
classified the operating losses of this business for all periods presented to
discontinued operations. The loss for the six months ended June 30, 1999 for the
R-Net business was primarily related to the Aetna Master Agreement that was
terminated in 1999. The $3.5 million Loss from Disposal of Discontinued
Operations of the segment for the six months ended June 30, 2000 includes
additional reserves for litigation and miscellaneous wind-down costs. See Note 3
to the company's Condensed Consolidated Financial Statements for further
details.

LIQUIDITY AND CAPITAL RESOURCES

The Debtors filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code on August 8, 2000. As of such date the Debtors are
operating as debtors-in-possession subject to the jurisdiction of the Bankruptcy
Court. None of the company's other subsidiaries is a debtor in the proceeding.
Pursuant to the terms of the Senior Credit Facility, the filings have caused
events of default to occur under the Senior Credit Facility and, no amounts are
presently available thereunder. Although the filing of the Chapter 11 Cases
constituted defaults under the company's principal debt instruments, namely, the
Series A and Series B Notes and the Senior Credit Facility, Section 362 of the
Bankruptcy Code imposes an automatic stay that will generally preclude the
creditors and other interested parties under such arrangements from taking
remedial action in response to any such default without prior Bankruptcy Court
approval. The Debtors are negotiating the final terms of a DIP Financing
arrangement with Madeline L.L.C., an affiliate of Cerberus Partners, L.P.,
pursuant to which credit of up to $40 million would be made available to the
Debtors for use in connection with the operation of their

18
<PAGE> 19

businesses and the business of their subsidiaries. As of the filing date of this
Report, the DIP Financing arrangement had not been executed, but the parties
have agreed to the principal terms of the arrangement. The Debtors anticipate
that the DIP Financing arrangement will be finalized prior to the final
Bankruptcy Court hearing on the DIP Financing that is scheduled for August 31,
2000. Pursuant to the order of the Bankruptcy Court issued on August 9, 2000
regarding the DIP Financing, the Debtors have interim authority to borrow up to
$10 million under the DIP Financing arrangement once it is finalized and all
conditions precedent to borrowings set forth in such agreement are satisfied.
The remaining amount available under the DIP Financing arrangement would be
available following receipt of Bankruptcy Court approval. No assurance can be
given that the DIP Financing arrangement will be finalized or that the proposed
DIP Financing terms described above will be approved by the Bankruptcy Court at
the August 31, 2000 hearing. See Notes 5 and 9 to the company's Condensed
Consolidated Financial Statements.

Coram uses cash generated from operations and, until August 8, 2000, cash
available under its senior credit facility to fund its working capital
requirements and operations. Coram's working capital deficit as of June 30, 2000
was $265.1 million compared to working capital of $34.7 million at March 31,
2000, a change of $299.8 million. During the three months ended June 30, 2000,
the primary changes in current assets related to (i) a decrease in cash and cash
equivalents of $1.8 million, (ii) a decrease in inventories of $3.9 million and
(iii) a decrease in accounts receivable of $25.8 million. In the three months
ended June 30, 2000, total current liabilities increased primarily due to (i)
the reclassification of Series A and Series B Senior Subordinated Notes of
$168.4 million and $92.1 million, respectively, and the Senior Credit Facility
of $28.5 million to current maturities of long-term debt and (ii) an increase in
interest payable of $7.3 million. Such current liability increases were
partially offset by a decrease in accounts payable of $5.3 million resulting
from accelerated payments by the company.

As of June 30, 2000, the company did not have any material commitments for
capital expenditures.

Coram and its subsidiary, T2 Medical, Inc. are in a dispute with the
Internal Revenue Service ("IRS") regarding certain tax refunds previously
received. Should it not prevail in the majority of the issues in dispute, Coram
would need to access funds that could be in excess of $12.7 million (i.e., tax
deficiency plus interest and penalties, as determined). Furthermore, Coram
cannot predict the outcome of the R-Net bankruptcy proceedings. An outcome
unfavorable to the company or unknown additional actions against Coram could
require Coram to need access to significant additional funds. See Notes 6 and 7
to the company's Condensed Consolidated Financial Statements.

RISK FACTORS

Confirmation and Consummation of the Debtors' Joint Plan of Reorganization
would result in complete elimination of equity interests.

On the same day as the Chapter 11 Cases were filed, the Debtors filed their
Joint Plan and their joint disclosure statement with the Bankruptcy Court. Among
other things, the Joint Plan provides for: (i) a conversion of all outstanding
obligations of CI represented by the company's Series A and Series B Notes into
(a) a four-year, interest only note in the principal amount of $180 million,
that would bear interest at the rate of 9% per annum and (b) all of the equity
in the reorganized CI; (ii) the payment in full of all secured, priority and
general unsecured debts of CI; (iii) the payment in full of all secured and
priority claims against CHC; (iv) the impairment of certain general unsecured
debts of CHC, including, among others, CHC's obligations under the Series A and
Series B Notes; and (v) the complete elimination of the equity interests of CHC.
Furthermore, pursuant to the Joint Plan, CHC would be dissolved as soon as
practicable after the effective date of the Joint Plan, and the stock of CHC
would not longer be publicly traded. Therefore, if the Debtors' Joint Plan were
approved as filed, the existing stockholders of CHC would receive no value for
their shares, and all of the outstanding equity of CI as the surviving entity
would be owned by the holders of the company's Series A and Series B Notes.

19
<PAGE> 20

Coram's reimbursement rates may be adversely impacted by recent regulatory
action.

Thirty state Medicaid programs have adopted regulations or other policies
whereby they will begin applying a new average wholesale price list to certain
drugs furnished to Medicaid beneficiaries for services rendered on or after May
1, 2000. Other states are expected to adopt similar regulations or policies. The
new average wholesale price lists would drastically reduce the amounts that the
Medicaid programs would reimburse pharmacy providers such as the company for
their services. The drugs and services scheduled for the rate reduction include
many drug therapies commonly received by patients of Coram. During the six
months ended June 30, 2000, the amount of revenue the company derived from
services rendered to Medicaid beneficiaries was approximately $18.6 million or
7% of the company's overall net revenue. The company cannot predict what impact
such rate reductions will have on the company's results of operations or
financial condition.

The Medicare program and most private payer organizations with which the
company does business also reimburse the company for its services using a
formula that incorporates the average wholesale price of the drug delivered. If
the Medicare program and/or private payer organizations adopt the Medicaid
average wholesale price list, the company cannot provide any assurance that its
results of operations and financial condition will not be materially adversely
impacted.

For a discussion of other risks that have or may impact the company,
readers are instructed to review the discussion under the heading "Risk Factors"
which appears in Item 2 of the company's Quarterly Report on Securities and
Exchange Commission ("Commission") Form 10-Q for the quarter ended March 31,
2000 and Item 7 of the company's Annual Report on Commission Form 10-K for the
year ended December 31, 1999.

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.

As of June 30, 2000, the company had outstanding long-term debt of $289.5
million of which $168.4 of this outstanding debt matures in May 2001 and bears
interest at 11.5% per annum and $92.1 of the outstanding debt matures in April
2008 and bears interest at the rate of 8% per annum. However, both of the
aforementioned debt obligations are in default due to the Debtors' bankruptcy
proceedings and, in connection therewith, the balances thereunder are deemed to
be current in the June 30, 2000 consolidated balance sheet. In connection with
the CPS divestiture, $9.5 million of the indebtedness due in May 2001 was repaid
in August 2000. The company also has a Senior Credit Facility which provided for
the availability of up to $60.0 million for acquisitions, working capital,
letters of credit and other corporate purposes; however, the facility cannot be
drawn upon due to the covenant violation associated with the Debtors' bankruptcy
proceedings. The facility is scheduled to mature in February 2001 and bears an
interest rate of prime plus 1.5%, which was 11.0% as of June 30, 2000. As of
such date, the company had $28.5 million outstanding under the facility;
however, such indebtedness was repaid with the proceeds from the CPS
divestiture. 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 expense associated with any future borrowings by the company. The
company does not hedge against interest rate changes.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Descriptions of the material legal proceedings to which the company is a
party are set forth in Note 6 to the company's Condensed Consolidated Financial
Statements.

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
financial position, results of operations or liquidity of the company.
Nevertheless, due to the uncertainties inherent in litigation, the ultimate
disposition of these actions cannot presently be determined.

20
<PAGE> 21

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

A discussion of defaults and certain matters of non-compliance with certain
covenants contained in the company's principal debt agreements are set forth in
Note 5 to the company's Condensed Consolidated Financial Statements.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

On July 24, 2000, Stephen A. Feinberg resigned from the Board of Directors
of Coram Healthcare Corporation ("CHC"). Mr. Feinberg resigned voluntarily
without any disagreements with CHC. Mr. Feinberg is the managing member of
Cerberus Associates L.L.C., which is the general partner of Cerberus Partners,
L.P., one of the holders of the company's principal debt instruments.

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 August 11, 2000, the company filed a report on Form 8-K relating to the
filing by the company and its wholly owned subsidiary, Coram, Inc., of voluntary
bankruptcy petitions under Chapter 11 of the United States Bankruptcy Code.

On August 15, 2000, the company filed a report on Form 8-K announcing the
sale of the CPS business to Curascript Pharmacy Services, Inc. and Curascript
PBM Services, Inc.

21
<PAGE> 22

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/ SCOTT R. DANITZ
----------------------------------
Scott R. Danitz
Senior Vice President, Finance and
Chief Accounting Officer

August 21, 2000

22
<PAGE> 23

EXHIBIT INDEX

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